Preston Hollow's antitrust suit against Nuveen survives first legal test

Preston Hollow Capital LLC’s federal antitrust trust lawsuit against Nuveen Asset Management LLC can go forward after a judge concluded the investment titan’s smaller competitor had laid out a “plausible” claim that Nuveen spearheaded a boycott to block its access to deals in the high-yield market.

“The complaint plausibly alleges vertical agreements between Nuveen” and various underwriters and broker-dealers “as well as a horizontal agreement between and among” those firms “and makes sufficient allegations concerning the relevant [high-yield] market,” U.S. District Court Judge P. Kevin Castel wrote in the opinion and order published Tuesday denying Nuveen’s attempt to dismiss the case.

Dallas-based PHC began its legal pursuit of Chicago-based Nuveen in February 2019 in the Delaware Chancery Court accusing the high-yield behemoth of using its clout to orchestrate a boycott among broker-dealers by threatening to withhold business with any firms that offered PHC deals.

Nuveen fought back contending its competitive practices were legal and aimed at protecting its market position and reputation and it countered that PHC engaged in “predatory” lending practices with its 100% direct placement business.

In April 2020, Delaware Chancery Court Vice Chancellor Sam Glasscock III sided with PHC and concluded Nuveen used “threats and lies” to damage its rival. PHC did not originally seek monetary damages and while the opinion provided verbal vindication the judge concluded the court would have difficulty enforcing some form of an injunction against future interference.

Two counts — on defamation and antitrust practices — were dropped by Glasscock from the original case. Both were resurrected by PHC in other courts and both now seek monetary compensation.

PHC resurrected the antitrust claim last summer suing Nuveen in the U.S. District Court for the Southern District of New York naming Nuveen, various entities, and its head of municipals, John Miller, as defendants. Nuveen sought to dismiss the case based on several legal arguments.

In denying the motion Tuesday, Castel found PHC had met the threshold at this early stage of the litigation to continue making its case.

“As a preliminary matter, the complaint alleges facts from which the existence of vertical agreements between Nuveen and individual UBDs may be plausibly inferred,” the opinion read. UBDs is a reference to underwriters and broker-dealers coined by the judge.

“Because the complaint plausibly alleges vertical agreements between Nuveen and UBDs as well as a horizontal agreement between and among UBDs, and makes sufficient allegations concerning the relevant market, Preston Hollow has stated a claim for a per se violation of section” of antitrust law, the judge wrote.

At the pleading stage, the complaint must only contain enough factual matter to suggest that an agreement was made, the opinion read.

“Nuveen continues to believe PHC’s claims are meritless. Nothing in this recent ruling inhibits Nuveen’s ability to continue to invest in the best interests of our clients and to participate fully in the municipal bond market,” Nuveen spokeswoman Jessica Greaney said in a statement.

“We are pleased that the court’s ruling allows us to move the case forward in all respects, and we look forward to this next opportunity to prove our allegations against Nuveen and Mr. Miller at trial,” PHC spokesman Greg May said in a statement.

The complaint also sufficiently defines a “market” establishing the features of high-yield municipal bonds and distinguishes between high-yield and investment-grade municipal bonds, including the size of those markets and the issuance process, Castel said.

“Because the court concludes that Preston Hollow has stated a per se violation, it is unnecessary for it to consider Nuveen’s arguments that the complaint fails to allege harm to competition at the motion to dismiss stage. Accordingly, Nuveen’s motion to dismiss Preston Hollow’s rule of reason claim is denied without prejudice to renewal on summary judgment,” Castel wrote.

Preston Hollow’s antitrust claims allege Nuveen’s conduct constituted a conspiracy to restrain trade in violation of the federal Sherman Act under the “per se” rule and the “rule of reason.” Preston Hollow also asserts a claim of tortious interference with prospective business relations against Miller.

Agreements between competitors or boycotts fall under per se violations of the Sherman Act. Per se is a judicial doctrine where the courts assume adverse economic effects of certain anticompetitive activity. Rule of reason is a judicial doctrine that limits antitrust violations to practices that lead to an unreasonable restraint of trade.

Nuveen argued in filings and during oral debate that PHC’s claims either were barred by existing case law or fell short of meeting the burden of proof to proceed.

The judge also rejected arguments from Nuveen that the claims based on the New York Donnelly Act were prevented because PHC initially pursued them in the Delaware Court case. Judge Glasscock declined to hear them over concerns that the case raised novel legal issues that could conflict with sister courts. Delaware has a policy against innovating in sister-states’ laws.

Judge Castel also rejected Nuveen’s argument that the case should be dismissed on the argument that Preston Hollow’s statements were not consistent on a request for damages in the earlier court case.

Nuveen had sought to convince the judge during oral arguments that PHC failed to show sufficient evidence of an agreement between broker-dealers to support the so-called horizontal conspiracy on the boycott and told the judge, “This is becoming an endless string of litigation and it ought to end.”

The judge also denied efforts to dismiss the claim against Miller on the argument that it was too late to bring an action against a corporate officer who was not named in the original case. The judge did drop several Nuveen entities from the list of defendants so that the case proceeds against Nuveen Asset Management.

The federal lawsuit that seeks a jury trial and asks for compensatory damages. Nuveen has 14 days to file an answer PHC's amended complaint and then the discovery process will begin.

Preston Hollow formed in 2014 to finance direct placements and has $2 billion in assets and $1.5 billion in equity capital. Nuveen is a global asset manager, with municipal bonds forming a subset of its various asset classes with fixed income assets under management of $150 billion.

Preston Hollow alleges that Nuveen is one of the largest trading partners for “top-tier” underwriters and broker-dealers and does in excess of $13 billion “in business” with the nine leading firms it sought to join the boycott.

Preston Hollow alleges the boycott was pushed by Nuveen among nine firms in 2018 and 2019 and calls with Deutsche Bank (DB), Goldman Sachs (GS) and Morgan Stanley (MS) were recorded. Deutsche Bank (DB) was PHC’s lender while the others brought deals to market.

It was during the original case that PHC first aired the transcripts of recorded calls between Nuveen’s John Miller and members of his team with top broker-dealers during which Nuveen threatened to shun firms that continued to do business with PHC by placing them “in the box.” Some firms appeared amenable to the pressures while others pushed back.

PHC resurrected the defamation claim in the Delaware Superior Court and that continues in the document discovery mode with a trial now looming on July 11, 2022. The two parties were ordered to hold mediation ahead of the trial, according to a scheduling order filed by Superior Court Judge Mary Miller Johnston July 13.

In a new wrinkle disclosed earlier this year, PHC contends evidence in the form of recorded calls collected in the defamation case contradicted testimony from Citigroup Global Markets Inc. and Nuveen in the original case, raising questions over whether the court was misled. Citi has called the allegation meritless.

In the defamation litigation, PHC seeks compensatory damages to be determined at trial, including general and special damages in an amount of no less than $100 million, and seeks punitive damages and compensation for its costs, including attorney fees.

When PHC filed the case in late February 2019 it cracked the window open on cutthroat competition in the high-yield municipal market with accusations sparking debate on whether strong-arm tactics break the law, broker-dealer complicity and resistance, and what constitutes pricing fairness.

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