City of Philadelphia v. Banc of Am. SEC. LLC

• Court: Court of Appeals for the Second Circuit
• Decided: August 1, 2025
• Docket: 24-297
• Status: Unpublished

Opinion

24-297 City of Philadelphia v. Banc of Am. Sec. LLC

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION “SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

At a stated term of the United States Court of Appeals for the Second Circuit, held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York, on the 1st day of August, two thousand twenty-five.

PRESENT: PIERRE N. LEVAL, RICHARD C. WESLEY, RICHARD J. SULLIVAN, Circuit Judges. ______________________________________

CITY OF PHILADELPHIA, SAN DIEGO ASSOCIATION OF GOVERNMENTS, MAYOR AND CITY COUNCIL OF BALTIMORE,

Plaintiffs-Appellees,

v. No. 24-297

BANC OF AMERICA SECURITIES LLC, MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, BARCLAYS CAPITAL INC., CITIBANK, N.A., CITIGROUP GLOBAL MARKETS INC., GOLDMAN SACHS & CO., J.P. MORGAN SECURITIES LLC, RBC CAPITAL MARKETS LLC, WELLS FARGO BANK, N.A., WACHOVIA BANK, N.A., WELLS FARGO SECURITIES LLC, MORGAN STANLEY & CO. LLC,

Defendants-Appellants,

GOLDMAN SACHS GROUP, INC., JPMORGAN CHASE & CO., WELLS FARGO & CO., BMO FINANCIAL GROUP, BMO FINANCIAL CORP., BMO CAPITAL MARKETS CORP., BMO CAPITAL MARKETS GKST INC., FIFTH THIRD BANCORP, FIFTH THIRD BANK, FIFTH THIRD SECURITIES, INC., BANK OF AMERICA, N.A., BANK OF AMERICA CORPORATION, BARCLAYS BANK PLC, CITIGROUP, INC., CITIGROUP GLOBAL MARKETS LIMITED, ROYAL BANK OF CANADA, WELLS FARGO FUNDS MANAGEMENT, LLC, MORGAN STANLEY, MORGAN STANLEY SMITH BARNEY LLC, MORGAN STANLEY CAPITAL GROUP INC., JPMORGAN CHASE BANK N.A.,

Defendants. _______________________________________

2 For Defendant-Appellant J.P. ROBERT D. WICK, Covington & Morgan Securities LLC: Burling LLP, Washington, DC (Robert A. Long, Jr., Covington & Burling LLP, Washington, DC; Andrew A. Ruffino, S. Conrad Scott, Deborah Malamud, Covington & Burling LLP, New York, NY, on the brief)

For Defendants-Appellants Banc of Noah Levine, WilmerHale, America Securities LLC and Merrill New York, NY Lynch, Pierce, Fenner & Smith Incorporated:

For Defendant-Appellant Barclays Boris Bershteyn, Lara Flath, Capital Inc.: Kamali P. Willett, Skadden, Arps, Slate, Meagher & Flom LLP, New York, NY

For Defendant-Appellant Citigroup Brad S. Karp, Susanna M. Global Markets Inc.: Buergel, Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York, NY

For Defendant-Appellant Morgan Adam S. Hakki, Allen Overy Stanley & Co. LLP: Shearman Sterling US LLP, New York, NY; John F. Cove, Jr., Allen Overy Shearman Sterling US LLP, San Francisco, CA; Grace J. Lee, Allen Overy Shearman Sterling US LLP, Washington, DC

3 For Defendant-Appellant Goldman Robert Y. Sperling, Staci Sachs & Co. LLC: Yablon, William B. Michael, Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York, NY

For Defendant-Appellant RBC Andrew J. Frackman, Michael Capital Markets, LLC: M. Klotz, O’Melveny & Myers LLP, New York, NY; Sergei Zaslavsky, O’Melveny & Myers LLP, Washington, DC

For Defendants-Appellants Wells Jayant W. Tambe, Laura Fargo Bank, N.A., Wachovia Bank, Washington Sawyer, Rajeev N.A., and Wells Fargo Securities Muttreja, Jones Day, New LLC: York, NY; Michael P. Conway, Jones Day, Chicago, IL

For Plaintiffs-Appellees: DAVID M. COOPER, Quinn Emmanuel Urquhart & Sullivan, LLP, New York, NY (Daniel L. Brockett, Steig D. Olson, Quinn Emmanuel Urquhart & Sullivan, LLP, New York, NY; David H. Wollmuth, William A. Maher, Ronald J. Aranoff, Randall Rainer, Wollmuth Maher & Deutsch LLP, New York, NY; Seth Ard, Tamar Lusztig, Susman Godfrey LLP, New York, NY, on the brief)

Appeal from a judgment of the United States District Court for the Southern

District of New York (Jesse M. Furman, Judge).

4 UPON DUE CONSIDERATION, IT IS HEREBY ORDERED,

ADJUDGED, AND DECREED that the September 21, 2023 order of the district

court is AFFIRMED.

Defendants-Appellants appeal from an order of the district court granting

Plaintiffs-Appellees’ motion for class certification pursuant to Federal Rule of Civil

Procedure 23. Defendants-Appellants primarily argue that the district court erred

in granting class certification by (1) applying the wrong legal standard when

assessing whether the questions of law or fact common to the class members

predominated over any questions affecting only individual members and (2)

discounting Defendants-Appellants’ individualized defenses. We assume the

parties’ familiarity with the underlying facts, procedural history, and issues on

appeal, to which we refer only as necessary to explain our decision below.

I. Background

Plaintiffs-Appellees are issuers of a type of long-term bond issued by

municipalities and other public or charitable entities called a Variable Rate

Demand Obligation (“VRDO”). The bonds pay interest at a rate that is periodically

reset so as to maintain a market price at or close to face value. An investor has the

option to redeem the VRDO at face value on the bond’s interest reset dates.

5 Plaintiffs-Appellees hired Defendants-Appellants and Defendants

(collectively, the “Banks”) to act as remarketing agents to set the interest rates on

more than 12,000 VRDOs on their respective reset dates. As part of their contracts

with Plaintiffs-Appellees, the Banks are required to set the interest rate at the

lowest possible rate that would cause the VRDOs to trade at face value. When an

investor decides to make use of the option to redeem a VRDO on an interest reset

date, the Bank is contractually obligated to pay the investor face value for the

security, and then either remarket the bond, sometimes to the provider of a letter

of credit, or, if it cannot sell it for a satisfactory price, hold it among its own

investments.

Importantly, the contractual obligation requiring the Banks to set the

interest rate at the lowest rate possible ensures that Plaintiffs-Appellees are not

overpaying interest to VRDO investors. If a Bank sets higher rates than what the

market would require, the issuer can replace that Bank with another remarketing

agent so as to avoid paying needlessly high interest costs. In an efficient market,

the competition between the Banks and other remarketing agents for Plaintiffs-

Appellees’ business incentivizes the Banks to set interest rates as low as will cause

them to trade at face value.

6 On August 6, 2021, Plaintiffs-Appellees filed an amended complaint,

alleging that the Banks “conspired not to compete against each other in the

market” and “to keep interest rates on VRDOs artificially high[] to benefit

themselves . . . to the detriment of VRDO issuers” in violation of section 1 of the

Sherman Antitrust Act, 15 U.S.C. § 1, and contrary to the Banks’ contractual and

fiduciary duties under various state laws. Dist. Ct. Doc. No. 210 at 31. According

to Plaintiffs-Appellees, the Banks worked together between February 1, 2008 and

November 30, 2015 to maintain inflated VRDO interest rates by sharing

proprietary information used to calculate VRDO interest rates and by channeling

prospective rate information through third-party services to other Banks.

Plaintiffs-Appellees allege that the inflated rates helped the Banks keep low-

interest-rate VRDOs off their books, benefitted the Banks’ money market funds –

which were the predominant holders of VRDOs – and resulted in Plaintiffs-

Appellees paying higher interest rates than the VRDO markets required.

Plaintiffs-Appellees subsequently moved for certification of a class of “[a]ll

persons and entities who directly paid interest expenses on VRDOs that had

interest rates reset . . . [by] Defendants at any point from February 1, 2008 through

November 30, 2015.” Dist. Ct. Doc. No. 368 at 3. Plaintiffs-Appellees also sought

7 certification of a sub-class, specifically “[a]ll persons and entities who were party

to a remarketing agreement . . . that applies to VRDOs that had interest rates reset

. . . from February 1, 2008 through November 30, 2015.” Id. In support of their

certification motion, Plaintiffs-Appellees provided testimony from two experts –

Dr. William Schwert and Dr. Rosa Abrantes-Metz – who asserted that virtually all

VRDOs had their interest rates inflated at least once during the conspiracy period

and that the Banks set base rates consistent with one another, which “had a

common and class-wide impact on the VRDO rates charged to class members.”

Dist. Ct. Docs. 369–1 at 44; 369–2 at 109. The Banks then moved to preclude the

expert testimony and opposed the motion for class certification. The district court

denied the Banks’ motion to exclude the expert testimony and granted Plaintiffs-

Appellees’ motion to certify the class. Defendants-Appellants, a subset of the

Banks, appealed the district court’s decision to certify the class.

II. Legal Standard

We review a district court’s order granting class certification for abuse of

discretion. See Denney v. Deutsche Bank AG, 443 F.3d 253, 263 (2d Cir. 2006). To

attain class certification, a plaintiff “must affirmatively demonstrate his

compliance” with Federal Rule of Civil Procedure 23. Comcast Corp. v. Behrend, 569

8 U.S. 27, 33 (2013) (internal quotation marks omitted). More than just “a mere

pleading standard,” Rule 23 requires a party to “be prepared to prove that there

are in fact sufficiently numerous parties, common questions of law or fact,

typicality of claims or defenses, and adequacy of representation, as required by

Rule 23(a),” and to “satisfy through evidentiary proof at least one of the provisions

of Rule 23(b).” Id. (internal quotation marks omitted). Rule 23(b)(3) – the

provision relevant here – requires a court to find that “the questions of law or fact

common to class members predominate over any questions affecting only

individual members.” Fed. R. Civ. P. 23(b)(3).

In determining whether a plaintiff has sufficiently established that the

requirements of Rule 23(b)(3) have been satisfied, courts must conduct “a rigorous

analysis.” Comcast, 569 U.S. at 33. “Such an analysis will frequently entail overlap

with the merits of the plaintiff’s underlying claim” and may even require courts

“to probe behind the pleadings.” Id. at 33–34 (internal quotation marks omitted).

If the evidence shows that the requirements have been met by a preponderance of

the evidence, a court may certify a class. See Levitt v. J.P. Morgan Sec., Inc., 710 F.3d

454, 465 (2d Cir. 2013). Importantly, the party moving for class certification bears

the burden of proof. See id.

9 III. Discussion

Defendants-Appellants challenge the district court’s finding that Plaintiffs-

Appellees met their burden of showing that common questions of law or fact

predominate. Defendants-Appellants specifically raise two arguments on appeal.

First, they maintain that the district court applied the wrong legal standard when

assessing whether common questions predominate. Second, they contend that “the

district court improperly discounted [their] individualized defenses to injury and

causation in assessing predominance.” Appellants Br. at 22. We address each

argument in turn.

A. The District Court Applied the Correct Legal Standard

Defendants-Appellants insist that the district court failed to conduct the

requisite “rigorous analysis” when determining whether the Rule 23(b)(3)

predominance requirement had been met. They assert that the district court

merely conducted an inquiry pursuant to Daubert v. Merrell Dow Pharmaceuticals,

Inc., 509 U.S. 579 (1993), to determine whether Plaintiffs-Appellees’ expert reports

were admissible and then simply deferred to the reports when certifying the class.

The district court erred, they contend, by failing to weigh their competing expert

10 evidence, which in their view would have compelled a finding that Plaintiffs-

Appellees failed to meet the predominance requirement of Rule 23(b)(3).

But Defendants-Appellants misread the district court’s order. Contrary to

Defendants-Appellants’ suggestions, the district court did not merely assess the

admissibility of the expert reports under Daubert before concluding that common

issues predominated. Rather, the district court properly proceeded in two stages,

first determining that Plaintiffs-Appellees’ expert testimony was admissible under

Daubert, and then examining both sets of expert reports to conclude that common

issues of law and fact predominated at trial. See City of Philadelphia v. Bank of Am.

Corp., No. 19-cv-1608 (JMF), 2023 WL 6160534, at *3 (S.D.N.Y. Sept. 21, 2023)

(“[T]he Court here applies a Daubert analysis to the extent that Defendants seek to

exclude testimony relevant to the pending class certification motion.” (emphasis

added) (alternations accepted and internal quotation marks omitted)). In fact, the

district court made explicitly clear that Daubert “does not end the analysis,” id. at

*10, and subsequently explained why Defendants-Appellants’ arguments against

class certification fell short, see, e.g., id. at *10–11 (rejecting Defendants-Appellants’

argument that they would introduce individual defenses “for thousands of

VRDOs” (internal quotation marks omitted)).

11 Nor are we persuaded that the district court’s analysis was insufficiently

rigorous. As Defendants-Appellants concede, the district court conducted a

thorough analysis before determining Plaintiffs-Appellees’ expert reports were

admissible under Daubert. See id. at *3–9. But the district court did not stop there.

It went on to evaluate whether certification was permissible, considering issues

disputed and undisputed by Defendants-Appellants, before ultimately deciding

that the common issues to the case, such as whether Defendants-Appellants’

alleged conspiracy caused Plaintiffs-Appellees to pay higher interest rates,

predominated over individual issues. See id. at *9–14. Such analysis, in our view,

was sufficiently “rigorous” to meet the requirements of Rule 23(b)(3). Comcast

Corp., 569 U.S. at 35.

Defendants-Appellants ultimately argue that the district court was required

to resolve the disputes between the parties’ dueling expert reports at the class

certification stage. But that argument is clearly based on a misreading of Rule 23

and Supreme Court precedent. “Rule 23(b)(3) requires a showing that questions

common to the class predominate, not that those questions will be answered, on the

merits, in favor of the class.” Amgen Inc. v. Conn. Ret. Plans & Tr. Funds, 568 U.S.

455, 459 (2013) (second emphasis added); see also id. at 465–66 (“Although we have

12 cautioned that a court’s class-certification analysis must be ‘rigorous’ and may

‘entail some overlap with the merits of the plaintiff’s underlying claim,’ Rule 23

grants courts no license to engage in free-ranging merits inquiries at the

certification stage.” (internal citation omitted)). Indeed, in the context of assessing

whether expert testimony establishes that common issues predominate, the

Supreme Court has said that “[o]nce a district court finds [expert] evidence to be

admissible,” a district court can only deny class certification based on the

persuasiveness of the expert evidence if “no reasonable juror could have believed”

the expert evidence. See Tyson Foods, Inc. v. Bouaphakeo, 577 U.S. 442, 459 (2016).

The district court properly applied that standard below, concluding that “Dr.

Schwert’s and Dr. Abrantes-Metz’s [admissible] testimony” – if believed by the

factfinder – could support a finding of antitrust liability as to “each class member.”

Bank of Am. Corp., 2023 WL 6160534, at * 10.

Based on the record before us, we cannot say that the district court applied

the incorrect legal standard – either by substituting the Daubert standard for the

Rule 23(b)(3) standard or by eschewing a “rigorous analysis” of the expert

testimony – when ruling on Plaintiffs-Appellees’ class-certification motion.

13 B. The District Court Did Not Improperly Discount the Defenses

Defendants-Appellants also argue that the district court “improperly

discounted [their] individualized defenses to injury and causation” in assessing

whether Plaintiffs-Appellees showed that common issues predominate.

Appellants Br. at 22. Specifically, Defendants-Appellants contend that the district

court erred when it faulted them “for not quantifying precisely how many

individualized inquiries would be required” if the case were to go to trial, in

essence “flipp[ing] the burden” of proving that common questions would

predominate onto Defendants-Appellants. Id. at 23 (internal quotation marks

omitted). We disagree.

For starters, the district court clearly considered Defendants-Appellants’

“‘main argument’ against class certification,” i.e., “that ‘individual fact-specific

showing[s]’” would be required to “determine whether the rates that were set on

any given VRDO are fully explained by the specific circumstances of that

particular bond” or at least partially explained by the alleged conspiracy. Bank of

Am. Corp., 2023 WL 6160534, at *10. The district court simply concluded that

Plaintiffs-Appellees’ expert testimony – once deemed admissible – rendered the

question of causation one to be resolved “as a matter of summary judgment, not

14 class certification,” since “the concern about the proposed class [was] not that it

exhibit[ed] some fatal dissimilarity but, rather, a fatal similarity,” namely “an

alleged failure of proof as to [Plaintiffs-Appellees’] cause of action.” Id. (quoting

Tyson Foods, 577 U.S. at 457).

We likewise disagree with Defendants-Appellants’ suggestion that the

district court flipped the burden of proof with respect to predominance. The

district court explicitly acknowledged that “the moving party” has the burden of

showing that it met the requirements for class certification. Id. at *2. And, as the

district court noted, Plaintiffs-Appellees overcame that burden here by providing

evidence showing that “virtually all VRDOs had their rates inflated at least once

during the conspiracy period,” thereby raising an issue that was common to the

class. Id. at *5.

For these reasons, we cannot say that the district court improperly

discounted the Banks’ defenses while assessing predominance under Rule

23(b)(3).

* * *

15 We have considered Defendants-Appellants’ remaining arguments and find

them to be without merit. Accordingly, we AFFIRM the order of the district court.

FOR THE COURT: Catherine O’Hagan Wolfe, Clerk of Court