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Second Circuit Revives Antitrust Class Action Brought by Two Non-Existent Entities

On March 17, 2021, the United States Court of Appeals for the Second Circuit (“Second Circuit”) overturned the decision of the United States District Court for the Southern District of New York (“District Court”) dismissing Fund Liquidation Holdings, LLC v. Bank of America Corporation, et al.  In so doing, the Second Circuit revived antitrust class action claims against a number of banks, which alleged that the banks manipulated the Singapore Interbank Offer Rate (“SIBOR”) and the Singapore Swap Offer Rate (SOR) between 2007 and 2011. Two Cayman Island investment funds—FrontPoint Asian Driven Fund, L.P., and Sonterra Capital Master Fund, Ltd. (the “Cayman Funds”)—originally filed the case but, years after filing, it became clear that both of the Cayman Funds were dissolved prior to the case being filed, and that the real party in interest was Fund Liquidation Holdings (“Liquidation Holdings”), to whom the Cayman Funds had assigned their claims before dissolution. Contrary to the District Court’s ruling, the Second Circuit determined that, although the Cayman Funds did not exist at the time of filing, this did not deprive the court of jurisdiction, and that on remand the District Court should consider whether to allow the plaintiff to further amend the complaint in order to add new, more appropriate plaintiffs.

The District Court’s Decision on Appeal

Prior to the decision on appeal here, in October 2018, the District Court dismissed each of the Cayman Funds’ claims. Important here, the District Court dismissed the plaintiffs’ antitrust allegations because (a) one of the Cayman Funds never assigned their antitrust claims to Liquidation Holdings, and (b) the other Cayman Fund lacked antitrust standing, because it had not transacted directly with the Defendants.

Nine months later, in July 2019, the District Court issued the Order on appeal here. Specifically, the District Court denied Liquidation Holdings’ motion to further amend the complaint—in order to add new plaintiffs to the case, whose claims did not have these deficiencies—because the case had become a “legal nullity” when it was filed by non-existent entities, which meant that the District Court lacked jurisdiction over the case from the start. This lack of jurisdiction also caused the District Court to refuse to approve settlement agreements signed by several of the Defendants, including CitiGroup, Inc. and JPMorgan Chase & Co. The Plaintiffs appealed.

Appellate Ruling I: The Cayman Funds Lacked Article III Standing

The Second Circuit first determined that, although the Cayman Funds had already assigned their securities claims to Liquidation Holdings prior to filing the suit, this assignment, in-and-of-itself, did not mean that the Cayman Funds lacked standing to sue. Specifically, Article III standing requires that a plaintiff demonstrate three things: a “concrete and particularized” injury, a connection between that injury and the conduct at issue in the suit, and the Court’s ability to redress the injury. The Court noted that only redressability was at issue here because the Defendants argued that, injury or not, the Cayman Funds were not the proper party to whom redress could be awarded. However, according to the Second Circuit the assignment did not negate the Cayman Funds’ standing, because the required showing is that the Plaintiffs’ injury is redressable—not that the redress be owed to the Plaintiffs themselves,

On the other hand, while the pre-suit assignment did not destroy standing for the Cayman Funds, the Second Circuit held that the Cayman Funds’ pre-suit dissolution did preclude standing. Under the law of the Cayman Islands, a company ceases to possess both legal existence and the capacity to sue upon dissolution. For this reason, the Cayman Funds did not have standing at the time that they filed the lawsuit. Importantly, the Court explained that this decision hinged on the specifics of Cayman Island law, which is in contrast to many states’ laws that allow a company to continue in some capacity following dissolution. Thus, rather than holding that a dissolved company necessarily lacks standing to sue, the Second Circuit instead determined that standing depends on the company’s legal rights and standing (as determined by state or national law) at the time that it files the lawsuit.

Appellate Ruling II: Liquidation Holdings Had Article III Standing

Although the Cayman Funds lacked standing, this was not fatal to the suit, because the Second Circuit ruled that “Article III is satisfied so long as a party with standing to prosecute the specific claim in question exists at the time the pleading is filed.” This rule is in contrast to the “nullity doctrine” adopted in a number of other circuits (notably, the Sixth Circuit), which would hold that a lack of standing by the named Plaintiff invalidates the entire lawsuit.

In rejecting the “nullity doctrine,” the Second Circuit explained that the decision as to which party ought to be named as the plaintiff in a lawsuit involving an assignment of claims is a question of procedure, not of constitutional jurisdiction, and has varied across geography and time. Because the question is procedural rather than jurisdictional, the Second Circuit determined that it was able to select its own rule regarding the proper party to prosecute the suit. Furthermore, although questions regarding standing do implicate jurisdictional concerns, courts routinely allow subsequent events in a case to “fix” jurisdiction, without also requiring that a new complaint be filed; in other words, when jurisdiction is “fixed” sometime after the filing of a case, that does not mean that the court lacked jurisdiction over the case prior to the “fix.” For example, if a federal court sitting in diversity finds that “complete diversity” is lacking, and “fixes” the lack of diversity jurisdiction by dismissing one of the defendants, this would not then require the plaintiff to re-file the lawsuit, and the statute of limitations would still toll from the date that the jurisdictionally-deficient complaint was filed.

Questions for District Court on Remand

The Second Circuit outlined two separate questions that the District Court will need to determine on remand. The first is whether, given the existence of jurisdiction, the District Court should now preliminarily approve the combined $21 million settlements by CitiGroup and JPMorganChase. Second, the District Court must determine whether Liquidation Holdings should be granted leave to further amend its complaint, in order to add new investment funds as plaintiffs.

Finally, as guidance to the District Court, the Second Circuit noted that the District Court had misinterpreted China Agritech, Inc. v. Resh, 138 S. Ct. 1800 (2018). Specifically, the Second Circuit clarified that China Agritech held that, under American Pipe, the statute of limitations does not toll where a plaintiff in an existing action files a new action against the same defendant. But the Second Circuit went on to explain that, by prohibiting the filing of a new action, China Agritech does not also prohibit tolling of the statute of limitations where, as here, a new plaintiff is added to an existing action.



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Aaron R. Fenton is a Mintz attorney who focuses his practice on complex commercial litigation for clients in the financial services and many other industries. He was a Mintz Summer Associate in 2018.