Preston Hollow Capital LLC v. Nuveen LLC

Background

Preston Hollow Capital LLC alleged that Nuveen Asset Management LLC organized a group boycott in the high-yield municipal bond market. Preston Hollow sought to purchase 100% of certain municipal bond offerings from underwriters and broker-dealers. According to the complaint, Nuveen viewed this business model as a threat because it prevented Nuveen from purchasing bonds for its mutual funds.

The complaint alleged that Nuveen employees, including John V. Miller and Karen Davern, pressured several financial institutions not to conduct 100% placements with Preston Hollow. The alleged pressure included threats to reduce or end Nuveen’s business with institutions that continued working with Preston Hollow. The complaint further alleged that several institutions stopped conducting these transactions, stopped presenting opportunities to Preston Hollow, or agreed to give Nuveen the opportunity to participate first.

Preston Hollow had previously sued four Nuveen defendants in a Delaware proceeding based on largely the same conduct. After a trial, the Delaware court found Nuveen liable for tortious interference with business relations but did not decide the New York antitrust claim and denied permanent injunctive relief. Preston Hollow later filed this federal action seeking damages and other relief. The opinion states that Preston Hollow alleged approximately $100 million in damages.

Arguments on the Motion to Dismiss

Nuveen moved to dismiss under Rule 12(b)(6), which tests whether a complaint states a legally sufficient claim. It argued that the Donnelly Act claims against Nuveen and the tortious-interference claim against Miller were barred by res judicata, a rule that can prevent relitigation of claims resolved in an earlier case. Nuveen also argued that Preston Hollow should be judicially estopped, meaning prevented from taking a position inconsistent with one it took in the earlier Delaware proceeding. Finally, Nuveen argued that the federal and state antitrust claims failed to allege an unlawful conspiracy under either the per se rule or the rule of reason.

Res Judicata

The court concluded that the Delaware proceeding did not bar Preston Hollow’s Donnelly Act claims. Although the earlier case involved the same underlying conduct and the Delaware court had entered a final judgment, the Delaware court expressly declined to decide the Donnelly Act issue because it involved an unsettled question of New York law. The court concluded that applying claim preclusion in those circumstances would be inconsistent with the purpose of the rule.

The court also declined to apply res judicata to Miller’s claim. Miller was not a party to the Delaware proceeding, and the opinion states that there was no basis asserted for personal jurisdiction over him in that case. The court therefore denied Miller’s request to dismiss the tortious-interference claim on res judicata grounds.

Judicial Estoppel

The court declined to apply judicial estoppel. In the Delaware proceeding, Preston Hollow had sought only injunctive relief and had argued that damages were difficult or speculative to calculate. In this case, it sought damages. The court concluded that those positions were not clearly inconsistent because events occurring after the earlier litigation, including the passage of time and business results, could have provided a factual basis for calculating damages.

Antitrust Claims

The court held that the complaint plausibly alleged a violation of Section 1 of the Sherman Act under the per se rule. Because Nuveen and the broker-dealers operated at different levels of the market, the complaint needed to allege both vertical agreements between Nuveen and individual broker-dealers and a horizontal agreement among the broker-dealers themselves.

The court found that the allegations plausibly supported both types of agreements. The complaint described demands by Nuveen that broker-dealers stop conducting 100% placements with Preston Hollow, as well as statements that other broker-dealers had made or were being asked to make the same commitment. The court concluded that these allegations, including statements about other dealers’ participation and requests for assurances that others were complying, supported an inference of a horizontal agreement rather than merely independent business decisions.

The court also found that Preston Hollow plausibly alleged a relevant market involving financing through high-yield municipal bond offerings. It noted the complaint’s allegations that high-yield municipal bonds differ from investment-grade bonds in credit risk, yield, issuance practices, and the types of issuers and investors involved.

Because the court found that Preston Hollow stated a per se antitrust claim, it did not decide whether the complaint separately alleged sufficient harm to competition under the rule of reason. It denied the motion to dismiss the rule-of-reason claim without prejudice to renewal on summary judgment.

Disposition

Judge P. Castel denied Nuveen Asset Management LLC’s motion to dismiss the complaint. The court also denied Miller’s motion to dismiss the tortious-interference claim and declined to apply judicial estoppel. Nuveen LLC, Nuveen Investments, Inc., and Nuveen Securities LLC were dismissed without prejudice based on Preston Hollow’s agreement to dismiss them. The case therefore continued against Nuveen Asset Management LLC and John V. Miller on the claims addressed in the order.