Monday, May 21, 2007

Prof. Scott Dodson on Bell Atlantic

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.

UPDATE: Professor Dodson has just published more extensive views on Bell Atlantic in an essay entitled "Pleading Standards after Bell Atlantic v. Twombly," 93 Va. L. Rev. In Brief 121 (July 9, 2007).

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I think this case is a bombshell. It appears to impose a quasi-Rule 9 requirement across the board, unless it ends up being limited to its facts, or to antitrust cases, or, god forbid - to "expensive" cases (would anyone like to suggest a standard for *that*?)

At the very least, this case is going to create years of *increased* expense, as it justifies 12(b)(6) motions that might otherwise have seemed borderline. The pleading standard it creates (though claims not to) will result in far more dismissals without leave to amend, or at least make it very hard to successfully amend.

I suspect this will provide much more work for attorneys, generally, and much more success for defendants, specifically.

Posted by: Stephen | May 22, 2007 10:30:31 AM

I doubt that the practical belief will be huge. What prevents a plaintiff from alleging that: "On information and belief, senior executives of the Defendants, in one or more secret meetings within the United States, not disclosed or memorialized in writing on the advice of competent antitrust counsel for each party, conspired together to divide the market geographically and reached an oral agreement to divide the market and restrain competition."

The inference is reasonable enough to meet Rule 11 in all probability, and would constitute a Rule 12b6 beating fact, would it not?

Posted by: ohwilleke | May 22, 2007 3:27:56 PM

Replying to the 6:27 commenter:

I hope you're wrong in thinking that the rather detailed allegation you suggest would satisfy Rule 11 based on nothing more than an inference from parallel conduct. It's one thing to make a general inference of agreement or conspiracy. It's quite another to allege "secret meetings within the United States" and "the advice of competent counsel" without any support. Wasn't the point of notice pleading in part to get away from talismanic incantations of "facts" divorced from reality, and instead to rely on shorter and plainer allegations that have some basis in fact?

Posted by: Howard Erichson | May 23, 2007 11:18:51 AM


I tend to agree with Howard. If the plaintiffs HAVE "information and belief" to back that allegation up, then fine. But, given the Court's opinion, if the only information and belief is the parallel conduct--which cannot give rise to a reasonable inference of a conspiracy for either Rule 12(b)(6), Rule 50, or Rule 56--then I don't see how that can give rise to a "reasonable inference" of a conspiracy that would satisfy Rule 11's good faith requirement.

No doubt some plaintiffs will have sufficient information to survive a MTD after Bell Atlantic (and this opinion might put pressure on plaintiffs to try to collect some evidence prior to filing suit), but also no doubt that others will not. Bell Atlantic will prevent those plaintiffs from bringing suit even if there really is a conspiracy. That may or may not be a good thing, but it is a deviation from the line Rule 8 drew, in my view, before Bell Atlantic.

Posted by: Scott Dodson | May 23, 2007 1:55:50 PM

The SCT is "asking for plausible grounds to infer an agreement" and decides that parallel conduct doesn't do the trick. So, for Rule 11 purposes, I think you're on thin ice drawing an "agreement" inference, much less a "secret meeting" inference. While lawyers and judges can't draw the "agreement" inference from parallel conduct, the SCT notes that a jury is free to do so. "While a showing of parallel 'business behavior is admissible circumstantial evidence from which the fact finder may infer agreement," it falls short of 'conclusively establish[ing] agreement or . . . itself constitut[ing] a Sherman Act offense." This passage is quite odd given the holding.

Posted by: Counseller | May 23, 2007 3:12:53 PM

Between Bell Atlantic and Scott v. Harris (05-1631), I get the impression that the Court (save a lonely Justice Stevens) has recently tended to recklessly cast aside procedural obstacles in order to jump to what it sees as the proper ruling on the merits.

I wonder if this is related to more expansive use of summary judgment, so that we now see the spirit of summary judgment seeping into other parts of the process. Or might it perhaps be a facet of the overwhelming value that seems to be placed on judicial economy these days?

Posted by: Jesse Gillespie | May 24, 2007 4:10:54 PM

As a practical matter, many lower courts long have required "notice-plus" pleading for a range of cases. These are the courts Justice Souter referred to as "question[ing], criticiz[ing], and explain[ing] away" the "no set of facts" language of Conley. BUT This is the first time SCOTUS has endorsed the notion that the federal system is anything other than a pure notice-pleading jurisdiction, in which facts (as opposed to conclusions) are not necessary. We may now see a dramatically increased use of 12(b)(6) motions to challenge what I call the "factual" (as opposed to "legal") sufficiency of complaints--the complaint does not plead enough facts. The result will be dismissals of complaints without prejudice, giving plaintiffs additional chances to plead additional facts and flesh out the details of the complaint. None of which particularly advances the litigation.

To Jesse's point: I had just been thinking of the connections between Twombley and Scott. Judicial economy could be one explanation for both. Another explanation could be modern technology seeping into a 70-year-old procedural system. In Scott, the majority forgot about the idea of factual disputes in the face of a video, which somehow is "conclusive" evidence that overwhelms contrary testimony as a matter of law. In Twombley, the majority's emphasis on the cost of discovery surely recognized the spectre (and cost and burden) of electronic discovery under the new rules.

Randy Picker has a post on the case at the U of C Faculty Blog here:
Some of the comments discuss the discovery-cost (especially e-discovery-cost) concerns.

Posted by: Howard Wasserman | May 24, 2007 9:27:39 PM

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