Bell Atlantic Corp., et al. v. Twombly, William, et al. (05/21/2007)

Question presented: Whether a complaint states a claim under Section 1 of the Sherman Act, 15 U.S.C., sec. 1, if it alleges that the defendants engaged in parallel conduct and adds a bald assertion that the defendants were participants in a "conspiracy," without any allegations that, if later proved true, would establish the existence of a conspiracy under the applicable legal standard?

BY ELISE SIMMONS, MEDILL NEWS SERVICE

Pro-competitive companies like Louisiana Pacific Corporation and the American Petroleum Institute are upset about claimed "conspirative" behavior between the successful Baby Bell companies and their new competitors for local telephone and high-speed Internet services.

Competition is good for consumers because it gives them a broader selection of services and pricing options to choose from. However, such competition may signal trouble for big companies like Bell Atlantic and Verizon, that may not wish to connect their local telephone and DSL lines to new competitors. Yet, the Telecommunications Act of 1996 mandates that big companies share their lines and was created to foster competition so that a communications business could compete in any market.

"If we are going to have competition for local service, you have to have whoever owns the local line agree to allow other companies to use the same line, even if they are going to be competing for local service," said Richard Samp, an attorney for Washington Legal Foundation, which is closely following the case.

However, the aftermath of the Telecom Act appeared to produce a pattern of company consolidation, rather than an influx of new businesses. In 2000, Bell Atlantic and GTE merged to form Verizon. Five years later, Verizon bought MCI. That same year, SBC acquired AT&T. Consumers are getting the hint.

The class action lawsuit filed against big telecom companies like Qwest Communications, Verizon and SBC, claims the companies "conspired to exclude competitors and not to compete against one another in their respective geographic markets for local telephone and high speed Internet services."

Alleging a conspiracy is tough to prove, especially when the evidence is mostly in the control of the accused. Therefore, courts want to insure that baseless lawsuits are not filed or that a party doesn't file a lawsuit without evidence, hoping to ˜discover" the necessary proof as the suit progresses.

Perhaps this was among the district court's concern when it found that the complaint needed to allege a "plus factor" or additional concrete evidence that the baby bells' conduct was economically unsound absent an agreement. The court found that different companies that act similarly are not a conspiracy unless there is an agreement.

The court also acknowledged that the ˜plus factor" would give telecom companies notice of the "theory" on which the conspiracy accusation stands.

"All the consumers allege is that the defendants acted parallel with each other but nothing in the pleading can demonstrate that parallelism was the result of an agreement," said Richard Hoskins, a partner at Schiff Hardin LLP and antitrust litigator.

The District Court acknowledged that the plus factor requirement contradicted Federal Rules of Civil Procedure (FRCP) 8(a), which describes the contents necessary for a sufficient complaint: "a short and plain statement of the claim showing that the pleader is entitled to relief."

A unanimous 2nd Circuit Court of Appeals panel disagreed with the District Court's calling for the consumers to "supply a complaint that substantially exceeded the requirements of FRCP 8."

The 2nd Circuit held the complaint was specific in reference to three areas. First, the complaint specifically alleged the identities of the key participants. Second, the complaint also listed the geographic regions where the alleged conduct took place. Third, complaint provided an explanation of the motive behind the conduct and its anticompetitive effect on interstate commerce.

Now up for U.S. Supreme Court review, academics do not expect the case to sway far from the present requirements of Rule 8 pleadings.

"It is unlikely that the Supreme Court imposes a special pleading standard in this case and will probably assert that compliance with the notice standard of Rule 8(a)(2) is all that is required," said Laurie Leader, a clinical practice professor at Chicago-Kent College of Law.

The Supreme Court addressed pleading standards in 2002 when it decided Swierkiewicz v. Sorena, which claimed violations of civil rights in the workplace. In that case, the Court did not impose a heightened pleading standard.

"I do not believe that the lower courts should unilaterally impose heightened pleading standards," said Joan Steinman, a civil procedure law professor at Chicago-Kent School of Law. "Heightened standards should be applied when Congress or the Supreme Court, using the Federal Rules of Civil Procedure requires them."

One possible explanation for the misinterpretation of what a pleading requires is the difference in civil procedural rules in a state versus federal courtroom.

"If the 2nd Circuit is like the 7th, you have state court judges who are used to applying state procedural rules and may carry those rules over when they become federal court judges," said Douglas Baird, former dean of The University of Chicago Law School.

"The purpose of notice pleading is to notify the defendant of what the case is about," Baird says. "It's not about using the pleading rules to discover the merits of the case."

On May 21, 2007, a 7-2 Court surprised many observers and reversed the 2nd Circuit decision, holding that the suit lacked any specifics in accusing the companies of conspiring not to compete in each other’s territories for local telephone and Internet service.

“An allegation of parallel conduct and a bare assertion of conspiracy will not suffice,” Justice David Souter wrote for the majority. “When allegations of parallel conduct are set out in order to make a §1 claim, they must be placed in a context that raises a suggestion of a preceding agreement, not merely parallel conduct that could just as well be independent action.”

Justices John Paul Stevens and Ruth Bader Ginsburg dissented. “Directing that the case be dismissed without even looking at any of that evidence marks a fundamental -- and unjustified -- change in the character of pretrial practice,” Stevens argued.

The Washington Legal Foundation’s Samp hailed the ruling, noting: “Today, the Supreme Court has made it a lot easier for defendants to win motions to dismiss complaints based on the pleadings.”

He said the Court’s decision sets a broad precedent for the future.

“This decision wasn’t a really narrow one,” Samp said. “The justices specifically rejected the broad language from Conley. They wanted to establish precedent in a large number of cases. And many cases in process won’t be able to survive this new standard.”

The Court opinion created quite a stir, leading practitioners and scholars, such as University of Chicago Law Professor Richard Epstein to remark that "the U.S. Supreme Court began what might become a welcome revolution in civil litigation."