When we last posted about the litigation challenging alleged manipulation of SIBOR – the Singapore Interbank Offered Rate – the district court had just dismissed plaintiffs’ claims for lack of standing. But that wasn’t the end of the line for Fund Litigation, et al: Plaintiffs’ appeal of the standing decision was successful, and a fourth amended complaint has been filed—and, of course, a new motion to dismiss. This post will cover the Second Circuit’s decision and the latest complaint; next week, we’ll provide a full review of the motion to dismiss briefing.
The Second Circuit’s Vacatur & Remand
Plaintiffs appealed the district court’s dismissal on two grounds: (1) whether or not the dissolved entities (i.e., FrontPoint and Sonterra, two Cayman Island investment funds who were the original named plaintiffs, despite prior dissolution) possessed Article III standing when the case was initiated, and, (2) if not, whether Find Liquidation (i.e., Fund Liquidation Holdings, the entity which was actually prosecuting the claims, and to which the dissolved entities had allegedly assigned their claims) would nevertheless be able to join the action via FRCP 17. Rule 17 which prohibits dismissal of an action for “failure to prosecute in the name of the real party in interest” unless the real party fails to ratify, join, or be substituted into the action after objection. If Fund Liquidation was not found to have standing under this rule – and thus been able to proceed “as if [the action] had been originally commenced by the real party in interest” – the Fund would be unable to litigate the claims at all, the statute of limitations having run.
The Second Circuit answered the first question in the negative: the two dissolved entities lacked standing at the time the case was commenced. This was not because the dissolved funds had previously assigned their claims to Fund Liquidation, as Defendants had argued, because pre-suit assignment does not extinguish Article III standing—even though it may extinguish status as a real party in interest. The Second Circuit’s holding on this question rested on the entities’ pre-suit dissolution, which prevented the entities from having any legal existence, which is a prerequisite for Article III standing.
However, with respect to the second question, the appellate Court held that “Article III was nonetheless satisfied because Fund Liquidation, the real party in interest, [had] standing at all relevant times and may step into the dissolved entities’ shoes without initiating a new action from scratch.” In finding that Article III standing was satisfied so long as a party with standing to prosecute the claim exists at the time the pleading is filed, the Second Circuit “admittedly” adopted a view not adopted by many other courts. Instead, they rejected the alternative view, known as the “nullity doctrine.” The Court’s reasoning focused on the question of whether (or not) the filing of a complaint in the name of a “deceased or non-existent nominal plaintiff is akin to an error in the complaint’s allegations of jurisdiction,” as opposed to fundamentally defective jurisdiction. Because FRCP 17 permits the amendment of the named party, the Court reasoned that the issues here are more akin to defective allegations—and, “it is well-understood that a plaintiff may cure defective jurisdictional allegations…through amended pleadings.”
With that holding, the Second Circuit remanded the action to the district court for further proceedings, recommending that the district court “reconsider Fund Liquidation’s motion to file its proposed fourth amended complaint,” including the proposed amendment to add two new representative plaintiffs, the Moon Funds.
The Fourth Amended Complaint
As is perhaps to be expected, the Fourth Amended Complaint (“FAC”) largely mirrors its multiple predecessors. As mentioned above, a key alteration was the addition of two new plaintiffs: Moon Capital Partners Master Fund and Moon Capital Master Fund (together, the “Moon Funds).
The addition of the Mood Funds was intended to eliminate some of the antitrust standing issues encountered by Fund Liquidation. An antitrust action requires that the named plaintiff be an “efficient enforcer” of the antitrust laws, something Fund Liquidation struggled to achieve as that entity had not directly transacted with any of the panel-member Banks. The Moon Funds, on the other hand, had transacted directly with Defendant UBS AG; the direct transaction provides a clearer link to the injuries alleged to have been caused by the Defendants’ “cartel,” which, Plaintiffs hope, should be sufficient to make the Moon Plaintiffs “efficient enforcers” with adequate antitrust standing.
In addition to setting forth allegations concerning the new plaintiffs’ transactions with Defendant UBS AG, the new complaint added back in both Sherman Act claims against certain SOR Panel Defendants and a claim for breach of implied covenant of good faith and fair dealing against UBS AG. These claims were present in the second amended complaint, but removed in the third after the second motion to dismiss precluded claims on markets where the previous plaintiffs had not conducted trades.
Adding new plaintiffs in the fourth complaint is bound to make any defendant unhappy. To see just how unhappy, stay tuned for next week’s post, where we will cover not one, not two, but three briefs filed by the Defendants in support of their motions to dismiss, together with Plaintiffs’ opposition briefing.
This post has been written by Alexandra M.C. Douglas.