UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK, 1
QSHOLDCOINC., | Supa
Pint,
No, 18-cv-824 (RIS)
OPINION AND ORDER
BANK OF AMERICA CORPORATION eval.
Defendants,
RICHARD J. SULLIVAN, Cieuit Judge:
Plaintiff QS Holdco Inc. ("QS Holdco") brings this action agains seven financial services
companies asserting antitrust claims under the Sherman Aet and New York law in connection
with Defendants" alleged boycott ofa stock lending platform, AQS, that was formerly owned by
Plaintiff. (Doe, No.1 (the “Complaint” or“Compl”).) Now before the Court is Defendants" joint
‘motion to dismiss the Complaint fr lack of subject matter jurisdiction pursuant to Federal Rule of|
i Procedure 12(6\1). (Doe. No. 75.) For the easons discussed below, Defendants’ motion
which the Court construes as a motion made pursuant to Federal Rule of Civil Procedure 17(a) ~
is GRANTED.
1. Backarounn
“Stock lending’ or ‘securities lending” refers [lo] the lending of securities by one party to
nother ‘The lender puts up stack, typically to heoker who needs
1 cover short positions or
"The remaining Defendants are Merl Lynch, Piece, Fenner & Sith In, Mesil Lynch Profesional Clearing
Cop, and Merl Lynch LP Holdings, Ine. (Banko America’) Cro Sua Secarites (USA) LLC, Cred Suse
Prine Secures Services (USA) LLG, and Credit Suisse First Boston Next Fund, nc. "Credit Suisse"), Gorman
Sachs & Co, LLC and Goldman Sachs Executions & Clearing, -P.("Goldan Sachs"), 1. Morgan Secuties LLC,
[LP-Morast Pie In, an -P- Morgan Chase Bank NA. (3 Morgan”), Morgan Stanley & Co. LLC, Prime Dealer
Services Corp, ad Suaepe Investments I, ne ("Morgan Stanley"), UBS Aeris Ie, UBS Secures LLC, and
‘UBS Financial Services Ine ("UBS"), and EqulLend LLC, EquiLend Holings LLC, and EquiLen Earope inte
(CEquiLend{or some other eason; the borrower posts collateral tied tothe stock price; and the lender ears a
small fee." Ridge Clearing & Outsourcing Sols, Ine. v. Khashoggi, No. 07-cv-6611 (RJH), 2011
WL 3586455, at *3 n.6 (SDNY. Aug. 12, 2011), aff'd sub nom. Broadridge Sec. Processing
‘Sols, LUC v. Khashoggi, 507 F. App’ 57 (24 Cit
2013), Without a public market to facilitate
this practice, broker-dealers like Defendants hold the powerful intermediary postion of locating
lenders and providing pricing services. (Compl. 4 97.) Defendants in particular dominate the
stock loan market because, as Plaintiff alleges, they have “complete control over real-time price
data, which is unavailable to both borrowers and lenders." (Compl. $199.)
In 2006, Quadisery Inc. (“Quadriserv”) “began developing an electronic platform that
would directly match borrowers and lenders inthe stock loan market.” (Compl. 126.) AQS, as
‘the SEC-rogistered platform came to he known, was aimed at facilitating stock loan transactions
and used technology that “permitifed) all market participants to trade snonymously in real
time..." (Compl. $Y 126-127.) Quadisery also pursued and then adopted an electronic
clearinghouse for AQS that eliminated the risk of default by independently backing each trade with
capital, (Compl. $9 130, 140.)
Plaintiff alleges that AQS"s launch in 2009 threatened Defendants’ powerful role as
intermediaries in the market, (Compl. 131-132.) As a result, Defendants conspired to boycott
AQS. Specifically, Plaintiff alleges that Defendants met with AQS executives to gain intelligence
and “feigned interest” in the platform (Compl. 151), only to “refuse] to give their customers
access fo AQS” (Compl. | 153). Plaintiff also alleges that Defendants ~ together referred to by
Goldman Sachs partner William Conley and other representatives as the “five families” ~
scheduled meetings to “develop [a] uniform position” on platforms like AQS. (Compl. 4 163.)
‘These meetings and other conspiratorial acts allegedly occurred in part at board meetings forquien a daler consortium that offered its own trading platform, but which did not use central
clearing or eabtime pre data. (Compl. 180, 182,224) Plait alleges that Defendants, who
‘together contoled EquiLend's boat, “didnot view EquiLend as an investment” butrather saw it
as means “to advance an agenda to halt the widespread dissemination of pricing data to the
market at large.” (Compl 9] 182, 184.)
Notwithstanding Defendants efforts, interest in AQS increased significantly in2014 when
government regulations that favored central clearing operations went into effect. (Compl. 186.)
‘Accorting to Plan, Defendants then redoubled thei efforts to “ensure tat the only way for
‘marke participant to clea wades was to use pipelines controlled by... Defendants” (Compl
1199.) In 2015, Quadvserv began negotiations with Options Clearing Corporation (“OCC”) for
the sale of AQS. (Compl. $ 203.) Plant alleges that Defendants felt threatened by this
possibilty, and made calls to thwart he deal. (Compl. $¥ 205-206, In July 2015, PlaintfT—then
‘knowns FDQ~ acquired AQS rom Quadtisery. (Compl. 206.) Thereafter, Pl continued
to explore the possibility of a transaction with OCC, since it was the mos logical acquire” of
AQS. (Compl. 4207) Pisin alleges that, uliately, “OCC abruptly pulled out of the deal”
and “stopped retuming calls from AQS" without explanation (Compl. ${ 215-216), putting
Plot in a “desperate situation” (Compl. 4216). When a subsidiary of Equilend, Equilend
Clearing LLC, offered to buy AQS in 2016, Plaintiff alleges it was forced o sell ata loss. (Compl
19216, 288) OCC and EquiLend eame to their own deal ~ allegedly “substantially intial” to
‘that pursed by Plaintiff in May 2017, after which OCC began to use AQS's services. (Compl.
qais)
(On January 30,2018, Plaintiff commenced this action asserting claims under the Sherman
‘Act, New York’s Donnelly Act, andl New York's Deceptive Practices Act, as well as for commonJay unjust enrichment and tortious interference with business relations theories? (Comp. § 27.)
Following a pre-motion conference, Defendants filed a joint motion to dismiss (Doe. No. 75),
Which was fully briefed on July 27, 2018 (Doe. No. $3).
I, Discussion
Defendants move to dismiss this action pursuant to Rule 12(b)(1) on the grounds that
Pl
iff assigned its antitrust claims to EquiLend as part ofthe sale of AQS in 2015. (Doe. No.
76 at 1.) Although Defendants do not directly address Article TI standing in their briefs, they
Argue that because Plaintiff “does not own” the claims alleged in the Complaint, it lacks standing
to assert them. (Doe. No. 76 at 1, 6.) In addressing this argument, the Court first considers
‘whether an assignment of claims implicates the Court's subject matter jurisdiction, in which ease
Rule 12(6)(1) would apply, or whether this motion is properly made pursuant to Rule 17(3), which
requires that an action be brought by the rel party in interest
A. Rule 1206K1)
Te law is clear that a party seeking to invoke the Court's jurisdiction bears the burden of
‘proving that subject matter jurisdiction exists. See Robinson v. Overseas Military Sales Corp.,21
F.3d 502, 507 (24 Cir. 1994) “A case is properly dismissed for lack of subject matter jurisdiction
under Rule 12(b\1) when the dstiet court lacks the statutory or constitutional power to adjudicate
* Makarova v. United States, 201 F-3d 110, 113 (2d Cir. 2000),
Defendants argue thatthe Court lacks subject matter jurisdiction over ths dispute because
Plaintiff assigned all is el
1 to Equilend when it sold AQS. But itis by no means clear that,
such an assignment prevents a federal court from exercising subject matter jurisdiction over an
action. In fact, the only authority cited by Defendants for this proposition is the Restatement
® Similar allgatins ve boon made gaat Defendants in @ classaction curently before Judge Falla. See owe
Pubs Emp et Sy. Bank of Am. Corp, No, 17-¥-06221 (KPF) (SDNY. (Dee. No.3),
4(Second) of Contracts § 317, which merely provides that “an assignment extinguishes any right
previously held by the assignor” But while such an assignment my affect a partys right to bring
suit, it does not alfct the power ofthe Court to ear that suit which is what subject mater
jurisdiction is ll about,
Atle Il standing is a bare minima requirement that exablishes the juristicton ofthe
Cour, and nothing more. “Standing isthe threshold question in every federal ease, detemining
the power ofthe court to entertain the suit” Rass», Bank of dm, N.A. (USA), 324 F-34217, 222
24 Cir, 2008) Gntemal quotation marks and citations omited). Tn onder to
have Antic I standing, plain mast show thats “(ita sufred an “injury in fat thas
(@) concrete and patculrized and () actual or inuinent, not conjectural or hypothetical; (2) the
injury snl taceble othe challenged aeton ofthe defendants and (3) itis key, 3s opposed
to merely speculative, thatthe injury willbe redressed by a favorable decision.” Friends of he
arth In.» Laidlaw Bvt Servs. (TOO), ne. $28 US. 167, 180-81 (2000). Of couse, more
than one party can have Article I standing to assert a claim as long as they can individually
cstabish the elements of standing
‘The real party in interest pineple codified in Rule 17,on the other and, i actually about
penta! standing, which docs not implicate federal jurisdiction under Atle I, bat rather
‘ensures that an assignor and assignee are not both bringing the same action. See Digizip.com, Ine.
Verizon Servs. Corp., 139 F. Supp. 34 670, 679 (S.D.N.Y. 2015) (“A number of cases have
noted thatthe concer over who is the real patty in interest under Fed. R. Civ. P. 17(a) addresses
only the prudential aspect ofthe standing rule, and therefore thatthe application of Rule 17 does
not implicate Article I standing”); see also Warth v. Seldin, 422 U.S. 490, 500-01 (1975)
([Phrudential rules of standing... ., apart ftom [Article I's] minimum requirements, serve tolimit the role ofthe courts in resolving public disputes"), Under Rule 17(8), “[elvery action
shall be prosecuted in the name of the real party in interest.” Fed. R. Civ. P. 17(a). “The real
party in interest prineple embodied in Rule 17 ensures that only @ person who possesses the right
to enforce a claim and who has a significant interest in the litigation can bring the claim.”
Cortlandt St, Recovery Corp. v. Hellas Telecomms, S.ds-1, 790 F.3d 411, 420 (2d Cir. 2015)
(Goternal quotation marks omitted). This principle is distinct from Article III jurisdiction. See
Digizip.com, Inc., 139 F. Supp. 34 at 679 (concluding that Article I standing is not implicated
when “[dhe only real concer with respect to standing is whether [the plain] was the proper
‘owner of those claims atthe time it brought this suit ~in other words, the concer addressed in
Rule 17 as to whether [the plaintiff] was the ‘real party in interest”). ‘Thus, an assignment more
accurately affects the real party in interest to the litigation under Rule 17(a) ~ not Article It
standing. See id Cranpark Ine. v. Rogers Grp. Ine, 821 F.34 723, 730 (6th Ci. 2016) (holding
‘that “one wo sells his interest in a eause of action is not deprived of Article II standing” but “is,
susceptible to a real-party-in-interest challenge"); Norris v. Causey, 869 F.3d 360, 366-67 (Sth
Cir. 2017) (same)?
‘Here, Defendants broadly challenge Pla
ffs “right” to sue (Doc. No. 76 at 5), but they
do not seriously challenge Plaintiff's Article II standing, Nor could they. Or
face, the
‘Complaint alleges that, asa result of Defendants’ actions, Plaintif sulfered loss of profits, loss of
‘goodwill, and the loss of prospective business relation, all culminating in Plaintif’s eventual sale
2 The Second Cicit as ot yet arcu thedisintion made hee, but has sted tht under New Yerk law, “ala
ncguivocal and complete ssignment extinguishes he asgner's rights gains th obligor and faves the asignor
‘without sttnding to se the obligor” Aaron ever & Sons lady. Chase Manhatan Bank 4.781 F.2d 112, 125
{QdGit. 1984); accord Faldn mesments Corp.» Orbridge Captal gmt, LC, 651 F. Appx 5, 7d Cit. 2010)
{lying on daran ta dsmies lnm fr lack of wbjet mater uration because the “assignment of (plats)
tights extinguished clas gains] and depeved fay intrest inthis Itgaton). The Scand Circuit
inlaron however, didnot specify whether vas speaking to Arte standing or prudential standing
6‘FAQS at an alleged loss. (Compl. 288, 304, 315.) Plaintiff also asserts that money damages
‘would provide redress for these injuries. Indeed, Defendants do not really contend thatthe Court
lucks jurisdiction to hear these claims; rather, they assert that Plaintiff has relinquished its ability
‘to sue by assigning ownership ofits claims to EquiLend, which they argue is now the only party
able to sue. (Doe. No. 76 at 4.) Therefore, Defendants’ m
better characterized as a Rule
17(@) challenge, not an Article II jurisdictional one, Accordingly, the Court will consider
Defendants’ motion to dismiss asa challenge under Rule 17(3).
B, Rule 17(@)
Rule 17 itself does not specify the proper procedures or timing by which to make
challenge, See US. Pid & Guar. Co, ». Petroleo Brasileiro SA-Petrobras, No. 98-ev-3099
(UGK), 2001 WL 300735, at *9 n.7 (SID.N.Y. Mar. 27, 2001) (“The Federal Rules of Civil
Procedure donot spe procedure for rising an objetion tata plant's not the real party
in intrest although a real party in interest objection closely resembles the defense of failure
stata claim frrelief under Rule 12(6(6).” internal quotation marks omited); 6A Charles Alan
Wright, etal, Federal Practice and Procedure § 1554 (3d ed. 2010). Generally, courts have
allowed Rule 17() challenges to be made pusuant to Rule 12(0\6), in pat Because when a
plain “does nt own the contractual sight ypon which tattempts fo sue its not the proper party
inimrest under Rule 17()] and cannot state a proper claim" under Rule 12(0X6). Leucadia Na
Corp. » FPL Grp. Capital, In, No. 93-v-2908 (LAP), 1993 WL 464601, a *3 (S.D.N.Y. Nov.
9, 1993); see Whelan v, Abell, 983 F.2d 663, 672 (D.C. Ci. 1992). Accordingly, the Court will
address the Rule 17(a challenge as it would a Rule 12(6X6) motion to dismiss, considering only
the pleadings, attached exhil
its, nd documents incorporated by reference therein, including the‘hwo contracts relevant to this dispute. See, eg, DeLuca v. AccessiT Grp, Ine, 695 F. Supp. 2d
54, 60 (SDNY. 2010)4
‘As noted above, Defendants argue that AQS and the claims alleged in the Complaint were
‘assigned by Plaintiff to EquiLend Clearing LLC, a subsidiary of Defendant EquiLend, in a
‘purchase agreement on July 31, 2016 (Doe. No. 77 Ex. 2 (“EquiLend Agreement”)). (Doc. No.
76 at 6) For that to be true, Plaintiff must have obtained ownership over the claims when it
purchased AQS from Quadriserv on July 27, 2015 (Doe. No. 77 Ex. 1 (‘PDQ Agreement”)), “To
cffeet a transfer of the sight to bring an antitrust claim, the transferee must expressly assign the
right t bring that cause of action, either by making specific reference to the antitrust claim or by
‘making an unambiguous assignment of causes of ‘2 manner that would clearly encompass
the antitrst claim.” DNAME Pry, Lid. v. Apple Ine, No. 13-cv-6516 (DLC), 2018 WL 9077075,
at 3 (SDNY. Dee. 16, 2015).
Here, both relevant agreements use the same language. Specifically, the agreements
‘wansfer: (1) “Lal other intangible assets (including all Lisbility claims, contract rights and
‘warranty or product liability laims against third parties) relating to the Purchased Assets or the
Business," 2) “[all of the outstanding shares of capital stock ofthe subsidiaries of the Seller set
forth in Schedule 2.1();" and (2)“[elxcept as specifically provided in Section 2.2, all other assets,
properties, claims, rights and interests of the Seller which exist onthe Closing Date, ofevery kind
tnd nature and description, whether tangible or intangible, real, personal or mixed.” (PDQ
Agreement § 2.1(k)-(m); EquiLend Agreement § 2.1(K)-()).
Both contracts define “Liability” quite broadly
“tn onnostion with the motions to amis, th Court ha alo considered Defendants” memorandum of win support
‘of ts motion to dismiss (Doe, No, 7), Plants memorandum ia opposition (Dec. No.1), Defendants reply
‘memorendu in support of motion fo dsmis (Do. No 83), andthe various dclratons in support threo end
‘ibis tached tere,
8“Liability” means any direct or indirect indebtedness, lability, assessment,
cexpense, claim, loss, damage, deficiency, obligation or responsibility,
‘known or unknown, disputed or undisputed, joint or several, vested or
unvested, executory or not, fixed or unfixed, choate or inchoate, liquidated
‘or unliquidated, secured or unsecured, determinable or undetemminable,
scerued or unacerued, absolute or not, actual or potential, contingent or
otherwise (including any liability under any guarantees, letters of eredit,
performance credits or with respect to insurance loss accruals).
(PDQ Agreement, Annex A, at 28; Equilend Agreement, Annex A, at 34) The transfer of
“Liab claims” is expansive, including unknown, undeterminable, and even potential clsims
‘And the tansfer ofall other... claims" in ection 2.1(m) i remarkably broad and unconditional,
extending to “all claims... ofevery kind and nature and deserpton” that existed on the closing
date, This is nota mere asset purchase, asin DAME, where the contract only refered oa transfer
of “Business and Assets," which were not defined to include claims. 2015 WL. 9077075, at *S
Rather, the agreements here use broad! language ~ so broad, in fact, that they tansfer all elaims
‘whether or not Quadsserv knew about them athe time of transfer. See Am. Home Prod. Corp v.
CAMBR Co, No. OOev-2021 (VM), 2001 WE. 79503, st #1 (SDNY. fan, 30,2001) (nding
antitrust claims were assigned to a purchaser when the language of the agreement included
“sll” sights, claims, ret, causes of action or rights of set-off agains third parties relating
to [ele Together, the broad transfer provision and broad definition of “liability” explicitly
encompass a general claim transfer, which clearly includes the antivust claims aserted here
Accordingly, the language of the agreements suppors only one conclusion: all claims Gncing
avin las) were assigned fom Quriser ta Plaintiff in 2015 and from Plant o EquiLend
inne,
Plait nevertheless argues that even if its antitust claims were assigned under the
agreements, the assignment to Equilend leasing LLC ~ which is effestively owned by
Defendants ~ was void for reasons of public policy because the forced sale was the object ofDefendants’ alleged conspiracy. Specifically, Plaintiff relies on the so-called “part and pare!”
ctin, which provides that arslens of elaims i rendre void whe that ease was integral”
to the alleged antitrust conspimey. See VKK Corp, v. Nat'l Football League, 244 F-34114, 125
(24 Cit, 2001) (citing Rado Corp. of Amv. Raytheon Mfg. Co, 296 USS. 459, 462 (1935); see
‘also Dobbins v, Kawasaki Motors Corp, U.S.A, 362 F, Supp. 54,58 (D. Or. 1973). However,
cours have rarely applied this doctrine to invalidate releases. See VK Corp, 244 F.3d at 125
(observing thatthe part and parcel doctrine is rarely discussed and more rarely applic, that no
court of appeals has ever applied ito invalidate areease and thatthe Third Circuit has “expressed
grave doubt ast [the doctrines] existence” (citing Tan v, Food Fair Stores, Ine., 287 P.24448,
451 Gd Cit. 1961), Moreover, the fet inthis ease closely resemble those in VKK Corp. in
‘which the Second Cireit upheld th release in question. There, a partial owner of the New
gland Patriots, VKK, brought anttst claims against the NFL even though VK had previously
released its claims as requied by NFL policy. 1 at 120-21. VKK argued tht the release was
arto the antrust conspiracy alleged inthe complaint and that the release was void under the pat
and parcel doctine, I, at 126, The Second Circuit disagreed, concluding thatthe alleged
conspiracy was aimed at preventing franchise relocation, and “was complete when [VKK] agreed
to sel the Patriots... beeause VKK could not move the team.” Jd. Because “ihe [lease
nly stopped VKK from bringing suit to recover damages" he release of claims was nt integral
to the alleged conspiracy. ld. ‘The Court also found it significant that VKK could have brought
‘he antest uit prior tothe release, Hd
‘The same is true here, The conspiracy alleged in the Complaint as. a boycot ofthe AQS
lator with the pot of driving AQS out ofthe market. (See Compl. 10 ([TIkey jointly agreed
to boycott AQS and starve it of liquidity." id. 1172 (“The conspiracy... [was] to boycott and
10climinate AQS "id. $147, 53, 8,65, 73,80 (Defendants “agreed to hoyeott AQS and
scare i) But while the eventual transfer of claims was incidental to Bquilen’s purchase of
‘AQS, the transfer (which was effectively a release) isnot alleged to have bee the goa ofthe
scheme, nor was it necessary to the boycott, Furthermore, asin VK Corp, nothing prevented
Ph
tiff ~ or Quatisery, for that matter ~ from pursuing its antitrust claims prior to the sal,
particularly since Quadtisery, the original owner of AQS, was on notice of the conspiracy as early
as 2009, (See Compl. {152 ("[]tswiflly became clear to AQS executives that [Defendants] had
agreed to a common stance vis-ivis AQS.
see also I. 154, 160-162, 166,185.) In short,
Plaintshas alleged no facts to supportan application of this rare doctrine ~ “whatever [its tats”
may be, VEK Corp, 244 F.2d at 127 of any oer bess to invalidate the legitimate transfer of
lain reflected in agreements for which Pint received consideration.
Accordingly, because Plaintiff assigned the antitrust claims at isue here to BquiLend
CCleating LLC, Plants no longer the rel party in interest, and its claims mus be dismissed
‘pursuant to Rule 17(a)$
5 Aug Rae 170) “prokbits feel courts from missing case or failure to prosecute nthe name of the ral
arty in nret wt er an objection, resonable ime har ben allowed forthe el pari intrest ati,
fr be subetatd in the ation) Klein ex ro lik Tek, Ine IU Teh, Ine, 906 F342,
2018) (quoting Fe. RC. P1743), ere, the rea partyin inert, uiLand Clearing LLC,
Defendant EquiLend LLC and as known about the sit and Pains ak of pron
ning ~ sie is
inception, Accordingly, given that the eal pat in interest asad ample time oral, join, oe substiated int
the action bar more Inport, has no incentive to sue spent company the Cords tthe Is no need
to daly dismissal
nII, Conewusion
For the reasons set forth above, IT IS HEREBY ORDERED THAT Defendants’ motion to
dismiss the Compl
is GRANTED, ‘The Clerk of the Court is respectfully directed to terminate
the motion pending at document number 75 and close this ease.
‘SO ORDERED.
Dated: August 6, 2019
‘New York, New York
RIGMARD J. SULLIVAN
UNITED STATES CIRCUIT 1UDGE.
Sitting by Designation