Closing the Doors to (Antitrust) Plaintiffs?

Today, in a 7-2 opinion, in Bell Atlantic v. Twombly, the Supreme Court ruled that the mere assertion in a complaint of an underlying agreement violating Section 1 of the Sherman act was insufficient to withstand a motion to dismiss when the parallel behavior in question could just as easily be explained as independent behavior. The majority opinion, authored by Justice Souter, emphasizes the high costs associated with antitrust discovery. In reaching its conclusion, the Court “retires”—as it puts it—its 1957 decision in Conley v. Gibson in which the Court spoke of “the accepted rule that 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.” Twombly is an important case for the antitrust bar, but it may matter everywhere. How much did the door to federal court close today?

David Fischer at the Antitrust Review usefully summarizes reactions to today’s opinion. I posted on this case after the oral argument was heard in the Supreme Court. That argument made much of Form 9 attached to the Federal Rules of Civil Procedure. In my post, I emphasized the important role that information asymmetry should play in how we assess pleading requirements. Some facts are known uniquely to defendants, others to plaintiffs: how should we take that into account in framing our pleading rules?

The majority opinion in Twombly makes very little of this. Form 9 is discussed in footnote 10 of the majority opinion at pages 18 to 19:

Apart from identifying a seven-year span in which the §1 violations were supposed to have occurred ..., the pleadings mentioned no specific time, place, or person involved in the alleged conspiracies. This lack of notice contrasts sharply with the model form for pleading negligence, Form 9, which the dissent says exemplifies the kind of “bare allegation” that survives a motion to dismiss. Post, at 6. Whereas the model form alleges that the defendant struck the plaintiff with his car while plaintiff was crossing a particular highway at a specified date and time, the complaint here furnishes no clue as to which of the four ILECs (much less which of their employees) supposedly agreed, or when and where the illicit agreement took place. A defendant wishing to prepare an answer in the simple fact pattern laid out in Form 9 would know what to answer; a defendant seeking to respond to plaintiffs’ conclusory allegations in the §1 context would have little idea where to begin.

This discussion misses a number of crucial points. We should first put the “answer” problem to one side. As a look at any recently-filed answer makes clear, we know how the defendant is going to answer: the defendant is simply going to deny the allegation.

Focus instead on what Form 9 says. As Justice Stevens notes in his dissenting opinion, see at page 6, the bare allegation of negligence in Form 9 would have been a conclusion of law under old-school pleading. But it is exactly what Form 9 contemplates and nothing in the word “negligence” gives the defendant any sense of the way in which negligence is claimed. It is just asserted, with nothing more. Footnote 10 of the majority opinion just skips over this entirely in emphasizing that the plaintiff there does list many facts. Yes, indeed; probably all of the facts known to the plaintiff but nothing about how the car was actually driven—something unknown to the plaintiff—just that it was driven negligently.

If we turn back to antitrust, as Justice Stevens notes at page 21 of his opinion, the assertion of negligence in Form 9 is no less bare than the standard assertion of the existence of a conspiracy in an antitrust complaint. The problem, of course, is the one-sidedness of the information available on the existence (or non-existence) of a conspiracy, a point that Justice Stevens emphasizes at pages 17 to 18 of his opinion. Often the plaintiffs won’t be able to get at actual facts of conspiracy—the who, what when and where contemplated by footnote 10—without discovery.

The majority opinion makes no effort to explain how we as a society should confront this core one-sidedness of information. This is hardly just an antitrust problem. We will constantly confront information that is systematically more available to one side more than the other, and we will see that in cases across the board, including the discrimination cases that receive some attention in today’s opinions. The whole point of the federal rules of civil procedure—rules controlled by the Supreme Court—is to figure out exactly how to manage that one-sidedness.

The critical question isn’t how to frame the answer, the problem posed by footnote 10, but rather how to frame discovery, and more generally, how to manage the one-sidedness of information. It is the fear of discovery run amok that drives the majority opinion—see the extensive quotation in footnote 6 of the majority opinion of a 1989 article by Judge Frank Easterbrook—and yet the Court offers no guidance as to how matters might be improved.

Under the Rules Enabling Act, the rules of civil procedure are squarely in the Supreme Court’s hands. If the current discovery rules don’t work—in antitrust cases or other cases—the Court should fix them. This is a problem of institutional design entrusted to the Court by Congress. The opinion in Twombly acts as if the discovery rules come from Mars rather than the Supreme Court itself. And if the Court believes that sensible discovery rules cannot be crafted, then we need to consider substituting regulatory approaches for courts. Private litigation substitutes, at least in part, for regulation.

Does the fact that the critical information regarding the existence or nonexistence of a possible conspiracy resides in the hands of potential defendants mean that we need to expand the civil investigative powers of the Department of Justice? I don’t have a quick answer to that question, but I think we should be disappointed that the Supreme Court doesn’t feel the need to address at all the problem of the one-sidedness of information.

Comments

[Bruce Boyden]

The court's citation of Easterbrook is ironic given that he wrote this just a few weeks ago:

"[A] judicial order dismissing a complaint because the plaintiff did not plead facts has a short half-life. 'Any decision declaring "this complaint is deficient because it does not allege X" is a candidate for summary reversal, unless X is on the list in Fed. R. Civ. P. 9(b).' Kolupa v. Roselle Park District, 438 F.3d 713, 715
(7th Cir. 2006)."

Vincent v. City Colleges of Chicago (7th Cir. Apr. 30, 2007).

[Joan A. Conway]

Some very basics were obviously missing in the complaint: the complaint here furnishes no clue as to which of the four ILECs (much less which of their employees) supposedly agreed, or when and where the illicit agreement took place.

There was no oversight to drafting this Complaint by the Law office Chief of Litigation. What can I say, but to say there will be a next time, when someone is injured by this obvious Anti-trust violation.

[LAK]

Yea, but how often can one plead with enough particularity about a conspiracy when there is no chance one has access to the information regarding the conspiracy. What seems strange is that circumstantial evidence is enough for liability - you can establish liability with enough info about meetings, and price increases, but you can't get past a motion to dismiss now if that is all you plead?

Often the only evidence anyone outsided the conspiracy might have is the timing of price increases and complaints by customers.

This is a ridiculous holding that is going to be used by corporate interests to shield themselevs from antitrust liability.

I guess the whole plaintiffs' antitrust bar will have to rely on whistleblowers and former employees to even plead a case.

[Roach]

This is not just a pleading issue. Consider the issue of electronic discovery: should the defendant be required to move heaven and earth to find the electronic footprint of emails between X and Y persons.

There should probably be some combination of cost-sharing on a sliding scale, or perhaps a total budget for discovery or something based on the scale of the case. Then the parties would have to allocate the amount the court grants to them in a manner that they deemed cost effective. The court could just say: this is a $10mm case, total legal costs cannot exceed $3mm, so you, plaintiff, have a $1mm discovery budget to be shared 90/10 with the defendant. Have at it. But spend your Monopoly Money (your opponent's court-mandated Discovery Budget) wisely.

[Randy Picker]

yes, we talked about this case at lunch today; definitely would want to do the discovery budget and probably move towards some sort of cost-shifting in connection with it.

[LAK]

Since when does it require moving heaven and earth to copy electronic data? The burden that companies have is far less than it used to be in the pre-computer age. Digging up custodial emails of managers and sales people involved in price fixing and other sherman act violations takes little effort. The "burden" that these large companies with dedicated IT departmenst claim if often total BS in my experience.

What this will result in is dead weight loss and consumers being screwed more often then they already are.

Price fixers get away with it far more than they are burdened with fishing expeditions in situations where they have done no wrong. Plaintiffs attorneys don't want to waste anyone's time and money, especially our own.

Especially now, if Plaintiffs get passed a MTD, the burden should be squarely on the corporation to produce documents. Allowing Defendants to bill Plaintiffs for complyig with discovery would create the most perverse of incentives to lie about the expense of doing basic email seraches on servers.

Just because a few coporations have had to bear discovery costs in cases that they have won or settled quickly does not mean that society at large is better off allowing them to fix prices more often. You are just transferring costs onto consumers in that situation to please corproate interests which are already significantly overweighted in the law. Combine this with the fact that the Justice Department under Bush does Zero antitrust work, and you have a recipe for even more corporate exploitation of their control of particular markets.

[Alex]

The point missing in much of this conversation is whether the result in this case can be solely justified on a fair reading of Fed. R. Civ. P. 8 and 12(b)(6)? All of the justifications for the outcome are based on "policy" considerations relating to the "burden" and "cost" on the defendants to complete discovery. And as for that policy point, looking at the gross cost of discovery is an improper metric. Take for example a single plaintiff suing in a garden variety medical malpractice case, the cost of discovery for that plaintiff, as a percentage of her net value, might (actually will likely) exceed (by a non-trivial amount) the percentage that discovery will cost a corporation (or corporations) in terms of its (their) revenues facing a Section 1 suit. In other words, raw dollars doesn't tell you much.

[Bob]

Takes little effort to produce e-mail? Spoken like someone with no clue as to the realities of large corporations. In order for defense counsel (and in-house counsel) to fulfill their duties to the Court to participate in good faith, substantial time and effort goes into attempting to make sure that all electronic 'documents' are located which are responsive to overbroad discovery requests. You would not believe how much time, money, and other resources are thrown at such efforts. It truly is mind boggling.

[Roach]

Seriously, I can't imagine anyone who has been through major civil litigation suggesting electronic discovery does not cost a lot of time, effort, and money. If nothing else, it takes a lot of time for lawyers to review the 1,000,000 plus documents produced in these cases. That said, once you start requiring defendants to go to electronic backup tapes and hire forensic computer guys to turn over deleted material, you're talking real money.

[LAK]

Oh it takes time and some money, but nothing like defendants continuously cry about - not to mention the perverse incentives large defense firms have to overbill their corporate clients for doc review - funny how that rarely gets mentions when defendants whine about the cost of discovery.

And Ps have to produce too you know when we represent large plaintiffs as well. I understand exactly what it takes to get archival and search databases and review and produce. It is an unfortunate amount of the work I do.

That liability can be established by enough circumstantial evidence, but that circumstantial evidence can rarely be enough to get passed a MTD makes little sense, especially in this context where the conspirators have all the evidence, if any solid evidence exists, in their business records. It is amazing what some sales people and business managers will write to each other though. Funny how the fancy antitrust firms fail their clients in that regard too. "Reminder - don't write your competitors emails regarding your agreement to put a floor on prices."

[ohwilleke]

The PSLRA already has this kind of impact in the securities law field. The only cases where you are likely to get enough pre-litigation discovery to meet its requirements in strict circuits, are those where you have an insider informant (who has likely violated legal duties in providing the information), and those where you buy the whole company and find support in the corporate records after the fact.

We seem to be moving to a legal context where you can't use smoke to bring litigation to get discovery to see if there was a fire.

[LAK]

Yea but the thing about securties fraud is that it is brought out into the light far more easily and frequently than even per se antitrust violations like price fixing. Public companies have duties to their shareholders and committing fraud that pisses off certain shareholders is far more easily discovered with their incentive to weed it out and the required financial reporting. Hell when a compnay restates its previously reported finaincials, it is assumed they'd only be doing so if it was material, so much of your work is done cefore you even file.

Antitrust on the other hand, all you have is cues from the Feds who take complaints from the companies being affected - and we all know how effective the DOJ has been at corporate regulation in the last 7 years. That is the only smoke their is in the price fixing world save a whistleblower- a pattern of complaints about lack of competition in commodity pricing and some circumstatial evidence about trade meetings and price raises. All the evidence lies with the conspirators.