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Banks appeal Baltimore’s collusion claim to Supreme Court

An international banking case in which Baltimore seeks to recover millions of dollars in alleged overpayments is on appeal to the U.S. Supreme Court and could change Maryland’s view that civil defendants who have never set foot or operated in the state can nevertheless be sued in Maryland if an alleged conspirator has.

More than a dozen foreign banks accused of civil collusion are urging the justices to review a lower court ruling that a New York federal court can hear the case because U.S.-based conspirators allegedly participated in the illegality.

Baltimore is among more than a dozen U.S. cities and public and private investment funds accusing foreign and domestic banks of having illegally colluded to set a high price on the bonds they sell, an alleged act that exacerbated the 2008 financial crisis and cost municipalities and other investors millions.

The U.S. District Court in New York had dismissed the case against many of the foreign banks for lack of jurisdiction because they had neither a personal presence nor operation in the United States. But the 2nd U.S. Circuit Court of Appeals reversed, saying the presence of an alleged conspirator in a state can be imputed to foreign defendants for jurisdictional purposes.

The 2nd Circuit’s published decision is in line with the Maryland high court’s unanimous 2006 ruling that an alleged conspirator’s actions in Maryland can be imputed to an out-of-state defendant under the theory that conspirators are acting as the defendant’s agents.

In their appeal to the justices, the banks noted the Maryland Court of Appeals decision in Mackey v. Compass Marketing Inc. and called it – as well as the 2nd Circuit’s ruling – a misinterpretation of Supreme Court decisions that the constitutional right to civil due process requires that defendants themselves have “minimum contacts” with a state in order for its courts to have jurisdiction over them.

Permitting the acts of an alleged conspirator to confer jurisdiction on an out-of-state defendant would “lead to gamesmanship” by plaintiffs seeking to sue in a specific state or federal court, the banks’ lead attorney stated in their pending petition for Supreme Court review.

“Plaintiffs may use ‘conspiracy jurisdiction’ to subject foreign defendants to uniquely invasive and expensive American discovery, and then, even if the suit is dismissed, use the fruits of discovery to file a second suit in an appropriate forum,” wrote Neal K. Katyal, a former acting U.S. solicitor general. “Even for domestic defendants, conspiracy jurisdiction may lead to forum shopping, with plaintiffs seeking to pursue complex suits in what they perceive to be the most favorable forum with any plausible connection to the claims.”

Katyal also told the Supreme Court it must hear the banks’ appeal to resolve a conflict among lower federal and state high courts on the issue of conspiracy jurisdiction.

In addition to the 2nd Circuit and Maryland Court of Appeals, the 4th U.S. Circuit Court of Appeals and the high courts of Arkansas, Delaware, Florida, Georgia, Minnesota, South Carolina, and Tennessee have adopted conspiracy jurisdiction. However, the 5th and 7th U.S. Circuit Courts of Appeals and the Texas and Nebraska high courts have rejected the jurisdictional theory, added Katyal, who served during the Obama administration and is now with Hogan Lovells US LLP in Washington.

Baltimore and the other plaintiffs suing the banks have waived their right to respond to the banks’ petition unless the justices specifically request their response.

Attorney Arun S. Subramanian is representing Baltimore at the high court. He is with Susman Godfrey LLP in New York.

The justices have not stated when they will vote on the banks’ request for their review. The case is docketed at the Supreme Court as Lloyds Banking Group PLC et al. v. Schwab Short Term Bond Market Fund et al., No. 21-1237.

Baltimore and the other cities allege that the banks fixed the price of over-the-counter bonds they sold to the investing municipalities between 2009 and 2014.

Baltimore stated in court papers that the city paid nearly $1 billion for the bonds whose price the banks allegedly kept collusively high during that time.

The city “therefore suffered enormous monetary losses when it was overcharged in these transactions,” Baltimore stated in its complaint alleging violations of federal antitrust laws and unjust enrichment.

The complaint also identifies as co-defendants “unnamed co-conspirators” who allegedly “performed acts and made statements that aided and abetted” the unlawful conduct.

The banks have denied the allegations of wrongdoing.

The accused banks seeking Supreme Court review include Lloyds Banking Group PLC, The Royal Bank of Scotland Group PLC, Deutsche Bank AG, Royal Bank of Canada, The Bank of Tokyo-Mitsubishi UFJ Ltd., Barclays Bank PLC and Credit Suisse AG.

In addition to Baltimore, cities suing the banks include Houston, Texas; New Britain, Connecticut; and Philadelphia.

The many lawsuits nationwide were consolidated and transferred to the U.S. District Court in New York in the interest of judicial economy.