In May of this year, the United States Supreme Court issued a highly important decision significantly tightening the requirements for pleading antitrust conspiracies.  In Bell Atlantic Corp. v. Twombly, 127 S.Ct. 1955 (2007), the Court held that allegations of parallel conduct and conclusory assertions of agreement will not suffice to survive a 12(b)(6) motion to dismiss.  Rather, the complaint must state "enough factual matter (taken as true) to suggest that an agreement was made" and such allegations must be enough to raise a right to relief "above the speculative level."  In reaching this conclusion, the Court expressly rejected the longstanding formulation for deciding motions to dismiss set forth in Conley v. Gibson, 355 U.S. 41 (1957), which held 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 its claim which would entitle it to relief.  Now, under Twombly, an antitrust plaintiff may not rely on the possibility that it may later establish "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."

On September 4, 2007, the Second Circuit applied Twombly to dismiss what would have been considered a fairly detailed complaint in the pre-Twombly world.  In In re Elevator Antitrust Litigation, 2007 WL 2471805 (2nd Cir. 2007), plaintiffs alleged that defendant elevator companies conspired to fix prices for the sale and maintenance of elevators and to otherwise monopolize the markets for the sale and maintenance of elevators.  In support of these allegations of conspiracy, the plaintiffs’ complaint asserted that the defendants participated in meetings in the United States and Europe to discuss pricing and market divisions, agreed to fix prices for elevators and elevator services, rigged bids for sales and maintenance, exchanged price quotes, allocated markets for sales and maintenance, collusively required customers to enter long-term maintenance contracts, and collectively took actions to drive independent elevator repair companies out of business.  Citing Twombly, the Second Circuit upheld dismissal of the plaintiffs’ complaint because the conspiracy allegations provided "no plausible ground to support the inference of an unlawful agreement."

The plaintiffs argued that a plausible inference of conspiracy could be drawn from the complaint  because (1) the complaint averred agreements between the defendants; (2) the complaint averred parallel conduct; and (3) the complaint noted evidence suggesting anticompetitive wrongdoing by certain defendants in Europe.  Regarding the averments of agreements between the defendants, the Second Circuit observed that the complaint enumerated "basically every type of conspiratorial activity that one could imagine."  However, the court also observed that the list of conspiratorial activity was "in entirely general terms without specification of any particular activities by any particular defendant."  Quoting Twombly, the court stated that such "conclusory allegation[s] of agreement at some unidentified point do not supply facts adequate to show illegality."

The court was similarly unimpressed with the plaintiffs’ allegations of parallel conduct.  The plaintiffs contended that parallel conduct such as similarities in contractual language, pricing, and equipment design indicated that there was a conspiracy among the defendants.  The court noted that such parallel conduct are as likely a result of rational and competitive business conduct as conspiracy.  Similar contract terms can reflect similar bargaining power and commercial goals, similar pricing is just as consistent with competition as with anticompetitive conspiracy, and similar equipment design might merely be a reflection of the state of the art.  Thus, the court held, the parallel conduct alleged by plaintiff did not meet Twombly‘s requirement of showing that a conspiracy was plausible rather than merely possible.

As noted, the plaintiffs also asserted that the complaint’s specific factual allegations of defendants’ anticompetitive misconduct in Europe shows that their allegations of conspiracy are plausible.  The plaintiffs alleged, for example, that European antitrust authorities initiated investigations into defendants, that these authorities issued statements stating that they had good reason to believe that defendants engaged in collusive behavior, and that news reports claim that some of the defendants admitted wrongdoing by their European employees.  According to plaintiffs, these facts show the existence of a worldwide conspiracy or, at the very least, conspiratorial behavior undertaken in Europe that affected prices in the United States.  The Second Circuit noted that there was no evidence of any link between the alleged European misconduct and conduct or effects in the U.S. and nothing more than conclusory allegations regarding the nature and scope of the alleged worldwide market for elevators.  For example, there were no allegations of global marketing, that defendants monitored prices in other markets, or allegations of actual pricing or changes in pricing of elevators in the United States attributable to defendants’ alleged European misconduct.  Thus, plaintiffs’ allegations of defendants’ European misconduct did not "nudge [plaintiffs’] claims across the line from conceivable to plausible" as required by Twombly.

Finally, the Second Circuit also dismissed plaintiff’s allegations of unilateral exclusionary conduct.  According to the complaint, the defendants unilaterally acquired or attempted to acquire monopolies in the maintenance market for their own respective elevators by designing their elevators to prevent servicing by other providers, refusing to sell competitors parts, tools, or software necessary to service their elevators, and obstructing competitors’ attempts to purchase elevators parts.  The court interpreted these contentions as essentially an allegation that the defendants refused to deal with third party maintenance providers in violation of Section 2 of the Sherman Act.  According the Second Circuit, this claim was fatally flawed because it did not allege that the defendants terminated any prior course of dealing with third party maintenance providers.  As the court explained, the Supreme Court’s ruling in Verizon Commc’ns v. Trinko, 540 U.S. 398 (2004), made clear that firms have the broad right to refuse to deal with competitors and the sole exception to this right is when firms terminate a prior, presumably profitable, course of dealing in order forgo short-term profits to achieve an anticompetitive end.  Since the complaint in this case did not allege a prior course of dealing between the defendants and competitor maintenance providers, it clearly failed to state a claim.

Twombly was a landmark decision that made pleading antitrust conspiracies significantly more difficult.  The Second Circuit’s decision in In re Elevator Antitrust Litigation is an early illustration of the application of the new Twombly standard that appears to confirm that antitrust plaintiffs will face new obstacles in pleading antitrust conspiracies.  Indeed, the Second Circuit’s ruling drives home that we have come a long way from the days of Conley, when antitrust complaints could not be dismissed for failure to state a claim unless it appeared beyond doubt that the plaintiff could prove no set of facts in support of its claim which would entitle it to relief.

Authored by:

Anik Banerjee