Second Circuit Rejects Bid To Revive Libor Antitrust Suit By Plaintiff Whose Bonds Were Not Tied To Libor
05/07/2019On April 30, 2019, the Second Circuit Court of Appeals, in a panel consisting of Judges Rosemary S. Pooler, Denny Chin, and Eric N. Vitaliano, affirmed a decision by Judge Paul G. Gardephe of the United States District Court for the Southern District of New York denying plaintiff’s request for leave to amend its complaint alleging that various banks conspired to manipulate LIBOR. 7 West 57th Street Realty Company, LLC v. Citigroup, Inc., 18-1102-cv (2d Cir. April 30, 2019). The Court agreed with Judge Gardephe that plaintiff, the successor in interest to a real estate developer, lacked antitrust standing to bring suit because it was not an efficient enforcer and that amending the complaint would be futile. The Court also agreed that plaintiff did not allege facts sufficient to state a claim under the Racketeer Influenced and Corrupt Organizations Act (“RICO”).
The suit, brought under Section 1 of the Sherman Act and RICO, alleged that the value of plaintiff’s bonds was negatively affected by defendant’s conspiracy to manipulate LIBOR. Importantly for the Second Circuit’s decision, plaintiff’s bonds did not directly incorporate an interest rate directly tied to LIBOR.
The Court found that plaintiff was too far removed in the chain of causation to claim harm from the alleged LIBOR manipulation because plaintiff’s bonds were affected, if at all, only indirectly. The Court reasoned that permitting these claims of indirect harm would expand the scope of the antitrust laws by creating liability for even tangential effects. The Court found that such expansion was unnecessary for the antitrust laws to be efficiently enforced and would create crippling liability. In addition to lacking a direct connection to LIBOR, the Court reasoned, any diminution of the value of plaintiff’s bonds was “necessarily directly caused by the independent judgments of participants in the secondary municipal bond market.”
The Court also found that plaintiff alleged only highly speculative damages. It observed that it would be difficult to reasonably estimate how the LIBOR rate rigging had rippled through the global financial market and impacted the value of plaintiff’s bonds. Such an analysis, the Court reasoned, would require the parties, the court, and the jury to accept myriad assumptions and counterfactuals that the Court found untenable. Rounding out the Court’s antitrust standing analysis, the Court did not believe that allowing the suit would create a risk of duplicable recovery but overall saw the balance of equities as weighing against allowing the suit to proceed.
Finally, the Court rejected plaintiff’s related RICO claims on the grounds that plaintiff had not demonstrated that the banks had been the proximate—or legal—cause of its harm. The Court reasoned that plaintiff’s injury was directly caused by the buy/sell decisions made by independent market actors. The court recognized that this alternative causation was not a per se bar to finding that plaintiff’s claims were proximately caused by defendant’s alleged LIBOR rate-rigging, but it determined that the illiquidity of the market for plaintiff’s bonds would prevent the court from evaluating plaintiff’s claim using the economic tools a court would typically rely on to infer reliance and causation, such as the fraud on the market theory, event studies, or the efficient capital markets hypothesis.