Supreme Court redefines pleading standard.

The Supreme Court recently held that plaintiffs alleging antitrust violations under the Sherman Act against several telecommunications companies failed to state a claim because they "have not nudged their claims across the line from conceivable to plausible." (Bell Atlantic v. Twombly, 127 S. Ct. 1955 (2007).)

Justice David Souter wrote for the 7-2 majority: "[W]e do not require heightened fact pleading of specifics, but only enough facts to state a claim to relief that is plausible on its face."

However, some observers say the decision does amount to a new, heightened pleading standard, and a few lower courts have already applied Twombly in granting defendants' motions to dismiss in cases unrelated to antitrust. (Hicks v. Assn. of Am. Med. Colleges, 2007 WL 1577841 (D.D.C. May 31, 2007); Goldstein v. Pataki, 2007 WL 1654009 (E.D.N.Y. June 6, 2007).)

Dissenting, Justice John Paul Stevens wrote that "the intentions of the drafters of three important sources of law--the Sherman Act, the Telecommunications Act of 1996, and the Federal Rules of Civil Procedure--all point unmistakably in the same direction, yet the Court marches resolutely the other way." Justice Ruth Bader Ginsburg joined his dissent in part.

William Twombly and Lawrence Marcus represented a putative class of phone and Internet subscribers. They alleged that incumbent local exchange carriers (ILECs), known as the "Baby Bells," conspired to restrain trade, inflating customers' charges. They alleged that the ILECs agreed not to compete with one another--in spite of the Telecommunications Act's attempts to break up their regional monopolies--and acted in parallel to hinder upstart local exchange carriers.

The district court, finding that the ILECs' failure to enter each other's territory could be explained by their own self-interests, dismissed the case for failure to state a claim. The Second Circuit reversed.

The Supreme Court overturned the Second Circuit's decision, holding that "plaintiffs rest their [section] 1 claim on descriptions of parallel conduct and not on any independent allegation of actual agreement among the ILECs."

At oral argument, New York City lawyer J. Douglas Richards, who argued the plaintiffs' case, said the complaint "alleges that there was an agreement, but it doesn't prove that there was an agreement because proving the facts alleged is not a plaintiff's burden in the complaint."

Ginsburg appeared to agree, saying at oral argument that "the Federal Rules of Civil Procedure assiduously avoid using the word 'fact' throughout. And from 1938 on, it has been repeated that it is not necessary to plead facts."

A group of legal scholars and plaintiffs in another antitrust case filed an amicus brief in support of the plaintiffs, arguing: "This is no time to abandon the notice-pleading principle adopted in the Federal Rules in 1938.... Requiring fact pleading is particularly inappropriate in cases that deal with complex conspiracies stretching over months or years."

The Court noted that Federal Rule 8(a) (2) "requires only 'a short and plain statement of the claim showing that the pleader is entitled to relief.'" However, it held that "factual allegations must be enough to raise a right to relief above the speculative level."

In deciding Twombly, the Court "retired" language from a 1957 case, Conley v. Gibson, that said "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." (355 U.S. 41 (1957).) Souter wrote that "after puzzling the profession for 50 years, this famous observation has earned its retirement."

In his dissent, Stevens wrote that Conley's "no set of facts" language "has been cited as authority in a dozen opinions of this Court and four separate writings.... Indeed, today's opinion is the first by any member of this Court to express any doubt as to the adequacy of the Conley formulation."

John Vail, vice president and senior litigation counsel for the Washington, D.C.-based Center for Constitutional Litigation, noted, "The language hadn't puzzled the profession. It had addled the powerful, and they made their discontent known. It is the Court's new ruling that will vex the profession."

The majority's opinion includes concerns about discovery costs. "[I]t is one thing to be cautious before dismissing an antitrust complaint in advance of discovery, but quite another to forget that proceeding to antitrust discovery can be expensive," Souter wrote.

But "discovery costs can be managed in other ways," Richards said. "They just require attention by courts and by lawyers." He said at oral argument that the plaintiffs had proposed a phased discovery process to control costs.

Stevens wrote in his dissent, "The transparent policy concern that drives the decision is the interest in protecting antitrust defendants--who in this case are some of the wealthiest corporations in our economy--from the burdens of pretrial discovery."

As Twombly's effect on what exactly a plaintiff needs to allege at the pleading stage began to play out in the lower courts, the Supreme Court returned to the ruling in Erickson v. Pardus, holding in June that the Tenth Circuit erred in dismissing a pro se plaintiff's claim of Eighth and Fourteenth Amendment violations. (127 S. Ct. 2197 (2007) (per curiam).) The Court wrote, "Specific facts are not necessary; the statement need only 'give the defendant fair notice of what the ... claim is and the grounds upon which it rests.'" Some commentators have suggested that Erickson serves as a warning that lower courts should not overextend Twombly.

"The breadth of Twombly's effect is hard to predict," Richards said, adding that conflict among the circuit courts is likely as they interpret the decision.

Vail said he believes Twombly will have a significant impact beyond antitrust cases, especially on civil rights cases.

"Practitioners who, when pleading, had not worried about the fine distinctions among evidence, ultimate facts, and conclusions will again be required to ponder these imponderables, as will judges required to adjudicate ever more complicated motions to dismiss," he noted.

Stevens wrote, "Whether the Court's actions will benefit only defendants in antitrust treble-damages cases, or whether its test for the sufficiency of a complaint will inure to the benefit of all civil defendants, is a question that the future will answer." He added, "I would not rewrite the nation's civil procedure textbooks and call into doubt the pleading rules of most of its states without far more informed deliberation as to the costs of doing so."