Second Circuit Rejects The “Nullity Doctrine” In Benchmarking Antitrust Case
On March 17, 2021, the Second Circuit vacated a district court’s dismissal of a putative class antitrust action, holding that the pre-lawsuit dissolution of the named plaintiffs does not render the action a legal nullity and deprive the court of subject matter jurisdiction, provided the assignee of their claims had standing to prosecute the claims as the real party in interest when the suit was filed and joins or substitutes into the action within a reasonable time. Fund Liquidation Holdings LLC v. Bank of Am. Corp., 2021 WL 1010596 (2d Cir. Mar. 17, 2021).
In 2016, two Cayman Island investment funds, FrontPoint Asian Event Driven Fund L.P. (“FrontPoint”) and Sonterra Capital Master Fund, Ltd. (“Sonterra”), brought a putative class action lawsuit, alleging that, from 2007-2011, the defendant banks conspired to manipulate two benchmark rates, the Singapore Interbank Offered Rate (“SIBOR”) and the Singapore Swap Offered Rate (“SOR”), in order to reduce the amount of interest paid to holders of financial instruments based on SIBOR and SOR. After initial motion practice, however, it was revealed that FrontPoint and Sonterra had been dissolved before the action was brought and had purportedly assigned the rights to their claims to Fund Liquidation Holdings LLC (“Fund Liquidation”). In response to Defendants’ renewed motions to dismiss for lack of standing, Plaintiffs amended their complaint to name Fund Liquidation as Plaintiff and to add two additional plaintiffs, Moon Capital Partners Master Fund, Ltd. and Moon Capital Master Fund, Ltd. (the “Moon Funds”). The district court dismissed the amended complaint, finding that, under the “nullity doctrine”, the action was an incurable nullity because it was originally brought by plaintiffs who lacked capacity to sue. The district court also found that the Moon Funds were not entitled to equitable tolling and thus dismissed them as untimely.
On appeal, the Second Circuit vacated the district court’s decision. The court agreed that FrontPoint and Sonterra lacked standing because they did not exist at the time the suit was brought. Nonetheless, the court found that Fund Liquidation had standing because, in the court’s view, it was the real party in interest—as the assignee of the rights to the dissolved funds’ claims—and was willing to join the action. The court held that Article III standing is met “so long as a party with standing to prosecute the specific claim in question exists at the time the pleading is filed” and this party ratifies, joins, or is substituted into the action “within a reasonable time.” In so holding, the Second Circuit acknowledged that this holding is a minority view and that the “far more common view” under such circumstances is to enforce the “nullity doctrine,” which holds that a case brought “in the name of a plaintiff that lacks standing is an incurable nullity.” After determining that “whether to adopt the nullity doctrine is still an open question in our Circuit,” the court reviewed its precedent relating to standing requirements under Article III and found that, where a real party in interest with standing since the case’s inception was willing to join, the initial failure to name a plaintiff with standing could be treated as a defective jurisdictional allegation that can be cured through amended pleadings, rather than defective jurisdiction itself.
The court also held that the district court incorrectly dismissed the Moon Funds’ claims. Under the American Pipe tolling doctrine, the statute of limitations is, in some circumstances, tolled during the pendency of a federal putative class action to allow unnamed class members to file individual claims if the class is not certified. The district court had interpreted the Supreme Court’s recent holding that “American Pipe does not permit the maintenance of a follow-on class action past expiration of the statute of limitations,” China Agritech, Inc. v. Resh, 138 S. Ct. 1800, 1804 (2018), to bar the Funds’ claims. The Second Circuit disagreed, however, explaining that China Agritech prevents a follow-on class action beyond the limitations period, not an amendment to the same class action to add new class representatives. The court therefore found the amendment adding the Moon Funds timely.
Importantly, the Second Circuit cautioned that its rejection of the nullity doctrine in the context of the case before it should not be allowed to “result in unchecked abusive practices by plaintiffs” because Federal Rule of Civil Procedure 17 permits courts to deny joinder of a real party in interest if the joinder motion is made in bad faith, in an effort to deceive or prejudice the defendants, or is otherwise unfair or unreasonable.