LIBOR Judge Takes Control of State Court Investor Suits
U.S. District Judge Naomi Reice Buchwald in Manhattan ruled Monday that she has jurisdiction over two high-profile investor lawsuits filed against banks that set the LIBOR interest rate. On first glance, the ruling is a win for the banks, since Buchwald is the judge that gutted LIBOR class action litigation back in March. But one of the plaintiffs lawyers, Daniel Brockett of Quinn Emanuel Urquhart & Sullivan, says the banks are far from in the clear.
In a 28-page decision, Buchwald refused to remand to state court a fraud case Quinn Emanuel brought on behalf of Salix Capital against banks including Bank of America Corp., Credit Suisse AG, and Deutsche Bank AG. In the same decision, Buchwald also refused to let go of a similar case Lieff Cabraser Heimann & Bernstein filed for plaintiff Charles Schwab Corp. Siding with the banks, Buchwald ruled that a statute called the Edge Act gives federal courts jurisdiction over Salix and Schwab's claims.
After reports spread of banks manipulating LIBOR, the benchmark interest rate underpinning trillions of dollars in securities, investors primarily brought antitrust, racketeering, and Commodities Exchange Act claims against the banks that helped set LIBOR. The federal cases were consolidated before Buchwald, who issued a devastating March 29 ruling that gutted the consolidated complaints.
While Buchwald's ruling was a major blow to LIBOR class actions, it didn't affect individual investors willing to bring state law claims like fraud and breach of contract, as Alison Frankel of Reuters explained here. A Lieff Cabraser team led by Richard Heimann went back to the drawing board and in April brought claims against the banks in state court in San Francisco. Quinn Emanuel's Brockett brought similar claims in New York state court in May on behalf of Salix, which acquired the right to bring the claims from the defunct hedge fund FrontPoint Partners. (Brockett, to his credit, was hyping common law fraud claims even before Buchwald shut down the other causes of action).
Defense lawyers for the banks immediately removed both cases to federal court. The Judicial Panel on Multidistrict Litigation transferred both cases to Buchwald, setting up a jurisdictional tug-of-war. The banks wanted the cases to stay with Buchwald. Their defense lawyers seized on the Edge Act, which allows federally chartered banks to remove to federal courts all cases "arising out of transactions involving international or foreign banking." Quinn Emanuel and Lieff Cabraser opposed removal, arguing that only three of 21 banks involved in LIBOR-setting—Bank of America., Citigroup Inc., and JPMorgan Chase & Co.—are federally chartered banks.
Buchwald sided with the defendants in Monday's ruling, writing that "the conduct out of which these cases arise—the submission of rates to the U.S. Dollar LIBOR panel—is an international or foreign financial operation' under the Edge Act."
Quinn Emanuel's Brockett said that while he would have preferred a state court forum, he believes his side can prevail on the merits. "The claims we're alleging are very different" than those dismissed in Buchwald's March ruling, he said. "She's made statements that are consistent with her thinking that these theories are valid."
Robert Wise Jr. of Davis Polk, who represented Bank of America, was not immediately available for comment.