Libor Antitrust Plaintiffs Strike Out Again

By Jean Kim

The antitrust claims of yet another putative class of Libor plaintiffs have been dismissed by the U.S. District Court for the Southern District of New York.

Finding that the plaintiff failed to adequately plead antitrust standing, Judge George Daniels dismissed the antitrust claims in Laydon v. Mizuho Bank, Ltd., a class action that alleges more than 20 banks manipulated the Euroyen Tokyo Interbank Offered Rate (Tibor) and the yen Libor.  Plaintiff alleged losses from shorting positions on Euroyen Tibor futures contracts, which allegedly were affected by defendants’ manipulation of rates.  Plaintiff’s case survives, however, because the court denied the defendants’ motion to dismiss the complaint’s Commodity Exchange Act claims.

The court found that plaintiff failed to plead facts sufficient to establish that defendants’ manipulation of TIBOR and yen Libor rates was anticompetitive.  The court concluded that “[a]t most, Plaintiff alleges that prices were distorted,” not “that this was a result of a reduction of competition.”  The court also found that plaintiff failed to allege facts that demonstrated an adequate connection between the alleged misconduct (manipulation of rates) and any effect (increases in the price of Euroyen TIBOR futures). The court reasoned that not only was the alleged injury indirect, bit plaintiff’s theory involved a complicated series of market interactions with multiple causal links that rendered any claim of damages “speculative.”

The court also found that plaintiff failed to allege a restraint of trade in violation of Section 1of the Sherman Act.  Despite the inherently anticompetitive nature of competing banks colluding to fix rates that directly affect a massive amount of commerce, the court applied the “rule of reason” test to find that plaintiff’s collusion allegations were conclusory.

The court’s treatment of these antitrust claims is troubling.  As an initial matter, courts should be careful not to ignore or weigh facts in analyzing the inherently fact-intensive rule of reason on a motion to dismiss.  Although the court concluded that the rate-setting process was not competitive, banks do compete on factors related to their borrowing costs, not to mention the prices of the end products that are tied to Libor.  In light of the fact-intensive nature of these issues, the court should not have found that plaintiff failed to plead facts sufficient to show any anticompetitive effect flowing from the banks’ alleged conduct, and that such conduct did not diminish competition among the banks.  The court’s disposal of such fact-intensive issues on a motion to dismiss raises an almost insurmountable bar for antitrust Libor plaintiffs.

This dismissal follows the March 2013 ruling by Judge Naomi Reice Buchwald, also of the Southern District, dismissing antitrust claims in one of the largest Libor class action suits, In re Libor-Based Financial Instruments Antitrust Litig.  That dismissal also was based upon a finding that plaintiffs had failed to establish antitrust standing because they fail to adequately plead antitrust injury.  These dismissals track U.K. rate-fixing litigation in which Libor plaintiffs are pursuing fraud claims rather than claims involving competition law.

Until the U.S. Court of Appeals for the Second Circuit answers the question of whether antitrust claims can be based on banks’ conduct in manipulating Libor rates – which may be some years off given Judge Buchwald’s denial of the plaintiffs’ request for an interlocutory appeal – the combined effect of these dismissals will be to encourage Libor plaintiffs to concentrate their efforts on claims based on commodities and contract law.

– Edited by Gary J. Malone