24-135-cv Tera Group, Inc. et al. v. Citigroup, Inc. et al.

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

SUMMARY ORDER RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION “SUMMARY ORDER”). A PARTY CITING TO A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

At a stated term of the United States Court of Appeals for the Second Circuit, held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York, on the 16th day of October, two thousand twenty-four.

PRESENT: JOSEPH F. BIANCO, STEVEN J. MENASHI, EUNICE C. LEE, Circuit Judges. ___________________________________________

TERA GROUP, INC., TERA ADVANCED TECHNOLOGIES, LLC, TERAEXCHANGE, LLC,

Plaintiffs-Appellants,

v. 24-135-cv

CITIGROUP, INC., CITIBANK, N.A., CITIGROUP GLOBAL MARKETS INC., CITIGROUP GLOBAL MARKETS LIMITED, BARCLAYS PLC, BARCLAYS BANK PLC, BARCLAYS CAPITAL INC., BNP PARIBAS, BNP PARIBAS SECURITIES CORP., CREDIT SUISSE AG, CREDIT SUISSE GROUP AG, CREDIT SUISSE SECURITIES (USA) LLC, CREDIT SUISSE INTERNATIONAL, JPMORGAN CHASE & CO., JPMORGAN CHASE, N.A., J.P. MORGAN SECURITIES LLC, JP MORGAN SECURITIES PLC, UBS SECURITIES LLC, Defendants-Appellees,

BANK OF AMERICA CORPORATION, BANK OF AMERICA, N.A., MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, DEUTSCHE BANK AG, DEUTSCHE BANK SECURITIES INC., GOLDMAN SACHS GROUP, INC., GOLDMAN SACHS & CO., GOLDMAN SACHS BANK USA, GOLDMAN SACHS FINANCIAL MARKETS, L.P., GOLDMAN SACHS INTERNATIONAL, HSBC HOLDINGS PLC, HSBC BANK PLC, HSBC BANK USA, N.A., HSBC SECURITIES (USA) INC., MORGAN STANLEY, MORGAN STANLEY BANK, N.A., MORGAN STANLEY & CO. LLC, MORGAN STANLEY CAPITAL SERVICES LLC, MORGAN STANLEY DERIVATIVE PRODUCTS INC., ROYAL BANK OF SCOTLAND PLC, RBS SECURITIES INC., MORGAN STANLEY BANK INTERNATIONAL LIMITED,

Defendants.∗ ___________________________________________

FOR PLAINTIFFS-APPELLANTS: JASON H. KIM, Schneider Wallace Cottrell Konecky LLP, Los Angeles, California.

FOR DEFENDANTS-APPELLEES: ROBERT D. WICK (John S. Playforth and Carol S. Weiland, on the brief), Covington & Burling LLP, Washington, District of Columbia, for JPMorgan Chase & Co., JPMorgan Chase, N.A., J.P. Morgan Securities LLC, and JP Morgan Securities PLC.

Brad S. Karp, Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York, New York; Kenneth A. Gallo and Robert J. Gonzalez, Paul, Weiss, Rifkind, Wharton & Garrison LLP, Washington, District of Columbia, for Citigroup Inc., Citibank, N.A., Citigroup Global Markets Inc., and Citigroup Global Markets Limited.

∗ The Clerk of the Court is respectfully directed to amend the caption on this Court’s docket to be consistent with the caption on this order.

2 Peter G. Wilson, Katten Muchin Rosenman LLP, Chicago, Illinois, for UBS Securities LLC.

James E. Brandt and Lawrence E. Buterman, Latham & Watkins LLP, New York, New York, for Barclays PLC, Barclays Bank PLC, and Barclays Capital Inc.

Arman Oruc, Goodwin Procter LLP, Washington, District of Columbia; Christine V. Sama, Goodwin Procter LLP, New York, New York, for BNP Paribas and BNP Paribas Securities Corp.

David G. Januszewski, Herbert S. Washer, and Jason M. Hall, Cahill Gordon & Reindel LLP, New York, New York, for Credit Suisse AG, Credit Suisse Group AG, Credit Suisse Securities (USA) LLC, and Credit Suisse International.

Appeal from a judgment of the United States District Court for the Southern District of

New York (Richard J. Sullivan, Judge).

UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND

DECREED that the judgment of the district court, entered on August 14, 2023, is AFFIRMED.

Plaintiffs-Appellants Tera Group, Inc., Tera Advanced Technologies, LLC, and

TeraExchange, LLC (collectively, “Tera”) appeal from the district court’s dismissal of their

antitrust claims, brought under Section 1 of the Sherman Act,

, and the Donnelly Act,

, et seq., against Defendants-Appellees Citigroup, Inc., Citibank, N.A.,

Citigroup Global Markets Inc., and Citigroup Global Markets Limited (collectively, “Citi”);

Barclays PLC, Barclays Bank PLC, and Barclays Capital Inc. (collectively, “Barclays”); BNP

Paribas and BNP Paribas Securities Corp. (together, “BNP”); Credit Suisse AG, Credit Suisse

Group AG, Credit Suisse Securities (USA) LLC, and Credit Suisse International (collectively,

“Credit Suisse”); JPMorgan Chase & Co., JPMorgan Chase, N.A., J.P. Morgan Securities LLC,

3 and JP Morgan Securities PLC (collectively, “JPMorgan”); and UBS Securities LLC (“UBS”)

(collectively, the “Dealer Defendants”). Tera argues that the district court erred in dismissing its

claims by: (1) declining to consider Tera’s group-pleading allegations; (2) ignoring many of the

alleged forms of parallel conduct; and (3) disregarding a number of the alleged “plus factors.” We

assume the parties’ familiarity with the underlying facts, procedural history, and issues on appeal,

to which we refer only as necessary to explain our decision to affirm.

BACKGROUND 1

This antitrust conspiracy lawsuit arises from Tera’s unsuccessful attempt to enter the credit

default swap (“CDS”) trading platform market. A CDS is a widely traded financial instrument

that “derives its value from the risk associated with a specified credit event.” App’x at 145, ¶ 2

(internal quotation marks omitted). There are two types of CDS: single-name CDS (a derivative

based on a single debt instrument issued by one reference entity) and index CDS (a derivative

based on a basket of reference entities).

The Dealer Defendants, and other dealer banks, are on the sell-side of the CDS market—

they create and sell CDS contracts to buy-side investors, which include mutual funds, hedge funds,

and insurance companies. The Dealer Defendants’ margin of profit from a CDS transaction is

determined by the “bid/ask spread”—that is, the difference between the price at which a Dealer

Defendant buys and sells a CDS.

Historically, buy-side investors largely traded CDS through a request-for-quote (“RFQ”)

system, which required investors, equipped with limited pricing information, to identify

1 The allegations summarized below are taken from the amended complaint, and, in reviewing a dismissal under Federal Rule of Civil Procedure 12(b)(6), we “accept[] all the factual allegations in the complaint as true and draw[] all reasonable inferences in favor of [Plaintiffs].” Dejesus v. HF Mgmt. Servs., LLC,

(2d Cir. 2013) (internal quotation marks and citation omitted).

4 themselves to a dealer bank and specify the terms of the CDS they wanted to purchase. Because

the RFQ system reinforced the pricing information asymmetry between the dealer banks and the

buy-side investors, the dealer banks were allegedly able to quote customers inflated bid/ask

spreads on CDS transactions and, as a result, obtain “supracompetitive profits from the CDS

market.” App’x at 148, ¶ 12.

The passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-

Frank”) in 2008 threatened to upend that profitable system for dealer banks. Dodd-Frank grants

regulatory authority over single-name CDS to the Securities and Exchange Commission (“SEC”)

and over index CDS to the Commodity Futures Trading Commission (“CFTC”). It also authorizes

the SEC and CFTC to require that CDS trades be cleared through a central-clearing model and

occur on a swap execution facility (“SEF”). An SEF is “a trading system or platform in which

multiple participants have the ability to execute or trade swaps by accepting bids and offers made

by multiple participants.” 7 U.S.C. § 1a(50). While the CFTC has required index CDS to be

traded on SEFs since 2014, the SEC has not instated such a requirement for single-name CDS.

Some SEFs, such as Tradeweb and Bloomberg, continued to support RFQ-based trading.

In the wake of this regulatory overhaul, Tera sought to break into the trading platform

market by developing TeraExchange—a SEF offering anonymous CDS trading through a central

limit order book (“CLOB”) system, which allowed for trading among all market participants.

TeraExchange showed early promise and, on June 13, 2014, executed its first anonymous swap

transaction through its CLOB system. The trade was cleared by BNP’s and JPMorgan’s respective

clearing divisions. However, TeraExchange would not execute another transaction beyond its first

day in business.

From that point forward, the Dealer Defendants refused to trade or clear trades on

5 TeraExchange. On June 16, 2014, BNP informed Tera that it would not clear any more trades on

TeraExchange until it completed a “know-your-customer” review (“KYC”) and reviewed

TeraExchange’s rulebook. JPMorgan, citing technical issues, also stopped clearing trades on

TeraExchange. Around the same time, UBS—which previously spent months negotiating with

Tera and editing TeraExchange’s core documents—confirmed internally that it would not

cooperate with TeraExchange. Tera “had a similar experience with . . . Credit Suisse.” App’x at

169, ¶ 80. At some unspecified point in time, Citi also indicated it would not trade or clear trades

on TeraExchange. 2 The Dealer Defendants’ and other dealer banks’ refusal to clear trades on

TeraExchange prevented transactions from occurring on the platform at all, which in turn deprived

TeraExchange of the necessary liquidity to operate.

In 2017, Tera filed a complaint asserting antitrust claims against twelve dealer banks. The

district court dismissed the claims against six of the dealer banks, but it determined that the

complaint plausibly alleged an illegal boycott agreement among the six Dealer Defendants. See

generally Tera Grp., Inc. v. Citigroup, Inc., No. 17-CV-4302 (RJS),

(S.D.N.Y.

July 30, 2019) (hereinafter, “Tera Grp. I”). However, fact discovery in a separate case called into

question the accuracy of certain facts alleged in Tera’s complaint, on many of which the district

court heavily relied in Tera Group I. See Tera Grp., Inc. v. Citigroup, Inc., No. 17-CV-4302

(RJS),

, at *4 (S.D.N.Y. Aug. 14, 2023) (hereinafter “Tera Grp. II”). The Dealer

Defendants served a Rule 11 notice on Tera and demanded that it withdraw the contested

allegations from its complaint. See

Tera complied, filing an amended complaint that excised

some of those allegations altogether while paring back others. The Dealer Defendants then moved

2 The amended complaint does not make any specific allegations against Barclays, and Tera’s counsel conceded at oral argument that the amended complaint does not state a claim against Barclays.

6 to dismiss the amended complaint, which the district court granted. This appeal followed.

DISCUSSION

We review de novo a district court’s dismissal of a complaint for failure to state a claim

under Rule 12(b)(6). Mayor & City Council of Baltimore, Md. v. Citigroup, Inc.,

(2d Cir. 2013) (hereinafter, “Citigroup”). “To survive a motion to dismiss, a complaint must

contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its

face.” Ashcroft v. Iqbal,

(2009) (internal quotation marks and citation omitted).

In reviewing a Sherman Act Section 1 claim, “we evaluate each set of allegations separately, [but]

do so only as part of our assessment of the alleged conspiracy as a whole.” City of Pontiac Police

& Fire Ret. Sys. v. BNP Paribas Secs. Corp.,

, 403 (2d Cir. 2024) (hereinafter,

“Treasuries”). 3

Section 1 of 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.”

. “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 Ent.,

(2d Cir. 2010) (alteration adopted) (internal quotation marks and citation

omitted). Thus, “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.” Citigroup,

. Absent direct evidence, a conspiracy or agreement “may be inferred on the basis of

conscious parallelism, when such interdependent conduct is accompanied by circumstantial

3 We have also observed that, given the “potentially enormous cost of fact discovery” in antitrust cases, “district courts retain the power to insist upon some specificity in pleading before allowing a potentially massive factual controversy to proceed.” In re Elevator Antitrust Litig.,

, 50 n.4 (2d Cir. 2007) (per curiam) (internal quotation marks and citation omitted).

7 evidence and plus factors.” Todd v. Exxon Corp.

(2d Cir. 2001). But although

parallel conduct may be “consistent with conspiracy,” it can also be “just as much in line with a

wide swath of rational and competitive business strategy unilaterally prompted by common

perceptions of the market.” Bell Atl. Corp. v. Twombly,

(2007). To move an

allegation of prior agreement across the line from possible to plausible, then, a plaintiff’s

“allegations of parallel conduct must be reinforced by ‘plus factors’ that provide a basis to infer

that a conspiracy arose.” Treasuries, 92 F.4th at 391 (citing Citigroup,

). Those

plus factors may include, but are not limited to, “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.” Citigroup,

. Crucially, “even if a plaintiff alleges additional facts or circumstances . . . these facts

must still lead to an inference of conspiracy.”

.

Here, assuming arguendo that Tera has sufficiently pled one or more acts of parallel

conduct, we conclude that Tera failed to allege plus factors that support a plausible inference that

the Dealer Defendants’ parallel conduct resulted from an unlawful agreement. 4 See Twombly,

. We discuss each alleged plus factor in turn below.

Common Motive to Conspire. As the district court observed, the common motive to

conspire here—boycotting TeraExchange to preserve the RFQ system of trading and its attendant

profits—is obvious. See Tera Grp. II,

, at *6. This plus factor standing alone,

however, does not “lead to an inference of conspiracy.” Citigroup,

. It is nearly

4 Although parties spilled much ink arguing whether the district court improperly ignored the amended complaint’s group-pleading allegations, we need not wade into that argument. On de novo review, we have considered the entire amended complaint, including the group-pleading allegations, and conclude that Tera has failed to allege a plausible antitrust claim against any of the Dealer Defendants.

8 always the case that, where, as here, a market is crowded with established participants, each

incumbent business has an incentive to exclude a newcomer in order to protect its own market

share. See Twombly,

(“The economic incentive to resist was powerful, but

resisting competition is routine market conduct . . . .”). Moreover, the effectiveness of the

exclusion will often depend on the number of boycotting incumbents. If alleging the efficacy of a

group boycott alone were sufficient to survive a motion to dismiss, then “pleading a § 1 violation

against almost any group of competing businesses would be a sure thing.” Id. Put differently, this

plus factor fails to break the tie because it “lead[s] to an equally plausible inference of mere

interdependent behavior.” Apex Oil Co. v. DiMauro,

(2d Cir. 1987).

Against Individual Interest. Tera next asserts that boycotting its platform was against the

economic self-interest of each individual Dealer Defendant. We are unpersuaded. Tera contends

that, because each Dealer Defendant could earn fees from clearing trades on TeraExchange, it was

irrational for an individual Dealer Defendant to leave those fees on the table for a competitor to

collect instead. However, as the district court pointed out, each Dealer Defendant had a clear

economic incentive to steer buy-side customers away from TeraExchange onto RFQ-friendly

platforms. See Tera Grp. II,

, at *7. As noted supra, the amended complaint

emphasizes that the RFQ system resulted in “supracompetitive profits” for the Dealer Defendants

because of the large bid/ask spread they could obtain through taking advantage of the pricing

information disparity. App’x at 148, ¶ 12. In fact, according to the amended complaint, Citi sought

to steer one customer away from TeraExchange by offering to clear its trades for free if it

transacted via an RFQ protocol on a different platform. These allegations indicate that clearing

fees were dwarfed by the profits a Dealer Defendant could earn through potential RFQ trades.

Given these alleged market dynamics, each Dealer Defendant could have rationally and

9 independently chosen to forego any clearing fees it could have earned on TeraExchange in hopes

of pushing buy-side customers to execute RFQ trades. Tera does not plausibly allege that the

clearing fees were more valuable than RFQ trading.

Tera counters that the conduct of the Dealer Defendants still contravened their respective

individual interests because, absent a boycott agreement, one Dealer Defendant could opt to

transact on TeraExchange, provide it with sufficient liquidity, and take all of the clearing fees. But

Tera does not plead facts suggesting that it would not be a sound business strategy for each Dealer

Defendant to take a wait-and-see approach. If, once the dust settled, it was clear that TeraExchange

would survive through its partnership with one Dealer Defendant, the other Dealer Defendants

could simply elect to join the platform at that time. The fact that some of the Dealer Defendants

allegedly negotiated with Tera or expressed interest in TeraExchange is entirely consistent with

such a strategy.

High Level of Interfirm Communications. Although once a strong factor in favor of

Tera’s conspiracy claim, the amended complaint’s allegations no longer possess the requisite

specificity to indicate a high level of interfirm communications. Tera’s original complaint alleged

that four different Dealer Defendants informed Tera “almost simultaneously” that they would not

clear trades until they completed an “audit” of TeraExchange’s rulebook, App’x at 85, ¶ 95, and

that they also each referred to TeraExchange with the unusual metaphor of a “Trojan Horse,” id.

at 95, ¶ 126. The amended complaint, however, either omits or substantially revises these

allegations. As amended, the allegations no longer plausibly suggest that the Dealer Defendants

actually utilized the phrase “Trojan Horse.” See App’x at 178, ¶ 103 (“TeraExchange learned that

the Dealer Defendants regarded TeraExchange’s platform as a ‘Trojan Horse.’”). Moreover,

although the amended complaint alleges that both BNP and JPMorgan sought to review Tera’s

10 rulebook, the amended complaint no longer alleges that four Dealer Defendants made the requests

simultaneously or used the specific term “audit” in those requests. These revised allegations thus

lack the particularity of language and unison of timing to plausibly suggest a high level of interfirm

communications.

Instead, the amended complaint now merely alleges that the Dealer Defendants could have

coordinated because “their clearing operations communicate regularly with each other.” App’x

173, ¶ 90. “But the law is clear that the mere opportunity to conspire does not by itself support the

inference that such an illegal combination actually occurred.” Gamm v. Sanderson Farms, Inc.,

(2d Cir. 2019) (alteration adopted) (internal quotation marks and citation

omitted).

Other Plus Factors. The remaining pieces of circumstantial evidence alleged in the

amended complaint fail individually, as well as in combination with the other allegations, to

articulate plus factors that plausibly support the existence of an unlawful agreement.

First, although Tera asserts that the Dealer Defendants have a history of potential antitrust

violations in the CDS market, that allegation does not provide a sufficient basis to rationally infer

a conspiracy in this case. Tera alleges that regulators investigated dealer banks’ conduct in the

CDS market in 2011, but Tera does not allege that these investigations were directed at the Dealer

Defendants. And Tera “do[es] not allege any enforcement action taken or charges brought as a

result of the investigation[s].” Treasuries, 92 F.4th at 405. Tera points to dealer banks’ settlement

of an unrelated antitrust class action case from 2015. However, Tera does not allege that the Dealer

Defendants were found to have, or admitted to having, engaged in any antitrust violations in that

case. Similarly, Tera’s allegation that the Dealer Defendants are currently under government

regulatory investigation for unspecified misconduct in the interest rate swaps market is not

11 probative of their conduct in the CDS market. The Dealer Defendants’ conduct in different

markets, with respect to different products, is not circumstantial evidence of the conspiracy alleged

here. See In re Elevator Antitrust Litig.,

(explaining that allegations of defendants’

anticompetitive wrongdoing in a different market, “absent any evidence of linkage” to the alleged

conduct in a given case, “is merely to suggest . . . that if it happened there, it could have happened

here” and does not support an inference of conspiracy (internal quotation marks omitted)).

Tera also argues that the Dealer Defendants’ control over the CDS market and the clearing

process gave them the means to block CDS transactions on TeraExchange. However, merely

possessing the capability to carry out an effective boycott does not suggest that such a boycott

resulted from any agreement. Importantly, there is no allegation that any of the Dealer Defendants

needed the approval of another to utilize its tools of resistance against TeraExchange.

Finally, Tera asserts that that its boom-and-bust history shows that it was the boycott, rather

than natural market forces, that caused TeraExchange’s failure. To be sure, the dealer banks’

refusal to transact on TeraExchange may well have contributed to its economic demise. However,

even if that demise was a consequence of the alleged boycott by each of the Dealer Defendants,

that outcome alone does not suggest that it was the result of a conspiracy.

In sum, the allegations in the amended complaint do not support a plausible inference of a

prior agreement. Viewed holistically, Tera’s allegations “do not plausibly rebut the inference that

the [Dealer Defendants’] conduct served their respective, individual, legitimate business interests

12 to maintain a profitable and reliable market structure.” Treasuries, 92 F.4th at 390. Accordingly,

we affirm the district court’s dismissal of Tera’s antitrust conspiracy claims. 5

* * *

We have considered Tera’s remaining arguments and find them to be without merit.

Accordingly, we AFFIRM the judgment of the district court.

FOR THE COURT: Catherine O’Hagan Wolfe, Clerk of Court

5 Because Tera failed to state a plausible Sherman Act claim, the district court correctly dismissed its Donnelly Act claim. See Biocad JSC v. F. Hoffmann-La Roche,

(2d Cir. 2019) (finding that because plaintiff “has not stated a plausible claim for relief under the Sherman Act, its Donnelly Act claim similarly fails”).

13