When Southern District of New York Judge Naomi Reice Buchwald entered her order in the consolidated Libor litigation on March 29, 2013, she dismissed the plaintiffs’ antitrust and RICO claims against the Libor rate-setting banks, and she also declined to exercise supplemental jurisdiction over the plaintiffs’ state law claims, which she dismissed without prejudice. The upshot of this ruling was that it left the plaintiffs to work out whether they wanted to appeal the dismissal ruling or try to pursue their state law claims in state court (or perhaps both).
Now one of the plaintiffs from the consolidated antitrust litigation has made a move. On April 29, 2013, the Charles Schwab Corporation and related Schwab entities (including several Schwab funds) filed an action in California (San Francisco County) Superior Court asserting a variety of state common and statutory law claims as well as claims under the Securities Act of 1933. A copy of the complaint can be found here (Hat Tip to Alison Frankel, who has an April 30, 2013 article on her On the Case blog, here, about the new Schwab lawsuit).
Schwab’s 125-page complaint essentially alleges that the Libor rate-setting banks manipulated the Libor benchmark rate, which cost Schwab and its various funds millions of dollars of interest income. Schwab claims that rate setting banks suppressed the benchmark borrowing rate, which permitted the banks to pay unjustifiably low interest rates on various securities tied to the Libor benchmark. The complaint alleges that the various Schwab entities invested billions of dollars based on alleged representations about the integrity of the benchmark rate-setting process.
Schwab’s complaint asserts multiple separate causes of action, including claims for fraud; deceit and concealment; violation of Section 17200 of the California Business and Professions Code (unfair business practices); breach of the implied covenant of good faith and fair dealing; violations of Sections 25400 and 25401 of the California Corporate Code (market manipulation); rescission of contract; unjust enrichment; and violation of Sections 11, 12 and 15 of the Securities Act of 1933. The only defendants named in the complaint are the Libor rate-setting banks themselves. There are no individual defendants named nor are there any other third parties named as defendants.
The defendants will of course have a variety of defenses on which they may attempt to rely in defending against the claims. Among other things, the defendants undoubtedly will seek to rely on statute of limitations defenses. In anticipation of this line of defense, Schwab devotes a certain amount of the complaint to detailing the ways that the defendants concealed the benchmark manipulation. The plaintiffs argue that the relevant statutes of limitations should be tolled until March 2011, when UBS disclosed that it was the subject of a regulatory investigation. The defendants will undoubtedly rely on the Wall Street Journal articles that appeared in spring 2008 raising questions about possible manipulation of the Libor rates. And as Frankel points out in her blog post about the case, the defendants will also argue that the various Schwab entities can’t quantify their alleged damages.
The plaintiffs filed their ’33 Act claims as part of their state court action in reliance on the concurrent state court jurisdiction provisions in the ’33 Act. It will be interesting to see if the defendants seek to remove the action to federal court. Whether or not a state court ’33 action is removable is an issue that was extensively litigated in connection with several credit crisis-related suits. As reflected here, notwithstanding concurrent state court jurisdiction in the ’33 Act, the Luther v. Countrywide lawsuit, though initially filed in state court, wound up in federal court. The Ninth Circuit rulings in the Luther case could allow this case to be removed to federal court and to stay there.
Among the interesting issues with respect to Schwab’s assertion of claims under the Securities Act are the possible D&O insurance coverage implications. The only defendants in most of the Libor-scandal related lawsuits are the corporate entities. In general, with the exception of the Barclays securities class action lawsuit, there are no individual defendants. The corporate entity coverage under the typical public company D&O insurance policy provides coverage only for securities claims. Other than the Barclays action, the Libor-scandal related litigation had not involved securities claims, and therefore by and large likely had not triggered the entity coverage available in most D&O insurance policies.
With Schwab’s assertion of Securities Act claims in its new state court complaint, there have now been claims asserted against all of the Libor rate-setting banks that potentially could trigger the entity coverage found in the typical D&O insurance policy. (Whether the coverage under the various entities’ policies has actually been triggered will of course depend on the terms and conditions in the entities’ policies.) There is of course the possibility that other Libor-scandal plaintiffs will now file their own securities fraud actions. Either way, the assertion of these securities claims raises the possibility that at least a portion of the defendants’ defense expenses might be covered under their D&O insurance policies, and possibly a portion of future settlement amounts if any. In other words, there seems to be an increased possibility of more significant loss costs for affected D&O insurance.
It remains to be seen if other Libor scandal plaintiffs whose claims were dismissed in Judge Buchwald’s March ruling now seek to follow Schwab and try to pursue state law claims against the rate setting banks. The one thing that is clear is that Judge Buchwald’s dismissal was just one stage in what undoubtedly will be a protracted multistage process as the Libor-scandal related litigation makes its way through the courts. The bottom line is that the Libor-scandal related litigation has much further to run and will continue to unfold for months and perhaps years to come.
My New All-Time Favorite Soccer Goal Call: When Lionel Messi scored an incredible goal in a recent La Liga game between Barcelona and Atletico Bilbao, announcer Ray Hudson basically had a brain explosion. Among other things, Hudson said, of Messi’s ball movement past the defenders, that “he literally disperses his atoms inside of his body on one side of the defender, and then collects them on the other.” Literally? Watch the goal and listen to the call on this video.