Litovich v. Bank Of America Corporation

Background

The plaintiffs—three individuals, a trust, and a pension fund—traded in the secondary market for corporate bonds. They alleged that Bank of America and other investment banks and affiliates conspired under Section 1 of the Sherman Act to restrain the development of electronic trading platforms for odd-lot corporate bonds. Odd lots generally involve fewer than 1,000 bonds or less than $1 million in face value and are more likely to be traded by retail investors. The plaintiffs alleged that the defendants’ conduct preserved wide bid-offer spreads and caused investors to pay more when buying and receive less when selling bonds.

The defendants jointly moved under Federal Rule of Civil Procedure 12(b)(6), which allows dismissal when a complaint does not state a legally sufficient claim. The plaintiffs did not pursue a price-fixing claim in their complaint or opposition; their principal theory was that the defendants engaged in a group boycott of electronic platforms that could have increased pricing transparency and competition.

The Alleged Boycott

The complaint described alleged conduct involving InterVest, TradeWeb, BondDesk, the New York Stock Exchange’s Automated Bond System and NYSE Bonds, Bonds.com, and Trading Edge. The plaintiffs alleged that defendants invested in or controlled some platforms, refused to provide liquidity to others, and pressured platforms, dealers, or traders that threatened to narrow odd-lot spreads. They also relied on statistics showing that odd-lot trades generally had wider spreads than round-lot trades.

Why the Court Found the Conspiracy Implausible

The court held that the complaint did not plead enough facts to support a plausible inference of an agreement. The plaintiffs relied on parallel conduct and “plus factors”—additional circumstances that may help show an agreement among competitors—but the court found that the alleged conduct was consistent with independent business decisions.

The court treated the defendants’ parallel investments in TradeWeb, BondDesk, and MarketAxess as parallel conduct but found that investing in platforms that might preserve or increase market share was rational conduct, not evidence of an unlawful agreement. It also held that decisions not to support newer platforms could naturally reflect concerns about whether those platforms would succeed or attract enough other dealers. The allegations concerning ABS, NYSE Bonds, and Bonds.com did not identify specific defendants, times, places, or people involved in an agreement to boycott. The allegations about pressure on Bloomberg and retaliation against First Tennessee likewise did not plausibly connect the conduct to a coordinated boycott.

The court also rejected the plaintiffs’ proposed plus factors. The statistical allegations did not show that every defendant charged supracompetitive prices or that the defendants, rather than other dealers, benefited from the alleged pricing differences. The alleged market concentration was not adequately tied to the relevant secondary odd-lot market. The complaint did not plausibly show a common motive to boycott BondsPro, particularly because the defendants supported other platforms that increased transparency for institutional investors. Finally, communications among bond traders about pricing did not show communications about the alleged platform boycott or strategic decisions by the defendants.

Failure to Identify Individual Defendants’ Conduct

The court separately held that the complaint engaged in impermissible group pleading. It generally referred to the defendants collectively and did not adequately explain what each defendant allegedly did to join the boycott. The court examined the allegations against Goldman Sachs and JPMorgan in detail and found that their investments, pricing data, and alleged nonparticipation in BondsPro were consistent with lawful, independent business decisions. The allegations against the remaining defendants were even less specific. Because the complaint did not adequately state a claim against any individual defendant, the court dismissed the claims against all defendants.

Statute of Limitations

The court also held that the claim was time-barred. Section 1 Sherman Act claims have a four-year limitations period running from the date of injury. The plaintiffs filed their initial complaint on April 21, 2020, so conduct occurring before April 21, 2016 generally could not support the claim.

The court rejected the argument that each later sale of an odd-lot bond restarted the limitations period. It explained that, in the alleged boycott, later higher prices would be effects of the alleged boycott rather than separate acts constituting the boycott. The court also found that the allegations about Morgan Stanley and First Tennessee did not show injury to these plaintiffs and that the complaint identified no post-2016 conduct shutting down retail access to TradeWeb or MarketAxess.

The court further rejected fraudulent concealment, which can sometimes pause the limitations period when defendants conceal a claim and the plaintiff reasonably remains unaware of it. The alleged private pricing communications did not conceal the alleged boycott, general ethics statements were too nonspecific, and the defendants’ platform ownership and the platforms’ failures were publicly visible. The court concluded that the plaintiffs were at least on notice of facts that would have prompted an investigation.

Antitrust Standing

The court also ruled that the plaintiffs failed to plead antitrust standing. Antitrust standing requires a plaintiff to allege a specific type of injury caused by the challenged antitrust violation and to be an appropriate person to enforce the antitrust laws. The court found that the complaint offered only conclusory statements that the alleged boycott raised prices throughout the market. The complaint’s more specific antitrust-injury allegation described purchasing a price-fixed product, but the plaintiffs had abandoned their price-fixing theory and did not connect that alleged injury to the group boycott.

Disposition

Judge Lewis J. Liman granted the defendants’ motion to dismiss. The court dismissed the complaint with prejudice because it found that amendment would be futile, the statute of limitations had expired, the plaintiffs had not shown a basis for tolling that period, and they had not requested leave to amend. The Clerk was directed to enter judgment and close the case.