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2nd Circuit Speaks: LIBOR Plaintiffs May Pursue Claims

On May 23, 2016, the Second Circuit issued a long-awaited decision in the In re: LIBORā€Based Financial Instruments Antitrust Litigation, vacating the District Court’s (Buchwald, J.) prior decision dismissing one case in this consolidated action.


This case arises out of a multidistrict litigation that consolidated numerous cases involving allegations that the defendant banks (the “Banks”), members of the panel that set LIBOR, understated their borrowing costs and suppressed LIBOR, allowing the Banks to pay lower interest rates on financial instruments sold to investors.  One complaint in the consolidated litigation—the Gelboim-Zacher complaint—was a putative class action alleging that the Banks violated Section 1 of the Sherman Act.

The District Court dismissed the Gelboim-Zacher complaint in its entirety finding that the complainants failed to plead antitrust injury.  The District Court reasoned that the LIBOR-setting process was collaborative rather than competitive, and so any manipulation to depress LIBOR did not cause an anticompetitive harm.

The Gelboim-Zacher Plaintiffs appealed, with the case going all the way to the Supreme Court to determine whether a plaintiff may immediately take a direct appeal from an order dismissing that plaintiff’s complaint in its entirety when (1) that case has been consolidated by the Judicial Panel on Multidistrict Litigation and (2) other cases remain pending in the consolidated action.  On January 21, 2015, the Supreme Court issued its decision:  each case in a MDL retains its own identity, and the Gelboim-Zacher plaintiffs were thus entitled to pursue their appeal.  We wrote about that decision here.

The Second Circuit’s Decision

Finally addressing the merits of the claims, the Second Circuit vacated the District Court’s decision and found that the Gelboim-Zacher Plaintiffs had successfully alleged an antitrust violation and an antitrust injury.  The Circuit remanded the case to the District Court for further evaluation of whether the Gelboim-Zacher Plaintiffs are efficient enforcers of the antitrust laws.

Antitrust Violation

The Second Circuit first determined that the Gelboim-Zacher Plaintiffs alleged an antitrust violation:  “LIBOR forms a component of the return from various LIBOR denominated financial instruments, and the fixing of a component of price violates the antitrust laws.”

The Second Circuit disagreed with the District Court’s conclusion that because “the LIBOR-setting process was collaborative rather than competitive, that any manipulation to depress LIBOR therefore did not cause appellants to suffer anticompetitive harm, and that [the Gelboim-Zacher Plaintiffs] have at most a fraud claim based on misrepresentation.”  Rather, the Second Circuit found that “the crucial allegation is that the Banks circumvented the LIBOR-setting rules, and that joint process thus turned into collusion.”

Antitrust Standing

The Second Circuit then considered whether the Gelboim-Zacher Plaintiffs had antitrust standing.  Two issues bear on antitrust standing:  (1) whether the plaintiff has suffered an antitrust injury, and (2) whether the plaintiff is an efficient enforcer of the antitrust laws.

The Second Circuit concluded that the Gelboim-Zacher Plaintiffs successfully alleged an antitrust injury:  “Generally, when consumers, because of a conspiracy, must pay prices that no longer reflect ordinary market conditions, they suffer injury of the type the antitrust laws were intended to prevent.”  (internal citations omitted).  The fact that the Gelboim-Zacher Plaintiffs, like other investors, were free to negotiate the interest rates attached to particular financial instruments did not eliminate the antitrust injury.  The Second Circuit explained that “[a]ny combination which tampers with price structures is engaged in an unlawful activity.”

The Second Circuit found that it is a “closer question,” however, as to whether the Gelboim-Zacher Plaintiffs are efficient enforcers of the antitrust laws.  This inquiry requires a multi-part test in which the court considers whether the violation was a direct or remote cause of the injury; whether there is an identifiable class of other persons whose self-interest would normally lead them to sue for the violation; whether the injury was speculative; and whether there is a risk that other plaintiffs would be entitled to recover duplicative damages or that damages would be difficult to apportion among possible victims.  The Second Circuit declined to issue a ruling on this issue, instead remanding the question for the District Court’s consideration.

Allegations of Conspiracy

The Banks also argued that the Second Circuit should affirm the District Court’s decision dismissing the claims on the ground that the Gelboim-Zacher Plaintiffs did not adequately allege conspiracy (even though the District Court did not reach this particular issue).  The Banks argued that the allegations were sufficient only to show parallel conduct.  The Second Circuit rejected this argument.  It explained that although the “line separating conspiracy from parallelism is indistinct,” it may be crossed by alleging “interdependent conduct, accompanied by circumstantial evidence and plus factors.” (internal quotation marks omitted).  The plus factors include a common motive to conspire; evidence that the parallel acts were against the individual economic self-interest of the alleged conspirators; and evidence of a high level of interfirm communications.  The Second Circuit found that this case did not present a close call because, among other reasons, the Gelboim-Zacher Plaintiffs’ allegations evidenced a common motive to conspire (increased profits and projecting the Banks’ economic health) and a high number of interfirm communications.

Next Steps

The Second Circuit ended its opinion by noting that the “novel features of this case raise a number of fact issues.”  Ultimately, it will be up to the District Court to consider on remand whether the Gelboim-Zacher Plaintiffs are efficient enforcers and, if so, whether they can establish the facts necessary to support their allegations.