The U.S. Supreme Court declined on Monday to hear a bid by Bank of America and seven other major financial institutions to prevent American cities from banding together in a $12 billion class action accusing them of artificially inflating interest rates on a popular municipal bond.
The justices turned away an appeal by the banks brought after a lower court upheld a judge’s decision to certify the lawsuit brought by Baltimore, Philadelphia, San Diego and other cities as a class action. The Supreme Court’s action paves the way for the suit to proceed as a class action.
The other banks are Barclays, Citigroup, Goldman Sachs, JPMorgan Chase, Royal Bank of Canada, Wells Fargo and Morgan Stanley.
The cities have accused the banks of colluding from 2008 to 2016 to raise rates on thousands of long-term bonds called variable-rate demand obligations.
An attorney for the city plaintiffs declined to comment. The plaintiffs previously said there are thousands of jurisdictions that are class members in the lawsuit.
A lead attorney for the banks in the Supreme Court appeal did not immediately respond to a request for comment.
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 argued in Manhattan federal court that the cities should be required to sue for damages individually, not as a group. They also have denied any wrongdoing.
The banks in their appeal contend that U.S. district judges must first resolve disputes among third-party experts that address whether common issues predominate before allowing cases to move forward as class actions. They said the New York-based 2nd U.S. Circuit Court of Appeals was wrong last year to uphold certification of a nationwide class of municipal bond issuers.
The banks had told the Supreme Court that the 2nd Circuit’s ruling, if left in place, would encourage overly broad class actions, dramatically raising potential liability and coercing settlements. The cities and other municipal issuers countered that the banks were seeking to transform class certification into a mini-trial on the merits of a lawsuit.
The plaintiffs also asserted there was no conflict among appellate courts and that class certification decisions should focus first on whether common questions can be resolved on a class-wide basis, not on whether plaintiffs will ultimately prevail.
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