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Supreme Court declines banks’ appeal in Baltimore’s collusion claim

An international banking case in which Baltimore seeks to recover millions of dollars in alleged overpayments will head back to federal district court after the U.S. Supreme Court on Tuesday declined to hear the banks’ procedural challenge.

Without comment, the high court let stand a ruling that the lawsuit can be heard in a U.S. District Court in New York even though the foreign banks did not operate in the United States.

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.

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 by manipulating the London Interbank Offered Rate for U.S. dollars, or LIBOR.

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 Supreme Court declined the banks’ request for review, with three of its nine justices having recused themselves from considering the appeal.

Chief Justice John Roberts and Justices Elena Kagan and Neil Gorsuch did not publicly disclose the reasons for their recusal. However, their financial disclosure forms for calendar year 2020 show that each had investments through Schwab, a lead plaintiff in the lawsuit against the banks and a respondent in the foreign banks’ high court appeal.

Baltimore Solicitor James L. “Jim” Shea, the city’s chief attorney, stated via email Tuesday that “we are pleased” with the court’s action and “look forward to vindicating the rights of Baltimore and other victims of the banks’ conspiracy to improperly influence the LIBOR benchmark.”

The case was 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 stated in court papers that the city paid nearly $1 billion for the bonds, whose price the banks allegedly colluded to keep 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 that sought 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; 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.

The 2nd Circuit’s published decision asserting U.S. district court jurisdiction was the federal equivalent of 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,  thus giving the state’s courts jurisdiction under the theory that conspirators are acting as the defendant’s agents.

In their unsuccessful 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, who served during the Obama administration, is now with Hogan Lovells US LLP in Washington.

Baltimore and the other plaintiffs suing the banks had waived their right to respond to the banks’ petition unless the justices specifically requested their response. The request was never made.

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