Second Circuit Decision Grants Antitrust Plaintiffs a License to Conduct Fishing Expeditions
The Second Circuit's decision in Twombly v. Bell Atlantic Corp., No. 03-9213 (issued Oct. 3, 2005) (copy attached), establishes an extremely minimal pleading threshold for conspiracy claims under Section 1 of the Sherman Antitrust Act. So long as it stands, this decision will allow conspiracy cases in the Second Circuit to proceed to the end of discovery before defendants will have any real opportunity to challenge the claims' merits.
This consumer class action alleged a conspiracy among several baby (and grand-baby) Bell telcos to avoid competing with one another and to restrict entry into the markets for local telephone and internet services. The district court dismissed the case under Rule 12(b)(6), holding that it could not infer an anticompetitive agreement from mere allegations of "parallel conduct that appears to accord with the individual economic interests of the alleged conspirators." 313 F. Supp. 2d 174, 189 (S.D.N.Y. 2003). The court held that, because "parallel conduct is often simply the result of similar decisions by competitors who have the same information and the same basic economic interests, allowing simple allegations of parallel conduct to entitle plaintiffs to discovery circumvents both § 1's requirement of a conspiracy and Rule 8's requirement that complaints state claims on which relief can be granted." Id. at 181.
The Second Circuit reversed. Writing for a unanimous panel, Judge Sack held that the rules of notice pleading impose only a "relatively modest" burden on an antitrust plaintiff, and require only that a complaint "include[s] conspiracy among the realm of plausible possibilities." Slip op. at 25, 28-29. The decision thus would permit a complaint to survive based on its mere invocation of the right antitrust litany -- that parallel conduct resulted from an anticompetitive agreement -- without any details as to how such an agreement was reached or how it could be proved.
This ritualistic approach to pleading ignores the rules that a plaintiff must plead more than mere legal conclusions, and that a plaintiff is entitled to only reasonable inferences in its favor. The court acknowledged defendants' fears that, under its holding, "any claim asserting parallel conduct [will] survive a motion to dismiss," and that "[a]ntitrust cases [will] clog the courts for years, cost defendants millions of dollars to defend, and ... threaten to reward plaintiffs' attorneys for bringing meritless claims." Slip op. at 36. Rather than taking those quite realistic concerns into consideration, the court simply stated that any "recalibration" of this rule must be done by Congress or the Supreme Court.
For more information about this Antitrust Update, please contact Toby G. Singer, Leader of the Health Care Antitrust Practice.