It is not often that a Supreme Court decision is heralded by The Wall Street Journal as a “score... for consumers and capitalists against self-styled ‘consumer advocates’ and their tort funders.” The Wall St. Journal, May 23, 2007, p. A16. The Supreme Court’s recent 7-2 decision in Bell Atlantic Corp. v. Twombly, No. 05-1126 (May 21, 2007), represents a milestone that makes it far more difficult for antitrust plaintiffs to successfully plead an unlawful agreement or conspiracy in violation of the Sherman Act. The decision also appears to raise the bar for plaintiffs alleging conspiracy claims within the context of any other federal statutory or constitutional framework.

Twombly involved the conduct of the so-called “Baby Bells” (referred to as Incumbent Local Exchange Carriers, or “ILECs”) following enactment of the Telecommunications Act of 1996. That act required the ILECs to share their networks with competitors (known as competitive local exchange carriers, or “CLECs”). The class action complaint alleged that the ILECs violated Section 1 of the Sherman Act by conspiring to restrain competition with the CLECs. The alleged conspiracy was based upon parallel conduct by the ILECs in their respective service areas, consisting of making unfair agreements with the CLECs for access to the ILECs’ networks, providing inferior connections to CLECs, and overcharging CLECs in ways designed to sabotage the CLECs’ relations with their own customers. The alleged conspiracy further involved the failure of the ILECs to compete in each others’ markets. In support of this allegation, the complaint noted that the CEO of one of the ILECs had stated that such competition “might be a good way to turn a quick dollar but that doesn’t make it right.” The complaint also highlighted that there had been numerous meetings and other opportunities during which the alleged conspirators could have hatched their conspiracy, and pointed out that the Telecommunications Act of 1996 obligated the ILECs to cooperate with CLECs in order to foster increased competition.

In the Twombly decision, authored by Justice Souter, the Supreme Court held that the plaintiffs’ allegations of parallel conduct, without more factual allegations plausibly suggesting an agreement among the defendants, were insufficient to withstand a motion to dismiss the complaint, particularly since the ILECs’ alleged parallel conduct was perfectly consistent with their own respective economic interests. The majority opinion emphasized that, although a complaint ordinarily need not contain detailed factual allegations, a plaintiff must provide “more than labels and conclusions.” Moreover, the facts alleged “must be enough to raise a right to relief above the speculative level.” In pleading a violation of Section 1 of the Sherman Act, there must be allegations of enough facts “to suggest that an agreement was made.”

Stressing the high cost of discovery in antitrust cases, and the in terrorem effect antitrust class actions, with their threat of treble damages and payment of attorneys’ fees to prevailing plaintiffs, have in forcing many defendants to settle rather than face the risks of litigation, the court’s majority emphasized the necessity for the factual allegations to cross over from being simply “conceivable” to “plausible”: “Asking for plausible grounds to infer an agreement does not impose a probability requirement at the pleading stage; it simply calls for enough facts to raise a reasonable expectation that discovery will reveal evidence of illegal agreement.” After reviewing the pleadings in detail, the court held that all of the allegations that the ILECs had agreed or conspired to thwart competition stemmed solely from the allegations of parallel conduct, with no independent factual information of an agreement or conspiracy ever having been alleged.

Significantly, the Supreme Court in Twombly discarded its long-standing precedent that precluded district courts from dismissing complaints prior to discovery “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.” Conley v. Gibson, 355 U.S. 41, 45-46 (1957). The court of appeals had relied on this oft-cited language in Conley v. Gibson to reverse the district court’s dismissal of the complaint. In so doing, the appellate court stated that “to rule that allegations of parallel anticompetitive conduct failed to support a plausible conspiracy claim, a court would have to conclude that there is no set of facts that would permit a plaintiff to demonstrate that the particular parallelism was the product of collusion rather than coincidence.” Rejecting that approach, the Supreme Court majority in Twombly referred to the language in Conley v. Gibson, as a “. . . phrase . . . best forgotten as an incomplete, negative gloss on an accepted pleading standard . . .,” which has “earned its retirement.”

Justice Stevens, joined by Justice Ginsburg, filed a stinging dissent, reasoning that the majority opinion contravened the intention of the drafters of the Sherman Act, the Telecommunications Act of 1996, and the Federal Rules of Civil Procedure, and that, if the allegations of conspiracy happened to be true, the majority decision obstructed the congressional policy favoring competition as reflected in the Sherman Act and the Telecommunications Act of 1996. The dissenters also cautioned that the new test or rule might be broadly applied to all civil cases. In addition, the dissent argued that the majority’s interest in protecting antitrust defendants from the burdens of protracted discovery redounded to the benefit of the wealthiest corporations in the economy. Finally, the dissent noted that the majority opinion was the first time any member of the Supreme Court had ever expressed doubt as to the adequacy of the court’s 50-year-old language in Conley v. Gibson.

Twombly’s heightened pleading requirement in conspiracy claims is likely to spawn confusion and unpredictability as to what degree of factual information will meet the standard of “suggested plausibility.” While there is no doubt that the court intended to raise the bar for plaintiffs in antitrust cases that require proof of an unlawful agreement or conspiracy, the decision almost certainly will be cited as the required standard for all civil conspiracy claims, irrespective of the statutory or constitutional bases for the claim.

Conspiracies are, by their nature, easy to assert and difficult to prove without access to the underlying evidence, which almost always is in the hands of the parties to the alleged misconduct. Limiting access to the courts by requiring a complaint to contain “enough factual matter (taken as true) that an agreement was made” not only raises questions about what factual matter is “enough,” but also increases the risk that sound and meritorious claims might never be heard. The upshot of Twombly may well be years of confusing and inconsistent rulings by the federal district and appellate courts regarding just what allegations suffice to maintain a conspiracy claim in the federal courts — a result that ultimately could hinder, rather than advance, the cause of limiting and streamlining litigation.