A U.S. appeals court on Monday said it will hear a challenge to a judge’s order allowing American cities to band together in a $12 billion class action accusing eight major banks of artificially inflating interest rates on a popular municipal bond.
The New York-based 2nd U.S. Circuit Court of Appeals granted a request from Bank of America and other defendants to decide whether the case was properly certified as a class action before it progresses further.
Baltimore, Philadelphia, San Diego and other cities accused the banks of colluding from 2008 to 2016 to raise rates on thousands of long-term bonds known as variable-rate demand obligations.
The bonds have short-term rates that typically reset weekly. The cities contend banks drove up interest rates, reducing available municipal funding for hospitals, schools and other outlets.
The banks had argued in Manhattan federal court that the cities should be required to sue for damages individually, not as a group.
Bank of America, Barclays, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley , Royal Bank of Canada and Wells Fargo on Monday either declined to comment or did not immediately respond to a request for comment.
A lawyer for the banks, Robert Wick of Covington & Burling, told the appeals panel at a hearing last month that the certification of a $12 billion case puts “coercive pressure on the defendants to settle” the case regardless of the merits.
David Cooper of law firm Quinn Emanuel Urquhart & Sullivan, representing the cities, had urged the appeals court to let U.S. District Judge Jesse Furman’s order stand.
Cooper told the 2nd Circuit last month that the defendant banks could afford to pay $12 billion in alleged damages, and so the class certification order was not a “death knell.”
“They have a choice whether to bring this to final judgment,” Cooper told the court. “This is not a situation where they effectively have no choice, because they can pay it.”
The case is Bank of America Corp v. City of Philadelphia , 2nd U.S. Circuit Court of Appeals, No. 23-7328.
For the banks: Robert Wick of Covington & Burling For the cities: David Cooper of Quinn Emanuel Urquhart & Sullivan
Read more: Eight big banks must face US cities’ bond collusion claims
Big banks tried to exclude states from a rate-rigging class action. They flopped, for now. (Reporting by Mike Scarcella)
