The following argument recap was written by David Moskowitz of the Stanford Supreme Court Litigation Clinic. His preview of this argument can be found here.
After Monday’s argument in Bell Atlantic Corp. v. Twombly (No. 05-1126), it remained unclear how the Court will decide this important antitrust case. The question presented was whether a complaint states a claim under Section 1 of the Sherman Act if it alleges that the defendants engaged in parallel conduct and adds a bald assertion that the defendants were participants in a “conspiracy,†without any allegations that, if later proved true, would establish the existence of a conspiracy under the applicable legal standard.
Throughout argument, the Justices were searching for a standard that would require plaintiffs to plead more than simple parallel conduct to survive a motion to dismiss for failure to state a claim under Section 1, but would at the same time not require them to plead specific facts of the conspiracy that they are unlikely to have without discovery. The difficulty in finding such a standard was evidenced by petitioners’ original agreement to a question from Justice Stevens that pleading an oral agreement not to compete (as opposed to just an agreement) was enough to state a claim. At the urging of Justice Scalia, however, petitioners later withdrew that response.
Justice Stevens appeared to support the most liberal pleading standard. His view seems to be that the respondents have stated a claim because they have alleged that the petitioners engaged in a conspiracy to prevent competitive entry in their respective telephone markets and have agreed not to compete with one another in their respective markets. Petitioners responded that this fails to state a claim because it is simply a legal conclusion without the facts to support that conclusion (i.e., the time, place, and participants of the conspiracy). Justice Ginsburg, however, was quick to point out that the Federal Rules purposefully avoided requiring plaintiffs to plead facts.
On the other side, the Justices were skeptical that respondents’ claims involved anything more than mere parallel conduct—conduct that might be explained by factors other than an illegal conspiracy. They were especially skeptical of respondents’ second claim—that there was a conspiracy by the incumbent telephone carriers to keep out competitors—since that claim seems on its face to be in the self-interest of each company, making parallel conduct appear to be completely innocent. Even for respondents’ stronger claim—that the incumbent companies agreed not to compete in each others’ markets—the Chief Justice and Justices Scalia and Ginsburg seemed skeptical of respondents’ theory that these actions (or rather inactions) were not in the self-interest of each company. Roberts pointed to the regulatory uncertainty as an explanation for the companies’ decisions not to compete, while Ginsburg questioned whether those companies simply decided to put their limited resources into other, more lucrative ventures, such as wireless service. Respondents countered that whether it was in the self-interest of the companies was a factual issue that must be taken as true at the pleading stage. They explained that these alternative explanations should be more appropriately brought up on a summary judgment motion after discovery, which should provide evidence of the true motives of the companies.
The outcome of this case will likely hinge on the practical consequences of the standard: how to protect innocent companies from the expensive burdens of discovery without creating such a large shield that companies can violate the Sherman Act so long as their violations are not completely obvious. As the government argued, most instances of parallel conduct are innocent actions and may be indicative of normal free market forces. But those instances that are not innocent will likely not include an agreement made in broad daylight. Justice Scalia made clear that he would err on the side of dismissing suits, believing that the time and expense of discovery will lead to meritless suits brought to force defendants to settle. Justice Breyer also implied that this was a major issue for him, stating a concern that the standard advocated by respondents would lead to a major restructuring of the economy. Because the summary judgment standard would remain the same, it seems that Breyer is implying that concentrated industries could not continue to function if constantly sued for antitrust violations for mere parallel conduct, even if those claims do not later survive summary judgment. Respondents argued that with focused discovery, expense should not be a major issue and with the high summary judgment standard of Matsushita Electric Industrial Co. v. Zenith Radio Corp. awaiting at the end of discovery, it is not in the interest of plaintiffs to bring meritless claims.
In the end, the standard will likely revolve around the plausibility of the conspiracy from the context of the allegations. All sides seem to agree that there is a spectrum of plausibility based on the specific parallel conduct alleged. On the one end, there is the Scalia hypothetical of nine companies changing their prices at the same hour on the same day for ten months in a row—all seem to agree that this states a claim. On the other end, there is the Roberts hypothetical of a grocery store on one corner and a pet store on the other, and the grocery store never enters the pet supplies market—all agree that this does not state a claim. The question is how to distinguish in the middle. Thus, whether the failure of these incumbent telephone companies to attempt to compete in each others’ markets is a plausible enough conspiracy remains to be seen.
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