Claims of Parallel Conduct Insufficient to Allege Conspiracy: U.S. Supreme Court

This posting was written by Jeffrey May, editor of CCH Trade Regulation Reporter.

An antitrust complaint filed on behalf of a putative class of local telephone and high-speed Internet services customers against local telephone companies based on parallel conduct or parallel inaction should be dismissed, the U.S. Supreme Court ruled on May 21.

In a seven-to-two decision, written by Justice David Souter, the Court reversed a decision of the U.S. Court of Appeals in New York City (2005-2 Trade Cases ¶74,951) allowing the claims to proceed.

Plausible Suggestion of Agreement

In order to state a claim under Sec. 1 of the Sherman Act against telecommunications firms based on parallel conduct, the complaining consumers were required to plead allegations “plausibly suggesting (not merely consistent with) agreement,” according to the Court.

Stating such a claim required a complaint “with enough factual matter (taken as true) to suggest that an agreement was made.” The standard called for enough facts to raise a reasonable expectation that discovery would reveal evidence of illegal agreement.

The complaining consumers rested their claim on parallel conduct and not on any independent allegation of an actual agreement among the defending telecommunications firms, incumbent local exchange carriers (ILECs), the Court explained.

The customers contended that the ILECs refrained from competing against one another in their respective geographic markets for local telephone and high-speed Internet services and engaged in a parallel course of conduct to prevent competition from competing local exchange carriers (CLECs) in contravention of the Telecommunications Act of 1996.

Resisting competition was routine market conduct, and even if the ILECs flouted the 1996 Act in all the ways that the plaintiffs alleged, there was no reason to infer that the companies had agreed among themselves to do what was only natural.

A natural explanation for the noncompetition alleged was that the former government-sanctioned monopolists were sitting tight, expecting their neighbors to do the same thing. If alleging parallel decisions to resist competition were enough to imply an antitrust conspiracy, pleading a Sec. 1 violation against almost any group of competing businesses would be a sure thing.

Retirement of “No Set of Facts” Language

The customers argued before the High Court that the use of the plausibility standard at the pleading stage conflicted with the concept enunciated in Conley v. Gibson (355 U.S. 41 (1957)) that “a complaint should not be dismissed for failure to state a claim 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 vacating dismissal of the complaint, the appellate court noted that “to rule that allegations of parallel anticompetitive conduct fail to support a plausible conspiracy claim, a court would have to conclude that there is no set of facts that would permit a plaintiff to demonstrate that the particular parallelism asserted was the product of collusion rather than coincidence.”

The High Court pointed out that the “no set of facts” language has been questioned, criticized, and explained away long enough” and has “earned its retirement.”

According to the Court, the phrase is best forgotten as an incomplete, negative gloss on an accepted pleading standard: once a claim has been stated adequately, it may be supported by showing any set of facts consistent with the allegations in the complaint.

Dissent

A dissent, written by Justice John Paul Stevens and joined by Justice Ruth Bader Ginsburg, took the position that the majority's “plausibility” standard was “irreconcilable with Rule 8 of the Federal Rules of Civil Procedure; and with our governing precedents.” The dissent also questioned the majority's assessment of the plausibility of the alleged conspiracy and the purported policy concern driving the decision, that is protecting antitrust defendants from the expense of pretrial discovery.

The decision in Bell Atlantic Corp. v. Twombly, will be published in the CCH Trade Regulation Reports.