Sonterra Capital Master Fund Ltd. v. Credit Suisse Grp. AG

277 F.Supp.3d 521

SONTERRA CAPITAL MASTER FUND LTD., Frontpoint European Fund, L.P., Frontpoint Financial Services Fund, L.P., Frontpoint Healthcare Flagship Enhanced Fund, L.P., Frontpoint Healthcare Flagship Fund, L.P., Frontpoint Healthcare Horizons Fund, L.P., Frontpoint Financial Horizons Fund, L.P., Frontpoint Utility and Energy Fund L.P., Hunter Global Investors Fund I, L.P., Hunter Global Investors Fund II, L.P., Hunter Global Investors Offshore Fund Ltd., Hunter Global Investors Offshore Fund II Ltd., Hunter Global Investors Sri Fund Ltd., HG Holdings Ltd., HG Holdings II Ltd., and Frank Divitto, on behalf of themselves and all others similarly situated, Plaintiffs,

v.CREDIT SUISSE GROUP AG, Credit Suisse AG, JPMorgan Chase & Co., The Royal Bank of Scotland PLC, UBS AG, Bluecrest Capital Management LLP, Deutsche Bank AG, DB Group Services UK Limited, and John Doe Nos. 1–50, Defendants.

1:15–cv–00871 (SHS)

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

Signed September 25, 2017

Christian Levis, Geoffrey Milbank Horn, Peter Dexter St. Phillip, Jr., Raymond P. Girnys, Vincent Briganti, Lee Jason Lefkowitz, Michelle Elizabeth Conston, Sitso W. Bediako, Lowey Dannenberg P.C., White Plains, NY, Benjamin Martin Jaccarino, Christopher Lovell, Lovell Stewart Halebian Jacobson LLP, New York, NY, for Plaintiffs.

Adam Shawn Mintz, Elai E. Katz, Herbert Scott Washer, Jason Michael Hall, Joel Laurence Kurtzberg, Cahill Gordon & Reindel LLP, Paul Christopher Gluckow, Thomas C. Rice, Alexander Nuo Li, Elizabeth Jane Shutkin, Francis John Acott, Jeffery Li Ding, Mary Beth Forshaw, Michael Steven Carnevale, Omari Largos Royter Mason, Rachel Serenity Sparks Bradley, Simpson Thacher & Bartlett LLP, Alan Schoenfeld, David Sapir Lesser, Fraser Lee Hunter, Jr., Jamie Stephen Dycus, Wilmer Cutler Pickering Hale & Dorr LLP, Lawrence Jay Zweifach, Eric Jonathan Stock, Jefferson Eliot Bell, Peter Sullivan, Gibson, Dunn & Crutcher, LLP, Douglass Bayley Maynard, John Cullen Murphy, Katherine Penn Scully Porter, Akin Gump Strauss Hauer & Feld LLP, Aidan John Synnott, Andrew Corydon Finch, Moses Silverman, Elizabeth Justine Grossman, Matthew Jason Weiser, Michael Joseph Biondi, Noam Lerer, Paul Weiss Rifkind Wharton & Garrison LLP, Joseph O. Boryshansky, New York, NY, Abram Jeremy Ellis, Simpson Thacher & Bartlett LLP, Catherine Fairley Spillman, Akin Gump Strauss Hauer & Feld LLP, Washington, DC, Joel Steven Sanders, Gibson, Dunn & Crutcher, LLP, San Francisco, CA, for Defendants.

OPINION & ORDER

SIDNEY H. STEIN, U.S. District Judge.

Table of Contents

I. Background...537

A. Summary of CHF LIBOR...537

B. Relationship between CHF LIBOR and Swiss Franc Derivatives...537

C. The Parties and the Types of Swiss Franc Derivatives...537

D. Alleged CHF LIBOR Manipulation...539

1. Daily Fixes and Longer–Term Bias...539

2. Specific Instances of Manipulation...540

a. Intra–Defendant Manipulation...540

b. Inter–Defendant Collusion...540

3. Systemic Nature of Manipulation...541

E. Bid–Ask Manipulation...542

F. Regulatory Investigations and Settlements with Defendants...542

G. The Complaint, Plaintiffs' Claims, and the Proposed Class...542

II. Article III Standing...543

A. Standard...544

B. Plaintiffs Lack Article III Standing to Bring Their Bid–Ask Spread Claims...545

C. Plaintiffs Have Article III Standing to Bring Their CHF LIBOR Manipulation Claims with Respect to CHF Futures and FX Forwards...546

D. Plaintiffs Have Class Standing to Bring Their CHF LIBOR Manipulation Claims with Respect to Interest Rate Swaps and NYSE LIFFE Exchange Futures Contracts...549

III. Standard of Review for Motion to Dismiss for Failure to State a Claim...550

IV. Antitrust Claim (Count Two)...551

A. Conduct in Violation of Section One...552

1. The Alleged Conduct Constitutes a Restraint of Trade...552

2. Plaintiffs Allege a Plausible Antitrust Conspiracy Against Only RBS...552

B. Antitrust Standing...557

1. Plaintiffs Adequately Allege Antitrust Injury...557

2. Only the Direct Transaction Plaintiffs Are Efficient Enforcers...558

a. Directness of Causation of the Injury...559

b. Existence of More Direct Victims...562

c. Speculative Damages...563

d. Duplicative Recovery and Complex Apportionment...565

C. Statute of Limitations...566

1. The Complaint Fails to Allege Antitrust Violations Within the Four–Year Statute of Limitations...566

2. Count Two is Timely Because the Statute of Limitations is Tolled by the Fraudulent Concealment Doctrine...567

D. The FTAIA Does Not Bar Count Two...568

V. CEA Claims (Counts Three, Four, and Five)...570

A. The CEA Does Not Cover CHF FX Forwards...570

B. Counts Three, Four, and Five Fail Because Plaintiffs Lack CEA Standing...570

C. While Plaintiffs Lack CEA Standing, They Have Plausibly Alleged Manipulation by the Deutsche Bank Defendants, RBS, and UBS...572

D. While Plaintiffs Lack CEA Standing, They Have Plausibly Alleged Principal–Agent Liability Against the Deutsche Bank Defendants, RBS, and UBS...574

E. While Plaintiffs Lack CEA Standing, They Have Plausibly Alleged Aiding and Abetting Liability Against RBS...574

F. The CEA Claims Are Timely Against All Defendants Except UBS...575

VI. RICO Claims (Counts Six and Seven)...576

A. Plaintiffs Have RICO Standing...576

B. The Complaint Adequately Alleges Conduct that Violates RICO Only as to RBS...577

1. The Complaint Adequately Alleges an Association–in–Fact RICO Enterprise Only as to RBS...577

2. The Complaint Adequately Alleges Two Predicate Acts of Wire Fraud by RBS...577

3. The Complaint Adequately Alleges that RBS Engaged in a Pattern of Racketeering Activity...579

C. The Complaint Adequately Alleges a RICO Conspiracy Only as to RBS...579

D. The RICO Claims Are Dismissed in Full as Impermissibly Extraterritorial...579

E. Plaintiffs' RICO Claims Are Timely...583

VII. The Court Declines to Exercise Supplemental Jurisdiction over the State Law Claims (Counts Eight and Nine)...583

VIII. Personal Jurisdiction...584

A. Defendants' Operations and U.S. Connections...584

1. BlueCrest...584

2. The Credit Suisse Defendants...585

3. Deutsche Bank AG...585

4. DB Group Services...585

5. RBS...585

6. UBS...585

B. Personal Jurisdiction Standard...586

C. No Defendant Has Consented to the Court's General Jurisdiction...586

D. Specific Jurisdiction...588

1. Standard...588

2. The National Contacts Test Applies to Plaintiffs' Federal Claims...589

3. Bloomberg Chats Transmitted Through Servers in New York Do Not Constitute Meaningful Contacts with the Forum...590

4. Defendants Causing Thomson Reuters To Disseminate False CHF LIBOR into the United States Does Not Itself Create Sufficient Contacts...590

5. The Court Has Personal Jurisdiction Over RBS, UBS, the Credit Suisse Defendants and Deutsche Bank AG Because Manipulating CHF LIBOR for the Purpose of Profiting from Transactions in CHF LIBOR–Based Derivatives within the United States Constitutes Purposeful Availment of the Forum...591

6. The Court Lacks Personal Jurisdiction Over DB Group Services and BlueCrest Because They Are Not Plausibly Alleged to Have Transacted in CHF LIBOR–Based Derivatives in the United States...596

7. RBS's Conspiracy from Abroad with JPMorgan in the Forum Reinforces the Conclusion that RBS Is Subject to the Court's Jurisdiction...596

E. Fair Play and Substantial Justice...598

F. Jurisdictional Discovery...598

IX. Leave to Replead...599

X. Conclusion...599

This putative class action is based primarily on allegations that defendants unlawfully manipulated the Swiss franc London InterBank Offered Rate ("CHF LIBOR"), a daily interest rate benchmark designed to reflect the cost at which large banks are able to borrow Swiss francs. According to plaintiffs' First Amended Complaint (the "Complaint"), changes in CHF LIBOR affect the prices of numerous Swiss franc currency derivatives, such as Swiss franc foreign exchange forwards ("CHF FX forwards") and Swiss franc futures contracts ("CHF futures contracts"). The Complaint alleges that from at least January 1, 2001 through at least December 31, 2011 (the "Class Period") defendants—eight large financial institutions—conspired to manipulate CHF LIBOR, and thereby the prices of those derivatives, to benefit their own trading positions in Swiss franc currency derivatives. The essence of plaintiffs' claims is that they and others similarly situated were on the losing end of that manipulation, transacting in Swiss franc derivatives with defendants and third parties during the Class Period on terms made less favorable by (1) defendants' fixing of CHF LIBOR and (2) certain defendants' collusion to increase the "bid-ask spread" on transactions in those derivatives. Based on this alleged misconduct, the Complaint asserts claims against all defendants under the Sherman Antitrust Act, 15 U.S.C. § 1, et seq. , the Commodities Exchange Act ("CEA"), 7 U.S.C. §§ 1, et seq. , and the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961, et seq. , as well as state law claims against defendants Credit Suisse AG, Credit Suisse Group AG, and UBS AG for unjust enrichment and breach of the implied covenant of good faith and fair dealing.

The Complaint draws its allegations largely from the statements of fact accompanying numerous settlements, for an aggregate value of over $7 billion, that defendants have reached with U.S. and European regulators arising from their alleged manipulation of LIBOR for Swiss francs and several other currencies. Allegations of LIBOR manipulation, and the resulting regulatory investigations and settlements, have received widespread media coverage. In recent years, several purported class actions have also been filed in this judicial district alleging similar manipulation of LIBOR rates for other currencies. See, e.g., In re: LIBOR–Based Fin. Instruments Antitrust Litig. ("LIBOR I "), 935 F.Supp.2d 666 (S.D.N.Y. 2013) (U.S. dollars); Laydon v. Mizuho Bank, Ltd. , No. 12-cv-3419, 2014 WL 1280464 (S.D.N.Y. Mar. 28, 2014) (Yen); Sullivan v. Barclays PLC , No. 13-cv-2811, 2017 WL 685570 (S.D.N.Y. Feb. 21, 2017) (Euros).

Currently...