Another Judge Rejects LIBOR I’s Holding On Antitrust Injury In Financial Benchmark Cases

May 9, 2016

A second judge in the Southern District of New York recently found that manipulation of financial benchmarks can constitute antitrust injury to state a claim for relief under federal antitrust laws.  On March 28, 2016, Judge Jesse M. Furman denied a motion to dismiss in Alaska Electrical Pension Fund v. Bank of America Corp., No. 14-cv-07126 (JMF) (S.D.N.Y., Mar. 28, 2016) (“ISDAfix”) (link), alleging antitrust violations in connection with the benchmark ISDAfix rate, a component of the price for cash-settled interest rate swaptions.  Of particular importance, Judge Furman determined that the defendants’ submissions to ICAP and alleged collusive trading designed to manipulate the ISDAfix benchmark rate can serve as the basis for antitrust injury.  He joins Judge Lorna G. Schofield in In re Foreign Exchange Benchmark Rates Antitrust Litigation (“FOREX”), 74 F. Supp. 3d 581 (S.D.N.Y., Jan. 28, 2015) (link), in rejecting the reasoning of In re LIBOR- Based Financial Instruments, 935 F. Supp. 2d 666 (S.D.N.Y., Mar. 29, 2013) (“LIBOR I”) (link), and determining that the process of setting financial benchmark rates can in fact be collusive and the type of conduct that the antitrust laws were designed to protect to serve as the basis for antitrust injury.  In LIBOR I, Judge Naomi Reice Buchwald ruled the opposite, determining that the LIBOR setting process was a cooperative, non-competitive effort and therefore the “[p]laintiffs’ injury… resulted from defendants’ misrepresentation, not from harm to competition.”  Id. at 688 (S.D.N.Y., Mar. 29, 2013).¹

The division among the district courts stems from the Supreme Court’s decision in Pueblo Bowl-o-Matic v. Brunswick.  429 U.S. 477 (1977) (link).  The Court held that a competitor who complained of lost profits from an increase in competition did not suffer antitrust injury because the antitrust laws are designed for “the protection of competition, not competitors.”  Id. at 488 (emphasis in original). Prior to LIBOR I, neither the Supreme Court, nor any Court of Appeals, had the opportunity to examine antitrust injury in the context of a lawsuit alleging a per se horizontal conspiracy among competitors²  brought by consumers who were also market participants.  Brunswick’s antitrust injury analysis was generally limited to cases between competitors and more often than not to cases under Section 2 of the Sherman Act, which prohibits monopolization.³   LIBOR I was the first in a series of cases at the district court level to apply Brunswick when considering antitrust injury in the context of competitors’ horizontal price-fixing of financial benchmarks brought by customers, who were also traders and market participants, under Section 1 of the Sherman Act.  As noted above, some district court judges have since elected to follow the Judge Buchwald’s reasoning regarding antitrust injury in other benchmark manipulation cases, while others have disagreed.

The first case to depart from LIBOR I’s reasoning was FOREX.⁴   In that case, the plaintiffs allege that the defendants conspired to fix prices of foreign currency spreads and benchmark prices in violation of the federal antitrust laws.  In denying the defendants’ motion to dismiss, Judge Schofield explained that the alleged conduct occurs “in a market where Defendants are supposed to be perpetually competing by offering independently determined bid-ask spreads.”  74 F. Supp. 3d at 596.  She explicitly disagreed with Judge Buchwald’s conclusion regarding antitrust injury, stating that it “blurs the lines between two separate analytic categories—the sufficiency of a complaint under Twombly and antitrust injury,” and that reliance on Brunswick (and ARCO) at the pleading stage is misplaced since neither address the sufficiency of a complaint on a motion to dismiss. 74 F. Supp. 3d at 597.

Then, a few weeks ago, Judge Furman determined in ISDAfix that the defendants’ behavior in setting the ISDAfix benchmark rate “extended beyond that relatively minimal level [of cooperation] to actual collusion on the rate,” such that the plaintiffs plausibly alleged that the defendants conspired “to fix [a] component of the price of financial instruments,” which resulted in supra-competitive prices.  No. 14-cv-07126 (JMF), at*18.  Judge Furman described plaintiffs’ alleged injury as “the quintessential antitrust injury.”  Id. (citing FOREX).  Notably, the component of the price argument, determined plausible by Judge Furman and long a staple of antitrust, had been rejected in LIBOR I.  935 F. Supp. 2d at 692-93 (2013). Judge Furman also noted that, according to the Supreme Court, “the machinery employed by a combination for price fixing”—in this case, the manipulation of a cooperative process to fix prices—is “immaterial.”  Id. at 16 (citing United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 223 (1940)).

Judge Buchwald’s decision in LIBOR I is currently on appeal to the Second Circuit.  No. 1:11-md-2262-NRB (2nd Cir., Feb. 12, 2015).  Whether and how these decisions will be harmonized remains to be seen.

THE MOGIN LAW FIRM, P.C. specializes in representing businesses, entrepreneurs, consumers and investors in antitrust, unfair competition and complex business litigation. We have participated in some of the largest antitrust cases in the United States and are frequently requested by other law firms and often consult with law firms engaged in antitrust cases.