Source: https://www.classactiondefenseblog.com/2007/05/class_action_defense_casesbell_2.html
Timestamp: 2018-07-19 17:33:33
Document Index: 428461615

Matched Legal Cases: ['§ 1', '§ 1', '§ 1', '§ 1', '§ 1', '§ 1', '§1', '§1', '§1', '§1']

Class Action Defense Cases-Bell Atlantic v. Twombly: Supreme Circuit Holds Allegations Of Parallel Conduct Unfavorable To Competition Insufficient To Survive Motion To Dismiss Absent Facts Evidencing Agreement Rather Than Identical Independent Action — Class Action Defense Blog — May 24, 2007
Sherman Act § 1 Class Action Complaint Must Allege Agreement not Merely Parallel Conduct Supreme Court Holds
Plaintiffs filed a putative class action against various “Baby Bells” defendants alleging violations of the § 1 of the Sherman Act, which prohibits “[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations.” Bell Atlantic Corp. v. Twombly, __ U.S. __, 127 S.Ct. 1955, 2007 WL 1461066, *4 (May 21, 2007). Defense attorneys moved to dismiss the class action on the grounds that defendants were acting in their economic self-interest and that evidence of “parallel behavior” among them is insufficient to establish a conspiracy in violation of the Sherman Act, id., at *5. The district court agreed and granted the defense motion to dismiss, but the Second Circuit reversed. The Supreme Court “granted certiorari to address the proper standard for pleading an antitrust conspiracy through allegations of parallel conduct.” Id., at *6. The Supreme Court explained at page *4, “The question in this putative class action is whether a § 1 complaint can survive a motion to dismiss when it alleges that major telecommunications providers engaged in certain parallel conduct unfavorable to competition, absent some factual context suggesting agreement, as distinct from identical, independent action. We hold that such a complaint should be dismissed.”
Following the divestiture of AT&T’s local telephone service in 1984, regional telephone monopolies known as “Baby Bells” or “Incumbent Local Exchange Carriers” (ILECs) arose to provide local phone service but they were excluded from providing long-distance service. Twombly, at *4. In 1996, Congress enacted the Telecommunications Act of 1996 that permitted competition for local telephone service and authorized ILECs to enter the long-distance market, id. Plaintiffs’ class action complaint named BellSouth Corp., Qwest Communications, SBC Communications and Verizon, and alleged that these ILECs control at least 90% of the local telephone service market in the 48 contiguous states. Id., at *4 n.1. In essence, plaintiffs allege that defendants must have conspired in violation of § 1 of the Sherman Act, and that this conspiracy may be “inferred from the ILECs’ common failure ‘meaningfully [to] pursu[e]’ ‘attractive business opportunit[ies]’ in contiguous markets where they possessed ‘substantial competitive advantages.’” Id., at *5. The gravamen of the class action complaint was as follows:
In the absence of any meaningful competition between the [ILECs] in one another’s markets, and in light of the parallel course of conduct that each engaged in to prevent competition from CLECs within their respective local telephone and/or high speed internet services markets and the other facts and market circumstances alleged above, Plaintiffs allege upon information and belief that [the ILECs] have entered into a contract, combination or conspiracy to prevent competitive entry in their respective local telephone and/or high speed internet services markets and have agreed not to compete with one another and otherwise allocated customers and markets to one another.
Defense attorneys moved to dismiss the class action. In granting the defense motion, the district court held that the class action complaint must allege facts that “ten[d] to exclude independent self-interested conduct as an explanation for defendants’ parallel behavior.” Twombly, at *5 (quoting 313 F.Supp.2d 174, 179 (S.D.N.Y. 2003)). The district court also held that the class action complaint failed to “alleg[e] facts . . . suggesting that refraining from competing in other territories as CLECs was contrary to [the ILECs’] apparent economic interests, and consequently [does] not rais[e] an inference that [the ILECs’] actions were the result of a conspiracy.” Id., at *5 (quoting 313 F.Supp.2d at 188).
The Second Circuit reversed, holding that “plus factors are not required to be pleaded to permit an antitrust claim based on parallel conduct to survive dismissal.” Twombly, at *6 (quoting 425 F.3d 99, 114 (2nd Cir. 2005). The Supreme Court disagreed.
The Supreme Court explained that in analyzing a § 1 Sherman Act claim, “‘the crucial question’ is whether the challenged anticompetitive conduct ‘stem[s] from independent decision or from an agreement, tacit or express.’” Twombly, at *7 (citation omitted). “Conscious parallelism” is not in and of itself unlawful. Id. (citations omitted). The Supreme Court explained at page *7,
The inadequacy of showing parallel conduct or interdependence, without more, mirrors the ambiguity of the behavior: consistent with conspiracy, but just as much in line with a wide swath of rational and competitive business strategy unilaterally prompted by common perceptions of the market.
Accordingly, “proof of a § 1 conspiracy must include evidence tending to exclude the possibility of independent action.” Id. (citation omitted). At the pleading stage, the plaintiff’s obligation to provide “a short and plain statement of the claim showing that the pleader is entitled to relief,” see FRCP Rule 8(a)(2), requires allegations of fact sufficient to “raise a right to relief above the speculative level,” id., at *8 (citation omitted). Mere “labels and conclusions” or “a formulaic recitation of the elements of a cause of action will not do.” Id. (citation omitted).
After a detailed analysis, the Supreme Court held that stating a §1 Sherman Act claim “requires a complaint with enough factual matter (taken as true) to suggest that an agreement was made.” Twombly, at *8. A “bare assertion of conspiracy” based on allegations of parallel conduct, without more, is insufficient. Id. The High Court explained at page *8:
A statement of parallel conduct, even conduct consciously undertaken, needs some setting suggesting the agreement necessary to make out a §1 claim; without that further circumstance pointing toward a meeting of the minds, an account of a defendant’s commercial efforts stays in neutral territory. 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 “entitle[ment] to relief.”
The Supreme Court rejected plaintiffs’ invitation to hold that “fair notice” requires a Rule 12(b)(6) motion be denied unless there is no doubt that “no set of facts” exists to support the plaintiff’s complaint. Twombly, at *10. As the high Court recognized, “such a focused and literal reading of Conley’s ‘no set of facts’” language would mean that “a wholly conclusory statement of claim would survive a motion to dismiss whenever the pleadings left open the possibility that a plaintiff might later establish some ‘set of [undisclosed] facts’ to support recovery.” Id. The High Court refused to read and apply Conley literally, noting that the opinion “has been questioned, criticized, and explained away long enough.” Id., at *11.
The High Court held that the class action complaint merely relied upon allegations of parallel conduct, without “any independent allegation of actual agreement among the ILECs.” Twombly, at *12. The complaint consisted, then, of “merely legal conclusions,” id. After a detailed analysis, see id., at *12-*13, the Supreme Court held that the class action claims failed to cross “the line from conceivable to plausible” and accordingly “their complaint must be dismissed.” Id., at *14.
Surprisingly, the Supreme Court also addressed the cost of permitting antitrust discovery to proceed without first requiring plaintiff’s to present some “specificity in [their] pleading.” Twombly, at *9. The High Court noted that “antitrust discovery can be expensive” and that “‘a district court must retain the power to insist upon some specificity in pleading before allowing a potentially massive factual controversy to proceed.’” Id. (citation omitted). The Court also voiced considerable doubt that these costs could be managed through “careful case management” because of the common complaint that “judicial supervision in checking discovery abuse has been on the modest side.” Id. The Supreme court concluded that “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.” Id. (citations omitted).
NOTE: Twombly was not a unanimous opinion. Justice Stevens wrote a dissent, joined by Justice Ginsburg.
Download PDF file of Bell Atlantic v. Twombly