The United States continues to be an active forum for banking-related litigation. Financial institutions continue to experience litigation exposure to financial product-related suits, as well as antitrust and other claims arising out of an active regulatory investigation landscape. Litigation derived from international sanctions violations has also been on the rise, though a recent ruling that claims against foreign corporations, including foreign banks, cannot proceed under the Alien Tort Statute may hinder future claims of this kind by private civil plaintiffs. Banks must continue to be attuned to privilege laws in multiple jurisdictions to guard against the potential disclosure of confidential information in private litigation in the United States. In addition, the recent passage of the Clarifying Lawful Overseas Use of Data (CLOUD) Act also raises questions regarding the protection of data located abroad in US litigation, though the practical effects of the law remain to be seen.
Though much of the litigation arising out of the foreign exchange (FX) market regulatory investigations has settled, including antitrust class actions, new suits have been filed based on investigations in other markets. Courts have heightened the requirements for actions to proceed on a class-wide basis by implying additional requirements into the class certification rule, which curbs class actions and the accompanying settlement pressures. In addition, Congress nullified a proposed rule promulgated by the Consumer Financial Protection Bureau (CFPB) prohibiting the use of class action waivers in arbitration agreements, which continues to be a method widely used by financial institutions to control dispute resolution arising out of consumer contracts and limit exposure to costly class actions. The government has also taken actions to begin a rollback of rules promulgated pursuant to the Dodd-Frank Wall Street Reforms Act (Dodd-Frank), including by amending Dodd-Frank to narrow its application. That rollback has been accompanied by the most significant drop in regulatory rulemaking since the collection of such data began in the 1970s. Nonetheless, as in many other areas, it remains to be seen what effect these actions will have in the banking litigation sphere.
i The federal system
The United States legal system is divided into federal and state jurisdictions. The federal government consists of three branches: legislative, executive and judicial. The majority of regulators that oversee financial matters (e.g., the Department of Justice, the Federal Reserve, and the Securities and Exchange Commission) are parts of the federal government, broadly defined, although states also have their own bank regulatory regimes.
The federal government and the state governments are considered to be separate sovereignties, and, accordingly, have concurrent legal regimes. Each of the 50 states has an independent court system and its own body of law. As a result, banks are subject to both federal and state law, which apply with equal force, but may differ in their requirements, with federal law taking precedence where applicable. Some states take a particularly active role in bank regulation; for example, as would be expected, New York and its Department of Financial Services maintain a dynamic presence in US banking regulation, and would be expected to continue to do so even if there were to be a decrease in activity by federal agencies.
ii Recent legislation
Significant banking legislation, the Economic Growth, Regulatory Relief and Consumer Protection Act (S.2155), has been recently enacted by the Trump administration. S.2155 significantly revises Dodd-Frank and the Consumer Protection Act of 2010 in an effort to reduce the burden on small to medium-sized banks and bank holding companies. It does so by limiting the application of Dodd-Frank’s enhanced prudential standards to banks with US$250 billion or more in global assets as compared with the current US$50 billion threshold, and by exempting holding companies with US$10 billion or less in global assets from certain requirements and rules, including the Volcker Rule, which, among other things, prohibits banks from making certain investments with their own funds and from making certain speculative investments. The impact of S.2155 will depend heavily on its implementation by the Federal Reserve and other bank regulators, especially the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation. In addition, the Federal Reserve, as well as other bank regulators, are expected to propose changes to relax the Volcker Rule later this year, which will likely allow banks to engage in a wider range of trading.
At the state level, little legislative activity has occurred in recent months, which is generally attributable to the secondary role of the states in banking regulation. The state of New York, however, has implemented new cybersecurity regulations that apply to companies operating under New York banking, insurance or financial services laws. Those regulations generally require the development of cybersecurity programmes and policies, limitations on access to data systems, use of qualified personnel, preparation of an incident response plan, and notification of the New York State Department of Financial Services within 72 hours of a cybersecurity event. These requirements, and the increase in cybersecurity attacks generally, will likely result in increased litigation in this area for banks that experience such attacks. Cybersecurity attacks, however, can also result in banks becoming plaintiffs when the banks’ customers information is compromised as a result of cybersecurity attacks on third parties.2
III JURISDICTIONAL MATTERS
In the United States, personal jurisdiction – or the power of a particular court to hale in an entity to answer for a claim – is either general, meaning that a court can hear any claim against that entity, or specific, meaning that the court can hear only claims ‘arising out of or related to the defendant’s contacts with the forum’.3
i General personal jurisdiction
Traditionally, courts were permitted to exercise general personal jurisdiction over an entity with ‘systematic and continuous contacts’ to the state where the court was located, which, in practice, meant that foreign banks were routinely subject to suit wherever they had a branch or representative office, subject only to discretionary rules of forum non conveniens. In 2014, the Supreme Court substantially limited the power of the US courts over foreign entities in Daimler AG v. Bauman,4 ruling that general personal jurisdiction could only be exercised over a company if the forum court is within the company’s state of incorporation, or the state of the company’s principal place of business, absent exceptional circumstances.5 Since Daimler, the Supreme Court has made clear that the defendant must truly be ‘at home’ in the forum state for general personal jurisdiction to exist.6 While Daimler has spawned much litigation, plaintiffs have been unsuccessful in articulating ‘an exceptional case’ in which the defendant’s operations were so substantial and of such a nature that would warrant deviation from this rule, and even the presence of 2,000 miles of railroad and over 2,000 employees in a US state was held to be not enough to support general jurisdiction when the suit was unrelated to any of that in-state activity.7 Thus, the majority of US courts now do not have general personal jurisdiction over foreign banks that are not incorporated in the United States and do not have their headquarters there.8
Plaintiffs have sought to avoid the impact of Daimler by advancing theories based on consent to jurisdiction – specifically by arguing that obtaining a business licence to operate within a state, as banks must to operate a local branch, should constitute consent to general jurisdiction there. States have issued conflicting opinions on this point.9 In New York, courts have not determined whether a licence to do business in the state will function as consent to personal jurisdiction, and legislation is pending to impose this requirement.10 At the time of writing, this question remains unresolved.
ii Specific personal jurisdiction
Plaintiffs have also sought to compensate for the loss of general jurisdiction in cases where it would previously have existed as a matter of course by broader assertions of specific jurisdiction, which requires that the claims arise out of the defendants’ forum-related contacts, arguing that their suits ‘arise out of or relate to’ what are sometimes relatively minimal actions by the defendant company within the forum.11 This strategy was envisioned by the Daimler court itself, which noted that ‘specific jurisdiction has become the centrepiece of modern jurisdiction theory’.12 Specific jurisdiction can be heavily fact-dependent and, while some courts require that the in-forum conduct be the proximate cause of the injury, other courts only require the in-forum conduct to be a but-for cause.13 Under either approach, the injury to the plaintiff must have a connection to the defendant’s conduct within the forum, thereby providing a causal constraint on the use of specific jurisdiction. Thus, specific personal jurisdiction often exists where the injury to the plaintiff arises out of conduct taken in, or purposefully directed to, the United States.14
One area that has spurred particularly interesting litigation is banks’ use of correspondent bank accounts in New York to clear dollar transactions within the state. In New York, those accounts can provide a basis for specific personal jurisdiction, but only where clearing transactions form part of the plaintiff’s claim and the bank knowingly made use of the correspondent account (i.e., the bank acted with knowledge of the nature of the underlying transaction for which the correspondent account is used to move dollars as payment).15 This area of law continues to evolve, as courts grapple with the extent to which routine banking contacts, such as use of New York correspondent accounts, are sufficient to create specific jurisdiction over otherwise non-US-related claims.
IV PROCEDURAL ISSUES
i Injunctions and attachment
Banks will frequently encounter asset freezing orders – injunctions or attachment orders requiring restraint of assets held by the bank – in connection with litigation to which the bank is not a party. There is variation among US jurisdictions as to the extent of a financial institution’s obligation to freeze assets held outside the United States in response to such orders. In New York, for example, the ‘separate entity rule’ allows New York courts to freeze only those assets located within the United States.16
With regard to post-judgment execution on assets or injunctions in aid of such execution, recent changes to personal jurisdiction law, discussed in greater detail in Section III, above, have limited the power of US courts to enforce such orders against non-parties for assets located outside the forum. Following the Daimler decision, ‘a court can enforce an injunction against a nonparty [bank] only if it has personal jurisdiction over that nonparty’.17 Even if personal jurisdiction exists, financial institutions may still raise principles of international comity as a further defence, particularly when the bank is a non-party that would not expect US law to apply.18 Thus, financial institutions wishing to resist the enforcement of third-party enforcement orders, now may be able to assert a personal jurisdiction defence that was not available before Daimler, in addition to the traditional defence of comity.
ii Class actions
Financial institutions will frequently encounter litigation in the form of a class action brought on behalf of numerous plaintiffs. Under Federal Rule of Civil Procedure Rule 23, which governs class actions in federal court, plaintiffs must affirmatively demonstrate several requirements: numerosity of parties, commonality of questions of law or fact, typicality of the representative plaintiffs’ claims relative to the class, and fair and adequate representation of the class. In addition, courts have interpreted Rule 23 to contain an implicit ‘ascertainability’ requirement, meaning that the members of the proposed class must be readily identifiable based on objective criteria that will not require individual determination.19 At least one court has taken that requirement even further by requiring that the class claims be administratively feasible as well.20 Such requirements provide an additional, useful basis for banks to defeat plaintiffs’ use of a class action in instances where the individuals allegedly harmed, or the harm itself is difficult to define.
To maintain a class action, the court must affirmatively approve of the class by ‘certifying’ it pursuant to Rule 23. In many cases, class certification, by magnifying the defendants’ potential exposure, helps drive settlement. Settlements of class actions after certification must be approved by the court upon a finding that the settlement is fair, reasonable and adequate.
iii Choice of law
Choice of law considerations within the United States can be particularly complex, and even more so in cases involving global banks, as courts must decide whether to use foreign, federal or state law – and if state law is applicable, which of the 50 states’ laws will apply. Different US jurisdictions apply different tests to resolve choice of law questions, in some instances looking to which body of law bears the most ‘significant relationship’ to the suit, while in other instances rigidly applying formulas that require, for example, a contract dispute to be adjudicated under the law of the place where the contract was formed.
V PRIVILEGE AND DISCLOSURE
i Bank examination privilege
In the United States, banks benefit from a privilege protection for confidential information shared with their bank regulators, known as the bank examination privilege. Banks are heavily regulated by a patchwork of state and federal agencies, which frequently obtain confidential information related to a bank’s operations and performance in the exercise of their oversight duties. Such confidential information is often sought in litigation by third parties against banks, and the bank examination privilege may be used to protect this information from disclosure.
The bank examination privilege belongs to the regulatory agency. It is up to the bank and its outside counsel to preserve the privilege when responding to subpoenas or discovery requests for documents covered by the privilege. Documents covered by the privilege should not be produced in parallel private litigation or to requests from non-banking agencies, unless the privilege has been waived by the applicable regulator or production has been ordered by a court following its review. In practice, outside counsel should notify the regulator of the request, and typically file under seal documents over which the privilege is being asserted for in camera court review. Outside counsel should be attuned to the bank examination privilege to minimise the risk of unnecessary disclosure, particularly in the current environment where banks are investigated and sued in myriad forums, by a multitude of agencies and private litigants.
ii Attorney–client privilege
Privilege over documents prepared during internal investigations
In the wake of enforcement actions against banks since the financial crisis of 2008, there has been an uptick in internal investigations as banks increasingly play the role of deputised enforcers. Given the concurrent rise in private parallel litigation, there is a greater risk that private litigants will seek discovery of materials prepared in the course of an internal investigation. It is important that a bank’s counsel, internal or external, ensure their communications and records concerning the internal investigation remain privileged.
In general, the rule for the attorney–client privilege to apply is that the communication must have been made in confidence for the purpose of obtaining legal advice. US courts have conducted fact-intensive analyses to determine whether the privilege applies. In at least one prominent US jurisdiction, the court has made clear that the correct test was whether ‘one of the significant purposes’ of the investigation was to obtain or provide legal advice.21 Application of that standard to company responses to data breaches, however, has reached inconsistent results as to whether a subsequent investigation by a forensic firm produces privileged information.22 In this context, a bank’s counsel should ensure that internal investigations are led by attorneys and have adequate attorney oversight.
In addition, given the tendency of regulators, beyond the bank’s primary supervisor, to vie with one another to take the lead in investigating potential wrongdoing, care should be taken when disclosing to regulators documents prepared by counsel during an internal investigation. At least one court has recently held that ‘oral downloads’ of information given by the law firm to the Securities and Exchange Commission are not privileged and therefore must be turned over from the company to former employees of the company.23 Furthermore, when documents are disclosed to a regulator (e.g., the Department of Justice) that is not the bank’s supervisory regulator, the bank examination privilege does not apply and such disclosure would constitute waiver of privilege for private litigation and other regulatory investigations. It is possible that a reduction in duplicative investigations will occur in the future based on a recent announcement by the government that it will seek to reduce the ‘piling on’ of investigations by multiple agencies; nevertheless, it remains critical to understand the manner in which disclosures to certain agencies may waive privilege.
Maintaining attorney-client privilege becomes an even thornier issue when cross-border considerations enter the picture. Given the global nature of most banks, this issue will increasingly be encountered in banking litigation practice. Foreign courts may refuse to apply US privilege law, subjecting documents created during an internal investigation to disclosure to private litigants.24 Given the global scope of many investigations, banks should be conscious that documents prepared in the course of an investigation could end up being disclosed to foreign authorities and, as a result, be later subject to discovery in civil litigation in the United States on waiver or other grounds.
Moreover, in litigation in the United States, depending on which country’s privilege laws apply following a choice of law analysis, there is a possibility that attorney-client privilege may not attach at all.25 Given the limitations on attorney-client privilege in other jurisdictions, counsel should be attuned to the increased risk of exposure to disclosure of documents created during an investigation, both in litigation proceedings in the United States and abroad.
Traditionally, warrants and subpoenas issued by the US government carry territorial limitations and thus do not extend to information located outside the United States.26 Based on that traditional rule, the Second Circuit quashed a government warrant seeking customer emails held by a US company overseas on servers in Ireland. The government appealed that decision to the Supreme Court, which heard oral argument on the matter in February 2018. Shortly thereafter, however, Congress passed the CLOUD Act, which explicitly declares that a provider of electronic communication service or remote computing service is required to comply with the provisions of the Act, regardless of whether the records are located outside of the United States.27 Given the focus of the law on providers of communication or computing services, it is unclear at the time of writing how the extraterritorial reach of the law may affect banks located abroad, if at all. The Act includes provisions that permit a subpoena to be quashed or modified if it would require the provider to violate foreign law, or is otherwise improper based on the comity analysis laid out in 18 USC Section 2703(h)(3). Those provisions will likely prove critical in protecting records stored abroad from use in litigation, particularly in light of the General Data Protection Regulation that took effect in the European Union at the end of May 2018.
The recent developments in personal jurisdiction case law post-Daimler, discussed in greater detail in Section III, above, have provided banks with another tool to defend against subpoenas. While the Federal Rules of Civil Procedure permit the issuance of a subpoena to third parties anywhere in the United States, settled law has established that a court must have personal jurisdiction over the target of a subpoena in order to enforce the subpoena. Given that Daimler restricts the principle of general personal jurisdiction to where an entity is ‘at home’, Daimler accordingly narrows the court’s ability to enforce a subpoena because of lack of personal jurisdiction, and limits the ability of litigants to obtain worldwide discovery from banks that merely have US branches with no connection to the underlying action.28
Separate entity rule
In New York, the separate entity rule has also been a defence against subpoenas seeking information for accounts held outside of the United States, though outcomes in the subpoena context have differed from the outcomes in the injunction and attachment context. Recent cases have left open the question of enforcement of information subpoenas on foreign banks with operations in New York29 and the issue therefore remains unresolved.
VI FREQUENT CAUSES OF ACTION
i Sanction violation suits
Recent years have seen a notable uptick in the number of civil suits brought in the wake of international sanctions violations. Thus, a US government finding, or admission by a bank, typically in a guilty plea, deferred prosecution agreement or civil settlement with bank regulators, that a company has violated a prohibition on commerce with Iran, for example, may well lead to private litigation.
Plaintiffs have primarily brought such claims under the Anti-Terrorism Act, but have also pursued those claims pursuant to common law or the Alien Tort Statute.30 Under the Alien Tort Statute, courts imply a private right of action by persons who are not US citizens for torts that violate ‘the law of nations or a treaty of the United States’.31 The Supreme Court, however, recently ruled that such actions cannot be brought against foreign corporations, including foreign financial institutions.32
The Anti-Terrorism Act, as amended in 2016 (ATA), provides a civil cause of action for treble damages and attorneys’ fees for private US persons injured by a terrorist act.33 Plaintiffs have used this provision to assert claims against banks for effecting wire transfers that either directly provided funds to terrorist groups or that transferred funds to intermediaries who allegedly eventually provided funding to terrorist groups.34 Considerable litigation related to these claims is ongoing. ATA primary liability claims require three elements: (1) injury to a national of the United States; (2) caused by reason of; (3) an act of international terrorism. An act of international terrorism in turn requires both violation of an underlying criminal statute, which for financial institutions typically involves a claim of knowing or wilfully blind support to a foreign terrorist organisation by transferring funds to it, and conduct by the bank involving violence or danger to human life and apparent intent to influence or coerce a government or population. In Linde v. Arab Bank,35 the Second Circuit held that, in applying these requirements, a financial institution’s provision of routine banking services to a foreign terrorist organisation or its members will not create civil liability unless the financial institution also knows that the funds it transfers will be used for terrorist activities.36
Claims brought pursuant to the ATA have also been successfully defended on grounds of lack of causation. Courts have interpreted the ATA to adopt the traditional element of proximate causation, which requires that the services provided by the financial institution were a substantial factor in causing the terrorist act, and that the terrorist act should have been reasonably foreseeable to the financial institution.37 At least one other court, however, has interpreted the causation requirement less stringently, finding the requirement satisfied where a knowing contribution to a terrorist organisation was made, even if specifically designated for a nonviolent wing of the organisation.38 Thus, while causation has been a hurdle in every court, it may be a less difficult one to overcome in certain US jurisdictions.
Further, as the Second Circuit addressed in its Linde decision, the 2016 Amendments to the ATA create secondary liability for aiding and abetting such terrorist acts, which does not require proof that the banking services directly caused the terrorism-related injuries.39 Instead, the causation requirement focuses on the link between the injury and the party whom the financial institution aids, as opposed to the injury caused by the financial institution itself. The other two requirements for secondary liability are that the financial institution was generally aware of its role in the terrorist act at the time the services were provided, and that it knowingly and substantially assisted the act. As more cases arise to which those amendments creating secondary liability are applicable,40 the legal landscape for these types of claims will likely become clearer. At the time of writing, it appears likely that the pre-eminent defence to secondary liability will now hinge on whether the bank knew that it was playing a part in the commission of terrorist activities by the person to whom it transferred funds.41
Additionally, there has been an effort by plaintiffs to pursue common law-based claims, rather than statutory based claims, against banks for aiding and abetting human rights violations by foreign states, by violating US sanctions prohibiting transfers of funds to those states.42 Because such claims necessarily implicate the acts of that foreign state, they have been dismissed by at least one court on the basis of the ‘act of state’ doctrine, which bars a US court from sitting in judgment over the acts of a foreign government.43 At the time of writing, however, that decision is on appeal and it remains to be seen whether the use of common law aiding and abetting claims in other contexts, such as terrorism, might be more successful.
ii Financial product-related suits
Banks have traditionally faced lawsuits related to the complex financial products they offer. Although those related to mortgage-backed securities are on the decline as many of these cases have settled in recent years, the litigation in this sphere has grown as banks create increasingly sophisticated financial products and derivative instruments. Litigation usually involves allegations of various forms of fraud, misrepresentation, breach of contract or breach of fiduciary duty, and in particular raising claims as to the suitability of the financial product. While such litigation often includes sophisticated parties, a proposed class action was recently filed against a large US bank based on a change in terms regarding the purchase of cryptocurrencies online using the bank’s credit cards by consumers.44 The complaint alleges that the bank changed its policies without notice to treat such purchases as ‘cash advances’, which include fees and high interest rates, in violation of the Truth in Lending Act.45 Similarly, a proposed class action was recently filed against another US bank for its alleged classification of Uber and Lyft payments as recurring payments for purposes of charging overdraft fees in breach of the customers’ contracts with the bank.46 At the time of writing, it remains to be seen whether either case will survive dismissal, and, if so, whether they will proceed as class actions.
iii Antitrust violation suits: civil suits brought in the wake of antitrust investigations
The latest financial scandals involving antitrust investigations and regulatory settlements, from alleged London Interbank Offered Rate (LIBOR) fixing to alleged manipulation of the FX market, have spawned a new wave of private litigation by investors alleging antitrust violations against banks. The allegations in these class actions, many of which have been consolidated, centre on collusive or anticompetitive behaviour by rate setters or counterparties to transactions and many base their allegations on conduct described in regulatory settlements.
While a number of these cases have settled, litigation continues against the non-settling banks. The banks secured a recent victory in the dismissal of certain claims arising from transactions executed outside the United States, but claims under the Commodity Exchange Act were allowed to proceed.47 Recently, claims by a separate class of plaintiffs brought under the Sherman Act as well as California state antitrust laws have been permitted to proceed.48 Furthermore, it remains to be seen whether additional classes of indirect-purchaser plaintiffs alleging collusion in the FX market49 and classes of customers alleging that certain banks used ‘last look’, a trading practice using complex algorithms that allegedly cancel or delay the processing of FX orders in order to ensure the bank receives a more favourable transaction,50 will be able to proceed as well.
In the LIBOR sphere, federal antitrust claims that had previously been dismissed by a lower court for failure to plead antitrust injury were revived in 2016, following a reversal by the Second Circuit, which held that antitrust law did not require plaintiffs to show an injury causing harm to competition in order to allege a conspiracy among market participants when the conduct alleged constitutes a per se antitrust violation, as in the context of rate-setting.51 In 2017, the Supreme Court denied a petition from the banks requesting it to review the Second Circuit opinion, so the case will proceed, focusing on whether plaintiffs are efficient enforcers of the antitrust laws – a requirement for antitrust standing. Earlier this year, the district court certified only a limited class of over-the-counter purchasers of LIBOR-based instruments, but refused to do the same for other proposed classes, in part owing to concerns of standing.52
In addition, reports of regulatory investigations, prior to any settlements, have spawned private litigation. For example, in the wake of reports of investigations into the potential manipulation of prices in the supranational, sub-sovereign and agency (SSA) bond market, various class actions were filed against several large financial institutions and individual traders alleging manipulation of prices in the SSA bond market in violation of the Sherman Act, 15 USC Section 1.53
Recently, one court permitted allegations of spoofing, which is defined in Dodd-Frank as ‘bidding or offering with the intent to cancel the bid or offer before execution’54 (at least when supported by collusive messages among traders) to move forward as an improper restraint of trade in violation of antitrust laws, namely the Sherman Act.55 That same court, however, likewise recognised the eventual difficulty in proving damages in such actions given uncertainty regarding the exact impact on foreign exchange rates. Accordingly, at the time of writing, it is uncertain whether the spoofing claims will ultimately succeed.
Since antitrust violations can potentially carry treble damages, the growth of class actions based on collusive behaviour potentially exposes banks to significant liability.
VII LIMITATIONS ON LIABILITY
In order to hold a defendant civilly liable, plaintiffs must show that the defendant caused their injuries. This causal connection requirement frequently limits a defendant’s exposure to damages. Recently, however, in the securities fraud context, the Second Circuit has been more lenient with regard to allegations of causation at the initial motion to dismiss stage, including by not requiring plaintiffs to rule out other causes of loss.56 As a result, the plaintiffs must only give ‘some indication’ of a ‘plausible causal link’ between the loss suffered and the alleged fraud.57 In the sanctions violation context, however, a greater causal connection between the provision of banking services and the sanction violation, or terrorist act, is necessary for primary liability, as discussed in Section VI.i, above.
ii Arbitration agreements
Arbitration agreements have become increasingly common in consumer contracts, particularly in contracts used by large financial service providers offering credit cards, bank accounts, student loans and other financial products and services. Arbitration agreements allow providers to contract for this choice of dispute resolution, ensuring all claims will be adjudicated through arbitration rather than in the potentially more costly traditional court forum. In particular, the rise of class arbitration waivers can limit liability by shielding providers from onerous class litigation and arbitration, where costs and potential damages are much higher. In recent years, the Supreme Court has upheld the enforceability of provisions in arbitration agreements precluding class claims and in 2018, Congress nullified a CFPB rule prohibiting class action waivers, so we can expect the practice to continue.58
Settlement is the predominant method of resolving litigation in the United States, because of the costs of discovery, the absence of an English-style ‘loser pays’ rule and the uncertainty of civil jury trials. Settlements of class actions after adverse decisions on dispositive motions or class certification issues are often preferred owing to the existence of civil jury trials in the United States, which magnify uncertainty for corporate defendants, especially those that are generically ‘unpopular’, like banks.
Recent notable bank settlements include:
- The US$480 million settlement in May 2018 between a US bank and a securities-fraud class action of investors who claimed that the bank’s stock traded at artificially inflated prices as a result of the bank’s creation of false customer accounts, and the US$142 million settlement in March 2017 between that bank and a class action of consumers alleging damages as a result of the bank’s creation of false accounts, which could ultimately exceed US$142 million because the bank agreed to ensure that each customer claim was fully compensated.
- The US$1 billion settlement in April 2018 between a US bank and the CFPB in coordination with the OCC for matters regarding a compliance risk-management programme and past practices regarding automobile loans and mortgages.
- The US$42 million settlement in March 2018 between a US bank and the New York Attorney General for misleading customers by telling them stock trades were managed in-house when, in reality, those trades were handled by outside firms.
- The US$66.6 million settlement in March 2018 between a US bank and a class action of consumers who claimed the bank collected unlawfully high interest rates from consumers whose current accounts were overdrawn by charging usurious fees on those overdrawn accounts.
- e The US$22 million settlement in January 2018 between a US bank and a class action of consumers who claimed the bank wrongly charged overdraft fees for Uber and Lyft payments, which should have been exempt from overdraft fees as non-recurring payments under the terms of the consumer contracts.
VIII OUTLOOK AND CONCLUSIONS
The United States continues to experience a period of great political uncertainty, and it is unclear what the implications will be for financial institutions. The Trump administration has already revised the tax code and amended portions of Dodd-Frank, which will lessen the regulatory obligations of banks – potentially significantly. Moreover, the administration has reduced the number of new regulations, and is likely to continue on that path. The practical effects for banking litigation may take some time to manifest themselves.
Similarly, while the new administration has appointed conservative and pro-business judges to the US Supreme Court and lower federal courts, how such appointments will translate into judicial decisions in particular cases remains to be seen. State attorneys general in places such as New York and California have also declared their intention to take up the reins of investigatory activity previously conducted by federal regulators of financial institutions.
1 Jonathan I Blackman is a partner and Pascale Bibi and Jessa I DeGroote are associates at Cleary Gottlieb Steen & Hamilton LLP.
2 First Choice Federal Credit Union v. the Wendy’s Co., No. CV 16-506, 2017 WL 1190500, at *1 (W.D. Pa. 31 March 2017) (upholding decision by Magistrate Judge denying Wendy’s motion to dismiss claims brought by banks for breach of customers’ credit and debit card information).
3 Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 415 No. 9 (1984).
4 571 U.S. 117 (2014).
5 Daimler AG, 571 U.S., 136.
6 Daimler AG, 571 U.S., 138 No. 18.
7 BNSF Ry. Co. v. Tyrrell, 137 S. Ct. 1549 (2017).
8 See, e.g., Brown v. Lockheed Martin Corp., 814 F.3d 619, 628-29 (2d Cir. 2016) (refusing to find an exceptional case where the defendant maintained a physical presence in the US state for over 30 years, ran operations out of that state and employed 70 workers there, and generated substantial revenue from its operations there); Nypl v. JPMorgan Chase & Co., 15-CIV-9300 (LGS), 2018 WL 1472506, at *4 (S.D.N.Y. 22 March 2018) (refusing to find an ‘exceptional case’ for general jurisdiction based on foreign banks’ participation in criminal proceedings in the US and advertisements accessible to consumers in the US).
9 For example, courts in Delaware issued split decisions on whether registration operated as consent, before the Delaware Supreme Court – the state’s highest court, and the final arbiter of Delaware state law – ruled that registration did not function as consent. Genuine Parts Co. v. Cepec, 137 A.3d 123, 148 (Del. 2016).
10 N.Y. State Assembly, A6714, Reg. Sess. (N.Y. 2015), http://assembly.state.ny.us/leg/?default_fld=%0D%0A&bn=A6714&term=2015&Summary=Y&Actions=Y&Votes=Y&Memo=Y&Text=Y.
11 Much of the increase in specific personal jurisdiction litigation has centered on products liability and non-bank commercial activity-based jurisdictional fact patterns. See, e.g., Bristol-Myers Squibb Co. v. Super. Ct. of Cal., 137 S. Ct. 1773 (2017).
12 Daimler AG, 571 U.S., 128 (citation omitted) (internal quotation marks omitted).
13 SPV Osus v. UBS AG, 882 F.3d 333, 334 (2d Cir. 2018).
14 Charles Schwab Corp. v. Bank of Am. Corp., 883 F.3d 68, 81-88 (2d Cir. 2018) (finding that personal jurisdiction exists for claims arising out of transactions in the US, but not for claims arising out of conduct undertaken abroad); see also Nypl., 2018 WL 1472506, at *5-6 (finding specific personal jurisdiction where the alleged injuries arose out of conduct for which the banks entered guilty pleas with the US Department of Justice admitting to actions directed at or occurring in US states, but refusing to extend that jurisdiction to foreign parent holding companies).
15 Rushaid v. Pictet & Cie, 28 N.Y.3d 316, 338 (2016), reh’g denied, 28 N.Y.3d 1161 (2017); see also Licci ex rel Licci v. Lebanese Canadian Bank, SAL, 732 F.3d 161, 171 (2d Cir. 2013).
16 Motorola Credit Corp. v. Standard Chartered Bank, 24 N.Y.3d 149, 156 (2014).
17 Gucci Am., Inc. v. Weixing Li, 768 F.3d 122, 134 (2d Cir. 2014) (emphasis added).
18 Id. at 138-42; see also Peterson v. Islamic Republic of Iran, 876 F.3d 63, 94 No. 23 (2d Cir. 2017).
19 See, e.g., In re Petrobras Secs., 862 F.3d 250, 264-65 (2d Cir. 2017); Sandusky Wellness Ctr., LLC v. Medtox Sci., Inc., 821 F.3d 992, 995 (8th Cir. 2016).
20 Byrd v. Aaron’s Inc., 784 F.3d 154, 162-63 (3d Cir. 2015).
21 In re Kellogg Brown & Root, Inc., 756 F.3d 754, 758-59 (D.C. Cir. 2014).
22 Compare In re Premera Blue Cross Customer Data Sec. Breach Litig., No. 3:15-md-2633-SI, 2017 WL 4857596 (D. Or. 27 October 2017) (finding that documents prepared by forensic firm after data breach were not privileged), with In re Experian Data Breach Litig., No. 8:15-cv-01592, 2017 WL 4325583 (C.D. Cal. 18 May 2017) (finding similar documents were prepared in anticipation of litigation and therefore protected work product).
23 United States Sec. & Exch. Comm’n v. Herrera, No. 17-20301-CIV, 2017 WL 6041750, at *1 (S.D. Fla. 5 December 2017).
24 See, RBS Rights Issue Litigation  EWHC 3161 (Ch).
25 See, e.g., Wultz v. Bank of China Ltd., 979 F. Supp. 2d 479 (S.D.N.Y.), on reconsideration in part, No. 11 Civ. 1266(SAS), 2013 WL 6098484 (S.D.N.Y. 20 November 2013) (applying Chinese privilege law, which essentially leaves materials unprotected, to all communications except those related to U.S. legal matters).
26 Matter of Warrant to Search a Certain E-Mail Account Controlled and Maintained By Microsoft Corp., 829 F.3d 197 (2d Cir. 2016).
27 CLOUD Act Section 103(a)(1).
28 Leibovitch v. Islamic Republic of Iran, 852 F.3d 687 (7th Cir. 2017).
29 See, Vera v. Republic of Cuba, 91 F. Supp. 3d 561 (S.D.N.Y. 2015) (holding that neither the separate entity rule nor Daimler restrictions applied and therefore ordering a Spanish bank to comply with a subpoena for information from branches outside New York, reasoning that the bank had consented to general personal jurisdiction by registering as a foreign bank branch in New York in compliance with New York’s statutory regime), rev’d on other grounds Vera v. Republic of Cuba, 867 F.3d 310, 315 (2d Cir. 2017); see also Nypl., 2018 WL 1472506, at *2-4 (refusing to exercise jurisdiction over banks based on the presence of branch offices).
30 See, e.g., Ofisi v. BNP Paribas, S.A., 278 F. Supp. 3d 84, 92-93 (D.D.C. 2017), vacated in part on other grounds 285 F. Supp. 3d 240 (D.D.C. 2018).
31 28 U.S.C.A. Section 1350.
32 Jesner v. Arab Bank, PLC, 138 S. Ct. 1386, 1407 (2018).
33 18 U.S.C.A. Section 2333.
34 See, e.g., Wultz v. Bank of China Ltd., 32 F. Supp. 3d 486 (S.D.N.Y. 2014); Lelchook v. Islamic Republic of Iran, Civil Action No. 15-13715-PBS, 2016 WL 7381686 (D. Mass. 20 December 2016).
35 Linde v. Arab Bank, PLC, 882 F.3d 314, 329-27 (2d Cir. 2018) (explaining that ‘providing financial services to a known terrorist organisation may afford material support to the organisation’ but that such support does not equate to an ‘act of international terrorism’); see also Weiss v. Nat’l Westminster Bank, PLC, 278 F. Supp. 3d 636 (E.D.N.Y. 2017).
36 Linde, 882 F.3d, 327.
37 See, e.g., Fields v. Twitter, Inc., 881 F.3d 739, 744-46 (9th Cir. 2018); Rothstein v. UBS AG, 708 F.3d 82, 97 (2d Cir. 2013).
38 Boim v. Holy Land Found. for Relief and Dev., 549 F.3d 685, 697-99 (7th Cir. 2008).
39 Id. at 328-29.
40 The 2016 Amendments implemented by the Justice Against Sponsors of Terrorism Act apply to any civil action pending on or commenced after 28 September 2016 that arises out of an injury caused on or after 11 September 2001.
41 See, e.g., O’Sullivan v. Deutsche Bank AG, No. 17-CIV-8709, 2018 WL 1989585, at *6 (S.D.N.Y. 26 April 2018).
42 See, e.g., Kashef v. BNP Paribas, S.A., 16-CV-3228, 2018 WL 1627261, at *2 (S.D.N.Y. 30 March 2018); Ofisi v. BNP Paribas, S.A., 278 F. Supp. 3d, 92-93.
43 Kashef, 2018 WL 1627261, at *2-4 (dismissing based on the ‘act of state’ doctrine common law claims against a bank for allegedly aiding and abetting acts of Sudan).
44 Tucker v. Chase Bank USA N.A., 18 CIV 3155 (KPF) (S.D.N.Y.).
45 Id. 18 CIV 3155 (Docket Entry 1, 10 April 2018).
46 Karen Alexander v. Bank of America, 18 CIV 2814 (WHO) (N.D. Cal.).
47 In re Foreign Exch. Benchmark Rates Antitrust Litig., No. 13 CIV 7789 (LGS), 2016 WL 5108131 (S.D.N.Y. 20 September 2016).
48 Nypl. v. JPMorgan Chase & Co., No. 15 CIV. 9300 (LGS), 2018 WL 1276869, at *4 (S.D.N.Y. 12 March 2018) (denying banks’ motion to dismiss antitrust claims brought by individual plaintiffs who purchased allegedly price-fixed foreign currency from the defendants at the benchmark rates).
49 Baker v. Bank of Am. Corp., 16 CIV 7512 (LGS) (S.D.N.Y.).
50 See, e.g., Alpari (US), LLC v. Credit Suisse Group AG, 17 CIV 5282 (LGS) (S.D.N.Y.).
51 Gelboim v. Bank of Am. Corp., 823 F.3d 759 (2d Cir. 2016), cert. denied, 137 S. Ct. 814 (2017).
52 In re LIBOR-Based Fin. Instruments Antitrust Litig., No. 11 CIV. 5450 (NRB), 2018 WL 1229761 (S.D.N.Y. 28 February 2018).
53 In re SSA Bonds Antitrust Litig., No. 16-cv-03711 (S.D.N.Y.).
54 7 U.S.C. Section 6c(a)(5)(C). Sullivan v. Barclays PLC, 13-CV-2811, 2017 WL 685570, at *12-13 (S.D.N.Y. 21 February 2017).
55 Sullivan, 2017 WL 685570, at *12-13.
56 See, e.g., Charles Schwab Corp., 883 F.3d 68, 93-95; Loreley Fin. (Jersey) No. 3 Ltd. v. Wells Fargo Sec., LLC, 797 F.3d 160, 188 (2d Cir. 2015).
57 Charles Schwab, 883 F.3d, 93 (quoting Loreley, 797 F.3d, 188).
58 See, e.g., DIRECTV, Inc. v. Imburgia, 136 S. Ct. 463 (2015); Am. Express Co. v. Italian Colors Rest., 570 U.S. 228 (2013); AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011).