The United States Supreme Court has refused to intervene in a massive lawsuit against eight major financial institutions, allowing cities nationwide to continue their $12 billion class-action case alleging interest rate manipulation.
On Monday, the nation’s highest court rejected an appeal from Bank of America and seven other banking giants who were attempting to block municipalities including Baltimore, Philadelphia, and San Diego from pursuing their case as a unified class action.
The municipalities claim these eight banks – which also include Barclays, Citigroup, JPMorgan Chase, and Goldman Sachs – worked together between 2008 and 2016 to manipulate interest rates on thousands of municipal bonds called variable-rate demand obligations.
These particular bonds feature short-term interest rates that are typically adjusted on a weekly basis. According to the lawsuit, the alleged manipulation resulted in higher borrowing costs for cities, which reduced funding available for essential services including hospitals, schools, and other public facilities.
The financial institutions had argued before a Manhattan federal court that each city should be forced to file separate individual lawsuits rather than joining forces in a group action. The banks have consistently maintained their innocence regarding any misconduct.
In their Supreme Court appeal, the banks contended that federal district court judges must first settle disagreements between third-party experts regarding whether shared issues take precedence before permitting class-action status. They argued the 2nd U.S. Circuit Court of Appeals made an error last year when it upheld the certification of a national class representing municipal bond issuers.
The banking institutions warned the Supreme Court that allowing the 2nd Circuit’s decision to stand would lead to excessively broad class actions, significantly increasing potential financial exposure and forcing settlements. The cities and other municipal bond issuers responded by arguing the banks were attempting to turn class certification proceedings into preliminary trials on the lawsuit’s underlying merits.
The plaintiffs further argued there was no disagreement among appellate courts and that class certification decisions should prioritize whether shared questions can be addressed on a class-wide basis, rather than focusing on whether plaintiffs will ultimately succeed in their case.
