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Financial Institutions Prevail on Absent 'Plus Factors'

By Robyn Hagan Cain on March 07, 2013 | Last updated on March 21, 2019

In-house attorneys at banks can breathe a collective sigh of relief this week after the Baltimore City Council and Mayor's Office lost an antitrust claim against some of the world's largest and best-known financial institutions.

Baltimore politicos filed a class action suit against household name banks including Citigroup, JPMorganChase, and Bank of America, alleging that the institutions violated the Sherman Act when they simultaneously stopped buying auction rate securities in 2008. The city's officials blame the banks for triggering the market collapse, the ABA reports.

The plaintiffs believe that the financial institutions made an agreement to "boycott" or "refusal to deal" in the auction rate securities market in violation of the Sherman Act, The district court dismissed the complaint on the defendants' 12(b)(6) motion, holding held that the alleged conduct was impliedly immunized from antitrust scrutiny by the securities laws. The Second Circuit Court of Appeals agreed this week that the plaintiffs didn't have a Sherman Act case.

The Sherman Act bans "every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States." Thus the crucial question in a Section 1 case is whether the challenged conduct "stems from independent decision or from an agreement, tacit or express." According to the appellate court, the ultimate existence of an "agreement" under antitrust law is a legal conclusion, not a factual allegation.

In Twombly, the Supreme Court explained that "factual allegations must be enough to raise a right to relief above the speculative level." A complaint must provide "enough facts to state a claim to relief that is plausible on its face." The Second Circuit doesn't give effect to "legal conclusions couched as factual allegations."

Antitrust plaintiffs typically rely on circumstantial facts supporting the inference that a conspiracy existed to make their case, but they still must allege facts that -- if true -- would establish at least one "plus factor" leading to an inference of conspiracy. Plus factors can include a common motive to conspire, evidence that shows that the parallel acts were against the apparent individual economic self-interest of the alleged conspirators, and evidence of a high level of interfirm communications.

Here, the plaintiffs lost because they didn't allege the "plus factor," so they didn't satisfy the pleading requirements. The appellate court concluded, "Even construed liberally," Baltimore's complaints "do not successfully allege a violation of Section 1 of the Sherman Act."

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