CIVIL PRACTICE | Wrong standard in dismissal of claim

The 2d U.S. Circuit Court of Appeals has breathed new life into an antitrust action alleging that local phone companies conspired to keep out competition and stay away from each other�s turf. Twombly v. Bell Atlantic Corporation, No. 03-9213.

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The 2d U.S. Circuit Court of Appeals has breathed new life into an antitrust action alleging that local phone companies conspired to keep out competition and stay away from each other’s turf. Twombly v. Bell Atlantic Corp., No. 03-9213. Writing on behalf of the court, Judge Robert Sack said that a lower court judge had applied the wrong standard in dismissing an action brought against the so-called “Baby Bells,” that charged them with seeking to frustrate the purpose of the Telecommunications Act of 1996. The 2d Circuit ruled that there is no heightened pleading standard for antitrust actions. The act stipulated that that the Baby Bells-remnants from the 1984 break-up of the American Telephone & Telegraph Co.-would open their lines to allow competitors to compete locally for subscribers, in return for being allowed to enter the market for long-distance phone service. The complaint charged that the Baby Bells agreed not to compete against one another in their respective markets for local telephone and high-speed Internet service, and conspired to prevent competitors from entering those markets, thus violating Section 1 of the Sherman Act. Judge Gerard Lynch of New York’s southern district dismissed the case, finding that the complaint failed to allege sufficient facts from which a conspiracy could be inferred. Lynch said that allegations of parallel behavior by competing companies to restrain trade are not enough to prove violation of the Sherman Act unless the allegations include actions that indicate an actual agreement to restrain trade. Such a complaint must fail, Lynch said, if plaintiffs fail to allege at least one “plus factor”: a factor that “tends to exclude independent self-interested conduct as an explanation for defendant’s parallel behavior.” The 2d Circuit disagreed, ruling that antitrust complaints do not merit a more rigorous pleading standard. According to Sack, under Rule 8 of the Federal Rules of Civil Procedure, plaintiffs are merely required to satisfy the “notice pleading,” standard. They have to make a short and plain statement of the claims sufficient to give the defendant fair notice. The application of Rule 8 to the Sherman Act, he said, is “relatively straightforward.” Under Section 1 of the Sherman Act, he said, a plaintiff must generally “allege 1) the defendants were involved in a contract, combination or conspiracy that 2) operated unreasonably to restrain interstate trade, together with the factual predicate upon which those assertions are made.” Courts have held that, on a motion for summary judgment, a plaintiff must show “plus factors” where the defendants’ so-called parallel conduct might be explained by competitors acting on the same information and in the same economic interests. However, Sack said, “We are reviewing the grant of a motion to dismiss, not the grant of a motion for summary judgment.” Plus factors are not required for an “antitrust claim based on parallel conduct to survive dismissal.” Sack acknowledged that district courts occasionally elide the distinction between the standard applicable for summary judgment and the standard for motions to dismiss, in order not to condemn defendants to limitless fishing expeditions in discovery. The Baby Bells claimed that unless plaintiffs are required to plead plus factors “any claim asserting parallel conduct [will] survive a motion to dismiss,” thus rewarding plaintiffs making meritless claims. Sack didn’t agree. “At the pleading stage, we are concerned only with whether the defendants have ‘fair notice’ of the claim, and the conspiracy that is alleged as part of the claim, against them”-enough to enable the defendants to answer and prepare for trial-and “not with whether the conspiracy can be established at trial.”

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