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Credit Suisse Class Action Defense Case-Credit Suisse v. Billing: Supreme Court Holds Antitrust Class Action Based On Syndicate Conduct In Sale Of IPOs Barred Because “Clearly Incompatible” With Securities Laws

Federal Securities laws Barred Class Action Complaints Alleging Antitrust Violations Because, under Facts of the Case, Securities Laws “Implicitly Precluded” Enforcement of Antitrust Laws United States Supreme Court Holds

Purchasers of initial public offerings (IPOs) filed a class action against various underwriting firms that market and distribute IPOs for antitrust violations alleging that defendants “unlawfully agreed with one another that they would not sell shares of a popular new issue to a buyer unless that buyer committed (1) to buy additional shares of that security later at escalating prices (a practice called ‘laddering’), (2) to pay unusually high commissions on subsequent security purchases from the underwriters, or (3) to purchase from the underwriters other less desirable securities (a practice called ‘tying’).” Credit Suisse Securities (USA) LLC v. Billing, 551 U.S. __ (June 18, 2007) [Slip Opn., at 1]. Defense attorneys argued that the antitrust violations underlying the class action complaint were precluded by the federal securities laws, id., at 4. The district court agreed with the defense arguments and dismissed the class actions, but the Second Circuit reversed and reinstated the class action complaints, id. The U.S. Supreme Court granted certiorari and reversed the Second Circuit, id., at 4; the Supreme Court held that “we must interpret the securities laws as implicitly precluding the application of the antitrust laws to the conduct alleged in this case,” id., at 1.

The antitrust class action lawsuits arose from the following facts. As part of an IPO, underwriters “will typically form a syndicate to help market the shares,” which in turn estimates market demand and recommends offering price and number of shares for the offering. Credit Suisse, at 2. The syndicate then commits to purchase from the company all of the newly issued shares on a date certain for a fixed price; the price reflects “[the] price the syndicate will charge investors when it resells the shares,” but the syndicate’s actual purchase price reflects a discount that “amounts to the syndicate’s commission.” Id. In other words, the syndicate purchases the shares at a discounted price, and then resells them at the agreed upon fixed price, id., at 3. From this, class actions were filed alleging that defendant underwriters “abused” the syndication practice “by agreeing among themselves to impose harmful conditions upon potential investors,” id.; the Supreme Court added that these were “conditions that the investors apparently were willing to accept in order to obtain an allocation of new shares that were in high demand,” id. These conditions included entering into laddering agreements, tying agreements and paying excessive commissions, thereby “artificially inflat[ing] the share prices of the securities in question,” id., at 4.

In analyzing whether the federal securities laws barred the antitrust claims, the Supreme Court recognized that where possible the antitrust and securities laws are to be “reconciled.” Credit Suisse, at 5-6 (citations omitted). The High Court explained that an “implied repeal” of antitrust laws requires that there be “a ‘plain repugnancy between the antitrust and regulatory provisions,’” id., at 6 (citation omitted). Prior Supreme Court decisions holding that securities laws impliedly barred claims under the antitrust laws reasoned that “the SEC [has] direct regulatory power over exchange rules and practices with respect to the fixing of reasonable rates of commission” and that the SEC has “taken an active role in review of proposed rate changes during the last 15 years.” Id., at 7 (citations omitted). The Supreme Court explained that “antitrust immunity” was required so that “’the exchanges and their members’ would [not] be subject to ‘conflicting standards.’” Id. (citation omitted). After discussing other decisions, the High Court summarized that “when a court decides whether securities law precludes antitrust law, it is deciding whether, given context and likely consequences, there is a ‘clear repugnancy’ between the securities law and the antitrust complaint – or as we shall subsequently describe the matter, whether the two are ‘clearly incompatible.’” Id., at 9-10. The relevant factors in such an inquiry are set forth at page 10 as follows:

(1) The existence of regulatory authority under the securities law to supervise the activities in question; (2) evidence that the responsible regulatory entities exercise that authority; and (3) a resulting risk that the securities and antitrust laws, if both applicable, would produce conflicting guidance, requirements, duties, privileges, or standards of conduct.

Additionally, a fourth factor is whether “the possible conflict affected practices that lies squarely within an area of financial market activity that the securities law seeks to regulate.” Id., at 10.

With that background, the Supreme Court held that “the antitrust complaints before us concern practices that lie at the very heart of the securities marketing enterprise” and that “the law grants the SEC authority to supervise all of the activities here in question.” Credit Suisse, at 11. Moreover, “the SEC has continuously exercised its legal authority to regulate conduct of the general kind now at issue.” Id. The only issue before the Court, then, is whether the antitrust class actions were “likely to prove practically incompatible with the SEC’s administration of the Nation’s securities laws?” id., at 12.

Based on its analysis, see Credit Suisse, at 12-19, the Supreme Court concluded that “the securities laws are ‘clearly incompatible’ with the application of the antitrust laws” under the facts of this case, id., at 20. Accordingly, it reversed the Circuit Court decision, id.

NOTE: Justice Thomas cast the lone dissenting vote.

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