Sonterra Capital Master Fund Ltd., et al. v. Credit Suisse Group AG, et al.

Background

Plaintiffs alleged that banks and brokers colluded to manipulate the Swiss Franc London InterBank Offer Rate, or CHF LIBOR, and thereby affect the prices of CHF derivatives. The instruments involved were CHF futures contracts and CHF foreign-exchange forwards. Richard Dennis traded futures contracts; Sonterra, FrontPoint, and Hunter traded only foreign-exchange forwards. CalSTRS also traded only foreign-exchange forwards but asserted no claims against UBS.

The plaintiffs included Fund Liquidation Holdings LLC, which claimed to be the successor to Sonterra, FrontPoint, and Hunter; Richard Dennis; and CalSTRS. The dissolved funds had assigned rights to Fund Liquidation Holdings under several asset-purchase agreements. The other defendants had settled, leaving UBS AG as the moving defendant.

The court had previously dismissed an earlier complaint for lack of subject-matter jurisdiction. The Second Circuit later vacated that decision and remanded the case after holding, in a related proceeding, that a real party in interest may satisfy constitutional standing by stepping into a dissolved entity’s position without starting a new action. Plaintiffs then filed a Third Amended Complaint.

UBS’s Standing Challenge

UBS moved under Federal Rule of Civil Procedure 12(b)(1), which permits a defendant to challenge the court’s subject-matter jurisdiction. UBS argued that the plaintiffs lacked Article III standing. Article III standing requires a plaintiff to show an actual injury, a connection between that injury and the defendant’s conduct, and a likelihood that a favorable court decision would remedy the injury.

The court recognized that Fund Liquidation Holdings could potentially serve as the real party in interest if it had received valid assignments of the specific claims asserted against UBS. The court therefore examined the asset-purchase agreements and the scope of the rights they transferred.

Assignment of Foreign-Exchange-Forward Claims

The agreements transferred rights connected to “Traded Securities,” which the agreements defined to include debt and equity securities and specified related instruments. The court held that foreign-exchange forwards are not debt securities or equity securities. It also rejected the argument that the agreements’ references to swaps and similar instruments included foreign-exchange forwards, explaining that swaps and currency forwards are different instruments.

Because the agreements were unambiguous, the court applied their written terms and did not consider extrinsic evidence, including trade data and a declaration from FrontPoint’s former general counsel. The court concluded that the agreements did not assign Fund Liquidation Holdings the claims involving the foreign-exchange forwards at issue against UBS. Fund Liquidation Holdings therefore lacked Article III standing to assert those claims.

Richard Dennis and Frank Divitto

The court separately considered whether Richard Dennis could establish standing. Dennis joined the case nearly three years after the original complaint and could not step into the dissolved funds’ position because he was asserting his own claims rather than prosecuting the dissolved funds’ claims.

Plaintiffs argued that Frank Divitto, who had joined the case earlier, could serve as the real party in interest and allow Dennis to join later. The court rejected that argument. Divitto was not an assignee of Sonterra’s claims, did not trade the same instruments as the dissolved funds, and had previously failed to allege actual damages from transactions occurring when defendants allegedly manipulated CHF LIBOR. The court therefore found that Divitto was not the functional equivalent of the original plaintiffs and could not cure Dennis’s lack of standing.

Disposition

The court granted UBS’s motion to dismiss the Third Amended Complaint in full and with prejudice. The ruling disposed of the claims against UBS on the threshold ground that the plaintiffs lacked Article III standing; it did not decide whether UBS actually manipulated CHF LIBOR or violated the antitrust, Commodity Exchange Act, Racketeer Influenced and Corrupt Organizations Act, or common-law provisions cited in the complaint.