(Illustration by Richard Mia)
U.S. District Judge Lorna Schofield’s patience snapped. She had already chosen 37-lawyer Scott +
Scott for the colead role in a massive antitrust class action against a dozen major banks. But at a hearing in March, Quinn Emanuel Urquhart & Sullivan’s Steig Olson kept pressing her to reconsider.
“Quinn Emanuel can’t serve as lead counsel in every major litigation in the country,” Schofield told him.
That doesn’t mean it won’t try. For Quinn Emanuel, the flap in March—in a case alleging that the banks conspired to manipulate daily foreign exchange, or “forex,” benchmark prices of the world’s major currencies—is one of several battles to lead a growing docket of antitrust class actions targeting financial institutions. Coming off its high-profile financial crisis cases against many of the same banks—including a string of multibillion-dollar settlements—Quinn Emanuel is eager to leverage that success.
Quinn Emanuel is attempting to join an elite club of roughly half a dozen well-known plaintiffs class action firms with the antitrust experience and resources to sustain high-risk, high-reward cases like these. (In a similar 2005 price-fixing case over Visa and Mastercard “swipe” fees, for instance, 15 firms collectively underwrote $27 million in expenses and 500,000 hours in attorney and paralegal time over seven years; court-approved attorneys fees totaled $545 million.) Contingency work now brings in just 15 percent of Quinn Emanuel’s revenues, according to antitrust head Stephen Neuwirth. But that’s actually an advantage, he says. “Unlike firms that only do contingency work, most of what we do is hourly,” Neuwirth says. “That gives us more flexibility to sustain the huge costs that these cases require.”
The plaintiffs firms, too, are looking for new cases as their financial crisis-related docket has waned and as securities class actions face higher hurdles to certification.
Not surprisingly, Quinn Emanuel’s arrival has triggered some blowback. Bank counsel challenged the firm’s appointment in another antitrust class action because of its long-time representation of Morgan Stanley. Plaintiffs bar rivals also grouse. “They’re not known for class actions, and they’re not known for antitrust,” says Michael Hausfeld of Hausfeld, echoing several others. (Neuwirth notes that his firm is coleading two major ongoing antitrust class actions, a 2007 antitrust multidistrict litigation related to rail freight fuel surcharges and a 2010 multidistrict litigation stemming from alleged price-fixing of polyurethane foam.)
The current wave of litigation was set off after the LIBOR scandal broke in 2011. A group of 16 global banks had allegedly manipulated the daily London interbank short-term loan rate (LIBOR), which is used to calculate interest rates throughout the world. Prosecutors and regulators then turned their attention to other global markets where the banks play an outsize role, and news of the probes spawned private antitrust litigation.
Before LIBOR, “you didn’t see antitrust cases against the banks,” says Quinn Emanuel partner Daniel Brockett.
The most prominent of these cases include the forex suit and a similar class action alleging that five banks colluded to fix the benchmark gold price used to calculate prices on most global gold products. A third big case alleges that 12 banks conspired to block exchange trading of credit default swaps (CDS), preserving the opaque and profitable over-the-counter CDS market for themselves.
The obstacles to these suits are many. Two similar antitrust class actions against banks have run aground on motions to dismiss. In the auction rate securities case, antitrust claims were dismissed. The LIBOR litigation was nearly gutted when a U.S. district judge in Manhattan found that the plaintiffs didn’t show that the alleged anticompetitive conduct could plausibly have caused their financial losses. (In June 2014 the U.S. Supreme Court agreed to hear an appeal.)
Plaintiffs lawyers in the forex, gold and CDS cases also must make a plausible case that the alleged conduct harmed their clients. But customers who lost money one day due to alleged price manipulation may have benefited from similar conduct the next, the banks argue.
There are other hurdles. In many benchmark cases, “there’s very little in the public domain about what traders did,” says Alberto Thomas of the market analysis firm Fideres Partners, which was tapped by Quinn Emanuel to provide a forex market analysis that plaintiffs say demonstrates market manipulation. And banks have so far convinced judges to nix early discovery because of pending criminal probes. To build a complaint that can withstand a motion to dismiss, “so much of the case these days has to be front-loaded,” says Christopher Burke of Scott + Scott.
He and other plaintiffs lawyers say they have a stronger claim in the current batch of cases than existed in LIBOR because the alleged manipulation directly impacted market prices. Forex manipulation “was affecting the actual price that people were buying and selling currency,” says Burke. And in the CDS case, even without court-sanctioned discovery, Burke’s team found market insiders and collected testimony.
If plaintiffs can surpass the motion to dismiss, discovery is likely to unearth plenty of potential evidence. “What we have seen in these financial institutional matters is that there are enormous amounts of recordings between brokers and customers,” says Hausfeld, whose firm is cocounsel with Scott + Scott in the forex class action. In the LIBOR and auction rate securities cases that he coleads, Hausfeld notes, the recordings produced in the government cases “are incredibly rich in detail, revealing the almost careless or reckless attitude of the agents in expressing an almost giddiness in playing with other people’s money.”
So far, Quinn Emanuel’s record in landing plum roles in these cases is mixed. It is heading up the CDS case: At a hearing last December to appoint lead counsel, U.S. District Judge Denise Cote announced she was already sold on the firm in spite of the Morgan Stanley conflict and the fact that it had lodged its complaint four months after rival Scott + Scott. Quinn Emanuel “has run massive discovery cases by itself essentially,” Cote said. “And it has extraordinary strengths with respect to appellate litigation. … It’s familiar with litigating against these very banks.” It’s also familiar with litigating before Cote, who has been overseeing the massive litigation Quinn Emanuel is spearheading for the Federal Housing Finance Agency, against many of the same defendants.
But Quinn Emanuel struck out in forex, although tapped by one of the largest plaintiffs, the City of Philadelphia Board of Pensions and Retirement. It filed its complaint three months after Scott + Scott, and at the March hearing, Judge Schofield seemed unimpressed by Quinn Emanuel’s size, worrying aloud about the litigation’s cost.
“I look just at the crowd gathered here,” she said to the more than 50 lawyers from two dozen firms in her courtroom, “and how much in the way of fees that are implicated by every step that is taken in this case.” (Schofield is expected to rule on a motion to dismiss later this year.)
Meanwhile, at press time, the lead role in the gold class action was still up for grabs. On July 3, Quinn Emanuel and plaintiffs class action heavyweight Berger & Montague teamed up to file a 30-page application to lead the litigation—more than double the average length of such submissions, with 21 exhibits and prominent mention of Quinn Emanuel’s appointment in the CDS case.
“If you’re not appointed lead, there’s no guarantee that you’ll get a scrap of work,” notes Burke, whose firm is not involved in the gold case.