Dennis v. JPMorgan Chase & Co.

343 F.Supp.3d 122

Richard DENNIS, et al., Plaintiffs

v.JPMORGAN CHASE & CO., et al., Defendants.

16-cv-6496 (LAK)

United States District Court, S.D. New York.

Signed November 26, 2018

Christian Levis, Geoffrey Milbank Horn, Lee Jason Lefkowitz, Peter Dexter St. Phillip, Jr., Raymond Peter Girnys, Roland Raymond St. Louis, III, Sitso W. Bediako, Vincent Briganti, Lowey Dannenberg P.C., Christopher Lovell, Edward Y. Kroub, Lovell Stewart Halebian Jacobson LLP, Attorneys for Plaintiffs

Paul Christopher Gluckow, Abram Jeremy Ellis, Alan Craig Turner, Alexander Nuo Li, Eamonn Wesley Campbell, Francis John Acott, Jonathan Thomas Menitove, Mary Beth Forshaw, Michael Steven Carnevale, Rachel Serenity Sparks Bradley, Sarah Emily Phillips, Simpson Thacher & Bartlett LLP (NY), Attorneys for Defendants JPMorgan Chase & Co. & JPMorgan Chase Bank, N.A.

Jayant W. Tambe, Kelly A. Carrero, Stephen Jay Obie, Jones Day (NYC), Attorneys for Defendant BNP Paribas, S.A.

David Sapir Lesser, Fraser Lee Hunter, Jr., Jamie Stephen Dycus, Wilmer Cutler Pickering Hale & Dorr LLP (NYC), Attorneys for Defendants The Royal Bank of Scotland Group plc, RBS N.V., RBS Group (Australia) Pty Limited & The Royal Bank of Scotland plc

Eric Jonathan Stock, Jefferson Eliot Bell, Mark Adam Kirsch, Gibson, Dunn & Crutcher, LLP (NY), Attorneys for Defendant UBS AG

Jeffrey T. Scott, Mark Aaron Popovsky, Sullivan & Cromwell, LLP (NYC), Attorneys for Defendant Commonwealth Bank of Australia

Penny Shane, II, Corey Omer, Sullivan & Cromwell, LLP (NYC), Christopher Michael Viapiano, Sullivan & Cromwell, LLP (Washington DC), Attorneys for Defendant Australia and New Zealand Banking Group Ltd.

David Harold Braff, Matthew Joseph Porpora, Stephen Hendrix Oliver Clarke, Sullivan & Cromwell, LLP (NYC), Attorneys for Defendant National Australia Bank Limited

Daniel Slifkin, Michael A. Paskin, Timothy Gray Cameron, Cravath, Swaine & Moore LLP, Attorneys for Defendant Westpac Banking Corporation

Andrew Joshua Lichtman, Stephen Louis Ascher, Jenner & Block LLP (NYC), Thomas J. Perrelli, Jenner & Block LLP (DC), Attorneys for Defendant Deutsche Bank AG

Lewis J. Liman, Breon Stacey Peace, Charity Eunah Lee, Jennifer Kennedy Park, Nowell D. Bamberger, Cleary Gottlieb Steen & Hamilton LLP, Attorneys for Defendants HSBC Holdings plc & HSBC Bank Australia Limited

Marc Joel Gottridge, Benjamin Andrew Fleming, Kevin Timothy Baumann, Lisa Jean Fried, Hogan Lovells US LLP (NYC), Attorneys for Defendant Lloyds Banking Group plc

Christopher Martin Paparella, Marc Alan Weinstein, Hughes Hubbard & Reed LLP, Attorneys for Defendants Macquarie Group Ltd. & Macquarie Bank Ltd.

Marshall Howard Fishman, Christine Vanessa Sama, Goodwin Procter, LLP (NYC), Attorneys for Defendants Royal Bank of Canada & RBC Capital Markets LLC

Jon Randall Roellke, Kenneth Ian Schacter, Anthony R. Van Vuren, Morgan, Lewis & Bockius LLP (NY), Attorneys for Defendants Morgan Stanley & Morgan Stanley Australia Limited

Adam Shawn Mintz, David George Januszewski, Elai E. Katz, Herbert Scott Washer, Jason Michael Hall, Sheila Chithran Ramesh, Cahill Gordon & Reindel LLP, Attorneys for Defendants Credit Suisse Group AG & Credit Suisse AG

Brian S. Fraser, Akerman LLP, H. Rowan Gaither, IV, Shari A. Brandt, Richards Kibbe & Orbe LLP (NYC), Attorneys for Defendants ICAP plc & ICAP Australia Pty Ltd.

Brian Theodore Kohn, Harry Simeon Davis, Schulte, Roth & Zabel LLP, Attorneys for Defendants Tullett Prebon plc & Tullett Prebon (Australia) Pty Ltd.

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 defendants¹ move to dismiss for lack of subject-matter jurisdiction and failure to state a claim.² Certain defendants (the "Foreign Defendants") move also to dismiss as to them for lack of personal jurisdiction,³ 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.⁴ 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,⁵ 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.⁶

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."⁷ 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.⁸ A futures contract is similar to a forward, except that it is traded on a regulated exchange and has standardized terms.⁹ 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.¹⁰ 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.¹¹

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.¹² 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.¹³ 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) )."¹⁴

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."¹⁵ 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)."¹⁶

II. The BBSW Rate "Set"

A. Prime Bank Bills

Because BBSW rates...