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Salix Capital U.S. Inc. v. Banc of America Securities LLC

United States District Court, Second Circuit

December 30, 2013

SALIX CAPITAL U.S. INC., Plaintiff,
v.
BANC OF AMERICA SECURITIES LLC, et al. Defendants. THE CHARLES SCHWAB CORP., et al., Plaintiff,
v.
BANK OF AMERICA CORP., et al., Defendants. GEORGE MARAGOS, Plaintiff,
v.
BANK OF AMERICA CORP., et al., Defendants.

MEMORANDUM AND ORDER

NAOMI REICE BUCHWALD, District Judge.

This Memorandum and Order addresses three cases, two of which were transferred to this Court by the Judicial Panel on Multidistrict Litigation ("JPML") since they arose out of the same factual issues as the In re LIBOR-Based Financial Instruments Litigation ("In re LIBOR"), 935 F.Supp.2d 666 (S.D.N.Y. 2013), and the third of which was accepted by this Court as a related case following removal. In each of these cases, the respective plaintiffs seek to remand their action to state court, asserting that this Court lacks jurisdiction under either 12 U.S.C. § 632 ("the Edge Act") or 28 U.S.C. §§ 1330, 1441, and 1603 ("the Foreign Sovereign Immunities Act" or "the FSIA"). For the reasons provided below, we find that there is federal jurisdiction under the Edge Act. Furthermore, even assuming that the Edge Act did not confer federal jurisdiction over the plaintiffs' claims, this Court could still retain jurisdiction pursuant to the FSIA. The plaintiffs' motions for remand are therefore denied.

BACKGROUND

We will discuss the facts underlying each of the three cases in turn.

I. Salix Capital U.S. Inc. v. Banc of America Securities LLC, et al., 13 Civ. 4018

Salix is a Delaware corporation with its principal place of business in New York.[1] Salix Am. Compl. ¶ 15. Salix brought its claims as the assignee of investment funds ("the Funds") that entered into interest rate swaps with several banks, each of whom are named as defendants, between December 2007 and February 2008. Id . ¶¶ 5-6. In these arrangements, the Funds would contract with one of the defendant banks to receive floatingrate (variable) payments linked to the London InterBank Offered Rate ("LIBOR"), [2] and the Funds would in turn pay the counterparty bank a sum based on a fixed interest rate. Id . ¶ 6-7. The swaps at issue were executed by the Funds' managers in New York, and the counterparties were also located in New York. Id . ¶¶ 18-22.

Salix filed its first summons and complaint against the defendants in New York State Supreme Court on May 20, 2013. In this complaint, the plaintiff filed claims for breach of contract, based on the individual swap contracts discussed above, as well as for unjust enrichment, fraud, tortious interference, and civil conspiracy. Salix Original Compl. ¶¶ 197-353. The core of the complaint was that the defendants, all of which were banks that submitted rates to the U.S. Dollar LIBOR panel and three of which - Bank of America, Citibank, and JPMorgan Chase ("the Edge Act banks") - are federally chartered, intentionally suppressed LIBOR by submitting artificially low rates to the British Bankers' Association ("the BBA")[3]. Id . ¶¶ 269-70. In so doing, the defendants allegedly profited by ensuring that they would be able to pay Salix a reduced interest rate in swap transactions while receiving the higher fixed rate already promised by the plaintiff. See id. ¶ 3. Moreover, Salix asserts that the artificially low rates of return on investments that were keyed to LIBOR caused the Funds significant damages, and the Funds ultimately shut down in 2009. Id . ¶¶ 13-14.

On June 12, 2013, the defendants filed a notice of removal and removed the case to this Court. In the notice, the defendants asserted that there was federal jurisdiction over the matter pursuant to either the Edge Act or the FSIA. See Salix Notice of Removal ¶¶ 13-32. Salix then filed an amended complaint on June 27, 2013. The gravamen of the complaint remained the same as the original, but the plaintiff replaced The Royal Bank of Scotland Group plc ("RBS Group") as a defendant with The Royal Bank of Scotland plc ("RBS"). See Salix Am. Compl. ¶ 34. Salix next filed a motion for remand on July 11, 2013, asserting that there was no federal jurisdiction under either the Edge Act or the FSIA and requesting that the case be returned to New York state court. See generally Pl.'s Mem. of Law in Supp. of Mot. to Remand ("Salix Mem.").

II. The Charles Schwab Corp., et al. v. Bank of America Corp., et al., 13 Civ. 7005

The Schwab plaintiffs, a collection of fourteen entities, [4] are no strangers to this Court. Indeed, their original pleading was addressed in In re LIBOR, in which they were treated separately and apart from the other purported classes of plaintiffs. 935 F.Supp.2d at 676. This Court dismissed the Schwab plaintiffs' federal antitrust, RICO, and Cartwright Act claims, and declined to exercise jurisdiction over their remaining state-law claims. Id. at 677.

Thereafter, on April 29, 2013, the Schwab plaintiffs filed a new complaint in California State Superior Court against the sixteen bank defendants composing the U.S. Dollar LIBOR panel, including the Edge Act banks. The complaint asserted ten grounds for relief, including common-law contract claims, alleged violations of California statutory law, and alleged violations of Sections 11, 12, and 15 of the Securities Act of 1933. Schwab Compl. ¶¶ 329-397. Like Salix, the Schwab plaintiffs claim that the defendants' suppression of LIBOR caused them to experience financial losses; however, the damages alleged by the Schwab plaintiffs were not based on swap transactions, but rather on the plaintiffs' direct purchase of LIBOR-based financial instruments. Id . ¶ 14-15, 289-319. According to the complaint, the suppressed LIBOR figure resulted in the plaintiffs receiving artificially low returns on their investments. Id.

The defendants then filed a notice of removal in the U.S. District Court for the Northern District of California. As was the case in Salix, the defendants claimed that removal was proper under both the Edge Act and the FSIA. Schwab Notice of Removal ¶¶ 1-2. On July 24, 2013, the Schwab plaintiffs responded by filing a motion to remand the case back to California state court, arguing that removal under either the Edge Act or the FSIA was improper. See generally Pls.' Mem. P. & A. in Supp. of Mot. to Remand ("Schwab Mem."). The California District Court deferred ruling on the Schwab plaintiffs' motion until the JPML ruled on whether the case, along with the motion for remand, should be transferred to this Court.

On October 2, 2013, the JPML ordered that, pursuant to 28 U.S.C. § 1407, the Schwab plaintiffs' case should be transferred to this Court because it "shar[es] factual issues arising from allegations concerning defendants' participation in the British Bankers' Association (BBA) London Interbank Offered Rate (Libor) panel." In re LIBOR-Based Fin. Instruments Antitrust Litig., MDL No. 2262, slip op. at 2 (J.P.M.L. Oct. 2, 2013). On October 29, 2013, this Court granted the Schwab plaintiffs' application to reinstate their motion to remand their case to California Superior Court. In deciding their motion for remand, we considered both the parties' original moving papers, as filed in the Northern District of California, as well as supplemental briefing materials submitted in accordance with this Court's direction.

III. Maragos v. Bank of America Corp., et al., 13 Civ. 2297

George Maragos ("Maragos") is the Comptroller of the County of Nassau, New York, and in his official capacity, he filed this action in the Supreme Court of New York on November 27, 2012. The sixteen banks that submitted rates to the U.S. Dollar LIBOR panel, including the Edge Act banks, were named as defendants.

Similar to the complaint in Salix, the allegations at the core of Maragos are swap transactions in which the plaintiff claims damages on account of receiving payments at a lower interest rate than "true" LIBOR would have provided. Id . ¶¶ 8-9. The swap transactions at issue were between the Nassau County Interim Finance Authority ("NIFA"), on behalf of Nassau County, and bank counterparties. One of these bank counterparties is also a submitter to the U.S. Dollar LIBOR panel (UBS AG), but the other counterparties are not. Nevertheless, Maragos named as defendants all sixteen banks that allegedly suppressed LIBOR through their roles as members of U.S. Dollar LIBOR panel. Id . ¶ 58. Maragos asserted two causes of action against these defendants: common-law fraud and violation of New York General Business Law § 349. Id . ¶¶ 77-94.

On December 21, 2012, a subset of the defendants, including the Edge Act banks, filed a notice for removal in the U.S. District Court for the Eastern District of New York, claiming federal jurisdiction under the Edge Act and the FSIA. Maragos Notice of Removal ¶¶ 1-2. On January 18, 2013, the Honorable Arthur D. Spatt so ordered the plaintiff's voluntary dismissal of defendants RBS Group and WestLB AG ("Portigon"), pursuant to Fed.R.Civ.P. 41(a)(1)(A)(i). Maragos then moved in the Eastern District of New York to remand the case back to New York state court, asserting that the action was not removable under either the Edge Act or the FSIA. Before that court ruled on Maragos's remand motion, the JPML transferred the case to this Court, stating that there was "no question that the action has significant factual overlap with the actions already in the MDL." In re LIBOR-Based ...


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