December 6, 2021

Volume XI, Number 340


December 06, 2021

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The Power of Plus Factors: Rational Business Behavior Leads to Dismissal of Conspiracy Claim Against Broker-Dealers in Second Circuit

In a March 2013 decision, the Second Circuit upheld the dismissal of claims by a group of securities buyers and dealers that financial institutions had conspired to simultaneously exit the now-defunct market for auction rate securities (ARS).[1] In Mayor and City Council of Baltimore, Maryland v. Citigroup, Inc., a three-judge panel held that the facts suggested nothing more than that the defendants made rational and unilateral business decisions when each exited the ARS market near the time of the financial collapse in early 2008.[2] In making this determination, the court specifically examined “plus factors” alleged by the plaintiffs — i.e., facts or circumstances alleged by plaintiffs to support a conspiracy claim under Section 1 of the Sherman Act. “Plus factors” generally are used by plaintiffs to take a complaint over the “plausibility” line set down by the Supreme Court in Bell Atlantic Corp. v. Twombly[3], which made clear that mere allegations of parallel conduct are, without more, insufficient for antitrust conspiracy allegations to survive a motion to dismiss. While the Second Circuit’s interest in examining plus factors is evident from their prominence in both Citigroup and the court’s decision last year in Anderson News, L.L.C. v. American Media, Inc.,[4] it remains unclear exactly how plausible such plus factors must be in order for a complaint to withstand a motion to dismiss.


The Second Circuit recounted the following facts from plaintiffs’ complaints. Auction rate securities typically were long-term bonds with flexible interest rates that periodically reset through “Dutch” auctions.[5] Because of their perceived cash-like liquidity and relatively high rates of returns, ARS became popular among investors during the 1990s and 2000s.[6]Uniquely, ARS were typically traded at dedicated auctions, rather than being available for purchase for cash at any time on one of numerous exchanges.[7] These auctions usually were held every seven, twenty-eight, or thirty-five days, pursuant to a given issuance’s offering documents.[8] Although ARS themselves were auctioned for par value, their interest rates would reset depending on demand at the auction.[9]

During ARS auctions, investors submitted one of four types of orders: 1) “bid” orders, for investors who wished to buy, 2) “sell” orders for investors who wished to sell regardless of interest rates, 3) “hold” orders for investors who wished to hold their securities, and 4) “hold-at-rate” orders, for investors who wished to sell their shares only if the ARS would otherwise reset below a certain interest rate.[10] The auction manager filled orders, starting the bid with the lowest minimum interest rate and working up.[11] The auction would “clear” if demand exceeded supply and every order was filled.[12] High demand at an ARS auction would lead to a low ARS interest rate.[13] If, however, demand for ARS did not match or exceed the supply of ARS being sold, the auction would “fail,” meaning investors attempting to sell would have to retain ownership of their securities, and the interest rate would automatically rise to a “penalty” or “maximum” rate set out in the ARS offering documents.[14]

During the 1990s and early 2000s, ARS auctions rarely failed.[15] The complaints alleged that the ARS were viewed as safe and attractive investments, and they were issued in increasing numbers.[16] However, in 2006, the SEC issued a cease-anddesist order to a group of broker-dealers, finding they had been intervening in the auction process.[17] Specifically, when the broker-dealers had learned ahead of time that an auction was going to fail, they used proprietary trading accounts to place “support bids,” absorbing the auctions’ excess supply and preventing auction failure.[18] As a result of the SEC’s administrative proceeding, these broker-dealers agreed to pay civil fines and disclose to their customers their “material auction practices and procedures.”[19] However, they did not agree, nor were they ordered to stop the practice of placing support bids.[20] According to the complaints, as financial market conditions deteriorated in 2007 and early 2008, support bids appear to have taken on new importance in ensuring the auctions’ success.[21]

Things came to a head in early 2008.[22] Certain ARS offerings had ties to subprime mortgage lending, and as the housing market slipped into crisis, investors began to extricate themselves from ARS positions.[23] On February 12, 2008, a number of ARS auctions failed.[24] Two days later, on Valentine’s Day, the ARS market essentially stopped functioning (surely breaking many investors’ hearts).[25] It has never recovered.[26]

In September 2008, on behalf of a putative class of ARS purchasers and a putative class of ARS issuers, plaintiffs in two companion actions sued a group of 11 large broker-dealers and their affiliates alleging they had conspired among themselves to stop placing support bids to prevent ARS auction failure.[27] Specifically, plaintiffs alleged that on February 13, 2008, “all of the major broker-dealers concertedly refused to continue to support the auctions,” and “simultaneously exit[ed] the ARS market.”[28] Plaintiffs labeled this conduct a concerted refusal to deal and alleged that, as a result, billions of dollars of outstanding ARS became illiquid, injuring investors and issuers.[29] The U. S. District Court for the Southern District of New York (Hon. Barbara S. Jones) granted defendants’ motion to dismiss, holding that the alleged conduct was impliedly immunized from antitrust scrutiny by the securities laws.[30] Plaintiffs appealed.[31]


On appeal, the Second Circuit did not reach the issue of whether the conduct was immunized by the securities laws,[32] and instead affirmed on the ground that plaintiffs had failed to allege a plausible conspiracy under Fed. R. Civ. P. 12(b)(6).[33] In doing so, the court outlined the “two clear guidelines” it interpreted as being provided by the Supreme Court in Twombly: 1) “[s]omething more” than “a bare allegation of parallel conduct” must be alleged for a complaint to survive a motion to dismiss, and 2) “even if a plaintiff alleges additional facts or circumstances” beyond parallel conduct—described as “plus factors”—”these facts must still lead to an inference of conspiracy.”[34]

Here, the court held that plaintiffs had pled “little more” than parallel conduct, and “the few additional facts they do assert plausibly fail to suggest that this parallel conduct flowed from a preceding agreement rather than from [the defendants’] own business priorities.”[35] First, the court noted that the allegations in the complaint revealed that defendants were on notice as early as the summer of 2007 that the ARS market was in danger of failing.[36] Faced with “the same dilemma” of whether to “continu[e] to prop up the auctions” and generate commissions for successful auctions, or exit the market with the recognition that if enough auctions failed, ARS would be seen as poor investments, the market would dry up, and defendants would be left with support bids that would turn into major liabilities, the court stated that it was not irrational for each of the defendants independently to decide to exit the ARS market.[37] As “the market as a whole was essentially holding its breath waiting for the inevitable death spiral of ARS auctions,” the court stated that the decision to “abandon[] bad investments was not just a rational business decision, but the only rational business decision.”[38]

Secondly, the court held that plaintiffs’ factual allegations did not plausibly suggest a “common motive to conspire.”[39] The court noted that, according to the complaint, the ARS market was “highly concentrated with regulatory and financial barriers that discouraged entries.”[40] In an “oligopolistic market,” such as found here, the court stated that the fact that the defendants had a common motive to exit the market may, “simply restate the (legally insufficient) fact” that in a concentrated market, “market behavior is interdependent and characterized by conscious parallelism.”[41]

Finally, plaintiffs had offered a handful of “specific communications” between defendants that plaintiffs claimed indicated a conspiracy.[42] However, the court noted the majority of these communications were intrafirm, and that there were only two communications between competitors.[43] Moreover, the court found that some of the intrafirm communications actually suggested an absence of interfirm communications.[44] For example, an internal Merrill Lynch communication offered by plaintiffs suggested the firm was relying on third parties for information on Lehman Brothers rather than speaking to Lehman directly.[45]

Te court noted that the “prime concern” of Twombly was isolating cases that assert a plausible antitrust conspiracy from those that merely presume a conspiracy from parallel action.[46] This case, according to the court, was “without question of the latter variety.”[47]


Read together, the Second Circuit’s Citigroup decision and its Anderson News decision last year (denying a motion to dismiss in a case involving parallel conduct in the magazine distribution industry) demonstrate that the allegation of “plus factors” supportive of a conspiracy claim is of utmost importance in the Second Circuit in order to meet the pleading standard established in Twombly. What remains unclear, however, is precisely how plausible those plus factors must be at the motion to dismiss stage.

We previously reported on the Second Circuit’s decision in Anderson News.[48] In that case, decided by a three-judge panel made up of Judges Chin, Kearse and Leval, the court’s language suggested that when facts used by plaintiffs to show the requisite agreement could equally show a conspiracy or merely (legal) parallel conduct, the tie goes to the plaintiff at the motion to dismiss stage. Specifically, the court held that “to present a plausible claim at the pleading stage, the plaintiff need not show that its allegations suggesting an agreement are more likely than not true or that they rule out the possibility of independent action, as would be required at later litigation stages such as a defense motion for summary judgment….”[49] The Second Circuit panel went on to note that “[t]he choice between two plausible inferences that may be drawn from factual allegations is not a choice to be made by the court on a Rule 12(b)(6) motion.”[50]

By contrast, Citigroup (which was decided by a panel that again included Judge Leval, but this time with Judges Katzmann and Hall) might seem to indicate that, to survive a motion to dismiss, the plaintiff must present a factual scenario that suggests it is more plausible than not that defendants entered into an illegal agreement.[51] Of particular note in this regard is the court’s language suggesting that a complaint should be dismissed if facts alleged by plaintiffs to show an agreement “could lead to an equally plausible inference of mere interdependent behavior.”[52]

Despite this seemingly discordant language, the actual holdings in Citigroup and Anderson News can be harmonized. The Anderson News court apparently viewed the question of whether plaintiffs’ allegations amounted to an illegal conspiracy or merely parallel behavior as a close call. In Citigroup, by contrast, the court appeared to view the “few additional facts” alleged by plaintiffs to support their claim of an illegal conspiracy as themselves, suggesting that the plaintiffs were merely making rational business decisions rather than engaging in a conspiracy.[53] Regardless, at this stage, the exact contours of the plus factors required to make out a claim under the Twombly plausibility standard in the Second Circuit remain open to some interpretation.

[1] Greenberg Traurig, LLP represented one of the defendants in the proceedings.

[2] 709 F.3d 129 (2d Cir. 2013).

[3] 550 U.S. 544 (2007).

[4] 680 F.3d 162 (2d Cir. 2012).

[5] Citigroup, Inc., 709 F.3d at 132.

[6] Id.

[7] Id.

[8] Id.

[9] Id.

[10] Id.

[11] Id.

[12] Id.

[13] Id. at 133.

[14] Id.

[15] Id.

[16] Id. at 133, 132.

[17] Id.; see also In re Bear, Stearns & Co. Inc., Securities Act Release No. 8684, Exchange Act Release No. 53888, 88 SEC Docket 259 (May 31, 2006).

[18] Citigroup, Inc., 709 F.3d at 133.

[19] Id. (internal citation omitted).

[20] Id.

[21] Id.

[22] Id.

[23] Id.

[24] Id.

[25] Id.

[26] Id.

[27] Id. at 133–34.

[28] Id. at 134.

[29] Id.

[30] Id. at 132.

[31] Id.

[32] See generally Credit Suisse (USA) LLC v. Billing, 551 U.S. 264 (2007).

[33] 709 F.3d at 132; see also Mayor & City Council of Balt. v. Citigroup, Inc., Nos. 08-cv-7746-47 (BSJ), 08 Cv. 7747 (BSJ), 2010 WL 430771 (S.D.N.Y. Jan. 26, 2010).

[34] Id.

[35] Id. at 138.

[36] Id.

[37] Id.

[38] Id.

[39] Id. at 138–39.

[40] Id. at 139.

[41] Id. (citing In re Ins. Brokerage Antitrust Litig., 618 F.3d 300, 322 (3d Cir. 2010)).

[42] Id.

[43] Id.

[44] Id.

[45] Id.

[46] Id. at 140.

[47] Id.

[48] See Scott Martin, Second Circuit Finds Anderson News Pleading is Plausible . . . Enough, Greenberg Traurig Antitrust Quarterly, Spring 2012, available at

[49] Anderson News, L.L.C., 680 F.3d at 184.

[50] Id. at 185.

[51] Citigroup, Inc., 709 F.2d at 137–38.

[52] Id. at 137 (quoting Apex Oil Co. v. DiMauro, 822 F.2d 246, 254 (2d Cir. 1987)).

[53] Id. at 138–39.

©2021 Greenberg Traurig, LLP. All rights reserved. National Law Review, Volume III, Number 153

About this Author

Emily Sickelka, Greenberg Traurig Law Firm, New York, Corporate and Litigation Law Attorney

Emily A. Sickelka focuses her practice on commercial litigation matters, with a particular emphasis on antitrust defense and counseling, white collar criminal investigations and breach of contract cases. She represents clients in a broad range of industries, including banking, distribution, hospitality, pharmaceutical sciences, retail, telecommunications and tobacco. Emily is experienced in all phases of litigation, including briefing, electronic discovery and trial preparation.