Supreme Court Clarifies Standard for Pleading Antitrust Conspiracy
May 24, 2007
The U.S. Supreme Court has set a new standard for judging the sufficiency of a complaint on a 12(b)(6) motion. Its decision, that complaints in federal court must now contain enough factual specificity for the court to conclude that the plaintiff's claim is not just "possible" but "plausible,” will make it easier for defendants to succeed at the motion to dismiss stage when the complaint fails to meet this new standard.On May 21, the U.S. Supreme Court issued an important decision clarifying the proper standard for pleading an antitrust conspiracy through allegations of parallel conduct. The court ruled 7-2 that a complaint alleging a violation of Sherman Act Section 1 must contain enough factual allegations to suggest that an agreement was made—that is, a complaint must contain factual allegations establishing a plaintiff’s entitlement to relief is plausible, not just possible. Allegations of parallel conduct and a bare assertion of conspiracy alone will not suffice.
In Bell Atlantic Corp. v. Twombly, a representative of a purported class of local telephone service subscribers sued several major telephone companies for allegedly conspiring to suppress competition in violation of Sherman Act Section 1. The complaint alleged that the telephone companies conspired to restrain trade by engaging in parallel conduct in their respective service areas to prevent new competitors from competing in the market. The U.S. Court of Appeals for the Second Circuit reversed the decision of the district court, which had dismissed the complaint, and determined that the plaintiffs’ parallel conduct allegations were sufficient to withstand a motion to dismiss. The Second Circuit based its decision, in part, on the Supreme Court’s decision in Conley v. Gibson, finding that the defendants failed to show that there was "no set of facts" that would permit the plaintiffs to demonstrate that the particular parallelism asserted was the product of collusion.
The Supreme Court reversed the Second Circuit’s determination that the plaintiffs’ allegations of parallel conduct were sufficient to withstand a motion to dismiss. The Supreme Court adopted a plausibility standard at the pleading stage, stating that Conley v. Gibson is "best forgotten as an incomplete, negative gloss on an accepted pleading standard." Under the plausibility standard, a complaint must contain enough facts to raise a reasonable expectation that discovery will reveal evidence of illegal agreements. With respect to an antitrust claim based upon conscious parallelism, allegations of parallel conduct without further factual enhancement ("plus factors") are insufficient to withstand a motion to dismiss. The court recognized that this requirement serves a practical purpose, "lest a plaintiff with ‘a largely groundless claim’ be allowed to ‘take up the time of a number of other people,’" through discovery.
The decision is very favorable for defendants in antitrust cases because claimants can no longer rely on the "no set of facts" language from Conley to defeat a motion to dismiss. Instead, a claimant must allege facts sufficient to meet the plausibility standard articulated in Twombly. This decision will significantly improve the prospect for motions to dismiss antitrust complaints alleging conscious parallelism without additional factual allegations supporting the existence of an agreement.
