United States: Second Circuit Resurrects LIBOR Antitrust Case Against Bank Defendants, But Reprieve May Be Short-Lived

On May 23, 2016, the Second Circuit breathed new life into the class action case against 16 banks belonging to the British Bankers' Association (the Banks), vacating the Southern District of New York's dismissal of the case for lack of antitrust injury and remanding the case on the portion of antitrust standing that requires the plaintiffs to be "efficient enforcers of the antitrust laws." In re: LIBOR-Based Financial Instruments Antitrust Litigation (No. 13-3565). The plaintiffs' revived opportunity to pursue their case, however, may last only as long as it takes the district court to consider the factors laid out by the Second Circuit, because it identified several troubling issues raised by the peculiar nature of the case.

The Claims

The plaintiffs, purchasers of financial instruments that carried a rate of return indexed to the London Interbank Offered Rate ("LIBOR"), alleged that the Banks colluded to depress LIBOR by violating rate-setting rules. As a result, the payout for the instruments was lower than it would have been without the collusion.

The District Court Opinion

The Southern District determined that there could not have been anticompetitive harm, because the LIBOR-setting process was collaborative rather than competitive. At most, the lower court concluded, the plaintiffs might have a fraud claim based on misrepresentation, but they had no antitrust claim.

The Second Circuit Opinion: Antitrust Violation v. Antitrust Injury

In vacating the lower court decision, the Second Circuit observed that the district court improperly blurred the distinction between an antitrust violation and an antitrust injury: "The district court proceeded directly to the question of antitrust injury – omitting any mention of antitrust violation – but then elided the distinction between antitrust violation and antitrust injury by placing considerable weight on appellants' failure to show 'harm to competition.'" Thus, the Second Circuit first addressed the allegations with regard to antitrust violation, and readily concluded they were sufficient.

The court found that the plaintiffs alleged a straightforward horizontal price-fixing conspiracy: "They allege that the Banks, as sellers, colluded to depress LIBOR, and thereby increased the cost to appellants, as buyers of various LIBOR-based financial instruments, a cost increase reflected in the reduced rates of return." At this stage, the court found, the plaintiffs' allegation that LIBOR was part of the price must be accepted as true, and, as a result, the plaintiffs had alleged a per se unlawful horizontal price-fixing conspiracy among competitors.

The Second Circuit Opinion: Antitrust Standing

Next, the Second Circuit turned to the issue of antitrust standing, which it examined in two parts: (1) whether the plaintiffs suffered antitrust injury, and (2) whether the plaintiffs are "efficient enforcers of the antitrust laws." The court concluded the district court erred in finding that the plaintiffs suffered no antitrust injury, but it remanded on the second question.

Plaintiffs Alleged Antitrust Injury

With regard to antitrust injury, the Second Circuit outlined the progressive line of United States Supreme Court cases holding that horizontal price-fixing agreements are per se unlawful because they are "anathema to an economy predicated on the undisturbed interaction between supply and demand." Under these cases, it is immaterial that plaintiffs could negotiate the interest rates for each instrument because the market was still disrupted, if not controlled, by the Banks' collusion. "[T]he anticompetitive effect of the Banks' alleged conspiracy would be that consumers get less for their money. The Supreme Court has warned of the antitrust dangers lurking in the activities of private standard-setting associations."

The Second Circuit deemed irrelevant the district court's conclusion that the LIBOR-setting process was a "cooperative endeavor" because the alleged conspiracy "circumvented the LIBOR-setting rules," thus turning the joint process into collusion.

The court also rejected the district court's finding that the plaintiffs failed to plead harm to competition: "If no proof of harm to competition is not a prerequisite for recovery, it follows that allegations pleading harm to competition are not required to withstand a motion to dismiss when the conduct challenged is a per se violation." (Emphasis in original.) The plaintiffs did not need to show actual adverse effect in the marketplace because they alleged an anticompetitive tendency – "the warping of market factors affecting the prices for LIBOR-based financial instruments."

Whether, in fact, LIBOR corresponded to the actual interest rates charged for actual interbank loans was a disputed fact issue to be addressed at a later stage, and not a proper basis for the lower court's dismissal. The Second Circuit noted, under Sonony-Vacuum, it may be sufficient that the alleged conspiracy exerted influence on the starting point for prices.

Finally, the Second Circuit criticized the lower court for "over-reading" the Supreme Court's opinions in Atlantic Richfield and Brunswick when it deemed it significant that the plaintiffs could have suffered the same harm under normal circumstances of free competition. "Neither ARCO nor Brunswick treated antitrust injury as one that could not have been suffered under normal competitive conditions." (Emphasis in original.) The Second Circuit noted that "antitrust law relies on the probability of harm when evaluating per se violations," and that plaintiffs sustained their burden of showing injury by alleging they paid artificially fixed higher prices. The Second Circuit concluded that "whether the Banks' competitors were also injured is not decisive, and possibly not germane." (Emphasis in original.) In doing so, the court expressly rejected dicta in its 2006 Paycom Billing Services opinion – to the effect that harm to competition is necessary to show antitrust injury – as inconsistent with Supreme Court precedent.

On Remand, the District Court Must Determine Whether Plaintiffs Are "Efficient Enforcers"

To be decided on remand is whether the plaintiffs "satisfy the efficient enforcer factors," a question not reached by the district court. Relying on the Supreme Court's Associated Gen. Contractors decision, the Second Circuit laid out the four factors as:

"(1) the 'directness or indirectness of the asserted injury,' which requires evaluation of the 'chain of causation' linking appellants' asserted injury and the Bank' alleged price-fixing; (2) the 'existence of more direct victims of the alleged conspiracy'; (3) the extent to which appellants' damages claim is 'highly speculative'; and (4) the importance of avoiding 'either the risk of duplicate recoveries on the one hand, or the danger of complex apportionment of damages on the other.'"

Factor (1): Causation

On the first factor, causation, the Second Circuit laid out several questions for the district court's consideration, noting that each was uniquely complex in this case:

a) defining the relevant market;
b) antitrust standing for plaintiffs who did not deal directly with the Banks; i.e., umbrella purchasers;
c) damages disproportionate to wrongdoing.

Factor (2): Existence of More Direct Victims

The Second Circuit described the second factor as bearing "chiefly on whether the plaintiff is a consumer or a competitor." In this litigation, the plaintiffs are alleged consumers. However, the court noted that "not every victim of an antitrust violation needs to be compensated" to efficiently enforce the antitrust laws. The court also pointed out that a peculiar aspect of the litigation "is that remote victims ... would be injured to the same extent and in the same way as direct customers of the Banks."

Factor (3): Speculative Damages

With respect to the third factor, the Second Circuit first noted that highly speculative damages are a sign that a plaintiff is an inefficient enforcer. Here, the court said it was "difficult to see" how the plaintiffs could provide evidence to support a just and reasonable damages estimate, "even with the aid of expert testimony." Finally, the court pointed to the impact on damages of the unusual nature of the case, including the frequent individual negotiation of rates in the disputed transactions, as well as the existence of a worldwide money market with various competitive rates, some not pegged to LIBOR.

Factor (4): Duplicative Recovery and Complex Damage Apportionment

With respect to the fourth factor, the Second Circuit described the numerous enforcement actions by government and regulatory bodies in several countries. The government actions might seek damages for victims, fines, injunctions, disgorgement and other remedies. The court concluded by stating that "[i]t is wholly unclear on this record how issues of duplicate recovery and damage apportionment can be assessed."

Conclusion

After rejecting the Banks' argument that the plaintiffs had not sufficiently pled a conspiracy, the Second Circuit summarized its opinion, in part, as follows:

This decision is of narrow scope. It may be that the influence of the corrupted LIBOR figure on competition was weak and potentially insignificant, given that the financial transactions at issue are complex, LIBOR was not binding, and the worldwide market for financial instruments – nothing less than the market for money – is vast, and influenced by multiple benchmarks. The net impact of a tainted LIBOR in the credit market is an issue of causation reserved for the proof stage; at this stage, it is plausibly alleged on the face of the complaints that a manipulation of LIBOR exerted some influence on price. The extent of that influence and the identity of persons who can sue, among other things, are matters reserved for later.

Moreover, common sense dictates that the Banks operated not just as borrowers but also as lenders in transactions that referenced LIBOR. Banks do not stockpile money, any more than bakers stockpile yeast. It seems strange that this or that bank (or any bank) would conspire to gain, as a borrower, profits that would be offset by a parity of losses it would suffer as a lender. On the other hand, the record is undeveloped and it is not even established that the Banks used LIBOR in setting rates for lending transactions. Nevertheless, the potential of a wash requires further development and can only be properly analyzed at later stages of the litigation.

In other words, after celebrating the fact that they live to fight another day, the plaintiffs have a lot of work to do.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions