McCarthy v. Intercontinental Exchange, Inc.

Background

Lisa McCarthy and 26 other plaintiffs brought a consumer antitrust action against Intercontinental Exchange, Inc., and other defendants. They alleged that banks and financial institutions conspired to fix USD LIBOR—the interest-rate benchmark used in variable-rate financial products—through the formula and procedures used to calculate the rate. The plaintiffs alleged that they paid artificially inflated interest on variable-rate loans and credit cards.

The plaintiffs sought a preliminary and permanent injunction under Federal Rule of Civil Procedure 65. They asked the court to prohibit defendants from continuing the alleged LIBOR price-fixing scheme, to bar enforcement of the LIBOR component of financial instruments such as mortgages, student loans, credit cards, auto loans, and lines of credit, and to declare void consumer loan contracts using LIBOR. They later filed an application for an order requiring defendants to show why an injunction should not issue, seeking essentially the same relief and also asking for bonds securing alleged overpayments and related amounts. The court considered both requests together because they were virtually identical.

Standing

The defendants argued that the plaintiffs lacked standing under Article III of the Constitution. To establish standing, a plaintiff must show an actual injury, a connection between that injury and the challenged conduct, and a likelihood that a favorable decision would remedy the injury.

At the preliminary-injunction stage, the court considered the complaint and the evidence submitted with the motion. It concluded that the plaintiffs had adequately shown standing at this early stage. The complaint alleged that they were consumers of variable-rate loans, that LIBOR was used in defendants’ consumer loans, and that they had paid and would pay anticompetitive rates. McCarthy also submitted a declaration stating that she had a variable-rate Capital One credit card tied to USD LIBOR. The court said that one plaintiff with standing was enough to make the controversy appropriate for judicial resolution.

Likelihood of success

A preliminary injunction is an extraordinary remedy. Generally, the requesting party must show a likelihood of success on the merits, likely irreparable harm without immediate relief, that the balance of hardships favors an injunction, and that an injunction would serve the public interest. The court focused first on the likelihood of success because that factor was decisive.

The complaint asserted violations of Sections 1 and 2 of the Sherman Act. The injunction requests, however, relied only on the Section 1 price-fixing claim. The court therefore examined whether the plaintiffs had shown a likelihood of success, or at least a serious legal question, on that claim.

The court noted that the parties largely agreed about how LIBOR was set. Since the mid-1980s, panel banks had provided estimates of the rates at which they could borrow from other banks. Since 2014, Intercontinental Exchange Benchmark Administration Limited had solicited that information and calculated LIBOR by excluding the highest and lowest quartiles of submissions, averaging the middle submissions, and rounding the result. The rate was subject to oversight by the United Kingdom’s Financial Conduct Authority, and the parties agreed that LIBOR was being phased out.

The plaintiffs relied almost exclusively on the Supreme Court’s decision in United States v. Socony-Vacuum Oil Co. The court acknowledged that horizontal price fixing can violate Section 1 of the Sherman Act as a per se violation, meaning the conduct can be unlawful without a detailed analysis of its effects. But it rejected the plaintiffs’ position that citing Socony alone established their entitlement to an injunction. The court explained that Socony involved a criminal conviction after trial and that later Supreme Court decisions cautioned that conduct cannot be treated as unlawful price fixing based only on its literal description. Because the plaintiffs did not address those later decisions, the court concluded that they had not shown a sufficient likelihood of success or serious question on the Section 1 claim.

Other injunction factors

The court also concluded that the plaintiffs had not shown imminent irreparable harm. Their alleged injury was excessive interest payments, which the court described as monetary harm that normally is not irreparable. The court also noted that the challenged LIBOR formula and procedures had been publicly known and used since the 1980s, and that the plaintiffs had not explained why those practices required emergency relief in 2021.

The balance of hardships also favored defendants. Other than McCarthy, the plaintiffs had not demonstrated that they were paying a variable rate tied to LIBOR, so the court characterized the plaintiffs’ hardship as minor and monetary. By contrast, defendants showed that a broad injunction against setting or using LIBOR could have substantial, possibly catastrophic effects on global financial markets. The court said the plaintiffs did not contest that showing.

The public-interest factor likewise weighed against an injunction. The court relied on evidence that abruptly ending LIBOR could create uncertainty in financial transactions, pose systemic risks, and leave parties to millions of contracts without a way to calculate payment obligations. It also cited evidence that an abrupt end could disrupt consumer contracts, including mortgages and student loans.

Rulings

Judge James Donato denied the motion for an injunction and the application for an order to show cause. He also denied defendants’ requests to strike the declarations and their evidentiary objection; the opinion states that the requests to strike were denied without prejudice to possible later consideration. The Financial Conduct Authority’s request to file an amicus brief was terminated as moot, and the pending motions to dismiss were left for resolution in a separate order.