On May 23, 2016, the Second Circuit breathed new life into the class action case against 16 banks belonging to the British Bankers’ Association (the Banks), vacating the Southern District of New York’s dismissal of the case for lack of antitrust injury and remanding the case on the portion of antitrust standing that requires the plaintiffs to be “efficient enforcers of the antitrust laws.” In re: LIBOR-Based Financial Instruments Antitrust Litigation (No. 13-3565). The plaintiffs’ revived opportunity to pursue their case, however, may last only as long as it takes the district court to consider the factors laid out by the Second Circuit, because it identified several troubling issues raised by the peculiar nature of the case.

The Claims

The plaintiffs, purchasers of financial instruments that carried a rate of return indexed to the London Interbank Offered Rate (“LIBOR”), alleged that the Banks colluded to depress LIBOR by violating rate-setting rules. As a result, the payout for the instruments was lower than it would have been without the collusion.

The District Court Opinion

The Southern District determined that there could not have been anticompetitive harm, because the LIBOR-setting process was collaborative rather than competitive. At most, the lower court concluded, the plaintiffs might have a fraud claim based on misrepresentation, but they had no antitrust claim.

The Second Circuit Opinion: Antitrust Violation v. Antitrust Injury

In vacating the lower court decision, the Second Circuit observed that the district court improperly blurred the distinction between an antitrust violation and an antitrust injury: “The district court proceeded directly to the question of antitrust injury – omitting any mention of antitrust violation – but then elided the distinction between antitrust violation and antitrust injury by placing considerable weight on appellants’ failure to show ‘harm to competition.’” Thus, the Second Circuit first addressed the allegations with regard to antitrust violation, and readily concluded they were sufficient.

The court found that the plaintiffs alleged a straightforward horizontal price-fixing conspiracy: “They allege that the Banks, as sellers, colluded to depress LIBOR, and thereby increased the cost to appellants, as buyers of various LIBOR-based financial instruments, a cost increase reflected in the reduced rates of return.” At this stage, the court found, the plaintiffs’ allegation that LIBOR was part of the price must be accepted as true, and, as a result, the plaintiffs had alleged a per se unlawful horizontal price-fixing conspiracy among competitors.

The Second Circuit Opinion: Antitrust Standing

Next, the Second Circuit turned to the issue of antitrust standing, which it examined in two parts: (1) whether the plaintiffs suffered antitrust injury, and (2) whether the plaintiffs are “efficient enforcers of the antitrust laws.” The court concluded the district court erred in finding that the plaintiffs suffered no antitrust injury, but it remanded on the second question.

Plaintiffs Alleged Antitrust Injury

With regard to antitrust injury, the Second Circuit outlined the progressive line of United States Supreme Court cases holding that horizontal price-fixing agreements are per se unlawful because they are “anathema to an economy predicated on the undisturbed interaction between supply and demand.” Under these cases, it is immaterial that plaintiffs could negotiate the interest rates for each instrument because the market was still disrupted, if not controlled, by the Banks’ collusion. “[T]he anticompetitive effect of the Banks’ alleged conspiracy would be that consumers get less for their money. The Supreme Court has warned of the antitrust dangers lurking in the activities of private standard-setting associations.”

The Second Circuit deemed irrelevant the district court’s conclusion that the LIBOR-setting process was a “cooperative endeavor” because the alleged conspiracy “circumvented the LIBOR-setting rules,” thus turning the joint process into collusion.

The court also rejected the district court’s finding that the plaintiffs failed to plead harm to competition: “If no proof of harm to competition is not a prerequisite for recovery, it follows that allegations pleading harm to competition are not required to withstand a motion to dismiss when the conduct challenged is a per se violation.” (Emphasis in original.) The plaintiffs did not need to show actual adverse effect in the marketplace because they alleged an anticompetitive tendency – “the warping of market factors affecting the prices for LIBOR-based financial instruments.”

Whether, in fact, LIBOR corresponded to the actual interest rates charged for actual interbank loans was a disputed fact issue to be addressed at a later stage, and not a proper basis for the lower court’s dismissal. The Second Circuit noted, under Sonony-Vacuum, it may be sufficient that the alleged conspiracy exerted influence on the starting point for prices.

Finally, the Second Circuit criticized the lower court for “over-reading” the Supreme Court’s opinions in Atlantic Richfield and Brunswick when it deemed it significant that the plaintiffs could have suffered the same harm under normal circumstances of free competition. “Neither ARCO nor Brunswick treated antitrust injury as one that could not have been suffered under normal competitive conditions.” (Emphasis in original.) The Second Circuit noted that “antitrust law relies on the probability of harm when evaluating per se violations,” and that plaintiffs sustained their burden of showing injury by alleging they paid artificially fixed higher prices. The Second Circuit concluded that “whether the Banks’ competitors were also injured is not decisive, and possibly not germane.” (Emphasis in original.) In doing so, the court expressly rejected dicta in its 2006 Paycom Billing Services opinion – to the effect that harm to competition is necessary to show antitrust injury – as inconsistent with Supreme Court precedent.

On Remand, the District Court Must Determine Whether Plaintiffs Are “Efficient Enforcers”

To be decided on remand is whether the plaintiffs “satisfy the efficient enforcer factors,” a question not reached by the district court. Relying on the Supreme Court’s Associated Gen. Contractors decision, the Second Circuit laid out the four factors as:

“(1) the ‘directness or indirectness of the asserted injury,’ which requires evaluation of the ‘chain of causation’ linking appellants’ asserted injury and the Bank’ alleged price-fixing; (2) the ‘existence of more direct victims of the alleged conspiracy’; (3) the extent to which appellants’ damages claim is ‘highly speculative’; and (4) the importance of avoiding ‘either the risk of duplicate recoveries on the one hand, or the danger of complex apportionment of damages on the other.’”

Factor (1): Causation

On the first factor, causation, the Second Circuit laid out several questions for the district court’s consideration, noting that each was uniquely complex in this case:

a) defining the relevant market;
b) antitrust standing for plaintiffs who did not deal directly with the Banks; i.e., umbrella purchasers;
c) damages disproportionate to wrongdoing.

Factor (2): Existence of More Direct Victims

The Second Circuit described the second factor as bearing “chiefly on whether the plaintiff is a consumer or a competitor.” In this litigation, the plaintiffs are alleged consumers. However, the court noted that “not every victim of an antitrust violation needs to be compensated” to efficiently enforce the antitrust laws. The court also pointed out that a peculiar aspect of the litigation “is that remote victims … would be injured to the same extent and in the same way as direct customers of the Banks.”

Factor (3): Speculative Damages

With respect to the third factor, the Second Circuit first noted that highly speculative damages are a sign that a plaintiff is an inefficient enforcer. Here, the court said it was “difficult to see” how the plaintiffs could provide evidence to support a just and reasonable damages estimate, “even with the aid of expert testimony.” Finally, the court pointed to the impact on damages of the unusual nature of the case, including the frequent individual negotiation of rates in the disputed transactions, as well as the existence of a worldwide money market with various competitive rates, some not pegged to LIBOR.

Factor (4): Duplicative Recovery and Complex Damage Apportionment

With respect to the fourth factor, the Second Circuit described the numerous enforcement actions by government and regulatory bodies in several countries. The government actions might seek damages for victims, fines, injunctions, disgorgement and other remedies. The court concluded by stating that “[i]t is wholly unclear on this record how issues of duplicate recovery and damage apportionment can be assessed.”


After rejecting the Banks’ argument that the plaintiffs had not sufficiently pled a conspiracy, the Second Circuit summarized its opinion, in part, as follows:

This decision is of narrow scope. It may be that the influence of the corrupted LIBOR figure on competition was weak and potentially insignificant, given that the financial transactions at issue are complex, LIBOR was not binding, and the worldwide market for financial instruments – nothing less than the market for money – is vast, and influenced by multiple benchmarks. The net impact of a tainted LIBOR in the credit market is an issue of causation reserved for the proof stage; at this stage, it is plausibly alleged on the face of the complaints that a manipulation of LIBOR exerted some influence on price. The extent of that influence and the identity of persons who can sue, among other things, are matters reserved for later.

Moreover, common sense dictates that the Banks operated not just as borrowers but also as lenders in transactions that referenced LIBOR. Banks do not stockpile money, any more than bakers stockpile yeast. It seems strange that this or that bank (or any bank) would conspire to gain, as a borrower, profits that would be offset by a parity of losses it would suffer as a lender. On the other hand, the record is undeveloped and it is not even established that the Banks used LIBOR in setting rates for lending transactions. Nevertheless, the potential of a wash requires further development and can only be properly analyzed at later stages of the litigation.

In other words, after celebrating the fact that they live to fight another day, the plaintiffs have a lot of work to do.