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Baltimore Lacks the 'Plus Factor' to Bring Sherman Act Claim

By Robyn Hagan Cain on March 05, 2013 | Last updated on March 21, 2019

Baltimore will have to content itself with winning on the field because it can't seem to find a win in court.

The Baltimore City Council and Mayor's Office sued a group of banks in federal court on behalf of two large putative classes: one whose members bought auction rate securities and one whose members issued them.

The plaintiffs alleged that the defendants — who rank among the world's largest and best-known financial institutions — triggered the 2008 market collapse by conspiring with each other to simultaneously stop buying auction rate securities for their own proprietary accounts.

The Second Circuit Court of Appeals agreed with a district court this week that the plaintiffs didn't have a case.

According to plaintiffs, the effect of this agreement was a "boycott" or "refusal to deal" 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 appellate court agreed, concluding that, "even construed liberally," Baltimore's complaints "do not successfully allege a violation of Section 1 of the Sherman Act."

In Twombly, the Supreme Court held that "a formulaic recitation of the elements of a cause of action" isn't enough to survive dismissal. Instead, "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."

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.

A plaintiff in antitrust litigation typically presents circumstantial facts supporting the inference that a conspiracy existed. When relying on parallel conduct, however, the plaintiff 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 essentially pleaded only parallel conduct, with little more.

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