Pleading, Discovery, and Proof of Sherman act Agreements: Harmonizing Twombly and Matsushita
| Author | William H. Page |
| Position | Marshall M. Criser Eminent Scholar, University of Florida Levin College of Law |
| Pages | 123-166 |
PLEADING, DISCOVERY, AND
PROOF OF SHERMAN ACT AGREEMENTS:
HARMONIZING TWOMBLY AND MATSUSHITA
W
ILLIAM
H. P
AGE
*
Matsushita
1
and Twombly
2
have reshaped federal standards for summary
judgment and pleading, especially in antitrust cases.
3
In earlier years, the Su-
preme Court had warned that “summary procedures should be used sparingly
in complex antitrust litigation where motive and intent play leading roles, the
proof is largely in the hands of the alleged conspirators, and hostile witnesses
thicken the plot.”
4
By 1969, Kenneth Dam could write that the Court appeared
to have decided “that it is per se erroneous to grant summary judgment against
a plaintiff in any treble-damage action.”
5
But the Court’s acceptance of the
Chicago School critique of antitrust law, beginning in 1977,
6
brought with it a
greater apprehension of the costs and potential for abuse of the private anti-
* Marshall M. Criser Eminent Scholar, University of Florida Levin College of Law.
1
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (1986).
2
Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007).
3
They both had reinforcement from other major decisions, proximate in time. Matsushita
was part of a famous trilogy in 1986 that included Anderson v. Liberty Lobby, Inc., 477 U.S. 242
Iqbal, 556 U.S. 662 (2009).
4
391 U.S. 253, 304 (1968) (Black, J., dissenting) (“[T]he summary judgment technique tempts
judges to take over the jury trial of cases, thus depriving parties of their constitutional right to
trial by jury.”). The Court also once suggested that “[t]he test as to sufficiency” of a complaint
was whether the claim was “wholly frivolous.” Radovich v. Nat’l Football League, 352 U.S. 445,
453 (1957) (quoting Hart v. B.F. Keith Vaudeville Exch., 262 U.S. 271, 274 (1923) (Holmes,
J.)).
5
Kenneth W. Dam, Fortner Enterprises v. U.S. Steel: “Neither a Borrower, nor a Lender
Be,” 1969 S
UP
. C
T
. R
EV
. 1, 10.
6
The watershed in the process of reception was Continental T.V., Inc. v. GTE Sylvania Inc.,
433 U.S. 36 (1977), which overruled the per se illegality of vertical territorial restraints. See
George L. Priest, Bork’s Strategy and the Influence of the Chicago School on Modern Antitrust
Law, 57 J.L. & E
CON
. S1, S6 (2014), which also points to two other decisions from that year,
Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477 (1977), and United States Steel
Corp. v. Fortner Enterprises, Inc., 429 U.S. 610 (1977).
123
82 Antitrust Law Journal No. 1 (2018). Copyright 2018 American Bar Association. Reproduced
by permission. All rights reserved. This information or any por tion thereof may not be copied
or disseminated in any form or by any means or downloaded or stored in an electronic
database or retrieval system without the express written consent of the American Bar
Association.
124
A
NTITRUST
L
AW
J
OURNAL
[Vol. 82
trust remedy.
7
The same concerns prompted the Court to rethink plaintiffs’
burdens of production on a motion for summary judgment, and of pleading on
a motion to dismiss. In framing these more exacting standards, the Court re-
lied on prevailing models and economic understanding to set boundaries on
the expense of discovery and the risks of error in jury trials. In place of the
earlier permissive approach, Matushita and Twombly have created a kind of
staged decision-theoretic inquiry.
8
Courts now must ask at the pleading stage
and, if necessary, again after discovery, whether the plaintiff has made a suffi-
cient showing to justify the expected direct and indirect costs of further in-
quiry.
9
Rather than pass contentions of fact through the stages of litigation
with minimal review, the Matsushita/Twombly framework increases the bur-
dens on pretrial motions, professedly to avoid unjustified direct costs of dis-
covery and indirect costs of “false inferences” of agreement.
10
These procedural innovations have had special influence on the many anti-
trust cases that turn on the same substantive issue that Matsushita and
Twombly themselves did: whether rivals in an alleged price-fixing (or other
per se illegal) conspiracy ever formed an agreement within the meaning of
7
William H. Page, The Chicago School and the Evolution of Antitrust: Characterization,
Antitrust Injury, and Evidentiary Sufficiency, 75 V
A
. L. R
EV
. 1221, 1255 (1989) [hereinafter
Page, Evolution of Antitrust] (arguing that the Chicago models led courts to reshape standards “in
a number of decisional contexts, in which the courts maintain the structure of existing doctrine,
while reducing its potential costs of overinclusiveness and error”).
8
See Thomas A. Lambert, The Roberts Court and the Limits of Antitrust, 52 B.C. L. R
EV
.
871, 916 (2011) (observing that Twombly “comports with decision theory’s overarching prescrip-
tion to minimize the sum of error and decision costs” ). The same is true of Matsushita.
9
See, e.g., Anderson News, L.L.C. v. Am. Media, Inc., 680 F.3d 162, 184 (2d Cir. 2012)
(“[T]o present a plausible claim at the pleading stage, the plaintiff need not show that its allega-
tions suggesting an agreement are more likely than not true or that they rule out the possibility of
independent action, as would be required at later litigation stages such as a defense motion for
summary judgment[.]”). Both Twombly and Matsushita use “suggest” in the conventional sense
of providing a basis for making an inference. See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556
(2007) (“[W]e hold that stating such a claim requires a complaint with enough factual matter
(taken as true) to suggest that an agreement was made.”); Matsushita Elec. Indus. Co. v. Zenith
Radio Corp., 475 U.S. 574, 596–97 (1986). (Because the evidence “suggest[ed]” that defendants
“were seeking to place a floor under prices rather than to lower them,” “behaved competitively,”
and could not recover losses from an alleged predatory campaign, “neither petitioners’ pricing
practices, nor their conduct in the Japanese market, nor their agreements respecting prices and
distribution in the American market, suffice[d] to create a ‘genuine issue for trial.’”).
10
Arthur Miller, especially, has criticized these changes as inconsistent with the purposes of
the federal rules. See, e.g., Arthur R. Miller, From Conley to Twombly to Iqbal: A Double Play
on the Federal Rules of Civil Procedure, 60 D
UKE
L.J. 1, 4 (2010) [hereinafter Miller, Double
Play] (“The structure of the Rules sharply reduced the prior emphasis on the pleadings and the
extensive related motion practice that served more to delay proceedings and less to expose the
facts, ventilate the competing positions, or further adjudication on the merits.”); Arthur R. Miller,
The Pretrial Rush to Judgment: Are the “Litigation Explosion,” “Liability Crisis,” and Effi-
ciency Cliches Eroding Our Day in Court and Jury Trial Commitments?, 78 N.Y.U. L. R
EV
. 982,
1019–21 (2003) (examining the opinions of Judges Frank and Clark in Arnstein v. Porter, 154
F.2d 464 (2d Cir. 1946), on the proper role of summary judgment).
2018]
H
ARMONIZING
T
WOMBLY
AND
M
ATSUSHITA
125
Section 1 of the Sherman Act.
11
Section 1 requires the plaintiff to establish
both an agreement and a restraint of trade. When an alleged (or admitted)
agreement can be characterized as ancillary to a productive purpose, the issue
of restraint of trade may require pleading and proof of an actual harm to com-
petition under some version of the rule of reason.
12
My concern in this article,
however, is with cases alleging per se violations of Section 1, such as naked
horizontal price fixing, market allocation, and boycotts. In these cases, liabil-
ity turns on whether the defendants coordinated their conduct by an agree-
ment.
13
As I have shown elsewhere, courts distinguish agreement from lawful
independent or interdependent conduct by the sorts of communication the ri-
vals used to coordinate nakedly anticompetitive actions.
14
In order to make the
necessary showing of tacit or express agreement, plaintiffs must allege and
then produce evidence that suggests that the rivals coordinated their future
competitive choices on issues like price by private communications. Resolu-
tions of defendants’ motions to dismiss or for summary judgment on this issue
alone frequently end Section 1 cases, either directly by granting the motion, as
in Matsushita and Twombly themselves, or indirectly by denying the motion
and engendering a settlement.
Under the present framework, whether the plaintiffs’ showing on either mo-
tion sufficiently suggests agreement depends on the court’s estimate of the
plausibility of the inferences the plaintiffs ask the court to draw. Matsushita
required courts, on a motion for summary judgment, to look for “evidence
‘that tends to exclude the possibility’ that the alleged conspirators acted inde-
11
In re Loestrin 24 Fe Antitrust Litig., 814 F.3d 538, 549 (1st Cir. 2016) (“Although the
pleading standards articulated in Twombly are now ubiquitous in the legal world, it is important
to note that Twombly addressed the specific question of ‘what a plaintiff must plead in order to
state a claim under § 1 of the Sherman Act,’ and this court has cautioned against converting
Twombly’s mandates into a requirement that antitrust plaintiffs provide evidentiary support or set
forth other ‘plus factors’ to demonstrate the plausibility of their Sherman Act claims.”).
12
See, e.g., Bay Area Surgical Mgmt. LLC v. Aetna Life Ins. Co., 166 F. Supp. 3d 988,
996–98 (N.D. Cal. 2015) (dismissing a claim alleged under the rule of reason both for failure
sufficiently to plead an agreement and for failure to plead a relevant market, market power, or
anticompetitive effects). For an excellent discussion of the challenges in characterizing complex
horizontal agreements, see Cason-Merenda v. Detroit Med. Ctr., 862 F. Supp. 2d 603, 641–45
(E.D. Mich. 2012) (evidence of hospitals’ exchanges of nurses’ wage information was insuffi-
cient to suggest a per se illegal price-fixing conspiracy but did raise an inference a tacit agree-
ment that might be proven anticompetitive under the rule of reason).
13
See, e.g., Gelboim v. Bank of Am. Corp., 823 F.3d 759, 771, 780–82 (2d Cir. 2016) (hold-
ing that “[s]ince appellants allege that the LIBOR [benchmark interest rate] ‘must be character-
ized as an inseparable part of the price,’ and since we must accept that allegation as true for
present purposes, the claim [of an agreement to fix LIBOR] is one of price-fixing,” which is
“unlawful per se, that is, without further inquiry”), cert. denied, 137 S. Ct. 814 (2017).
14
William H. Page, Tacit Agreement Under Section 1 of the Sherman Act, 81 A
NTITRUST
L.J.
593 (2017) [hereinafter Page, Tacit Agreement].
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