Citations
- 343 F. Supp. 3d 122
Full opinion text
Lewis A. Kaplan, District Judge.
Table of Contents
Background...142
I. Derivatives and the Money Market...142
II. The BBSW Rate "Set"...143
A. Prime Bank Bills...143
B. The Rate "Set"...144
III. BBSW-Based Derivatives...145
IV. The Parties...146
A. Plaintiffs...146
B. Defendants...148
V. The Amended Complaint...148
A. Antitrust Claims...149
B. CEA Claims...151 C. RICO Act Claims...152
D. State Law Claims...152
VI. Defendants' Motions...153
Discussion...154
I. Standing...154
A. Constitutional Standing...154
B. Standing to Represent Purported Class...156
II. Pleading Standard on Rule 12(b)(6) Motion...161
III. Antitrust Claims...161
A. Antitrust Standing...162
B. Plausible Antitrust Claims...168
C. Extraterritoriality...171
IV. CEA Claims...173
A. CEA Standing...173
B. Plausible CEA Claims...175
C. Extraterritoriality...180
V. RICO Act Claims...183
A. RICO Standing...183
B. Plausible RICO Violations...184
C. RICO Conspiracy...187
D. Extraterritoriality...188
VI. Breach of Implied Covenant of Good Faith and Fair Dealing...191
VII. Unjust Enrichment...192
VIII. Fraudulent Concealment...194
A. Antitrust Claims...194
B. CEA Claims...196
C. State Law Claims...196
IX. Personal Jurisdiction...196
A. Personal Jurisdiction Arising From Defendants' Contacts...197
B. Personal Jurisdiction Arising from Defendants' Consent...208
C Pendent Jurisdiction...210
D. Jurisdictional Discovery...211
Conclusion 212
This purported class action is the latest in a growing number of lawsuits accusing financial institutions of manipulating interest rates used as benchmarks for the pricing of various financial derivatives among other purposes. In this case, defendants - a collection of entities from fifteen major banks and two major brokerage firms - are accused of conspiring to manipulate the Bank Bill Swap Reference Rate ("BBSW"), a rate set at the relevant times in Australia but allegedly used widely in the United States and elsewhere in the world. All defendants move to dismiss for lack of subject-matter jurisdiction and failure to state a claim. Certain defendants (the "Foreign Defendants") move also to dismiss as to them for lack of personal jurisdiction, and as to a subgroup of these defendants (the "Venue Defendants") with respect to certain of the claims, on the additional ground of improper venue. Defendants'
motions each are granted in part and denied in part.
Background
BBSW is a benchmark interest rate, somewhat similar in concept to the London Interbank Offered Rate ("LIBOR") in that it is used to price certain types of financial derivatives. Plaintiffs here, all of whom "engaged in U.S.-based transactions for BBSW-based derivatives" during the purported class period, bring claims under the Clayton Act, the Commodity Exchange Act ("CEA"), and the Racketeer Influenced and Corrupt Organizations Act ("RICO Act"). They sue as well on state law claims for unjust enrichment and breach of the implied covenant of good faith and fair dealing.
The following facts are alleged in the amended complaint, the truth of which the Court is bound to assume when considering a motion to dismiss the amended complaint.
I. Derivatives and the Money Market
In order to understand the claims in this case, it is helpful first to provide some background information on financial derivatives and BBSW.
A derivative is "a contract whose value is based on the performance of an underlying financial asset, index, or other investment." The contractual terms of derivatives vary widely, but they generally fall into four basic structures: forward contracts, futures contracts, options, and swaps. A forward contract is a contract for the purchase or sale of some underlying asset for an agreed-upon price at some point in the future. A futures contract is similar to a forward, except that it is traded on a regulated exchange and has standardized terms. An option is a contract that gives the holder the right (but not the obligation) to buy or sell an underlying asset at some point in the future. Finally, a swap in broad strokes is an instrument pursuant to which two counterparties agree to exchange periodic cash flows over a specific length of time.
Swaps come in various forms, one of which is an interest rate swap. An interest rate swap generally obligates each party to pay an amount equal to the amount of interest that would be payable on an agreed upon notional principal amount if that amount actually had been borrowed. In the most common type of interest rate swap, one party agrees to pay to the other an amount equal to the amount of interest on the notional principal amount if the hypothetical born of the notional principal amount bore a fixed interest rate while the other party agrees to pay an amount equal to the amount of interest if the hypothetical loan bore interest at a floating rate based on a benchmark such as LIBOR. For example:
"Counterparty A and Counterparty B enter into a five-year swap with the following terms: Counterparty A agrees to pay Counterparty B an amount equal to 6 percent per annum on a notional principal of $20 million, and Counterparty B agrees to pay Counterparty A an amount equal to one-year LIBOR plus 1 percent per annum on the same notional principal amount. For simplicity, let us assume the counterparties exchange payments annually on December 31, beginning in 2017 and concluding in 2021. At the end of 2017, Counterparty A will pay Counterparty B $1,200,000 (i.e. , $20,000,000 × 6 percent). Let us assume further that on December 31, 2016, one-year LIBOR was 5.33 percent. At the end of 2017, then, Counterparty B will pay Counterparty A $1,266,000 (i.e. , $20,000,000 × (5.33 percent + 1 percent) )."
Another type of swap is a foreign exchange ("FX") swap, in which "two counterparties agree to exchange streams of interest payments in different currencies for an agreed-upon period of time and to exchange principal amounts in different currencies at an agreed-upon exchange rate at maturity." According to the amended complaint, "[t]here are two components to a foreign exchange swap: (1) a spot transaction in which the parties buy or sell a certain amount of one currency (e.g. , Australian dollars) at the current market prices for immediate delivery (i.e. , typically within two days); and (2) a foreign exchange forward, which reverses the spot transaction by buying or selling an equivalent amount of a second currency (e.g. , U.S. dollars) on some future maturity date (e.g. , 14 days later)."
II. The BBSW Rate "Set"
A. Prime Bank Bills
Because BBSW rates are "intended to reflect the observed rate of interest paid on Prime Bank Bills actually traded in the Australian money market," it is necessary next to provide some background on Prime Bank Bills.
1. Bank Bills and Certificates of Deposit
Banks regularly borrow money on the money market by issuing "bank bills" and certificates of deposit ("CDs").
A bank bill is a bill of exchange that requires the issuing bank to pay a specified amount of money - the "face value" of the bill - on a certain maturity date. The number of days between the date on which a bank bill is issued and the date on which it matures is referred to as the "tenor" of the bank bill. Bank bills may be "accepted" or "endorsed" by any bank. When a bank accepts a bank bill, the bill becomes a bank accepted bill (a "BAB") and the accepting bank becomes obligated to pay its face value upon maturity. When a bank endorses a bank bill, it becomes obligated to pay the face value of that bill at maturity if the acceptor is unable to do so.
A CD is a document evidencing a deposit with the issuing bank for a certain amount of time. Upon maturity, the purchaser receives its deposit plus interest. CDs may be negotiable or nonnegotiable. A negotiable CD (an "NCD") can be sold by the depositor on the secondary market whereas a nonnegotiable CD generally must be held until maturity.
Issuing a bank bill or a CD is economically equivalent to borrowing money. Bank bills are sold at discounts to their face value. The issue price that the bank receives when it issues a bank bill is equivalent to the principal of the loan. Upon maturity, when the bank pays the face value to the purchaser of the bank bill, it effectively repays the loan plus interest, with the interest being equal to the difference between the face value and issue price. Similarly, a bank that issues a CD "borrows" the amount deposited and upon maturity repays the deposited amount plus interest.
2. AFMA and Prime Banks
"The Australian Financial Markets Association ('AFMA') is a trade association and the principal Australian financial markets industry group." AFMA, through a subcommittee of the larger organization, facilitates the annual election of Prime Banks. Prime Banks are "a designated subset of banks operating in Australia whose [b]ank [b]ills and NCDs are recognized as having the highest quality with regard to liquidity, credit and consistency of relative yield." "Prime Bank Bills," the financial instruments that relate to BBSW, are bank bills and NCDs issued by Prime Banks.
B. The Rate "Set"
As stated above, BBSW is "intended to reflect the observed rate of interest paid on Prime Bank Bills actually traded in the Australian money market."
Until September 27, 2013, BBSW was calculated on a daily basis using submissions from each of fourteen panel banks that, together, comprised the "BBSW Panel."
The Court understands from the amended complaint that any banks designated as Prime Banks automatically became members of the BBSW Panel and that the remaining members of the Panel were "selected periodically through a private election held at the discretion of the [then] current BBSW Panel."
Each bank on the BBSW Panel submitted to AFMA the observed "mid-rate" - that is, treating the discount on the issue price of a Prime Bank Bill as if it were an interest rate, the midpoint between the rates at which banks offered to buy and sell Prime Bank Bills - for Prime Bank Bills at each of six tenors traded between 9:55 am and 10:05 am (Sydney Time) (the "Fixing Window").
The banks derived these mid-rates with the help of trading brokers who facilitated Prime Bank Bill transactions between banks. During the relevant period, ICAP and Tullett Prebon were the only interdealer brokers operating markets for Prime Bank Bills. In order to broker trades, each operated its own electronic system for reporting the prices of Prime Bank Bills and would post bids for and offers of Prime Bank Bills on that system so that they would be visible to participating financial institutions. The BBSW Panel banks were supposed to base the "mid-rates" that they submitted to AFMA on the rates displayed on each of the brokers' electronic trading screens.
Upon receipt of the submissions from the banks on the BBSW Panel, AFMA would calculate BBSW for each tenor by ranking the submissions for Prime Bank Bills of each tenor, eliminating the highest and lowest submissions, and averaging the remaining rates. These averages - that is, the BBSW rates for each tenor - then would be published to financial data providers including Thomson Reuters and Bloomberg for global distribution.
III. BBSW-Based Derivatives
The Court turns next to a discussion of the six types of financial instruments referred to in the amended complaint that incorporate BBSW as a component of the price of the instrument ("BBSW-Based Derivatives").
• BBSW-Based Swaps : As discussed above, a swap is a derivative in which two parties exchange obligations to make a series of payments based on some underlying principal amount for some set period of time. In a BBSW-based swap, at least one of the parties' payment obligations references BBSW.
• BBSW-Based Forward Rate Agreements : A forward rate agreement ("FRA") is an interest rate forward contract, also known as a single-period swap. In an FRA, the two parties agree to exchange amounts equal to the amount of interest that would be payable on the same notional principal amount, but at different would-be interest rates, on some agreed upon date in the future. In a BBSW-based FRA, at least one party is obligated to pay an amount equal to the would-be interest payment at a floating rate that is tied to BBSW.
• Chicago Mercantile Exchange Australian Dollar Futures : A Chicago Mercantile Exchange ("CME") Australian dollar future is "an exchange-traded BBSW-based derivative that represents an agreement to buy ... or sell ... 100,000 Australian dollars in terms of U.S. dollars on some future date." "Prices of CME Australian dollar futures contracts are determined by a formula that incorporates BBSW as one of its terms" - that is, the contractual formula adjusts the price of the Australian dollars for immediate delivery "to account for ... the amount of interest earned on Australian dollar deposits over the duration of the agreement."
• Australian Dollar FX Forwards & Swaps : An Australian dollar FX forward is another type of "agreement to buy or sell Australian dollars on some future date" and can be thought of as "the over-the-counter equivalent of a CME Australian dollar futures contract." These forwards are priced using the same formula that determines the value of CME Australian dollar futures contracts and thus incorporate BBSW as a component of their price. An Australian dollar FX swap is an FX swap using Australian dollars as one of the underlying currencies. As discussed above, an FX forward is one of the two components of an FX swap. An Australian dollar FX swap that involves an Australian dollar FX forward that in turn incorporates BBSW as a component of price thus will also be dependent at least to some extent on BBSW.
• 90-Day BAB Futures : A 90-day BAB futures contract is a standardized, exchange-traded contract in which one party agrees to buy from the other party a 90-day Prime Bank Bill with a face value of $1 million at a specified yield on a certain future date.
IV. The Parties
A. Plaintiffs
There are five named plaintiffs in this case, each of whom or which "engaged in U.S.-based transactions for BBSW-Based Derivatives" during the class period. The amended complaint alleges the following:
1. Richard Dennis ("Dennis") is a natural person who resides in Florida. He entered into a large number of CME Australian dollar futures contracts, including on November 22, 2010, a day on which defendant National Australia Bank ("NAB") allegedly "was involved in manipulating BBSW artificially higher."
2. Sonterra Capital Master Fund, Ltd. ("Sonterra") was an investment fund with its principal place of business in New York. Sonterra entered into Australian dollar FX swaps and forwards worth more than $490 million from within the United States directly with defendant Morgan Stanley, including as follows:
• An FX swap on November 5, 2010, a day on which defendant Westpac allegedly engaged in manipulating one-month BBSW artificially lower,
• An FX forward on June 3, 2011, a day on which defendant Australia and New Zealand Banking Group ("ANZ") allegedly manipulated BBSW artificially higher, and
• An FX swap on May 14, 2010, two days after defendant Morgan Stanley's involvement in the BBSW rate set was discussed among defendants NAB and Commonwealth Bank of Australia ("CBA").
3. FrontPoint Asian Event Driven Fund, L.P., ("FrontPoint Event Driven") was an investment fund with its principal place of business in Greenwich, Connecticut. FrontPoint Financial Services Fund, L.P. and FrontPoint Financial Horizons Fund, L.P. both were limited partnerships, from the Cayman Islands and Delaware, respectively, with their principal places of business in Greenwich, Connecticut and investment teams in New York. The amended complaint alleges that each of the three FrontPoint plaintiffs (collectively, the "FrontPoint Plaintiffs") engaged in BBSW-based swap transactions from within the United States directly with defendant Macquarie at artificial prices proximately caused by defendants' manipulative conduct. Specifically, FrontPoint Event Driven entered into:
• A swap governed by an ISDA Master Agreement in which Macquarie agreed to make payments to FrontPoint Event Driven equal to one-month BBSW on certain valuation dates, including on July 1 2010, the same day that defendant Westpac allegedly manipulated the 1-month BBSW lower, and
• A one-month BBSW swap with Macquarie on January 27, 2011, a day when CBA and NAB allegedly manipulated BBSW.
The putative class of plaintiffs is defined as "[a]ll persons or entities that engaged in U.S.-based transactions in financial instruments that were priced, benchmarked, and/or settled based on BBSW at any time from at least January 1, 2003, through the date on which the effects of Defendants' unlawful conduct ceased."
B. Defendants
Defendants are horizontal competitors that deal in financial products that are priced, benchmarked, and/or settled by reference to a BBSW rate, including (1) twenty-five banking entities from fifteen different banks, including JPMorgan, BNP Paribas, RBS, UBS, ANZ, CBA, NAB, Westpac, Deutsche Bank, HSBC, Lloyds, Macquarie, Royal Bank of Canada, Morgan Stanley, and Credit Suisse, (2) two entities from ICAP, a UK-based brokerage firm, and (3) two entities from Tullett Prebon, another UK-based brokerage firm.
V. The Amended Complaint
Plaintiffs' allegations follow largely from the findings of a series of investigations by the Australian Securities and Investments Commission ("ASIC").
In mid-2016, ASIC initiated proceedings against defendants ANZ, Westpac, and NAB in the Federal Court of Australia, accusing each of the three banks of attempting improperly to influence BBSW. In early 2018, ASIC commenced similar proceedings against defendant CBA.
In its original statements of claim against ANZ, Westpac, and NAB, ASIC released a large collection of emails, phone calls, and electronic chats among traders from the banks and brokerage firms that ultimately were named as defendants in this case. Plaintiffs commenced this action on August 16, 2016 alleging that defendants used various means systematically to manipulate BBSW and seeking damages for alleged violations of the Sherman Act, the CEA, and the RICO Act and claims of unjust enrichment and breach of the implied covenant of good faith and fair dealing. Plaintiffs quote directly from ASIC's disclosures throughout the amended complaint.
A. Antitrust Claims
Plaintiffs allege that defendants, in violation of the federal antitrust laws, "entered into a series of agreements designed to create profit or limit liabilities amongst themselves by coordinating the manipulation of BBSW and the prices of BBSW-Based Derivatives, by conspiring to, inter alia : (1) engage in manipulative money market transactions during the BBSW Fixing Window; (2) make false BBSW rate submissions that did not reflect actual transaction prices; (3) uneconomically buy or sell money market instruments at a loss to cause artificial derivatives prices; and (4) share proprietary BBSW-[B]ased [D]erivatives information." As a result, plaintiffs allege that they were "overcharged and underpaid in their BBSW-[B]ased [D]erivatives transactions" and "deprived of the ability to accurately price" and "determine the settlement value of BBSW-[B]ased [D]erivatives by reference to an accurate BBSW."
The allegations concerning the manipulative money market transactions mentioned above merit some explanation. The amended complaint alleges that bank defendants, with the assistance of the broker defendants, rigged BBSW rates by engaging in uneconomic transactions during the Fixing Window to manipulate the supply of Prime Bank Bills in the market. In other words, defendants engaged in Prime Bank Bill transactions during the Fixing Window without regard to whether the transaction would be profitable for the bank but, rather, with the intention of driving BBSW in a direction that would generate profits from their positions in BBSW-Based Derivatives as a whole.
To that end, the bank defendants would calculate their net exposure to the various BBSW rates on a daily basis and then increase the supply of and demand for Prime Bank Bills in the market by selling or buying them in large numbers, respectively, during the Fixing Window. In addition, they issued new Prime Bank Bills during the Fixing Window to further increase supply. As the supply of or demand for Prime Bank Bills increased, their issue prices consequently would decrease or increase, again respectively. As the price of a Prime Bank Bill decreased, its effective interest rate would increase, and vice versa. These strategies thus allowed the banks to push their own BBSW rate submissions, based on the observed mid-rates of Prime Bank Bills during the Fixing Window, higher or lower.
According to the amended complaint, the bank defendants did not engage in this effort unilaterally. Rather, they conferred with one another ahead of these manipulative transactions, "aligning their interests and recruiting co-conspirators to trade in the same direction." In addition, the bank defendants allegedly gave one another advance notice as to whether they planned to buy or sell during the Fixing Window, allowing them "to predict fluctuations in BBSW that were not caused by genuine economic factors and gave Defendants and their co-conspirators an advantage over counterparties who did not have access to this information." To maximize their impact on the market, defendants allegedly transacted with one another ahead of the Fixing Window to concentrate the supply of Prime Bank Bills that would be used to manipulate BBSW. Certain banks even reorganized their trading desks to make specific groups that had a greater exposure to BBSW-Based Derivatives - and thus "a larger incentive to conspire in manipulating the rate" - responsible for the bank's BBSW activities.
The amended complaint alleges that the broker defendants actively participated in the alleged conspiracy to manipulate BBSW by facilitating these manipulative trades for the bank defendants. Banks pre-authorized the broker defendants to trade the banks' caches of Prime Bank Bills until the interest rate landed at the banks' desired level. The brokers were instructed to line up trades at artificial prices, rather than find the actual best bid for a Prime Bank Bill transaction, in order to push BBSW in one direction or another. The brokers acted also as conduits of information for the bank defendants. According to the amended complaint, "[t]heir frequent contact with Bank Defendants gave the Broker Defendants a wealth of information that enhanced the cartel's efficacy, including other banks' (a) BBSW rate exposure; (b) Prime Bank Bill stock levels; and (c) plans for manipulative trading during the Fixing Window." The banks consequently relied on the brokers, who shared knowledge about other banks' positions and preferred BBSW rates with them. The brokers then coordinated with the BBSW traders at the banks, facilitated the banks' desired high-volume trades, and earned "outsized commission payments."
The amended complaint alleges also that defendants used their positions in AFMA "to control the BBSW rule-making process, conceal complaints from other market participants, and perpetuate the BBSW methodology that they used to secretly manipulate BBSW." The bank defendants positioned their BBSW-Based Derivatives traders, and in certain cases, their Prime Bank Bill traders who were generally responsible for manipulating BBSW, on relevant AFMA governance committees to compromise AFMA's oversight of BBSW. They proposed also rules to keep the committees' activities secret, including by making meeting minutes confidential. Finally, they used their control over the committees' decisions to reject proposals to mechanize the BBSW rate set.
B. CEA Claims
Plaintiffs allege also that defendants violated the CEA (1) as primary violators, (2) in their capacities as principals in respect of the manipulation committed by their "agents, representatives, and/or other persons acting for them in the scope of their employment," and (3) as aiders and abettors, by using their influence to manipulate BBSW as well as the prices of BBSW-Based Derivatives. Defendants violated the CEA by engaging in the manipulative transactions described above and by submitting false BBSW rates in order to "obtain[ ] hundreds of millions (if not billion) of dollars in illegitimate profits on BBSW-[B]ased [D]erivatives, held by themselves or other co-conspirators, the prices of which ... were priced, benchmarked, and/or settled based on BBSW." As a result of defendants' manipulation, the BBSW-Based Derivatives in which plaintiffs and the purported class members transacted allegedly were priced at artificial levels.
C. RICO Act Claims
Plaintiffs assert also substantive and conspiracy RICO violations. The RICO Act makes it illegal for "any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt" and for "any person to conspire" to so conduct or participate. The "racketeering activity" alleged in the amended complaint is wire fraud, as defined under 18 U.S.C. § 1343.
The amended complaint alleges that "[d]efendants' collective association, including through their participation together (i) as members of the AFMA and its subcommittees; (ii) as BBSW Panel Banks; and (iii) acting as a trading bloc and engaging in secret collusive trades in the Prime Bank Bill market to manipulate BBSW, constitutes the RICO enterprise." The members of this enterprise allegedly participated in and conspired to participate in domestic wire fraud by: "(a) transmitting or causing to be transmitted artificial BBSW rates in the U.S. or while crossing U.S. borders through electronic servers located in the United States; (b) transmitting or causing to be transmitted false and artificial BBSW submissions that were relied on by Thomson Reuters and the AFMA in collecting, calculating, publishing, and/or disseminating the daily BBSW rates that were transmitted, published, and disseminated in the United States or while crossing U.S. borders through electronic servers located in the United States; and (c) transmitting or causing to be transmitted confirmations for fraudulent transactions intended to impact BBSW in the U.S. or while crossing U.S. borders through electronic servers located in the United States." Through this scheme, defendants defrauded participants in the BBSW-Based Derivatives market, depriving plaintiffs and purported class members of "their money relative to their BBSW-[B]ased [D]erivatives contracts."
D. State Law Claims
Finally, plaintiffs assert two state law claims. First, they assert breach of the implied covenant of good faith and fair dealing against defendants Macquarie Bank, Morgan Stanley, Credit Suisse, Deutsche Bank AG, and UBS. They allege that the FrontPoint Plaintiffs "entered into binding and enforceable contracts with Defendants Macquarie Bank, Credit Suisse, Deutsche Bank AG, and UBS in connection with transactions for BBSW-[B]ased [D]erivatives" and that "Sonterra entered into binding and enforceable contracts with Defendant Morgan Stanley in connection with transactions for BBSW-[B]ased [D]erivatives." These defendants allegedly breached the implied covenant and frustrated the purpose of these contracts by "(a) intentionally manipulating BBSW for the express purpose of generating illicit profits from its BBSW-[B]ased [D]erivatives; and (b) conspiring with other Defendants to manipulate BBSW and the prices of BBSW-[B]ased [D]erivatives."
Finally, plaintiffs assert a claim of unjust enrichment against all defendants. They allege that defendants entered into BBSW-Based Derivatives transactions but that, "[r]ather than compete honestly and aggressively with each other, Defendants colluded to manipulate BBSW and the prices of BBSW-[B]ased [D]erivatives to ensure they had an unfair advantage in the marketplace." Defendants' "unlawful and inequitable acts caused Plaintiffs and Class members to suffer injury, lose money, and otherwise be deprived of the benefit of accurate BBSW rates, as well as the ability to accurately price, benchmark and or settle BBSW-[B]ased [D]erivatives transactions." Plaintiffs consequently received less and defendants received more in value in than they would have received absent defendants' wrongful conduct.
VI. Defendants' Motions
All defendants now move to dismiss the amended complaint pursuant to Rules 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure. The Foreign Defendants move also to dismiss the amended complaint pursuant to Rule 12(b)(2), and the Venue Defendants move to dismiss plaintiffs' antitrust claims pursuant to Rule 12(b)(3).
Defendants' motion to dismiss for lack of subject matter jurisdiction and for failure to state a claim rests on alternative grounds. Defendants challenge plaintiffs' standing under Article III of the Constitution as well as under the Clayton Act, the CEA, and the RICO Act to bring each respective cause of action. In addition, they assert that the amended complaint fails to state a claim upon which relief can be granted under either federal or state law. Finally, defendants argue that each federal cause of action should be dismissed as impermissibly extraterritorial and that all but the RICO claims should be dismissed as untimely.
The Foreign Defendants move also to dismiss each of plaintiffs' claims for lack of personal jurisdiction, and the Venue Defendants move to dismiss plaintiffs' antitrust claims for improper venue. The amended complaint alleges that the Foreign Defendants are subject to personal jurisdiction on a number of bases, including that (1) all Foreign Defendants are subject to general personal jurisdiction in New York, (2) all Foreign Defendants are subject to specific personal jurisdiction, and (3) certain defendants have consented to personal jurisdiction by registering their New York branches under New York Banking Law § 200 and by entering into contracts governed by ISDA Master Agreements with the FrontPoint Plaintiffs. In the alternative, plaintiffs argue that they should be permitted to engage in jurisdictional discovery. The Foreign Defendants challenge jurisdiction on each of these grounds.
Discussion
I. Standing
A. Constitutional Standing
"To establish standing under Article III of the Constitution, a plaintiff must allege '(1) injury-in-fact , which is a concrete and particularized harm to a legally protected interest; (2) causation in the form of a fairly traceable connection between the asserted injury-in-fact and the alleged actions of the defendant; and (3) redressability , or a non-speculative likelihood that the injury can be remedied by the requested relief.' " Defendants here challenge both injury-in-fact and causation.
1. Injury-In-Fact
Injury-in-fact is a "low threshold" that "need not be capable of sustaining a valid cause of action." As the Second Circuit recently stated:
"To successfully plead injury-in-fact, a plaintiff must only 'clearly ... allege facts demonstrating,' Warth v. Seldin , 422 U.S. 490, 518, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975) (quoted in Spokeo [Inc. v. Robins] , [--- U.S. ----, 136 S.Ct. [1540,] at 1547, 194 L.Ed.2d 635 (2016) ] ), that she had a 'a legally protected interest in a manner that is concrete and particularized' and that a defendant 'inva[ded]' that interest. Bhatia v. Piedrahita , 756 F.3d 211, 218 (2d Cir. 2014) (quoting Lujan , 504 U.S. at 560, 112 S.Ct. 2130 ).... Unless an allegation of injury is 'so insubstantial, implausible, foreclosed by prior decisions of this Court, or otherwise completely devoid of merit as not to involve a federal controversy,' Steel Co. v. Citizens for a Better Environment , 523 U.S. 83, 89, 118 S.Ct. 1003, 140 L.Ed.2d 210 (1998) (quoting Oneida Nation of N.Y. v. County of Oneida , 414 U.S. 661, 666, 94 S.Ct. 772, 39 L.Ed.2d 73 (1974) ), the mere fact that it 'raises a federal question ... confers power [on a federal court] to decide that it has no merit, as well as to decide that it has.' Montana-Dakota Utilities Co. v. Northwestern Public Service Co. , 341 U.S. 246, 249, 71 S.Ct. 692, 95 L.Ed. 912 (1951)."
Plaintiffs Dennis, Sonterra, and FrontPoint Event Driven here allege that defendants manipulated BBSW on days when these plaintiffs transacted in BBSW-Based Derivatives, thereby impacting the price of and/or periodic payments due on such derivatives and causing these plaintiffs to be either overcharged or underpaid. This alleged injury readily meets the "low threshold" for injury-in-fact. The harm of "pa[ying] too much" or "receiv[ing] too little" is a "classic economic injury-in-fact." In Gelboim v. Bank of America Corporation , for example, the Second Circuit considered an Article III challenge to plaintiffs who there alleged that they had been "harmed by receiving lower returns on LIBOR-denominated instruments as a result of defendants' manipulation of LIBOR." The Circuit concluded that plaintiffs had "easily satisfied" the injury-in-fact requirement.
Nor is the Court persuaded by defendants' argument that plaintiffs might just as easily have been benefitted by the alleged manipulation. This argument is premature at best. The mere "fact that an injury may be outweighed by other benefits, while often sufficient to defeat a claim for damages, does not negate standing."
Accordingly, Dennis, Sonterra and FrontPoint Event Driven each sufficiently has alleged injury-in-fact. In contrast, the amended complaint does not allege that either FrontPoint Financial Horizons Fund, L.P. or FrontPoint Financial Services Fund, L.P. engaged in any BBSW-Based Derivatives transactions on days when BBSW allegedly was manipulated. These two named plaintiffs therefore lack constitutional standing and their claims must be dismissed.
2. Fairly Traceable
Defendants next argue that the injuries of plaintiffs Dennis and Sonterra cannot fairly be traced to the alleged conspiracy because they have not alleged sufficiently that BBSW was a component of the prices of their CME Australian futures contracts and Australian dollar FX swaps and forwards.
But the amended complaint alleges that the "[p]rices of CME Australian dollar futures contracts are determined by a formula that incorporates BBSW as one of its terms." Specifically, the alleged formula "uses BBSW to adjust the 'spot price' of Australian dollars for immediate delivery to account for the 'cost of carry,' i.e. , the amount of interest earned on Australian dollar deposits over the duration of the agreement." And plaintiffs' Australian dollar FX forwards are alleged to have been essentially "over-the-counter equivalent[s] of ... CME Australian dollar futures contract[s]" that "are priced using the same formula that determines the value of CME Australian dollar futures contracts." Finally, these Australian dollar FX forwards are one of the two components of an Australian dollar FX swap. These allegations, the truth of which this Court is bound to assume at this motion to dismiss stage, are sufficient to make out a causal connection between defendants' alleged manipulation of BBSW and Dennis' and Sonterra's diminished returns on their BBSW-Based Derivatives.
Defendants' various arguments that a causal nexus between the alleged manipulation and each of plaintiffs' specific transactions is implausible fail as well. As an initial matter, the standard for Article III standing is not whether such the alleged injury is plausibly fairly traceable, but, rather, whether the injury is possibly fairly traceable. Moreover, the Court declines at this early stage of litigation to make assumptions about how enduring or short-lived the effect of the alleged misconduct might have been on a given BBSW-Based Derivative.
Finally, the dates identified in the amended complaint in any event "do not purport to be the universe of defendants' communications and misconduct" or of plaintiffs' transactions in BBSW-Based Derivatives. In John v. Whole Foods Market Group, Inc. , the Second Circuit concluded that the plaintiff, a regular purchaser of certain items from Whole Foods Market, had Article III standing to sue Whole Foods in light of a report that Whole Foods had "systematically" and "routinely" overcharged for those products during the general period in which the plaintiff had made his purchases. Although Whole Foods does not directly control, it nonetheless weighs in favor of plaintiffs, who have asserted here that defendants engaged in systematic manipulation of BBSW and that the trades alleged in the amended complaint are only some examples of numerous transactions entered into by plaintiffs.
B. Standing to Represent Purported Class
Defendants argue also that plaintiffs "lack standing to assert claims regarding FRAs and BAB Futures because [p]laintiffs do not claim to have transacted in those products."
"[I]n a putative class action, a plaintiff has class standing if he plausibly alleges (1) that he personally has suffered some actual ... injury as a result of the putatively illegal conduct of the defendant, and (2) that such conduct implicates the same set of concerns as the conduct alleged to have caused injury to other members of the putative class by the same defendants." If both of these requirements are met, "the named plaintiff's litigation incentives are sufficiently aligned with those of the absent class members that the named plaintiff may properly assert claims on their behalf." As discussed above, plaintiffs Dennis, Sonterra, and Front Point Event Driven satisfy the first prong of this test. The Court now considers whether they satisfy the second.
In NECA-IBEW Health & Welfare Fund v. Goldman Sachs & Co. , the Second Circuit considered a purported class action brought by holders of mortgage-backed certificates issued in a collection of offerings. The action, filed against the issuing and underwriting financial institutions, alleged that the registration statements issued in the offerings for the certificates had contained "similar if not identical" false or misleading information in violation of the Securities Act of 1933. The question there was whether the named plaintiffs had standing to litigate claims with respect to certificates from offerings in which the named plaintiffs had not purchased certificates and with respect to certificates from different tranches of the offerings in which the named plaintiffs had purchased certificates.
The Circuit first considered the hypothetical scenario of a claim brought by a purchaser of debt asserting that the relevant offering documents contained a misrepresentation about the issuing company's impending insolvency and that the same misrepresentation appeared in the offering documents for each of a series of debt offerings by the company. The court noted that such a claim "would raise a 'set of concerns' nearly identical to that of a purchaser from another offering: the misrepresentation would infect the debt issued from every offering in like manner, given that all of it is backed by the same company whose solvency has been called into question." In comparison, the certificates at issue had been backed by distinct sets of loans issued by distinct set of originators. The Circuit concluded that "differences in the identity of the originators backing the Certificates matter[ed] for the purposes of assessing whether [the alleged] claims raise[d] the same set of concerns" because the alleged misstatements concerned origination guidelines. This meant that the proof of any given injury alleged "would center on whether the particular originators of the loans backing the particular Offering from which a Certificate-holder purchased a security had in fact abandoned its underwriting guidelines, rendering defendants' Offering Documents false or misleading." Accordingly, the Circuit concluded that "to the extent certain Offerings were backed by loans originated by originators common to those backing the [offerings from which the named plaintiffs had purchased certificates], NECA's claims raise[d] a sufficiently similar set of concerns to permit it to purport to represent Certificate-holders from those Offerings." The Circuit concluded also that the differences among the various tranches in a given offering were of no moment to class standing because the difference in priority with respect to receiving cash flows "[did] not alter the fact that all of the Certificate-holders' cash flows within any such Offering or Group derive[d] from loans originated by some of the same originators," but rather impacted only the relative damages that class members would receive.
In a subsequent case involving residential mortgage-based securities ("RMBS"), the Second Circuit did not permit a named plaintiff to assert "breach-of-duty" claims against the trustee of a RMBS trust in which the named plaintiff did not invest. There, the defendant had served as the trustee for 530 different RMBS trusts, and the named plaintiff had invested in a subset of those trusts. The originator of the mortgage loans underlying the securities in the trust had made several representations and warranties in respect of the credit quality and underwriting of the loans. According to plaintiffs, however, it had failed to adhere to prudent underwriting standards and thus breached several of the representations and warranties. These breaches allegedly had resulted in significant losses to the holders because the underlying loans had defaulted at higher than expected rates. Plaintiffs consequently sued defendant, as trustee, for breach of its fiduciary duties of care and loyalty, breach of contract, breach of the covenant of good faith, and breach of the Trust Indenture Act.
The Circuit held that the named plaintiff did not have standing to assert claims on behalf of the purported class members who invested in RMBS trusts in which the named plaintiff had not invested because the defendant's alleged misconduct - which included failure to notify certificate holders of the originator's breaches of the governing agreements, failure to force the originator to repurchase defaulted mortgage loans, and failure to ensure that the mortgage loans held by the trusts were correctly documented - had to be "proved loan-by-loan and trust-by-trust."
Plaintiffs here allege that defendants conspired to and did manipulate BBSW on a systematic basis, which manipulation resulted in artificial pricing of BBSW-Based Derivatives across the globe, including in the United States. The proof required for plaintiffs to prevail on their federal claims - that is, their claims under the Clayton Act, the CEA and the RICO Act - will be largely identical because, as described above, the allegations underlying these claims are that defendants engaged in manipulative Prime Bank Bill transactions and submitted false BBSW rates. That plaintiffs and the purported class members transacted in different derivatives is relevant only to the question of damages because plaintiffs have sufficiently alleged that BBSW was a component of the prices of the derivatives in which they transacted as well as of the FRAs described in the amended complaint. Although 90-day BAB futures contracts stand on somewhat different footing because they are priced by reference to 90-day Prime Bank Bills, rather than BBSW, the proof needed to prevail on claims with respect to those derivatives - i.e. , that defendants manipulated BBSW by manipulating the prices of Prime Bank Bills - largely will overlap as well.
The remaining state law claims, however, stand apart from the federal claims. Unlike the federal claims, in respect of which a plaintiff's specific relationship with defendants is relevant only or substantially to damages, a plaintiff's connection to the defendants is central to the question of liability in the case of claims of breach of the implied covenant of good faith and fair dealing and unjust enrichment.
The promise of good faith and fair dealing is treated as an implied provision in every contract that "is breached when a party acts in a manner that, although not expressly forbidden by any contractual provision, would deprive the other party of the right to receive the benefits under their agreement." "In order to find a breach of the implied covenant, a party's action must 'directly violate an obligation that may be presumed to have been intended by the parties.' "
The terms of contracts for BBSW-Based Derivatives that are traded over the counter - that is, BBSW-based swaps, BBSW-based FRAs, and Australian dollar FX forwards and swaps - are negotiated and customized to the particular investor. As the terms across these contracts vary, so too do the "obligation[s] that may be presumed to have been intended by the parties." Accordingly, liability for the breach of the implied covenant of good faith and fair dealing with respect to such contracts may be determined only on a contract-by-contract basis. Plaintiffs therefore do not have standing to represent absent purported class members who entered into BBSW-based FRAs because plaintiffs do not allege that they themselves entered into such derivatives.
The analysis is somewhat different with respect to the exchange-traded BBSW-Based Derivatives - that is, CME Australian dollar futures and 90-day BAB futures - but the result is the same. The contract terms for a given type of exchange-traded future are almost entirely standardized. They vary only with respect to the maturity date and price of the derivative, and the prices in turn are determined by a set formula based in part either on a 90-day Prime Bank Bill or a BBSW rate. Accordingly, the manipulative conduct alleged in the amended complaint likely would "infect" these derivatives contracts "in like manner" and, although the question is not now before the Court, a strong case could be made that a plaintiff's burden to sustain a claim for breach of the implied covenant of good faith and fair dealing as to such a contract would be largely identical to anyone else who entered into a contract for the same type of future. The only meaningful differences would be with respect to the damages suffered, if any, by a given contract holder.
Here, however, defendants challenge plaintiffs' class standing to represent purported class members who traded 90-day BAB futures. None of the named plaintiffs alleges that it traded 90-day BAB futures. Accordingly, plaintiffs' claims for breach of the implied covenant will not raise a "sufficiently similar set of concerns" to those of the would-be class members. Plaintiffs therefore lack class standing as to purported class members who entered into contracts for 90-day BAB futures.
The analysis is similar with respect to plaintiffs' claims of unjust enrichment. In order to sustain an unjust enrichment claim under New York law, "[a] plaintiff must show 'that (1) the other party was enriched, (2) at that party's expense, and (3) that "it is against equity and good conscience to permit [the other party] to retain what is sought to be recovered.' " " A plaintiff cannot support a claim of unjust enrichment against a defendant without alleging some kind of connection to that defendant. Liability therefore will depend on each plaintiff's relationship to a given defendant. Where a relationship is governed by a customized, negotiated contract for a derivative traded over the counter, that relationship will change from contract to contract. Where, however, a relationship is governed by a standardized contract for an exchange-traded derivative such as a future, the concerns raised in respect of one such contract will be largely identical to the concerns raised in respect of any other such contracts. Nonetheless, none of the named plaintiffs traded in the type of contract at issue here, which is a 90-day BAB future.
The Court concludes that plaintiffs do not have class standing to assert their state law claims for breach of the implied covenant of good faith and fair dealing or unjust enrichment on behalf of absent plaintiffs who traded in BBSW-based FRAs or 90-day BAB futures. The contracts related to BBSW-based FRAs will differ across the holders of such contracts. And although the proof required for holders of 90-day BAB futures to prevail on claims for either breach of the implied covenant of good faith and fair dealing or unjust enrichment likely would be largely identical across such holders, none of the plaintiffs here falls into that group. Accordingly, plaintiffs have standing to assert their federal claims, but not their state law claims, on behalf of the purported class members who traded in BBSW-based FRAs and 90-day BAB futures.
II. Pleading Standard on Rule 12(b)(6) Motion
To survive a motion to dismiss under Rule 12(b)(6), a plaintiff must allege "sufficient factual matter ... to 'state a claim to relief that is plausible on its face.' " A claim is facially plausible "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." The Court generally "accept[s] all factual allegations in the complaint as true and draw[s] all reasonable inferences in the plaintiffs' favor" when considering a motion to dismiss.
To the extent a claim sounds in fraud, however, the complaint is subject to the heightened pleading standard of Rule 9(b) and "must state with particularity the circumstances constituting fraud." Although "the fraud alleged must be stated with particularity ... the requisite intent of the alleged [perpetrator] of the fraud need not be alleged with great specificity." Nonetheless, a complaint "must allege facts that give rise to a strong inference of fraudulent intent," which "may be established either (a) by alleging facts to show that defendants had both motive and opportunity to commit fraud, or (b) by alleging facts that constitute strong circumstantial evidence of conscious misbehavior or recklessness."
III. Antitrust Claims
Plaintiffs' first cause of action is a claim against all defendants under Section 4 of the Clayton Act asserting a violation of Section 1 of the Sherman Act, which provides, in relevant part:
"Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal."
Section 4 of the Clayton Act, which sets forth a private right of action to bring a Sherman Act claim for damages, provides, in relevant part:
"[A]ny person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor in any district court of the United States in the district in which the defendant resides or is found or has an agent, without respect to the amount in controversy, and shall recover threefold the damages by him sustained, and the cost of suit, including a reasonable attorney's fee."
A. Antitrust Standing
Defendants first challenge plaintiffs' ability to bring their federal antitrust claims under the concept of "antitrust standing" - that is whether plaintiffs have pled "enough facts to make it plausible that they did indeed suffer the sort of injury that would entitle them to relief" under Section 4 of the Clayton Act.
"It is a well-established principle that, while the United States is authorized to sue anyone violating the federal antitrust laws, a private plaintiff must demonstrate 'standing.' " "Like constitutional standing, antitrust standing is a threshold inquiry resolved at the pleading stage." In determining whether a plaintiff has antitrust standing, the Court " 'assume[s] the existence' of an antitrust violation" and considers two questions:
(1) "[H]ave [plaintiffs] suffered antitrust injury?"
(2) "[A]re [plaintiffs] efficient enforcers of the antitrust laws?"
1. Antitrust Injury
"Congress did not intend the antitrust laws to provide a remedy in damages for all injuries that might conceivably be traced to an antitrust violation." Rather, "[a]n antitrust injury 'should reflect the anticompetitive effect either of the [antitrust] violation or of anticompetitive acts made possible by the violation.' " Accordingly, "[i]t is not enough for the actual injury to be 'causally linked' to the asserted violation." Rather, "plaintiffs must demonstrate that they themselves have sustained an 'antitrust injury, which is to say injury of the type the antitrust laws were intended to prevent and that flows from that which makes defendants' acts unlawful.' "
This inquiry involves three steps:
"[F]irst the plaintiff must 'identify the practice complained of and the reasons such a practice is or might be anticompetitive'; then the court must 'identify the actual injury the plaintiff alleges' by 'look[ing] to the ways in which the plaintiff claims it is in a worse position as a consequence of defendant's conduct'; and finally, the court must 'compare the anticompetitive effect of the specific practice at issue to the actual injury the plaintiff alleges.' "
As to the first question, plaintiffs here assert that defendants, in coordination with one another, manipulated BBSW and the prices of BBSW-Based Derivatives by conspiring to engage in manipulative and uneconomic money market transactions during the Fixing Window, by sharing proprietary BBSW-Based Derivative information with one another, and by making false BBSW rate submissions. That is sufficient.
As to the second, plaintiffs allege that they were "overcharged and underpaid in their BBSW-[B]ased [D]erivatives transactions" and were "deprived of the ability to accurately price BBSW-[B]ased [D]erivatives entered into during the Class Period and to accurately determine the settlement value of BBSW-[B]ased [D]erivatives by reference to an accurate BBSW." They consequently received "less in value" on their BBSW-Based Derivatives transactions than they otherwise would have. That too is sufficient.
The third query is resolved quickly in favor of plaintiffs. "Generally, when consumers, because of a conspiracy, must pay prices that no longer reflect ordinary market conditions, they suffer 'injury of the type the antitrust laws were intended to prevent and that flows from that which makes defendants' acts unlawful.' "
The Second Circuit's decision in Gelboim is instructive. The Circuit there concluded that plaintiffs - consumers in the market for various LIBOR-based derivatives - sufficiently alleged antitrust injury when they claimed that they had received lower rates of return on their derivatives as a result of defendants' collusion to depress LIBOR. Because defendants' alleged conduct constituted a horizontal price fixing scheme - that is, a per se violation of the federal antitrust laws - the plaintiffs did not need to make a "showing of actual adverse effect in the marketplace." In alleging that they, as consumers in the marketplace for financial instruments the prices of which had been influenced by defendants' alleged conspiracy, had received less for their money than they would have absent defendants' conduct, they had sufficiently alleged antitrust injury.
Unlike the complaint in Gelboim , the allegations in the amended complaint here do not assert that BBSW was consistently moved in the same direction by defendants. But this is of no import with respect to the issue of antitrust standing. Plaintiffs allege that defendants each made a regular practice of determining the optimal BBSW rate that would maximize their profits on BBSW-Based Derivatives and that they then worked together to move BBSW to that spot. This alleged coordinated effort is no less an example of horizontal price fixing than the alleged LIBOR scheme in Gelboim . Plaintiffs Dennis, Sonterra, and FrontPoint Event Driven each has alleged that it was overcharged and underpaid on its BBSW-Based Derivatives transactions as a result of a per se violation of the Sherman Act. They have plausibly alleged antitrust injury.
2. Efficient Enforcers
The Court now turns to consider whether plaintiffs Dennis, Sonterra, and FrontPoint Event Driven would be efficient enforcers of the antitrust laws.
In the Second Circuit:
"The efficient enforcer inquiry turns on: (1) whether the violation was a direct or remote cause of the injury; (2) whether there is an identifiable class of other persons whose self-interest would normally lead them to sue for the violation; (3) whether the injury was speculative; and (4) whether there is a risk that other plaintiffs would be entitled to recover duplicative damages or that damages would be difficult to apportion among possible victims of the antitrust injury."
(a) Causation
The first factor to consider is the " 'directness or indirectness of the asserted injury,' which requires evaluation of the 'chain of causation' linking [plaintiffs'] asserted injury and the Banks' alleged price-fixing."
Plaintiffs' claims, with rare exceptions, are different from the typical price fixing case in which defendants are sellers that collectively agree on an input to the price and plaintiffs are buyers from one or members of the conspiracy. The amended complaint, for the most part, does not allege that plaintiffs transacted directly with defendants. This implicates the concept of umbrella standing - which typically is relevant "when a cartel controls only part of a market" and a plaintiffconsumer that dealt only with a non-cartel member "alleges that he sustained injury by virtue of the cartel's raising of prices in the market as a whole."
The Second Circuit considered umbrella standing in Gelboim , stating, in relevant part:
"At first glance, here there appears to be no difference in the injury alleged by those who dealt in LIBOR-denominated instruments, whether their transactions were conducted directly or indirectly with the Banks. At the same time, however, if the Banks control only a small percentage of the ultimate identified market, this case may raise the ... concern of damages disproportionate to wrongdoing .... Requiring the Banks to pay treble damages to every plaintiff who ended up on the wrong side of an independent LIBOR-denominated derivative swap would, if appellants' allegations were proved at trial, not only bankrupt 16 of the world's most important financial institutions, but also vastly extend the potential scope of antitrust liability in myriad markets where derivative instruments have proliferated."
The Court is not persuaded that concerns related to umbrella standing need bear on this case. The amended complaint does not allege that a group of conspirators, without controlling the entire market for a commodity, fixed prices for that commodity. In those circumstances, the question of causation is whether the conspirators that did not transact directly with a plaintiff nonetheless affected the price of the commodity in which the plaintiff transacted. In contrast, the conspiracy alleged here involves essentially all of the entities that contribute to setting BBSW and asserts that these banks and brokers affected the price of all derivatives priced or benchmarked by reference to BBSW.
Plaintiffs allege that they engaged in transactions for such derivatives and that their returns were lower because of defendants' anticompetitive conduct. The Court has rejected already defendants' arguments that plaintiffs have failed to allege a plausible link between BBSW and the derivatives in which plaintiffs transacted. Nor do plaintiffs need to allege plausibly that their losses were not offset by gains on other BBSW-linked trades. These allegations amount to a plausible and sufficiently direct causal link between plaintiffs' injuries and defendants' alleged misconduct. The question of wi