On May 21, 2007, the United States Supreme Court issued a significant 7-2 decision tightening the requirements for pleading antitrust conspiracies under Sherman Act § 1, Bell Atlantic Corp. v. Twombly (No. 05-1126) 2007 U.S. LEXIS 5901.  The Court held that to satisfy the pleading requirements of FRCP 8 and survive a motion to dismiss pursuant to FRCP 12(b)(6), allegations of parallel conduct and bare assertions of conspiracy will not suffice.  Id. at *23 ("Without more, parallel conduct does not suggest conspiracy, and a conclusory allegation of agreement at some unidentified point does not supply facts adequate to show illegality.")  Thus, the Court found, when allegations of parallel conduct are set out as the basis of a Section 1 claim, "they 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 *24.

In reaching this conclusion, the Supreme Court explicitly rejected the longstanding formulation for deciding motions to dismiss set forth in Conley v. Gibson, 355 U.S. 41 at 45-46 (1957) – "that a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief."  See Twombly, 2007 U.S. LEXIS 5901 at *31-35.  Now, under Twombly, a Section 1 plaintiff may not rely on the possibility that she might later establish some "some set of undisclosed facts to support recovery," but instead must plead "enough facts to state a claim to relief that is plausible on its face," and not merely "conceivable."  Id. at *33, *47.

The District Court Decision

In Twombly, plaintiff consumers claimed that defendant incumbent local exchange carriers – the four "Baby Bells" – conspired to exclude competitors from, and not to compete against each other in, their respective geographic markets.  See id. at *13-15.  Plaintiffs relied on allegations of parallel conduct (e.g., that the Baby Bells were not competing in each others’ territories), and a conclusory allegation on information and belief that defendants entered into an conspiratorial agreement.  Id. at *13-15, *37.  The district court granted defendants’ motion to dismiss for failure to state a claim because the complaint failed to allege sufficient "plus" factors that would tend to exclude independent self-interested conduct as an explanation for defendants’ alleged parallel behavior.  Bell Atlantic Corp. v. Twombly, 313 F. Supp.2d 174, 179-180 (S.D.N.Y. 2003) ("In the context of parallel conduct allegations, simply stating that defendants engaged in parallel conduct, and that this parallelism must have been due to an agreement, would be equivalent to a [insufficient] conclusory, ‘bare bones’ allegation of conspiracy.").

The Second Circuit Reverses

The Second Circuit reversed, holding that the District Court tested the complaint by the wrong standard and that "plus factors are not required to be pleaded to permit an antitrust claim based on parallel conduct to survive dismissal."  Twombly v. Bell Atlantic Corp., 425 F.3d 99, 114 (2d Cir. 2005).  Although the Second Circuit acknowledged that plaintiffs must plead facts that "include conspiracy among the realm of ‘plausible’ possibilities in order to survive a motion to dismiss," it adopted the Conley-based formulation that "to rule that allegations of parallel anticompetitive conduct fail to support a plausible conspiracy claim, a court would have to conclude that there is no set of facts that would permit a plaintiff to demonstrate that the particular parallelism asserted was the product of collusion rather than coincidence."  Id.

The Supreme Court’s 7-2 Decision

The Supreme Court, in turn, reversed the Second Circuit, finding that "nothing contained in the complaint invests either the action or inaction alleged with a plausible suggestion of conspiracy."  Twombly, 2007 U.S. LEXIS 5901 at *39.  While acknowledging that a showing of parallel business behavior can be admissible circumstantial evidence from which courts may infer agreement, the Court emphasized that such evidence falls short of "conclusively establishing agreement or itself constituting a Sherman Act offense."  Id. at *18.  Writing for the majority, Justice Souter opined that factual allegations must be enough to raise a right to relief "above the speculative level," and that a Section 1 complaint must state "enough factual matter (taken as true) to suggest that an agreement was made."  Id. at *21, *23.

The Supreme Court made clear that to comply with Rule 8’s requirement of a short and plain statement of the claim showing entitlement to relief, Section 1 plaintiffs must plead plausible, not just conceivable, grounds to infer an agreement.  As explained by the Court:

An allegation of parallel conduct is thus much like a naked assertion of conspiracy in a § 1 complaint:  it gets the complaint close to stating a claim, but without some further factual enhancement it stops short of the line between possibility and plausibility of "entitlement to relief."

Id. at *25.  The Court noted that asking for plausible grounds to infer an agreement "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 agreement."  Id. at *23.

The Court defended its pleading "plausibility" requirement by recognizing the enormous expense often associated with antitrust discovery proceedings and the efficiency of eliminating "largely groundless claim[s]" as early in the pretrial process as possible.  Noting the enormity of the case before it (involving a putative class of 90% of all subscribers to local telephone and high-speed Internet service in the U.S. with claims against the largest telecommunications companies in the country over a seven-year period), the Court was unpersuaded that careful case management and the availability of summary judgment proceedings would avoid the in terrorem effect of discovery in largely baseless antitrust actions.  Id. at *27-30 ("the threat of discovery expense will push cost-conscious defendants to settle even anemic cases before reaching [summary judgment] proceedings").  Justice Souter opined that "it is only by taking care to require allegations that reach the level suggesting conspiracy that we can hope to avoid the potentially enormous expense of discovery in cases with no ‘reasonably founded hope that the discovery process will reveal relevant evidence’ to support a § 1 claim."  Id. at *30, citing Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336, 347 (2005).

These discovery cost concerns no doubt contributed to the majority’s abrogation of the Conley "no set of facts" motion to dismiss standard, a literal reading of which the Court concluded would allow "a wholly conclusory statement of claim [that] would survive a motion to dismiss whenever the pleadings left open the possibility that a plaintiff might later establish some set of undisclosed facts to support recovery."  See id. at *33 (likening such process to the unfulfilled hopeful expectations of David Copperfield’s Wilkins Micawber).  Listing criticisms of the Conley "no set of facts" standard and explaining that the quote seldom is read properly in the context of the full Conley opinion, the Court stated that "this famous observation has earned its retirement."  Id. at *35.  The Court concluded that the passage relied on by the Second Circuit "is best forgotten as an incomplete, negative gloss on an accepted pleading standard:  once a claim has been stated adequately, it may be supported by showing any set of facts consistent with the allegations in the complaint."  Id.

Justice Stevens, joined by Justice Ginsburg in all but a short concluding discussion, wrote an impassioned dissent, arguing that the Twombly plaintiffs had stated a claim for relief under Section 1.  The dissenting justices challenged the majority’s conclusion that "a judicial opinion that the charge is not ‘plausible’ [could] provide a legally acceptable reason for dismissing the complaint."  Id. at *48-49 (Stevens, J., dissenting).  Arguing that "the pleading standard the Federal Rules meant to codify does not require, or even invite, the pleading of facts" (id. at *62), Justice Stevens wrote that the Conley "no set of facts" holding "reflects a philosophy that, unlike in the days of code pleading, separating the wheat from the chaff is a task assigned to the pretrial and trial process."  Id. at *67-68.

In addition, Justice Stevens took the majority to task for applying a "heightened pleading standard" to antitrust conspiracy claims while steadfastly denying doing so.  See id. at *74-76.  In rejoinder, Justice Souter stated that the majority’s concern was not that the allegations in the complaint were insufficiently "particularized," as might be addressed under the "heightened" pleading standards of Rule 9, but that "the complaint warranted dismissal because it failed in toto to render plaintiffs’ entitlement to relief plausible."  Twombly, 2007 U.S. LEXIS 5901 at *45, n.14.  Thus, according to the majority, "we do not require heightened fact pleading of specifics, but only enough facts to state a claim to relief that is plausible on its face."  Id. at *47.

The Post-Twombly World

Obviously Twombly raises the bar for plaintiffs pleading antitrust cases.  With the "retirement" of the Conley standard, no longer can plaintiffs rely on conclusions in a complaint simply because there is some hypothetical set of facts that could justify them.  Pleading parallel conduct with a conclusory allegation that defendants conspired will no longer pass muster.  But how the decision will be applied in cases where plaintiffs attempt to fix these deficiencies, such as by pleading "plus" factors, is far from clear – the Supreme Court did not elaborate on exactly how plaintiffs can "nudge[] their claims across the line from conceivable to plausible."

Indeed, Twombly may have the biggest impact of the Supreme Court’s many antitrust opinions this term.  Within hours of its release, the decision began surfacing in pleading motions and case management proceedings across the country.  It provides a platform not only to increase scrutiny of existing pleadings, but to argue for stays of discovery pending pleading challenges.  Perhaps most importantly, its logic is not limited to antitrust cases, and it may find application quickly in a variety of complex civil litigation contexts.

Authored By:

Michael W. Scarborough

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