Commentary: Monday’s Decision in Bell Atlantic v. Twombly

The following commentary is by Mark Botti, a partner in Akin Gump’s DC office. Prior to joining the firm, Mark worked for 13 years in the Antitrust Division of the Department of Justice.

On Monday, May 21, 2007, Justice Souter delivered an important antitrust opinion for a 7-2 majority of the Supreme Court in Bell Atlantic Corp. v. Twombly. The Court decided that a complaint must allege something more than mere parallel conduct among industry competitors to state a claim for unlawful “contract, combination . . . , or conspiracy,” under Section 1 of the Sherman Act.

The plaintiffs in Twombly (respondents before the Supreme Court) charged that petitioners, who are major telecommunications companies, had failed to take certain competitive actions, such as entering each other’s territory. In addition to a general argument that the phone companies’ parallel conduct was consistent with an anticompetitive motive, the complaint identified ample opportunities for the petitioners to meet, as well as a statement from one competitor seeming to recognize a benefit to the industry if they refrained from competing. The Second Circuit had held that these facts adequately pled a Section 1 agreement because the plaintiff need only allege facts that included a conspiracy among the “plausible” possibilities. The Supreme Court reversed.

Justice Souter reasoned that the mere fact that the parallel conduct was unfavorable to competition was an insufficient basis for an allegation of an antitrust conspiracy; instead, the antitrust plaintiff must set forth some factual context suggesting that an agreement gave rise to the challenged conduct. A plaintiff must allege something more than a “plausible” conspiracy; instead, he must provide enough facts to raise a reasonable expectation that discovery will reveal evidence of illegal agreement. The Court cautioned against overreading its decision, pointing out that a well-pleaded complaint may proceed even if actual proof of those facts is improbable and the likelihood of recovery is very remote.

Although the Court’s opinion leaves for future cases the fleshing out of what will suffice for purposes of Section 1, Justice Souter does reject the sufficiency of the meeting opportunities and the allegation regarding the statement attributed to one defendant’s CEO. In rejecting these allegations, the Court reasoned that this evidence, while consistent with the existence of a conspiracy, was also consistent with the absence of one. The Court’s opinion thus raises the bar (or protects against the lowering of that bar) for pleading an antitrust conspiracy under section 1.

Significantly, the Twombly decision is not limited to antitrust matters. Instead, the Court interprets Federal Rule of Civil Procedure 8(a)(2) and its seminal 1957 decision in Conley v. Gibson. The requirement of a short and plain statement of the claim showing that the pleader is entitled to relief requires more than labels, conclusions, and a formulaic recitation of the elements of a cause of action in order to provide fair notice of the nature of the claim, although the requirement of pleading those factual allegations does not authorize a judge to dismiss a complaint under Rule 12(b)(6) based on a judge’s disbelief of the factual allegations.

The majority asserted that its interpretation of Rule 8 has practical significance because it protects against a plaintiff gaining an in terrorem increment to the settlement value of a largely groundless complaint from an automatic right to conduct discovery. “So, when the allegations in a complaint, however true, could not raise a claim of entitlement to relief, . . . this basic deficiency should . . . be exposed at the point of minimum expenditure of time and money by the parties and the court.” To protect against such abuse, “a district court must retain the power to insist upon some specificity in pleading before allowing a potentially massive factual controversy to proceed.” The case before the Court, in the majority’s view, illustrated this concern amply. More broadly, the Court believed that if it issued a decision allowing the Twombly case to proceed, “pleading a §1 violation against almost any group of competing businesses would be a sure thing.”

In summing up, Justice Souter stated that Rule 8 does not “require heightened fact pleading of specifics, but only enough facts to state a claim to relief that is plausible on its face. Because the plaintiffs here have not nudged their claims across the line from conceivable to plausible, their complaint must be dismissed.”

In dissent, Justice Stevens recounted the history of the pleading requirements in federal courts and argued that the majority had turned away from the history of reforms favoring simpler, notice pleading. “Under the relaxed pleading standards of the Federal Rules, the idea was not to keep litigants out of court but rather to keep them in. The merits of a claim would be sorted out during a flexible pretrial process and, as appropriate, through the crucible of trial.” Justice Stevens would have held that “a judicial opinion that the charge is not plausible [is not] a legally acceptable reason for dismissing” a complaint. In his view, federal district court judges already have ample tools to control the course and intensity of discovery to protect against the policy concerns stated by the majority. “I fear that the unfortunate result of the majority’s new pleading rule will be to invite lawyers’ debates over economic theory to conclusively resolve antitrust suits in the absence of any evidence.”