The U.S. Court of Appeals for the Second Circuit has shut down Baltimore’s quest to recoup hundreds of millions of dollars the city lost in the collapse of the market for auction rate securities during the economic downturn in 2008.

The Second Circuit affirmed the dismissal of the class action complaints in Mayor and City Council of Baltimore et al. v. Citigroup Inc. et al., finding that the claims of boycott and refusal to deal in the market for auction rate securities failed to successfully allege a violation of Section 1 of the Sherman Act.

The plaintiffs, who include the Mayor and City Council of Baltimore and three individual investors, accused 11 of the largest financial institutions of conspiring to simultaneously withdraw support bids in the auction rate securities market. According to the complaints, withdrawing the bids had the same anticompetitive effect as a group boycott and limited competition until the market collapsed.

Before the financial crisis, cities borrowed money through auction rate securities, long-term bonds with short term interest rates. The defendants periodically organized the bond sales needed to reset interest.

The auctions usually attracted numerous investors, and the high demand kept interest rates low for nearly three decades. However with the market collapse, cities now face penalties when auctions fail and high fees to refinance their debt.

The U.S. District Court for the Southern District of New York found plaintiffs’ antitrust allegations failed because securities law protects some concerted conduct to set interest rates.

Judge Peter W. Hall’s opinion for the Second Circuit went further, and held that plaintiffs failed to state a claim in the first place.

The appeals court found that the complaint was deficient under the Supreme Court’s 2007 decision in Bell Atlantic Corp v. Twombly, which held that plaintiffs must provide enough evidence to show it is plausible companies made a formal agreement rather than simply taking independent, parallel actions. “Indeed, Defendants’ alleged actions—their en masse flight from a collapsing market in which they had significant downside exposure—made perfect business sense,” the Second Circuit wrote.

The complaint provided only two instances of communication between the companies, which discussed the state of the market and potential solutions. Other memos used as evidence were internal and only indicated a “high level of inter firm awareness,” according to the Second Circuit.

There were also warning signs the market was failing as early as the summer of 2007. “At that point abandoning bad investments was not just a rational business decision, but the only rational business decision,” the court concluded, referring to the banks’ choice to stop the bids.

On top of legal fees, Baltimore has $350 million in auction rate securities debt, and the city could lose an additional $90 million to refinance.