City of Baton Rouge/East Baton Rouge Parish v. Bank of America, N.A.

UNITED STATES DISTRICT COURT

MIDDLE DISTRICT OF LOUISIANA

CITY OF BATON ROUGE/EAST

BATON ROUGE PARISH,

CONSOLIDATED EMPLOYEES

RETIREMENT SYSTEM AND

POLICE GUARANTY FUND

CIVIL ACTION

VERSUS

19-725-SDD-RLB

BANK OF AMERICA, N.A., et al.

RULING

This matter is before the Court on the Motion to Dismiss1 filed by Defendant,

Capital One Bank (“Capital One”). Plaintiffs, the City of Baton Rouge/East Baton Rouge

Parish, Consolidated Employees Retirement System and Police Guaranty Fund

(“Plaintiffs”) filed an Opposition2 to this motion, to which Capital One filed a Reply.3 For

the following reasons, the Court finds that Capital One’s Motion should be granted, and

Plaintiffs’ claims against it dismissed with prejudice.

I. BACKGROUND

The Complaint in this matter is essentially identical to the Complaint in another suit

before this Court, State of Louisiana v. Bank of America, N.A., et al,4 which itself is

essentially identical to In re GSE Bonds Antitrust Litigation,5 a 2019 class action complaint

in the Southern District of New York – a case in which Capital One was not a defendant.

Capital One filed this Motion to Dismiss on March 10, 2020. Without seeking leave of

1 Rec. Doc. No. 124.

2 Rec. Doc. No. 139.

3 Rec. Doc. No. 167.

4 Case No. 19-cv-638 (M.D. La. Sept. 23, 2019).

5 Case No. 19-cv-1704 (S.D.N.Y. Feb. 22, 2019).

Court, Plaintiffs filed their Opposition on April 30, 2020, a month after the deadline had

passed, offering no excuse for their noncompliance.6 This egregious tardiness is one of

many examples of Plaintiffs’ failure to comply with basic rules of federal litigation in this

matter. Nevertheless, under Fifth Circuit precedent, the Court must view “the automatic

grant of a dispositive motion, such as a dismissal with prejudice based solely on a litigant's

failure to comply with a local rule, with considerable aversion.”7 “To dismiss a claim with

prejudice based on a litigant's conduct, the Court must find ‘egregious and continued

refusal to abide by the court's deadlines.’”8 Plaintiffs’ noncompliance is irksome and

bordering on egregious, but the Court will not impose the harsh sanction of dismissal

based on counsel’s conduct. Thus, this Motion will be decided on its merits. Since

Plaintiffs saw no need to reinvent the wheel, neither shall the Court; portions of the factual

background and analysis that follows first appeared in this Court’s Rulings on the other

Motions to Dismiss in this case and the State of Louisiana case.

In their Second Amended Complaint, Plaintiffs allege that Defendants conspired

to fix the prices of government-sponsored entity (“GSE”) bonds after the bonds were

designated free-to-trade (“FTT”), in violation of § 1 of the Sherman Act. Per Plaintiffs,

Defendants colluded in multi-bank chatrooms to fix the FTT price before declaring the

bonds FTT and that the same traders continued to fix the price after the bonds were

declared FTT.9 In addition to their Sherman Act claim, Plaintiffs allege a violation of the

6 Plaintiffs did subsequently file a Motion for Extension, seeking a retroactive extension until April 30, 2020,

the day they filed their late Opposition. (Rec. Doc. No. 144). The Motion for Extension was unopposed and

was granted.

7 Webb v. Morella, 457 Fed. Appx. 448, 452 (5th Cir. 2012).

8 Spell v. Edwards, No. CV 20-00282-BAJ-EWD, 2020 WL 6588594, at *3 (M.D. La. Nov. 10, 2020)(quoting

Webb at 452).

9 For further information about the GSE bond market, see this Court’s Ruling in Case No. 19-cv-638 at Rec.

Doc. No. 179.

Louisiana Unfair Trade Practices and Consumer Protection Act (“LUTPA”), asserting that

each Defendant “engaged in deceptive business practices regarding the advertisement

of their brokerage services, including making false statement [sic] regarding the use of

their experience and skill in recommending investments.”10 Plaintiffs also bring a

negligence claim. Capital One moves to dismiss Plaintiffs’ claims against it pursuant to

Rule 12(b)(6).

II. LAW AND ANALYSIS

A. Rule 12(b)(6) Motion to Dismiss

When deciding a Rule 12(b)(6) motion to dismiss, “[t]he ‘court accepts all well-

pleaded facts as true, viewing them in the light most favorable to the plaintiff.’”11 The Court

may consider “the complaint, its proper attachments, ‘documents incorporated into the

complaint by reference, and matters of which a court may take judicial notice.’”12 “To

survive a Rule 12(b)(6) motion to dismiss, the plaintiff must plead ‘enough facts to state

a claim to relief that is plausible on its face.’”13

In Twombly, the United States Supreme Court set forth the basic criteria necessary

for a complaint to survive a Rule 12(b)(6) motion to dismiss. “While a complaint attacked

by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a

plaintiff’s obligation to provide the grounds of his entitlement to relief requires more than

labels and conclusions, and a formulaic recitation of the elements of a cause of action will

10 Rec. Doc. No. 134, p. 96.

11 In re Katrina Canal Breaches Litigation, 495 F.3d 191, 205 (5th Cir. 2007) (quoting Martin v. Eby Constr.

Co. v. Dallas Area Rapid Transit, 369 F.3d 464, 467 (5th Cir. 2004)).

12 Randall D. Wolcott, M.D., P.A. v. Sebelius, 635 F.3d 757, 763 (5th Cir. 2011) (quoting Dorsey v. Portfolio

Equity, Inc., 540 F. 3d 333. 338 (5th Cir. 2008).

13 In re Katrina Canal Breaches Litigation, 495 F.3d at 205 (quoting Bell Atlantic Corp. v. Twombly, 550

U.S. 544, 570 (2007)).

not do.”14 A complaint is also insufficient if it merely “tenders ‘naked assertion[s]’ devoid

of ‘further factual enhancement.’”15 However, “[a] claim has facial plausibility when the

plaintiff pleads the factual content that allows the court to draw the reasonable inference

that the defendant is liable for the misconduct alleged.”16 In order to satisfy the plausibility

standard, the plaintiff must show “more than a sheer possibility that the defendant has

acted unlawfully.”17 “Furthermore, while the court must accept well-pleaded facts as true,

it will not ‘strain to find inferences favorable to the plaintiff.’”18 “[O]n a motion to dismiss,

courts ‘are not bound to accept as true a legal conclusion couched as a factual

allegation.’”19

B. Sherman Act Claim

Capital One argues that the Sherman Act claim against it should be dismissed

because “there is no evidence – direct or circumstantial – to suggest that Capital One

participated in, or even knew about”20 the price-fixing conspiracy alleged in the Second

Amended Complaint. Capital One advances several persuasive arguments in support of

its position, but the Court need not consider them here in light of Plaintiffs’ Opposition,

which states, “[t]he claim in the Second Amended Complaint at this juncture does not

attempt to articulate a Sherman Act claim against Capital One.”21 Setting aside the

confusing structure of Plaintiffs’ statement (“the claim . . .does not attempt to articulate a

14 Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal citations and brackets omitted)

(hereinafter Twombly).

15 Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal citations omitted) (hereinafter “Iqbal”).

16 Id. (citing Twombly, 550 U.S. at 556).

17 Id.

18 Taha v. William Marsh Rice University, 2012 WL 1576099 at *2 (S.D. Tex. May 3, 2012)(quoting

Southland Sec. Corp. v. Inspire Ins. Solutions, Inc., 365 F.3d 353, 361 (5th Cir. 2004).

19 Twombly, 550 U.S. at 555 (quoting Papasan v. Allain, 478 U.S. 265, 286 (1986)).

20 Rec. Doc. No. 124-1, p. 16.

21 Rec. Doc. No. 139-1, p. 4.

Sherman Act claim”) and the implicit attempt to reserve the right to make such a claim in

the future (“at this juncture”), the Court will defer to Plaintiffs, as masters of the complaint,

and find that Capital One’s Motion shall be granted and the Sherman Act claim against it,

to the extent it was pled at all, dismissed with prejudice.

Assuming arguendo that Plaintiffs did bring a Sherman Act claim against Capital

One, the Court finds that such a claim was not stated adequately to survive 12(b)(6).

Plaintiffs’ strongest, “smoking gun” allegations with respect to other Defendants in the

alleged conspiracy take the form of chatroom transcripts among traders. In other Rulings

in this matter, the Court found those transcripts inadequate to allege an agreement to fix

prices. Plaintiffs have no such transcript as to Capital One. Nor does the Second

Amended Complaint contain allegations that Capital One is an approved bond dealer,

that it participated in the bond syndication phase, that it was involved in the process of

setting free-to-trade prices for GSE bonds, or that Capital One participated in the

multibank chatrooms where, Plaintiffs contend, the anticompetitive price-fixing occurred.

Where Plaintiffs levy allegations against “Defendants,” as an undifferentiated group, the

lack of specificity as to Capital One is fatal to their ability to state a claim.

C. Louisiana Unfair Trade Practices and Consumer Protection Act

(“LUTPA”) Claim

LUTPA prohibits “[u]nfair methods of competition and unfair or deceptive acts or

practices in the conduct of any trade or commerce . . . .”22 “Louisiana has left the

determination of what is an ‘unfair trade practice’ largely to the courts to decide on a case-

22 La. R.S. § 51:1405(A).

by-case basis.”23 “The courts have repeatedly held that, under this statute, the plaintiff

must show the alleged conduct ‘offends established public policy and ... is immoral,

unethical, oppressive, unscrupulous, or substantially injurious.’”24 The Louisiana

Supreme Court has explained that “the range of prohibited practices under LUTPA is

extremely narrow.”25 Further, the United States Court of Appeals for the Fifth Circuit has

held that “the statute does not provide an alternate remedy for simple breaches of

contract. There is a great deal of daylight between a breach of contract claim and the

egregious behavior the statute proscribes.”26

The parties’ LUTPA arguments play out in lockstep with the other Motions to

Dismiss in this case and the related case. Capital One asserts that the LUTPA claim

should be dismissed because LUTPA does not apply to the transactions at issue herein.

Indeed, LUTPA contains an exception for:

Any federally insured financial institution, its subsidiaries, and affiliates or

any licensee of the Office of Financial Institutions, its subsidiaries, and

affiliates or actions or transactions subject to the jurisdiction of the Louisiana

Public Service Commission or other public utility regulatory body, the

commissioner of financial institutions, the insurance commissioner, the

financial institutions and insurance regulators of other states, or federal

banking regulators who possess authority to regulate unfair or deceptive

trade practices.27

Capital One argues that this exception applies because it is a national bank and a

federally insured financial institution that falls within the above-stated exception.28 The

23 Turner v. Purina Mills, Inc., 989 F.2d 1419, 1422 (5th Cir. 1993); Cheramie Services, Inc. v. Shell

Deepwater Production, Inc., 35 So.3d 1053, 1059 (La. 2010) (“It has been left to the courts to decide, on a

case-by-case basis, what conduct falls within the statute's prohibition.”).

24 Cheramie, 35 So.3d at 1059 (citations omitted).

25 Id. at 1060.

26 Turner, 989 F.2d at 1422; Innovative Sales, LLC v. Northwood Mfg., Inc., 07-30598, 2008 WL 3244114,

at *6 (5th Cir. 2008) (slip copy)(quoting Turner v. Purina Mills, Inc., 989 F.2d 1419, 1422 (5th Cir.1993)).

27 La. R.S. 51:1406(1).

28 Rec. Doc. No. 124-1, p. 27.

Second Amended Complaint itself alleges that Capital One is “a federally chartered

national banking association” and a “registered broker dealer with the SEC and FINRA.”29

Per Capital One, by the plain language of LUTPA, it is exempt and the statute does not

apply. As they did with respect to several other Defendants in this matter, Plaintiffs argue

that the exception does not apply because Capital One is regulated by the Financial

Industry Regulatory Authority (“FINRA”).30 This argument is supported by citation to Grant

v. Houser.31 Unfortunately for Plaintiffs, as this Court has now found repeatedly in this

matter, Grant does not hold what they say it does. In Grant, the Eastern District of

Louisiana considered the defendant’s argument that, because it was registered with

FINRA, it was exempt from LUTPA.32 The court concluded that FINRA is an independent

regulator and that an agency licensed by FINRA did not qualify for an exemption under

the terms of LUTPA. However, the court did not conclude that FINRA registration

categorically bars the application of the exemption if an entity otherwise meets the criteria

of the exemption, which is what Plaintiff asks this Court to hold.33

There is nothing in the exception to LUTPA provided by La. R.S. § 51:1406(1) that

excludes FINRA-regulated entities from its scope. In contrast, § 51:1406(1) contains

broad language excluding from LUTPA’s application “[a]ny federally insured financial

institution, its subsidiaries, and affiliates or any licensee of the Office of Financial

Institutions, its subsidiaries….” As the Fifth Circuit has stated, “[t]he Louisiana Legislature

has decided that LUTPA should not apply to ‘[a]ny federally insured financial institution,

29 Rec. Doc. No. 134, p. 30.

30 Rec. Doc. No. 139-1, p. 12.

31 Id.; Grant v. Houser, No. CV. 10-0805, 2013 WL 2631433, at *4 (E.D. La. June 11, 2013).

32 Grant at *4.

33 Rec. Doc. No. 139-1, p. 12.

its subsidiaries, and affiliates,’ and has not set out any exception to this broad rule.”34 For

the reasons stated above, LUTPA does not apply to Capital One and the LUTPA claim

against it shall be dismissed with prejudice.35

D. Negligence Claim

Plaintiffs must allege five elements to state a claim for negligence:

(1) the defendant had a duty to conform his conduct to a specific standard

(the duty element); (2) the defendant's conduct failed to conform to the

appropriate standard (the breach element); (3) the defendant's substandard

conduct was a cause in fact of the plaintiff's injuries (the cause-in-fact

element); (4) the defendant's substandard conduct was a legal cause of the

plaintiff's injuries (the scope of liability or scope of protection element); and

(5) the actual damages (the damages element).36 . . . A negative answer to

any of the inquiries of the duty-risk analysis results in a determination of no

liability.37

First, the Court must consider if Plaintiffs have adequately alleged that Capital One

owed them a duty.38 “In deciding whether to impose a duty in a particular case, Louisiana

courts examine ‘whether the plaintiff has any law (statutory, jurisprudential, or arising from

general principles of fault) to support the claim that the defendant owed him a duty.’”39

Plaintiffs assert that Capital One had the duty to “ensure that the investments that they

offered or brokered were suitable for the Plaintiffs as a client,” “avoid unreasonable

behavior which puts a client at risk of financial harm,” and “use reasonable care in

recommending investments to the Plaintiffs,” and “avoid recommending investments

34 Truong v. Bank of Am., N.A., 717 F.3d 377, 387 (5th Cir. 2013).

35 The Court also credits Capital One’s argument that Plaintiffs lack statutory authority to assert a LUTPA

claim based on the particular LUTPA provision cited in the Second Amended Complaint. The Court

addressed this argument in greater detail in its ruling on the Motion to Dismiss by Stifel in this matter (See

Rec. Doc. No. 226).

36 Audler v. CBC Innovis Inc., 519 F.3d 239, 249 (5th Cir. 2008) (citing Lemann v. Essen Lane Daiquiris,

923 So.2d 627, 633 (La. 2006)).

37 Id. (citing Mathieu v. Imperial Toy Corp., 646 So.2d 318, 321 (La.1994)).

38 Id. (citing Meany v. Meany, 639 So.2d 229, 233 (La.1994)).

39 Id. (quoting Faucheaux v. Terrebonne Consol. Gov't, 615 So.2d 289, 292 (La.1993)).

which it knew or should have known would constitute a fraud or scam.”40 Plaintiffs contend

that because Capital One is regulated by FINRA, it must abide by FINRA regulations, and

those regulations create Capital One’s duties to Plaintiffs.41

Plaintiffs argue that FINRA requires its members to disclose material information

about investments to investors, to only recommend “suitable” investments to customers,

and to provide the customer with the most favorable price under prevailing market

conditions.42 However, it is not at all clear that FINRA regulations can support a duty to

Plaintiffs. Plaintiffs provide no authority to support their claim that FINRA regulations give

rise to a duty, and Capital One cites to persuasive authority that FINRA regulations do

not give rise to such a duty.43 Capital One maintains that its sales to Plaintiffs were the

type of “arm’s length transaction [that] does not create any ‘independent duty of care.’”44

Louisiana law clearly disallows imputing duties into a contract such as the one allegedly

entered into by Plaintiffs and Capital One, and Capital One avers that “the Complaint is

entirely devoid of allegations about any such relationship that might impose those types

of duties”45 on it.

Even assuming FINRA regulations could give rise to a duty, Plaintiffs have failed

to sufficiently allege a breach of that duty. Capital One argues as much in its Motion,

contending that “there is simply no basis in the Complaint to conclude that Capital One

40 Rec. Doc. No. 139-1, p. 8 (citing Second Amended Complaint, Rec. Doc. No. 134, p. 91-92).

41 Id.

42 Id. at p. 9.

43 Rec. Doc. No. 124-1, p. 26 (citing Fox v. Lifemark Sec. Corp., 84 F. Supp. 3d 239,245 (W.D.N.Y.

2015)(“Plaintiff cannot recover for negligence based on the alleged violation of [a FINRA rule because]

FINRA does not provide a private right of action”); In re VeriFone Sec. Litig., 11 F.3d 865, 870 (9th Cir.

1993)(“It is well established that violation of an exchange rule will not support a private claim”).

44 Rec. Doc. No. 124-1, p. 24 (quoting Guimmo v. Albarado, 99-286 (La. App. 5 Cir. 7/27/99); 739 So.2d

973, 975).

45 Id.

breached a duty.”46 In the Second Amended Complaint, Plaintiffs allege that Defendants,

collectively, breached their duty of care “by selling agency securities to the Plaintiffs which

were in fact, the subject of a fraud of scam [sic].”47 Not only does this argument for breach

not specifically name Capital One, it fails to allege that Capital One was aware that

securities they allegedly sold were somehow a “scam.” In fact, Plaintiffs themselves

describe the conspiracy to fix prices as “inherently-self concealing.”48 Overall, even

accepting the unlikely proposition that Plaintiffs’ allegations establish a duty on the part

of Capital One, Plaintiffs have not alleged breach with any specificity whatsoever.

Plaintiffs’ Opposition offers only the conclusory statement that “Defendants” (in globo)

“clearly breached [their] duties when they failed to provide investment advice in the City

of Baton Rouge’s best interest and continued to participate in an antitrust conspiracy for

their own benefit. . .”49 In essence, Plaintiffs imply, bafflingly, that Capital One breached

its duty by being a party to the conspiracy, while simultaneously arguing in the same brief

that they are not bringing a Sherman Act claim against Capital One.

Overall, an anemic and possibly nonexistent duty, combined with a conclusory

allegation of breach that is unsupported by the allegations in the Complaint, does not a

successful negligence claim make. As Plaintiffs failed to state a Sherman Act claim

against Capital One, they cannot now maintain that Capital One is liable in negligence for

participating in an antitrust conspiracy. Holding to the contrary would allow Plaintiffs to

skirt the requirements of antitrust standing and assert an antitrust claim without following

the doctrinal prerequisites. Capital One’s Motion shall be granted as to the negligence

46 Id. at p. 27.

47 Rec. Doc. No. 134, p. 94.

48 Id. at p. 85.

49 Rec. Doc. No. 139-1, p. 11.

claim against it. Because it finds that Plaintiffs have failed to state a claim, the Court does

not reach Capital One’s arguments regarding prescription of the LUTPA and negligence

claims.

III. CONCLUSION

For the reasons above, Capital One’s Motion50 is granted and the claims against

it dismissed with prejudice.

IT IS SO ORDERED.

Signed in Baton Rouge, Louisiana on April 8, 2021.

S

JUDGE SHELLY D. DICK

UNITED STATES DISTRICT COURT

MIDDLE DISTRICT OF LOUISIANA

50 Rec. Doc. No. 124.