Source: https://www.litigationandtrial.com/series/ashcroft-v-iqbal/
Timestamp: 2019-04-19 02:43:05+00:00

Document:
Last week, after more than a year of drafting following oral argument, and nearly two years after the original District Court order, a Third Circuit panel (Chief Judge Scirica and Judges Fisher and Greenberg) issued their magnum opus on pleading Section 1 antitrust violations after Twombly and Racketeer Influenced and Corrupt Organizations ("RICO") Act "enterprises" after Boyle in the consolidated Multi-District Litigation In re: Insurance Brokerage Antitrust Litigation.
Plaintiffs are purchasers of commercial and employee benefit insurance, and defendants are insurers and insurance brokers that deal in those lines of insurance. According to plaintiffs, defendants entered into unlawful, deceptive schemes to allocate purchasers among particular groups of defendant insurers. The complaints assert that conspiring brokers funneled unwitting clients to their co-conspirator insurers, which were insulated from competition; in return, the insurers awarded the brokers contingent commission payments—concealed from the insurance purchasers and surreptitiously priced into insurance premiums—based on the volume of premium dollars steered their way. As a result of this scheme, plaintiffs allege they paid inflated prices for their insurance coverage and were generally denied the benefits of a competitive market. The question on appeal is whether plaintiffs have adequately pled either a per se violation of § 1 of the Sherman Act (plaintiffs have foresworn a full-scale rule-of-reason analysis) or a violation of the Racketeer Influenced and Corrupt Organizations (RICO) Act. Concluding they had not, the District Court dismissed the complaints.
(Here’s the First Amended Complaint; the Second Amended Complaint was, I believe, sealed).
Such breadth is a blessing and a curse for plaintiffs; like with the Bill of Rights, § 1 of the Sherman Act and § 1962 of the RICO Act are so broad, and so empowering, that Courts have spent decades literally ignoring the statutes’ text to narrow the relief available to plaintiffs. See, e.g., Fitzgerald v. Chrysler Corp., 116 F. 3d 225 (7th Cir. 1997)(admitting that a judicially-created exclusion to the meaning of "enterprise" under the RICO Act "doesn’t emerge from the statutory language," but applying it anyway).
The Third Circuit panel does an exceptional job summarizing this unwieldy body of extra-textual precedent on pages 32-42 of the opinion (for § 1 antitrust claims) and 153-172 (for RICO enterprises); any associates or clerks trying to figure out these complex fields could do worse than to review them.
These artificial restrictions force plaintiffs bringing antitrust and RICO claims — who typically only have circumstantial evidence at the beginning of their case given the efforts undertaken by the defendants to conceal their wrongdoing — to make suppositions about how the defendants carried out their scheme.
That’s where Twombly and Iqbal come in.
Although plaintiffs’ 16 First Amended Complaints (FAC) expressly pled a rule-of-reason claim in the alternative, see, e.g., Comm. FAC ¶ 530; EB FAC ¶ 454, their Second Amended Complaints omit any reference to the rule of reason, and their moving papers and appellate arguments make clear they are alleging exclusively per se violations. In their initial motions to dismiss, defendants contended that the First Amended Complaints had not adequately defined a market or pled anticompetitive effects and had thus failed to state a claim under the rule of reason. In response, plaintiffs did not assert that they had, in fact, met these requirements; they argued only that “where plaintiffs allege per se claims,” these requirements do not apply.
While plaintiffs strenuously insist they have adequately pled the existence of “broker-centered enterprises,” they have conspicuously refrained, throughout the district-court proceedings and on appeal, from asserting alternative bilateral or single-entity enterprises.
Presumably, the plaintiffs deliberately chose to avoid rule-of-reason claims (in which the plaintiff is required to demonstrate, e.g., the defendant’s market power in a defined market) and the allegation of "bilateral or single-entity enterprises" to preserve their class action status against all defendants. If, for example, the plaintiffs had split their claims up into multiple allegations of single-entity enterprises, each of those respective defendants tied to a particular scheme would move to decertify themselves from the bigger case.
Contrary to plaintiffs’ arguments, one cannot plausibly infer a horizontal agreement among a broker’s insurer-partners from the mere fact that each insurer entered into a similar contingent commission agreement with the broker. As the District Court concluded, the first stage of the alleged brokercentered conspiracies—the consolidation of the groups of insurers to which each broker referred business—evinces nothing more than a series of vertical relationships between the broker and each of its “strategic partners.” 2007 WL 2533989, at *15.
In short, plaintiffs’ allegations didn’t "plausibly" suggest any actual agreement among all the insurers; instead, they merely suggested parallel conduct that, in the Third Circuit’s eyes, could just as equally be explained by way of the insurers acting independently.
Thus, the bulk of the claims were dismissed, although the plaintiffs can continue on some of their bid-rigging claims against the Marsh-connected defendants.
But there’s plenty for plaintiffs to be relieved about with the opinion.
First, there’s the massive size of the case. Although the Third Circuit couldn’t outright say it — just like the Supreme Court didn’t say it in deciding Twombly — the sheer size of the Insurance Brokerage Antitrust cases was undoubtedly a factor. The cases were an indictment of the entire commercial insurance industry, with a demand for treble damages (and attorney’s fees) for years of industry-wide conduct, damages that reached into the billions. If you bring a case of that magnitude, you invite heightened scruinty.
Moreover, and more importantly, the sheer number of defendants, and the extraordinary breadth of the allegations against them, is what stretched the plaintiffs claim from "probable" into "implausible." It is understandably difficult for a court to swallow allegations of a vast conspiracy across an entire industry when the plaintiffs only have concrete evidence against a single group of defendants (the Marsh defendants whose misdeeds launched the whole investigation). The real lesson is, if you’re going to file a nationwide suit of that scope, you need either to find yourself a whistleblower or to follow on the coattails of a government investigation (as the claims against the Marsh defendants did). Fair or not, nothing else will work these days.
Twombly affirms that Rule 8(a)(2) requires a statement of facts “suggestive enough” (when assumed to be true) “to render [the plaintiff’s claim to relief] plausible,” that is, “enough fact to raise a reasonable expectation that discovery will reveal evidence of illegal” conduct. Twombly, 550 U.S. at 556. Iqbal, which reiterated and applied Twombly’s pleading standard, endorses this understanding. See Iqbal, 129 S. Ct. at 1949–51. Although Fowler v. UPMC Shadyside, 578 F.3d 203 (3d Cir. 2009), stated that Twombly and Iqbal had “repudiated” the Supreme Court’s earlier decision in Swierkiewicz v. Sorema N.A., 534 U.S. 506 (2002), see Fowler, 578 F.3d at 211, we are not so sure. Clearly, Twombly and Iqbal inform our understanding of Swierkiewicz, but the Supreme Court cited Swierkiewicz approvingly in Twombly, see 550 U.S. at 555–56, and expressly denied the plaintiffs’ charge that Swierkiewicz “runs counter” to Twombly’s plausibility standard, id. at 569–70. As the Second Circuit has observed, Twombly “emphasized that its holding was consistent with [the Court’s] ruling in Swierkiewicz that ‘a heightened pleading requirement,’ requiring the pleading of ‘specific facts beyond those necessary to state [a] claim and the grounds showing entitlement to relief,’ was ‘impermissibl[e].’” Arista Records, 604 F.3d at 120 (quoting Twombly, 550 U.S. at 570 (alterations in Arista Records). In any event, Fowler’s reference to Swierkiewicz appears to be dicta, as Fowler found the complaint before it to be adequate. 578 F.3d at 212; see also id. at 211 (“The demise of Swierkiewicz, however, is not of significance here.”).
(Bolding mine). I previously covered the Second Circuit’s approach to antitrust post-Twombly; it’s good news for plaintiffs to see the same approach approved in the Third Circuit, particularly over a prior Third Circuit case (Fowler). Under Twombly and Iqbal, the issue isn’t whether or not the plaintiff has uncovered enough evidence to make a prima facie case on the face of their complaint — as some defense lawyers have claimed — but rather whether the plaintiff has alleged "enough fact to raise a reasonable expectation that discovery will reveal evidence of illegality."
The dismissal in In Re: Insurance Brokerage Antitrust might thus prove to have made the law better for plaintiffs in the Third Circuit. That the plaintiffs in the case itself lost many of their claims is of no moment; the case quite literally alleged an industry-wide agreement to commit antitrust and racketeering violations. Plaintiffs with cases of lower orders of magnitude — like those against anything less than dozens of companies at the top of two major industries, insurance and insurance brokering — will have little trouble distinguishing those facts.
Last week, Prof. Edward A. Hartnett (of Seton Hall University School of Law) posted Responding to Twombly and Iqbal: Where Do We Go from Here?
Oh, Ashcroft v. Iqbal, will we ever stop blogging about you?
The newest online debate pits the class action defense lawyers at Drug & Device Law against University of Pennsylvania Law School Professor Stephen Burbank at PENNumbra, the online supplement to UPenn’s Law Review.

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