DECISION AND ORDER
This action is the lead case in the consolidated pretrial proceedings of the multidistrict litigation In re Municipal Derivatives Antitrust Litigation, 08 MDL No. 1950. Plaintiffs are municipalities and other purchasers of municipal derivatives. The claims in this action arise out of an alleged unlawful conspiracy on the part of more than forty corporate defendants and others to illegally rig bids, limit competition, and fix prices in the municipal derivatives market, in violation of § 1 of the Sherman Antitrust Act, 15 U.S.C. § 1 (“§ 1”). All of the defendants except three now move to dismiss the consolidated amended complaint pursuant to Fed.R.Civ.P. 12(b)(6) (“Rule 12(b)(6)”). For the reasons set forth below, the motion is GRANTED.
I. BACKGROUND
A. PARTIES
Plaintiffs Fairfax County, Virginia, the State of Mississippi, the City of Baltimore, Maryland, the Central Bucks School District, and the Bucks County Water and Sewer Authority (collectively, “Named Plaintiffs”) filed the operative consolidated amended class (the “CAC”) action complaint on August 22, 2009. The Named Plaintiffs purport to represent a class (the “Class”) consisting of:
All state, local and municipal government entities, independent government agencies and private entities that purchased by competitive bidding or auction Municipal Derivatives directly from a Provider Defendant, at any time from January 1, 1992 through the present in the United States and its territories or for delivery in the United States and its territories.
(CAC ¶ 129.)
The defendants as named in the CAC are: Bank of America, N.A. (“BoA”); Wachovia Bank N.A. (“Wachovia”); AIG Financial Products Corp. (“AIG”); Bear, Stearns & Co., Inc. (“Bear Stearns”); Financial Security Assurance Holdings, Ltd. (“Financial Security Holdings”); Financial
B. FACTUAL ALLEGATIONS 2
1. Municipal Derivatives
This action involves allegations of a conspiracy “to fix, maintain or stabilize the price of, and to rig bids and allocate customers and markets for, Municipal Derivatives.”
(Id.
¶ 1.) The CAC defines municipal derivatives as the investment vehicles used by issuers of or those who receive money from the issuance of municipal bonds, which are bonds issued by states,
2. The Alleged Conspiracy
The CAC alleges that from January 1, 1992 through August 22, 2008 (the date of the CAC), the Defendants who issued and sold municipal derivatives to members of the Class (the “Provider Defendants”), along with the Defendants who acted as brokers for members of the Class in purchasing municipal derivatives from the Provider Defendants (the “Broker Defendants”), engaged in a conspiracy to “fix prices, and to rig bids and allocate customers and markets of Municipal Derivatives sold in the United States.” (Id. ¶ 6.) The purpose of the conspiracy was to “artificially suppress interest rates paid on, lower the value of, and reduce and stabilize the market prices of Municipal Derivatives sold by the Provider Defendants.” (Id. ¶ 106.) The CAC alleges that Defendants’ conduct caused the Named Plaintiffs to receive lower interest rates on their municipal derivatives contracts than they would have received in a competitive market, and that they “paid ancillary fees and other costs and expenses related thereto.” (Id. ¶ 6.)
a. Conduct Alleged
The Provider Defendants allegedly conspired to “allocate customers and fix or stabilize the prices of Municipal Derivatives, including the interest rates paid to issuers on such derivatives.” (Id. ¶83.) The Provider Defendants purportedly “understood that they would take turns providing the winning bid.” (Id. ¶ 84.) The Provider Defendants allegedly either communicated directly with each other or communicated indirectly through one or more Broker Defendants, who would suggest bids for the Provider Defendants to make. The CAC alleges that the Provider Defendants who won bids would compensate those Provider Defendants who had refrained from submitting bids or who had submitted sham bids.
According to the CAC, “[t]he interconnected nature of the Municipal Derivatives industry facilitated and reinforced the conspiratorial conduct alleged herein.”
(Id.
¶ 89.) Marketing personnel in the municipal derivative or bond departments of the Provider Defendants allegedly engaged in
“per se
illegal horizontal communications” regarding: “the rigging of bids”; “conduct that would be used to limit competition”; “sharing of profits from a winning bid with a losing bidder and other secret compensation of losing bidders”; “bids that would be won by specific Provider Defendants”;
The Broker Defendants allegedly participated in the conspiracy “by arranging the allocation of winning bids among the Provider Defendants,” and the Broker Defendants allegedly communicated with the Provider Defendants regarding: “winning bids that would be allocated to Provider Defendants”; confirmation of which bids would be won and lost by particular Provider Defendants; “the fact that bids were being rigged”; and “bid levels that would be necessary by Provider Defendants to win or lose a bid.” (Id. ¶ 93.) The CAC names three individuals employed or formerly employed by Broker Defendants Piper Jaffray, Baum, and PackerKiss, who allegedly engaged in these communications.
b. Opportunities to Collude
Named Plaintiffs contend that “[t]he conspiracy has been facilitated through intercompetitor trade associations,” including the International Swaps & Derivatives Association, the American Bankers Association, and the Securities Industry and Financial Markets Association. (Id. ¶ 96.) Some Defendants are members of one or more of these associations. The CAC alleges that conferences presented by the Information Management Network, such as the New England Public Finance Conference and the Issuers & Investors Summit, also provided “venues to collude.” (Id. ¶ 97.)
c. Allegations of Kickbacks
The CAC cites various instances of kickbacks paid during the course of the alleged conspiracy. As an example, the CAC alleges that CDR had a secret agreement with the provider of a GIC for bonds issued in 1999 by an entity in Gulf Breeze, Florida, which allowed CDR to increase its fees if none of the $200 million in bond proceeds was used for its intended purpose, which was to provide affordable housing. Another example provided by the CAC is the $453 million GIC that BoA provided to the City of Atlanta in 2002, in which CDR was the broker and handled the bidding. The CAC also cites a lawsuit filed in 2007 by Biola University against BoA, alleging that BoA shared kickbacks with BNP Paribas relating to bond issuances and related swaps.
Named Plaintiffs also point to a June 28, 2002 e-mail from Douglas Campbell, a former BoA sales team manager, to Phil Murphy, the former head managing director of BoA’s derivatives department, as evidence of kickbacks that were paid by BoA “on a transaction where the external business contact was not involved in the transaction.”
(Id.
¶ 100.) The CAC reproduces this e-mail, and alleges that the e-mail reflects $182,393 in payments to CDR, Piper Jaffray, PaineWebber, and Winters, and that these payments were meant to “build [BoAJ’s relationship with these companies
The CAC also cites over twenty lease-to-own deals between CDR and Société Générale that are being examined by the IRS as examples of bid-rigging and kickbacks. The CAC notes that the IRS expressed concern about quarterly payments made by Société Générale to CDR relating to a $27 million bond sold by “Pima County, Arizona’s Industry Development Authority.” (Id. ¶ 102.) The CAC refers to “CDR’s involvement in California school advance refunding escrows and put option cases from several issuers around the nation.” (Id. ¶ 101.)
The CAC alleges that Baum “illegally diverted profits on municipal bond deals,” as disclosed in a settlement with the IRS covering deals entered into between 1997 and 2001. (Id. ¶ 103.) The IRS purportedly found evidence of bid-rigging by Baum, as well as evidence that Baum allowed an entity called CDC Funding Corp. (“CDC”), which the CAC alleges was the predecessor to Natixis, to “underpay for the GIC and simultaneously overpay for other investment agreement and remarketing fees.” (Id.) CDC purportedly “paid a large fee directly to David Lail of Defendant Baum.” (Id.) In addition, Baum allegedly received a “significant hidden payment” from BoA in connection with “a $100 million issue from the Illinois Development Finance Authority sold in 2000 by Rural Enterprises of Oklahoma, Inc. (‘Rural Enterprises’),” and Baum also accepted an IRS penalty in November 2006, “purportedly in connection with bid-rigging involving Natixis.” (Id. ¶ 104.)
As a further example of kickbacks relating to the alleged conspiracy, Named Plaintiffs contend that “Feld Winters engaged in an unlawful kickback scheme with Pacific Matrix Financial Group, Inc. and O’Brien Partners, Inc. with respect to Municipal Derivatives transactions in the 1990s.” (Id. ¶ 101.)
The CAC alleges that BoA, JP Morgan, Bear Stearns, and Lehman Brothers, Inc. (“Lehman Brothers”) were paid “six times above the prevailing rate” in fees for interest rate swaps for Jefferson County, Alabama between 2001 and 2004, and that CDR was the adviser to Jefferson County. (Id. ¶ 105.) The Securities and Exchange Commission (“SEC”) brought an action against Jefferson County’s former county commission president, alleging that he had accepted an improper payment from an underwriter in connection with the swaps, and the Department of Justice (“DOJ”) is also “investigating the bankers and officials involved in these swaps.” (Id.) The CAC further asserts that “at least four JP Morgan bankers” at the time, including the former head of municipal derivatives sales for JP Morgan, have been advised that “they could face criminal charges.” (Id.)
d. Related Investigations and History of Fraud
The CAC cites the IRS’s investigation into the “collusive practices in the Municipal Derivatives industry” in support of its allegations of an industry-wide conspiracy.
(Id.
¶ 108.) The IRS investigation purportedly revealed that investment contracts were sold at below-market rates, artificially lowering investment yields and thus the required payments to the IRS. The “spread” between the investment and the bond yields was then allegedly passed on to the bonds’ providers.
(Id.
¶ 108.) This investigation allegedly “led an investment banking firm to uncover transcripts of telephone conversations involving an employee that indicated the employee and other market participants were involved in bid-rigging on GICs in the municipal market.”
(Id.
¶ 112.) In February 2007, BoA
Named Plaintiffs also point to the DOJ Antitrust Division’s investigation into the municipal derivatives industry. This investigation has involved raids by the Federal Bureau of Investigation, as well as subpoenas that were served on various Provider and Broker Defendants. The CAC names eleven individuals who “have been targeted for possible indictment by the DOJ or notified that they are part of the DOJ’s investigation.” (Id. ¶ 120.)
In addition, the CAC cites BoA’s participation in the DOJ’s antitrust corporate leniency program in connection with the DOJ’s investigation into the municipal derivatives industry’s bidding practices. The DOJ’s conditional grant of amnesty provides that the DOJ will not bring a criminal antitrust prosecution against BoA in connection with matters that BoA has reported to the DOJ, in return for BoA’s continuing cooperation with the DOJ.
The CAC also alleges that numerous Provider Defendants have received subpoenas from attorneys general of various states, in connection with investigations of the municipal derivatives industry.
Finally, the CAC points to the history of fraud in the municipal derivatives market, citing the 1998 sanctioning of twenty-one firms for “fraudulent activities that raised the price on Treasury bonds sold to local governments, driving down the yield, to avoid restrictions on how much they could earn.” (Id. ¶ 127.) The CAC notes that one of the Provider Defendants, Piper Jaffray, was involved in this earlier scandal. The CAC also cites a $220,000 civil settlement in connection with the alleged bid-rigging of a GIC transaction involving the Oklahoma Turnpike Authority in 1989, and a forward contract in 1992.
C. PROCEDURAL BACKGROUND
In January 2007, BoA entered into the antitrust corporate leniency program administered by the DOJ under the Antitrust Criminal Penalty Enhancement and Reform Act of 2004 (“ACPERA”).
See
Antitrust Criminal Penalty Enhancement and Reform Act of 2004, Pub.L. No. 108-237, tit. II, §§ 201-221, 118 Stat. 661, 665-669. Multiple civil antitrust actions against various defendants were subsequently filed by various municipalities and other entities across the country. Pursuant to 28 U.S.C. § 1407, the Judicial Panel on Multidistrict Litigation (“MDL”) transferred all pending and subsequent related actions to this District on June 16, 2008,
The CAC was filed on August 22, 2008. In it, Named Plaintiffs allege that Defendants conspired “to fix, maintain or stabilize the price of, and to rig bids and allocate customers and markets for, Municipal Derivatives” in violation of § 1. (CAC ¶ 141.) The allegations in the CAC are based in part on “publicly available information, including regulatory filings,” as well as information gained from “confidential discussions” with BoA over a fourteen-month period, in the context of “a settlement process.” (Id. ¶ 2.) The CAC seeks treble damages pursuant to the Clayton Act, 15 U.S.C. § 15. (Id. ¶ c.)
The CAC alleges that the conspiracy has had the following effects: price competition in the sale of municipal derivatives was “restrained, suppressed, and/or eliminated”; bids were “fixed, stabilized and maintained at non-competitive levels”; customers and markets for municipal de
The CAC also alleges that Defendants fraudulently concealed their unlawful conduct such that Named Plaintiffs and Class members could not have discovered the violations alleged until shortly before the CAC was filed. (Id. ¶ 146.) Defendants concealed their conduct by: “meeting secretly to discuss prices, customers, and markets”; agreeing “not to discuss publicly, or otherwise reveal, the nature and substance of the acts and communications in furtherance of them illegal scheme”; “intentionally creating the false appearance of competition by engaging in sham auctions”; engaging in “covert sharing of profits or other secret compensation paid to losing bidders”; “secretly communicating about bids that would be won or lost by the Provider Defendants”; “paying kickbacks to Broker Defendants”; “submitting cover or courtesy bids, or unrealistically low or other artificial bids, and/or deliberately losing bids, to create the appearance of competition”; and entering into “covert agreements not to bid.” (Id. ¶ 147.)
All Defendants except for BoA, Feld Winters, and MGIC (the “Joint Defendants”) filed a motion to dismiss the CAC, accompanied by a memorandum of law in support. A group of Defendants who characterized themselves as Defendants against whom the CAC’s only allegation was that they reportedly received government subpoenas in the course of an investigation into the municipal derivatives market (the “Subpoena Defendants”) also filed a motion to dismiss, as well as a supplemental memorandum of law in support of the Joint Defendants’ motion to dismiss. Soeiété Générale filed a supplemental memorandum of law regarding the allegations against it. Natixis Funding also filed a supplemental memorandum of law. The Named Plaintiffs filed memoranda of law in opposition to the Joint Defendants’ motion to dismiss, as well as memoranda in opposition to the memoranda from the Subpoena Defendants, Soeiété Générale, and Natixis Funding.
II. DISCUSSION
A. LEGAL STANDARD
In assessing a motion to dismiss under Rule 12(b)(6), dismissal of a complaint is appropriate if the plaintiff has failed to offer sufficient factual allegations making the asserted claim plausible on its face.
See Iqbal v. Hasty,
Regardless of whether parallel conduct is alleged, “[t]o survive a motion to dismiss under
Twombly,
it is not enough to make allegations of an antitrust conspiracy that are consistent with an unlawful agreement; to be viable, a complaint must contain ‘enough factual matter (taken as true) to suggest that an agreement [to engage in anticompetitive conduct] was made.’ ”
In re Elevator Antitrust Litig.,
B. PLAUSIBILITY ANALYSIS
The CAC makes broad allegations of a conspiracy among the Defendants, stretching from January 1992 to August 2008. The Defendants are named in the suit because at least one Class member allegedly purchased a municipal derivative from or through each Defendant, yet the CAC contains specific factual averments regarding only a few of the Defendants. The Court will first address the claims against the Defendants which have moved to dismiss the CAC — the Joint Defendants— about whom the CAC makes no specific factual allegations, before addressing the claims against the remaining Joint Defendants who are alleged to have some particular factual connection to the alleged conspiracy.
1. Joint Defendants: No Specific Allegations
For the majority of the Joint Defendants, the CAC alleges only that a particular Provider Defendant “issued and sold Municipal Derivatives to members of the Class,” (CAC ¶¶ 15-37), or that a particular Broker Defendant “acted as a broker for members of the Class in purchasing Municipal Derivatives from the Provider Defendants.” (Id. ¶¶ 38-52.) The CAC makes no specific allegations regarding the following Joint Defendants’ involvement in the alleged conspiracy: AIG; Financial Security Holdings; Financial Security Assurance; Financial Guaranty; GE; Gen-worth; AIG SunAmerica; UBS; XL Capital; XL Funding; XL Life; Merrill Lynch; Morgan Stanley; NatWest; Investment Management Advisory; First Southwest; Kinsell Newcomb; Shockley; Cain Brothers; Morgan Keegan; and Trinity Funding. The Court finds that the CAC therefore fails to state a claim against these Joint Defendants.
The allegations that Class members bought municipal derivatives from or through these Joint Defendants are insufficient to state a § 1 claim because those allegations merely aver that these Joint Defendants were involved in the sale of municipal derivatives, not that they were involved in a conspiracy to rig bids, fix prices, or allocate customers and markets for municipal derivatives. The CAC does not specify which Named Plaintiffs or Class members bought municipal deriva-
Although Named Plaintiffs allege that all Defendants participated in the alleged conspiracy and engaged in conduct and communications in furtherance of the conspiracy, Named Plaintiffs have “failed to plead facts plausibly suggesting a ‘meeting of the minds’ ” among any of these Joint Defendants. Id. at 579.
Beyond bare allegations that a conspiracy existed, the CAC relies on some of the Joint Defendants’ involvement with trade associations or conferences. However, participation in trade associations or conferences cannot support the CAC’s allegations of a conspiracy. Named Plaintiffs “have not pleaded that defendants ever met and agreed to [engage in the alleged antitrust violations]; they plead at most that defendants had the opportunity to do so because they attended many of the same meetings.”
In re Graphics Processing Units Antitrust Litig.,
This Court agrees that the various investigations, inquiries, and subpoenas do not make the CAC’s allegations plausible, for the purposes of deciding a motion to dismiss under the standards as laid out in Twombly and Iqbal. With respect to the DOJ, SEC, and state attorneys general investigations referenced in the CAC, there is no information in the CAC about the progress of most of these investigations and there is no indication from any of these proceedings that wrongdoing of the kind alleged has occurred.
The closest the CAC comes to making specific factual averments relating to a government investigation that might make its allegations more plausible is its description of an IRS investigation into “collusive practices in the Municipal Derivatives industry.” (CAC ¶ 108.) The CAC quotes IRS officials’ comments on the existence of bid-rigging in the municipal derivatives industry generally and alleges that the IRS investigation “led an investment banking firm to uncover transcripts of telephone conversations” implicating an employee “and other market participants” in bid-rigging “on GICs in the municipal market.”
(Id.
¶ 112.) The CAC then notes that BoA paid $14.7 million to the IRS “for its role in providing GICs ... to some state and local government entities.”
(Id.
¶ 113.) The CAC also alleges that “the IRS has stated that it has come across instances of price-fixing, bid-rigging and kickbacks.”
(Id.
¶ 114.) These allegations, though suggestive, are too general to make an antitrust claim plausible as to any specific Defendant other than BoA. Taking these factual averments as true, the Court still cannot conclude that they give “reasonably founded hope that the [discovery] process will reveal relevant evidence to support a § 1 claim” against the Joint Defendants about whom the CAC makes no specific allegations.
Twombly,
Named Plaintiffs also argue that the participation of one of the Joint Defendants, BoA, in the DOJ’s antitrust corporate leniency program supports the CAC’s allegations of an industry-wide conspiracy. The CAC quotes a BoA press release, which refers to the DOJ’s “investigation into bidding practices in the municipal derivatives industry.”
(Id.
¶ 123.) The CAC also provides an excerpt of a 10-K form
With respect to the Joint Defendants named in the CAC’s allegations of specific transactions or communications involving BoA, BoA’s participation in the leniency program could bolster the Named Plaintiffs’ claims. The Court addresses the claims against those Joint Defendants below. With respect to the Joint Defendants about whom the CAC makes no specific allegations, BoA’s participation in the leniency program cannot be taken as a factual averment making a finding of a conspiracy more plausible, for the purposes of a motion to dismiss. BoA’s participation in the leniency program simply supports a general allegation of a conspiracy in the industry, but this is not sufficient to state a claim against the Joint Defendants who are not the subject of specific allegations in the CAC.
Finally, the Court cannot accept the CAC’s reference to a history of fraud in the municipal derivatives market as a factual averment that supports the CAC’s present claims, at least as to some of the Joint Defendants whose alleged unlawful conduct is not otherwise plausibly verified. Sanctions imposed in 1998 and a civil settlement regarding transactions in 1989 and 1992 that did not involve any of these Defendants cannot be said to establish a history of fraud in the market, and even if they could, these allegations do not make the claims against any of such Defendants more plausible.
Named Plaintiffs argue that any lack of specificity regarding the role played by any particular Defendant goes to the question of whether there was a single, industry-wide conspiracy or whether there were multiple smaller conspiracies among the Defendants. Named Plaintiffs contend that this is a question that should not be resolved at the motion to dismiss stage. The Court finds that the issue of single or multiple conspiracies is irrelevant because, as discussed above, the claim that the Joint Defendants who are not implicated in the CAC’s specific allegations of wrongdoing were involved in an industry-wide conspiracy, or even in multiple, smaller conspiracies, is based entirely on the happenstance that those Joint Defendants were involved in the sale of municipal derivatives. The Court has explained why the mere fact that defendants are involved in an industry that is purportedly rife with antitrust violations is not, without more, enough to state a § 1 claim. The CAC fails to allege that these Joint Defendants were involved in a single conspiracy or in multiple smaller conspiracies.
The Court finds that the Named Plaintiffs have failed to make well-pled allegations that, taken as true, raise a “reasonable expectation that discovery will reveal evidence of illegal agreement” with respect to the Joint Defendants against whom the CAC makes no specific factual averment of involvement in the alleged conspiracy.
Twombly,
2. Joint Defendants: Specific Allegations
The CAC does make specific allegations that the following Joint Defendants received, paid, or were involved in kickbacks in connection with the sale of municipal derivatives: CDR; Société Générale; JP Morgan, Bear Stearns, Baum; Natixis; Piper Jaffray; PaineWebber; Winters; Wachovia; PaekerKiss; and UBS. As explained above, the CAC’s general references to a conspiracy involving all of the Defendants and its reliance on industry-wide trade associations and conferences and various government investigations cannot help Named Plaintiffs satisfy the standard for stating a § 1 claim. The Court will, however, consider whether any of the specific allegations in the CAC help Named Plaintiffs state a claim that a particular Defendant committed a § 1 violation. The Court will not consider whether these allegations make the CAC’s claim regarding BoA, Feld Winters, or MGIC plausible for the purposes of a motion to dismiss, because those Defendants have not moved to dismiss the CAC. However, the Court will consider whether allegations involving BoA, Feld Winters, or MGIC support claims against other Defendants.
a. CDR and Related Defendants
The CAC alleges that CDR had a secret agreement with the provider of a GIC for bonds issued in 1999 by an authority in Gulf Breeze, Florida, which allowed CDR to increase its fees if none of the $200 million in bond proceeds was used for its intended purpose of affordable housing. (CAC ¶ 91.) CDR also acted as the broker and handled the bidding for a GIC for the City of Atlanta in 2002, which the CAC cites as an instance of “bid-rigging and kickbacks.” (Id. ¶ 99.) The CAC cites over twenty lease-to-own deals between CDR and Société Générale from 1996 to 2005, involving quarterly payments for “unspecified services” as examples of bid-rigging and kickbacks. (Id. ¶ 101.) The CAC also refers to “CDR’s involvement in California school advance refunding escrows and put option cases from several issuers around the nation.” (Id. ¶ 101.) Finally, the CAC alleges that CDR acted as the adviser to Jefferson County, Alabama for the purchase of interest rate swaps between 2001 and 2004, for which BoA, JP Morgan, Bear Stearns, and Lehman Brothers were paid “six times above the prevailing rate” in fees. (Id. ¶ 105.)
Several of these claims do not support the CAC’s antitrust conspiracy allegations regarding CDR. The allegation that CDR had an agreement allowing a fee increase if the Gulf Breeze, Florida entity did not use the proceeds from bonds issued in 1999 for their intended purpose has no relevance to the antitrust violations alleged here, a conspiracy “to fix, maintain, or stabilize the price of, and to rig bids and allocate customers and markets” for municipal derivatives. (Id. ¶ 1.) Nor does CDR’s alleged involvement in “California school advance refunding escrows and put option cases” from an unspecified time period make it more plausible to the Court that CDR engaged in an antitrust conspiracy in the municipal derivatives market. (Id. ¶ 101.) Similarly, the allegation of over twenty improper “lease-to-own” deals between CDR and Société Générale has no apparent relation to municipal derivatives.
However, several of the allegations regarding CDR and other Defen
Because the sole allegations of transactions involving CDR and Société Générale do not relate to municipal derivatives, the motion to dismiss is granted as to Société Générale. The claims against CDR, JP Morgan, and Bear Stearns remain.
b. Baum and Natixis
Based on Baum’s November 2006 settlement with the IRS, the CAC also alleges that Baum “illegally diverted profits on municipal bond deals” between 1997 and 2001. (Id. ¶ 103.) Named Plaintiffs allege that the IRS found evidence that Baum had rigged deals to allow CDC, the predecessor to Natixis and the winner of many of the bids, “to underpay for the GIC and simultaneously overpay for other investment agreement and remarketing fees, diverting arbitrage profits back to ... Baum.” (Id.) The CAC alleges that CDC paid a large fee directly to an employee of Baum. The CAC also alleges that Baum received a “significant hidden payment” from BoA in connection with “a $100 million issue from the Illinois Development Finance Authority sold in 2000 by Rural Enterprises.” (Id. ¶ 104.) In July 2003, Rural Enterprises purportedly disclosed the hidden payment made by BoA to Baum. These allegations, taken as true, make the § 1 claim against Baum and Natixis (as the successor to CDC) plausible for the purposes of a motion to dismiss.
c. Payments Described by BoA E-mail
The CAC describes a June 28, 2002 e-mail from Douglas Campbell, a former BoA sales team manager, to Phil Murphy, the former head managing director of BoA’s derivatives department, documenting payments made by BoA “on a transaction where the external business contact was not involved in the transaction.” (Id. ¶ 100.) Named Plaintiffs allege that the email reflects $182,393 in payments to CDR, Piper Jaffray, PaineWebber, and Winters, and that these payments were meant to “build [BoA]’s relationship with these companies or to say ‘thanks for all the swap business.’ ” (Id.)
The e-mail constitutes factual support for a claim that BoA, CDR, Piper Jaffray,
d. Individuals Engaged in Communications in Support of the Alleged Conspiracy
The CAC names several individuals alleged to have engaged in “per se illegal horizontal communications” in support of the alleged conspiracy. (Id. ¶ 90; ¶¶ 92-93.) The CAC names twelve individuals employed by the Provider Defendants who allegedly engaged in these communications: three former BoA employees, four former JP Morgan employees, and five individuals employed by or formerly employed by Bear Stearns, Wachovia, or UBS, The CAC names three individuals employed by Broker Defendants Piper Jaffray, Baum, and PackerKiss who allegedly engaged in these communications.
The CAC does not provide information on the approximate time period of these alleged communications or how frequently these communications took place. Although the CAC does provide the names and positions of the employees allegedly involved, that is not enough to state a claim for antitrust violations, because otherwise a § 1 claim could be stated simply by obtaining the names and positions of a defendant’s relevant employees, which requires relatively minimal inquiry. For this reason, allegations that particular employees participated in communications in furtherance of the alleged conspiracy cannot make the conspiracy itself more plausible, when those allegations do not contain any other specific details. Although the Court accepts the factual allegations in the CAC as true for the purposes of assessing the motion to dismiss, the Court cannot find that general allegations of conspiratorial communications coupled with specific names and positions of individual employees are anything more than “averments of agreements made at some unidentified place and time,” which are “insufficient to establish a plausible inference of agreement, and therefore to state a claim.”
Elevator Litig.,
The Court therefore finds that the averments regarding communications engaged in by individual employees are not sufficient to state a claim as to JP Morgan, Bear Stearns, Wachovia, UBS, Piper Jaffray, Baum, and PackerKiss, though the Court will permit Named Plaintiffs to re-plead claims based on these alleged communications within twenty days of this Order. The Court notes that claims against some of these Joint Defendants may survive based on other allegations, as outlined above.
C. STATUTE OF LIMITATIONS AND FRAUDULENT CONCEALMENT
The Court has determined that the motion to dismiss should be granted as to § 1 claims against all Joint Defendants except
A four-year statute of limitations applies to private civil antitrust actions seeking treble damages.
See
15 U.S.C. § 15b. “An antitrust action accrues and the statute of limitations begins to run when the defendant commits an act that injures the plaintiff.”
In re Nine West Shoes Antitrust Litig.,
1 The CAC’s Surviving Claims are Based on Events Outside of the Limitations Period
The claims against CDR, JP Morgan, and Bear Stearns survived the Court’s plausibility analysis because of the allegation that the GIC provided to the City of Atlanta by BoA and brokered by CDR in 2002 involved kickbacks and bid-rigging, as well as the allegation that CDR was the adviser to Jefferson County, Alabama for the purchase of interest rate swaps between 2001 and 2004, for which BoA, JP Morgan, Bear Stearns, and Lehman Brothers were paid “six times above the prevailing rate” in fees. (Id. ¶ 105.) The CAC states that a swap was negotiated in “early 2004” and that that swap and another swap were executed in “June of 2004.” (Id.) These incidents fall outside of the statute of limitations period, which extends back to August 22, 2004.
The claims against Baum and Natixis survived because of the allegation that the IRS found evidence that Baum had rigged deals between 1997 and 2001 to allow CDC, the predecessor to Natixis and the winner of many of the bids, “to underpay for the GIC and simultaneously overpay for other investment agreement and re-marketing fees, diverting arbitrage profits back to ... Baum,” and that CDC paid a large fee directly to an employee of Baum. (Id. ¶ 103.) The allegation that Baum received a “significant hidden payment” from BoA in connection with “a $100 million issue from the Illinois Development Finance Authority sold in 2000 by Rural Enterprises” also survived the plausibility analysis. (Id. ¶ 104.) All of these incidents fall outside of the statute of limitations period.
All of the claims that have survived the Court’s plausibility analysis are therefore based upon events that occurred outside of the statute of limitations period.
2. Tolling for Fraudulent Concealment
“The statute of limitations for an antitrust violation is tolled if plaintiff can show fraudulent concealment.”
Nine West Shoes,
a. Concealment by Defendants
Allegations of bid-rigging and price-fixing conspiracies in violation of § 1 are self-concealing such that “a plaintiff is not required to show defendants took independent affirmative steps to conceal their conduct.”
Nine West Shoes,
b. Violation Not Discovered or Plaintiffs Remained Ignorant
The Court finds that the Named Plaintiffs have failed to plead the second prong of fraudulent concealment with particularity. The CAC alleges, “Plaintiffs and the Class members did not discover ... that Defendants and their coconspirators were violating the antitrust laws until shortly before this litigation was commenced.” (CAC ¶ 146.) The CAC does not specify when any Named Plaintiffs or Class members became aware of the antitrust violations, and therefore does not state “with particularity the circumstances constituting fraud or mistake.” Fed. R.Civ.P. 9(b);
see also In re Magnetic Audiotape Antitrust Litig.,
No. 99 Civ. 1580,
The Court notes that the CAC specifies that a “significant hidden payment” to Baum from BoA, stemming from a transaction in 2000, was disclosed “in July 2003.” (CAC ¶ 104.) Any claim based on this transaction or hidden payment would be time-barred because over four years have elapsed since the disclosure of the hidden payment and the filing of the CAC. Although Named Plaintiffs may indeed have remained ignorant of this disclosure, their failure to plead this fact with specificity defeats any attempt to toll the statute of limitations for this claim.
c. Due Diligence or Not the Result of Lack of Diligence
The Court also finds that the Named Plaintiffs have failed to plead the third prong with particularity. The Court recognizes that the case law regarding the third prong is not entirely consistent. The third prong has been characterized as requiring a showing that the plaintiffs ignorance of the claim “was not the result of lack of diligence,”
Hendrickson Bros.,
With respect to the first formulation, some courts have found that allegations that due diligence would not have uncovered the antitrust violations were sufficient to plead the third prong of fraudulent concealment with particularity.
See, e.g., Nine West Shoes,
This standard is problematic because it allows the allegations required to satisfy the first prong of fraudulent concealment to also satisfy the third prong. In addition, it is difficult to characterize this type of pleading as pleading with particularity. The Court agrees with the conclusion of other courts that in this context, “[gjeneral assertions of ignorance and due diligence without more specific explanation ... will not satisfy the[ ] pleading requirements.”
Masters v. Wilhelmina Model Agency, Inc.,
No. 02 Civ. 4911,
The Court finds that Named Plaintiffs have failed to specifically plead the third prong required to establish fraudulent concealment such that the statute of limitations should be tolled. The CAC does not allege that Named Plaintiffs performed any kind of due diligence, only that “Plaintiffs and Class members did not discover, nor could have discovered through reason
Named Plaintiffs contend that the Court should refrain from deciding whether Named Plaintiffs should have discovered the basis for the antitrust violations alleged here because that issue implicates questions of fact that cannot be decided on a motion to dismiss. However, it is appropriate for the Court to assess the sufficiency of Named Plaintiffs’ pleading of fraudulent concealment at the motion to dismiss stage. The issue is not whether Named Plaintiffs exercised due diligence, as Named Plaintiffs argue, but rather whether they have pled fraudulent concealment with particularity.
See Publication Paper,
The Court has determined that Named Plaintiffs have failed to plead fraudulent concealment with particularity, and the statute of limitations cannot be tolled. The claims against the remaining Joint Defendants must therefore be dismissed. The CAC will be dismissed as against all Defendants except BoA, Feld Winters, and MGIC, who did not join in the motion to dismiss. The Court notes that although Feld Winters did not join in the motion to dismiss, it has already been voluntarily dismissed from the case without prejudice.
D. REMAINING ARGUMENTS NOT ADDRESSED
Because the Court has determined that Named Plaintiffs’ claims should be dismissed as against the Joint Defendants— that is, all Defendants except BoA, Feld Winters, and MGIC — it is not necessary to address Joint Defendants’ argument that Named Plaintiffs’ claims should be subject to the heightened pleading standard of Rule 9(b). For the same reason, the Court will not address Joint Defendants’ argument that the CAC fails to state a claim with respect to “hedging products,” which refers to municipal derivatives pertaining to a municipal bond’s underlying interest rate obligations. Nor will the Court address the argument that the Named Plaintiffs’ antitrust claims are preempted by the IRS Code and regulations issued by the Treasury Department.
E. LEAVE TO REPLEAD
As indicated above, the Court will permit Named Plaintiffs to replead their claims based upon alleged conspiratorial communications by specific individuals employed by the Joint Defendants, as well as claims of fraudulent concealment. Named Plaintiffs will have twenty days from the date of this Order to do so.
III. ORDER
For the reasons discussed above, it is hereby
ORDERED that the motion (Docket No. 277) of Wachovia Bank N.A. (“Wachovia”); AIG Financial Products Corp. (“AIG”); Bear, Stearns & Co., Inc. (“Bear Stearns”); Financial Security Assurance Holdings, Ltd. (“Financial Security Holdings”); Financial Security Assurance, Inc. (“Financial Security Assurance”); Financial Guaranty Insurance Co. LLC (“Financial Guaranty”); GE Funding Capital Market Services, Inc. (“GE”); Genworth Financial Investment Management, LLC (“Genworth”); Natixis S.A. (“Natixis”); JP Morgan Chase & Co. (“JP Morgan”); Piper Jaffray & Co. (“Piper Jaffray”); Société Générale SA (“Société Générale”); AIG SunAmeriea Life Assurance Co. (“AIG SunAmeriea”); UBS AG (“UBS”); XL Capital, Ltd. (“XL Capital”); XL Asset Funding Co. I, LLC (“XL Funding”); XL Life Insurance & Annuity Inc. (“XL Life”); Merrill Lynch & Co., Inc. (“Merrill Lynch”); Morgan Stanley; National Westminster Bank PLC (“NatWest”); Natixis Funding Corp (“Natixis Funding”); Investment Management Advisory Group, Inc. (“Investment Management Advisory”); CDR Financial Products (“CDR”); Winters & Co. Advisors, LLC (“Winters & Co.”); First Southwest Company (“First Southwest”); George K. Baum & Co. (“Baum”); Kinsell Newcomb & De Dios Inc. (“Kinsell Newcomb”); PackerKiss Securities, Inc. (“PackerKiss”); Shockley Financial Corp. (“Shockley’); Sound Capital Management, Inc. (“Sound Capital”); Cain Brothers & Co., LLC (“Cain Brothers”); Morgan Keegan & Co., Inc. (“Morgan Keegan”); and Trinity Funding Co. LLC (“Trinity Funding”) (collectively, “Joint Defendants”) to dismiss the consolidated amended class action complaint (“CAC”) is GRANTED; and it is further
ORDERED that the motion (Docket No. 275) of AIG; AIG SunAmeriea; Cain Brothers; Financial Guaranty; First Southwest; GE; Genworth; Kinsell New-comb; Merrill Lynch; Morgan Keegan; Morgan Stanley; NatWest; Natixis; Shockley; Trinity Funding; XL Funding; XL Capital; and XL Life to dismiss the CAC is GRANTED; and it is further
ORDERED that plaintiffs Fairfax County, Virginia, the State of Mississippi, the City of Baltimore, Maryland, the Central Bucks School District, and the Bucks County Water and Sewer Authority are granted leave to file a second amended complaint repleading claims against the Joint Defendants based upon: (1) allegations that specific individuals employed by Joint Defendants engaged in communications in furtherance of any alleged antitrust violation, and (2) claims of fraudulent concealment, provided that such amended complaint shall be filed within twenty days of this Order. The Court will also consider future requests for leave to replead based upon discovery conducted with defendants not affected by these motions to dismiss.
SO ORDERED.
Notes
. Subsequent to the filing of the CAC, unspecified plaintiffs (represented by co-lead counsel firms Susman Godfrey LLP, Hausfeld LLP, and Boies, Schiller & Flexner LLP, as well as plaintiffs' counsel Green Welling, LLP and Meredith Cohen Greenfogel & Skirnick, P.C.) voluntarily dismissed without prejudice their complaint as against Feld Winters, PackerKiss, Shockley Financial, Financial Guaranty, Cain Brothers, and NatWest. In one of the consolidated cases, City of Oakland v. AIG Fin. Prods. Corp., No. 08-CV-6340, plaintiff City of Oakland voluntarily dismissed Gen-worth Financial, Inc. and joined Genworth. In the consolidated cases City of Oakland v. AIG Fin. Prods. Corp. No. 08-CV-6340; County of Alameda v. AIG Fin. Prods. Corp., No. 08-CV-7034; and City of Fresno v. AIG Fin. Prods. Corp., No. 08-CV-7355, plaintiffs City of Oakland, County of Alameda, and City of Fresno voluntarily dismissed their complaint against Genworth Financial, Inc. In each of the above cases, as well as in Fresno County Fin. Authority v. AIG Fin. Prods. Corp., No. 09-CV-1199, plaintiffs City of Oakland, County of Alameda, City of Fresno, and Fresno County Financing Authority voluntarily dismissed their complaint against NatWest, Shockley, and Cain Brothers.
Lehman Brothers, Inc. ("Lehman Brothers”) was named as a defendant in Hinds County, Mississippi v. Wachovia Bank N.A., No. 08-CV-2516, as well as Fairfield County, Virginia v. PackerKiss Securities, Inc., No. 08-CV-5492; Mayor and City Counsel of Baltimore v. Wachovia Bank, N.A., No. 08-CV-6142; Central Buck School District v. Wachovia Bank, N.A., No. 08-CV-6342; and Washington County, Tennessee v. Bank of America, N.A., No. 08-CV-6304. By Order dated December 16, 2008, the Court stayed the consolidated action against Lehman Brothers pursuant to the Order Commencing Liquidation, dated September 18, 2009, and the automatic stay provisions of the Bankruptcy Code.
. The facts below are taken from the CAC, which the Court accepts as true for the purpose of ruling on a motion to dismiss.
See Spool v. World Child Int’l Adoption Agency,
. The Court notes that in their memorandum in support of their motion to dismiss, the Defendants who have moved to dismiss the CAC contest the accuracy of the CAC's description of municipal derivatives. The Court, however, accepts the description of municipal derivatives as set forth in the CAC as true for the purposes of considering this motion to dismiss.
See Spool,
. Joint Defendants refer to the complaint filed in the related SEC enforcement action and argue that the CAC gives an inaccurate description of the events surrounding these transactions. Courts may consider any documents that are attached to, referenced in, or integral to the preparation of the pleadings.
See Miller v. Lazard, Ltd.,