Charles Schwab Corp. v. Bank of America Corp.
883 F.3d 68
| 2d Cir. | 2018Background
- Schwab (multiple related entities) sued major global banks alleging a conspiracy to manipulate U.S. Dollar LIBOR from Aug. 2007–May 2010, harming Schwab’s purchases of floating-rate and fixed-rate debt instruments.
- Schwab purchased large volumes of instruments: direct purchases from some banks (~$1.8B floating, ~$174.8B fixed) and purchases via broker-dealers/affiliates from other banks (~$5.7B floating, ~$222.7B fixed); some defendants did not sell to Schwab.
- Schwab asserted 13 causes of action (fraud, aiding/abetting, California business torts, unjust enrichment, Securities Exchange Act §10(b)/§20(a), and various Securities Act claims).
- The SDNY dismissed Schwab’s state-law claims for lack of personal jurisdiction and dismissed several federal and state claims on the merits; Schwab appealed.
- The Second Circuit (Lynch, J.) affirmed in part, vacated in part, and remanded: it found personal jurisdiction over certain direct sellers (Deutsche Bank, UBS) for California transactions, granted leave to amend on agency/conspiracy jurisdiction theories, affirmed dismissal of fraud claims tied to fixed-rate purchases, reinstated (in part) §10(b) claims re: purchases of floating-rate instruments with leave to clarify loss-causation, and rejected the district court’s statute-of-limitations ruling as to unjust enrichment.
Issues
| Issue | Plaintiff's Argument (Schwab) | Defendant's Argument | Held |
|---|---|---|---|
| Personal jurisdiction based on in‑California transactions (direct & indirect sellers) | Sales/solicitations of LIBOR-linked products to Schwab’s California trading desk establish specific jurisdiction over selling banks and co‑conspirators | Sales through affiliates are insufficiently pleaded as principal–agent; some grouped defendants collapse parent/subs; California sales don’t reach claims based solely on LIBOR submissions in London | Jurisdiction exists as to direct sellers Deutsche Bank and UBS for claims tied to California transactions; Schwab may amend to clarify parent/sub identities and to plead agency relationships for indirect sellers; conspiracy contacts not imputed absent showing in‑forum acts were in furtherance of conspiracy |
| Effects test (express aiming at California) | Defendants knew manipulation would harm U.S. investors, including Schwab in California, so their London conduct was expressly aimed at California | Foreseeability of U.S. effects insufficient; aiming at U.S. or global markets ≠ aiming at a particular State | Rejected for this record: mere foreseeability that California investors would be harmed is not enough to satisfy Calder/express‑aiming requirement |
| State‑law fraud for fixed‑rate purchases (California) | Schwab relied on LIBOR when comparing spreads and chose fixed‑rate instruments; thus actual reliance and causation exist | California rejects fraud‑on‑the‑market; even if reliance pleaded, statements to BBA were not made to induce fixed‑rate purchasers—liability would be boundless and beyond scope of common‑law fraud | Affirmed dismissal: California common‑law fraud requires an ‘‘especial likelihood’’ of inducing plaintiff’s transaction; Schwab’s theory amounts to mere foreseeability and is outside the scope of actionable fraud |
| §10(b) securities fraud for floating‑rate instruments (loss causation & timeliness) | False LIBOR submissions and omissions induced purchases of floating‑rate instruments and caused economic loss; particularity and timeliness satisfied | District court: LIBOR suppression would lower purchase price so no loss (or might benefit buyer); interest payments after purchase aren’t a ‘‘purchase or sale’’; claims time‑barred | Vacated dismissal in part: plaintiff may plead plausible loss‑causation theories (e.g., depressed cash flows or losses on later sale); Rule 9(b)/PSLRA particularity satisfied for LIBOR submissions/omissions; timeliness cannot be resolved on complaint alone (some claims >5 years barred but others survive) |
Key Cases Cited
- Gelboim v. Bank of Am. Corp., 823 F.3d 759 (2d Cir. 2016) (recognized plausibility of LIBOR‑manipulation conspiracy and rejected district court’s contrary ruling)
- Licci v. Lebanese Canadian Bank, SAL, 732 F.3d 161 (2d Cir. 2013) (framework for minimum contacts and specific jurisdiction analysis)
- Walden v. Fiore, 134 S. Ct. 1115 (2014) (plaintiff’s forum connection, not defendant’s, is critical; suit‑related conduct must create substantial connection to forum)
- Daimler AG v. Bauman, 134 S. Ct. 746 (2014) (limits on general jurisdiction; agents’ forum acts can support jurisdiction if directed by principal)
- Calder v. Jones, 465 U.S. 783 (1984) (effects test: defendant must have expressly aimed tortious conduct at forum)
- Halliburton Co. v. Erica P. John Fund, Inc., 134 S. Ct. 2398 (2014) (elements of §10(b) securities fraud in federal law context)
- Dura Pharm. Inc. v. Broudo, 544 U.S. 336 (2005) (plaintiff must plead a causal connection between misrepresentation and economic loss)
- Chloe v. Queen Bee of Beverly Hills, LLC, 616 F.3d 158 (2d Cir. 2010) (sales to forum consumers can establish specific jurisdiction)
- Unspam Techs., Inc. v. Chernuk, 716 F.3d 322 (4th Cir. 2013) (co‑conspirator jurisdiction requires in‑forum overt acts in furtherance of the conspiracy)