2nd Circuit Vacates in Twombly v. Bell Atlantic

October 3, 2005. The U.S. Court of Appeals (2ndCir) issued its opinion [43 pages in PDF] in Twombly v. Bell Atlantic, an class action antitrust suit against the regional bell operating companies (RBOCs) alleging conspiracy to exclude competitors from, and not to compete against one another in, their respective geographic markets for local telephone and high speed internet services. The District Court dismissed the complaint for failure to state a claim. The Court of Appeals vacated and remanded.

However, this opinion is merely about the minimal pleading requirements for withstanding a motion to dismiss an antitrust complaint. The case goes back to the District Court, and will proceed to discovery. The plaintiffs will have greater difficulty surviving a motion for summary judgment, or prevailing in trial upon the merits.

This case was brought class action lawyers, including Milberg Weiss. They seek class action status. The named plaintiff is William Twombly. The defendants are the RBOCs, Verizon (and Bell Atlantic), BellSouth, SBC and Qwest.

The complaint, filed in the U.S. District Court (SDNY), alleged violation of Section 1 of the Sherman Act, which is codified at 15 U.S.C. § 1. The plaintiffs seek treble damages pursuant to Sections 4 and 16 of the Clayton Act, which are codified at 15 U.S.C. §§ 15(a) and 26.

The complaint alleges that the defendants resisted the mandate of the Telecommunications Act 1996 by conspiring with one another to keep competitive local exchange carriers (CLECs) from competing successfully in their respective territories. It also alleges that there is an agreement among the defendants not to compete with each other.

The complaint does not allege that there is any document that constitutes or memorializes any such agreements. Rather, it makes assertions regarding the motives and parallel conduct of the defendants.

Section 1 of the Sherman Act provides, in part, that "Every 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, is declared to be illegal. Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony, and, on conviction thereof, shall be punished ..."

The District Court dismissed for failure to state a claim upon which relief can be granted, pursuant to Rule 12(b)(6), FRCP. It held that parallel conduct does not amount to conspiracy under federal antitrust law. See, opinion reported at 313 F. Supp. 2d 174.

The Court of Appeals vacated the District Court's dismissal. It wrote that "We are reviewing the grant of a motion to dismiss, not the grant of a motion for summary judgment, however. To survive a motion to dismiss ... an antitrust claimant must allege only the existence of a conspiracy and a sufficient supporting factual predicate on which that allegation is based." It added that "to rule that allegations of parallel anticompetitive conduct fail 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 asserted was the product of collusion rather than coincidence."

The Court continued that "if a plaintiff can plead facts in addition to parallelism to support an inference of collusion -- what we have referred to above as ``plus factors´´ at the summary judgment stage -- that only strengthens the plausibility of the conspiracy pleading. But plus factors are not required to be pleaded to permit an antitrust claim based on parallel conduct to survive dismissal."

The Court acknowledged that such a principle will "likely lead defendants to pay plaintiffs to settle what would ultimately be shown to be meritless claims", and that "the success of such meritless claims encourages others to be brought". Yet, it offered the rationale that "in a regime that contemplates the enforcement of antitrust laws in large measure by private litigants, although litigation to summary judgment and beyond may place substantial financial and other burdens on the defendants, neither the Federal Rules nor the Supreme Court has placed on plaintiffs the requirement that they plead with special particularity the details of the conspiracies whose existence they allege."

The Court suggested that if there are too many meritless antitrust complaints, it is the responsibility of the Supreme Court or the Congress, not the lower courts, to change the rules for dismissal of such complaints.

Following pretrial discovery, the plaintiffs may not be able to produce evidence of these "plus factors", and thus, may lose in the inevitable proceedings on the defendants' motion for summary judgment, pursuant to Rule 56, FRCP.

This case is William Twombly, et al. v. Bell Atlantic Corporation, et al., U.S. Court of Appeals for the 2nd Circuit, App. Ct. No. 03-9213, an appeal from the U.S. District Court for the Southern District of New York, Judge Gerald Lynch presiding. Judge Sack wrote the opinion of the Court of Appeals, in which Judges Raggi and Hall joined.