Supreme Court Dismisses Twombly Case

Twombly v. Bell Atlantic was dismissed by the U.S. Dist. Court, N.Y. for lack of facts to support allegations, but the U.S. Appeals Court, N.Y., reinstated it, saying allegations sufficed to support an antitrust claim. The case was a cause celebre in the legal community because it raised basic issues of how much evidence is needed to prove parallel conduct. Its title refers to the fact that Verizon once was Bell Atlantic. Although the title mentions one Bells, the suit was directed at all of them.

The high court, in a decision written by Justice David Souter, said an antitrust complaint needs “enough factual matter… to suggest that an agreement was made… An allegation of parallel conduct and a bare assertion of conspiracy will not suffice.” Souter added: “Without more, parallel conduct does not suggest conspiracy, and a conclusory allegation of agreement at some unidentified point does not supply facts adequate to show illegality. Hence when allegations of parallel conduct are set out… 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.”

Addressing the charge that the Bells conspired not to let CLECs compete, Souter wrote: “When we look for plausibility in this complaint, we agree with the District Court that plaintiffs’ claim of conspiracy in restraint of trade comes up short.” On the other conspiracy charge -- that the Bells agreed not to enter one another’s territories -- Souter said the Bells historically had monopolies in specific territories and their later lack of competition “was not suggestive of conspiracy, not if history teaches anything…. The ILECs were born in that [monopoly] world [and] doubtless liked the world the way it was… A natural explanation for the noncompetition alleged is that the former government-sanctioned monopolists were sitting tight, expecting their neighbors to do the same thing.”

The Supreme Court should have gone more into plaintiffs’ charges that the Bells had agreed not to compete rather than dismissing the case “based on the assurances of company lawyers that nothing untoward was afoot,” Stevens wrote in the part of his dissent with which Justice Ginsburg agreed. The court should have required “knowledgeable executives… to respond to these allegations by way of sworn depositions or other limited discovery,” Stevens wrote: “There is no dispute about the substantive law. If the defendants acted independently, their conduct was perfectly legal. If, however, that conduct is the product of a horizontal agreement among potential competitors, it was unlawful. Plaintiffs have alleged such an agreement and, because the complaint was dismissed in advance of answer, the allegation has not even been denied… Does a judicial opinion that the charge is not ‘plausible’ provide a legally acceptable reason for dismissing the complaint? I think not.”

Ginsburg didn’t agree with one part of Stevens’ dissent in which he expressed concern that the court’s action created a “new rule” not originating in Congress. If the allegations were true, the court’s opinion “obstructs the congressional policy favoring competition that undergirds both the [Telecom] Act and the Sherman Act,” Stevens wrote. If the allegations aren’t true, “directing that the case be dismissed without even looking at any of [the] evidence markets a fundamental and unjustified change in the character of pretrial practice.”

The high court’s decision to overturn the appeals court order “embraces an important principle about protecting the freedom of firms to make unilateral decisions on what markets to enter or not enter,” said Verizon Senior Vp John Thorne. The court “has made clear that more than vague, conclusory allegations are needed before a plaintiff can embark on a massive, expensive and ultimately wasteful fishing expedition,” Qwest said in a statement.

“American corporations have dodged a bullet,” said attorney John Peirce, vice chmn. of the ABA communications section antitrust committee. “The 2nd Circuit’s opinion would have lowered the standard” for how much evidence is needed to keep a conspiracy case from being dismissed, he said. The opinion tackles a difficult legal choice, Peirce said: “How do you balance two admirable goals,” giving individuals “their day in court” but “not allowing people to misuse the legal system” by bringing unsubstantiated allegations? As for the impact on the telecom industry, “I don’t think there is one” because “the particular regulatory structure that gave birth to this case doesn’t exist anymore,” he said.