The Antitrust Attorney Blog
Author: Jarod Bona
In 2007, the Supreme Court issued a bombshell of a case called Bell Atlantic v. Twombly, which caused both antitrust lawyers and civil procedure law professors to rethink how they go about their work.
For those of you not obsessed with law or antitrust, Twombly changed the antitrust pleading standards in federal court from one of extreme permissibility to the current “plausibility” standard.
Courts quickly began applying Twombly beyond antitrust cases, and it now is THE case for motions to dismiss that argue that plaintiffs have not plead enough to move to the next stage of litigation.
When the Supreme Court decided Twombly, it created a surge of excitement, and federal courts began dismissing cases left and right because plaintiffs had not alleged sufficient facts to show a “plausible” claim to relief, under antitrust or other laws.
Since then, I don’t think I have seen any antitrust complaint that wasn’t followed by a motion to dismiss, usually citing Twombly. Notably, courts coupled this elevated standard with refusals to start discovery until after plaintiffs leaped the motion-to-dismiss hurdle.
I believe, however, that the antitrust-pleading-standard pendulum is beginning to shift back toward the plaintiff.
Update: On November 10, 2014, the United States Supreme Court in Johnson v. City of Shelby issued a new plaintiff-friendly pleading decision.
Update 2: You can read my new article on antitrust pleading standards here: “What is the Biggest Mistake that District Court Judges Make in Antitrust Cases?”
Update 3: Read this article from Luis Blanquez: What is the Twombly Motion to Dismiss Standard for Antitrust Cases? Comparing the Ninth and Second Circuits.
Bell Atlantic v. Twombly
Twombly itself arose out of a case presenting a common type of coordinated activity among competitors, in a concentrated market with a handful of competitors, called conscious parallelism. That occurs in this type of a market—called an oligopoly—when these competitors engage in “parallel” or similar conduct, but without an actual agreement.
They instead play a game of follow-the-leader where, for example, one competitor will raise its price and the others follow. At the same time, each company knows that if they cut prices to gain market share from the others, their competitors will quickly follow, so they won’t actually gain market share—they will just sell their product for lower prices. So nobody cuts their prices. If you like game-theory, this is a fun market.
Even before the Supreme Court decided Twombly, it had required plaintiffs alleging antitrust claims against members of an oligopoly to show more than just conscious parallelism to prove a conspiracy. The Court in Twombly simply extended this requirement to the motion-to-dismiss stage.
The defendants in Twombly were monopolists in regional markets for local telephone service—the baby bells that hatched from the Department of Justice antitrust lawsuit against AT&T in the early 1980s.
At the same time, each of the regional monopolists were potential competitors in the other regional markets. The plaintiffs’ antitrust claims, in fact, were (roughly) that defendants each—in parallel—refused to enter each other’s market to compete. That is, plaintiffs alleged a per se antitrust violation of market-allocation, whereby each of the bells allocated the various local telephone markets to each other (without competing). The problem is that plaintiffs didn’t allege any evidence of an agreement—a necessary element of a Sherman Act, Section One claim—just the parallel conduct.
So the Supreme Court had to decide whether a complaint stated an antitrust claim when allegations were ambiguous in that the alleged conduct could be legal (conscious parallelism) or illegal (a secret market-allocation agreement). The Twombly Court held that such a complaint does not set forth a “plausible” claim that defendants made an agreement to restrain trade.
The Federal Courts React
As I mentioned, the federal courts reacted by applying more difficult pleading standards for both antitrust and non-antitrust cases. Indeed, they may have over-reacted: some courts misinterpreted the new standard and others took to too far.
After several years, the pendulum has begun to shift back as reviewing courts are starting to correct the mistakes and excesses and are creating a more precisely-defined standard that trial judges and litigants can realistically follow.
More specifically, a few circuit courts since 2012 have “corrected” district courts that took Twombly standards too far, or have at least explained the limits of Twombly.
Many district courts are applying a summary-judgment or trial-like standard to motions to dismiss, despite the fact that the complaints at that stage are constructed without the benefits of discovery.
In addition, many lower courts have misunderstood language in Twombly about “ruling out the possibility of independent action,”—which is very specific to conscious parallelism cases—and have incorrectly added it to the list of pleading requirements in other cases.
Circuit courts are beginning to correct these excesses and mistakes.
If you want to just read one case, as an example, I recommend the First Circuit’s 2013 decision in Evergreen Partnering Group, Inc. v. Pactive Corporation, which went out of its way to educate on pleading standards in light of the “considerable confusion among the lower courts” about Twombly.
If you are working on a motion-to-dismiss brief—or a complaint—I also recommend that you review the Sixth Circuit’s 2012 decision in Erie County, Ohio v. Morton Salt, Inc. and the Second Circuit’s 2012 decision in Anderson News, LLC v. American Media, Inc.
I predict that decisions like this will become increasingly common over the next couple years as plaintiffs regain some—but not all—of the ground they lost in Twombly.
It will be fun to watch.