Tuesday, November 28, 2006

Supreme Court Hears Arguments in Antitrust Pleading Case

This posting was written by Jeffrey May, editor of CCH Trade Regulation Reports, and John W. Arden.

The U.S. Supreme Court heard oral argument November 27 on the pleading requirements in an antitrust case. The Court is reviewing Bell Atlantic Corp. v. Twombley, a decision of the U.S. Court of Appeals in New York City (2005-2 TRADE CASES ¶74,951) that the customers of a telecommunications company did not have to plead so-called “plus factors” to sufficiently allege that telecommunications providers conspired to refrain from competing against one another. In vacating the dismissal of the conspiracy claim, the appeals court held that a heightened pleading standard should not have been applied.

The customers had brought a putative class action, alleging that the Incumbent Local Exchange Carriers—Bell Atlantic Corp., Bellsouth Corp., QWEST Communications International, Inc., SBS Communications, Inc., and Verizon Communications, Inc.—conspired to exclude Competitive Local Exchange Carriers and to refrain from competing against one another in their respective geographic markets for local telephone and high-speed Internet services.

Arguing for the petitioning telecommunications companies, Michael Kellogg of Kellogg, Huber, Hansen, Todd & Evans in Washington, D.C. told the court that it was “faced with the question of what a plaintiff needs to plead in order to state a claim and show an entitlement to relief under the antitrust laws.” Kellogg argued that an agreement could not be inferred from allegations of parallel conduct and that it was insufficient to “merely to recite a legal conclusion, and claim an entitlement to relief therefore.”

As a matter of substantive antitrust law, there is a “range of permissible inferences that can be drawn from parallel conduct,” he said. “And if all you have is parallel conduct that’s consistent, on one hand, with conspiracy, or on the other hand, with ordinary business judgment, you cannot draw an inference of the sort that the plaintiffs depend upon in this case.”

Assistant Attorney General Thomas O. Barnett of the Department of Justice, Antitrust Division, argued on behalf of the government in support of the petitioners. The antitrust chief said that a “fundamental concern of the United States is that the decision of the Second Circuit can be read to hold that a Section 1 Sherman Act complaint will survive a motion to dismiss merely by alleging parallel action or inaction in attaching the bare assertion of an agreement. Such a result fails to appreciate that parallel action or inaction is ubiquitous in our economy and often reflects beneficial competitive forces.”

During argument for the complaining customers by J. Douglas Richards of Milberg Weiss Bershad Hynes & Lerach LLP in New York City, Chief Justice Roberts asked whether there was any allegation of an agreement apart from the parallel conduct. Richards maintained that the “leading plus factor” is “action that would have been against the self-interest of the conspirators in the absence of a conspiracy.” In this case, the complaint alleges “that the conduct of not entering into one another’s territories and competing among the [Incumbent Local Exchange Carriers] as a [Competitive Local Exchange Carriers]” was contrary to the defendants’ self-interest. Justice Breyer suggested that the complaining customers’ interpretation of the antitrust pleading requirements could require a “major restructuring of the economy.”

Richards further contended that the defending telecommunications companies were expected to compete, in light of the Telecommunications Act of 1996. Their decision not to compete created an inference of conspiracy, he maintained. Justice Scalia responded by saying that, based on his past experience in the field of telecommunications, the customers’ case was very weak if it were based on what Congress expected to happen when it passed the Act.

A transcript of the oral arguments appears at:


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