Bell Atlantic Corp. v. Twombly: Mere Adjustment or Stringent New Requirement in Pleading? - Amber A. Pelot

• Publication year: 2008

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Bell Atlantic Corp. v. Twombly: Mere Adjustment or Stringent New Requirement in Pleading?

I. Introduction

In Bell Atlantic Corp. v. Twombly,¹ the United States Supreme Court seemingly tightened general federal pleading requirements, expressly abrogating a much-cited linguistic formula from Conley v. Gibson² and making the avoidance of early dismissals more difficult for plaintiffs. To avoid dismissal for failure to state a claim, plaintiffs filing antitrust suits alleging conspiracy must set forth enough facts in the pleadings to suggest a preceding agreement, as distinct from parallel, independent action—at least where the parallel conduct is readily explained by lawful business motivations.³ The Court further declared that to withstand a motion to dismiss for legal insufficiency, a complaint must contain enough allegations of fact to make it "plausible," rather than merely conceivable, that discovery will disclose grounds for each required element of a plaintiff's particular claim.⁴ Applied generally, this test will make the lenient "notice pleading" regime exemplified by Conley significantly more stringent.⁵

II. Factual Background

William Twombly and Lawrence Marcus filed a putative class action suit on behalf of local telephone and Internet service subscribers.⁶ The complaint claimed that major telecommunications providers created from the divestiture of AT&T (called Incumbent Local Exchange Carriers ("ILECs")) had violated Sec. 1 of the Sherman Act,⁷ "which prohibits '[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations.'"⁸

Twombly and Marcus's complaint alleged that the ILECs conspired to restrain trade in two ways, each of which they claimed inflated charges for local telephone and high-speed Internet services. First, the complaint alleged that the ILECs conspired to prevent competitive entry into their respective markets by engaging in parallel conduct aimed at inhibiting the growth of potential upstart carriers so that such carriers would be discouraged from breaking into the business. Twombly and Marcus claimed that to prevent competitive entry, the ILECs made unfair agreements with the upstart carriers by providing them with inferior connections, overcharging them, and using billing methods designed to sabotage the relationship between the upstart carriers and their customers. Second, the complaint alleged that the ILECs made agreements to refrain from competing against one another by allocating customers and markets to one another and that such agreements should be inferred from the ILECs' common failures to pursue advantageous business opportunities in competitive markets. Twombly and Marcus claimed that the agreements were also evidenced by the statement of ILEC's chief executive officer that it was not "right" to compete in the territory of another ILEC.⁹

The united States District Court for the Southern District of New York dismissed the complaint under Federal Rule of Civil Procedure 12(b)(6) ("Rule 12(b)(6)").¹⁰ The district court held that the plaintiffs must allege additional facts that exclude independent, self-interested conduct as an explanation for the parallel actions. The district court further found that the allegations of parallel conduct were inadequate because the ILECs had possible business justifications for defending their individual territories.¹¹

The United States Court of Appeals for the Second Circuit reversed, holding that under Federal Rule of Civil Procedure 8(a)(2) ("Rule 8(a)(2)"),¹² the district court used the wrong standard to test the complaint for factual sufficiency.¹³ The court of appeals ruled that "'plus factors are not required to be pleaded to permit an antitrust claim based on parallel conduct to survive dismissal.'"¹⁴ Further, the court of appeals held the plaintiffs' parallel conduct allegations to be sufficient because the ILECs failed to show, under the much-cited linguistic formula from Conley v. Gibson,¹⁵ that "no set of facts" existed that would permit the plaintiffs to demonstrate collusion.¹⁶

Because the district court and the court of appeals disputed the proper standard for pleading antitrust conspiracy through allegations of parallel conduct, the United States Supreme Court granted certiorari and reversed the Second Circuit's holding in a 7-2 decision.¹⁷ The Court held that stating a conspiracy claim under Sec. 1 of the Sherman Act requires allegations of enough factual matter to suggest that a preceding agreement was made; allegations of parallel conduct coupled with "bare" assertions of conspiracy will not suffice.¹⁸

III. Legal Background

David Dudley Field developed the influential New York Code of Procedure,¹⁹ deemed the "Field Code," which was adopted in 1848.²⁰ This code "required '[a] statement of the facts constituting the cause of action, in ordinary and concise language, without repetition, and in such a manner as to enable a person of common understanding to know what is intended.'"²¹ However, the Field Code did not specify whether evidentiary facts or legal facts were required to be pleaded or whether "ultimate facts" could satisfy its test.²² Similar language also appeared in the Federal Equity Rules,²³ adopted in 1912, as well as in English practices.²⁴ The Field Code, Federal Equity Rules, and English practices all required plaintiffs to plead "facts" rather than "conclusions," but the distinction between these requirements was unclear.²⁵ Field Code pleadings were required to fulfill four functions: (1) to put the opposing party on notice of the pleadings; (2) to state relevant facts; (3) to narrow the issues to be litigated; and (4) to provide a means for quick disposition of frivolous claims and insufficient defenses.²⁶ Accordingly, courts dismissed many claims for deficient pleadings without reaching the merits of their respective controversies.²⁷ Thus, before the era of modern pleading began with the adoption of the Federal Rules of Civil Procedure ("Federal Rules") in 1938, a plaintiff could only survive a motion to dismiss if pleaded facts that, if true, showed the plaintiff's legal rights had been violated.²⁸ However, without pretrial discovery, ordinarily conducted only after the filing of initial pleadings,²⁹ the plaintiff lacked the ability to plead sufficient facts.³⁰

In response to the confusion regarding which pleaded facts or conclusions were sufficient and to enable courts to reach the merits of controversies more frequently, Federal Rule of Civil Procedure 8 ("Rule 8")³¹ substituted "notice" pleading for fact pleading.³² Rule 8 replaced the dominant pleading standard that existed before the adoption of the Federal Rules—the formula requiring "'facts' constituting a 'cause of action,'"—with the requirement of a "'claim showing that the pleader is entitled to relief.'"³³ Rule 8(a)(2) requires the complaint to indicate "the nature of the plaintiff's claim with only enough specificity to enable the parties to determine the preclusive effect of a judgment disposing of the claim."³⁴ In promulgating Rule 8, the drafters intentionally did not refer to "facts" or "conclusions," and thus the "'liberal notice pleading of Rule 8(a) [was] the starting point of a simplified pleading system, which was adopted to focus litigation on the merits of a claim.'"³⁵

Rule 8 provides the foundation of pleading requirements under the Federal Rules, particularly subsections (a)(2), (e), and (f), which indicate that pleadings are to be construed liberally as justice requires.³⁶ Further, the Federal Rules limit the purpose of pleadings to putting opposing parties on notice of the transaction giving rise to the claim and one or more recognized—or even emerging or imaginable—legal theories warranting relief.³⁷ Therefore, the Federal Rules leave factual elaboration of claims and defenses to the period of discovery and other pretrial processes.³⁸

Rule 8 has been amended in minor ways twice. Despite these revisions, Rule 8 has been the subject of a fair amount of controversy since its promulgation regarding what must be included in pleadings.³⁹ Judge Charles E. Clark, the principal draftsman of the Federal Rules, proposed amendments to Rule 8 to make it clear that facts were not required in pleadings, but such proposals were never enacted.⁴⁰ Additionally, the 1955 Advisory Committee prepared a note to Rule 8(a)(2) that definitively rejected contentions that the rule required pleadings of facts and causes of action, yet the note was never officially approved.⁴¹ However, all of these proposals evince the strong convictions of the Advisory Committee, Judge Clark, and others, which are that factual pleading should not be required under Rule 8.⁴² Thus, the notice requirement of Rule 8 has not been applied to measure the legal sufficiency of complaints by the "evidentiary" or "conclusory" nature of their constituent allegations; instead, Rule 8 measures whether the totality of the allegations, if temporarily accepted as true, puts opposing parties on notice of the transaction and also contains one or more arguable relief-worthy theories.⁴³ As a result, courts have upheld complaints that gave opposing parties such notice, regardless of whether that was accomplished by allegations of "fact" or conclusions of "law."⁴⁴ Further, Judge Clark stated that pleadings do not require proofto be set forth; rather, all that can be expected from pleadings is "'a general statement distinguishing the case from all others, so that the manner and form of trial and remedy expected are clear, and so that a permanent judgment will result.'"⁴⁵ By drafting Rule 8 in a manner that eliminates the necessity of pleading facts, Judge Clark intended to relieve courts of the previous time-consuming role of analyzing which of the facts provided, if any, were sufficient.⁴⁶ Sometimes conclusory allegations were considered sufficient because the new system...