By Mike Scarcella
The Supreme Court of the United States on Monday denied Bank of America and seven other major financial institutions’ request to prevent American cities from joining together in a $12 billion class action lawsuit accusing them of artificially inflating interest rates on a popular municipal bond.
The judges rejected the appeal from the banks after a lower court upheld a judge’s decision to certify the action brought by Baltimore, Philadelphia, San Diego, and other cities as a class action. The Supreme Court’s decision paves the way for the lawsuit to proceed as a class action.
The cities accuse the eight banks of colluding between 2008 and 2016 to increase rates on thousands of long-term bonds known as “variable rate bonds.” Barclays, Citigroup, JPMorgan Chase, and Goldman Sachs are also among the implicated banks.
The bonds have short-term rates that are usually reset weekly. The cities argue that the banks raised interest rates, reducing available municipal funding for hospitals, schools, and other services.
The banks argued in federal court in Manhattan that the cities should be required to file individual claims for damages, not as a group. They also denied any wrongdoing.
In their appeal, the banks contend that U.S. district judges should first resolve disputes between third-party experts to determine if common issues prevail before allowing cases to proceed as class actions. They claim that the second circuit court of appeals in New York was wrong last year to confirm the certification of a national class of municipal bond issuers.
The banks had told the Supreme Court that the second circuit’s decision, if left in place, would encourage overly broad class actions, significantly increasing potential liability and pressuring into settlements. The cities and other municipal issuers argued that the banks sought to turn class certification into a mini-trial on the merits of the lawsuit.
The plaintiffs also argued that there was no conflict among the appeals courts and that decisions regarding class certification should focus on whether common issues can be resolved on a class-wide basis, not on whether the plaintiffs ultimately prevail.
