Judge in forex MDL supplies roadmap for Libor appeal at 2nd Circuit

January 29, 2015

The 2nd U.S. Circuit Court of Appeals has set a briefing schedule for its consideration of the dismissal of antitrust claims against more than a dozen global banks that allegedly conspired to fix the benchmark London Interbank Offered Rate. The opening brief from a class of bond purchasers whose appeal was reinstated last week by the U.S. Supreme Court is due on March 9. The banks’ response is supposed to be filed a month later.

The Supreme Court ordered the 2nd Circuit to hear only the bondholder class appeal, but several other groups of plaintiffs in the multidistrict litigation over Libor manipulation have asked the trial judge overseeing the case, U.S. District Judge Naomi Reice Buchwald of Manhattan, to permit them also to appeal her controversial 2013 ruling that the alleged Libor rate-rigging wasn’t anticompetitive. Unlike the bond purchasers, whose case was completely erased as a result of Buchwald’s rejection of antitrust claims, other plaintiffs’ classes still have live claims in the MDL, albeit none that would entitle them to the treble damages of antitrust violations. They argue that for the sake of fairness and judicial efficiency, they should be part of the 2nd Circuit’s consideration. They’ve asked Judge Buchwald to rule by Feb. 5 on their request.

In the meantime, Buchwald’s Manhattan federal court colleague Lorna Schofield has provided the Libor plaintiffs with invaluable guidance for their arguments before the 2nd Circuit – in the form of a decision Wednesday in which Judge Schofield refused to dismiss antitrust claims against banks accused of conspiring to manipulate a different benchmark, the daily price average for trades in the foreign exchange market. As she had signaled she would in a hearing last November in the forex MDL, Schofield took issue with Buchwald’s analysis of Supreme Court precedent on rate rigging and antitrust standing. According to Schofield, Buchwald’s Libor decision “blurs the line between two separate analytic categories” and is “unpersuasive” because it relies on two Supreme Court opinions that don’t apply.

The two high court cases that divided Schofield and Buchwald are Atlantic Richfield v. USA Petroleum from 1990 and Brunswick v. Pueblo Bowl-o-Matic from 1977. In Brunswick, the Supreme Court held that owners of independent bowling alleys weren’t entitled to antitrust damages just because they lost revenue when a large national chain bought up failing competitors. In the Atlantic Richfield (or ARCO) case, the justices found no antitrust injury to independent gasoline retailers despite evidence that ARCO encouraged its dealers to cut prices.

Buchwald read those cases to require plaintiffs to show in their complaint that their alleged antitrust injuries couldn’t have resulted from normal competitive conduct. The supposed price-fixing conspiracy to rig reports of the interest rates banks charged each other, she said, wasn’t anticompetitive, so the alleged harm to plaintiffs whose interest rates were pegged to Libor was not an antitrust injury. “The injury plaintiffs suffered from defendants’ alleged conspiracy to suppress Libor is the same as the injury they would have suffered had each defendant decided independently to misrepresent its borrowing costs,” she wrote. “Even if such independent misreporting would have been fraudulent, it would not have been anticompetitive.”

Schofield said in Wednesday’s forex opinion that the Libor decision’s reasoning “would doom almost every price-fixing claim at the pleading stage.” And that is not what the Supreme Court intended in ARCO and Brunswick, she said. A key point, Schofield said, is that in both the Brunswick and ARCO cases, the Supreme Court based its decision on a complete discovery record. Judge Buchwald’s Libor ruling, by contrast, was based on the defendants’ motion to dismiss, Schofield said, when the standards of analysis are different. So, according to Schofield, Buchwald relied on inapposite Supreme Court cases to conclude the Libor plaintiffs hadn’t adequately alleged an antitrust injury.

More fundamentally, though, Schofield said there’s “no support in the law” for the premise that antitrust plaintiffs must show in their pleadings that their injuries could not have been the result of a single defendant’s normal competitive conduct. That would require plaintiffs to meet a preliminary standard that hasn’t been set, according to Schofield. “While a plaintiff must present evidence to ‘rule out the possibility of independent action’ at summary judgment or trial in order to prove an illegal conspiracy, no such requirement applies at the pleading stage,” she wrote. If Buchwald’s Libor ruling suggested otherwise, she said, “this court respectfully disagrees.”

Judge Schofield highlighted other differences between the alleged conspiracies in the Libor and forex cases, including the perpetual competition for customers among traders in the foreign exchange market, even during the time periods when they were supposedly trading to rig the average daily price. Her conclusion: The plaintiffs’ description of the alleged result of the forex price-fixing conspiracy, she said, “is the quintessential antitrust injury.”

That should give the 2nd Circuit something to think about when it hears the Libor appeal.

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