I won’t hide the ball; I’ll just tell you the answer: Federal district courts deciding motions to dismiss an antitrust case too often apply the summary-judgment standard to conspiracy allegations, particularly when confronted with non-parallel-conduct cases.
This isn’t scientific or empirical—it is my observation and is enough of an issue that more than one federal appellate court has complained about it over the last few years.
The motion to dismiss standard for antitrust conspiracies is, to be fair, somewhat confusing thanks to a case called Bell Atlantic v. Twombly. You can read my prior article about Twombly and pleading standards here.
Before the US Supreme Court decided Twombly in 2007, courts applied a very deferential standard to antitrust motions to dismiss, including conspiracy allegations.
Courts used to follow an old Supreme Court case called Conley v. Gibson (1957) (which you will find cited in many, maybe even most, motion-to-dismiss decisions preceding Twombly). Under Conley, a complaint satisfied specificity requirements if it stated facts that made it “conceivable” that plaintiff could prove its legal claims. A court could only dismiss a claim if it appeared that a plaintiff could prove—the famous phrase—“no set of facts” in support of his or her claim that would entitle the plaintiff to relief.
The Twombly Decision
I remember when I read the Supreme Court’s Twombly decision for the first time. Justice Souter wrote the majority opinion. At the time, I was with DLA Piper and represented a defendant in the In re Insurance Brokerage Antitrust Litigation (Here is an article about the litigation from Bill Kolasky, who was one of the joint defense group leaders). The case was still with the trial court during one of the motion-to-dismiss briefing rounds. (Usually when a court dismisses an antitrust complaint for the first time, it will do so without prejudice and with leave to amend, which leads to another round of motion-to-dismiss briefing).
I remember reading the case at a coffee shop—I think Caribou Coffee—in the skyways in Minneapolis. The Supreme Court decided the case in late May, so the weather was probably finally warming up in Minnesota—not sure why I was in the skyways, but those routes often made for good shortcuts. Sometimes if you want to concentrate and read something, getting out of the office is a good strategy.
Suffice to say, Twombly was a really big deal for the Insurance Brokerage antitrust case at the time. That is because Twombly involved a situation called conscious parallelism (which we also describe here).
This is a common antitrust class action (which should fail), in which named plaintiffs allege that competitor defendants—oftentimes almost everyone in a concentrated industry—took the same or similar actions. Plaintiffs don’t have any allegations or evidence that defendants actually reached an agreement or conspiracy, but they ask the Court to infer a conspiracy because of the “parallel conduct.” Hence, these are called parallel-conduct cases.
Oftentimes, competitors in a concentrated market will play a game of follow-the-leader and copy each other’s actions, like price increases, etc. They do this without any agreement, conspiracy, or even communication. They just follow what happens in the market. Sometimes there is one particular company, often the largest, that will start the merry-go-round of price increases. This is conscious parallelism and is not, by itself, an antitrust violation.
So if plaintiffs allege parallel conduct by competitor defendants and nothing more, it is not clear whether the defendants took the same actions because they agreed or because they just engaged in conscious parallelism (which, again, doesn’t breach antitrust laws).
That is exactly what plaintiffs alleged in Twombly and is what plaintiffs also alleged in the In re Insurance Brokerage Antitrust Litigation multi-district litigation (MDL). So you can understand why a ground-breaking decision in Twombly would be a big deal for our case, which happened to be in the midst of motion-to-dismiss briefing.
That trip down memory lane was a bit of a tangent (but it may offer you some useful context).
The Big Mistake
So here is the problem: Justice Souter’s opinion in Twombly included some language from a summary-judgment decision (Matsushita) that the Court used to explain why in conscious parallelism cases, plaintiffs’ “offer of conspiracy evidence must tend to rule out the possibility that the defendants were acting independently.”
The quote is innocent enough. But some district courts have demanded that antitrust plaintiffs offer allegations of conspiracy evidence that rules out independent conduct.
There are at least two major problems with this demand:
First, in antitrust conspiracy cases, a plaintiff facing a motion to dismiss rarely has had the benefit of discovery and conspiracy-type evidence—of the sort that might rule out independent conduct—is with the defendants. That is why the ruling-out-independent-conduct standard is at summary judgment: discovery has already happened.
Second, some courts have gone even further and applied this summary judgment standard in cases that don’t even involve parallel conduct. That is, courts have sometimes tried to require that antitrust plaintiffs rule out independent conduct by conspiring defendants that already have established agreements, or deal with each other on a consistent basis, or that aren’t even competitors, but instead have a vertical relationship.
The standard requiring a plaintiff to rule out independent conduct to satisfy the conspiracy element is to limit a plaintiff at summary-judgment or trial, usually in a class-action case, that seeks to hold a bunch of competitors liable for taking actions in parallel, without actual direct communication or agreement. The standard is necessary to avoid antitrust lawsuits against participants of every oligopolistic market in the economy, and there are plenty.
To their credit, a couple federal appellate courts have recently identified this common error and expressed their own frustration.
The Fourth Circuit in SD3, LLC v. Black & Decker (U.S.) Inc., 801 F.3d 412 (2015) explained, for example, that “the plausibly suggesting threshold for a conspiracy complaint remains considerably less than the tends to rule out the possibility standard for summary judgment.” (425)
The Fourth Circuit also observed that “Post-Twombly appellate courts have often been called upon to correct district courts that mistakenly engaged in this sort of premature weighing exercise in antitrust cases.” (425). The Court is referring to the common request by defendants to have the Court determine whether a lawful alternative explanation appear more likely from the facts of the complaint.
In a 2013 First Circuit decision called Evergreen Partnering Group Inc. v. Pactiv Corp., 720 F.3d 33, the Court expressed concern about the “considerable confusion” among lower courts from Twombly: It “is not for the court to decide, at the pleading stage, which inferences are more plausible than competing inferences, since those questions are properly left to the factfinder.” (45).
The First Circuit, like the Fourth Circuit, observed that the “slow influx of unreasonably high pleading requirements at the earliest stages of antitrust litigation has in part resulted from citations to case law evaluating antitrust claims at the summary judgment and post-trial stages, as the district court has done here.”
If you are a district judge or a law clerk for a district judge, please don’t confuse the standards for summary judgment with the standards for a motion to dismiss, especially when evaluating antitrust conspiracy claims of something other than pure parallel conduct.