The United States Supreme Court�s decision in Bell Atlantic v. Twombly received much support by academics and practitioners alike. An end to the madness of abusive litigation, sanity in antitrust pleadings, and other such claims were made heralding a new era of antitrust jurisprudence. Others attacked the case as erecting insurmountable pleading standards that would shut out plaintiffs seeking redress for violations of the Nation�s antitrust laws. (See e.g. Dodson)
I am finishing an article that I will post soon on SSRN and Bepress titled �The Law & Economics of Antitrust Complaints: A Post-Twombly Analysis� in which I argue that that the truth is somewhere in the middle.
Many lower courts for over two decades now (recall that Twombly resulted from a circuit split) have been fashioning standards of pleadings for antitrust (and other areas of law) that require more than simple conclusory allegations. These requirements are not �hyper-pleading� requirements as some have argued, nor are inconsistent with Conley v. Gibson and the Federal Rules of Civil Procedure�s emphasis on notice pleading; rather these requirements help shape the substantive law of antitrust at the pleadings stage. What Twombly did was allow the lower courts to go ahead and continue to fashion the law of antitrust in the pleadings stage, something some have called for to happen now.
In Twombly, the Supreme Court held that an allegation by the plaintiffs that the defendants �engaged in parallel conduct� and formed a conspiracy to prevent entry into local markets was an insufficient pleading. One could view this case as legislating from the bench and the creation of new complex hyper pleading requirements. I prefer to view his case in another way. In my article, I argue is that the Supreme Court has affirmed the lower courts� fashioning of the substantive rule of antitrust law concerning parallel behavior, namely that simply observing parallel conduct as a matter can NEVER prove collusive behavior.
Consider for example a complaint alleging breach of contract. Suppose under the existing law of contracts that consideration is not a requirement for a contract to be valid. If a plaintiff or to allege in her complaint against the defendant that a contract was formed between the two of them through an offer by the plaintiff and an acceptance by the defendant, and that the defendant breached to said contract, but the plaintiff never alleged the existence of consideration. Now suppose that the trial court dismissed such a complaint on the grounds that consideration is a requirement of contract. If the appellate court upheld the dismissal, one way to interpret this decision below is that consideration is now a fundamental part of contract law, and that any complaint alleging breach of contract must state the existence of consideration in order for the complaint to survive a motion to dismiss. Through a procedural maneuver, namely affirming a motion to dismiss, the appellate court has not created a new substantive body of law relating to contracts. Had the trial court not dismissed the complaint, however, and the plaintiff prevailed without a showing of consideration, the appellate court could have also reversed the plaintiffs' verdict on the grounds that the law of contracts now requires a showing of consideration. This would be another way for the appellate court to create a substantive body of law.
Motions to dismiss, motions for summary judgment, motions to set aside jury verdicts, and the denial of these motions have long been a method by which courts create substantive areas of law.
From the days of the forms of action where it was important to fit a complaint into one of the few enumerated forms to code pleading at the modern day notice pleading, courts have long grappled with the fine balance between access to the courts and the creation of substantive law.
Even after the passage of the Federal Rules of Civil Procedure, lower courts resisted taking the concept of notice pleading too seriously. Consider Washburn v. Moorman Mfg. Co., 25 F.Supp. 546 (C.D. Cal. 1938), where the court stated:
An amended complaint alleging jurisdictional facts, and the relation of the parties, states �that defendant became indebted to plaintiff upon an implied contract for the exclusive use of the photograph and name of plaintiff's steer 'Big Jim�, in the advertising of defendant's animal food and products, in the sum of fifty thousand ($50,000.00) dollars, the reasonable value thereof, all of which is due and unpaid.�
The defendant moves to dismiss, not sufficient facts being stated. Plaintiff contends the complaint is sufficient under Federal Rules of Civil Procedure �.and calls attention to forms given, which he claims in effect to have copied.
These forms are merely to indicate the simplicity and brevity of statement which the rules contemplate.
In the instant case no fact is stated to support the conclusion of �implied contract� to pay. When the facts are simply and concisely stated in lucid fashion, and support such conclusion, the parties will be placed upon proof, otherwise the action fails.
The motion to dismiss is sustained.
When the rules were passed, commentators understood that the new notice pleading requirements were not meant to allow a fishing expedition.
Most of the proposed forms are short and exceedingly general in their allegations. This is undoubtedly very desirable so long as it is not carried too far. We believe a word of warning should be expressed, however, as it is east for counsel to be misled by these proposed forms. It is believed that they are suggested as covering an exceedingly simple factual situation and that � where the facts are more involved, the same should be pleaded at greater length and with greater particularity.� Elwood Hutcheson, New Federal Rules of Civil Procedure, 13 Wash. L. Rev. & St. B. J. 198, 206 (1938).
But apart from the argument (made by Epstein and others) that rules of civil procedure were meant to handle simple cases such as automobile accidents OR that the rules contemplated complex cases (as my quote above illustrates); the real point is that courts can always fashion substantive law through motions to dismiss.
In my forthcoming draft article, I examine numerous appellate judgments reviewing motions to dismiss granted by trial courts. The punch line is as follows: Given that antitrust is fundamentally driven by the science of economics, any complaint must not only allege facts that show an antitrust violation, the economic reasoning behind them must also be viable at the pleadings stage.
For example, in claims of conspiracy and price fixing, courts will require a detailed factual allegation of the conspiracy so that the trial judge would have no doubt that the facts alleged, if true, amount to an illegal restraint of trade. (As an aside Professor Fairman documents pleading requirements that have crept into other areas of the law such as CERCLA, civil rights, conspiracy, copyright, defamation, negligence, and RICO. Christopher Fairman, The Myth of Notice Pleading, 45 Ariz. L. Rev. 987 (2003).)
What I have discerned from the cases are four basic underlying economic principles that informs the Federal courts� view of substantive antitrust law at the pleading stage. Federal courts will not entertain antitrust suits unless the facts alleged can adumbrate a viable economic theory of an anticompetitive behavior. This focuses the economic theory at the pleadings stage. My article stands in contrast with most of the literature that focuses on the economic theory required for the purposes of winning summary judgment or trial.
The four principles are as follows:
1. No complaint can proceed without an explicit (or even implicit) product and geographic market definition. If the plaintiff does not provide enough information to achieve a sensible market definition, the complaint will undoubtedly be dismissed.
2. There can never be a valid antitrust complaint absent some explicit (or implicit) showing of the defendant�s market power. Absent some plausible ability of the defendant to exercise any market control over a properly defined market, no court will entertain such a suit.
3. Even if there is market power, as long as there are no major barriers to entry, the courts are less likely to entertain an allegation of antitrust violations.
4. If there is another valid business reason for the conduct complained off, courts are also likely to dismiss the complaint.
As a final note, I would point out that until the 1991 case of Summit Health v. Pinhas, many courts also required plaintiffs convincingly plead that the federal courts had jurisdiction over the subject matter of the antitrust suit. In other words, there had to be a showing that the activity in which the alleged anticompetitive activity took place either affected interstate commerce or was itself interstate commerce. This requirement was effectively eliminated in Summit and some have called for a return to the old system of pleadings. D. Bruce Johnsen & Moin A. Yahya, The Evolution of Sherman Act Jurisdiction: A Roadmap for Competitive Federalism, 7 U. PA. J. CONST. L. 403 (2004).
So stay tuned to how the lower courts will continue to develop the law of antitrust, and given this Supreme Court's willingness to seriously engage economic theories, hopefully these rules will continue to be upheld in the future.