U.S. Supreme Court Raises the Bar for Antitrust Conspiracy Cases (and Maybe Other Federal Cases, Too)

March 10, 2008

One of the problems of antitrust law is that competition looks a lot like conspiracy – in both cases, competitors charge about the same prices, change their prices at about the same time, and generally act or react in about the same way. So how do courts sort out lawful competition from illegal agreement? At the summary judgment stage and trial, courts require evidence suggesting that competitors were not acting independently.

But at the earlier dismissal stage, defendants have not been given similar protection from ill-founded conspiracy claims. Plaintiffs usually could survive a motion to dismiss by alleging parallel conduct (i.e. the same or similar actions by competitors) coupled with a conclusory allegation of conspiracy – which sometimes meant that plaintiffs could obtain discovery by slapping a conspiracy label on a competitive marketplace. Such was the price of the liberal regime of notice pleading honored in the federal courts since Conley v. Gibson,1 where the Supreme Court held that a federal complaint should not be dismissed "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief."

In May of 2007, the United States Supreme Court rejected this approach and adopted a “plausibility” standard for antitrust conspiracy complaints. In Bell Atlantic Corp. v. Twombly,2 the complaint alleged that various incumbent local telephone companies had acted similarly both in resisting competition within their local markets and in declining to enter other local markets. The Court held that the complaint should be dismissed because, while these allegations made a conspiracy conceivable, they did not make it plausible. What was missing, the Court found, was any factual allegation that suggested that the parallel conduct was the product of an agreement rather than the natural result of competition.

The Court put great emphasis on the burdens of antitrust litigation, particularly discovery, and confessed that the case management tools available to the federal courts had failed to weed out meritless cases at an early stage. In the Court’s view, these practical concerns justified “insist[ing] upon some specificity in pleading before allowing a potentially massive factual controversy to proceed.”

The likely result of Twombly is that more defendants in conspiracy cases will be able to prevail on motions to dismiss. Plaintiffs must now plead facts that suggest that parallel conduct is the result of an illegal agreement rather than the result of independent conduct. For example, allegations about the structure of a particular industry or allegations about meetings where conspiratorial conduct occurred could suffice to surmount this hurdle. But these are not always easy facts to come by at the pleading stage, soTwombly might turn out to have teeth.

What, then, has become of the Conley case and its standard that dismissal is improper unless the plaintiff can prove no set of facts that would warrant relief? The Court said it was sending Conley off to “retirement.” This aspect of the Twombly decision has implications for all sorts of federal cases, not just antitrust conspiracy cases. Read literally, Conley made dismissal nearly impossible, because with even the worst of complaints one could usually imagine a set of facts (however implausible) that would warrant relief. Now that Conley has been scrapped, defendants in all sorts of federal cases may have a better chance of winning an early dismissal.

1355 U.S. 41 (1955).

2127 S. Ct. 1955 (2007).