# Opposition Brief — Credit Suisse Securities (USA) LLC v. Billing

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0247%3A05

## Record

- **Collection:** Supreme Court brief
- **Document type:** Opposition Brief
- **Published:** January 1, 2007
- **Citation:** 551 U.S. 264

## Text

Coun. US. ’

, ie" FILED
)
z | APR 4 9 2006
No. 05-1157 | OFFICE OF THE CLERK |

In the Supreme Court of the Anited States

CREDIT SUISSE FIRST BOSTON LTD., ET AL.,

Petitioners,
V.

GLEN BILLING, ET AL.,
Respondents.

On Petition for a Writ of Certiorari to
the United States Court of Appeals
for the Second Circuit

REPLY TO BRIEF IN OPPOSITION FOR
RESPONDENT MILTON PFEIFFER

ROBERT B. MCCAW STEPHEN M. SHAPIRO
LOUIS R. COHEN Counsel of Record
ALI M. STOEPPELWERTH KENNETH S. GELLER
FRASER L. HUNTER, JR. TIMOTHY S. BISHOP
NOAH A. LEVINE MAYER, BROWN, ROWE &
WILMER CUTLER PICKERING MAW LLP

HALE & DORR LLP 1909 K Street, N.W.
399 Park Avenue Washington, D.C. 20006
New York, New York 10022 (202) 263-3000
(212) 230-8800 Attorneys for Petitioner
Attorneys for Petitioner Merrill Lynch, Pierce,

Citigroup Global Markets Inc. | Fenner & Smith Incorporated

Counsel for Petitioners

[Additional Counsel Listed On Signature Page]
ase Re cece ican RP a OE TET

TABLE OF CONTENTS

REPLY TO BRIEF IN OPPOSITION FOR
RESPONDENT MILTON PFEIFFER .............::000eee2e% l

CONCLUSION ....cccccscscccsccscccssccssccsesccccscscossenssssscossssnssosoooes 8

il
TABLE OF AUTHORITIES
Cases: Page

Dura Pharms., Inc. v. Broudo, 125 S. Ct. 1627

SET ciipessphateniindinbtiedintnaniaiauniediiciandsedtecieuialininisnesimeniiniens 7
Gordon v. New York Stock Exch., 422 U.S. 659

ETT cienitcapdeuainestteshdiapiateaniinidbiasiadtncnainisensitelighieecnisibinias 3, 4, 5, 6
Initial Public Offering Sec. Litig., In re,

241 F. Supp. 2d 281 (S.D.N.Y. 2003)..........:cccceeeseeeeeeees 8
Merrill Lynch, Pierce, Fenner & Smith, Inc. v.

aR, THD GS. GR. THe GD cnscccccsscccrsccscseceveccnenes 5,7,8
Silver v. New York Stock Exch., 373 U.S. 341

ITNT easidehdctiialndieldasibtetiadigiainbabaahtanetasemseninisibinnainimeianiiah 5, 6
United States v. National Ass'n of Sec. Dealers,

Re a icrincnectncnnstncnccictteningsinmmenmnionanen 5
Verizon Communications, Inc. v. Law Offices of

Curtis V. Trinko, LLP, 540 U.S. 398 (2004)....... 2, 5, 6, 8
Statute:
BT 6 GD cccccstncnsneccensenntvensscneussnsenesenensvcinmnmnnieceiapenintinen l
Miscellaneous:

Department of Enforcement v. Invemed Associates,
No. CAF030014 (NASD Office of Hearing Officers
Be Fh Fi acccsscnnnstnssunsnineeninsnssinsnsnncinenmemnaunasesnenen 3

HERBERT HOVENKAMP, THE ANTITRUST ENTERPRISE

REPLY TO BRIEF IN OPPOSITION FOR
RESPONDENT MILTON PFEIFFER

This case consolidates two class actions that the Second
Circuit held are not barred by implied immunity. Pet. App.
72a. One suit, Billing, alleges violations of the Sherman Act
by investment banks resulting from their underwriting of
some 900 technology-related IPOs during the market bubble
of the late 1990s. The district court explained that the second
class action, Pfeiffer, brought against investment banks and
some of their institutional customers, challenges the “same
practices” by labelling them as “commercial bribery” under
the Robinson-Patman Act, 15 U.S.C. § 13(c). Jbid. In both
cases the Second Circuit rejected the views of the SEC and
district court and accepted the arguments of the Department
of Justice on the dispositive issue of implied immunity.
Plaintiffs in Billing have waived their response to the peti-
tion. This brief replies to the opposition in Pfeiffer.

Pfeiffer’s perfunctory opposition does not come to grips
with the compelling reasons for review set forth in the peti-
tion and amicus briefs submitted by the National Association
of Securities Dealers, the New York Stock Exchange, and the
Securities Industry Association. Congress placed self-
regulatory organizations like the NASD and NYSE, which
are overseen by the SEC, at “the front line of enforcing com-
pliance” with the securities laws. Brief Amicus Curiae of
NYSE at 6; Brief Amicus Curiae of NASD at 8. Both SROs
have explained there is “an urgent need for this Court to
grant certiorari” because these antitrust suits are “fundamen-
tally inconsistent with the regulatory regime that Congress
established when enacting the securities laws” and threaten
the Nation’s capital markets. NASD Br. 7; NYSE Br. 3-4, 13.

Nor does Pfeiffer seriously address the SEC’s explana-
tion of the need for immunity in this case (Pet. App. 124a-
158a, 180a-198a), or the holdings in NASD, Gordon, and

2

Trinko. He offers no reason why this Court should deny re-
view here when it granted review in NASD and Gordon,
where the SEC likewise contended that immunity was neces-
sary to preserve its regulatory authority, and the Department
of Justice likewise disagreed. Nor does he explain how this
case is less worthy of review than Jrinko where, despite an
antitrust savings clause, this Court recognized that antitrust
suits would improperly disrupt a comprehensive scheme of
regulation. Beyond this, he nowhere disputes petitioners’
showing that the Second Circuit’s ruling conflicts with deci-
sions of several other circuits. Pet. 25-26.

As petitioners and amici have shown, this Court’s inter-
vention is essential to protect the securities regulatory re-
gime, including not only the statutory authority of the SEC
and the SROs that operate under its supervision, but also the
stringent limitations that Congress has imposed on private
securities actions in legislation such as the Private Securities
Litigation Reform Act (PSLRA), which Pfeiffer seeks to by-
pass. Pfeiffer’s contrary contentions are easily refuted.

1. Pfeiffer concedes (at 2) that the Billing plaintiffs attack
the basic elements of the syndicate underwriting process
which are essential to “the capital raising abilities of the
United States financial markets.” Pfeiffer asserts that “[h]is
theory” is different, because he alleges underwriters “paid
bribes to, or received bribes from” institutional investors “to
inflate the price of the hot issue securities in the aftermarket,”
and therefore does not challenge “pre-offer underwriting ac-
tivities.” Jbid. In fact, Pfeiffer’s “bribe” theory is just a re-
hash of the “tie-in” allegations in Billing dressed up in
Robinson-Patman Act terminology. See Pet. App. 75a, 121a.
Pfeiffer admits (at 2) that the Second Circuit “correctly”
characterized his claims. In doing so, the court recounted
Pfeiffer’s allegations of “agreements” that IPO allocants
would divide profits with underwriters by purchasing large
quantities of IPO stock in the aftermarket and by paying “un-
usually large commissions” for transactions in “unrelated se-

3

ae On. Sp 19a-20a)—agreements also alleged by
olaintiffs See id. at 17a-18a. Pfeiffer sim-
vored long-term investors over “flippers.” Id. at 75a, 121a.

That Pfeiffer recharacterizes the Billing plaintiffs’ “te-
ins” as “bribes” makes no difference to the certworthiness of
ments to buy in the aftermarket and to hold rather than “flip”
shares occurred in the midst of heavily-regulated IPOs. The
inquire about a customer's intent to “be a lor term
instead of a “flipper,” stutier Gp cuunans nga @ O>
chase more shares in the aftermarket to build a long-term po-
— See Pet. 3; Pet. App. 224a. Similarly, allegations
Sen and GAEIs eomaene exthetty @un Gorden, <0
U.S. at 681-682), implicating rules that expressly permit an
underwriter to allocate IPO shares to good customers who
generate substantial commissions. See Pet. 8.

Thus, when the conduct Pfeiffer labels as paying and re-
ceiving “bribes” in the aftermarket is viewed in the context of
the underwriting process to which the alleged agreements
relate, the question whether a particular instance is legal will
depend on exactly where that conduct falls under fine lines
that are carefully drawn by expert regulators and “contin-
ual{ly] adjust{ed]” in light of changing conditions. Pet. App.
19Sa. An example of the complex nature of this line-drawing
process is the recent decision of an NASD panel in Depart-
ment of Enforcement v. Invemed Associates, No. CAF030014
(NASD Office of Hearing Officers Mar. 3, 2006). There, an
NASD panel concluded in a 94-page opinion, following a 17-
day hearing, that a member firm had not engaged in illegal

“hot” IPOs. Paunstakingly soviowing cinen s pagmueets

+

writers fom allocating IPO shares to good customers, tha
sion payments to increase the chances of obtaining alloca-
tions, and that no illicit agreements or “bribes” were
involved. As petitioners and the SEC have shown and the
SROs confirm, to have antitrust juries assess defendants’
conduct under “competition first” a

compattonent °° maton antiteenhomid Gamaton®
NASD Br. 7, 9; see NYSE Br. 13.

nity, docs not withstand scrutiny. To be sure, this Court looks
bosarun, honsun, efamebenntiies GeGeanem ie,
part test for congressional intent applied by the court of ap-
exact practice st issue and empowered the SEC to compel
that practice, that the SEC in fact permutted that practice, and
that application of the antitrust laws would moot a

of the securities laws. See Pet. 22-24; NASD Br. 6-7.

SEC and opposed by the Department of Justice—because
pray owype+ ~anenletngetnen Sar thority “to oversee
the fixing of commissio plication of the anti-
trust laws would “render nugatory the legislative provision
for regulatory agency supervision.” 422 U.S. at 688, 691; see
Pet. 20. The district court and the SEC correctly concluded
that Gordon i Goectly sgpticatte hase, where Congress con-

ee ee
of the antitrust laws would create the potential for conflictin

5

standards. See Pet. App. 86a, 193a; NASD Br. 13-17; NYSE
Br. 12-13; see also NASD, 422 U.S. at 724-725, 735 (finding
immunity where Congress empowered the SEC “flexibly” to
address practices it believed were “detrimental,” so that anti-
trust laws created the potential for “inconsistent standards”).
Regulation of the IPO process and aftermarket conduct grow-
ing out of it lies at the heart of the SEC's authority under se-
curities statutes this Court has described as the “ancho[r]” of
“regulation of vital elements of our economy.” Merrill Lynch
v. Dabit, 126 S. Ct. 1503, 1509 (2006).

Tellingly, Pfeiffer does not so much as mention Trinko,
which reaffirms that Gordon and NASD require immunity
when there is a “real possibility of [antitrust] sudgments con-
flicting with the agency's regulatory scheme.” 540 U.S. at
Trinko neverthelees held that the antitrest laws should not be
applied whee Ry jury's judgments are likely to result mn
costly and not outweighed by “the slight benefits of antitrust
intervention” piled on top of other available “litigation
routes”—factors that also support dismissal here. /d. at 406,
414; see Dabit, 126 S. Ct. at 1514 (permitting “parallel class
actions” under “different standards” applied to the same facts
is “wasteful” and “duplicative”); NASD Br. 15; HERBERT
HOVENKAMP, THE ANTITRUST ENTERPRISE 237 (2005).

3. Pfeiffer’s contention (at 4) that no deference is due the
SEC's view that immunity is necessary here is riddled with
errors. Pfeiffer concedes that courts “defer” to expert agen-
cies charged by Congress with regulating the area in ques-
tion. See Gordon, 422 U.S. at 689-690 (deferring to the
SEC’s view that immunity was necessary “[g]iven the exper-
tise of the SEC” and “the confidence the Congress has placed
in the agency”); NASD, 422 U.S. 694 (agreeing with SEC
that immunity was required); Pet. 30. Pfeiffer’s assertion that
this Court should ignore the SEC's considered position be-
cause the SEC “always finds implied repeal” is wrong. The

6

ort ech for examp

Pfeiffer’s assertion (at 4) that Silver held there can be no

athe eaniiien quand f thitete enantio: @ a>
members so there was no “agency check” on the behavior at
issue. 373 U.S. at 359-360. in Gordon and Trinko, even chal-
lenges to practices forbidden under the regulatory scheme
(see 422 U.S. at 679-682, 540 U.S. 1 405-406) were dis-
missed to give the agency sufficient room to regulate.

Pfeiffer’s narrow focus on whether the SEC can permit or
ne i ee oe eee Se eee

owering antitrust juries to determine what IPO conduct is
unlawful would deter beneficial activities that the SEC does
permit. See Pet. 9; Pet. App. 156a, 193a-194a, 197a. The
SBC and HAGD tase quaichad contast Guay Getiove exsmned
practices. Pet. App. 137a-138a, 196a: NASD Br. 12. There is
no reason to think that antitrust juries would draw the line
under the Sherman or Robinscn-Patmen Act ot the some
make antitrust concerns “the predominant considerations in
the underwriting process.” Pet. App. 194a; see NYSE Br. 3,
13 (the threat of treble damages will impair the “abili
SROs and the SEC to develop finely calibrated regulatory

ee ee eee

to HARD, which bas semany sepensBiiy w spss
sight of the SEC, apace estmentine eter A -pame-oy ea

7

DS ey Oe eS
roping) the ocariice markt to the detent of "the
SEC warmed the courts below of the same adverse effects on
the capital markets. Pet. App. 193a-197a (the fear of treble
serve the interests of the markets and the capital formation
process,” “distort{ing] market participant behavior in ways
that are harmful to the overall securities markets”).

snndaeninatiammediieaanaede
SEC’s and NASD’s conclusion that treble damages class ac-
apmactaternmntes cmetmvenyped pail to tte og
rally seek out perceived “deep pockets.” Dura Pharms., "125
S. Ct. at 1633. The risk of treble damages liability for mas-
fal effect securities regulstors have identified and lead to
decision, new class action antitrust complaints have already
missions and musstatemer in securities transactions—the

ic Trading Group v. Banc of America Sec., et al., 06 CV
2859 (S.D.N.Y., complaint filed Apr. 12, 2006) (alleging
conspiracy among numerous broker-dealers to collect con-
cealed commission charges from short sellers, even though
an SEC regulation addressed the practice and suit could have
been filed under the securities laws).

Treble damages antitrust suits are particularly injurious in
the securities area, because Congress in the PSLRA adopted
reforms aimed at ‘Pauaes eC Gs Gasp artinn wees & Eige-

“targeting of deep-pocket defendants” and extraction of “ ex-

canes ou ib oohject Dabit, 126 S. &. at 1510-1511. An

e ries, This Coust secently sejected 2 “nanew
reading” of the Securities Litigation Uniform Standards Act
by the Second Circuit that “undercut the effectiveness” of the
PSLRA. /d. at 1513. The Second Circuit’s narrow interpre
tion of implied immunity law to allow plaintiffs to bypass the
PSLRA’s restrictions by recycling securities claims as anti-
trust violations should suffer the same fate. See JPO Sec.
Litig., 241 F. Supp. 2d 281 (S.D.N.Y. 2003) (securities fraud
suits based on same conduct alleged by Pfeiffer); Trinko, 540
U.S. at 414 (Gemiscal soqueed where “[judicial oversigh
vestment and lead to a new layer of t errr

5. hamaadiets eoew is conatid f Ge fume com
quences identified by petitioners, amici, and the SEC are to
be averted. Absent review, district court judges in the Second
tion industries—will reject implied immunity defenses pre-
sented in motions to dismiss, which cannot be appealed. Only
by withstanding a trial on the merits—consuming tremen-

ing a usually irresistible incentive to settle—could a
defendant again hope 10 bring the issue before this Cour
confirms that this is the time for the Court to review immu-
nity issues critical to “the federal imterest im protecting the
integrity and efficient operation of the market for national
traded securities.” Dabit, 126 S. Ct. at 1509.

ROBERT B. MCCAW
Louls R. COHEN

ALI M. STOEPPELWERTH
FRASER L. HUNTER, JR.
NOAH A. LEVINE

WILMER CUTLER PICKERING
HALE & Dorr LLP

399 Park Avenue

New York, Now York 10022

Citigroup Global Markets
Inc.

ANDREW J. FRACKMAN
RICHARD G. PARKER
BRENDAN DOWD
O”’MELVENY & MYERS LLP
Seven Times Square

New York, New York 10036
(212) 326-2000

STEPHEN M. SHAPIRO
Counsel of Record
KENNETH S. GELLER
Timothy S. BISHOP
MAYER, BROWN, ROWE &
MAw LLP

1909 K Street, N.W.
Washington, D.C. 20006
(202) 263-3000
Attorneys for Petitioner
Merrill Lynch, Pierce,
Fenner & Smith Incorpo-
rated
ANDREW B. CLUBOK
RICHARD A. CORDRAY
BRANT W. BISHOP
STEVEN A. ENGEL

655 15th Street, N.W.

Washington, D.C. 20005
(202) 8 879-5000

New York, New York 10019
(212) 839-5300

Attorneys for Petitioner

RICHARD A. CIRILLO
KAREN R. KOWALSKI!
KING & SPALDING LLP

1185 Avenue of the Americas
New York, New York 10036
(212) 556-2100
Attorneys for Petitioner

Credit Suisse First Boston LLC

Four —— Square
New York, New York 10036
(212) 135-008

MOSES SILVERMAN

PHILP G. BARBER

PAUL, WEISS, RIFKIND,
WHARTON & GARRISON LLP

1285 Avenue of the Americas

New York, New York 10019

(212) 373-3000

Attorneys for Petitioner
Lehman Brothers Inc.

JON R. ROELLKE

JEFFREY H. DRICHTA

CLIFFORD CHANCE US LLP

2001 K Street, N.W.

Washington, D.C. 20006-1001

(202) 912-5000

Attorneys for Petitioner
Merrill Lynch, Pierce,
Fenner & Smith Incorporated

PAUL GONSON

GLENN R. REICHARDT

KIRKPATRICK & LOCKHART
NICHOLSON GRAHAM LLP

1601 K Street, N.W.

Washington, D.C. 20006

(202) 778-9000

Attorneys for Petitioner
Merrill Lynch, Pierce,
Fenner & Smith Incorporated

GANDOLFO V. DIBLASI
PENNY SHANE
DAVID M.J. REIN
RICHARD J.L. LOMUSCIO
SULLIVAN & CROMWELL LLP
125 Broad Street
New York, New York 10004
(212) 558-4000
Attorneys for Petitioners

The Goldman Sachs Group,

Inc. and Goldman, Sachs &

Co.

RANDY M. MASTRO

JOHN A. HERFORT

RICHARD FALEK

GIBSON, DUNN & CRUTCHER
LLP

200 Park Avenue

New York, New York 10166

(212) 351-4900

Attorneys for Petitioner
Bear, Stearns & Co., Inc.

STEVEN WOLOWITZ

MATTHEW INGBER

MAYER, BROWN, ROWE &
MAW LLP

1675 Broadway

New York, New York 10019

(212) 506-2500

Attorneys for Petitioner
Comerica, Inc.

GERALD J. FIELDS

KEVIN C. LOGUE

PAUL HASTINGS JANOFSKY
& WALKER LLP

75 East 55th Street

New York, New York 10022

(212) 318-6000

Attorneys for Petitioners
Van Wagoner Capital
Management, Inc. and Van
Wagoner Funds, Inc.

DAVID W. ICHEL

JAYMA M. MEYER

SIMPSON THACHER &
BARTLETT LLP

425 Lexington Avenue

New York, New York 10017

(212) 455-2000

Attorneys for Petitioner
J.P. Morgan Securities Inc.

APRIL 2006

JOHN D. DONOVAN, JR.

ROBERT G. JONES

ROPES & GRAY LLP

One International Place

Boston, Massachusetts 02110

(617) 951-7000

Attorneys for Petitioners
Fidelity Distributors Corp.,
Fidelity Brokerage Services
LLC, and Fidelity
Investments Institutional
Services Co., Inc.

TT.
\ carte are C1. ae. ane
: Me a os gy A rer en ve
ess eee ET ed Ut cacti -
dt “alle fe) ce ee a a ea A es a> aol _ ra © ae) 4 7 a a ‘er
out tl et penne oe, pe at Ded Ro 4 tea 2 7"
oe ol ee — i =", eae) a - ry ' 9 Oa 2G f] a 7
Abe ce 7 t 7 od ‘, he so! > —
ar ee a es, ies cor ae ei ie i. wt . a 7 i
Vale a ers Le a f. ae) ya ae Py i a 1
f io? = C: ~~ — fp inas a : = a } an ‘ : = a) wa . rf = @ 7 -
a) ee hey a ve" = = eee = - c aa : res A ari ts fl ria 7 : :
eres, Wee ee a aren Pie ees bet -
i ] ip eee _ ta fe bene . = a 7 7 is *
a a = m2 eel — > 7 cat i - ' _ = ia a Pie aa) 17s e vara) Li ie
on 2 a ool ae ; ine - i ieee 7 fue + 7 ~ — conan ao y " ts oe at a
Poa ae ee a =; _ ao ; ae 7 at uy 7 ie
ke Ces ‘era, o: a we oo oe ise one ate Pay. 7
ae =e yo as ti? a « we = Oo =, = na iD = ° — a ey en a x es
(Pi ea ay _ o> pees Sa) Sn hy
a 4 ‘ 1 -. 5 ; - : id r N - 7 :
- awe “~ ~4 ’ a oe eo - =! aL ae ie eS a a Lay
1, Coane a ae - rien ie ee Pa ie, ee:
ite | Veet i = _ - os : i = a@!_y = a a 7 Ci! 7 i 5 c-
- = oe —_ ee eae : — ‘ “8 7 ss = ; - _.
; mt : = 1s a eee : * a a oot 7 ’ woe -s me raat om a
: - oe - yg” ‘a - = a -
as (a) oe a — * =e 4 a fi i , ot — 1+ _) an a ao ae = 7
L Youn . ae roe = a ca 7 7 ee - :
top ¥ 7 a oh eg,8 8? | : aes er ae Tr ee =
; _ a - =" ee oe Me Se -~, = Y o. <<. care . 7 - ye Ha _ oe ;
: > F : : ; 7 2 ; a oo a
a i. = { -s 1 +15. 2 4 ’ *- os < > 7 ; . 7 cw ad Y a r
| oo es ssa" . i Sr = eather Rett At
I ae i ee « 1 Fue 2 ea ° . oe -
2 ey Yc: wt fell ~_ ob ~ oa ' ° we 7 - > _— cL email aa
Ts = ta aah Gane ar. 8 “0° ~se- 4, ore a2. .,.7 ian -_

- ~ a) ee ars oe on en ra. >= = a, ’ A i :
=| er gee ass ey yp : 7 _ qf ee
iA) _ = =e _— lips — a _ ~ _ : : a 4 } ee — :
iy ere Wt, Pe ee me aoe oe a ra) : Pa inal 2)
ve 4°) 85 Ee ae ae - = eat i
a ies ie =" = rd ig

' > os - _ - = > > - , L
o, Sree - * = ar . « _ =? are and 2 line = ee an i 7 -
wie 4 os aS atl = aa - 7
i a its a mb eee - = : = i 4 _ 7 aaa ae, 7
: ae . oe _ a o> ‘ats . a oo a | ae)
an ed ans = wil * > = 7 ss ii¢@ - : oe z
A ia Se . _ a a >= 17 ¥ pra 7 a , et oe
a a » paaanman alsa tat =—= - a ‘2 ° =* a ae) ae a. -
: . A ta : ~ Ss e -_ a y ot cal aer aa 1, - ~ ra Pin _
: ‘ . ; a 7 onl - . . 7 o* rs ae - 7 ’ _ 4 7 a i rao |
5 = 7 _ - ie a woe : - 1 = Sani <= = o ay 7 an = ~ 2 =
OO - a ~@,- =e a ae as of a a a i . -
: ey - 2 a Yaz me fi 7 _!. eee elt ™y
> — a} —_= o :
- - —— ; Z ra >)
<< “=e g aes

= ot Pr
= aie

=
.

a
;
a
5 _
_ - :
——_
7
7 : )
’ ofa
_ A
atl
$

ae

a
}
: os
ra

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0247%3A05. Public record. Not legal advice.