Supreme Court Decision Raises The Bar For Plaintiffs' Antitrust Lawsuits

By Burt Braverman
Reproduced with permission from Telecommunications Industry Litigation Reporter

It is said that "where you stand depends on where you sit."¹ That holds true with respect to the Supreme Court's May 21, 2007 decision in Bell Atlantic Corp. v. Twombly,² where the Court reshaped long-established notions of “notice pleading” and held that antitrust plaintiffs must allege more than mere parallel conduct by defendants to state a plausible conspiracy claim that can withstand a motion to dismiss. Although the opinion might be perceived as merely addressing a procedural issue affecting the standard for pleading antitrust conspiracy claims in federal courts, Twombly likely will have a much broader impact on the ability of plaintiffs in all complex commercial cases in federal and even state courts to access the justice system, and it is bound to play an important role in future litigation in the telecommunications industry. Whether you applaud or condemn the Court's decision may well depend on whether you expect to prosecute, or defend against, an antitrust conspiracy case in the future or, given the broader implications of the decision, whether you expect to be a plaintiff or a defendant in any complex commercial litigation.

The Case

Twombly, a consumer class action, was set against the backdrop of the aftermath of the break-up of Ma Bell in 1984, which left a system of regional monopolies called Incumbent Local Exchange Carriers ("ILECs"), and the subsequent Telecommunications Act of 1996 (the “Telecom Act”). The Telecom Act was intended to fundamentally restructure local telephone markets and subject ILECs to a host of duties intended to facilitate market entry, and promote competition, by Competitive Local Exchange Carriers ("CLECs"). ILECs’ obligations included selling their services to CLECs at wholesale, leasing elements of their networks to CLECs, and interconnecting their networks with CLECs. From the outset of the Telecom Act, ILECs vigorously – and, ultimately, successfully – challenged the scope of their obligations under that law.

The Twombly plaintiffs, on behalf of a putative nationwide class of all subscribers to local telephone and/or high speed internet access services provided by the major ILECs (Bell Atlantic, BellSouth, Qwest and Verizon), from 1996 forward, brought an antitrust action under Section 1 of the Sherman Act, which forbids any "contract, combination …, or conspiracy, in restraint of trade or commerce."³ The plaintiffs asserted two principal claims under Section 1, which requires proof of an agreement among the defendants to restrain competition.

First, they alleged that the defendant ILECs had "‘engaged in parallel conduct’" in their respective service areas to inhibit the growth of upstart CLECs, including delaying or refusing to negotiate agreements with CLECs for access to ILECs' networks, providing CLECs with inferior connections to ILECs’ networks, overcharging CLECs, and interfering with CLECs' customer relationships. The complaint alleged that the ILECs' "'compelling common motivatio[n]'" to do so "naturally led them to form a conspiracy; '[h]ad any one [ILEC] not sought to prevent CLECs … from competing effectively …, the resulting greater competitive inroads into that [ILEC’s] territory would have revealed the degree to which competitive entry by CLECs would have been successful in the other territories in the absence of such conduct.’" Second, the plaintiffs alleged the existence of an agreement by virtue of (1) the defendants’ "common failure 'meaningfully [to] pursu[e]' 'attractive business opportunit[ies]' in contiguous markets [of other ILECs] where they possessed 'substantial competitive advantages,'" despite the Telecom Act’s expectation that they would engage in such competition; and (2) the statement by one of the defendants’ CEOs that competing in another ILEC's service area "‘might be a good way to turn a quick dollar but that doesn't make it right.’" The complaint sought treble damages and declaratory and injunctive relief.

Relying on Rule 8(a)(2) of the Federal Rules of Civil Procedure, which reflects our “notice” system of pleading and requires that a complaint contain “a short and plain statement of the claim showing that the pleader is entitled to relief,” the defendants filed a motion to dismiss the plaintiffs’ case, arguing that the complaint failed to satisfy the minimum requirements of the Federal Rules for maintaining their action in federal court.

The Lower Courts’ Decisions

The district court granted the defendants’ motion to dismiss, concluding that allegations of parallel business conduct, without more, do not state a claim under Section 1, and that plaintiffs must allege additional facts (referred to as “plus factors”) tending to exclude independent, self-interested conduct as an explanation for the parallel actions (for example, actions of the defendants in furtherance of the alleged conspiracy that would be contrary to their independent self-interest).⁴ According to the district court, “…simply stating that defendants engaged in parallel conduct, and that this parallelism must have been due to an agreement, would be equivalent to a[n insufficient] conclusory, ‘bare bones’ allegation of conspiracy.”⁵

The U.S. Court of Appeals for the Second Circuit reversed, holding that while a plaintiff must plead facts that include conspiracy among the realm of "plausible" possibilities, pleading of so-called "plus factors" or additional facts that refute the possibility of independent action is not required in order to enable an antitrust claim based on parallel conduct to survive a motion to dismiss.⁶ Relying on the Supreme Court’s seminal statement in Conley v. Gibson⁷ nearly fifty before, the Court of Appeals held that allegations of parallel conduct are sufficient to support a conspiracy claim at the pleading stage unless 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;”⁸ to require more would be to impose a “heightened” pleading standard not sanctioned by Rule 8(a)(2) of the Federal Rules. While the Court of Appeals expressed awareness of the significant burdens of discovery in antitrust litigation, it pointed to the legislature or the Supreme Court for the solution.

The Issues Before the Supreme Court

As posed by the Supreme Court, the questions under review were "the proper standard for pleading an antitrust conspiracy through allegations of parallel conduct", and "whether a §1 complaint can survive a motion to dismiss when it alleges that major telecommunications providers engaged in certain parallel conduct unfavorable to competition, absent some factual context suggesting agreement, as distinct from identical, independent action." The Supreme Court held that such a complaint should be dismissed.

The Supreme Court’s Opinion

It is well established that although a showing of parallel conduct by competitors is admissible as circumstantial evidence in a Section 1 antitrust conspiracy case, it is not alone sufficient to prove such a claim unless other evidence is also adduced to show that the defendants’ parallel actions were the result of an agreement and not the consequence of unilateral, independent actions by the alleged conspirators.⁹ It has been considerably less clear whether allegations of parallel conduct – even conscious parallelism – are alone enough to state a claim sufficient to allow an antitrust case to survive a motion to dismiss at the pleading stage and proceed to discovery.

More than mere parallelism required. In its 7-2 opinion, authored by Justice Souter, the Supreme Court at least partially answered that question, holding that a complaint must plead “enough factual matter (taken as true) to suggest that an agreement was made.” Citing past Supreme Court precedent, Justice Souter noted that Section 1 prohibits only those restraints of trade that are carried out through a "contract, combination, or conspiracy", and termed the "‘crucial question’" as whether challenged conduct “‘stem[s] from independent decision or from an agreement, tacit or express.’" The inadequacy of parallel conduct or "interdependence", without more, to establish a violation "mirrors the ambiguity of the behavior: consistent with conspiracy, but just as much in line with a wide swath of rational and competitive business strategy unilaterally prompted by common perceptions of the market…. 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. Hence, when allegations of parallel conduct are set out in order to make a §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." The Court therefore held that absent adequate additional factual allegations that provide the suggestion of an illegal agreement, a complaint based solely on a claim of parallel conduct and conclusory assertions of an agreement should be dismissed.

Retiring Conley. The majority took pains to reconcile its decision with the Court’s seminal interpretation of Rule 8(a)(2) in Conley v. Gibson. Addressing this standard nearly fifty years before in Conley – an opinion that thereafter was cited in thousands of judicial opinions and tens of thousands of litigants’ briefs over the ensuing five decades – the Supreme Court had described Rule 8(a)(2) as intended to "give the defendant fair notice of what the … claim is and the grounds upon which it rests,"¹⁰ and as indicating 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."¹¹ This standard became mantra for plaintiffs resisting, and courts deciding, motions to dismiss, and nowhere was this more common than in antitrust conspiracy litigation, where plaintiffs would assert that the details of the conspiracy were hidden from the public and required discovery to unearth.

In revisiting Conley, while conceding that a complaint attacked on a motion to dismiss need not provide "detailed factual allegations," Justice Souter wrote that the Court’s opinion in Conley had been repeatedly misconstrued and applied in a manner inconsistent with its original intent. The majority opinion noted that a plaintiff's obligation to provide a "showing" of the "grounds" of his entitlement to relief requires more than mere "labels and conclusions", or a mere "formulaic recitation of the elements of a cause of action," which otherwise could be read as meaning that even "a wholly conclusory statement of [a] claim 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." Turning to the decision of the Court of Appeals, Justice Souter noted that the lower court “specifically found the prospect of unearthing direct evidence of conspiracy sufficient to preclude dismissal, even though the complaint does not set forth a single fact in a context that suggests an agreement." He attributed this to a misreading of Conley, which he said "described the breadth of opportunity to prove what an adequate complaint claims, not the minimum standard of adequate pleading to govern a complaint's survival." Factual allegations, which are assumed to be true for purposes of a motion to dismiss, "must be enough to raise a [claimed] right to relief above the speculative level." In the antitrust conspiracy context, a complaint must include "enough factual matter (taken as true) to suggest that an agreement was made" among the defendants, whether explicit or tacit, to restrain competition, as opposed to facts that merely might be consistent with the existence of such an agreement. Thus, an antitrust plaintiff must allege "plausible grounds to infer an agreement" (emphasis added), and bare allegations of parallel conduct alone will not suffice.

Rejecting the Second Circuit’s, and other courts’, broader interpretation of the Supreme Court’s prior language as "an incomplete, negative gloss on an accepted pleading standard” that had been "questioned, criticized, and explained away long enough,” Justice Souter, in a rather breathtaking move, announced that Conley had “earned its retirement."

Plausibility, not probability. Anticipating the dissent's criticism, Justice Souter stated that asking for plausible grounds is not inconsistent with the express language of Rule 8(a)(2) and that doing so "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…. [A] well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of those facts is improbable." Justice Souter stated that the Court did not intend to impose any "heightened pleading standard." Indeed, he said that "our concern is not that the allegations in the complaint were insufficiently 'particular[ized]…; rather, the complaint warranted dismissal because it failed in toto to render plaintiffs' entitlement to relief plausible." (Emphasis added.)

According to Justice Souter, such requirements were in accord with, not contrary to, Rule 8's notice approach to pleading, as the rule requires the pleader's "plain statement" to have "enough heft to 'sho[w] that the pleader is entitled to relief.' A statement of parallel conduct, even conduct consciously undertaken, needs some setting suggesting the agreement necessary to make out a §1 claim; without that further circumstance pointing toward a meeting of the minds, an account of a defendant's commercial efforts stays in neutral territory. 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 'entitle[ment] to relief.'" In the Court's view, this "plausibility" requirement serves the practical purpose of preventing a plaintiff with a largely groundless claim from proceeding and, through the in terrorum effect of the initiation of its action and the threat of burdensome discovery, coercing a settlement.

The plaintiffs come up short. Applying these principles, the Court found that the plaintiffs' claim of conspiracy "comes up short." First, the Court said that the plaintiffs' conspiracy claim, based on inferences derived from descriptions of ILECs' parallel conduct in disobeying the mandates of the Telecom Act and in thwarting CLECs' attempts to compete, as opposed to any independent allegation of actual agreement, was just as likely explained as the "natural, unilateral reaction of each ILEC intent on keeping its regional dominance," when viewed in light of common economic experience. "The economic incentive to resist [the obligations imposed by the Telecom Act] was powerful, but resisting competition is routine market conduct, and even if the ILECs flouted the 1996 Act in all the ways the plaintiffs allege, … there is no reason to infer that the companies had agreed among themselves to do what was only natural anyway; so natural, in fact, that if alleging parallel decisions to resist competition were enough to imply an antitrust conspiracy, pleading a §1 violation against almost any group of competing businesses would be a sure thing." In the Court's eyes, “nothing contained in the complaint invest either the action or inaction alleged with a plausible suggestion of conspiracy.” Rather, the Court concluded that the complaint's general premise of collusion failed to answer the point that “there was just no need for joint encouragement to resist the 1996 Act … [because] ‘each ILEC has reason to want to avoid dealing with CLECs’ and ‘each ILEC would attempt to keep CLECs out, regardless of the actions of other ILECs.’"

Second, as to the alleged reluctance of the ILECs to enter into each other's markets as CLECs, thereby leaving the relevant market highly compartmentalized with minimal competition, the Court again concluded that the defendants' alleged parallel conduct did not suggest conspiracy, particularly in light of the high barriers to entry that would have confronted geographic market expansion, other opportunities that were being pursued by the ILECs at the same time, the nearly insurmountable barriers to profitability in competing as a CLEC, and the monopoly origins from which each defendant had evolved. According to the Court, the defendants, "former Government-sanctioned monopolists were sitting tight, expecting their neighbors to do the same thing." Allegations of such conduct, without more, failed to “nudge [the plaintiffs'] claims across the line from conceivable to plausible” and, therefore, warranted dismissal of the plaintiffs' claims. Globally, the Court criticized the lack of facts supporting the plaintiffs' allegations of parallel conduct, noting that although the plaintiffs referred to "other facts and market circumstances" as supporting their claims, they failed to provide any specific facts, noting for example that "the complaint here furnishes no clue as to which of the four ILECs (much less which of their employees) supposedly agreed, or when and where the illicit agreement took place."

Concern for discovery costs. Stating that "it is one thing to be cautious before dismissing an antitrust complaint in advance of discovery … but quite another to forget that proceeding to antitrust discovery can be expensive," the Court expressed sensitivity to the cost of modern federal antitrust litigation. "[T]he threat of discovery expense will push cost-conscious defendants to settle even anemic cases before reaching those proceedings. Probably, then, 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." Although the Court only briefly and indirectly alluded to the advent of electronic records, the additional burdens imposed by e-discovery in antitrust and other complex commercial litigation no doubt weighed on the Court’s mind.

The majority opinion gave short shrift to less dramatic alternatives suggested by the dissent, expressing a lack of confidence in the efficacy of judicial supervision of the pre-trial process as a means of controlling discovery abuse, and rejecting the notion that a claim, "just shy of plausible entitlement to relief can, if groundless, be weeded out early in the discovery process through 'careful case management.’”

Turning to the case at hand, Justice Souter observed that the putative class was enormous, representing at least 90 percent of all subscribers to local telephone and/or high-speed internet service in the continental United States. Noting that the action had been brought against “America's largest telecommunications firms (with many thousands of employees generating reams and gigabytes of business records) for unspecified (if any) instances of antitrust violations that allegedly occurred over a period of seven years," the Court very obviously was concerned that allowing the Twombly case to proceed would have opened the door to immense discovery costs, even under the phased discovery plan that the plaintiffs offered in their unsuccessful attempt to avoid dismissal.

The dissent. The majority’s rationale did little to assuage the dissent’s concern over the potential impact of what it viewed as a fundamental change in notice pleading standards, or its distress over the impact that the change was likely to wreak. In Justice Stevens’ view, the majority opinion was squarely at odds with the longstanding rule that an initial motion to dismiss is designed only to test the legal sufficiency of the complaint’s factual allegations, not to assess whether the facts alleged are true, probable or ultimately can be proved, tasks more properly reserved until after discovery for summary judgment. As a consequence of this dramatic change, the dissent foresaw cases involving “profoundly serious factual allegations” being likely to be dismissed at the outset based on little more than a judge’s “independent appraisal of … plausibility.” Indeed, the plausibility standard embraced by the majority does invite judges to go beyond the four corners of the complaint to consider the market and regulatory contexts in which claims arise, in light of “common experience,” which may push some judges dangerously close to examining the merits of a claim at the pleading stage.

Twombly's Significance

Twombly will, to a certainty, result in dismissal of antitrust actions that previously would have survived a motion to dismiss and made it through discovery to summary judgment or settlement. Defendants already are applauding the prospect of being spared what they view as the unreasonable cost of discovery, or extortionate settlements, in frivolous actions. And plaintiffs are bemoaning the loss of access to the courthouse in circumstances where knowledge of predicate facts necessary to establish plausibility can be obtained only through discovery. However, the true magnitude of Twombly’s impact is yet to be known.

Beyond Section 1 conspiracy. Twombly, while in essence a procedural ruling, has much broader and deeper implications. Antitrust plaintiffs will now be held to a more rigorous pleading standard, and not just in Section 1 conspiracy cases. But, while it seems clear that the Court’s plausibility analysis will affect other elements of antitrust pleading, in what ways? For example, in pleading causation, will a complaint be deemed adequate if there are other plausible explanations for the plaintiff’s injury and the complaint fails to allege facts sufficient to show, if proved, that it was more likely that the plaintiff’s injury arose from the defendant’s actions than from independent causes?

Beyond antitrust. Indeed, Twombly likely will affect all complex commercial litigation. Justice Stevens, dissenting, posited that "[w]hether the Court's actions will benefit only defendants in antitrust treble-damages cases, or whether its test for the sufficiency of a complaint will inure to the benefit of all civil defendants is a question that the future will answer." Plaintiffs in non-antitrust cases undoubtedly will argue that Twombly should be narrowly construed and limited to the factual context in which it arose—a Section 1 antitrust case—and that any broader, more sweeping revision of Rule 8(a)(2), whether on its face or in its application, should be accomplished only through amendment of the Federal Rules of Civil Procedure, an action requiring Congress’ approval. Defendants’ rejoinder will point to the Court's wholesale retirement of Conley, a broad procedural principle originally pronounced in a non-antitrust case, as evidence of the Court's broader intention that its holding apply to motions to dismiss in all federal civil actions, and that the retirement of Conley constitutes only a clarification, not a full-scale amendment, of Rule 8(a)(2) that does not require congressional assent. Moreover, defendants likely also will press for an extension of Twombly to state courts, many of which have followed Conley over the years. While it is too early to predict the precise course that courts will chart, it seems almost inconceivable, on the one hand, that courts will strictly cordon off Twombly solely to the antitrust arena, but on the other hand, it seems a fair bet that most courts will be cautious about too radically and abruptly revising plaintiffs' pleading burden under Rule 8(a)(2). Thus, rather than the question noted by Justice Stevens, the issue more likely to be addressed by federal courts going forward is not whether, but how rigorously, they will apply Twombly in different types of civil litigation.

No surprise. While the tone and breadth of the Court’s disavowal of Conley come as a bit of a surprise, antitrust plaintiffs have been dealing with more demanding interpretations of Rule 8(a)(2) for some time, as a number of federal courts already had begun to temper Conley’s reach through, for example, the imposition of plus-factor pleading requirements. Moreover, Twombly should not be viewed in isolation. It bears noting that, after having done little in the antitrust field for many years, the Supreme Court has now issued seven decisions in the past two years that unmistakably are making life considerably more difficult for antitrust plaintiffs. The Court’s Trinko¹² opinion, and its very recent decision in Credit Suisse,¹³ have dramatically affected plaintiffs’ antitrust remedies in regulated industry contexts, and together with the Court’s other recent antitrust rulings, do not bode well for CLECs and other telecommunications competitors that would rely on the Sherman Act to discipline incumbents. Twombly stands as one of the most significant of these decisions, as it raises the bar for all antitrust plaintiffs and, indeed, potentially for all plaintiffs in civil litigation.

Change, but how sweeping? Historically, antitrust cases typically have gotten to discovery, even on admittedly spare factual averments, given courts’ sensitivity to the complexity of the underlying economic issues, the unavailability of facts to antitrust plaintiffs, and the seeming breadth of Conley’s interpretation of Rule 8(a)(2). While many of those cases have been disposed of on summary judgment, many others were settled before that time to avoid significant discovery costs or the substantial wild-card liability that even spurious antitrust claims may present. Although some of those settlements may have been warranted, many were not, and stood as a further incentive to plaintiffs’ counsel to file still more antitrust cases.

Twombly certainly will change that state of affairs – but by what measure? The Court's language admittedly is anything but clear and will be subject to varying interpretations regarding just how specific factual averments will need to be to nudge a complaint over the line from possibility to plausibility. As Justice Stevens’ dissent notes, the majority opinion leaves doubt as to how far a district court may – or should – go in the exercise of its discretion in determining whether a claim is “plausible.” Thus, it remains to be seen just how broadly federal courts, prodded by aggressive defendants, will interpret Twombly. Nonetheless, it unquestionably is the case that Twombly will result in many more plaintiffs—antitrust and others alike—being shown the courthouse exit, and in others who simply do not have at hand sufficient pre-litigation facts being discouraged from attempting to pass though the courthouse turnstile in the first place. While Courts likely will approach this cautiously, for fear of too severely circumscribing judicial access by deserving plaintiffs, antitrust plaintiffs nonetheless may find this a frightening new world.

Almost as if to calm plaintiffs’ collective anxiety, and to reinforce the majority’s protestation that it was not moving to a heightened pleading standard, just two weeks after Twombly, the Supreme Court issued a per curiam opinion in Erickson v. Pardus,¹⁴ where it addressed the sufficiency of a pro se complaint raising Section 1983 claims concerning prison officials’ alleged indifference to a prisoner’s medical condition. Noting that Rule 8(a)(2) requires only a short and plain statement of the claim showing that the pleader is entitled to relief, the Court cited Twombly for the proposition that “[s]pecific facts are not necessary; the statement need only ‘give the defendant fair notice of what the …claim is and the grounds on which it rests.’” While the Court noted that pro se litigants are “‘held to less stringent standards than formal pleadings drafted by lawyers,’” the Erickson opinion nonetheless signals that lower courts should proceed cautiously in marking the outer bounds of Twombly’s reach.

Implications for antitrust enforcement. Notwithstanding the salutary effect of ridding the courts of many frivolous antitrust cases, some potentially meritorious private antitrust suits may be dismissed as well due to the plaintiffs’’ inability to access necessary facts at the pleading stage. Illegal horizontal conspiracies typically are not formed, or carried out, in the public eye. Consequently, plaintiffs who have access only to public information, or only limited access to non-public information, will have difficulty alleging antitrust conspiracy claims that sufficiently refute the possibility that the challenged conduct is more likely to have arisen from an illegal agreement than from independent action. Thus, private antitrust enforcement may take a hit, and that – at least in the eyes of some – will not be a good thing.

In that respect, Twombly may have the effect of shifting greater responsibility for antitrust enforcement to the government, which can use compulsory process in certain pre-complaint investigations to obtain facts necessary to satisfy post-Twombly pleading requirements. It may also mean that a greater proportion of private antitrust cases, particularly those involving allegations of conspiracy, will have to be brought by plaintiffs riding the coattails of well publicized government enforcement actions. These prospects may give some folks pause, at least until there is a change in the party occupying the White House.

Implications for telecom. The Telecom Act envisioned sweeping reforms of the telecommunications industry. Although the majority’s opinion was framed in terms that would apply to all industry sectors, Twombly strikes another blow at CLECs and other new telecom entrants who, having taken their knocks from incumbents in the marketplace, might seek relief in the courts. In the view of Justice Stevens, dissenting, the majority’s opinion “obstructs the congressional policy favoring competition that undergirds both the Telecommunications Act of 1996 and the Sherman Act itself.”

It is a safe bet that the future will bring more threats to that policy, as well as more antitrust actions against ILECs. For example, they may involve concerted refusals by ILECs to deal with competitors whose business models endanger the long-term interests of ILECs as an industry, even though it might otherwise make sense for an individual ILEC to deal with them in the short run. Flash points could include ILECs’ refusal to consider anything from more favorable collocation terms to offering new services with features competitors could use, to negotiating favorable prices on existing services. ILECs might refuse to deal with such new entrants in order to generate a self-fulfilling prophecy regarding the non-viability of the competitors’ business model, so that it would appear that nobody is pursuing that model because it isn't profitable, when in fact the business isn't profitable because none of the ILECs will allow anyone a realistic chance to make it work. Pleading such a case against ILECs, post-Twombly, will now be even more challenging.

Thus, Justice Stevens’ concern about the extent to which Congress’ policy in favor of competition may not have been realized was not unfounded. However, the Court’s desire to rein in the role of inference in judging the sufficiency of a complaint is not necessarily unwarranted or unwise. For example, just as the Court surmised that ILECs may not have invaded one another’s territories for independent reasons not based in any agreement, similarly, incumbent cable television companies have long resisted any urge to extend their facilities and services across their franchise boundaries into the franchise territories of other major cable operators, not because of any agreement but because high entry barriers and more rational uses of capital dictate that they pursue other, more sensible priorities. An antitrust conspiracy complaint against two or more such cable operators that alleged nothing more than a parallel reluctance to invade each other’s markets – even conscious parallelism – would be appropriately doomed to failure under Twombly. Indeed, even if additional parallel conduct were alleged (for example, price increases or refusals to allow third parties access to their respective cable platforms), such allegations still would not satisfy Twombly unless accompanied by facts suggesting that the cable operators’ behavior arose from an agreement, explicit or tacit, rather than from unilateral actions taken in pursuit of each cable operator’s similar, but independent, self interest.

Life in a Post-Twombly World

Although it remains to be seen just how far Twombly will be extended beyond the antitrust conspiracy context in which it arose, we will not have to wait long to begin to learn the answer. Over the coming months, federal courts will be called upon to rule on Twombly-based motions to dismiss in virtually every kind of commercial litigation. Indeed, numerous defendants in pending lawsuits—not just in telecommunications lawsuits, and not just in parallel conduct conspiracy cases—already have filed Twombly-based motions to dismiss, motions for reconsideration of previously denied motions to dismiss, motions for denial of class certification, and motions for stay of discovery pending the anticipated filing of Twombly motions to dismiss. Other variations on these themes will follow, perhaps including even sanctions motions based on Twombly and Rule 11 for assertedly frivolous complaints.

Defendants’ near-term marching orders in the post-Twombly world are clear. But what are plaintiffs to do?

• Given that the Supreme Court did not define “plausible,” or describe in any detail just what level of particularity will be necessary to nudge a complaint over the line from possibility to plausibility, courts’ and litigants’ first order of business will be to figure out what the Supreme Court had in mind. In fact, the Court’s plausibility standard may not be as hard to satisfy as first analyses of Twombly might suggest. Webster’s defines “plausible” as “superficially fair, reasonable, or valuable but often specious,”¹⁵ as opposed to “credible”, which it defines as “offering reasonable grounds for being believed.”¹⁶ Justice Souter may well have had this meaning, or something like it, in mind when he counseled that a well-pleaded complaint (i.e., one that is “plausible” on its face, taking its factual allegations as true) may proceed even if actual proof of those facts seems improbable, the judge does not believe the plaintiff’s factual allegations, and the likelihood of recovery appears remote. Thus, plaintiffs no doubt will argue that the majority opinion in Twombly did not set the plausibility bar very high.
  
  
• Plaintiffs’ challenge will be to make their complaints appear plausible on their face. In the conspiracy context, this will entail asserting as many facts as possible tending to show, directly or indirectly, the existence of an agreement and tending to refute that the challenged conduct flowed from individual, unilateral actions. Such facts may relate to the defendants' motive to conspire, communications among the defendants regarding the alleged conspiracy, aspects of the defendants’ behavior that reflect that the parallel actions would not result from chance or coincidence, or circumstances that show that the defendants’ actions would not be rational in the absence of an agreement and thus are not the result of, and in fact are contrary to, their independent self-interest. Thus, the Supreme Court noted that even the parties in Twombly agreed that "'complex and historically unprecedented changes in pricing structure made at the very same time by multiple competitors, and made for no other discernable reason' would support a plausible inference of conspiracy."
  
  For example, allegations by a plaintiff cable television operator that each of the major television broadcasters in a television market refused to accept the cable operator’s offer of payment for the right to retransmit each broadcaster’s respective television signal presumably would be characterized by the broadcasters, in their motion to dismiss, as equally consistent with each station’s unilateral, independent decision to hold out for a higher payment and, therefore, inadequate under Twombly to support a Section 1 claim. However, if the cable operator could allege facts that would, if proved, show that one or more of the broadcasters acted in a manner inconsistent with its individual economic interest, that could push the cable operator’s complaint over the line from possibility to plausibility. For instance, if it were alleged that one of the broadcasters that rejected the cable operator’s offer had such weak audience ratings that it ordinarily could not command any cash payment from a cable operator in return for the grant of retransmission consent, thus suggesting that its actions reflected its participation in an agreement by all of the broadcasters to act in a coordinated manner designed to increase their collective negotiating leverage, that very likely would be sufficient to satisfy Twombly and allow the cable operator’s case to proceed.
  
  
• Plaintiffs will need to be as specific as possible, as the Court criticized the fact that the complaint, apart from referring to a seven year span, "mentioned no specific time, place, or person involved in the alleged conspiracies.” Indeed, the Court’s opinion, and its reference to the model form for pleading negligence contained in the Federal Rules, can be read as meaning that plaintiffs will need to emphasize more of the who/what/where/when type of fact pleading previously associated more with negligence cases than with economics-based antitrust claims. As the dissent notes, this will be no easy task for many antitrust plaintiffs, particularly those whose cases do not follow on the heels of a government investigation. For the facts necessary to satisfy the Twombly pleading burden will often be in the hands of only the alleged conspirators, a circumstance that led courts in the past – including the Supreme Court – to opine that, given the factual complexity of antitrust cases and the public inaccessibility of pertinent information, motions to dismiss should be granted only sparingly prior to a plaintiff’s opportunity to conduct discovery. On the other hand, even a few well pleaded facts may be enough to satisfy Twombly.

Justice Souter drew a comparison between the Cout of Appeal’s willingness to allow a complaint to proceed based on “the possibility that a plaintiff might later establish [through discovery] some ‘set of [undisclosed] facts’ to support recovery”, and the unbridled optimism of Charles Dickens’ Mr. Micawber. There certainly will be some who think it would be more apt to compare the Court’s new interpretation of Rule 8(a)(2) to Humpty Dumpty’s conversation with Alice in Lewis Carroll’s Through The Looking Glass.¹⁷ No matter your literary bent, all will agree that the Supreme Court’s Twombly decision has great potential impact on antitrust, and perhaps all commercial, litigants. Not having Mr. Carroll’s Looking-Glass to peer into the future, we will have to wait patiently for the courts to determine just how significant that impact will be.

FOOTNOTES

1 See Rufus Miles, The Origin and Meaning of Miles’ Law, 38 PUB. ADMIN. REV. 399, 399-402 (1978).
2 127 S. Ct 1955 (2007).
3 15 U.S.C. § 1 (2006).
4 313 F. Supp. 2d 174, 179-80 (S.D.N.Y. 2003).
5 Id. at 180.
6 Twombly v. Bell Atlantic Corp., 425 F.3d 99 (2d Cir. 2005).
7 355 U.S. 41 (1957).
8 425 F.3d at 114.
9 Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 588 (1986).
10 355 U.S. at 47.
11 Id. at 45-46.
12 Verizon Commc’ns Inc. v. Law Offices of Curtis Trinko, LLP, 540 U.S. 398 (2004).
13 Credit Suisse Sec. (USA) LLC. V. Billing, 127 S. Ct 2383 (2007).
14 127 S.Ct. 2197 (2007).
15 Merriam-Webster’s Online, http://www.m-w.com/dictionary/plausible (emphasis added).
16 Merriam-Webster’s Online, http://www.m-w.com/dictionary/credible
17

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