Last week’s post examined the Second Circuit’s decision in Schwab Short-Term Bond Mkt. Fund v. Lloyds Banking Grp. PLC, 22 F.4th 103 (2d Cir. 2021) (“Schwab II”), which severely limited (but did not completely eliminate) “umbrella standing” in antitrust actions. Following up, this post reviews how Schwab II arguments are already being raised by defendants in other actions we have covered in this space.
SIBOR
First, and as previously discussed here, defendants in FrontPoint Asian Event Driven Fund, Ltd. et al v. Citibank, N.A. et al., 1:16-cv-05263 SDNY (AKH), raised Schwab II in reply on their motion to dismiss the Fourth Amended Complaint. The plaintiffs, who are alleging that the defendants manipulated the Singapore Interbank Offered Rate (“SIBOR”), filed their most recent complaint specifically to address the major standing issue that was subsequently addressed in Schwab II, namely whether antitrust plaintiffs who did not have direct dealings with the defendants are “efficient enforcers” who have standing to bring antitrust claims. Hoping to avoid the issue, the SIBOR plaintiffs added two new parties, the Moon plaintiffs, who had transacted directly with defendant UBS AG. Before Schwab II was decided, the defendants moved to dismiss upon two parallel antitrust standing arguments. First, they argued that the Moon plaintiffs had not suffered an antitrust injury, because the complaint did not explain how, specifically, the alleged benchmark manipulation had affected the particular transactions the Moon plaintiffs had engaged in. Second, the defendants argued that the Moon plaintiffs were not “efficient enforcers” because, based upon the same lack of particularity as to how the alleged manipulation affected the plaintiffs’ own trades, the Moon plaintiffs had not shown that they were “directly impacted” by the defendants’ conduct. In opposition, the plaintiffs responded that they traded in products that had been tied to a rigged benchmark, which was sufficient to establish antitrust injury, and that the ‘efficient enforcer” requirement was satisfied by the fact that the Moon plaintiffs had transacted directly with the defendants.
The Schwab II decision entered the equation in reply, when the defendants argued that the Moon plaintiffs could not be “efficient enforcers” because their transactions were not “priced directly by reference” to the benchmarks.[1] This argument rested on a footnote in Schwab II discussing a different part of the efficient enforcer test (speculativeness of the alleged injuries) where the Second Circuit mentioned that Schwab’s claims included not just LIBOR-indexed bonds but also “fixed-rate bonds that do not reference LIBOR at all,” on the theory that “LIBOR exerted a kind of gravitational force, influencing fixed-rate bonds,” and that claims on these bonds could not provide antitrust standing.
In supplemental briefing addressed to Schwab II, the plaintiffs argued that Schwab II’s requirements for efficient enforcer status had been satisfied by the allegation that the Moon plaintiffs had directly transacted with defendants, and that their injuries were directly tied to defendants’ profits. Finally, the defendants’ sur-sur-reply brief repeated the claim that, because the transactions at issue did not explicitly include the manipulated benchmarks as a price term (as opposed to the benchmarks serving as a key component of an “industry standard formula”) the plaintiffs could not qualify as ‘efficient enforcers.”
Oral argument is scheduled to take place later in March 2022, which may clarify the issue, but as of right now the SIBOR parties seem to be talking past each other when they discuss Schwab II’s antitrust standing decision; the defendants seem to be trying to import the separate issue of whether an antitrust injury had been alleged in the first place (i.e. whether plaintiffs had sufficiently pleaded that the benchmarks had in fact been factored into the prices they paid) into the “efficient enforcer” analysis, and the plaintiffs appear to be avoiding the actual injury question by repeating that they transacted directly with the defendants, as Schwab II required.
LONDON SILVER
Second, and perhaps more on point, last month the remaining defendants in In re London Silver Fixing, Ltd., Antitrust Litigation 1:14-md-02573-VEC SDNY, filed a motion to dismiss all claims against them based entirely on Schwab II. As we reported here, the London Silver action had moved past the motion to dismiss stage; Deutsche Bank had settled, and the other parties were proceeding to class certification. However, when Schwab II was decided, the defendants promptly moved to dismiss on the pleadings for a second time, and at least on first glance, their brief tracks Schwab II much more closely.
As the defendants explain it, they and Deutsche Bank operated the London Silver Fix, which set the daily price that the banks used for physical silver transactions with their customers and with each other, and which was also published for use as a benchmark. The plaintiffs were not customers of the banks, nor do they allege that “their transactions in physical silver expressly referenced the Silver Fixing price or that they traded a financial instrument that directly referenced the Silver Fixing price.” Rather—again, in the defendants’ words—plaintiffs allege that the benchmark manipulation harmed all purchasers and sellers of silver and silver-related financial instruments across the entire silver market. Defendants’ brief follows the four-factor “efficient enforcer” test set forth in Associated General Contractors of California, 459 U.S. 519, 534 (1983) (“AGC”). For element (1), directness, the defendants argue that the lack of direct transactions with plaintiffs, as well as the absence of allegations that the defendants effectively controlled the derivatives market for silver, and the absence of allegations that any of the plaintiffs’ third-party transactions even referenced the silver benchmark (a more apt use of the point also made by the SIBOR defendants) were decisive after Schwab II. For element (2), the existence of more direct victims, these would be the parties who did transact in physical silver with the defendants, and the defendants note that none of them have filed suit, which cuts strongly against the viability of the plaintiffs’ claims. For element (3), speculativeness of injury, the defendants argue that calculation of damages would require the court to first calculate an unfixed benchmark and then, somehow, determine how this new benchmark would have affected third-party transactions across the silver markets. Last, for element (4), ease of apportionment, the defendants concede that the factor is more neutral because—again, like Schwab II—the damages alleged do not implicate the “problem of upstream and downstream purchasers,” but the defendants do note that “apportioning liability to everyone in a multibillion-dollar market, including actors that have no direct relationship with Defendants, would be extraordinarily difficult.”
Opposition to the motion has not been filed yet, but U.S.D.J. Valerie Caproni asked the parties to meet and confer as to whether class certification proceedings should be stayed pending resolution, and the plaintiffs agreed that class certification should be stayed. The court set an opposition date of April 14, 2022, for opposition and May 13, 2022, for reply. The plaintiffs’ decision to agree to halt the class certification process indicates how seriously they are taking this Schwab II challenge, and it remains to be seen how they plan to respond.
[1]We should also note that the personal jurisdiction aspects of the Schwab II decision, which we have not yet discussed here, are even more widely discussed in the SIBOR briefing.