Friday, May 25, 2018

'Gamesmanship' one reason court won’t revive interest-rate-swaps antitrust claims

By Anne Sherry, J.D.

In a multi-district litigation over antitrust violations in the market for interest-rate swaps, the Southern District of New York denied plaintiffs’ efforts to revive claims based on pre-2013 conduct. For one thing, the proposed amended complaint would not remedy the “gauntlet of deficiencies” that led to the claims’ dismissal in 2017. Independent of that futility, amendment would delay litigation and unduly prejudice the defendants given that discovery was well underway based on the 2013+ claims only. The court admonished plaintiffs’ counsel for “gamesmanship” in not disclosing their intent to seek revival of the pre-2013 claims (In re Interest Rate Swaps Antitrust Litigation, May 23, 2018, Engelmayer, P.).

The plaintiffs allege that the defendants—11 investment banks, an IRS broker, and a provider of IRS trading services—colluded to prevent the establishment of an electronic platform that would allow all-to-all, anonymous IRS trading. In 2010, the Dodd-Frank Act created a comprehensive new regulatory framework for swaps with the goal of increasing accountability and transparency, which included enabling IRS to be traded via anonymous all-to-all trading platforms. After Dodd-Frank, three companies, including plaintiffs Javelin Capital Markets and Tera Group, developed trading platforms for all-to-all anonymous trading of IRS. The plaintiffs allege that the defendants conspired to boycott these platforms and instructed their clearinghouse affiliates to refuse to clear trades executed through them, resulting in the defendants controlling 70 percent or more of the IRS market and none of the structural changes intended by Dodd-Frank having been made.

In its decision on the defendants’ motions to dismiss in 2017, the court separated the claims into pre-Dodd-Frank (2007-2012) and post-Dodd-Frank (2013-2016). During the pre-Dodd-Frank time period, the court found, the dealers took no actions to support the emergence of all-to-all exchange-based IRS trading as a matter of self-interest, but there was no inference of collusion, and the court dismissed the claims. For the post-Dodd-Frank time period, however, the motion to dismiss was denied as the plaintiffs successfully pleaded that the defendants engaged in a group boycott.

Post-dismissal discovery. Following that opinion, the parties negotiated, and the court approved, a case management plan that governed fact discovery. The plan set a deadline of May 21, 2018, for the substantial completion of document production and a deadline of December 21, 2018, for the completion of fact discovery. Counsel’s work and negotiations, along with the document production, were informed by the decision on the motions to dismiss. “The Court’s rulings as to discovery were premised on—and took as durable—the Court’s central holding that the surviving claims in the case were limited to the 2013-2016 time period.”

Motion for leave to amend pre-2013 allegations. On February 21, 2018, plaintiffs’ counsel sought leave to file a third amended complaint which would add a plaintiff to serve alongside the existing class plaintiff, amplify allegations with respect to the 2013-2016 conduct, and restore the claims as to 2008-2012 conduct. The motion, a memorandum in support, and the proposed complaint were filed on the last day for motions seeking leave to amend under the case management plan.

The court granted leave to amend the complaint to add the additional plaintiff and add allegations pertaining to 2013-2016 conduct, neither of which additions the defendants contested. However, the court denied the most consequential request, for leave to restore the 2008-2012 claims. First, amendment would be futile as the proposed amended complaint did not fix “the gauntlet of deficiencies” that led the court to dismiss the claims. The plaintiffs’ theory of injury would remain too conjectural to survive even assuming the conspiracy claim were well-pleaded, and certain allegations remained conclusory. Furthermore, the claims were time-barred, and the plaintiffs’ bid for equitable tolling due to fraudulent concealment was unpersuasive.

The court also denied leave to restore the pre-Dodd-Frank claims on the independent basis that it would substantially delay the litigation and unduly prejudice the defense. The court further held that plaintiff’s counsel’s communications with the court and defense during the discovery period “conveyed a misleading impression” that the claims were fixed at 2013-2016 when in fact counsel had been actively pursuing an amendment to restore the claims as to the preceding five years. The court wrote that it was “regrettably, constrained to find an unwelcome degree of gamesmanship meriting denial of the motion for leave to amend.”

The two amendments that the court allowed were readily accommodated within the case schedule. In contrast, allowing the pre-2013 claims would be close to “allowing a new MDL-sized lawsuit to be hitched to the existing claims.” In practice, the narrative for those claims implicates events, entities, concepts, and personnel outside the scope of the post-Dodd-Frank claims and discovery. As a result, discovery would be delayed by at least 12 months, the court estimated.

The amendment would also prejudice the defendants who, on the premise that the claims were limited to 2013-2016, expended time, money, and energy in discovery. Reviving the claims would send the parties back to the drawing board on discovery, the court reasoned, and result in wasted or duplicative fees and costs extending “well into seven figures” across the 11 defense firms.

Finally, the court discussed its gamesmanship rationale for denying leave to amend. Plaintiffs’ counsel made an affirmative decision not to disclose their intention to amend the complaint until the last moment, despite seven months of communications in which counsel “fed the false impression” that the claims were limited to the 2013-2016 range. “Audaciously,” the court added, plaintiffs’ counsel “chided the defense for filing a discovery motion that could disrupt the orderly case schedule to which plaintiffs professed to be ‘diligently’ committed.” In a footnote, the court clarified that it chose not to reach the issue of whether counsel’s conduct rose to the level of bad faith. Its discussion of gamesmanship should not be taken as reflecting such a finding, and the court, “deeply respectful of the vigor and top quality of plaintiffs’ counsel’s overall representation … is confident that this episode will prove aberrational.”

The case is No. 16-MD-2704.