Monday, May 21, 2007
We are delighted to announce that Prof. Scott Dodson of the University of Arkansas will be joining us later this summer as a guest blogger. For now, Scott shares his thoughts on the Supreme Court's opinion in Bell Atlantic. --Counseller/RR
Today, the Supreme Court decided Bell Atlantic Corp. v. Twombly and, in the process, gutted the venerable language from Conley v. Gibson that every Civil Procedure professor and student can recite almost by heart: “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 entitled him to relief.”
In Bell Atlantic, representatives of a putative class of local telephone and internet services subscribers sued a group of incumbent local exchange carriers (“ILECs”) for antitrust violations under § 1 of the Sherman Act. The plaintiffs’ complaint alleged that the ILECs conspired to restrain trade by inflating charges for the services in “parallel conduct.” The plaintiffs also alleged that the conduct arose from an “agreement” between the ILECs.
Now, Section 1 of the Sherman Act does prohibit unlawful agreements to restrain trade. But, a critical element of § 1 is the existence of an “agreement”; independent conduct that results in a restraint of trade is not prohibited by § 1. In a series of cases interpreting the sufficiency of evidence in § 1 claims, the Court has stated that mere “parallel conduct” alone is perfectly lawful and does not give rise to an inference of an agreement that would survive a summary judgment or directed verdict motion.
Before today, however, the Court had never explained what role “parallel conduct” might play at the pleading stage. Generally, the Court had adhered to Rule 8’s requirement that the pleader make only “a short and plain statement of the claim showing that the pleader is entitled to relief.” In Conley v. Gibson (1957), the Court elaborated on Rule 8 with two explications that, arguably, were in tension.
First, Conley said that the complaint must “give the defendant fair notice of what the . . . claim is and the grounds upon which it rests.” Second, Conley provided the now-familiar language: “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 entitled him to relief.”
Arguing that the mere allegation of parallel conduct did not state sufficient “grounds” to entitle the plaintiffs to relief, the defendant ILECs moved to dismiss the complaint under Rule 12(b)(6) for failure to state a claim upon which relief could be granted. The district court granted the motion and dismissed the case. The Second Circuit reversed.
The Supreme Court, per Justice Souter (joined by the Chief Justice and Justices Alito, Breyer, Kennedy, Scalia, and Thomas), reversed the Second Circuit. The Court first explained that Conley’s requirement that the “grounds” of the claim be set forth is critical. It “requires more than labels and conclusions, and a formulaic recitation of the elements of a case of action will not do.” In short, some factual allegations must accompany the elements of a claim.
Here, the Court reasoned, because the plaintiffs only alleged parallel conduct and a bare assertion of a conspiracy, these facts, even if proved, would not entitle plaintiffs to relief. The plaintiffs must plead more, by, for example, placing the allegation of parallel conduct “in a context that raises a suggestion of a preceding agreement.”
The Court buttressed its holding by stating that the potential expense of discovery in antitrust cases (and in antitrust class actions, in particular) risked coercing settlement before the costs could be controlled by effective judicial supervision and case management. “Probably, then,” the Court mused, “it is only by taking care to require allegations that reach the level suggesting conspiracy that we can hope to avoid the potentially enormous expense of discovery in cases with no ‘“reasonably founded hope that the [discovery] process will reveal relevant evidence”’ to support a § 1 claim.”
The Court recognized the “no set of facts” language of Conley but said it has been “questioned, criticized, and explained away long enough,” and that “after puzzling the profession for 50 years, this famous observation has earned its retirement.” The Court said that the language instead means that “once a claim has been stated adequately, it may be supported by showing any set of facts consistent with the allegations in the complaint.”
Turning to the allegations, the Court found that they came up short. The allegations of parallel conduct were insufficient without more facts. And, the bare allegations of agreements and conspiracies were “legal conclusions resting on the prior allegations.” In short, the Court thought that “nothing contained in the complaint invests either the action or inaction alleged with a plausible suggestion of conspiracy.”
Justice Stevens, joined in relevant part by Justice Ginsburg, dissented. Justice Stevens reasoned Rule 8 requires only notice pleading, not fact pleading, and the contextual allegations of an unlawful agreement and conspiracy, naked though they may be, is all that is required. In his view, the purpose of notice pleading under Rule 8 was to keep plaintiffs from having to plead facts and instead allow factually insufficient claims to be weeded out in other phases of the pretrial process. Justice Stevens used Form 9 in the Federal Rules of Civil Procedure Appendix to illustrate that even the single allegation “On June 1, 1936, in a public highway called Boylston Street in Boston, Massachusetts, defendant negligently drove a motor vehicle against plaintiff who was then crossing said highway,” coupled with a statement of damages, was sufficient to state a claim for negligence. Consistent with this view, Justice Stevens decried the demise of the Conley “no set of facts” language.
Justice Stevens also addressed the Court’s pragmatic concerns. First, he said that Rule 8, notice pleading, and Conley already addressed them and decided in favor of allowing plaintiffs to have their shot at discovery, even at some cost to the defendant. Second, he noted the flexible powers of district courts to control discovery costs in light of the needs of the case under Rules 7(a), 12(e), 16, and 26.
Finally, Justice Stevens worried about erecting insurmountable bars to meritous cases. He noted that in antitrust cases, the proof is largely in the hands of the defendants, and dismissals prior to discovery are disfavored.
At first glance, I am deeply troubled by this decision. Let me note a few of my concerns here.
First, the Court does not respond adequately to Justice Stevens’s point that plaintiffs in antitrust claims often do not have in their possession circumstantial evidence of an agreement to conspire (to say nothing of direct evidence), and requiring such evidence prior to discovery (when they might be able to obtain it) may bar many meritous cases. In my view, the Court should have weighed this concern when it discussed the burden on defendants confronted with costly litigation.
Second, it seems to me that the Court was motivated by the merits of the claim, rather than the sufficiency of the pleading. Why else would the Court have constructed the odd requirement of pleading some facts supporting the existence of an agreement but then not limiting the plaintiff to those facts? The reason is that the Court thinks that a plaintiff that cannot muster at least some facts supporting the existence of an agreement at the pleading stage will not have any facts at trial, either. This sentiment is buttressed by the Court’s statement that this case has no “reasonably founded hope” of “reveal[ing] relevant evidence” in discovery. In my view, that is, at best, contrary to what Rule 8 has stood for for 50 years and, at worst, just plain wrong.
Third, it is not clear what distinguishes this case from, say, a negligence case pleaded like Form 9. If the Court is saying that Rule 8 requires “notice-plus” pleading, then I think we shall see a sharp increase in Rule 12(b)(6) litigation on the sufficiency of fact pleading (which we may see anyway) and many more plaintiffs thrown out of court. If, on the other hand, the Court is saying that the combination of the § 1 requirements and the burdens on the defendant in this case justify requiring “notice-plus” pleading, then it is a troubling slippery slope that the Court heads down. Many other kinds of cases are “sprawling, costly, and hugely time-consuming,” as the Court describes this one. Mass torts, discrimination class actions, and a host of other causes of action require involved showings of proof (yet fall under Rule 8 rather than Rule 9) and have the potential to impose enormous costs on a defendant. The Court does not justify adequately, in my view, why the line is drawn at this case and not others.