In re SSA Bonds Antitrust Litigation

REPLY MEMORANDUM OF LAW in Support re: 533 MOTION to Dismiss .

S.D.N.Y.March 13, 2019

ny-1469106 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK IN RE: SSA BONDS ANTITRUST LITIGATION This Document Relates To All Actions 1:16-cv-03711-ER ORAL ARGUMENT REQUESTED REPLY MEMORANDUM OF LAW IN SUPPORT OF DEFENDANT GARY McDONALD’S MOTION TO DISMISS THE SECOND CONSOLIDATED AMENDED CLASS ACTION COMPLAINT FOR LACK OF SUBJECT MATTER JURISDICTION, LACK OF PERSONAL JURISDICTION, AND FAILURE TO STATE A CLAIM REDACTED - PUBLIC VERSION Case 1:16-cv-03711-ER Document 598 Filed 03/13/19 Page 1 of 16 TABLE OF CONTENTS Page -i- ny-1469106 INTRODUCTION ......................................................................................................................... 1 ARGUMENT ................................................................................................................................. 2 I. THERE ARE NO FACTS SUPPORTING A SECTION 1 CLAIM. ................................ 2 A. Mr. McDonald Cannot Be Held Liable for Participating in an Alleged Conspiracy that He Knew Nothing About. ............................................................ 2 B. Plaintiffs Have Failed to Plead an Antitrust Conspiracy as to Mr. McDonald. ............................................................................................................. 4 1. Mr. McDonald Did Not Enter into any Agreement. .................................. 4 2. Mr. McDonald Did Not Engage in any Parallel Conduct. ......................... 5 3. Plaintiffs Do Not Allege any “Plus” Factors as to Mr. McDonald. ........... 6 C. Plaintiffs Have Failed to Allege any Anticompetitive Effect. ............................... 7 II. THERE IS NO BASIS FOR EXERCISING PERSONAL JURISDICTION. ................... 9 III. PLAINTIFFS LACK STANDING AS TO MR. MCDONALD. .................................... 10 CONCLUSION ............................................................................................................................ 10 Case 1:16-cv-03711-ER Document 598 Filed 03/13/19 Page 2 of 16 -ii- ny-1469106 TABLE OF AUTHORITIES Page(s) Cases Abbott Labs. v. Adelphia Supply USA, No. 15-CV-5826 (CBA) (LB), 2017 U.S. Dist. LEXIS 205321 (E.D.N.Y. Aug. 10, 2017) ...........................................................................................................................6 Accurate Grading Quality Assurance, Inc. v. Thorpe, No. 12 Civ. 1343 (ALC), 2013 U.S. Dist. LEXIS 42760 (S.D.N.Y. Mar. 26, 2013) ..........................................................................................................................................9 Anderson v. Ind. Black Expo, Inc., 81 F. Supp. 2d 494 (S.D.N.Y. 2000) ........................................................................................10 Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) ...............................................................................................................5, 6 In re Ins. Brokerage Antitrust Litig., 618 F.3d 300 (3d Cir. 2010).......................................................................................................7 In re Iowa Ready-Mix Concrete Antitrust Litig., 768 F. Supp.2d 961 (N.D. Iowa 2011) .......................................................................................4 Keeton v. Hustler Magazine, Inc., 465 U.S. 770 (1984) ...................................................................................................................9 Major League Baseball Props., Inc. v. Salvino, Inc., 542 F.3d 290 (2d Cir. 2008).............................................................................................. 7 fn. 2 Mayor & Council of Baltimore v. Citigroup, Inc., 709 F.3d 129 (2d Cir. 2013)...................................................................................................6, 7 In re Polyurethane Foam Antitrust Litig., 152 F. Supp. 3d 968 (N.D. Ohio 2015) ......................................................................................3 Ross v. Am. Express Co., 35 F. Supp. 3d 407 (S.D.N.Y. 2014) ..........................................................................................7 Todd v. Exxon Corp., 275 F.3d 191 (2d Cir. 2001).......................................................................................................7 Walden v. Fiore, 134 S. Ct. 1115 (2014) ...............................................................................................................9 Case 1:16-cv-03711-ER Document 598 Filed 03/13/19 Page 3 of 16 -iii- ny-1469106 Other Authorities Federal Rule of Civil Procedure 4(k)(2) ........................................................................................10 3 BROMBERG & LOWENFELS ON SECS FRAUD § 6:104 (2d ed. 2015) ..................................... 8 fn. 3 Areeda & Hovenkamp, ANTITRUST LAW ¶ 2113 (3d ed.) ...............................................................7 FTC & DOJ, Antitrust Guidelines for Collaborations Among Competitors (2000) ........................7 Case 1:16-cv-03711-ER Document 598 Filed 03/13/19 Page 4 of 16 ny-1469106 INTRODUCTION In their opposition brief, Plaintiffs portray an alleged conspiracy that was executed by a tight-knit set of eleven individuals who engaged in “continuous” communications about the conspiracy. Given this portrayal, the facts that Plaintiffs have not alleged regarding Mr. McDonald (as opposed to the other individual defendants) are fatal. They have not alleged that Mr. McDonald described in the Second Amended Complaint (“SAC”). They have not alleged that Mr. McDonald . They have not alleged that Mr. McDonald referred to himself as . They have not alleged that Mr. McDonald communicated with eleven of the twelve other traders involved in the purported conspiracy. They have not alleged that Mr. McDonald was in “continuous” communication on “nearly every day and throughout the day, over the course of many years” with any of the alleged conspirators. Put differently, Plaintiffs have not alleged any facts that plausibly tie Mr. McDonald to an allegedly comprehensive conspiracy “not to compete” for more than ten years. Despite having access to “[t]housands of chat transcripts,” all that the SAC alleges is that Mr. McDonald . Those discussions largely involved observations of what had already occurred in the marketplace or speculation about the value of a handful of bonds in an illiquid market. There was no coordination of pricing, there was no discussion of dividing customers, and there was no discussion of not competing for any purchase or sale of any bond. All of the conversations identified in the SAC were completely benign, despite Plaintiffs’ efforts to “interpret” and stretch the facts to fit their conspiracy narrative. Case 1:16-cv-03711-ER Document 598 Filed 03/13/19 Page 5 of 16 2 ny-1469106 Lacking factual allegations, Plaintiffs’ opposition brief argues that “inferences” can save their claims against Mr. McDonald. To be sure, on a motion to dismiss Plaintiffs are entitled to the benefit of all reasonable and plausible inferences that are based upon the facts pled in the SAC. But Plaintiffs’ claimed inferences are (1) not reasonable, (2) not plausible and (3) not based on facts pled in the Second Amended Complaint. The basic problem with Plaintiffs’ SAC-like their first three pleadings-is that it lacks the factual predicate for any of the inferences that Plaintiffs would have this court draw against Mr. McDonald. In addition, the claims against Mr. McDonald should be dismissed for lack of personal and subject matter jurisdiction. Plaintiffs’ speculation that Mr. McDonald , does not satisfy any possible basis for personal jurisdiction. Nor can Mr. McDonald be dragged into this case based on conclusory conspiracy allegations involving unidentified U.S. salespeople that Plaintiffs do not even claim were members of the purported “cartel.” And because Plaintiffs concede that they never transacted with Mr. McDonald or that they even purchased the same bonds that Mr. McDonald was trading, they lack standing to assert any claims against Mr. McDonald, the SAC can be dismissed for lack of subject matter jurisdiction, as well. Finally, the SAC can be dismissed in its entirety as to Mr. McDonald for the reasons set forth in the Dealer Defendants’ Merits Reply Brief and Foreign Defendants’ Jurisdictional Reply Brief, which Mr. McDonald joins in full. ARGUMENT I. THERE ARE NO FACTS SUPPORTING A SECTION 1 CLAIM. A. Mr. McDonald Cannot Be Held Liable for Participating in an Alleged Conspiracy that He Knew Nothing About. There are no factual allegations in the SAC supporting Plaintiffs’ conclusory assertion Case 1:16-cv-03711-ER Document 598 Filed 03/13/19 Page 6 of 16 Case 1:16-cv-03711-ER Document 598 Filed 03/13/19 Page 7 of 16 4 ny-1469106 allegations supporting an inference that Mr. McDonald knew about the purported conspiracy or affirmatively joined the conspiracy is fatal to Plaintiffs’ claims. See In re Iowa Ready-Mix Concrete Antitrust Litig., 768 F. Supp.2d 961, 975 (N.D. Iowa 2011) (dismissal appropriate where “there is no allegation of facts supporting the existence of an overall plan to fix prices or that each defendant had knowledge that others were involved in the conspiracy”). B. Plaintiffs Have Failed to Plead an Antitrust Conspiracy as to Mr. McDonald. 1. Mr. McDonald Did Not Enter into any Agreement. Plaintiffs also do not plead facts that would provide any plausible basis to infer that Mr. McDonald agreed with anyone “not to compete with each other for on their own USD SSA bond transactions.” (Opp’n at 4.) For example, Plaintiffs do not allege in their SAC that Mr. McDonald ever discussed coordinating the pricing of their purchases or sales of any bonds or that they ever discussed dividing any customers. Plaintiffs also do not allege any transactions where Mr. McDonald were in a competitive position vis-à-vis each other for the purchase or sale of any USD SSA bond. Plaintiffs do not dispute any of this in their opposition brief. Instead, they try to characterize a few exchanges of historic pricing information and opinion about where bonds were being priced in the marketplace as somehow nefarious. That is not anticompetitive. See supra Section I.C; (McDonald Mem. at 15-17). Plaintiffs try to counter this by claiming that the (Opp’n at 33.) But this argument has no application to Mr. McDonald because there is no factual allegation that he . None of the examples that Plaintiffs discuss in their opposition brief provide any factual support for any agreement relating to Mr. McDonald. In one example, Case 1:16-cv-03711-ER Document 598 Filed 03/13/19 Page 8 of 16 5 ny-1469106 . (SAC ¶ 335.) In another example, (Id. ¶¶ 270-71.) In a third example, (SAC ¶¶ 227-229.) But even if Plaintiffs had included such allegations, that would not be enough. Plaintiffs do not, because they cannot, cite any cases holding that providing information about pricing for illiquid securities in opaque product spaces like SSA bonds is anticompetitive. Plaintiffs also argue that . (Lent Decl. Ex. 2 If there had been an agreement not to compete, . Thus, this is fully consistent with competitive behavior and is therefore a fact that lands Plaintiffs’ allegations far “short of the line” of plausibility required to state a claim against Mr. McDonald. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 557 (2007). 2. Mr. McDonald Did Not Engage in any Parallel Conduct. Lacking any direct evidence of any agreement, Plaintiffs also claim that their conspiracy theory is supported by “parallel conduct” amongst the Defendants. (Opp’n at 19.) But there are no allegations that Mr. McDonald engaged in any parallel conduct or any of the other alleged cartel members. (See id. at 19-20.) There are no allegations that Mr. McDonald Case 1:16-cv-03711-ER Document 598 Filed 03/13/19 Page 9 of 16 6 ny-1469106 ever took the same actions concerning the same bonds at any time-no allegations that they made the same bid or offer, and no allegations that either refused to make a bid or offer. That failing alone is reason to dismiss the SAC as to Mr. McDonald. See, e.g., Abbott Labs. v. Adelphia Supply USA, 2017 U.S. Dist. LEXIS 205321, at *42 (E.D.N.Y. Aug. 10, 2017) (no need to assess alleged “plus factors” “where plaintiffs have in the first instance failed to adequately allege parallel conduct”) (citations omitted). 3. Plaintiffs Do Not Allege any “Plus” Factors as to Mr. McDonald. Regardless, even if there was parallel conduct-and there is not-Plaintiffs’ allegations do not satisfy any of the “plus” factors necessary to infer a conspiracy. and Mr. McDonald allegedly is far from the “high level of interfirm communications” that might support a plausible inference of a conspiracy. See Mayor & Council of Baltimore v. Citigroup, Inc., 709 F.3d 129, 140 (2d Cir. 2013) (two communications over a period of two months “simply are not enough plausibly to allege a ‘high level’ of interfirm communications”). The Court should also reject Plaintiffs’ attempt to claim that Mr. McDonald’s absence from the FCA registry starting in March 2016 “is suggestive of wrongdoing” given that there is an “obvious alternative explanation” to his absence (which Plaintiffs do not dispute): Mr. McDonald was not legally required to register as of March 7, 2016. (McDonald Mem. at 9); Twombly, 550 U.S. at 567. Further, Plaintiffs’ allegations about “information sharing” are not enough to plausibly suggest a motive to conspire or that Mr. McDonald took any actions contrary to his own, individual self-interest. Given that “there is no open, anonymous exchange” for any SSA bonds and that there is “no transparency into trading volumes or prices” (SAC ¶¶ 129, 134), it was perfectly rational to share information about SSA bonds in order to gain insights about what was Case 1:16-cv-03711-ER Document 598 Filed 03/13/19 Page 10 of 16 7 ny-1469106 going on in the market. (See McDonald Mem. at 11); see also Areeda & Hovenkamp, ANTITRUST LAW ¶ 2113 (3d ed.). And because a desire to seek out information “is just as consistent with legitimate goals as non-legitimate goals, there can be no fair inference of collusion.” Ross v. Am. Express Co., 35 F. Supp. 3d 407, 443 (S.D.N.Y. 2014); see also Citigroup, 709 F.3d at 138 (no Section 1 claim where actions “made perfect business sense”). Unsurprisingly, Plaintiffs do not have any case law to support their assertion that sharing pricing information is inherently anticompetitive. (Opp’n at 136.) Their own cases demonstrate that this is an incorrect statement of law. As then-Judge Sotomayor observed writing for the majority in Todd v. Exxon Corp., the Supreme Court’s decision in United States v. United States Gypsum Co. makes clear that “[t]he exchange of price data and other information among competitors does not invariably have anticompetitive effects; indeed such practices can in certain circumstances increase economic efficiency and render markets more, rather than less, competitive.” See 275 F.3d 191, 199 (2d Cir. 2001) (quoting Gypsum, 438 U.S. 422, 441 n.16 (1978)).2 The enforcement guidelines on which Plaintiffs rely similarly acknowledge “that the sharing of information among competitors may be procompetitive.” See FTC & DOJ, Antitrust Guidelines for Collaborations Among Competitors at 15-16 (2000). Thus, because Plaintiffs rely almost entirely “information sharing,” their claims against Mr. McDonald must be dismissed. See In re Ins. Brokerage Antitrust Litig., 618 F.3d 300, 329 (3d Cir. 2010) (affirming dismissal of Section 1 claim based on information sharing). C. Plaintiffs Have Failed to Allege any Anticompetitive Effect. Plaintiffs cite only a few specific examples of purportedly anticompetitive effects 2 Plaintiffs cite then-Judge Sotomayor’s statement in a concurrence that “the mere agreement among competitors to exchange price information is a per se price-fixing violation.” (Opp’n at 17 (citing Major League Baseball Props., Inc. v. Salvino, Inc., 542 F.3d 290, 335 (2d Cir. 2008).) This concurring statement is contrary to binding authority. Moreover, Salvino is distinguishable because the focus there was on “[e]xplicit price agreements.” Id. Case 1:16-cv-03711-ER Document 598 Filed 03/13/19 Page 11 of 16 8 ny-1469106 resulting from Mr. McDonald’s . None is plausible. Plaintiffs point to . (Opp’n at 134-35.) But Plaintiffs do not, because they cannot, contest that there are no allegations supporting an inference that . (Opp’n at 134-35; McDonald Mem. at 16.) Plaintiffs’ only response is the unsupported assertion that (Opp’n at 135.) Not only is that legal conclusion entitled to no weight, it says nothing about the actual or potential effect on competition.3 The entire premise of Plaintiffs’ claim against Mr. McDonald is that he was part of a conspiracy not to compete. But Plaintiffs do not allege that . (SAC ¶¶ 352-53.) Even if , that is of no concern because it does not arise from an agreement not to compete. Plaintiffs also rely on allegations that . (Opp’n at 120-21 (citing SAC ¶¶ 200, 227-29, 271, 314-16).) (SAC ¶¶ 200, 227-29, 271.) (See id. ¶¶ 314-16.) 3 “Front-running”-a concept developed in securities fraud cases-also makes no sense here because it is premised on taking advantage of the current market price based on insider knowledge about a customer’s future trade that will move the market. See, e.g., 3 BROMBERG & LOWENFELS ON SECS. FRAUD § 6:104 (2d ed. 2015) (“Front running is the practice by a broker of trading [. . .] in advance of a block trade . . . in circumstances in which the block trade, by its very size, will have the effect of altering the price of the security.”). Case 1:16-cv-03711-ER Document 598 Filed 03/13/19 Page 12 of 16 9 ny-1469106 II. THERE IS NO BASIS FOR EXERCISING PERSONAL JURISDICTION. In their jurisdictional opposition brief, Plaintiffs fail to distinguish between any of the five individual defendants in this action, simply lumping them together and making conclusory allegations that these individuals acted “in furtherance” of an allegedly “ongoing agreement” wherever they happened to be located for any “USD SSA bond business” at any time. (See, e.g., Juris. Opp’n at 73-74.) This is nonsensical and ignores the Supreme Court’s instruction that “[e]ach defendant’s contacts with the forum State must be assessed individually.” Keeton v. Hustler Magazine, Inc., 465 U.S. 770, 781 n.13 (1984); see also Walden v. Fiore, 134 S. Ct. 1115, 1124 (2014); Accurate Grading Quality Assurance, Inc. v. Thorpe, 2013 U.S. Dist. LEXIS 42760, at *9 (S.D.N.Y. Mar. 26, 2013) (“the bland assertion of conspiracy . . . is insufficient to establish jurisdiction for the purposes of” New York’s long-arm statute) (citations an quotations omitted). Regardless, there are no non-conclusory jurisdiction allegations specific to Mr. McDonald that are sufficient to establish jurisdiction. At best, Plaintiffs only speculate that Mr. McDonald, a British citizen living and working for CGML4 in England, (SAC ¶¶ 420, 422, 488-89.) That is not enough under New York’s long-arm statute or the Constitution. (See McDonald Mem. at 17-21; Joint Juris. Br. Section II.B; Joint Juris. Reply Section I.) Plaintiffs’ attempt to assert a theory of “agency” jurisdiction fares no better. (See Juris. Opp’n at 71 n.61, 74.) “Agency” jurisdiction is appropriate under New York’s long-arm statute and the Constitution only where there are allegations that the out-of-state defendant controlled 4 Discovery is not required to resolve which Citi entity employs Mr. McDonald. (See Opp’n at 86 n.68.) In a sworn statement, Mr. McDonald testified that he mistakenly identified the wrong entity in his original declaration and that he is in fact employed by CGML. (McDonald Decl. ¶ 2.) If this is truly a sticking point, however, Mr. McDonald can provide a redacted version of his employment agreement with CGML. Case 1:16-cv-03711-ER Document 598 Filed 03/13/19 Page 13 of 16 10 ny-1469106 the suit-related actions of his in-state co-conspirator. (Joint Juris. Reply Section II.B.); see also Anderson v. Ind. Black Expo, Inc., 81 F. Supp. 2d 494, 503 (S.D.N.Y. 2000). But there are no non-conclusory allegations suggesting that Mr. McDonald had any “control” over any unidentified salespeople who were employed by different entities, or that those salespeople engaged in any suit-related conduct. (See McDonald Decl. ¶ 5; see also Joint Juris. Reply I.B., II.A.) Regardless, because Plaintiffs admit that they never entered into any transactions with Mr. McDonald (Juris. Opp’n at 71), there is no connection whatsoever between their claims-which are expressly based on “transact[ing] directly with these Defendants” (Opp’n at 4 (emphasis in original))-and Mr. McDonald’s conduct in this or any other forum. (McDonald Mem. at 19- 20.) Plaintiffs have therefore failed establish personal jurisdiction over Mr. McDonald.5 III. PLAINTIFFS LACK STANDING AS TO MR. McDONALD. Plaintiffs halfheartedly contend that they have standing to pursue claims against Mr. McDonald based solely on conclusory allegations that Plaintiffs “traded USD bonds with” Citi and TD Bank, which were “‘acting at least through McDonald’”. (Opp’n at 140 (citing SAC ¶¶ 64-60, 103-05.) But Plaintiffs have not pleaded any facts that plausibly suggest how they were somehow harmed by Mr. McDonald’s sporadic and benign . Indeed, there are no allegations in the SAC even suggesting that Plaintiffs traded any bonds with Mr. McDonald or that they even purchased the same bonds that Mr. McDonald was allegedly trading. Accordingly, Plaintiffs lack standing as to Mr. McDonald. CONCLUSION For the reasons set forth above and in his opening brief, Defendant Gary McDonald respectfully requests that the Court dismiss the Second Amended Complaint with prejudice. 5 Because Plaintiffs’ allegations cannot satisfy due process concerns, they cannot rely on Rule 4(k)(2), which applies only if “exercising jurisdiction is consistent with the United States Constitution and laws.” Fed. R. Civ. P. 4(k)(2). Case 1:16-cv-03711-ER Document 598 Filed 03/13/19 Page 14 of 16 Dated: March 13, 2019 New York, New York 11 ny-1469106 MORRISON & FOERSTER LLP 250 West 55th Street New York, New York 10019 Telephone: (212) 468-8000 Facsimile: (212) 468-7900 Email: AdamHunt@mofo.com Bradley S. Lui (pro hac vice) 2000 Pennsylvania A venue, NW Washington, D.C. 20006 Telephone: (202) 887-1500 Facsimile: (202) 887-0763 Email: BLui@mofo.com Attorneys for Defendant Gary McDonald Case 1:16-cv-03711-ER Document 598 Filed 03/13/19 Page 15 of 16 CERTIFICATE OF SERVICE I hereby certify that on March 13, 2019, I caused to be served a true and correct copy of Defendant Gary McDonald's Reply Memorandum of Law in Support of His Motion to Dismiss the Second Consolidated Amended Class Action Complaint via ECF and electronic mail on counsel of record for Plaintiffs. Dated: New York, New York March 13, 2019 ny-1469106 12 Case 1:16-cv-03711-ER Document 598 Filed 03/13/19 Page 16 of 16