10-0722-cv (L)
Mayor and City Council of Baltimore, Maryland et al., v. Citigroup, Inc., et al.,


                                  UNITED STATES COURT OF APPEALS
                                        FOR THE SECOND CIRCUIT

                                                      _____________________

                                                           August Term, 2010

           (Argued: April 13, 2011                                                  Decided: March 5, 2013)

                                     Docket Nos. 10-0722-cv (L), 10-0867-cv (CON)

                                                      _____________________

 MAYOR AND CITY COUNCIL OF BALTIMORE, MARYLAND, ON BEHALF OF THEMSELVES AND ALL
 OTHERS SIMILARLY SITUATED, RUSSELL MAYFIELD, INDIVIDUALLY AND ON BEHALF OF HIMSELF
  AND OF ALL OTHERS SIMILARLY SITUATED, PAUL WALTON, INDIVIDUALLY AND ON BEHALF OF
 HIMSELF AND ALL OTHERS SIMILARLY SITUATED, JOHN ABBOTT, INDIVIDUALLY AND ON BEHALF
                    OF HIMSELF AND ALL OTHERS SIMILARLY SITUATED,

                                                                                                   Plaintiffs-Appellants,

                                                                    — V.—

  CITIGROUP, INC., CITIGROUP GLOBAL MARKETS, INC., UBS AG, UBS SECURITIES LLC, UBS
  FINANCIAL SERVICES, INC., MERRILL LYNCH & COMPANY, INC., MORGAN STANLEY, LEHMAN
   BROTHERS HOLDINGS, INC., BANK OF AMERICA CORPORATION, WACHOVIA CORPORATION,
   WACHOVIA SECURITIES, LLC, WACHOVIA CAPITAL MARKETS, LLC, THE GOLDMAN SACHS
  GROUP, INC., JP MORGAN CHASE & COMPANY, ROYAL BANK OF CANADA, DEUTSCHE BANK,
                                         AG,

                                                                                                 Defendants-Appellees.*

                                                      _____________________

           Before:

                                      LEVAL, KATZMANN, and HALL, Circuit Judges.

                                                      _____________________




           *
               The Clerk of the Court is directed to amend the caption as set forth above.
       This case is one of many arising out of the collapse of the market for auction rate

securities in early 2008. Plaintiffs in this consolidated action seek relief on behalf of two large

putative classes—one whose members bought auction rate securities and one whose members

issued them. Defendants, who rank among the world’s largest and best-known financial

institutions, are alleged to have triggered the market’s collapse by conspiring with each other to

simultaneously stop buying auction rate securities for their own proprietary accounts. According

to Plaintiffs, the effect of this agreement was a “boycott” or “refusal to deal” in violation of the

Sherman Act, 15 U.S.C. § 1. The United States District Court for the Southern District of New

York (Jones, J.) held that the conduct alleged by Plaintiffs was impliedly immunized from

antitrust scrutiny by the securities laws, and dismissed Plaintiffs’ complaints pursuant to Fed. R.

Civ. P. 12(b)(6). Mayor of Balt. v. Citigroup, Inc., No: 08-cv.-7746-47 (BSJ), 2010 U.S. Dist.

LEXIS 13193 (S.D.N.Y. Jan. 26, 2010). Plaintiffs appeal.

       Even construed liberally, Plaintiffs’ complaints do not successfully allege a violation of

Section 1 of the Sherman Act. Although we do not reach the district court’s implied-repeal

analysis under Credit Suisse Securities (USA) LLC v. Billing, 551 U.S. 264 (2007), the court was

ultimately correct that the complaints fail to state a claim upon which relief can be granted. The

judgment of the district court is therefore affirmed.

               AFFIRMED.

                                     _____________________

                       ALLAN STEYER, Steyer Lowenthal Boodrookas Alvarez & Smith LLP, San
                       Francisco, CA (Henry A. Cirillo, Lisa Marie Black, Steyer Lowenthal
                       Boodrookas Alvarez & Smith LLP, San Francisco, CA; Michael D.
                       Hausfeld, Steig D. Olson, Michael P. Lehmann, Jon T. King, Hausfeld
                       LLP, New York, NY; and Arun S. Subramanian, Susman Godfrey LLP,
                       New York, NY, for Plaintiffs-Appellants Mayor and City Council of

                                                  2
                       Baltimore, Maryland, on behalf of themselves and all others similarly
                       situated, on the brief), for Plaintiffs-Appellants Russell Mayfield, Paul
                       Walton, and John Abbot, individually and on behalf of themselves and all
                       others similarly situated.

                       JONATHAN K. YOUNGWOOD, Simpson Thacher & Bartlett LLP, New
                       York, NY (Thomas C. Rice and Hillary C. Mintz, Simpson Thacher &
                       Bartlett LLP, New York, NY; Brad S. Karp, Charles E. Davidow, Kenneth
                       A. Gallo and Andrew C. Finch, Paul, Weiss, Rifkind, Wharton & Garrison
                       LLP, New York, NY, for Defendants-Appellees Citigroup Inc. and
                       Citigroup Global Markets, Inc.; Donald W. Hawthorne, Benjamin Sirota
                       and William Weeks, Debevoise & Plimpton LLP, New York, NY, for
                       Defendants-Appellees UBS AG, UBS Securities LLC and UBS Financial
                       Services, Inc.; Jay B. Kasner, Paul M. Eckles and Shepard Goldfein,
                       Skadden, Arps, Slate, Meagher, & Flom LLP, New York, NY, for
                       Defendant-Appellee Merrill Lynch & Co., Inc.; Bradley J. Butwin,
                       Jonathan Rosenberg and Andrew Frackman, O’Melveny & Myers LLP,
                       New York, NY, for Defendant-Appellee Bank of America Corporation;
                       Gregory A. Markel and Ronit Setton, Cadwalader, Wickersham & Taft
                       LLP, New York, NY, for Defendant-Appellee Morgan Stanley; Arthur S.
                       Greenspan and Jon Connolly, Richards Kibbe & Orbe LLP, New York,
                       NY, for Defendants-Appellees Wachovia Corporation, Wachovia
                       Securities, LLC and Wachovia Capital Markets, LLC; David H. Braff,
                       David M.J. Rein and William H. Wagener, Sullivan & Cromwell LLP, for
                       Defendant-Appellee The Goldman Sachs Group, Inc.; Sean M. Murphy,
                       Milbank, Tweed, Hadley & McCloy LLP, New York, NY, for Defendant-
                       Appellee Royal Bank of Canada; and Stephen L. Saxl and Toby S. Soli,
                       Greenberg Traurig, LLP, New York, NY, for Defendant-Appellee
                       Deutsche Bank AG, on the brief) for Defendant-Appellee JP Morgan
                       Chase & Co.

                                     _____________________

Hall, Circuit Judge:

       This case is one of many arising out of the collapse of the market for auction rate

securities in early 2008. Plaintiffs in this consolidated action seek relief on behalf of two large

putative classes—one whose members bought auction rate securities and one whose members

issued them. Defendants, who rank among the world’s largest and best-known financial

institutions, are alleged to have triggered the market’s collapse by conspiring with each other to

                                                  3
simultaneously stop buying auction rate securities for their own proprietary accounts. According

to Plaintiffs, the effect of this agreement was a “boycott” or “refusal to deal” in violation Section

1 of the Sherman Act, 15 U.S.C. § 1 (2006). The United States District Court for the Southern

District of New York (Jones, J.) held that the conduct alleged by Plaintiffs was impliedly

immunized from antitrust scrutiny by the securities laws and dismissed Plaintiffs’ complaints

pursuant to Federal Rule of Civil Procedure 12(b)(6). Mayor of Balt. v. Citigroup, Inc., No: 08-

cv.-7746-47 (BSJ), 2010 U.S. Dist. LEXIS 13193 (S.D.N.Y. Jan. 26, 2010). Plaintiffs appeal.

       Construed liberally and with all factual assertions accepted as true, Plaintiffs’ complaints

do not successfully allege a violation of Section 1 of the Sherman Act. Although we do not

reach the district court’s implied-repeal analysis under Credit Suisse Securities (USA) LLC v.

Billing, 551 U.S. 264 (2007), the court was ultimately correct that the complaints fail to state a

claim upon which relief can be granted. The judgment of the district court is therefore

AFFIRMED.

                                           Background

       Auction rate securities (“ARS”) were1 usually long-term bonds with flexible interest rates

that reset periodically through “Dutch” auctions.2 Popular among investors because of their

perceived cash-like liquidity and relatively high rates of return, ARS were issued in increasing

numbers throughout the 1990s and 2000s. By February 2008, there was an estimated $330

billion (par value) in unmatured ARS outstanding.


       1
           We use the past tense because the ARS market essentially collapsed in 2008.
       2
          A minority of ARS were preferred stock with a variable dividend yield. For simplicity,
however, we refer to the income stream flowing from a generic auction rate security as its
“interest rate.”

                                                  4
       Unlike traditional stocks and bonds, which can be sold for cash at any time on one of

numerous exchanges, ARS were typically traded at dedicated auctions. During the time they

were viable, these auctions were held regularly pursuant to a given issuance’s offering

documents, usually every seven, twenty-eight, or thirty-five days. The ARS would be auctioned

for par value, but their interest rates would reset depending on demand at the auction. The

process worked roughly as follows. Investors would submit one of four types of orders. Those

who wanted to buy ARS would make a “bid” order, stating how many securities they would like

to buy and at what minimum interest rate. Generally, no bids of less than $25,000 were allowed.

Those who already owned ARS could submit a “sell” order, instructing that their shares be sold

regardless of the level at which the interest rate would reset; they could enter a “hold” order (the

default order) and keep their shares; or they could make a “hold-at-rate” order, directing that

their shares be sold only if the ARS would otherwise reset below a certain interest rate—a sign

of high demand. The auction manager, usually the same broker-dealer that had originally

underwritten a particular offering, would start filling orders from the bid with the lowest

minimum interest rate and work up, bringing more and more bids into play. Eventually,

assuming demand for the ARS exceeded supply, every sell order would be filled and the auction

would “clear.” The interest rates of all ARS subject to that auction would then reset to that rate

at which the last order was filled, known as the “clearing rate.” Obviously, the higher the

demand at a particular auction, the more the ARS interest rate would be pushed down.

       ARS, however, had a problem—a strong secondary market for ARS apparently never

developed. Without auctions, ARS were relatively illiquid assets which usually could not be

sold for par value. Auctions would clear only if demand for ARS (the bid orders and applicable


                                                 5
hold-at-rate orders) matched or exceeded the supply of ARS being sold. If, at a given auction,

more people wanted to sell an auction rate security than wanted to buy it, the auction was said to

have “failed.” Following an auction failure, no ARS would change hands, and would-be sellers

were forced to retain ownership of their securities. At the same time, an auction failure

automatically triggered a rate default and the interest rate would rise to a “penalty” or

“maximum” rate set out in the ARS offering documents.

       For many years, the auction process appeared to work smoothly, rarely resulting in

failure. ARS earned a reputation as safe liquid instruments and as an attractive alternative to

normally low-risk, low-return money market funds.

       The market, however, was less stable than it seemed. In 2006, the SEC issued a cease-

and-desist order to fifteen broker-dealers, finding that some of them had, without properly

disclosing their activities, intervened in the auction process to prevent auction failures and set

clearing rates. In re Bear, Stearns & Co. Inc., Securities Act Release No. 8684, Exchange Act

Release No. 53888, 88 SEC Docket 259 (May 31, 2006). As the auctions’ managers, these

broker-dealers could learn ahead of time if failure was imminent. Id. They then used proprietary

trading accounts to place “support bids,” thereby absorbing the auctions’ excess supply into their

own inventory and preventing auction failure. Id. The respondents in the SEC’s administrative

proceeding—some of whom are defendants in this action—agreed to pay civil fines to the

Commission and to disclose to their customers their “material auction practices and procedures.”

Id. They did not agree (nor were they ordered) to stop placing support bids in auctions that they

managed.




                                                  6
       These support bids appear to have become increasingly important to the auctions’ success

as financial market conditions deteriorated throughout 2007 and early 2008. Some ARS

offerings directly financed subprime mortgage lending and many others were insured by entities

that were linked to such lending. As the housing market slipped into crisis, investors sought to

extricate themselves from related positions. Yet, with the exception of a few isolated failures in

late 2007, the auctions continued to clear as normal.

       All of this changed when many of the auctions held on February 12, 2008, failed. The

next day, 87 percent of scheduled auctions failed. By Valentine’s Day, the ARS market had

essentially ceased functioning, and has never recovered.

       In September 2008, Plaintiffs filed two nearly identical class-action complaints, asserting

that broker-dealers Citigroup, Inc., UBS AG, Merrill Lynch & Co, Inc., Morgan Stanley,

Lehman Brothers Holdings, Inc., Bank of America Corp., Wachovia Corp., Goldman Sachs, JP

Morgan Chase & Co., Royal Bank of Canada, Deutsche Bank AG and various entities affiliated

with them (collectively “Defendants”) conspired to restrain trade by simultaneously refusing to

support the ARS auctions they managed. One complaint was filed on behalf of a putative nation-

wide class of ARS investors; the other, on behalf of a class of ARS issuers.

       According to Plaintiffs, Defendants frequently saved the auctions they managed from

failing by placing large numbers of support bids. (Pls’ Compl. ¶ 61.)3 Indeed, Plaintiffs allege

that Defendants conspired among themselves to do so. (See, e.g., id. at ¶¶ 59, 70.) Plaintiffs

theorize that the failure of any one defendant’s auction would damage the image of ARS as a



       3
         Given the substantively identical nature of the two complaints, citations are to the
investor complaint alone.

                                                 7
whole, and assert that Defendants banded together to prevent such failures from occurring. (Id.

at ¶ 66.) Defendants earned high fees underwriting ARS, and Plaintiffs claim that lucrative

business would have dried up if issuers realized how little demand there actually was for their

offerings. (Id. at ¶¶ 63, 66.) Plaintiffs allege that Defendants agreed to manufacture demand by

jointly propping up the auctions with support bids, keeping the fees flowing, and avoiding the

loss of goodwill that auction failures would inevitably provoke.4 (Id. at ¶ 66.)

       Plaintiffs further allege that the practice of placing support bids greatly intensified—and

Defendants consequently took on more inventory—as demand for ARS declined throughout the

fall and winter of 2007. (Id. at ¶¶ 80, 81.) As the situation worsened, some of the Defendants

placed internal limits on ARS inventory. (Id. at ¶ 82.) According to Plaintiffs, Defendants

nevertheless continued to market the securities aggressively to investors. (Id. at ¶ 88.) Plaintiffs

claim Defendants, after accumulating such increased inventory through support bids, were

anxious to move as much of it off of their books as possible. (Id. at ¶¶ 80, 84, 92.) At a certain

point, however, the opportunity to sell these potentially toxic assets was outweighed by the real-

world cost of placing ever larger support bids, and Defendants realized that they would

eventually need to withdraw support from the auctions. (Id. at ¶ 90.) According to Plaintiffs,

Defendants determined, for reasons not explained in the complaints, that a collective moratorium

on support bids would be the best way to achieve this goal. (Id. at ¶ 90.) Thus, on February 13,



       4
          Plaintiffs assert that such coordination was possible because, “[t]he auction rate
securities market was highly concentrated, with regulatory and financial barriers that
discouraged entry and the competition that entry could bring.” (Id. ¶ 62.) To support this claim,
Plaintiffs offer market share numbers for ARS underwriting, showing that relatively few
firms—all defendants here—underwrote the majority of ARS offerings. (Id.)


                                                 8
2008, “all of the major broker-dealers concertedly refused to continue to support the auctions”

and billions of dollars of outstanding ARS became illiquid, causing injury to investors and

issuers alike. (Id. at ¶¶ 94, 95.)

        Plaintiffs describe this agreed-upon conduct alternatively as a concerted “refusal to deal”

and as a “boycott.” (Id. at ¶¶ 8, 112.) Although the complaints also contain allegations that

Defendants illicitly conspired to prop up the auctions in the first place, thereby fixing the prices

of ARS offerings, (id. at ¶ 112), Plaintiffs have since abandoned this aspect of their suit. They

now assert that “the antitrust violation alleged in the Complaints is confined to the broker-

dealers’ collusion to simultaneously exit the ARS market.” (Pls’ Br. 7 n.3.)

        Defendants made a single motion to dismiss both complaints pursuant to, inter alia, Fed.

R. Civ. P. 12(b)(6). The district court granted the motion, holding that Plaintiffs’ antitrust claim

was impliedly precluded by federal securities law. Mayor of Balt., 2010 U.S. Dist. LEXIS

13193, at *14. It believed Billing, 551 U.S. at 264, was controlling and analyzed Plaintiffs’

claim according to Billing’s four factors. Mayor of Balt. at *14-*24. Finding that each factor

weighed in favor of preclusion, the district court agreed with Defendants that “the SEC’s

continuing regulation of ARS is ‘clearly incompatible’ with the antitrust laws” and dismissed the

complaints. Id. at *14, *24. Plaintiffs argue on appeal that their Sherman Act claim is not

precluded by the securities laws.

                                             Discussion

        We review de novo a district court’s dismissal of a complaint under Rule 12(b)(6).

Novak v. Kasaks, 216 F.3d 300, 305 (2d Cir. 2000). We conclude there was no need for the

district court to determine whether Plaintiffs’ claim was precluded by the securities laws,


                                                  9
because Plaintiffs do not allege a plausible conspiracy to violate Section 1 of the Sherman Act in

the first instance. Thus, there was no antitrust claim to be impliedly precluded. We therefore

affirm the judgment of the district court because Plaintiffs’ complaints do not state a claim for

relief.5 See Freedom Holdings, Inc. v. Cuomo, 624 F.3d 38, 49 (2d Cir. 2010) (“We may affirm

the district court’s decision on any ground appearing in the record.”).

       When reviewing a district court’s dismissal of a complaint for failure to state a claim

under Rule 12(b)(6), we accept all factual allegations as true and draw every reasonable

inference from those facts in the plaintiff’s favor. See Burnette v. Carothers, 192 F.3d 52, 56 (2d

Cir. 1999). Yet “[w]hile a complaint attacked by a Rule 12(b)(6) motion to dismiss does not

need detailed factual allegations, a plaintiff’s obligation to provide the grounds of his entitlement

to relief requires more than labels and conclusions, and a formulaic recitation of the elements of

a cause of action will not do.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (citations,

alterations, and internal quotation marks omitted). “Factual allegations must be enough to raise a

right to relief above the speculative level . . . .” Id. To survive dismissal, a complaint must

provide “enough facts to state a claim to relief that is plausible on its face.” Id. at 570. This

standard “does not impose a probability requirement at the pleading stage; it simply calls for

enough fact to raise a reasonable expectation that discovery will reveal evidence of illegal

[conduct].” Id. at 556 (emphasis added). Importantly, the “plausibility” standard applies only to

a complaint’s factual allegations. We give no effect at all to “legal conclusions couched as




       5
          Accordingly, we express no view of the district court’s resolution of the Billing question,
as it is unnecessary to our disposition.

                                                 10
factual allegations.” Port Dock & Stone Corp. v. Oldcastle Northeast, Inc., 507 F.3d 117, 121

(2d Cir. 2007).

        The Sherman Act bans “[e]very contract, combination in the form of trust or otherwise,

or conspiracy, in restraint of trade or commerce among the several States.” 15 U.S.C. § 1. “The

crucial question in a Section 1 case is therefore whether the challenged conduct ‘stems from

independent decision or from an agreement, tacit or express.’” Starr v. Sony BMG Music

Entm’t, 592 F.3d 314, 321 (2d Cir. 2010) (quoting Theatre Enters., Inc. v. Paramount Film

Distrib. Corp., 346 U.S. 537, 540 (1954)) (alteration omitted).

        The ultimate existence of an “agreement” under antitrust law, however, is a legal

conclusion, not a factual allegation. See Starr, 592 F.3d at 319 n.2 (“The allegation that

defendants agreed to [a] price floor is obviously conclusory, and is not accepted as true.”). A

plaintiff’s job at the pleading stage, in order to overcome a motion to dismiss, is to allege enough

facts to support the inference that a conspiracy actually existed. As Starr suggests, there are two

ways to do this. First, a plaintiff may, of course, assert direct evidence that the defendants

entered into an agreement in violation of the antitrust laws. See In re Ins. Brokerage Antitrust

Litig., 618 F.3d 300, 323-24 (3d Cir. 2010) (“Allegations of direct evidence of an agreement, if

sufficiently detailed, are independently adequate” under Twombly). Such evidence would

consist, for example, of a recorded phone call in which two competitors agreed to fix prices at a

certain level.

        But, in many antitrust cases, this type of “smoking gun” can be hard to come by,

especially at the pleading stage. Thus a complaint may, alternatively, present circumstantial

facts supporting the inference that a conspiracy existed. “[E]ven in the absence of direct


                                                 11
‘smoking gun’ evidence,” a horizontal agreement, such as the one alleged in the case before us,

“may be inferred on the basis of conscious parallelism, when such interdependent conduct is

accompanied by circumstantial evidence and plus factors.” Todd v. Exxon Corp., 275 F.3d 191,

198 (2d Cir. 2001); see also Apex Oil Co. v. DiMauro, 822 F.2d 246, 253-54 (2d Cir. 1987)

(“[A] plaintiff must show the existence of additional circumstances, often referred to as ‘plus’

factors, which, when viewed in conjunction with the parallel acts, can serve to allow a fact-finder

to infer a conspiracy.”). “These ‘plus factors’ may 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.”6 Twombly v. Bell Atl. Corp., 425 F.3d 99, 114 (2d Cir. 2005), rev’d on other

grounds, Twombly, 550 U.S. 544.

       Generally, however, alleging parallel conduct alone is insufficient, even at the pleading

stage. This is Twombly’s contribution. The plaintiffs in that case alleged that defendant

telephone companies had “entered into a contract, combination or conspiracy to prevent

competitive entry in their respective local telephone and/or high speed internet services markets

and ha[d] agreed not to compete with one another and otherwise allocated customers and

markets to one another.” 550 U.S. at 551. This “wholly conclusory statement of claim,”

however, was deemed a legal conclusion, not a factual allegation. See id. at 561, 564 n.9; see

also id. at 556-57 (“Without more, . . . a conclusory allegation of agreement at some unidentified

point does not supply facts adequate to show illegality.”). The plaintiffs did not “rest their § 1


       6
        As our use of the broad term “may include” suggests, these plus factors are neither
exhaustive nor exclusive, but rather illustrative of the type of circumstances which, when
combined with parallel behavior, might permit a jury to infer the existence of an agreement.

                                                 12
claim . . . on any independent allegation of actual agreement.” Id. at 564. And all they alleged

as circumstantial facts were parallel actions by the competitors. Id. at 564-65. The Twombly

Court held this was not enough “to render a § 1 conspiracy plausible.” Id. at 553, 556.

       At base, the Court’s concern was that merely observing parallel conduct among

competitors does not necessarily explain its cause. In a competitive industry, “[p]arallel conduct

is, of course, consistent with the existence of an agreement; in many cases where an agreement

exists, parallel conduct—such as setting prices at the same level—is precisely the concerted

action that is the conspiracy’s object.” Ins. Brokerage, 618 F.3d at 321. But if parallel conduct

or interdependence is “consistent with conspiracy,” it is “just as much in line with a wide swath

of rational and competitive business strategy unilaterally prompted by common perceptions of

the market.” Twombly, 550 U.S. at 554. If we permit antitrust plaintiffs to overcome a motion to

dismiss simply by alleging parallel conduct, we risk propelling defendants into expensive

antitrust discovery on the basis of acts that could just as easily turn out to have been rational

business behavior as they could a proscribed antitrust conspiracy. Id. at 558. See also id.

(quoting Car Carriers, Inc. v. Ford Motor Co., 745 F.2d 1101, 1106 (7th Cir. 1984)) (“The costs

of modern federal antitrust litigation and the increasing caseload of the federal courts counsel

against sending the parties into discovery when there is no reasonable likelihood that the

plaintiffs can construct a claim from the events related in the complaint.” (alterations omitted)).

Consequently, parallel conduct allegations “must be placed in a context that raises a suggestion

of a preceding agreement, not merely parallel conduct that could just as well be independent

action.” Id. at 557. Examples of parallel conduct allegations that might be sufficient under

Twombly’s standard include “parallel behavior that would probably not result from chance,


                                                 13
coincidence, independent responses to common stimuli, or mere interdependence unaided by an

advance understanding among the parties,” and “complex and historically unprecedented

changes in pricing structure made at the very same time by multiple competitors, and made for

no other discernible reason.” Id. at 556 n.4 (internal quotation marks omitted).

        Thus Twombly provides us with two clear guidelines. First, a bare allegation of parallel

conduct is not enough to survive a motion to dismiss. Something more must be alleged. See Ins.

Brokerage, 618 F.3d at 323 (“A corollary of [Twombly] is that plaintiffs relying on parallel

conduct must allege facts that, if true, would establish at least one ‘plus factor,’ since plus factors

are, by definition, facts that tend to ensure that courts punish concerted action—an actual

agreement—instead of the unilateral, independent conduct of competitors.” (internal quotation

marks omitted)). Second, even if a plaintiff alleges additional facts or circumstances—what we

have previously called “plus factors”—these facts must still lead to an inference of conspiracy.

Starr, 592 F.3d at 322. “[S]uch factors in a particular case could lead to an equally plausible

inference of mere interdependent behavior, i.e., actions taken by market actors who are aware of

and anticipate similar actions taken by competitors, but which fall short of a tacit agreement.”

Apex Oil Co. v. DiMauro, 822 F.2d 246, 254 (2d Cir. 1987).

        In Starr, for example, the plaintiffs alleged inter alia that defendant music distributors

agreed to restrict the availability of music on the internet by fixing prices at artificially high

levels and by imposing onerous terms of use on sub-distributor licensees and customers. Starr,

592 F.3d at 318-19. Unlike in Twombly, the complaint made numerous very specific allegations

about the nature of the defendants’ parallel conduct. See id. at 323. But more importantly, the

complaint was replete with allegations of “plus factor” facts that “place[d] the parallel conduct in


                                                  14
a context that raise[d] a suggestion of a preceding agreement.” Id. First, the defendants

controlled more than eighty percent of the relevant market. Id. Second, at least one industry

commentator noted that “nobody in their right mind” would use defendants’ music services,

“suggesting that some form of agreement among defendants would have been needed to render

the enterprises profitable.” Id. at 324. Third, one defendant’s CEO strongly implied that the

company had acted to stop the “continuing devaluation of music.” Id. Fourth, the defendants

affirmatively tried to structure parts of their business to avoid antitrust scrutiny. Id. Fifth,

defendants charged a price well above that charged by non-defendant competitors. Id. Sixth, the

defendants’ activities were under antitrust investigation by various governmental agencies. Id.

Seventh, defendants raised prices, simultaneously, at a time when their costs were declining. Id.

       In this case, by contrast, Plaintiffs have essentially pleaded only parallel conduct, with

little more. Although at one time they asserted a broader set of violations, Plaintiffs have

narrowed their claims, now asserting that Defendants violated the antitrust laws only by

withdrawing from the ARS market “in a virtually simultaneous manner” on February 13, 2008.

Compl. ¶ 8. That is the only relevant parallel conduct they allege.7 And the few additional facts

they do assert fail plausibly to suggest that this parallel conduct flowed from a preceding

agreement rather than from their own business priorities.

       Indeed, Defendants’ alleged actions—their en masse flight from a collapsing market in

which they had significant downside exposure—made perfect business sense. Compare Starr,



       7
        Although they mention other actions taken by some or all of the defendants, for
example placing support bids to prevent auction failures and “fail[ing] to disclose and
misrepresent[ing] the true nature of ARS to investors,” Plaintiffs say these facts are merely
included for context. Appellant’s Br. at 7 n.3

                                                  15
592 F.3d at 327 (complaint survived motion to dismiss because “plaintiffs have alleged behavior

that would plausibly contravene each defendant’s self-interest in the absence of similar behavior

by rivals” (emphasis added)). In their brief on appeal, with its repeated mention of the February

13 auction failures, Plaintiffs seem to be suggesting that the ARS market had been healthy until

that day and imploded in a sudden and unexpected collapse. But the allegations in their

complaints reveal otherwise. Indeed, according to Plaintiffs themselves, ARS auctions started

failing as early as the summer of 2007. Compl. ¶ 80. More auctions failed during the fall and

winter, putting Defendants on notice that “the market for [ARS] was in danger of failing.”

Compl. ¶ 81. Thus by early 2008, each defendant was faced with the same dilemma. Continuing

to prop up the auctions with support bids generated commissions for successful auctions; but if

enough auctions failed, ARS would be seen as poor investments, the markets would dry up, and

Defendants’ support purchases would turn into major liabilities. As the complaints vividly

demonstrate, each defendant was well aware of these dynamics—the market as a whole was

essentially holding its breath waiting for the inevitable death spiral of ARS auctions. In such an

environment it is unsurprising, and expected, that once failures reached a critical mass,

defendants would exit the market very quickly. In fact, at that point abandoning bad investments

was not just a rational business decision, but the only rational business decision.

       Similarly, Plaintiffs’ factual allegations do not plausibly suggest a “common motive to

conspire.” See Apex Oil, 822 F.2d at 254 (identifying common motive as a possible “plus

factor”). Although Plaintiffs offer numerous motive allegations, they relate almost exclusively

to Defendants’ joint motivation to conspire to support the market. Plaintiffs assert, for example,

that “[j]oint action by Defendants [in placing support bids] was required in order to supply


                                                 16
sufficient buyers in any given auction to prevent that auction from failing and to support the

market.” Compl. ¶ 65. That has no bearing on their motivation to exit the market, which is the

alleged antitrust violation. And to the extent Plaintiffs’ complaints can be read to assert a

common motive to exit, perhaps in order to cut losses, such facts are insufficient to support the

inference of conspiracy. Plaintiffs allege that the ARS market was “highly concentrated, with

regulatory and financial barriers that discouraged entry.” Compl. ¶ 61. For instance, more than

90% of one market segment was dominated by just three defendants, according to the

complaints. As our sister circuit has helpfully explained, “evidence that the defendant had a

motive to enter into a[n antitrust] conspiracy . . . may indicate simply that the defendants operate

in an oligopolistic market, that is, may simply restate the (legally insufficient) fact that market

behavior is interdependent and characterized by conscious parallelism.” Ins. Brokerage, 618

F.3d at 322. That is exactly the situation here. Even reading the complaints in the light most

favorable to Plaintiffs, as we must, these asserted facts lead to only one plausible inference:

these are “actions taken by market actors who are aware of and anticipate similar actions taken

by competitors, but which fall short of a tacit agreement.” See Apex Oil, 822 F.2d at 254.

       Plaintiffs also claim to offer “specific communications between the Defendants.” Reply

Br. at 11, cf. Apex Oil, 822 F.2d at 254 (“a high level of interfirm communications” is a potential

“plus factor” allowing a fact-finder to infer a conspiracy). Their complaints, however, allege

only two actual communications between competitors: (1) UBS’s Chief Risk Officer’s January

9, 2008, e-mail referring to “discussions with citi” about the student loan segment of the ARS

market, Compl ¶ 91, and (2) a UBS executive’s February 9, 2008, e-mail relating a conversation

he had with a Citigroup employee about Citigroup’s and Merrill Lynch’s problems and potential


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moves in the ARS market. Id. All the other “communications” detailed in the complaints are

internal to individual defendants. For example, on January 23, 2008, a Merrill Lynch executive

told his superior that a “new crisis [is] brewing on the auction side” at Lehman Brothers and that

“[w]e’ve had 3 parties confirm that Lehman is dropping out of the auction business.” Compl. ¶

89. On February 12, 2008, a UBS executive noted that “our peers are working feverishly to

restructure” their ARS business and that UBS needed to follow suit. Compl. ¶ 91. Even reading

the complaints in the light most favorable to the Plaintiffs, these statements do not provide any

evidence of interfirm communications. In fact, they tend to suggest the absence of such

communications—if, for example, Merrill Lynch and Lehman were talking, the former would

not have had to rely on third parties to confirm the latter’s strategy. At most, these conversations

suggest a high level of interfirm awareness. Such “conscious parallelism,” however, is not

unlawful in itself. Twombly, 550 U.S. at 554. It is instead “a common reaction of firms in a

concentrated market that recognize their shared economic interests and their interdependence

with respect to price and output decisions.” Id. at 553-54. The only allegations that tend to

assert something more than “conscious parallelism” are the two vague references to isolated

discussions among only three defendants. Those simply are not enough plausibly to allege a

“high level” of interfirm communications.

       Although Twombly’s holding rests on numerous justifications, at bottom its prime

concern, like all cases interpreting Rule 12(b)(6), is isolating those cases that assert a plausible

antitrust conspiracy (and thus warrant discovery to determine whether, in fact, such a conspiracy

exists) from those that merely presume a conspiracy from parallel action. Plaintiffs’ complaints

are without question of the latter variety. None of their allegations are sufficient to “raise a


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reasonable expectation that discovery will reveal evidence of illegality.” Arista Records, LLC v.

Doe 3, 604 F.3d 110, 120 (2d Cir. 2010) (citing Twombly, 550 U.S. at 556) (quotation marks and

alterations omitted). Their cases must be dismissed.

                                           Conclusion

       Because Plaintiffs do not allege a violation of the Sherman Act or otherwise state a claim

upon which relief can be granted, the judgment of the district court dismissing their complaints

under Fed. R. Civ. P. 12(b)(6) is AFFIRMED.




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