In an exhaustive 161-page ruling issued on Friday, Judge Naomi Reice Buchwald of the Southern District of New York dismissed the majority of the claims brought by plaintiffs seeking damages for losses caused by LIBOR. The categories of cases in the multi-district litigation subject to Friday’s order include: (1) the “over-the-counter” class of plaintiffs, who bought “hundreds of millions of dollars” of interest rate swaps; (2) the exchange-based class of plaintiffs, who traded exchange-based products such as Eurodollar futures; (3) the bondholder class of plaintiffs, who are holders of LIBOR-based debt securities; and (4) Charles Schwab plaintiffs, who through the Schwab Fund “acquired billions of dollars’ worth of LIBOR-based financial instruments…which paid artificially low returns” due to LIBOR suppression.
Judge Buchwald made the following rulings on the various claims asserted by these plaintiffs:
- Sherman Act and Cartwright Act Antitrust Claims: Dismissed
o Judge Buchwald concluded that the plaintiffs lack antitrust standing because the LIBOR-setting process is not in itself a competitive process, and that therefore any injury to plaintiffs “would have resulted from defendants’ misrepresentation, not from harm to competition.”
- RICO Claim: Dismissed
o Judge Buchwald concluded that the claim is barred by the PSLRA, because an allegation of securities fraud cannot be the predicate act necessary for RICO, and because the claim seeks an impermissible extraterritorial application of United States law, as the “nerve center” of the alleged RICO enterprise was the British Bankers Association in England.
- Exchange-based plaintiffs’ state law claim for “restitution/disgorgement/unjust enrichment”: Dismissed
o Because this claim is a quasi-contract claim, it requires some relationship between the plaintiff and defendant. Judge Buchwald concluded that any relationship between the plaintiffs and the bank defendants was too attenuated to support this claim.
- Remainder of state law claims: No Supplemental Jurisdiction
o Judge Buchwald declined to exercise supplemental jurisdiction over the over-the-counter plaintiffs’ claims for unjust enrichment and restitution, and other California common law claims brought by the Schwab plaintiffs. She concluded that because no federal claims remained, judicial economy weighed in favor of dismissal.
- Commodity Exchange Act Claim: Dismissed in Part
o The Judge concluded that the plaintiffs had properly pled claims of commodities manipulation under the Commodity Exchange Act, except that any claims that rely on contracts purchased from August 2007, the start of the class period, to May 29, 2008, when prominent news articles put plaintiffs on inquiry notice of these claims, were time-barred.
Judge Buchwald then went out of her way to offer insight into her thought process beyond the straightforward application of the law. She acknowledged that, in light of the admissions of wrongdoing the banks have made in their settlements with regulators, her ruling might be “unexpected.” She pointed, however, to the “broad public interests” behind the statutes at play here, which is met by the regulatory actions, and noted that private parties have a higher burden to meet than do governmental agencies under those statutes.
Though they’ve scored a major victory here, the bank defendants are not quite finished with LIBOR yet. The Judge left open the possibility of the filing an amended complaint by the plaintiffs on the Commodity Exchange Act claims based on new information gleaned from the regulatory settlements. Further, the plaintiffs will almost definitely appeal to the Second Circuit, if they do not first ask for a motion for reconsideration before Judge Buchwald herself. In addition, the regulators do not appear to be even close to completing their investigations and there may be many more high dollar regulatory settlements ahead. Lastly, many other complaints have been filed (both consolidated into the MDL and not) that are not directly affected by this ruling. While the defendants will certainly argue that Judge Buchwald’s reasoning controls, the remaining plaintiffs will undoubtedly put their best efforts into distinguishing the facts of their cases, and the applicability of the law.
A copy of the order can be found here.