On May 21, 2007, the United States Supreme Court, in a 7-2 opinion written by Justice Souter, decided Bell Atlantic Corp. v. Twombly, determining what a plaintiff must plead to state a claim under §1 of the Sherman Act. As much because of dictum (comments in the case not directly related to the case before it) as because of the holding, the case is of potentially great importance to all potential civil litigants. Section 1 of the Sherman Act requires an agreement in restraint of trade. The Court held that “stating [a §1] claim requires a complaint with enough factual matter (taken as true) to suggest that an agreement was made.”2 It clarified that it did not “require a heightened fact pleading of specifics, but only enough facts to state a claim to relief that is plausible on its face.” 3 (emphasis added) The Court reasoned that “[a]sking for plausible grounds to infer an agreement [to restrain trade] 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.” Ultimately, the Court dismissed the complaint “because [p]laintiffs here have not nudged their claims across the line from conceivable to plausible.”4 In dictum, the Court unceremoniously retired age-old and often cited language from Conley v. Gibson5: “[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.”6 The Court stated that “after puzzling the profession for 50 years, this famous observation has earned its retirement. The phrase is best forgotten as an incomplete, negative gloss on an accepted pleading standard on an accepted pleading standard…Conley’s ‘no set of facts’ language has been questioned, criticized and explained away long enough.”
The Court argued that its retirement of the Conley language was consistent with prior precedent because the “no set of facts” language did not adequately reflect the current pleading standard.8 The Court stated this “language can be read in isolation as saying that any statement revealing the theory of the claim will suffice unless its factual impossibility may be shown from the face of the pleadings.”9 Such a “focused and literal reading” of Conley’s language would permit “a wholly conclusory statement of claim” to “survive a motion to dismiss” if the “pleadings left open the possibility that a plaintiff might later establish some ‘set of [undisclosed] facts’ to support recovery…Seeing this, a good many judges and commentators have balked at taking the literal terms of the Conley passage as a pleading standard.”10 Rather than identifying “the minimum standard of adequate pleading to govern a complaint’s survival,” the Conley opinion “described the breadth of opportunity to prove what an adequate complaint claims.”11
The plaintiff class in this antitrust action included local telephone and high speed Internet customers. The plaintiffs alleged that the defendants, regional telephone and high speed Internet service providers12, conspired to restrain trade by engaging in a “parallel course of conduct” to prohibit competition from local exchange carriers in their respective service areas and by agreeing “not to compete with one another.” The plaintiffs alleged the existence of an agreement among the defendants based on their “common failure” to “meaningfully pursue attractive business opportunities in contiguous markets where they possessed substantial competitive advantages.” The plaintiffs claimed that a statement made by one of the defendants’ chief executive officers that competing in another defendant’s territory “might be a good way to turn a quick dollar but that does not make it right” was evidence of the alleged conspiracy.13 The Southern District of New York dismissed the complaint, but the Court of Appeals for the Second Circuit reversed.
The Supreme Court agreed with the district court, finding that the plaintiffs’ bare allegations of parallel conduct were insufficient to survive a motion to dismiss.14 “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 entitlement to relief.”15 The Court stated that “[f]actual allegations must be enough to raise a right above the speculative level”16 and found the allegations in the complaint did not present a “plausible suggestion of conspiracy” in “light of common economic experience.”17 The Court reasoned that the defendants’ parallel conduct could easily be explained as a “natural unilateral reaction” of each defendant to resist competition and want to keep its “regional dominance” rather than, as plaintiffs alleged, an agreement among defendants to restrain trade.18
Of note was the Court’s reference to a First Circuit decision, DM Research, Inc. v. College of Am. Pathologists19, in which the court affirmed the dismissal of antitrust claims because of the unlikelihood that one of the alleged co-conspirators would have elected to join the conspiracy. The Court in Bell Atlantic explained that “[t]he border in DM Research was the line between the conclusory and the factual. Here it lies between the factually neutral and the factually suggestive. Each must be crossed to enter the realm of plausible liability.”20
The Court grounded its decision in Bell Atlantic in part on the fact that “proceeding to antitrust discovery can be expensive.”21 In a passage likely to raise eyebrows, the Court added:
It is no answer to say that a claim just shy of a plausible entitlement to relief can, if groundless, be weeded out early in the discovery process through “careful case management,” given the common lament that the success of judicial supervision in checking discovery abuse has been on the modest side…And it is self-evident that the problem of discovery abuse cannot be solved by “careful scrutiny of evidence at the summary judgment stage,” much less “lucid instructions to juries;” the 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.22
Justice Stevens, however, issued a vigorous dissent. Justice Ginsburg joined in the dissent, but did not agree with a portion of the opinion attacking the majority for varying from a strict constructionist approach to interpreting statutes. The dissenting opinion analyzed the underpinnings of the Conley decision in an attempt to show that the “no set of facts” standard remained good law. The dissent also noted that “[t]aking their cues from the federal courts, 26 States and the District of Columbia utilize as their standard for dismissal of a complaint the very language the majority repudiates: whether it appears ‘beyond doubt’ that ‘no set of facts’ in support of the claim would entitle the plaintiff to relief.”23
In the words of Justice Stevens’ dissent (that portion not joined by Justice Ginsburg), “[w]hether the Court’s action 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.”24
Defendants’ counsel will argue for its broad extension and plaintiffs’ lawyers will argue that it applies only to antitrust cases. Defendants’ counsel will likely point to the Supreme Court’s retirement of the Conley language as an indication of a change in the pleading standard applied to all motions to dismiss under Fed. R. Civ. P. 12(b)(6), and likely press the same argument in state courts where the Conley standard had been adopted. Plaintiffs’ counsel will argue that the abolition of the Conley language, while symbolically important, does not change the standard in non-antitrust cases.
It is obviously too early to do anything but hazard a guess as to how this debate will play out in the lower federal courts and in the state courts, but we believe that the wisdom and significance of the Bell Atlantic decision will be hotly discussed and debated in both courts and classrooms for some time to come.