In a victory for antitrust defendants, on May 21, 2007 the Supreme Court reversed (7-2) a Second Circuit decision allowing a Sherman Act complaint to survive a motion to dismiss where the complaint alleged the existence of a Sherman Act § 1 conspiracy merely upon the conscious parallel conduct of several competitors in the telephone service provider market.
In Bell Atlantic Corp. v. Twombly, the class-action plaintiffs alleged that the defendants, various regional telephone service providers resulting from the 1984 divestiture of AT&T, violated Sherman Act § 1 in two ways: (1) by engaging in parallel conduct in their respective regions to inhibit market entry by entering into unfair agreements with new entrants for access to the regional service network, providing inferior network connections to new entrants, and overcharging for access, and (2) by refraining from competing against one another in the various regions. Plaintiffs sought treble damages from defendants as subscribers of local telephone and high-speed internet services.
Plaintiffs initiated their federal district court case against the defendants in a predictable manner: by filing a complaint purportedly in compliance with Federal Rule of Civil Procedure 8(a)(2) (“Rule 8”). Plaintiffs’ complaint made the two allegations above by stating, in relevant part, that “[i]n the absence of any meaningful competition between the [competitors] in one another’s markets, and in light of the parallel course of conduct that each engaged in to prevent competition from [entrants] within their respective...markets..., Plaintiffs allege upon information and belief that the [competitors] have entered into a contract, combination or conspiracy to prevent competitive [market] entry....and have agreed not to compete with one another and otherwise allocated customers and markets to one another.” The Second Circuit held that Plaintiffs’ complaint was sufficient to state a Sherman Act § 1 claim under Rule 8 because, it reasoned, plaintiffs need not plead “plus factors” under Rule 8 for an antitrust claim based on parallel conduct to survive dismissal.
Addressing the issue of what a plaintiff must plead to state a claim under Sherman Act § 1, the Supreme Court began its analysis by restating that “‘the crucial question’ is whether the challenged anticompetitive conduct ‘stem[s] from independent decision or from an agreement, tacit or express.’” Because Rule 8’s short and plain statement must show that the pleader is entitled to relief, a plaintiff must set forth “some setting” suggesting the illegal agreement took place, or show further circumstances pointing toward a meeting of the minds, to make out a Sherman Act § 1 claim. In other words, the Court held that “an allegation of parallel conduct and a bare assertion of conspiracy will not suffice” to state a Sherman Act § 1 claim under Rule 8.
The test enunciated by the Court requires a Sherman Act § 1 plaintiff at the pleading stage to set forth allegations “plausibly suggesting,” not merely consistent with, an agreement between the competitors to satisfy Rule 8’s requirement that the plaintiff show that he/she is entitled to relief. The Court then held that the complaint in Twombly failed to meet the “plausibility” requirement because the complaint rested only on descriptions of parallel conduct and not on any “independent allegations” of an illegal agreement among the competitors. The Court concluded that the complaint intimated nothing more than that the competitor’s resistance to the new market entrants was the “natural, unilateral reaction” of each competitor to keep its regional dominance. While Plaintiffs’ claims were conceivable, they were not plausible according to the Court.
Twombly is a victory for antitrust defendants because plaintiffs can no longer bring bare bones Sherman Act § 1 complaints to haul an antitrust defendant into court. Twombly spares firms arguably engaging in some form of conscious parallelism with their competitors the time and expense of conducting an extensive motion practice or even discovery where plaintiffs allege nothing more than conscious parallelism to state a claim under Sherman Act § 1. Illegal conduct under Sherman Act § 1 requires some sort of agreement, tacit or express, and the Twombly decision makes clear that complaints that fail to plausibly allege that such an agreement occurred will fail to meet Rule 8’s pleading standard.