498 F.Supp.3d 516
S.D.N.Y.2020Background
- Variable Rate Demand Obligations (VRDOs) are long-term municipal bonds with short-term interest-rate resets and a put feature; remarketing agents (RMAs) must reset rates at the lowest level that will permit the bonds to trade at par and remarket tendered bonds.
- The Banks named as defendants were major RMAs and often served as liquidity providers; RMAs faced pressure to keep VRDOs off their balance sheets and collected remarketing and liquidity fees.
- Plaintiffs (City of Philadelphia and Mayor & City Council of Baltimore) allege that from ~2008–2016 RMAs colluded: sharing proprietary inventory/base-rate information (phone, Bloomberg, J.J. Kenny index) and coordinating base-rate resets to keep VRDO rates supracompetitive.
- Plaintiffs offer statistical models showing (a) defendants’ VRDO rates exceeded modeled “but-for” rates and (b) persistent clustering of defendants’ rates until investigations began in 2015–2016.
- Claims: Section 1 Sherman Act (per se price-fixing), Clayton Act remedies, and state-law claims for breach of contract, breach of fiduciary duty, and unjust enrichment. Defendants moved to dismiss under Rule 12(b)(6).
- Disposition (district court): motion GRANTED in part and DENIED in part — federal antitrust claims survive; breach-of-contract claims survive only against actual contractual counterparties; most fiduciary and all unjust-enrichment claims dismissed; limited survivor (Baltimore v. Citigroup fiduciary claim); statute-of-limitations tolling plausibly pleaded.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Section 1 conspiracy plausibly alleged (parallel conduct + agreement) | Banks coordinated base-rate resets, shared forward-looking price-bearing info, insiders corroborate communications; clustering/statistics support inference | Parallelism explained by market forces (Fed policy), statistics inadequate; need direct evidence | Court: plausible conspiracy alleged; allegations + plus factors suffice to survive Rule 12(b)(6) |
| Sufficiency of statistical/economic evidence | Regression and clustering analyses show rates were materially higher and moved in lockstep until investigations | Statistics are methodologically flawed and consistent with benign market-following behavior | Court: statistical pleadings are plausible at pleading stage and must be credited for now |
| Whether the conduct is per se price-fixing or governed by rule of reason | Information exchanges facilitated horizontal price-fixing; harm is classic “paid too much” price-fix injury | Mere dissemination of pricing info is not per se unlawful; apply rule of reason | Court: pleadings describe a horizontal price-fixing scheme; per se treatment appropriate at this stage (not dismissed) |
| Breach of contract — which defendants are liable | Plaintiffs: remarketing agreements existed with several named banks; those agreements were breached | Non-counterparty defendants never contracted with plaintiffs; no contractual relationship | Court: contract claims survive as to Counterparty Defendants (those who actually contracted); dismissed as to Non-Counterparty Defendants and Morgan Stanley entities |
| Breach of fiduciary duty (Pennsylvania & Maryland claims) | Banks acted as municipal advisors/agents and breached fiduciary duties by not seeking lowest rates | No special fiduciary relationship; claims duplicate contract; SEC guidance shows remarketing agents are not per se municipal advisors | Court: Baltimore’s fiduciary claim against Citigroup survives (Maryland law); Philadelphia’s Pennsylvania-based fiduciary claims dismissed; most fiduciary claims dismissed as duplicative or inadequately pleaded |
| Unjust enrichment & statute-of-limitations tolling | Unjust enrichment pleaded in the alternative; conspiracy was concealed (window dressing), tolling limitations | Contracts are valid; plaintiffs cannot show direct benefit to many non-counterparty defendants; some qui tam suits were filed earlier (putative notice) | Court: unjust enrichment dismissed against all defendants as duplicative or inadequately pleaded; fraudulent concealment plausibly alleged so timeliness survives at this stage |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (pleading must be plausible, not merely conceivable)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (court draws reasonable inferences for plaintiff at pleading stage)
- Mayor & City Council of Baltimore v. Citigroup, Inc., 709 F.3d 129 (2d Cir. 2013) (parallel conduct insufficient without plus factors)
- Gelboim v. Bank of Am. Corp., 823 F.3d 759 (2d Cir. 2016) (conspiracy must plead factual matter to suggest agreement)
- Starr v. Sony BMG Music Entm't, 592 F.3d 314 (2d Cir. 2010) (distinguishing independent action from agreement)
- Todd v. Exxon Corp., 275 F.3d 191 (2d Cir. 2001) (conscious parallelism and plus factors framework)
- United States v. Citizens & S. Nat'l Bank, 422 U.S. 86 (1975) (dissemination of price information not per se unlawful)
- Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877 (2007) (horizontal price-fixing is per se unlawful)
- Alaska Elec. Pension Fund v. Bank of Am. Corp., 175 F. Supp. 3d 44 (S.D.N.Y. 2016) (treatment of horizontal price-fixing allegations and abrupt cessation after subpoenas strengthens inference of conspiracy)