In Re Insurance Brokerage Antitrust Litigation

PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 07-4046

IN RE: INSURANCE BROKERAGE

ANTITRUST LITIGATION (MDL No. 1663)

OptiCare Health Systems, Inc., Comcar Industries, Inc.,

Sunburst Hospitality Corporation, Robert Mulcahy,

Golden Gate Bridge, Highway and Transportation District,

Glenn Singer, Redwood Oil Company,

Omni Group of Companies, Bayou Steel Corporation,

Clear Lam Packaging, Inc., Cellect, LLC, Enclave, LLC,

Gateway Club Apartments, Ltd., Michigan Multi-King, Inc.,

City of Stamford, Belmont Holdings Corporation,

Tri-State Container Corporation,

Appellants

D.C. Civil Action No. 04-cv-5184

MDL No. 1663

Nos. 08-1455 & 08-1777

IN RE: EMPLOYEE BENEFIT INSURANCE

BROKERAGE ANTITRUST LITIGATION (MDL 1663)

Maryann Waxman, on behalf of herself

and all others similarly situated,

Golden Gate Bridge, Highway and Transportation District,

Christopher Bare, David Boros, Cynthia Brandes,

Hans Fuson, Sharon Gehringer, Larry Hayes,

Brannen Henn, Robert H. Kimball, Wayne Moran,

Alicia A. Pombo, Clear Lam Packaging Inc.,

Connecticut Spring & Stamp Company,

City of Danbury, Connecticut,

Fire District of Sun City West,

Hollander Home Fashions Corporation,

Appellants

D.C. Civil Action No. 05-cv-1079

MDL No. 1663

On Appeal from the United States District Court

for the District of New Jersey

(Honorable Honorable Garrett E. Brown, Jr.)

Argued April 21, 2009

Before: SCIRICA, FISHER and

GREENBERG, Circuit Judges.

2

(Filed August 16, 2010)

ELLEN MERIWETHER, ESQUIRE (ARGUED)

BRYAN L. CLOBES, ESQUIRE

Cafferty Faucher LLP

1717 Arch Street, Suite 3610

Philadelphia, Pennsylvania 19103

JOE R. WHATLEY, JR., ESQUIRE (ARGUED)

EDITH M. KALLAS, ESQUIRE

Whatley Drake & Kallas LLC

1540 Broadway, 37th Floor

New York, New York 10036

CHARLENE P. FORD, ESQUIRE

Whatley Drake & Kallas LLC

2001 Pennsylvaniark Place North, Suite 1000

Birmingham, Alabama 35203

Attorneys for Appellants

DANIEL J. LEFFELL, ESQUIRE

ANDREW C. FINCH, ESQUIRE

DAVID J. FRIAR, ESQUIRE

Paul Weiss Rifkind Wharton & Garrison LLP

1285 Avenue of the Americas

New York, New York 10019

3

KENNETH A. GALLO, ESQUIRE

Paul Weiss Rifkind Wharton & Garrison LLP

2001 K Street, N.W., Suite 600

Washington, D.C. 20006

Attorneys for Appellees,

American International Group, Inc.; American

International Specialty Lines Insurance Company;

Lexington Insurance Company; AIG Casualty Company

f/k/a Birmingham Fire Insurance Company of

Pennsylvania; American Home Assurance Company;

National Union Fire Insurance Company of Pittsburgh,

Pa.; National Union Fire Insurance Company of

Louisiana; American International Insurance Company;

The Insurance Company of the State of Pennsylvania;

AIU Insurance Company; Commerce and Industry

Insurance Company; New Hampshire Insurance

Company; The Hartford Steam Boiler Inspection and

Insurance Company; Illinois National Insurance Co.;

AIG Life Holdings (US), Inc. f/k/a American General

Corporation; AIG Excess Liability Insurance Company

Ltd. f/k/a Staff Excess Liability Company, Ltd.; AIG

Life Insurance Company; The United States Life

Insurance Company in the City of NewYork

SETH P. WAXMAN, ESQUIRE (ARGUED)

WILLIAM J. KOLASKY, ESQUIRE

JONATHAN E. NUECHTERLEIN, ESQUIRE

Wilmer Cutler Pickering Hale & Dorr LLP

4

1875 Pennsylvania Avenue, N.W.

Washington, D.C. 20006

PAUL A. ENGELMAYER, ESQUIRE

ROBERT W. TRENCHARD, ESQUIRE

Wilmer Cutler Pickering Hale & Dorr LLP

399 Park Avenue, 30th Floor

New York, New York 10022

ANDREA J. ROBINSON, ESQUIRE

JOHN J. BUTTS, ESQUIRE

Wilmer Cutler Pickering Hale & Dorr LLP

60 State Street

Boston, Massachusetts 02109

Attorneys for Appellees,

The Hartford Financial Services Group, Inc.; Hartford

Fire Insurance Co.; Twin City Fire Insurance Co.; Pacific

Insurance Co., Ltd.; Nutmeg Insurance Co.; The Hartford

Fidelity & Bonding Co.; Hartford Life and Accident

Insurance Company; Hartford Life Group Insurance

Company; Hartford Life Insurance Company

DONALD A. ROBINSON, ESQUIRE

LEDA DUNN WETTRE, ESQUIRE

Robinson Wettre & Miller LLC

One Newark Center, 19th Floor

Newark, New Jersey 07102

5

RICHARD C. GODFREY, ESQUIRE

LESLIE M. SMITH, ESQUIRE

DANIEL E. LAYTIN, ESQUIRE

ELIZABETH A. LARSEN, ESQUIRE

Kirkland & Ellis LLP

300 North LaSalle Street, Suite 2400

Chicago, Illinois 60654

Attorneys for Appellees,

Aon Corporation; Aon Broker Services, Inc.; Aon Risk

Services Companies, Inc.; Aon Risk Services, Inc. U.S.;

Aon Risk Services, Inc. of Maryland; Aon Risk Services,

Inc. of Louisiana; Aon Risk Services of Texas, Inc.; Aon

Risk Services, Inc. of Michigan; Aon Group, Inc.; Aon

Services Group, Inc.; Aon Re, Inc.; Affinity Insurance

Services, Inc.; Aon Re Global, Inc.; Aon Consulting, Inc.

LIZA M. WALSH, ESQUIRE

MARC D. HAEFNER, ESQUIRE

Connell Foley LLP

85 Livingston Avenue

Roseland, New Jersey 07068

H. LEE GODFREY, ESQUIRE

NEAL S. MANNE, ESQUIRE

JOHNNY CARTER, ESQUIRE

Susman Godfrey LLP

1000 Louisiana, Suite 5100

Houston, Texas 77002-5096

6

JEREMY S. BRANDON, ESQUIRE

Susman Godfrey LLP

901 Main Street, Suite 5100

Dallas, Texas 75202-3775

Attorneys for Appellees,

ACE Limited; ACE INA Holdings, Inc.; ACE USA, Inc.;

ACE American Insurance Co.; Westchester Surplus

Lines Insurance Co.; Illinois Union Insurance Co.;

Indemnity Insurance Co. of North America; ACE Group

Holdings, Inc.; ACE US Holdings, Inc.; Westchester Fire

Insurance Company; INA Corporation; INA Financial

Corporation; INA Holdings Corporation; ACE Property

& Casualty Insurance Co.; Pacific Employers Insurance

Co.

EAMON O'KELLY, ESQUIRE

JOHNS F. COLLINS, ESQUIRE

Dewey & LeBoeuf LLP

1301 Avenue of the Americas

New York, New York 10019

DAVID J. GRAIS, ESQUIRE

Grais & Ellsworth LLP

70 East 55th Street

New York, New York 10022

Attorneys for Appellees,

American Re Corporation; American Re-Insurance

Company; Munich-American Risk Partners; American

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Alternative Insurance Corporation

MICHAEL L. WEINER, ESQUIRE

PAUL M. ECKLES, ESQUIRE

Skadden Arps Slate Meagher & Flom LLP

Four Times Square

New York, New York 10036

Attorneys for Appellees,

AXIS Specialty Insurance Company; AXIS Surplus

Insurance Company; AXIS Capital Holdings Ltd.

MICHAEL L. McCLUGGAGE, ESQUIRE

BETH L. FANCSALI, ESQUIRE

Wildman Harrold Allen & Dixon LLP

225 West Wacker Drive, Suite 2800

Chicago, Illinois 60606

Attorneys for Appellees,

CNA Financial Corp.; The Continental Insurance Co.;

Continental Casualty Co.; American Casualty Co. of

Reading, PA

LAZAR P. RAYNAL, ESQUIRE

McDermott Will & Emery LLP

227 West Monroe Street, Suite 5200

Chicago, Illinois 60606

Attorney for Appellees,

Chicago Insurance Co.; Fireman’s Fund Insurance

Company; National Surety Corp.

8

PETER R. BISIO, ESQUIRE

Hogan Lovells US LLP

555 13th Street, N.W.

Washington, D.C. 20004

Attorney for Appellees,

The Chubb Corporation; Federal Insurance Company;

Executive Risk Indemnity Inc.; Vigilant Insurance

Company

LOUIS G. CORSI, ESQUIRE

Landman Corsi Ballaine & Ford P.C.

120 Broadway, 27th Floor

New York, New York 10271-0079

Attorney for Appellees,

Crum & Forster Holdings Corp.;

United States Fire Insurance Company

JOHN L. THURMAN, ESQUIRE

Farrell & Thurman PC

172 Tamarack Circle

Skillman, New Jersey 08558

9

ROBERT A. ALESSI, ESQUIRE

Cahill Gordon & Reindel LLP

Eighty Pine Street

New York, New York 10005-1702

Attorneys for Appellees,

Greenwich Insurance Company; Indian Harbor Insurance

Company; XL Capital Ltd.; X.L. America, Inc.; XL

Insurance America, Inc.

ALAN L. KILDOW, ESQUIRE

SONYA R. BRAUNSCHWEIG, ESQUIRE

JAROD M. BONA, ESQUIRE

DLA Piper US LLP

90 South Seventh Street, Suite 5100

Minneapolis, Minnesota 55402

Attorneys for Appellees,

Wells Fargo & Co.; Acordia, Inc.

JONATHAN M. WILAN, ESQUIRE

Hunton & Williams LLP

1900 K Street, N.W., Suite 1200

Washington, D.C. 20006

JOHN J. GIBBONS, ESQUIRE

MICHAEL R. GRIFFINGER, ESQUIRE

Gibbons P.C.

One Gateway Center

Newark, New Jersey 07102

10

Attorneys for Appellee,

Hilb, Rogal & Hobbs Company

RICHARD C. PEPPERMAN II, ESQUIRE

Sullivan & Cromwell LLP

125 Broad Street

New York, New York 10004

Attorney for Appellees,

Willis Group Holdings Limited; Willis Group Limited;

Willis North America, Inc.; Willis of New York, Inc.;

Willis of Michigan, Inc.

KEVIN J. FEE, ESQUIRE

Kornstein Veisz Wexler & Pollard LLP

757 Third Avenue, 18th Floor

New York, New York 10017

BRIAN E. ROBISON, ESQUIRE

Vinson & Elkins LLP

Trammell Crow Center

2001 Ross Avenue, Suite 3700

Dallas, Texas 75201

Attorneys for Appellees,

Liberty Mutual Holding Company, Inc.; Liberty Mutual

Insurance Co.; Liberty Mutual Fire Insurance Co.;

Wausau Underwriters Insurance Co.; Employers

Insurance Co. of Wausau; Wausau Business Insurance

Co.; Wausau General Insurance Co.

11

MICHAEL J. GARVEY, ESQUIRE

PAUL C. CURNIN, ESQUIRE

DAVID ELBAUM, ESQUIRE

BRYCE L. FRIEDMAN, ESQUIRE

Simpson Thacher & Bartlett LLP

425 Lexington Avenue

New York, New York 10017

Attorneys for Appellees,

The Travelers Companies, Inc.; St. Paul Fire and Marine

Insurance Company; Gulf Insurance Company; St. Paul

Mercury Insurance Company; Travelers Casualty and

Surety Company of America; The Travelers Indemnity

Company; Athena Assurance Company; Travelers

Property Casualty Corp.

HENRY WEISBURG, ESQUIRE

Shearman & Sterling LLP

599 Lexington Avenue

New York, New York 10022

Attorney for Appellees,

Munich Reinsurance

MICHAEL M. MADDIGAN, ESQUIRE

PAUL B. SALVATY, ESQUIRE

O'Melveny & Myers LLP

400 South Hope Street, 15th Floor

Los Angeles, California 90071

12

SAMUEL P. MOULTHROP, ESQUIRE

Riker Danzig Scherer Hyland & Perretti LLP

Headquarters Plaza

One Speedwell Avenue

Morristown, New Jersey 07962

Attorneys for Appellees,

Life Insurance Company of North America; Connecticut

General Life Insurance Company

JAMES W. CARBIN, ESQUIRE

Duane Morris LLP

744 Broad Street, Suite 1200

Newark, New Jersey 07102

Attorney for Appellees,

MetLife, Inc.; Metropolitan Life Insurance Company;

Paragon Life Insurance Company; General American

Life Insurance Company; New England Life Insurance

Company; Citicorp Life Insurance Company; Travelers

Life and Annuity Company; Travelers Insurance

Company; Reinsurance Group of America, Inc.

EDWARD G. BIESTER III, ESQUIRE

JEFFREY S. POLLACK, ESQUIRE

Duane Morris LLP

30 South 17th Street

Philadelphia, Pennsylvania 19103

Attorneys for Appellees,

MetLife, Inc.; Metropolitan Life Insurance Company;

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Paragon Life Insurance Company

DOUGLAS S. EAKELEY, ESQUIRE

JOHN R. MIDDLETON, ESQUIRE

MATTHEW SAVARE, ESQUIRE

SCOTT L. WALKER, ESQUIRE

Lowenstein Sandler PC

65 Livingston Avenue

Roseland, New Jersey 07068

Attorneys for Appellees,

Prudential Financial, Inc.;

The Prudential Insurance Company of America

PATRICK W. SHEA, ESQUIRE (ARGUED)

Paul Hastings Janofsky & Walker LLP

75 East 55th Street

New York, New York 10022

STEVEN P. DEL MAURO, ESQUIRE

McElroy Deutsch Mulvaney & Carpenter LLP

Three Gateway Center

100 Mulberry Street

Newark, New Jersey 07102

Attorneys for Appellees,

The Unum Group Corporation; Unum Life Insurance

Company of America; Provident Life and Accident

Insurance Company

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STEPHEN P. YOUNGER, ESQUIRE

LAURA J. WOOD, ESQUIRE

Patterson Belknap Webb & Tyler LLP

1133 Avenue of the Americas

New York, New York 10036

Attorneys for Appellees,

Universal Life Resources; ULR Insurance Services Inc.;

Benefits Commerce; Douglas P. Cox

RACHEL L. GERSTEIN, ESQUIRE

ROBERT H. PEES, ESQUIRE

Akin Gump Strauss Hauer & Feld LLP

One Bryant Park

New York, New York 10036

Attorneys for Appellees,

USI Holdings Corporation; USI Consulting Group, Inc.;

USI Services Corporation f/k/a USI Insurance Services

Corp.

KEVIN P. RODDY, ESQUIRE

Wilentz Goldman & Spitzer, P.A.

90 Woodbridge Center Drive, Suite 900

Woodbridge, New Jersey 07095

Attorney for Amicus Curiae-Appellants at 07-4046,

National Association of Shareholder and Consumer

Attorneys (NASCAT)

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EUGENE R. ANDERSON, ESQUIRE

Anderson Kill & Olick, P.C.

1251 Avenue of the Americas

New York, New York 10020

Attorney for Amicus Curiae-Appellants at 07-4046,

United Policyholders

OPINION OF THE COURT

SCIRICA, Circuit Judge.

This appeal from orders of dismissal under Federal Rule

of Civil Procedure 12(b)(6) involves multiple putative class

actions alleging massive conspiracies throughout the insurance

industry. Plaintiffs are purchasers of commercial and employee

benefit insurance, and defendants are insurers and insurance

brokers that deal in those lines of insurance. According to

plaintiffs, defendants entered into unlawful, deceptive schemes

to allocate purchasers among particular groups of defendant

insurers. The complaints assert that conspiring brokers funneled

unwitting clients to their co-conspirator insurers, which were

insulated from competition; in return, the insurers awarded the

brokers contingent commission payments—concealed from the

insurance purchasers and surreptitiously priced into insurance

premiums—based on the volume of premium dollars steered

their way. As a result of this scheme, plaintiffs allege they paid

16

inflated prices for their insurance coverage and were generally

denied the benefits of a competitive market. The question on

appeal is whether plaintiffs have adequately pled either a per se

violation of § 1 of the Sherman Act (plaintiffs have foresworn

a full-scale rule-of-reason analysis) or a violation of the

Racketeer Influenced and Corrupt Organizations (RICO) Act.

Concluding they had not, the District Court dismissed the

complaints. We will affirm in large part, vacate in part, and

remand for further proceedings.

I. Procedural History and Plaintiffs’ Allegations

This litigation followed on the heels of a public

investigation and enforcement action. In October 2004, the New

York State Attorney General filed a civil complaint in state court

against insurance broker Marsh & McLennan (“Marsh”),

alleging “that Marsh had solicited rigged bids for insurance

contracts, and had received improper contingent commission

payments in exchange for steering its clients to a select group of

insurers.” In re Ins. Brokerage Antitrust Litig., Nos. 04-5184,

05-1079, 2006 WL 2850607, at *1 (D.N.J. Oct. 3, 2006) (citing

People v. Marsh & McLennan Cos., No. 04/403342 (N.Y. Sup.

Ct. Oct. 14, 2004)). The next month, a group of attorneys

general and state insurance departments began a broader

investigation of insurance-industry practices. Private parties

also filed numerous federal actions, which are the subject of this

appeal.

The private actions were transferred by the Judicial Panel

17

on Multidistrict Litigation to the United States District Court for

the District of New Jersey for consolidated pretrial proceedings.

In re Ins. Brokerage Antitrust Litig., 360 F. Supp. 2d 1371

(J.P.M.L. 2005); see 28 U.S.C. § 1407. The District Court

severed and realigned the actions into two consolidated

dockets—the first pertaining to claims regarding property and

casualty insurance (the “Commercial Case”), and the second

pertaining to claims regarding employee benefits insurance (the

“Employee Benefits Case”).

The plaintiffs in the Commercial Case are a

proposed class of businesses, individuals, and

public entities who, between August 26, 1994 and

September 1, 2005, engaged the services of the

Broker Defendants to obtain advice with respect

to the procurement or renewal of commercial

property and casualty insurance and entered into

or renewed an insurance policy with the Insurer

Defendants. The plaintiffs in the Employee

Benefits Case are both employers who utilized the

services of the Broker Defendants to obtain group

insurance coverage from the Insurer Defendants

for their employees as part of their employee

benefits plans and employees who obtained

insurance from the Insurer Defendants through

the employers’ benefits plans.

18

In re Ins. Brokerage Antitrust Litig., 579 F.3d 241, 249 (3d Cir.

2009) (affirming, inter alia, the District Court’s approval of

plaintiffs’ settlement agreements with two defendants in this

litigation).1

In accordance with the District Court’s restructuring,

plaintiffs filed a separate consolidated amended complaint in

each of the Commercial and Employee Benefits cases. Each

complaint alleged violations of the Sherman Act, 15 U.S.C. § 1,

and the RICO Act, 18 U.S.C. § 1962(c), (d), as well as

violations of various state-law antitrust statutes and common-

law duties. Shortly thereafter, defendants moved to dismiss the

Sherman Act and RICO claims in both cases under Federal Rule

1

This statement paraphrases the description of the proposed

plaintiff classes given by the District Court. See In re Ins.

Brokerage Antitrust Litig., 2007 WL 2892700, at *2 (D.N.J.

Sept. 28, 2007). The complaints, however, arguably define the

proposed classes to include not only those persons or entities

who bought insurance from a defendant insurer through a

defendant broker, but also those persons or entities who bought

insurance from any insurer through a defendant broker. See

Commercial Case Second Amended Complaint (Comm. SAC)

¶ 555; Employee Benefits Case Second Amended Complaint

(EB SAC) ¶ 585. This discrepancy is not relevant to our

disposition of this appeal.

19

of Civil Procedure 12(b)(6).2

On October 3, 2006, the District Court granted the

motions and dismissed the claims without prejudice. Ins.

Brokerage, 2006 WL 2850607. Defendants had asserted in their

moving papers that they were immune from Sherman Act

liability under the McCarran-Ferguson Act, 15 U.S.C. §§

1011–1015, which “provides a statutory antitrust exemption for

activities that (1) constitute the ‘business of insurance,’ (2) are

regulated pursuant to state law, and (3) do not constitute acts of

‘boycott, coercion or intimidation.’” Ticor Title Ins. Co. v. FTC,

998 F.2d 1129, 1133 (3d Cir. 1993) (quoting Group Life &

Health Ins. Co. v. Royal Drug Co., 440 U.S. 205, 219–20

(1979)); see 15 U.S.C. §§ 1012(b), 1013(b). The District Court

rejected this argument on the ground that defendants’ alleged

conduct was not part of the “business of insurance” within the

meaning of the Act. 2006 WL 2850607, at *7–10. But the court

nonetheless dismissed both the Sherman Act and RICO claims

because it found the complaints lacked the requisite factual

specificity.

In granting leave to amend, the District Court instructed

plaintiffs to file in each case a supplemental statement of

2

In the Employee Benefits Case only, plaintiffs also brought

claims under the Employee Retirement Income Security Act of

1974 (ERISA), 29 U.S.C. § 1132(a)(2), alleging defendants had

breached fiduciary duties imposed by the statute. These claims

are not before us. See infra note 3.

20

particularity for their federal antitrust claims and an amended

RICO case statement for their RICO claims. Plaintiffs did so,

and defendants again moved to dismiss. On April 5, 2007, the

District Court again granted the motions, but it once again

allowed plaintiffs an opportunity to amend their pleadings. In

re Ins. Brokerage Antitrust Litig., 2007 WL 1100449 (D.N.J.

Apr. 5, 2007) (antitrust claims); In re Ins. Brokerage Antitrust

Litig., 2007 WL 1062980 (D.N.J. Apr. 5, 2007) (RICO claims).

In response, plaintiffs filed a Second Amended Complaint

(“SAC”) in each of the Commercial and Employee Benefits

cases, as well as a Revised Particularized Statement (“RPS”)

and Amended RICO Case Statement (“ARCS”) augmenting the

Second Amended Complaint’s allegations. For a third time,

defendants moved to dismiss under Rule 12(b)(6). In orders

dated August 31 and September 28, 2007, the District Court

again dismissed the antitrust and RICO claims—this time with

prejudice. Applying the pleading standard set forth by the

Supreme Court in Bell Atlantic Corp. v. Twombly, 550 U.S. 544

(2007), which had been decided on May 21, 2007, the District

Court concluded that plaintiffs’ allegations in both the

Commercial and the Employee Benefits cases were insufficient

with respect to both the Sherman Act and RICO claims. In re

Ins. Brokerage Antitrust Litig., 2007 WL 2533989 (D.N.J. Aug.

31, 2007) (antitrust claims); In re. Ins. Brokerage Antitrust

Litig., 2007 WL 2892700 (D.N.J. Sept. 28, 2007) (RICO

21

claims). Plaintiffs filed a timely notice of appeal in each case.3

Plaintiffs’ pleadings are of a substantial volume. The

complaint in each case is more than 200 pages (including

attached exhibits), and to this total must be added the pages in

3

The District Court exercised jurisdiction under 28 U.S.C. §§

1331, 1367. We have jurisdiction under 28 U.S.C. § 1291. The

Sherman Act and RICO claims were the only federal causes of

action asserted in the Commercial complaint. Having dismissed

both claims in its August 31 and September 28 opinions, the

District Court declined to exercise supplemental jurisdiction

over the remaining state-law claims and dismissed the

Commercial complaint in its entirety. 2007 WL 2892700, at

*34; see 28 U.S.C. § 1367(c). The Employee Benefits

complaint also included claims that the insurer defendants had

breached their fiduciary duties under ERISA. The District Court

subsequently disposed of these ERISA claims when it granted

defendants’ motion for summary judgment, In re Ins. Brokerage

Antitrust Litig., 2008 WL 141498 (D.N.J. Jan. 14, 2008), after

which it declined to exercise supplemental jurisdiction over the

state-law claims and dismissed the Employee Benefits complaint

in its entirety, In re Ins. Brokerage Antitrust Litig., No. 05-1079

(D.N.J. Feb. 13, 2008).

Although plaintiffs originally appealed the District

Court’s summary judgment order regarding the ERISA claims,

they expressly waived that issue in their opening brief.

Plaintiffs’ Employee Benefits (EB) Br. 10.

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the Revised Particularized Statements and Amended RICO Case

Statements. Significantly, the District Court allowed discovery

to proceed while the motions to dismiss were pending.

Plaintiffs’ amended pleadings were thus able to draw on

documents produced and depositions taken pursuant to these

discovery orders, as well as material unearthed in the course of

the public investigations.

As reflected by the length of this opinion—and of the

caption—this is extraordinarily complex litigation involving a

large swath of the insurance provider and brokerage industries,

elaborate allegations of misconduct, and challenging legal

issues. The District Court skillfully managed the consolidated

proceedings. We take particular note of the court’s thorough

treatment of defendants’ motions to dismiss, which comprised

five separate opinions examining three successive rounds of

pleadings. The court’s patient and meticulous analysis has

greatly aided our review.

A. Antitrust Claims

1. Broker-Centered Conspiracies

In each complaint, plaintiffs allege the existence of a

number of broker-centered antitrust conspiracies. As the name

suggests, at the center of each alleged conspiracy was a

defendant broker, who colluded with its defendant insurer-

partners to steer its clients, purchasers of insurance, to particular

insurers in exchange for the payment of contingent

commissions. In the Commercial Case, plaintiffs allege six such

23

conspiracies, centered on defendant brokers Marsh,4 Aon

Corporation, Wells Fargo & Company, HRH, Willis Group, and

Gallagher, respectively. In the Employee Benefits Case,

plaintiffs allege five broker-centered conspiracies, led

respectively by Marsh,5 Aon, Universal Life Resources,

4

While this appeal was pending, the District Court approved

a settlement agreement between the plaintiffs and the Marsh

Defendants. (In the Commercial Case, the Marsh Defendants

comprise Marsh & McLennan Companies, Inc.; Marsh Inc.;

Marsh USA, Inc.; Marsh USA Inc. (Connecticut); and Seabury

& Smith, Inc. In the Employee Benefits Case, the Marsh

Defendants comprise Marsh & McLennan Companies, Inc.;

Marsh Inc.; Marsh USA, Inc.; Marsh USA Inc. (Connecticut);

Mercer, Inc.; Mercer Human Resource Consulting LLC; Mercer

Human Resource Consulting of Texas, Inc.; and Seabury &

Smith, Inc.) See In re Ins. Brokerage Antitrust Litig., No. 04-

5184, 2009 WL 411877 (D.N.J. Feb. 17, 2009), appeal

docketed, No. 09-1821 (3d Cir. Mar. 30, 2009). Per the settling

parties’ joint motions, we dismissed the instant appeal as to the

Marsh Defendants without prejudice. See In re Ins. Brokerage

Antitrust Litig., Nos. 07-4046, 08-1455, 08-1777 (3d Cir. June

30, 2008).

5

See supra note 4.

24

Gallagher, and Willis Group.6

According to the complaints, the broker-centered

conspiracies proceeded in two stages. First, “[b]eginning in the

mid-to-late 1990s, each of the Broker Defendants,” in “a

dramatic change” from prior practice, “began to form so-called

‘strategic partnerships’ with certain insurance companies, to

which it would then allocate the bulk of its business.” Comm.

SAC ¶ 83. The broker and each of its co-conspiring insurers

agreed, “and each of the conspiring insurers horizontally

agreed,” that the broker “would ‘consolidate’ its business by

directing the bulk of its premium volume to its ‘strategic

partner’ co-conspirators, thereby eliminating hundreds of other

6

The defendant-broker names given here encompass related

and/or subsidiary companies, as detailed in Comm. SAC ¶¶

24–36 and EB SAC ¶¶ 34–45. The names of the defendant

insurers allegedly conspiring with each broker can also be found

in the complaints; in the interest of brevity, we will not

reproduce them here. See Comm. SAC ¶¶ 95, 157, 201, 236,

262, 326; EB SAC ¶¶ 106, 139, 175, 239, 271. The number of

insurers in each alleged broker-centered conspiracy ranges from

three to thirteen. (These numbers refer to parent entities and do

not include the subsidiary/related companies also named as

defendants. See Comm. SAC ¶¶ 37–63 (listing

subsidiary/related insurers in the Commercial Case); EB SAC ¶¶

46–57 (listing subsidiary/related insurers in the Employee

Benefits Case).)

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insurers from competing equally with the conspiring insurers for

the majority” of the broker’s business. Id. ¶ 158. In the second

stage, the insurer-members of each conspiracy each agreed with

the broker, “and agreed horizontally among themselves, to

reduce or eliminate competition for that secured business among

the conspiring [‘strategic partner’] insurers.” Id.7

As alleged by plaintiffs, a major focus of the second stage

of the conspiracies was protecting the incumbent business of

each insurer. To maximize insurers’ retention of existing

customers, the conspiracies allegedly employed a variety of

“incumbent protection devices.” Specifically, plaintiffs aver

that brokers facilitated the non-competitive allocation of

customers to insurers by giving insurers “last looks” and “first

looks” on bids.8 The complaints also assert that each insurer in

each broker-centered conspiracy knew the identity of the

7

The quoted language is drawn from the description of the

Aon-centered conspiracy in the Commercial complaint but is

generally applicable to all of the alleged broker-centered

conspiracies. See Comm. SAC ¶¶ 66–67; EB SAC ¶¶ 76–77.

8

Plaintiffs do not specifically define these terms, but from

context we infer that a “last look” affords a bidder the ability to

make the final bid with knowledge of all previous bids, and a

“first look” allows a bidder the opportunity to bid without

competition (for example, guaranteeing a sale to the bidder if it

can match a certain price).

26

broker’s other “strategic partners.” The brokers also revealed to

each insurer detailed information about the arrangements

between the broker and its other insurer-partners, including

information about the size of the contingent commissions those

partners were paying to the broker, and even the amount of

premium volume steered by the broker to the other insurers.

These facts, plaintiffs contend, evince the existence of an

agreement between the insurers and the broker—and among the

insurers themselves—to reap inflated profits by stifling

competitive bidding and protecting incumbent business, in

violation of § 1 of the Sherman Act.

These incumbent protection devices, plaintiffs claim,

were common to all of the broker-centered conspiracies. In the

Commercial Case only, plaintiffs also allege that insurers in the

Marsh-centered conspiracy acceded to broker requests to

provide “false” bids that were intentionally higher than the bids

of the insurer to which the broker wished to award the business.

For example, the complaint relates a statement by a former

employee of a defendant insurer that his employer had agreed to

“provide[] losing quotes” to its broker-partner in exchange for,

among other things, the broker’s “getting ‘quotes from other

[insurance] carriers that would support the [employer, at least

when it was the incumbent carrier] as being the best price.’” Id.

¶ 109. The employee of another insurer allegedly stated that

“she provided protective quotes when the broking plan called

for it ‘[t]o show, to pretend to show competition where there is

none.’” Id. ¶ 119. This employee was allegedly told by the

27

broker that the insurer “should provide protective quotes so that

[it] would not face competition on its own renewals.” Id. This

bid-rigging behavior facilitated the customer allocation scheme

by deceiving insurance customers into believing they were

receiving the best possible price in a competitive market.

According to plaintiffs, insurers were willing to assist co-

conspiring insurers in this way because they expected to be the

beneficiary of such bid rigging where their own incumbent

business was concerned.

2. Global Conspiracy

In addition to the broker-centered conspiracies, each

complaint alleges a “global conspiracy” among all of the

defendants: “[W]hile engaging in their separate ‘hub and spoke’

schemes [i.e., the broker-centered conspiracies] to create supra-

competitive premiums and contingent commissions, each of the

Broker ‘hubs’ simultaneously agreed horizontally not to

compete with each other by disclosing any competing broker’s

contingent commission arrangements, or the consequent

premium price impact of those arrangements, in an effort to win

those brokers’ customers’ business.” Id. ¶ 354. Although each

broker, plaintiffs claim, knew that the other brokers were using

contingent commission arrangements to obtain outsized profits,

each “also knew that exposing another broker’s contingent

commission arrangements to the other broker’s customers would

lead to retaliation, thereby threatening the first broker’s own

contingent commission scheme and supra-competitive profits.”

Id. ¶ 355. “Therefore,” plaintiffs allege, the brokers “agreed

28

horizontally” to maintain a mutually beneficial silence. Id.

¶ 362. Plaintiffs further allege that the defendant insurers were

“complicit[]” in this horizontal agreement among the brokers,

id. ¶ 353, and that they also agreed “horizontally with each

other[] not to disclose the Broker-Centered Conspiracies and

resulting supra-competitive premiums to the brokers’

customers,” id. ¶ 359.

As evidence of this asserted “global” agreement in the

Commercial Case, plaintiffs point to allegations that each

broker-centered conspiracy operated in a similar way and that

the brokers incorporated similar standardized confidentiality

provisions into their respective contingent commission

agreements with insurers, which prohibited disclosing the terms

of the contingent commission agreements to insurance

customers. Furthermore, plaintiffs allege that the brokers’

membership in the Council of Insurance Agents & Brokers

(CIAB), a trade association, “afforded them many opportunities

to exchange information and allowed Defendants to adopt

collective policies towards nondisclosure of rival brokers’

contingent commissions.” Id. ¶ 364.

Plaintiffs in the Employee Benefits Case also rely on

these types of allegations to support their claim of a global

conspiracy. They find additional support, however, in the

similar way in which insurers, at the alleged behest of the

brokers, accounted for the expense of contingent commissions

on Schedule A of Form 5500, a document that must, under

ERISA, be filed with the Internal Revenue Service and the

29

Department of Labor. According to plaintiffs, instead of

reporting the commissions as “a variable, case-specific cost,”

insurers treated them “improperly as a non-reportable fixed cost

(overhead).” EB SAC ¶ 305. This reporting technique allegedly

yielded two advantages to defendants. First, they “were enabled

to evade their disclosure requirements under ERISA and mislead

their clients.” Id. Second, by classifying contingent

commissions as a fixed cost spread across all lines of an

insurer’s business, “the Insurer Defendants artificially raised the

price of all lines of insurance, rather than substantially raising

the cost of insurance” obtained through the co-conspiring

brokers, which would have rendered that insurance blatantly

uncompetitive with insurance obtained through other, non-

conspiring brokers. Id. ¶ 306. Not only, plaintiffs allege, did

defendants adopt a similar approach to accounting for the

contingent commission agreements, but employees of the

defendants also sometimes exchanged information about how

they completed Form 5500. Plaintiffs claim these allegations

support an inference of an agreement not to disclose contingent

commissions properly in order to conceal the existence of

defendants’ anticompetitive practices.

B. RICO Claims

Plaintiffs contend that defendants’ alleged customer

allocation schemes also violated the RICO statute. In the

Commercial Case, plaintiffs assert the existence of six RICO

enterprises, which correspond to the six broker-centered

conspiracies identified in the antitrust claims. “Alternatively,

30

Plaintiffs allege that CIAB is a legal entity which constitutes a

RICO enterprise . . . .” Comm. SAC ¶ 512. According to the

complaint, the defendants utilized these enterprises to engage in

a pattern of racketeering activity consisting of numerous acts of

mail and wire fraud that served to conceal and misrepresent

defendants’ customer allocation schemes.

The Employee Benefit complaint alleges similar

predicate acts of racketeering and adds allegations that

defendants misrepresented information reported on Form 5500

and otherwise violated ERISA through their use of contingent

commissions. Here, plaintiffs allege the existence of five RICO

enterprises congruent with the five alleged broker-centered

antitrust conspiracies.

II. Discussion

We exercise plenary review of the District Court’s orders

granting defendants’ motions to dismiss under Federal Rule of

Civil Procedure 12(b)(6). See Gelman v. State Farm Mut. Auto.

Ins. Co., 583 F.3d 187, 190 (3d Cir. 2009). This Rule authorizes

dismissal of a complaint for “failure to state a claim upon which

relief can be granted.” Fed. R. Civ. P. 12(b)(6). Under Rule

8(a)(2), a complaint need present “only ‘a short and plain

statement of the claim showing that the pleader is entitled to

relief,’ in order to ‘give the defendant fair notice of what the . . .

claim is and the grounds upon which it rests.’” Twombly, 550

U.S. at 555 (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957))

(omission in Twombly); see Fed. R. Civ. P. 8(a)(2). To comply

31

with this general pleading standard, the complaint, “construe[d]

. . . in the light most favorable to the plaintiff,” Gelman, 583

F.3d at 190 (quoting Phillips v. County of Allegheny, 515 F.3d

224, 233 (3d Cir. 2008)), must contain “‘enough factual matter

(taken as true) to suggest’ the required element[s]” of the claims

asserted, Phillips, 515 F.3d at 234 (quoting Twombly, 550 U.S.

at 556).

A. Antitrust Claims

1. Plausibility Under Twombly

a. Legal Standards

Section 1 of the Sherman Act provides: “Every 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, is declared to be illegal.” 15 U.S.C. § 1. As we

have explained, this statutory language imposes two essential

requirements on an antitrust plaintiff.9 “First, the plaintiff must

show that the defendant was a party to a ‘contract, combination

9

In addition to the following two requirements, the plaintiffs

in any antitrust case “must prove antitrust injury, which is to say

(1) injury of the type the antitrust laws were intended to prevent

and (2) that flows from that which makes defendants’ acts

unlawful.” A.D. Bedell Wholesale Co. v. Phillip Morris Inc.,

263 F.3d 239, 247 (3d Cir. 2001) (quoting Brunswick Corp. v.

Pueblo Bowl-O-Mat, 429 U.S. 477, 489 (1997) (emphasis

omitted)).

32

. . . or conspiracy.’” Toledo Mack Sales & Serv., Inc. v. Mack

Trucks, Inc., 530 F.3d 204, 218 (3d Cir. 2008). Instead of

assigning each of these last three terms a distinct meaning,

courts have interpreted them collectively to require “some form

of concerted action,” In re Baby Food Antitrust Litig., 166 F.3d

112, 117 (3d Cir. 1999) (internal quotation marks omitted), in

other words, a “‘unity of purpose or a common design and

understanding or a meeting of minds’ or ‘a conscious

commitment to a common scheme,’” In re Flat Glass Antitrust

Litig., 385 F.3d 350, 357 (3d Cir. 2004) (quoting Monsanto Co.

v. Spray-Rite Serv. Corp., 465 U.S. 752, 764 (1984)). Put more

succinctly, “[t]he existence of an agreement is the hallmark of

a Section 1 claim.” Baby Food, 166 F.3d at 117; see InterVest,

Inc. v. Bloomberg, L.P., 340 F.3d 144, 159 (3d Cir. 2003)

(“Unilateral activity by a defendant, no matter the motivation,

cannot give rise to a section 1 violation.”).10

10

“Congress used th[e] distinction between concerted and

independent action to deter anticompetitive conduct and

compensate its victims, without chilling vigorous competition

through ordinary business operations. . . . [U]nlike independent

action, ‘[c]oncerted activity inherently is fraught with

anticompetitive risk’ insofar as it ‘deprives the marketplace of

independent centers of decisionmaking that competition

assumes and demands.’” Am. Needle, Inc. v. NFL, 130 S. Ct.

2201, 2209 (2010) (quoting Copperweld Corp. v. Independence

Tube Corp., 467 U.S. 752, 768–69 (1984)).

33

In addition to demonstrating the existence of a

“conspiracy,” or agreement, “the plaintiff must show that the

conspiracy to which the defendant was a party imposed an

unreasonable restraint on trade.” 11 Mack Trucks, 530 F.3d at

218; see Flat Glass, 385 F.3d at 356 (“Despite its broad

language, Section 1 only prohibits contracts, combinations or

conspiracies that unreasonably restrain trade.”). “[T]he usual

standard” applied to determine whether a challenged practice

unreasonably restrains trade is the so-called “rule of reason.”

Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S.

877, 882 (2007). Under this standard, “the factfinder weighs all

of the circumstances of a case in deciding whether a restrictive

practice should be prohibited.” Mack Trucks, 530 F.3d at 225

(internal quotation marks omitted). Significantly, under a rule-

of-reason analysis, the plaintiff “bears the initial burden of

showing that the alleged [agreement] produced an adverse,

anticompetitive effect within the relevant geographic market.”

Gordon v. Lewistown Hosp., 423 F.3d 184, 210 (3d Cir. 2005).

Because of “the difficulty of isolating the [actual] market effects

of challenged conduct,” United States v. Brown Univ., 5 F.3d

658, 668 (3d Cir. 1993), successful attempts to meet this burden

typically include a demonstration of defendants’ market power,

as “a judgment about market power is [a] means by which the

11

“The question whether an arrangement is a contract,

combination, or conspiracy is different from and antecedent to

the question whether it unreasonably restrains trade.” Am.

Needle, 130 S. Ct. at 2206.

34

effects of the [challenged] conduct on the market place can be

assessed,” NCAA v. Bd. of Regents of Univ. of Okla., 468 U.S.

85, 110 n.42 (1984) (quoting the Solicitor General’s “correct[]”

observation). Cf. FTC v. Ind. Fed’n of Dentists, 476 U.S. 447,

460–61 (1986) (“Since the purpose of the inquiries into market

definition and market power is to determine whether an

arrangement has the potential for genuine adverse effects on

competition, proof of actual detrimental effects, such as a

reduction of output, can obviate the need for an inquiry into

market power, which is but a surrogate for detrimental effects.”

(internal quotation marks omitted)). If the plaintiff carries this

burden, the court will need to decide whether the

anticompetitive effects of the practice are justified by any

countervailing pro-competitive benefits.12 See Eichorn v. AT&T

Corp., 248 F.3d 131, 143 (3d Cir. 2001) (describing an analysis

in which courts “balance the effect of the alleged anti-

competitive activity against its competitive purposes within the

12

In the event a genuinely disputed issue of fact exists

regarding the reasonableness of the restraint, the determination

is for the jury. See Arizona v. Maricopa County Med. Soc’y,

457 U.S. 332, 343 (1982) (“[T]he rule of reason requires the

factfinder to decide whether under all the circumstances of the

case the restrictive practice imposes an unreasonable restraint on

competition.”); 11 Herbert Hovenkamp, Antitrust Law ¶ 1909b

(2d ed. 2005) (“[O]nce the court decide[s] that the rule of reason

should apply, disputed factual questions about reasonableness

should be left to the jury.”).

35

relevant product and geographic markets”); see also Leegin, 551

US. at 886 (“In its design and function the rule [of reason]

distinguishes between restraints with anticompetitive effect that

are harmful to the consumer and restraints stimulating

competition that are in the consumer’s best interest.”).

Judicial experience has shown that some classes of

restraints have redeeming competitive benefits so rarely that

their condemnation does not require application of the full-

fledged rule of reason. Paradigmatic examples are “horizontal

agreements among competitors to fix prices or to divide

markets.” Leegin, 551 U.S. at 886 (citations omitted). Once a

practice has been found to fall into one of these classes, it is

subject to a “per se” standard. As the Supreme Court has

explained, these practices

are ordinarily condemned as a matter of law under

an “illegal per se” approach because the

probability that these practices are anticompetitive

is so high; a per se rule is applied when “the

practice facially appears to be one that would

always or almost always tend to restrict

competition and decrease output.” In such

circumstances a restraint is presumed

unreasonable without inquiry into the particular

market context in which it is found.

NCAA, 468 U.S. at 100 (quoting Broad. Music, Inc. v. Columbia

Broad. Sys., Inc., 441 U.S. 1, 19–20 (1979)); see Brown Univ.,

36

5 F.3d at 670 (“Per se rules of illegality are judicial constructs,

and are based in large part on economic predictions that certain

types of activity will more often than not unreasonably restrain

competition.” (internal citation omitted)). Under the per se

standard, plaintiffs are relieved of the obligation to define a

market and prove market power. See Copperweld Corp. v.

Independence Tube Corp., 467 U.S. 752, 768 (1984) (citing N.

Pac. Ry. Co. v. United States, 356 U.S. 1, 5 (1958)); Rossi v.

Standard Roofing, Inc., 156 F.3d 452, 464–65 (3d Cir. 1998); 11

Herbert Hovenkamp, Antitrust Law ¶ 1910a (2d ed. 2005); see

also 7 Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law

¶ 1509c, at 403–04 (2d ed. 2003) (“Little is lost when the court

condemns a restraint that was harmless because the defendants

lacked power but that was socially useless in any event.”). Once

a defendant’s practice has been found to fall into one of the

recognized classes, it is “conclusively presumed to unreasonably

restrain competition.” Flat Glass, 385 F.3d at 356 (internal

quotation marks omitted). 13

13

When evaluating tying arrangements, in which a firm

“sell[s] one good (the tying product) on the condition that the

buyer also purchase another, separate good (the tied product),”

Town Sound & Custom Tops, Inc. v. Chrysler Motors Corp., 959

F.2d 468, 475 (3d Cir. 1992) (en banc), courts have applied a

modified version of the per se standard. Unlike the “truly per se

rules” explicated above, in which no inquiry is made into market

structure, actual anticompetitive effects, or possible

justifications, “[t]he ‘per se’ rule against tying goes only

37

While pleading exclusively per se violations can lighten

a plaintiff’s litigation burdens, it is not a riskless strategy. If the

court determines that the restraint at issue is sufficiently

different from the per se archetypes to require application of the

rule of reason, the plaintiff’s claims will be dismissed. E.g.,

AT&T Corp. v. JMC Telecom, LLC, 470 F.3d 525, 531 (3d Cir.

2006); see also Texaco Inc. v. Dagher, 547 U.S. 1, 7 n.2 (2006)

(declining to conduct a rule of reason analysis where plaintiffs

“ha[d] not put forth a rule of reason claim”). See generally 11

Hovenkamp, supra, ¶ 1910b (discussing the cost-benefit

analysis involved in deciding whether to pursue an exclusively

per se theory of liability).

Some restraints of trade are “highly suspicious” yet

halfway . . .: the inquiry into tying product market structure . . .

is still required, but if the defendant is found to have market

power there, the plaintiff is, in theory, relieved of proving actual

harm to competition and of rebutting justifications for the tie-

in.” Id. at 477; see U.S. Healthcare, Inc. v. Healthsource, Inc.,

986 F.2d 589, 593 n.2 (1st Cir. 1993) (stating that tying might

better be described as a “quasi” per se offense, “since some

element of [market] power must be shown and defenses are

effectively available”) (citing Eastman Kodak Co. v. Image

Technical Servs., Inc., 504 U.S. 451 (1992)). See generally 7

Areeda & Hovenkamp, supra, ¶ 1510a (explicating various

different meanings of “per se” language in antitrust

jurisprudence).

38

“sufficiently idiosyncratic that judicial experience with them is

limited.” 11 Hovenkamp, supra, ¶ 1911a. Per se condemnation

is inappropriate, but at the same time, the “inherently suspect”

nature of the restraint obviates the sort of “elaborate industry

analysis” required by the traditional rule-of-reason standard.

Gordon, 423 F.3d at 210. Courts have devised a “quick look”

approach for these cases. See Dagher, 547 U.S. at 7 n.3; Cal.

Dental Ass’n. v. FTC, 526 U.S. 756, 770 (1999) (stating that a

“‘quick-look’ analysis” is appropriate where “an observer with

even a rudimentary understanding of economics could conclude

that the arrangements in question would have an anticompetitive

effect on customers and markets”); see also 11 Hovenkamp,

supra, ¶ 1911a (“What [the ‘quick-look’] term is intended to

connote is that a certain class of restraints, while not

unambiguously in the per se category, may require no more than

cursory examination to establish that their principal or only

effect is anticompetitive.”). Under a quick look analysis, which

is essentially an abbreviated form of the rule of reason, Cal.

Dental, 526 U.S. at 770, “competitive harm is presumed and the

defendant must set forth some competitive justification for the

restraints,” Gordon, 423 F.3d at 210. If no plausible

justification is forthcoming, the restraint will be condemned.

Brown Univ., 5 F.3d at 669. “If the defendant offers sound

procompetitive justifications, however, the court must proceed

to weigh the overall reasonableness of the restraint using a full-

39

scale rule of reason analysis.” Id.14

Here, plaintiffs abjure “a full-scale rule of reason

analysis.” They claim instead that defendants’ behavior was per

se unlawful, or that, at the very least, it is susceptible to

condemnation under a “quick look” analysis. Plaintiffs do not

14

As the above discussion ought to make clear, the respective

analyses conducted under the rule of reason, per se, and quick

look standards are not categorically different. In every case,

“the essential inquiry” is “whether or not the challenged restraint

enhances competition.” Cal. Dental, 526 U.S. at 780 (internal

quotation marks omitted). Under a traditional rule-of-reason

analysis, a court requires “actual market analysis,” id. at 779–80,

and carefully balances all of the factors bearing on that ultimate

question. In applying per se or quick look analysis, courts make

judgments based on judicial experience with certain types of

restraints and market contexts, without demanding such

extensive inquiry into the market in which the specific restraint

at issue operates. But “there is often no bright line separating”

the three standards. Id. at 779 (quoting NCAA, 468 U.S. at 104

n.26). “What is required . . . is an enquiry meet for the case,

looking to the circumstances, details, and logic of a restraint.

The object is to see whether the experience of the market has

been so clear, or necessarily will be, that a confident conclusion

about the principal tendency of a restriction will follow from a

quick (or at least quicker) look, in place of a more sedulous

one.” Id. at 781.

40

dispute that in order to succeed under either of these approaches,

they need to show the existence of a horizontal agreement, that

is, an agreement between “competitors at the same market

level.” In re Pharmacy Benefits Managers Antitrust Litig., 582

F.3d 432, 436 n.5 (3d Cir. 2009); see also Bus. Elecs. Corp. v.

Sharp Elecs. Corp., 485 U.S. 717, 730 (1988) (“Restraints

imposed by agreement between competitors have traditionally

been denominated as horizontal restraints, and those imposed by

agreement between firms at different levels of distribution as

vertical restraints.”). Under the Supreme Court’s jurisprudence,

virtually all vertical agreements now receive a traditional rule-

of-reason analysis. See Leegin, 551 U.S. 877; see also Gordon,

423 F.3d at 210 (rejecting quick look analysis and applying rule

of reason where restraint was vertical).15 In the factual context

15

In Leegin, the Supreme Court overruled its earlier holding

that vertical price-fixing agreements were subject to per se

condemnation. 551 U.S. at 881–82 (overruling Dr. Miles Med.

Co. v. John D. Park & Sons Co., 220 U.S. 373 (1911)). Earlier,

in Continental T.V., Inc. v. GTE Sylvania Inc., the Court had

ruled that non-price vertical restraints must be analyzed under

the traditional rule of reason rather than a per se standard. 433

U.S. 36 (1977); see Leegin, 551 U.S. at 901. Tying

arrangements, however, appear to remain an exception to the

general rule that vertical restraints are reviewed under the full-

scale rule of reason. See supra note 13; Sheridan v. Marathon

Petroleum Co., 530 F.3d 590, 593–94 (7th Cir. 2008)

(explaining that despite a series of Supreme Court decisions

41

of this case, a horizontal agreement means an agreement among

the insurers in the broker-centered conspiracies, and an

agreement among either the brokers or the insurers in the global

conspiracy. Agreements between brokers and insurers, on the

other hand, are vertical and would have to be analyzed under the

traditional rule of reason, which plaintiffs have disclaimed.16

subjecting various vertical restraints to the rule of reason,

including Leegin, tying is still reviewed under a modified per se

standard).

16

Although plaintiffs’ First Amended Complaints (FAC)

expressly pled a rule-of-reason claim in the alternative, see, e.g.,

Comm. FAC ¶ 530; EB FAC ¶ 454, their Second Amended

Complaints omit any reference to the rule of reason, and their

moving papers and appellate arguments make clear they are

alleging exclusively per se violations. In their initial motions to

dismiss, defendants contended that the First Amended

Complaints had not adequately defined a market or pled anti-

competitive effects and had thus failed to state a claim under the

rule of reason. In response, plaintiffs did not assert that they

had, in fact, met these requirements; they argued only that

“where plaintiffs allege per se claims,” these requirements do

not apply. Plaintiffs’ Memorandum of Law in Opposition to

Defendants Motions to Dismiss 43 n.26, filed in the District

Court as No. 04-5184, Dkt. Entry # 344. In a subsequent

submission, plaintiffs explicitly stated that the allegations in

their complaints were “subject to per se antitrust analysis, not

42

Plaintiffs’ obligation to show the existence of a

horizontal agreement is not only an ultimate burden of proof but

also bears on their pleadings. “[A] plaintiff’s obligation to

provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires

more than labels and conclusions, and a formulaic recitation of

the elements of a cause of action will not do.” Twombly, 550

U.S. at 555 (quoting Fed. R. Civ. P. 8(a)(2)). Because Federal

Rule of Civil Procedure 8(a)(2) “requires a ‘showing,’ rather

than a blanket assertion, of entitlement to relief,” courts

evaluating the viability of a complaint under Rule 12(b)(6) must

look beyond conclusory statements and determine whether the

complaint’s well-pled factual allegations, taken as true, are

“enough to raise a right to relief above the speculative level.”

evaluation under the rule of reason.” Plaintiffs’ Reply Brief in

Support of Motion for Class Certification 1, filed in the District

Court as No. 04-5184, Dkt. Entry # 506. Plaintiffs have never

disputed the District Court’s determination that “[b]ecause

Plaintiffs have alleged the Section 1 claim as a per se violation,

even at the pleading stage Plaintiffs must set forth sufficient

facts evidencing a horizontal conspiracy involving market or

customer allocation in order for their claim to survive a motion

to dismiss.” 2007 WL 1100449, at *10; see also Defendants’

Comm. Br. 10 (stating that on appeal, “[a]s in the district court,

Plaintiffs have abandoned any argument that [the complaints]

state[] a claim under the rule of reason”). Plaintiffs argue only

that they have, in fact, adequately pled such horizontal

conspiracies.

43

Twombly, 550 U.S. at 555 & n.3. The test, as authoritatively

formulated by Twombly, is whether the complaint alleges

“enough fact[] to state a claim to relief that is plausible on its

face,” id. at 570, which is to say, “‘enough fact to raise a

reasonable expectation that discovery will reveal evidence of

illegal[ity],’” Arista Records, LLC v. Doe 3, 604 F.3d 110, 120

(2d Cir. 2010) (quoting Twombly, 550 U.S. at 556) (alteration in

Arista Records).17

17

Twombly affirms that Rule 8(a)(2) requires a statement of

facts “suggestive enough” (when assumed to be true) “to render

[the plaintiff’s claim to relief] plausible,” that is, “enough fact

to raise a reasonable expectation that discovery will reveal

evidence of illegal” conduct. Twombly, 550 U.S. at 556. Iqbal,

which reiterated and applied Twombly’s pleading standard,

endorses this understanding. See Iqbal, 129 S. Ct. at 1949–51.

Although Fowler v. UPMC Shadyside, 578 F.3d 203 (3d Cir.

2009), stated that Twombly and Iqbal had “repudiated” the

Supreme Court’s earlier decision in Swierkiewicz v. Sorema

N.A., 534 U.S. 506 (2002), see Fowler, 578 F.3d at 211, we are

not so sure. Clearly, Twombly and Iqbal inform our

understanding of Swierkiewicz, but the Supreme Court cited

Swierkiewicz approvingly in Twombly, see 550 U.S. at 555–56,

and expressly denied the plaintiffs’ charge that Swierkiewicz

“runs counter” to Twombly’s plausibility standard, id. at 569–70.

As the Second Circuit has observed, Twombly “emphasized that

its holding was consistent with [the Court’s] ruling in

Swierkiewicz that ‘a heightened pleading requirement,’ requiring

44

As we have recognized, this plausibility standard is an

interpretation of Federal Rule of Civil Procedure 8. Phillips,

515 F.3d at 234; see Twombly, 550 U.S. at 557 (stating that the

plausibility standard “reflects the threshold requirement of Rule

8(a)(2) that the ‘plain statement’ possess enough heft to ‘sho[w]

that the pleader is entitled to relief.’” (alteration in original)).

Twombly’s importance to the case before us, however, goes

beyond its formulation of the general pleading standard.

Twombly is also an essential guide to the application of that

standard in the antitrust context, for in Twombly the Supreme

Court also had to determine whether a Sherman Act claim

alleging horizontal conspiracy was adequately pled.18

the pleading of ‘specific facts beyond those necessary to state

[a] claim and the grounds showing entitlement to relief,’ was

‘impermissibl[e].’” Arista Records, 604 F.3d at 120 (quoting

Twombly, 550 U.S. at 570 (alterations in Arista Records). In

any event, Fowler’s reference to Swierkiewicz appears to be

dicta, as Fowler found the complaint before it to be adequate.

578 F.3d at 212; see also id. at 211 (“The demise of

Swierkiewicz, however, is not of significance here.”).

18

As the Supreme Court has noted, “[c]ontext matters in

notice pleading,” Phillips, 515 F.3d at 232, and what suffices to

withstand a motion to dismiss necessarily depends on

substantive law and the elements of the specific claim asserted.

See Iqbal, 129 S. Ct. at 1950 (“Determining whether a complaint

states a plausible claim for relief [so as to satisfy the Twombly

45

The Twombly plaintiffs had alleged that defendant

telephone companies had “entered into a contract, combination

or conspiracy to prevent competitive entry in their respective

local telephone and/or high speed internet service markets and

standard] will . . . be a context-specific task . . . .”); see also id.

at 1947 (“In Twombly, the Court found it necessary first to

discuss the antitrust principles implicated by the complaint.

Here too we begin by taking note of the elements [the] plaintiff

must plead to state [his discrimination] claim . . . .” (internal

citation omitted)). The touchstone of Rule 8(a)(2) is whether a

complaint’s statement of facts is adequate to suggest an

entitlement to relief under the legal theory invoked and thereby

put the defendant on notice of the nature of the plaintiff’s claim.

See Twombly, 550 U.S. at 565 n.10 (noting that “a defendant

seeking to respond to plaintiffs’ conclusory allegations in the §

1 [of the Sherman Act] context would have little idea” how to

answer). Some claims will demand relatively more factual

detail to satisfy this standard, while others require less. See

Arista Records, 604 F.3d at 120 (stating that the Supreme

Court’s recent pleading decisions “require factual amplification

[where] needed to render a claim plausible” (internal quotation

marks omitted) (alteration in original)). As discussed below, the

question of the sufficiency of the complaint in Twombly turned

largely on the doctrinal fact that “antitrust law limits the range

of permissible inferences from ambiguous evidence in a § 1

case.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475

U.S. 574, 588 (1986); see Twombly, 550 U.S. at 554–57.

46

ha[d] agreed not to compete with one another and otherwise

allocated customers and markets to one another.” Twombly, 550

U.S. at 551 (internal quotation marks omitted). The Court

found, however, that this sort of “wholly conclusory statement

of claim,” id. at 561, was insufficient to plead an entitlement to

relief. Id. at 564 & n.9; see id. at 556–57 (“Without more, . . .

a conclusory allegation of agreement at some unidentified point

does not supply facts adequate to show illegality.”). The Court

therefore proceeded to examine the entirety of the complaint’s

allegations, in order to determine whether the complaint

contained “enough factual matter (taken as true) to suggest that

an agreement was made,” in other words, “enough to render a

§ 1 conspiracy plausible.” Id. at 556.

In conducting this inquiry, the Court looked to well-

settled jurisprudence establishing what is necessary to satisfy the

conspiracy requirement of a § 1 claim at various post-pleading

stages of litigation. Id. at 554 (citing Theatre Enters., Inc. v.

Paramount Film Distrib. Corp., 346 U.S. 537 (1954) (affirming

denial of directed verdict); Monsanto Co. v. Spray-Rite Serv.

Corp., 465 U.S. 752 (1984) (same); Matsushita Elec. Indus. Co.

v. Zenith Radio Corp., 475 U.S. 574 (1986) (addressing whether

the record evidence of agreement was sufficient to withstand a

motion for summary judgment)). The crux of this case law is

that evidence of parallel conduct by alleged co-conspirators is

not sufficient to show an agreement. Indeed, “[e]ven ‘conscious

parallelism,’ a common reaction of ‘firms in a concentrated

market [that] recogniz[e] their shared economic interests and

47

their interdependence with respect to price and output decisions’

is ‘not in itself unlawful.’” Id. at 553–54 (quoting Brooke Group

Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 227

(1993)) (alterations in Twombly).19 Parallel conduct is, of

course, consistent with the existence of an agreement; in many

cases where an agreement exists, parallel conduct—such as

setting prices at the same level—is precisely the concerted

19

In a highly concentrated market, “any single firm’s price

and output decisions will have a noticeable impact on the market

and on its rivals,” such that when any firm in that market “is

deciding on a course of action, any rational decision must take

into account the anticipated reaction of the other firms.” Flat

Glass, 385 F.3d at 359 (internal quotation marks omitted); see

6 Areeda & Hovenkamp, Antitrust Law ¶ 1429 (2d ed. 2003).

According to this “theory of interdependence . . . firms in a

concentrated market may maintain their prices at

supracompetitive levels, or even raise them to those levels,

without engaging in any overt concerted action.” Flat Glass,

385 F.3d at 359. Although this oligopolistic behavior, or

“conscious parallelism,” is often adverse to consumer interests,

courts have nonetheless found that it is not, without more,

sufficient evidence of a § 1 violation, both because it is not an

agreement within the meaning of the Sherman Act, and because

it is resistant to judicial remedies. Id. at 359–60. But see

Richard A. Posner, Antitrust Law 51–100 (2d ed. 2001) (arguing

that “conscious parallelism,” or “tacit collusion,” should

sometimes suffice to prove a § 1 violation).

48

action that is the conspiracy’s object. But as the Supreme Court

has long recognized, parallel conduct is “just as much in line

with a wide swath of rational and competitive business strategy

unilaterally prompted by common perceptions of the market.”

Id. at 554; see Matsushita, 475 U.S. at 594 (warning that

“mistaken inferences” of conspiracy from ambiguous

circumstantial evidence may “chill the very conduct the antitrust

laws are designed to protect”); see also supra note 10. In order

“to avoid deterring innocent conduct that reflects enhanced,

rather than restrained, competition,” Flat Glass, 385 F.3d at 357,

and in order to enforce the Sherman Act’s requirement of an

agreement, the Supreme Court has required that “a § 1 plaintiff’s

offer of conspiracy evidence must tend to rule out the possibility

that the defendants were acting independently,” Twombly, 550

U.S. at 554; see also Matsushita, 475 U.S. at 597 n.21

(“[C]onduct that is as consistent with permissible competition as

with illegal conspiracy does not, without more, support even an

inference of conspiracy.”).

Some courts have denominated these facts, the presence

of which may indicate the existence of an actionable agreement,

as “plus factors.” Flat Glass, 385 F.3d at 360. Although

“[t]here is no finite set of such criteria . . .[,] [w]e have

identified . . . at least three such plus factors: (1) evidence that

the defendant had a motive to enter into a price fixing

conspiracy; (2) evidence that the defendant acted contrary to its

interests; and (3) ‘evidence implying a traditional conspiracy.’”

Id. (quoting Petruzzi’s IGA Supermarkets, Inc. v. Darling-

49

Delaware Co., 998 F.2d 1224, 1244 (3d Cir. 1993)). As we

have cautioned, however, care must be taken with the first two

types of evidence, each of which may indicate simply that the

defendants operate in an oligopolistic market, that is, may

simply restate the (legally insufficient) fact that market behavior

is interdependent and characterized by conscious parallelism.

Id. at 360–61; see 6 Areeda & Hovenkamp, Antitrust Law ¶

1434c1 (2d ed. 2003); see also Baby Food, 166 F.3d at 135

(“[E]vidence of action that is against self-interest or motivated

by profit must go beyond mere interdependence.”).20 The third

factor, “evidence implying a traditional conspiracy,” consists of

“non-economic evidence ‘that there was an actual, manifest

agreement not to compete,’” which may include “‘proof that the

defendants got together and exchanged assurances of common

20

In fact, “in actual practice, most courts rely on the absence

of motivation or offense to self-interest to preclude a conspiracy

inference” from ambiguous evidence or mere parallelism. 6

Areeda & Hovenkamp, supra, ¶ 1434c2; see, e.g., Matsushita,

475 U.S. at 596–97 (“[I]f petitioners had no rational economic

motive to conspire, and if their conduct is consistent with other,

equally plausible explanations, the conduct does not give rise to

an inference of conspiracy.”); Southway Theatres v. Georgia

Theatre Co., 672 F.2d 485, 494 (5th Cir. Unit B 1982) (The

“basic rule” is “that the inference of a conspiracy is always

unreasonable when it is based solely on parallel behavior that

can be explained as the result of the independent business

judgment of the defendants.”).

50

action or otherwise adopted a common plan even though no

meetings, conversations, or exchanged documents are shown.’”

Flat Glass, 385 F.3d at 361 (quoting In re High Fructose Corn

Syrup Antitrust Litig., 295 F.3d 651, 661 (7th Cir. 2002); 6

Areeda & Hovenkamp, supra, ¶ 1434b); see 6 Areeda &

Hovenkamp, supra, ¶ 1416, at 103 (referring generally to “an

overt act more consistent with some pre-arrangement for

common action than with independently arrived-at decisions”).

One important question raised by Twombly is what is the

relationship between this summary judgment (and directed

judgment) jurisprudence governing the kind of evidentiary facts

necessary to support a finding of conspiracy, on the one hand,

and the “antecedent” issue, Twombly, 550 U.S. at 554, of a § 1

plaintiff’s pleading burden, on the other. We think Twombly

aligns the pleading standard with the summary judgment

standard in at least one important way: Plaintiffs relying on

circumstantial evidence of an agreement must make a showing

at both stages (with well-pled allegations and evidence of

record, respectively) of “something more than merely parallel

behavior,” id. at 560, something “plausibly suggest[ive of] (not

merely consistent with) agreement,” id. at 557. See id. at 557

n.5 (noting that a plaintiff’s pleadings must cross the line

“between the factually neutral and the factually suggestive”).

“Hence, when allegations of parallel conduct are set out in order

to make a § 1 claim, they must be placed in a context that raises

a suggestion of a preceding agreement, not merely parallel

conduct that could just as well be independent action.” Id. at

51

557. Put differently, allegations of conspiracy are deficient if

there are “obvious alternative explanation[s]” for the facts

alleged. Id. at 567.21

A corollary of this proposition is that plaintiffs relying on

21

Although Twombly’s articulation of the pleading standard

for § 1 cases draws from summary judgment jurisprudence, the

standards applicable to Rule 12(b)(6) and Rule 56 motions

remain distinct. In expounding this distinction, some judges and

commentators have opined that “[e]ven in those contexts in

which an allegation of [conspiracy based on] parallel conduct

will not suffice to take an antitrust plaintiff’s case to the jury, it

will sometimes suffice to overcome a motion to dismiss and

permit some discovery, perhaps leaving the issue for later

resolution on a motion for summary judgment.” Starr v. Sony

BMG Music Entm’t, 592 F.3d 314, 329 (2d Cir. 2010)

(Newman, J., concurring). One of Twombly’s formulations of

the plausibility pleading standard—calling for “enough fact to

raise a reasonable expectation that discovery will reveal

evidence of illegal agreement,” 550 U.S. at 556—appears to

support this view. See also supra note 17. In any case, a claim

of conspiracy might appear plausible in light of the well-pled

facts in the complaint, only to appear deficient at the summary

judgment stage, when (1) the plaintiff can no longer rely on

mere allegations but must adduce evidence, and (2) the

defendant’s uncontroverted evidence is also added to the

picture.

52

parallel conduct must allege facts that, if true, would establish

at least one “plus factor,” since plus factors are, by definition,

facts that “tend[] to ensure that courts punish concerted

action—an actual agreement—instead of the unilateral,

independent conduct of competitors.” Flat Glass, 385 F.3d at

360 (internal quotation marks omitted); accord Lum v. Bank of

Am., 361 F.3d 217, 230 (3d Cir. 2004) (describing plus factors

as “circumstances under which . . . the inference of rational

independent choice [is] less attractive than that of concerted

action” (quoting Bogosian v. Gulf Oil Corp., 561 F.2d 434, 446

(3d Cir. 1977)).22

22

Twombly did not explicitly use the term “plus factor” in

formulating its pleading standard. But the Court did note that

the lower-court decision under review had held that “plus

factors are not required to be pleaded to permit an antitrust

claim based on parallel conduct to survive dismissal.” Twombly,

550 U.S. at 553 (quoting 425 F.3d 99, 114 (2d Cir. 2005)

(emphasis in original)). The basis for the Court of Appeals’

conclusion was that parallel conduct alone was sufficient to

plead a § 1 conspiracy, as long as the court could conceive of

some set of facts “that would permit a plaintiff to demonstrate

that the particular parallelism asserted was the product of

collusion rather than coincidence.” 425 F.3d at 114, rev’d, 550

U.S. 544. In reversing, the Supreme Court expressly rejected

that premise and retired the “no set of facts” language from

Conley v. Gibson, 355 U.S. 41, 45–46 (1957), on which the

Court of Appeals had relied. Twombly, 550 U.S. at 561–63. By

53

It bears noting that, consistent with summary judgment

analysis, plus factors need be pled only when a plaintiff’s claims

of conspiracy rest on parallel conduct. Allegations of direct

evidence of an agreement, if sufficiently detailed, are

independently adequate. See Twombly, 550 U.S. at 564

(distinguishing “independent allegation[s] of actual agreement”

from “descriptions of parallel conduct”).23 But this does not

repudiating this premise, the Supreme Court necessarily rejected

the proposition that plaintiffs may plead conspiracy on the basis

of mere parallelism—and thus necessarily required the pleading

of plus factors. As Twombly put it, “[a] statement of parallel

conduct . . . needs some . . . further circumstance,” or “further

factual enhancement,” to plead a plausible § 1 claim. 550 U.S.

at 557. Moreover, as discussed below, the crucial deficiency in

the Twombly complaint was that the plaintiffs could not

demonstrate what we have identified as an important plus factor,

see Petruzzi’s, 998 F.2d at 1244, namely that the defendants’

alleged parallel conduct was contrary to their self-interest.

Accordingly, although a plaintiff still need not plead specific

evidence, see supra note 17, Twombly abrogates our earlier

statements, see, e.g., Lum, 361 F.3d at 230, that a theory of

agreement resting on parallel conduct need not plead facts that,

if true, would constitute plus factors.

23

Courts devised the requirement of “plus factors” in the

context of offers of proof of an agreement that rest on parallel

conduct, i.e., circumstantial evidence. On appeals from

54

summary judgment, we have stated that direct evidence of a

conspiracy, such as a document or conversation explicitly

m anifestin g th e existe nce of th e agreem ent in

question—“evidence that is explicit and requires no inferences

to establish the proposition or conclusion being asserted,” Baby

Food, 166 F.3d at 118—obviates the need for such a showing.

Rossi, 156 F.3d at 466 (citing Petruzzi’s, 998 F.2d at 1233); see

also Cosmetic Gallery, Inc. v. Schoeneman Corp., 495 F.3d 46,

52 (3d Cir. 2007) (providing examples of direct evidence of

conspiracy). “This is because when the plaintiff has put forth

direct evidence of conspiracy, the fact finder is not required to

make inferences to establish facts, and therefore the Supreme

Court’s concerns over the reasonableness of inferences in

antitrust cases evaporate.” Rossi, 156 F.3d at 466 (citing

Petruzzi’s, 998 F.2d at 1233); see, e.g., Mack Trucks, 530 F.3d

at 222 (noting that a statement by a vice president of the

defendant was “direct evidence of collusion, which, if believed,

requires no further inference”); see also Golden Bridge Tech.,

Inc. v. Motorola, Inc., 547 F.3d 266, 272 (5th Cir. 2008)

(implying the same distinction between the treatment of direct

and circumstantial evidence), cert. denied, 129 S. Ct. 2055

(2009); Williamson Oil Co. v. Philip Morris USA, 346 F.3d

1287, 1300 (11th Cir. 2003) (same). Put differently, direct

evidence of conspiracy, if credited, removes any ambiguities

that might otherwise exist with respect to whether the parallel

conduct in question is the result of independent or concerted

55

mean that a § 1 claim will be considered adequately pled

because of the bare possibility that discovery might unearth

direct evidence of an agreement. The Court of Appeals’ opinion

in Twombly had pointed to that possibility as a ground for

denying dismissal. 425 F.3d at 114. But the Supreme Court

expressly rejected this reasoning, stating that “this approach to

pleading would dispense with any showing of a ‘reasonably

founded hope’ that a plaintiff would be able to make a case.”

Twombly, 550 U.S. at 562 (quoting Dura Pharm., Inc. v.

Broudo, 544 U.S. 336, 347 (2005)). After Twombly, if a

plaintiff expects to rely exclusively on direct evidence of

conspiracy, its complaint must plead “enough fact to raise a

reasonable expectation that discovery will reveal” this direct

evidence. Id. at 556. And if the plaintiff alternatively expects

to rest on the circumstantial evidence of parallel behavior, the

complaint’s statement of facts must place the alleged behavior

in “a context that raises a suggestion of a preceding agreement,

not merely parallel conduct that could just as well be

action.

Twombly noted that no such direct allegations appeared

in the complaint before it. See 550 U.S. at 565 n.11 (observing

that plaintiffs do not “directly allege illegal agreement” but

rather “proceed exclusively via allegations of parallel conduct”);

see also id. at 565 n.10 (“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.”).

56

independent action.” Id. at 557.24 In other words, regardless of

whether the plaintiff expects to prove the existence of a

conspiracy directly or circumstantially, it must plead “enough

fact to raise a reasonable expectation that discovery will reveal

evidence of illegal agreement.” Id. at 556.25

24

Sometimes, of course, discovery will uncover both direct

and circumstantial evidence of agreement. We do not imply that

a plaintiff must commit to a single method of proof at the

pleading stage, but merely that a plaintiff must put forth some

statement of facts suggestive of unlawful conspiracy. “[O]nce

a claim has been stated adequately, it may be supported by

showing any set of [evidentiary] facts consistent with the

allegations in the complaint.” Twombly, 550 U.S. at 563.

25

Twombly thus abrogates our earlier holdings that § 1

plaintiffs can survive a motion to dismiss without alleging facts

supporting a plausible inference of conspiracy. See, e.g.,

Bogosian, 561 F.2d at 446. Bogosian correctly observed that

“[i]t is not necessary to plead evidence.” Id. at 446; accord id.

at 458 (Aldisert, J., dissenting); see also supra note 17. But we

think the opinion is at odds with Twombly insofar as it absolves

plaintiffs of the obligation “to plead the facts upon which the[ir]

claim is based.” Id. at 446 (majority opinion). Bogosian’s

formulation of the pleading standard appears to have derived

from the view that a complaint is sufficient so long as “it does

not appear to a certainty that plaintiffs can prove no set of facts

which . . . would entitle them to reach the jury,” id., that is, it

57

Because Twombly dismissed the antitrust claim before it,

the Court did not provide specific examples of allegations that

would satisfy its plausibility standard. Nonetheless, the Court

did point in general terms to “parallel behavior that would

probably not result from chance, coincidence, independent

responses to common stimuli, or mere interdependence unaided

appears to reflect precisely the pervasive misapprehension of

Federal Rule of Procedure 8(a)(2) that led the Twombly Court to

“retire” the oft cited language from Conley v. Gibson. See

Twombly, 550 U.S. at 560–63. Based on this pre-Twombly

understanding of “the precept that the complaint be liberally

construed,” Bogosian found it sufficient that the complaint

provided a statement of alleged consciously parallel conduct by

the defendants, along with the unelaborated assertion that the

defendants had entered into a “combination.” Bogosian, 561

F.2d at 445–46. The opinion did not examine whether the

allegation of concerted action was plausible in light of the

context in which the parallel conduct was situated, instead

deferring until after discovery the question of whether such

conduct might in fact be perfectly consistent with each

defendant’s independent self-interest. Id. at 446. Twombly, we

think, clearly demands more scrutiny of a § 1 complaint. As the

dissent in Bogosian maintained, “an allegation of consciously

parallel behavior, without more, [does] not state a Sherman Act

claim,” id. at 459 (Aldisert, J., dissenting), and a plaintiff cannot

merely assert that the defendants’ actions were concerted

without alleging facts plausibly suggesting an agreement.

58

by an advance understanding among the parties.” 550 U.S. at

556 n.4 (citing 6 Areeda & Hovenkamp, supra, ¶ 1425, at

167–85). More significantly, the shortcomings identified in the

T w om bly com plain t p ro vide an im portant— albeit

negative—gloss on the governing standard.

The Twombly plaintiffs proffered two basic theories of

anticompetitive collusion. First, they charged that the defendant

regional telephone companies (ILECs) conspired to “inhibit the

growth of upstart” competitors (CLECs). 550 U.S. at 550.

Second, they asserted that the ILECs agreed not to compete with

one another so as to preserve the preexisting regional monopoly

each enjoyed. Id. at 551.

At the outset of its analysis, the Court remarked that the

complaint’s sufficiency would “turn[] on the suggestions raised

by [defendants’ alleged] conduct when viewed in light of

common economic experience.” Id. at 565. Under this lens, the

complaint’s first theory immediately revealed its inadequacy

because “nothing in the complaint intimate[d] that the resistance

to the upstart[ CLECs] was anything more than the natural,

unilateral reaction of each ILEC intent on keeping its regional

dominance. . . . [T]here [was] no reason to infer that the

companies had agreed among themselves to do what was only

natural anyway . . . .” Id. at 566. A rudimentary economic

analysis also fatally undermined the complaint’s second charge,

namely that the ILECs agreed not to enter one another’s

markets. The Court recognized that “[i]n a traditionally

unregulated industry with low barriers to entry, sparse

59

competition among large firms dominating separate

geographical segments of the market could very well signify

illegal agreement.” Id. at 567. But in the telecommunications

industry at issue in Twombly, monopoly had been “the norm . . .,

not the exception.” Id. at 568. Noting that “[t]he ILECs were

born in that world, doubtless liked the world the way it was, and

surely knew the adage about him who lives by the sword,” the

Court found that “a natural explanation for the noncompetition

alleged is that the former Government-sanctioned monopolists

were sitting tight, expecting their neighbors to do the same

thing.” Id. In fact, “the complaint itself” bolstered this

conclusion. Id. Not only did it “not allege that competition

[against other ILECs] as CLECs was potentially any more

lucrative than other opportunities being pursued by the ILECs

during the same period,” but “the complaint [was] replete with

indications that any CLEC faced nearly insurmountable barriers

to profitability owing to the ILECs’ flagrant resistance to the

network sharing requirements” of federal law. Id. In short, both

“common economic experience” and the complaint’s own

allegations showed that each defendant ILEC was independently

motivated to behave in the ways alleged. Accordingly, neither

of plaintiffs’ theories successfully pled a § 1 conspiracy because

in each case, defendants’ parallel conduct “was not only

compatible with, but indeed was more likely explained by,

lawful, unchoreographed free-market behavior.” Ashcroft v.

Iqbal, 129 S. Ct. 1937, 1950 (2009) (summarizing Twombly).

In sum, Twombly makes clear that a claim of conspiracy

60

predicated on parallel conduct should be dismissed if “common

economic experience,” or the facts alleged in the complaint

itself, show that independent self-interest is an “obvious

alternative explanation” for defendants’ common behavior. For

our present purposes, we find this guidance sufficient.

b. Assessing the Sufficiency of Plaintiffs’ Pleadings

As the Supreme Court has instructed, we begin by

identifying the complaints’ bare assertions that the insurers or

brokers entered into horizontal agreements. See, e.g., Comm.

SAC ¶ 158 (“[T]he Insurers members of the . . . Broker-

Centered Conspiracy all agreed with [the Broker], and agreed

horizontally among themselves, to reduce or eliminate

competition for [the Broker’s] secured business among the

conspiring insurers.”); id. ¶ 354 (“[T]he Broker ‘hubs’

simultaneously agreed horizontally not to compete with each

other . . . .”). Because these conclusory averments do not

“show[]” but merely “assert[]” plaintiffs’ entitlement to relief,

Twombly, 550 U.S. at 555 n.3, they cannot carry plaintiffs’

pleading burden. See id. at 556–57 (“Without more, . . . a

conclusory allegation of agreement at some unidentified point

does not supply facts adequate to show illegality.”); cf. Howard

Hess Dental Labs. Inc. v. Dentsply Int’l, Inc., 602 F.3d 237,

254–55 (3d Cir. 2010) (holding that it was inadequate for the

complaint to state in “a conclusory manner” that “Defendants,

each with all of the others, have entered into two interrelated

conspiracies” and that “every Dealer knew that every other

Dealer agreed, or would agree, to th[e] same [allegedly

61

unlawful] plan” (emphasis omitted)). Accordingly, we must

examine the entirety of the complaints’ factual allegations and

determine whether, taken as true, they support a plausible

inference of horizontal conspiracy.

i. The Broker-Centered Conspiracies

(a) Conspiracies Not Involving Bid Rigging

As the District Court recognized, plaintiffs’ “broker-

centered conspiracies” are alleged as hub-and-spoke

conspiracies, with the broker as the hub and its insurer-partners

as the spokes. This type of conspiracy has “a long history in

antitrust jurisprudence.” Dentsply Int’l, 602 F.3d at 255 (citing

Interstate Circuit, Inc. v. United States, 306 U.S. 208 (1939))

(discussing general hub-and-spoke model). “[T]he critical issue

for establishing a per se violation with the hub and spoke system

is how the spokes are connected to each other.” Total Benefits

Planning Agency, Inc. v. Anthem Blue Cross & Blue Shield, 552

F.3d 430, 436 (6th Cir. 2008). Here, the District Court found

plaintiffs had not adequately alleged the existence of a “wheel”

or “rim” (that is, a horizontal agreement) connecting the insurer-

spokes. 2007 WL 2533989, at *17; see Dickson v. Microsoft

Corp., 309 F.3d 193, 203 (4th Cir. 2002) (“A rimless wheel

conspiracy is one in which various defendants enter into

separate agreements with a common defendant, but where the

defendants have no connection with one another, other than the

common defendant’s involvement in each transaction.”) (citing

Kotteakos v. United States, 328 U.S. 750, 755 (1946)); cf.

62

Dentsply Int’l, 602 F.3d at 255 (concluding that “even assuming

the Plaintiffs have adequately identified the hub (Dentsply) as

well as the spokes (the Dealers), . . . the amended complaint”

fails to allege adequately “an agreement among the Dealers

themselves”).

Plaintiffs’ allegations in support of horizontal conspiracy

in the broker-centered schemes fall into two different categories.

First, plaintiffs assert that the very nature of the contingent

commission agreements between the broker and each of its

insurer-partners implies an agreement among the brokers.

Second, plaintiffs rely on specific details about the operation of

the customer steering schemes, particularly the “devices” used

to ensure that a particular piece of business was placed with the

designated insurer. With the exception of the bid rigging

alleged in the Marsh-centered commercial conspiracy, we agree

with the District Court that plaintiffs’ allegations do not give

rise to a plausible inference of horizontal conspiracy.

Contrary to plaintiffs’ arguments, one cannot plausibly

infer a horizontal agreement among a broker’s insurer-partners

from the mere fact that each insurer entered into a similar

contingent commission agreement with the broker. As the

District Court concluded, the first stage of the alleged broker-

centered conspiracies—the consolidation of the groups of

insurers to which each broker referred business—evinces

nothing more than a series of vertical relationships between the

broker and each of its “strategic partners.” 2007 WL 2533989,

at *15.

63

According to the complaints, the defendant brokers

decided to consolidate the pool of insurers to which they

referred business in order to improve efficiency and extract

higher commissions from each of their insurer-partners. As

defendants point out, “[o]nce a broker decided to organize its

business in this fashion, each insurer had sound, independent

business reasons to pay contingent commissions to become and

remain a ‘preferred insurer.’ Paying such commissions helped

the insurer to compete for and retain a larger share of its

partners’ business than if it had no such vertical relationships.”

Defendants’ EB Br. 38. In short, the obvious explanation for

each insurer’s decision to enter into a contingent commission

agreement with a broker that was consolidating its pool of

insurers was that each insurer independently calculated that it

would be more profitable to be within the pool than without.

The complaints themselves reinforce this conclusion with their

portrait of a concentrated brokerage market, in which a handful

of brokers controlled the majority of client business, and an

unconcentrated, more competitive market of insurers vying for

premium dollars. Comm. SAC ¶¶ 70–76; EB SAC ¶¶ 67–73.

According to plaintiffs’ own account, “[t]he Insurer Defendants

are thus largely dependent on the Broker Defendants to assure

access to business and protect their market share.” EB SAC

¶ 73; accord Comm. SAC ¶ 76; see also id. ¶ 73 (“The close

bond between broker and client gives brokers tremendous

influence, and often decisive control, over the placement of their

clients’ insurance business.”). Given this economic landscape,

each insurer had an obvious incentive to enter into the “strategic

64

partnerships” offered by the defendant brokers, irrespective of

the actions of its competitors.

Refusing to concede this point, plaintiffs argue that the

parallel decisions of insurers to join the broker-centered

conspiracies plausibly imply a horizontal agreement among the

insurers because “an insurer would not pay enormous contingent

commissions in order to access premium volume if its major

rivals were getting the same access for free.” Plaintiffs’ EB

Reply Br. 8 (emphasis omitted). This contention is implausible.

Although each insurer would be motivated to achieve the best

deal possible with the broker—and would doubtless like to

obtain terms as least as favorable as those negotiated by other

insurers—the determinative consideration would be whether the

insurer is better off paying contingent commissions for

privileged access to the broker’s clients than it would be saving

those payments and foregoing the broker’s assistance in winning

and retaining business. Especially in light of the market

dynamics alleged by plaintiffs, the obvious explanation for the

decision of the defendant insurers to enter into contingent

commissions agreements with the consolidating brokers is that

each insurer found that the benefits justified the costs. In fact,

the complaints relate incidents in which insurers who were

reluctant to conform to the contingent commission demands of

a broker nonetheless did so when faced with the prospect of

losing their privileged access to the broker’s book of business.

See, e.g., Comm. SAC ¶¶ 135–140; EB SAC ¶¶ 163–168; id. ¶¶

214–226. These anecdotes only strengthen the obvious

65

conclusion that no horizontal agreement was necessary to induce

the insurers to become “strategic partners.”

Moreover, plaintiffs’ argument proves too much. If the

parallel decisions by several insurers to pay contingent

commissions imply a horizontal agreement, then it is difficult to

see why parallel decisions to pay standard commissions (that is,

a fixed percentage of each policyholder’s premium payment)

would not also imply an agreement. For that matter, plaintiffs’

logic would divine a horizontal agreement from virtually any

parallel expenditures for marketing services, on the mistaken

ground that a firm would not pay for advertising, for example,

in the absence of an agreement with its competitors to enter into

similar contracts with the advertising company. Cf. Twombly,

550 U.S. at 566 (noting that “resisting competition is routine

market conduct,” and that “if alleging parallel decisions to resist

competition were enough to imply an antitrust conspiracy,

pleading a § 1 violation against almost any group of competing

businesses would be a sure thing”).26 The District Court

26

Plaintiffs distinguish contingent commissions from

advertising costs on two grounds, neither of which is relevant.

First, plaintiffs stress that unlike advertising, which is

procompetitive, the customer allocation schemes allegedly

linked to the contingent commission payments were antagonistic

to competition. This response, however, misunderstands the

thrust of the advertising analogy. Even assuming defendants’

practices unreasonably restrained trade, plaintiffs’ § 1 claims

66

correctly found that the brokers’ alleged consolidation of the

insurers with which they did business did not plausibly imply an

agreement susceptible to per se condemnation.

Plaintiffs seek to bolster the inference of horizontal

agreement with allegations of information-sharing among the

members of each putative broker-centered conspiracy. Plaintiffs

assert numerous instances, for example, in which a broker

communicated the details of its contingent commission

must also plausibly suggest that these practices were the product

of an agreement among the insurers. The advertising analogy

illustrates plaintiffs’ failure to satisfy this element of their

pleading burden; parallel conduct, such as the payment of

contingent commissions, does not plausibly imply the existence

of an agreement when each defendant had a strong, independent

motive to engage in that conduct.

Second, plaintiffs allege that contingent commission

agreements were not customary before the brokers’ decisions in

the 1990’s to consolidate their pool of insurers, and that the

insurers received no additional benefits in exchange for these

payments. Even if that is true, however—and the complaints’

assertions of increasing premium revenue by defendant insurers

during the proposed class period suggest otherwise—the point

is that, once the brokers had undertaken that consolidation,

insurers had much to lose if they did not become a “strategic

partner,” which provided each of them with an independent

business reason to pay brokers contingent commissions.

67

agreement with one insurer-partner to other insurer-partners, in

violation of confidentiality provisions forbidding such

disclosures. In plaintiffs’ view, these alleged disclosures helped

defendants to police the broker-centered conspiracies by

assuring each conspiring insurer that none of the other insurer-

partners was “cheating” by taking more than the allegedly

agreed-upon share of premium volume.

But there is a significant obstacle to plaintiffs’ attempts

to infer a horizontal agreement from this sharing of information.

The complaints allege only that the brokers made the

disclosures; there are no allegations that any insurer ever

horizontally disclosed to its competitors the details of its vertical

agreement with a broker. Furthermore, there are obvious

reasons for each broker to share this information with its

insurer-partners, reasons that have nothing to do with

preexisting agreements of any kind. The details of commission

agreements with other insurers, for example, could be a

powerful tool for a broker attempting to negotiate a more

favorable agreement with a particular insurer-partner. Either

match the “market” price for my premium volume, a broker

might threaten, or I will transfer your share of my business to

other, higher-commission-paying insurer-partners. This tactic

would seem to be an effective way for brokers to exploit the

leverage that, according to the complaints, they enjoyed over the

insurers. And in fact, the complaints show that brokers used the

information in precisely this way. See, e.g., EB SAC ¶ 126

(recounting an incident in which a broker “reveals [to a

68

particular insurer] that the bonus compensation arrangement it

was seeking from [that particular insurer] had been agreed to by

the other conspiring Insurers, and that [the particular insurer]

should offer terms like those put forth by another Insurers

[sic]”). Just as a manufacturer’s practice of informing each of

its distributors of the identities of its other distributors—as well

as the prices they paid and the volume of product they

received—would not plausibly imply a horizontal agreement

among the distributors, the disclosure of information alleged

here fails to plausibly suggest a conspiracy among the insurers.

It is true that if a horizontal conspiracy of the sort asserted by

plaintiffs existed, the exchange of information alleged could

conceivably serve the “policing” function plaintiffs describe.

But it does not follow that this disclosure of information

plausibly implies such a conspiracy; it is at least equally

consistent with unconcerted action.27

27

Plaintiffs contend that “[i]t strains credulity to insist that an

insurer, which repeatedly and systematically receives

confidential information about a rival’s contingent commission

arrangements and premium volume, would not expect and

understand that its rivals were being provided with the same

information about its business.” Plaintiff’s EB Reply Br. 13.

But the allegation that insurers knew that the brokers would

disclose the details of their vertical agreements to other insurer-

partners does not imply that insurers intended that the

information be so disclosed, let alone that they had entered into

a horizontal agreement with other insurers. Plaintiffs’ reliance

69

The manufacturer analogy highlights a basic fallacy that

undergirds much of plaintiffs’ argumentative strategy. Plaintiffs

repeatedly insist that

when [an] insurer knows that it is buying

competitive protections for its incumbent business

and it knows that other insurers are not getting a

real opportunity on its incumbent business, and it

knows that there are other partners of the broker

who have the same competitive protections

bought with the same contingent commissions, it

is a fair inference . . . that this describes . . . a

horizontal conspiracy.

Tr. of Oral Arg. 15–16. “Competitive protections” sound

vaguely sinister, but what insurers were allegedly buying was a

portion of the client business controlled by the broker.

on United States v. Container Corp. of America, 393 U.S. 333

(1969), is thus inapposite. In Container Corp., the Supreme

Court found that the exchange among competitors of

information about the prices they charged to customers

constituted a horizontal conspiracy to limit price competition in

violation of the Sherman Act. The disclosure of information

alleged here, by contrast, is vertical and, unlike the exchange in

Container Corp., does not give rise to an inference of harm to

competition. See id. at 337; see also id. at 338 (“Price is too

critical, too sensitive a control to allow it to be used even in an

informal manner to restrain competition.”).

70

Whatever portion of that business one insurer buys is, of course,

a portion unavailable to other insurers. Each contract between

an insurer and the broker is, in this sense, a restraint of trade, but

only in the way that every contract is a restraint of trade. See

Bd. of Trade v. United States, 246 U.S. 231, 238 (1918) (“Every

agreement concerning trade, every regulation of trade, restrains.

To bind, to restrain, is of their very essence.”); cf. Am. Needle,

Inc. v. NFL, 130 S. Ct. 2201, 2208 (2010) (“[E]ven though, read

literally, § 1 would address the entire body of private contract,

that is not what the statute means.” (internal quotation marks

omitted)). A similar restraint occurs when a manufacturer signs

a contract with a distributor, agreeing to sell the distributor a

certain percentage of the manufacturer’s product. This

arrangement alone does not signify an agreement to

unreasonably restrain trade, let alone a horizontal agreement to

unreasonably restrain trade. Nor would an inference of

horizontal conspiracy arise from the fact that each distributor

knows which of its competitors have purchased the remaining

portions of the manufacturer’s product, as well as the specific

terms of the other deals. Here, plaintiffs claim the brokers’

ability to “guarantee” insurers certain amounts of premium

volume depended on deceiving their clients into believing that

the brokers had solicited competitive bids from the insurers, and

that in a given transaction, the insurer recommended by the

broker was the one who had made the most attractive offer.

These allegations of fraud, however, involve only the manner in

which the brokers obtained the “product” they sold to insurers;

71

they do not make the sales themselves an antitrust violation.28

Contrary to plaintiffs’ contentions, the allegations that each

insurer knew about the “competitive protections” purchased by

the other insurer-partners manifestly do not “describe[] . . . a

horizontal conspiracy” to unreasonably restrain trade.

Plaintiffs maintain that this conclusion is at odds with the

holdings in two hub-and-spoke-conspiracy cases, Interstate

Circuit, Inc. v. United States, 306 U.S. 208 (1939), and Toys

“R” Us, Inc. v. FTC, 221 F.3d 928 (7th Cir. 2000). In Interstate

Circuit, a theater chain company, Interstate, wrote to each of

eight movie distributors, asking them to meet certain conditions

in exchange for the theater company’s “continued exhibition of

the distributors’ films in its . . . first-run theatres” at a prescribed

price of admission. 306 U.S. at 216–17. The conditions

operated to restrict the terms under which the distributors could

license their films to subsequent-run theatres, Interstate’s

competitors. Although there was no evidence of any direct

communications among the eight distributors, the letter sent to

each distributor listed all eight distributors as addressees; in

other words, “from the beginning each of the distributors knew

that the proposals were under consideration by the others.” Id.

28

See infra note 31 and accompanying text. We discuss

below plaintiffs’ argument that the specific means allegedly

used to steer clients, e.g., first looks, last looks, and the

solicitation of intentionally uncompetitive bids, imply a

horizontal agreement among the insurers.

72

at 222. Each distributor accepted Interstate’s proposed terms.

The district court found this evidence proved concerted action

by the distributors in violation of § 1 of the Sherman Act, and

the Supreme Court affirmed. Plaintiffs cite Interstate Circuit for

the proposition that an actionable horizontal conspiracy does not

require direct communication among the competitors.

We do not dispute this principle, but it does not relieve

plaintiffs of the obligation to “allege facts plausibly suggesting

‘a unity of purpose or a common design and understanding, or

a meeting of minds in an unlawful arrangement.’” Dentsply

Int’l, 602 F.3d at 254 (quoting Copperweld, 467 U.S. at 771).

Key to Interstate Circuit’s conspiracy finding was its

determination that each distributor’s decision to accede to

Interstate’s demands would have been economically self-

defeating unless the other distributors did the same: “Each was

aware that . . . without substantially unanimous action . . . there

was risk of a substantial loss of the business and good will . . . .”

Interstate Circuit, 306 U.S. at 222. In the absence of common

action, agreeing to Interstate’s demands would have meant

reducing output (specifically, surrendering the distributor’s

share of the subsequent-run theater business) with no reasonable

prospect of countervailing benefits; only collective conduct by

the distributors could exert the market power necessary to

increase profits in the first-run arena. The Court stated that it

would “tax[] credulity to believe that the several distributors

would, in the circumstances, have accepted and put into

operation with substantial unanimity such far-reaching changes

73

in their business methods without some understanding that all

were to join, and we reject as beyond the range of probability

that it was the result of mere chance.” Id. at 223.

As noted, however, in the circumstances alleged here, the

rationality of each insurer’s decision to enter into a “strategic

partnership” with the broker does not presuppose concerted

action. The advantages of the partnership to the insurers flowed

from the broker’s control of its clients’ business, not the market

power of the insurers. If anything, an insurer here would prefer

that fewer of its competitors participate in the scheme, as it

would then enjoy that much more of the broker’s steered

business. See, e.g., Comm. SAC ¶ 242 (noting that one of

broker HRH’s insurer-partners preferred that HRH have only

three other partners, whereas HRH wanted four). The

opportunity to become a broker’s “strategic partner” was an

opportunity for the insurer to increase output, not reduce it.

Toys “R” Us is likewise distinguishable. There, Toys

“R” Us, a toy retailer, invited manufacturers to stop selling toys

to wholesale toy clubs, which competed with Toys “R” Us. The

manufacturers did so. The Court of Appeals for the Seventh

Circuit affirmed the FTC’s finding of § 1 conspiracy among the

manufacturers. The court acknowledged that the “agreements

between [Toys “R” Us] and the various manufacturers were, of

course, vertical agreements,” 221 F.3d at 932, which could not

in themselves constitute a per se violation. But the court

determined that the FTC’s finding of a horizontal agreement

among the manufacturers was warranted under the

74

circumstances. The evidence showed that the manufacturers

were “reluctan[t] to give up a new, fast-growing, and profitable

channel of distribution,” id. (quoting FTC opinion); they “were

in effect being asked by [Toys “R” Us] to reduce their output

. . ., and as is classically true in such cartels, they were willing

to do so only if [Toys “R” Us] could protect them against

cheaters,” id. at 936. In fact, the FTC had direct evidence, in the

form of statements by the manufacturers’ executives, that each

manufacturer agreed to Toys “R” Us’s proposal on the explicit

condition that its competitors do the same. Id. As the Seventh

Circuit noted, Toys “R” Us “is a modern equivalent of the old

Interstate Circuit decision.” Id. at 935. In both cases, the

evidence clearly indicated that the defendants would not have

undertaken their common action without reasonable assurances

that all would act in concert.

Here, the parallel vertical agreements are of a different

sort. Interstate and Toys “R” Us solicited exclusive-dealing

agreements from movie distributors and toy manufacturers,

respectively, in an attempt to exploit the latters’ collective

market power. Plaintiffs here do not allege that the insurers

possessed market power (as noted, plaintiffs instead emphasize

the brokers’ market power, see Comm. SAC ¶ 76; EB SAC ¶

73), nor that each broker wanted its insurer-partners to deal

exclusively with it (the complaints show that some insurers had

contingent commission agreements with multiple brokers 29 ).

29

See supra note 6.

75

Instead, plaintiffs’ allege that brokers demanded contingent

commissions in exchange for given amounts of broker-

controlled business. And the complaints show that each insurer

had an incentive to pay these commissions based solely on the

brokers’ ability to guarantee delivery of premium volume. Each

insurer’s share of the market thus depended on its ability to gain

the broker’s favor, not on the choices of its competitors.

Plaintiffs’ attempt to compare their allegations with the

facts of Interstate Circuit and Toys “R” Us is thus misguided.

If anything, the fundamentally different factual contexts in those

cases reinforce our view that the alleged information-sharing by

the brokers here does not plausibly support a claim of horizontal

conspiracy. 3 0 We believe the alleged contingent

30

Plaintiffs place special emphasis on the alleged

information-sharing in the HRH- and Wells Fargo/Acordia-

centered commercial conspiracies, but these allegations do not

overcome the basic deficiency we have just described. Plaintiffs

allege that HRH allocated its book of business among three

insurers and assert that “[t]he number of [insurers] to which

HRH allocated its business was discussed among and agreed to

by the three chosen insurers.” Comm. SAC ¶ 242. When we

search for additional information about this putative agreement,

we find mostly allegations common to the other broker-centered

conspiracies, namely that each insurer-partner knew the

identities of the others and the details of their similar contingent

commission agreements with the broker. Plaintiffs’ pleadings

76

commission agreements between brokers and insurers—which

form the backbone of plaintiffs’ alleged “broker-centered

conspiracies”—find a more apt analogue in the facts of NYNEX

Corp. v. Discon, Inc., 525 U.S. 128 (1998). In NYNEX, plaintiff

suggest that one insurer wanted HRH to have one fewer insurer-

partner than HRH originally had in mind. See Comm. RPS ¶

281 (“During its negotiations with HRH, [the insurer] was aware

of the existence of other proposed carrier partners and expressed

concern that HRH was considering consolidating its business

with four Insurers rather than only three, which [the insurer]

preferred.”). But this vertical effort to persuade HRH (with

apparent success) to exclude the participation of a competitor

hardly implies horizontal conspiracy among the insurers. (It

also stands in stark contrast to the hub-and-spoke conspiracies

found in Interstate Circuit and Toys “R” Us, in which each

firm’s motivation to enter into the vertical agreement was

contingent on all of its competitors’ doing the same.) To the

contrary, the obvious alternative explanation for the insurer’s

behavior is a desire to maximize its piece of HRH’s guaranteed-

premium-volume pie.

Similarly, the allegations in the Well Fargo/Acordia

conspiracy indicate only that the insurer-partners knew one

another’s identities, and knew that each was benefitting in

similar ways from the broker’s ability to steer business. They do

not imply that any insurer-partner’s agreement with Wells

Fargo/Acordia was dependent on the conduct of its competitors.

77

Discon alleged that Material Enterprises, a NYNEX subsidiary,

had switched its purchase of certain services from Discon to

AT&T Technologies, one of Discon’s competitors, despite the

fact that Discon was the less expensive servicer. According to

Discon, the transaction was part of a fraudulent scheme in which

Material Enterprises “could pass the higher prices on to New

York Telephone, which in turn could pass those prices on to

telephone consumers in the form of higher regulatory-agency-

approved telephone service charges. At the end of the year,

Material Enterprises would receive a special rebate from AT&T

Technologies, which Material Enterprises would share with its

parent, NYNEX.” Id. at 132. The scheme allegedly allowed

New York Telephone, a lawful monopoly, to circumvent

regulatory restrictions on the telephone services charges it could

impose on consumers, to the profit of the participating entities.

Discon alleged that Material Enterprises refused to choose it as

the service provider, despite its lower price, because it refused

to go along with the scheme. The Supreme Court “concede[d]

Discon’s claim that the petitioners’ behavior hurt consumers by

raising telephone service rates” but refused to apply a rule of per

se condemnation to this vertical restraint, noting further that the

consumer injury “naturally flowed” not so much from a less

competitive market for removal services as from New York

Telephone’s exercise of its lawfully held market power

“combined with a deception worked upon the regulatory

agency.” Id. at 136. Rather than § 1 of the Sherman Act, the

Court suggested, a more appropriate remedy might be found in

“other laws, for example ‘unfair competition’ laws, business tort

78

laws, or regulatory laws, [which] provide remedies for various

competitive practices thought to be offensive to proper standards

of business morality.” Id. at 137 (internal quotation marks

omitted).

Here, too, the “strategic partnerships” alleged by

plaintiffs imply only a vertical restraint. Furthermore, the

complaints show that the injury to purchasers of insurance

“naturally flowed” primarily from the nature of the broker-client

relationship and the ability it afforded brokers to deceive clients

about the quality and competitive status of the bids received

from insurers. Contingent commission agreements were the

means by which the brokers converted this power into profit,

ultimately at their clients’ expense; contingent commissions

were the “rebate” insurers paid to brokers. But none of the

allegations examined to this point give reason to believe that the

broker-centered schemes were underwritten by horizontal

agreements among the insurer-partners. Purchasers may have

some cause of action against the defendants for their alleged

deception and unfair trade practices, see id. (listing possible

legal remedies), but plaintiffs’ allegations of parallel contingent-

commissions-for-guaranteed-premium-volume agreements

between each broker and its insurer-partners do not adequately

plead a per se violation of § 1 of the Sherman Act.31

31

Hovenkamp’s discussion of NYNEX is also relevant to this

case:

[T]he allegations in [NYNEX] contained an

79

The gravamen of plaintiffs’ allegations lies in what the

District Court described as the second stage of the asserted

schemes: the operation of the “incumbent protection rackets”

within each broker-centered conspiracy. Even if the parallel

element of fraud, but many thousands of contracts

have exchanged exclusivity for kickbacks or some

deception on consumers or third parties. An

agreement giving a waste removal or towing

company an exclusive right to the buyer’s

business in exchange for a secret rebate or

kickback does not injure competition simply

because of the fraud. Such a holding would cross

the line from antitrust to consumer protection.

And while protecting consumers from such

schemes is certainly a worthy goal of legal policy

generally, it is not an antitrust goal.

11 Hovenkamp, supra, ¶ 1902d, at 223. Here, too, the basic

scheme alleged by plaintiffs is one in which defendant brokers

exchanged exclusivity (premium volume) for kickbacks

(contingent commissions). To be sure, here the brokers dealt

“exclusively” with multiple parties—the exclusive dealing

involved individual insurance policies (most notably those

already placed with a particular insurer and up for possible

renewal), rather than a broker’s entire roster of clients—but this

difference does not materially alter the basic exclusivity-for-

kickbacks model. It merely presents multiple, parallel

instantiations of that model.

80

decisions to become strategic partners of the broker do not in

themselves bespeak a horizontal agreement, plaintiffs contend

their allegations about the “devices” used to conduct the

customer-steering schemes suffice to meet the Twombly

threshold.

According to the complaints, several of the devices that

allegedly facilitated the schemes are common to all of the

broker-centered conspiracies. For instance, plaintiffs allege that

brokers often afforded insurer-partners “first looks” and “last

looks” in bidding on policies. Once again, however, the

practices identified by plaintiffs are strictly vertical in nature.

On the complaint’s own account, first and last looks were

techniques utilized by brokers to ensure that a given client’s

policy was placed (or remained) with a designated insurer-

partner. See, e.g., Comm. SAC ¶ 88 (“Broker Defendants

shielded their insurer partners from normal competition by

agreeing not to bid renewals competitively, or by limiting the

circumstances under which renewals could be marketed. Broker

Defendants also routinely promised to provide competitive

advantages to Insurer partners, by disclosing other carriers’ bids,

providing first or last looks, and other methods.”). The

complaints describe “[t]he close bond between broker and

client,” which “gives brokers tremendous influence, and often

decisive control, over the placement of their clients’ insurance

business. Given the high degree of financial investment and

trust placed in their broker, clients will rarely if ever seek quotes

from insurers other than those recommended by the broker.” Id.

81

¶ 73. In other words, the complaints themselves provide

obvious reasons to conclude that the brokers were able to steer

clients to preferred insurers without the need for any agreement

among the insurers. Whatever the vices of these steering

techniques, they do not give rise to a plausible inference of

horizontal conspiracy.

Also insufficient are two allegations of certain “bid

manipulation” within the broker-centered conspiracies in the

Employee Benefits Case. In the first example, the complaint

asserts only that a broker unilaterally refused to submit an

insurer’s bid to the client. In the second, a broker successfully

persuaded one of its insurer-partners not to withdraw a bid the

insurer had come to view as unacceptably low. If the insurer

had withdrawn the bid, another, non-partner insurer would have

become a “finalist,” an outcome the broker wished to avoid. To

allay the insurer-partner’s concerns, the broker assured it that it

would not end up winning the contract because another insurer

had submitted an even lower bid. Shortly afterward, the broker

placed a large account with the insurer-partner. Neither

example provides a plausible basis for inferring anything more

than vertical agreements between brokers and individual

insurers.

In the Employee Benefits Case, plaintiffs allege that

defendant insurers used similar strategies to evade their

obligation to report contingent commission payments on Form

5500. But the asserted fact that the insurers intended to violate

their reporting obligations, and that they all adopted the same

82

deceptive reporting model, does not plausibly suggest a

horizontal agreement. If anything, the allegations suggest that

each insurer would be independently motivated to evade the

requirement, and that each had access to the same effective

model of how to accomplish this deception. Cf. In re Elevator

Antitrust Litig., 502 F.3d 47, 51 (2d Cir. 2007) (observing that

“similarities in contractual language . . . do not constitute

‘plausible grounds to infer an agreement’” because “[s]imilar

contract language can reflect the copying of documents that may

not be secret”). The insurers would be disinclined to expose

their competitors’ reporting violations for fear of calling

attention to their own self-interested deception. Cf. Twombly,

550 U.S. at 568 (finding that the failure of the defendants to

compete in one another’s regions was most plausibly explained

by the fact that the defendants “liked the world the way it was,

and surely knew the adage about him who lives by the sword”).

In sum, the allegations discussed thus far do not provide

“plausible grounds to infer” a horizontal agreement. Id. at 556.

This does not mean that defendants’ alleged treatment of

insurance purchasers was praiseworthy—or even lawful—but

that it fails to plead a per se violation of § 1 of the Sherman Act.

Plaintiffs have pled facts showing that brokers deceptively

steered their clients to preferred insurer-partners in order to

obtain contingent commission payments from those partners, but

this in itself is insufficient to plausibly imply a horizontal

conspiracy.

83

(b) Bid-Rigging Allegations

There is, however, one notable exception to this

conclusion. In the Marsh-centered commercial conspiracy,

plaintiffs provide detailed allegations of bid rigging by the

insurer-partners.32 According to these allegations, insurers

furnished purposefully uncompetitive sham bids on policies in

order to facilitate the steering of business to other insurer-

partners, on the understanding that the other insurers would later

reciprocate. Bid rigging—or more specifically, as alleged in this

case, bid rotation 33 —is quintessentially collusive behavior

32

Apart from the multiple, detailed incidents of bid rigging in

the Marsh-centered commercial conspiracy, plaintiffs appear to

allege one incident of bid rigging in each of the Willis-centered

and Gallagher-centered commercial conspiracies. Comm. SAC

¶¶ 275, 336. In their briefs and at oral argument, however,

plaintiffs’s bid-rigging discussion appears to be limited to Marsh

and its insurer-partners. See, e.g., Tr. of Oral Arg. 12 (affirming

that “[t]he specific instances of bid rigging . . . occurred with

respect to the Marsh broker centered conspiracies [sic]”).

33

See United States v. Heffernan, 43 F.3d 1144, 1146 (7th

Cir. 1994) (contrasting bid rotation, in which “for each job the

competitors agree which of them shall be the low bidder, and the

others submit higher bids to make sure the designated bidder

wins,” with identical bidding, in which the competitors all agree

to bid the same price).

84

subject to per se condemnation under § 1 of the Sherman Act.

See United States v. All Star Indus., 962 F.2d 465, 469–73 (5th

Cir. 1992); see also United States v. Heffernan, 43 F.3d 1144,

1147 (7th Cir. 1994) (citing United States v. Portsmouth Paving

Corp., 694 F.2d 312, 317 (4th Cir. 1982)) (noting that bid

rotation may be especially anticompetitive because it

“eliminate[s] all competition rather than just price

competition”); 12 Hovenkamp, Antitrust Law ¶ 2006, at 77 (2d

ed. 2005) (“[B]id-rigging and bid rotation schemes are really

nothing more than output or market share agreements.”).34 This

point does not quite end our inquiry, as plaintiffs do not seek to

hold defendants liable for a bid-rigging conspiracy, but instead

proffer the alleged bid rigging as circumstantial evidence of a

“broader” agreement. Accordingly, we must assess the bid-

rigging allegations, like the other alleged circumstantial

34

As one treatise explains:

A strong inference of coordinated behavior arises

when a participant actively seeks to lose a bid.

Deliberate sacrifice of a contract implies an

unusual confidence that the winning party will

return the favor. Moreover, spurious bidding

indicates an awareness of wrongdoing coupled

with a desire to hide it by simulating normal

bidding. A spurious bid is almost always

anticompetitive . . . .

6 Areeda & Hovenkamp, supra, ¶ 1420b, at 140.

85

evidence discussed above, to determine whether, if true, they

plausibly imply the existence of the horizontal agreement on

which plaintiffs’ claim is predicated (and if so, whether that

agreement is subject to per se condemnation). For the reasons

that follow, we believe the bid-rigging behavior does plausibly

suggest concerted action by the insurers; it proffers “enough fact

to raise a reasonable expectation that discovery will reveal

evidence of illegal agreement,” Twombly, 550 U.S. at

556—more specifically, a horizontal agreement among the

insurers not to compete for one another’s incumbent business.

The District Court did not find the bid-rigging allegations

sufficient to imply any sort of horizontal agreement among

Marsh’s insurer-partners, even one to rig bids. The court

appears to have believed that because Marsh, the broker, was the

one who directed the insurers to provide sham bids, the bid

rigging was not indicative of an agreement among insurers but

simply reflected the desire by individual insurers to propitiate

Marsh in order to ensure that Marsh would continue to steer

premium volume their way. See 2007 WL 2533989, at *16–17

(acknowledging that “Plaintiffs presented a panoply of facts . . .

which allege that certain actions were taken by the Insurer

Defendants at the request of the Broker Defendants, such as . . .

protective bidding and bid-rigging,” but concluding that “[t]he

fact that Broker Defendants demanded or expected certain

behavior from the Insurer Defendants does not necessarily

amount to a horizontal agreement amongst the Defendant

86

Insurers.”).35

We agree that plaintiffs’ allegations portray a conspiracy

masterminded and directed by defendant broker Marsh, but this

fact does not make implausible the inference of a horizontal

agreement among the insurers. If the defendant insurers

supplying sham bids were truly indifferent as to whether

Marsh’s other insurer-partners would ever reciprocate, then the

bid rigging might not plausibly imply a horizontal agreement.36

On a motion to dismiss, however, we must assume the truth of

the complaint’s statement of facts, and the complaint here sets

forth a plausible basis for inferring that each bid-rigging

defendant’s decision not to compete was conditioned on an

expectation of reciprocity from its competitors—and not based

purely on independent motivation or broker Marsh’s behavior,

as the District Court concluded. See Comm. SAC ¶ 109

35

We note that, under Twombly, the test is not whether

plaintiffs’ allegations necessarily amount to an unlawful

horizontal agreement, but rather whether they plausibly

imply—that is, “raise a reasonable expectation that discovery

will reveal evidence of”—such an agreement. 550 U.S. at 556.

36

This aspect of the District Court’s reasoning as to why the

bid rigging does not imply a horizontal agreement is more fully

developed in its evaluation of the RICO claims. See 2007 WL

2892700, at *21. Accordingly, the bulk of our analysis on this

point occurs in Section II.B.2.a.i. infra.

87

(quoting statement by a former employee of a defendant insurer

to the effect that the Insurer had agreed to “provide[] losing

quotes” to its broker-partner in exchange for, among other

things, the broker’s “getting ‘quotes from other [insurance]

carriers that would support the [Insurer, at least when it was the

incumbent carrier] as being the best price’”).

The fact that Marsh, an entity vertically oriented to the

insurers, appears to be a sine qua non of the alleged horizontal

agreement is not necessarily an obstacle to plaintiffs’ claim. As

one of our sister courts of appeals has written, “defendants

cannot escape the per se rule [for certain horizontal restraints of

trade] simply because their conspiracy depended upon the

participation of a ‘middle-man’, even if that middleman

conceptualized the conspiracy, orchestrated it . . . and collected

most of the booty.” All Star, 962 F.2d at 473.

The conspiracy alleged in All Star has some striking

similarities with the broker-centered conspiracy alleged here. In

All Star, a criminal prosecution for antitrust conspiracy in the

specialty pipe industry, the government’s theory was that

defendant Texas Pipe Bending Company (TPB), which

performed fabrication jobs on a cost-plus basis, coordinated a

bid-rigging scheme among defendant pipe distributors. The

distributor(s) designated to win a particular bid would be

protected by higher bids submitted by the other bidders, and the

winning distributors rebated some portion of their sales

revenue—which was significantly inflated over the price that

would have prevailed in competitive bidding—to TPB. Id. at

88

467–68. In both All Star and (as alleged) this case, competitors

agreed to submit intentionally uncompetitive bids in order to

dictate the firm to which a particular contract would be awarded,

as well as (by implication if not design) the price of that

contract. This conduct plausibly implies a horizontal

conspiracy, and the fact that here it was the broker, Marsh, that

allegedly designated the winner and solicited the sham bids does

not alter that conclusion. Marsh may have been an essential

conduit and coordinator, but the insurers’ agreement to provide

protective bids to one another was also instrumental to the

operation of the asserted broker-centered conspiracy. Even if

the broker could have allocated customers on its own, without

enlisting the assistance of other insurer-partners, the alleged

willingness of those partners not only to refrain from competing

with one another, but also actively to assist in the deceptive

steering practices, plausibly suggests that customer allocation

could be the result not only of vertical collusion, but also of a

horizontal agreement among the insurers.37 The anticompetitive

danger inherent in insurers’ alleged concerted efforts to rotate

bids is not necessarily mitigated by the fact that the broker

37

As noted, it may be more precise to say that allegations of

brokers’ unilateral acts of fraud against their clients, while

undeniably asserting a form of consumer injury, do not plead an

injury to competition, which is adequately alleged in the Marsh-

centered scheme only by virtue of the well-pled horizontal

agreement among the insurer-spokes. See supra note 31 and

accompanying text.

89

managed the details of each bid, nor by the likelihood that the

horizontal collusion would not have occurred without the

broker’s involvement.

On appeal, defendants do not dispute that the bid-rigging

allegations plausibly imply a horizontal agreement among the

insurers. For several reasons, however, they contend this

agreement is insufficient to support plaintiffs’ antitrust claims.

Defendants do not deny that plaintiffs have set forth

particularized allegations of unlawful bid rigging, but they

contend that plaintiffs have no standing to challenge this activity

because plaintiffs do not assert that the bids were rigged on any

of the policies they purchased. Plaintiffs, in turn, insist that this

argument misses the point, since their claim is not that

defendants engaged in an actionable bid-rigging conspiracy; as

noted, the alleged horizontal agreement on which they base their

§ 1 claim is not an agreement to rig bids. Instead, they complain

of a “broader scheme” of “incumbent protection,” and the

incidents of bid rigging are alleged as evidence of this “broader

scheme.” Tr. of Oral Arg. 70.38

38

At oral argument, counsel for plaintiffs explained: “[T]he

defendants take a lot of time talking about how we can’t win in

a big [sic] rigging scheme because we didn’t allege a bid rigging

scheme. And that’s right. We have [instead] alleged an

agreement among these participants in the Marsh broker-

centered conspiracies . . . to protect each other’s incumbent

business.” Tr. of Oral. Arg. 72; see also Letter from Plaintiffs

90

To evaluate the merit of this argument—that is, to

determine whether the bid-rigging allegations satisfy Twombly’s

pleading standard—it is necessary to identify the scope of this

“broader scheme” with precision. This imperative derives from

the requisite elements of a claim under § 1 of the Sherman Act.

As noted, since plaintiffs have elected to forego a rule-of-reason

analysis, they must adequately plead (1) a horizontal agreement

among insurers (2) to engage in an unreasonable restraint of

trade.39 Plaintiffs might be able to allege some sort of horizontal

to the District Court, No. 04-5184, Dkt. Entry # 669, at 2

(“[P]laintiffs do not allege that defendants are liable under the

antitrust laws because they engaged in ‘bid-rigging.’ Instead,

the theory of the Complaint is that defendants are liable under

the antitrust laws because they participated in a conspiracy to

allocate customers, using, on some occasions, bid-rigging, last

looks and other manipulative devices as overt acts to achieve the

conspiracies’ end.”).

39

Furthermore, because of the way plaintiffs have pled their

claim, plaintiffs must plead a type of horizontal restraint that can

be deemed unreasonable without evaluation of market power.

See Leegin, 551 U.S. at 886 (“Restraints that are per se unlawful

include horizontal agreements among competitors to fix prices

or to divide markets.” (internal citations omitted)); cf. R.C. Dick

Geothermal Corp. v. Thermogenics, Inc., 890 F.2d 139, 162 (9th

Cir. 1989) (en banc) (Norris, J., dissenting) (citing NCAA, 468

U.S. 85) (noting that the Supreme Court has “recognized a

91

agreement among defendants, the object of which would

nonetheless not amount to an unreasonable restraint of trade.

Alternatively, they might be able to allege that defendants

engaged in activity unreasonably restraining trade, but

nonetheless fail to plead that this conduct was the product of an

agreement. In both cases, plaintiffs would have failed to plead

a § 1 claim. Accordingly, we must define the object of the

horizontal agreement alleged in the complaint. See generally 6

Areeda & Hovenkamp, supra, ¶ 1409, at 54 (noting the

importance of “ask[ing] precisely (1) who was in agreement

with whom, and (2) about what?”).

Having reviewed the complaint, we believe it asserts two

different conceptions of this horizontal agreement. According

to the broader of the two conceptions, Marsh’s insurer-partners

agreed that Marsh would deliver to each insurer an amount of

premium volume necessary to trigger the payment of a

contingent commission under the vertical agreement between

Marsh and that insurer. See Comm. SAC ¶ 130 (“[Premium]

volume threshold commitments reflected a tacit agreement

among the conspiring parties that Marsh was guaranteeing the

delivery of a specified minimum amount of premium volume.”).

Reading the complaint in the light most favorable to plaintiffs,

caveat to the per se rule against horizontal restraints on

competition[,] holding that some horizontal relationships have

unique aspects that can create procompetitive justifications for

particular horizontal restraints”).

92

we find such a horizontal agreement implausible. Given the

context presented by plaintiffs, it is not plausible that the

insurers agreed among themselves that a third party, the broker,

would guarantee delivery of differing amounts of premium

volume to each of them. Perhaps such a claim would be

coherent if the insurers had power to extract such guarantees

from the broker, but the complaint demonstrates in abundant

detail that it was Marsh who held the reins. Plaintiffs note that

the contingent commission thresholds were established in

vertical agreements between the broker and each insurer, and

they recount stories of insurers who balked at Marsh’s demands

and refused to continue to pay contingent commissions, only to

relent and agree to resume payments after Marsh steered a

significant volume of business away from them. At the same

time, however, plaintiffs incongruously assert that the

contingent commission thresholds in Marsh’s contracts with

each of its insurer-partners were somehow the product of an

agreement among all of the insurers. This attempt to bootstrap

vertical contracts into horizontal conspiracy is at odds with both

“common economic experience,” Twombly, 550 U.S. at 565, and

the complaint’s own factual allegations, cf. id. at 568.

The complaint also posits a narrower agreement among

Marsh’s insurer-partners, namely, an agreement not to compete

for other partners’ incumbent business. See, e.g., Comm. SAC

¶ 89 (“[T]he Broker Defendants orchestrated a horizontal

agreement among rival Insurers not to compete for each others’

[sic] customers.”). Unlike the previous alleged agreement, this

93

one is not necessarily incompatible with the complaint’s account

of a market in which Marsh pulled most of the strings and called

most of the shots. The complaint alleges that Marsh prepared

broking plans “when an account was up for renewal. The

broking plans assigned the business to a specific insurer at a

target price and outlined the coverage. . . . If the incumbent

Insurer hit the ‘target’, it would get the business . . . .” Id. ¶ 117.

An agreement by the insurers not to compete with the incumbent

designated by Marsh would obviously facilitate Marsh’s

placement goals. That the bid-rigging allegations refer not to

closed, bilateral agreements in which insurers X and Y each help

the other win a specific account, but rather to open-ended

agreements in which insurer X provides “protection” of Y’s

“renewal” or “incumbent” account in exchange for an assurance

of similar assistance from some other insurer (not necessarily Y)

plausibly supports the inference that the bid rigging was in

service of a broader agreement not to compete for one another’s

incumbent business. As we have seen, plaintiffs allege that the

customer allocation schemes employed other mechanisms that

do not appear to have entailed a horizontal agreement among the

insurers, but this does not alter the fact that the bid-rigging

allegations plausibly imply a “broader” horizontal non-

competition agreement designed to aid the posited (broader still)

customer allocation scheme instigated by Marsh.

Nonetheless, one might reasonably ask (especially in

light of the allegations involving the other broker-centered

schemes) whether the insurers had an opportunity to compete in

94

the first place—that is, an opportunity other than that afforded

by Marsh’s solicitations of sham bids. An agreement not to

compete necessarily presupposes the existence of an opportunity

to compete, and if the only opportunities for insurers to compete

were Marsh’s requests for rigged bids, 40 then the alleged bid

rigging could not imply a “broader” horizontal agreement not to

compete for incumbent business. And in fact, certain allegations

in the complaint might be read to suggest that the solicitation of

rigged bids provided the only opportunity for insurers to

compete, that Marsh would either steer clients to the target

insurers on its own, or, in the rare cases when clients required it

to show them bids from multiple insurers,41 would solicit sham

40

The complaint shows how in providing these intentionally

non-competitive bids, the insurers necessarily passed up the

opportunity to compete. According to the complaint, one

insurer who was dissatisfied by Marsh’s protection of its own

incumbent business contemplated supplying competitive bids in

response to Marsh’s request for non-competitive offers. “If we

can not get proper protection,” the insurer stated, “we will go

hard after [another insurer’s incumbent business] that we feel

[Marsh is] protecting. We will no longer provide [Marsh] with

protective quotes for [that insurer] but will put out quotes that

[Marsh] will be forced to release . . . .” Comm. SAC ¶ 107.

41

See Comm. SAC ¶ 73 (“Given the high degree of financial

investment and trust placed in their broker, clients will rarely if

ever seek quotes from insurers other than those recommended

95

bids from other insurer-partners. See, e.g., id. ¶ 109 (“Marsh

would protect the incumbent of an excess casualty risk by not

sending submissions on that risk out to competition, or by

getting quotes from other carriers that would support the

incumbent as being the best price.” (internal quotation marks

omitted)).

In reviewing a motion to dismiss, however, we “construe

the complaint in the light most favorable to the plaintiff.”

Phillips, 515 F.3d at 233 (internal quotation marks omitted).42

by the broker.”).

42

As the Supreme Court reiterated in Iqbal, the Twombly

standard does not impose a “probability requirement.” Iqbal,

129 S. Ct. at 1949 (quoting Twombly, 550 U.S. at 556); it does

not require as a general matter that the plaintiff plead facts

supporting an inference of defendant’s liability more compelling

than the opposing inference. Twombly requires the plaintiff to

plead only enough “factual content [to] allow[] the court to draw

[a] reasonable inference that the defendant is liable for the

misconduct alleged.” Id. (emphasis added). Accordingly, “[i]t

remains an acceptable statement of the standard [for reviewing

a motion to dismiss under Rule 12(b)(6)] . . . that courts accept

all factual allegations as true, construe the complaint in the light

most favorable to the plaintiff, and determine whether, under

any reasonable reading of the complaint, the plaintiff may be

entitled to relief.” Phillips, 515 F.3d. at 233 (internal quotation

96

Accordingly, we do not interpret the complaint as disavowing

the possibility of opportunities to compete beyond those

afforded by Marsh’s bid-rigging requests. In any case,

defendants themselves have not advanced a no-other-

opportunity-to-compete argument in support of their motion to

dismiss. They may, of course, raise this objection at a

subsequent stage of the proceedings.

Defendants argue that plaintiffs have alleged only

“isolated episodes” of bid rigging. Defendants’ Comm. Br. 43.

To the extent defendants object that the allegations of bid

rigging within the Marsh-centered commercial conspiracy

cannot support claims of horizontal agreements within other

alleged broker-centered conspiracies, their point is well-taken.

But insofar as defendants contend that the bid-rigging

allegations do not adequately support the more general

allegation of an agreement among the defendant insurers to

allocate customers in the Marsh-centered commercial

conspiracy, we reject their argument for the reasons given. At

this stage of the litigation, Rule 8(a)(2) requires plaintiffs to

plead only “enough fact to raise a reasonable expectation that

discovery will reveal evidence of illegal agreement,” Twombly,

marks omitted). As noted, of course, Twombly makes clear that

in the specific context of a claim under § 1 of the Sherman Act,

it is unreasonable to infer an agreement from allegations of

parallel conduct that are equally consistent with independently

motivated behavior. See Twombly, 550 U.S. at 556–57.

97

550 U.S. at 556,43 in this case an agreement among the Marsh

partner-insurers not to compete for renewal business. We find

that the complaint satisfies this standard with respect to those

participants in the asserted Marsh-centered commercial

conspiracy who allegedly engaged in bid rigging.44

43

As the Supreme Court explained:

In applying the[] general standards [of Rule

8(a)(2)] to a § 1 claim, we hold that stating such

a claim requires a complaint with enough factual

matter (taken as true) to suggest that an agreement

was made. Asking for plausible grounds to infer

an agreement does not impose a probability

requirement at the pleading stage; it simply calls

for enough fact to raise a reasonable expectation

that discovery will reveal evidence of illegal

agreement.

Twombly, 550 U.S. at 556.

44

The number of defendants alleged to have engaged in bid

rigging appears to be slightly smaller than the number of

defendants alleged to be participants in the Marsh-centered

commercial conspiracy. Compare Comm. SAC ¶ 95 (naming

“AIG, ACE, CNA, Chubb, Crum & Forster, Hartford, Liberty

Mutual, Travelers, Zurich, Fireman’s Fund, Munich, XL and

Axis” as defendant insurers in the Marsh broker-centered

conspiracy), with Plaintiffs’ Comm. Br. 78 n.17 (claiming that

the defendant insurers that engaged in bid rigging are “AIG,

98

ACE, Axis, Chubb, XL, Munich/AmRe, Liberty Mutual, St.

Paul Travelers, Fireman’s Fund, and Zurich”), and Comm. RPS

¶¶ 27–56 (detailing bid-rigging allegations).

Our disposition must also take account of the fact that

although the complaint’s narrative of wrongdoing speaks

primarily (if not exclusively) in terms of parent entities or

corporate groups, subsidiary corporate entities are also named as

individual defendants. See Comm. SAC ¶¶ 37–63 (stating that

the use of the parent or group entity name is meant to

incorporate the subsidiaries by reference). Defendants contend

that the bid-rigging allegations are limited to a single line of

commercial insurance, namely excess casualty. Plaintiffs appear

to concede this point. See Plaintiffs’ Comm. Reply Br. 11

(referring to the “Marsh Excess Casualty conspiracy”). As

noted, without the bid-rigging allegations, plaintiffs have not

stated “enough factual matter . . . to suggest that an agreement

was made” among the insurers. Twombly, 550 U.S. at 556.

Accordingly, any subsidiary entities not alleged to have dealt in

excess casualty (and thus not alleged to have engaged in bid

rigging) must be dismissed, as the complaint fails to plausibly

imply that they entered into a horizontal agreement to

unreasonably restrain trade.

Plaintiffs argue that subsidiary companies “act[] at the

common direction of the parent[],” Plaintiffs’ Comm. Reply Br.

12, and that “in reality a parent and a wholly owned subsidiary

always have a unity of purpose or a common design,” Plaintiffs’

99

EB Reply Br. 35 (quoting Copperweld, 467 U.S at 771) (internal

quotation marks omitted). Emphasizing these features of the

parent-subsidiary relationship, the Supreme Court held in

Copperweld that parents and subsidiaries could not conspire for

purposes of § 1 of the Sherman Act. 467 U.S. at 776; see Am.

Needle, 130 S. Ct. at 2212 (noting that an “agreement” is

cognizable under § 1 only if it “joins together ‘independent

centers of decisionmaking’” (quoting Copperweld, 467 U.S. at

769)). Contrary to plaintiffs’ suggestion, however, it does not

follow from Copperweld that subsidiary entities are

automatically liable under § 1 for any agreements to which the

parent is a party. As a matter of well-settled common law, a

subsidiary is a distinct legal entity and is not liable for the

actions of its parent or sister corporations simply by dint of the

corporate relationship. See 1 William Meade Fletcher,

Cyclopedia of Law of Private Corporations § 33, at 89 (perm.

ed. rev. vol. 2006) (observing that “the mere fact that there

exists a parent-subsidiary relationship between two corporations

[does not] make the one liable for the torts of its affiliates”); see

also Burks v. Lasker, 441 U.S. 471, 478 (1979) (“Congress has

never indicated that the entire corpus of state corporation law is

to be replaced simply because a plaintiff’s cause of action is

based upon a federal statute.”). As plaintiffs allege no other

basis for imputing § 1 liability to defendant entities that are not

plausibly alleged to be directly liable—that is, are not plausibly

alleged to have themselves entered into unlawful

100

Defendants attempt to resist this conclusion with a

number of different arguments, but after due consideration we

find none have merit. According to defendants, the scheme

alleged by plaintiffs is incoherent. To illustrate its

implausibility, defendants contrast it with the conspiracy at issue

in Petruzzi’s IGA Supermarkets, Inc. v. Darling-Delaware Co.,

998 F.2d 1224 (3d Cir. 1993). The Petruzzi’s plaintiff alleged

a conspiracy to allocate customers in the fat and bone rendering

industry. Id. at 1228. More specifically, the plaintiff claimed

that although the defendant rendering companies would compete

for new accounts, once an account was won the non-incumbent

defendants would not compete over renewal business and

sometimes “put forward sham bids.” Id. at 1228–29. If any

defendant violated the agreement, the remaining conspirators

would purportedly punish it through predatory pricing. Id.

Given the circumstances of the industry, we found that the

plaintiff’s theory of conspiracy was not only “not implausible,”

but made “perfect economic sense.” Id. at 1232.

Defendants contend that at least two salient features

distinguish the Petruzzi’s conspiracy from the one alleged here.

First, in Petruzzi’s the method for allocating business was

transparently obvious. Each conspirator could easily ascertain

which member of the scheme was entitled to a given

account—namely, the incumbent holder of the account. Here,

defendants argue, there is no way for an insurer to know with

agreements—the antitrust claims against these entities must fail.

101

which conspirator a given policy should be placed. Plaintiffs

propose that the allocation was structured not by particular

policies but by premium volume, but defendants insist that such

a basis of allocation would be unworkable in light of the various

contingent commission incentives detailed in the complaint. In

addition to contingent commission payments triggered by a

threshold volume of incumbent business retained, the

contractual agreements between the brokers and insurers also

provided for commission payments based on the overall volume

of premium steered to an insurer, growth in volume over a

particular benchmark (such as the previous year’s level), and the

quality of the premium volume (i.e., premiums for policies

requiring relatively small indemnification payments for covered

losses). Defendants contend that these multifarious incentives

would often conflict with the alleged scheme’s posited goal of

incumbent protection. For example, a broker’s placement of a

given policy with incumbent insurer X might bring the broker

that much closer to the negotiated contingent commission

threshold for premium volume renewed with that broker. But

placement of that same policy with another insurer might trigger

a contingent commission payment for overall premium volume

or volume growth—and that commission payment might be

larger than the one negotiated with the incumbent. “It defies

credulity,” defendants insist, “to assert, as Plaintiffs do, that . . .

insurers agreed to join conspiracies in which they agreed to

allow brokers to unilaterally decide who got what business

based on what was most profitable for the brokers.”

Defendants’ Comm. Br. 51.

102

Second, defendants contend that while the scheme in

Petruzzi’s included an obvious mechanism for the conspirators

to discipline deviant members, the conspiracy alleged here is

“hardly a scheme of market allocation that the insurers could

enforce.” Tr. of Oral Arg. 43. According to defendants, since

virtually all of the power to steer insurance purchasers belonged

to the brokers, who operated under the competing incentives

created by the variegated contingent commission agreements,

there could be no feasible mechanism to enforce a customer

allocation scheme.

We agree with defendants that the scheme alleged by

plaintiffs appears a good deal more complex than the one in

Petruzzi’s. And as noted, we agree that based on the facts

alleged, it is implausible to claim that the defendant insurers

came to an agreement together and instigated an arrangement

whereby each would receive whatever volume of premium

happened to be prescribed by each’s contingent commission

agreement with Marsh. But as also noted, a narrower horizontal

agreement not to compete for one another’s incumbent business

does not appear incompatible with the larger picture painted by

the complaint, in which Marsh was the dominant force.

The complaint also provides a coherent mechanism for

disciplining recalcitrant insurers. Consistent with the

complaint’s general narrative of broker power, it was Marsh that

did the enforcing. In a vivid illustration of this enforcement

potential, the complaint recounts the following alleged statement

from a high-ranking Marsh executive:

103

[I]f an alternative [i.e., a non-incumbent insurer

from which Marsh has solicited a sham bid]

quotes below [the incumbent insurer’s target bid]

then they have made a conscious decision to quote

below [the incumbent insurer] and pull [the

incumbent] down. If that happens, then . . . we

will put this guy in open competition on every

acct. and CRUCIFY him. Further, we must make

sure [the] incumbent [or another insurer] keep[s]

this [account] and NOT give it to the alternative

and reward them.

Comm. SAC ¶ 118 (emphasis omitted). According to the

complaint, insurers who breached the non-competition

agreement would not only find themselves deprived of the

conspiracy’s protection, but their renewal business would be

specifically targeted for transfer.

Although we acknowledge that the hub-and-spoke

conspiracy alleged by plaintiffs has a more prominent vertical

dimension than most, if not all, other examples found in the case

law—owing to the relative power of broker Marsh and the

relative dependence of its insurer-partners—we believe the

complaint contains enough well-pled factual matter to suggest

a plausible horizontal agreement among the insurers not to

compete for renewal business. On the complaint’s own account,

the conspiracy was instigated, coordinated, and policed by

Marsh, but this does not belie the alleged horizontal agreement.

On the contrary, Marsh’s influence could create a powerful

104

incentive for exactly such an agreement: join and enjoy renewals

at inflated premium rates and without threat of competition, or

remain outside the “strategic partnership” and be denied access

to Marsh’s large and loyal clientele. To be sure, the complaint

suggests that Marsh could be a tough master, threatening at

times to transfer business to another insurer in order to coerce a

more lucrative contingent commission agreement. And in some

cases, as defendants suggest, Marsh may even have steered

renewal business away from an incumbent insurer-partner in

order to realize a more profitable commission offered by another

partner.45 If so, however, this would show only that Marsh, and

45

We find the complaint somewhat ambiguous on this

question. Plaintiffs allege that under the customer allocation

scheme, “each conspiring insurer would be permitted to keep its

own incumbent business.” Comm. SAC ¶ 96. But as

defendants point out, the alleged contingent commission

agreements tied commissions to factors other than incumbent

business, which might motivate Marsh to transfer business away

from incumbents. Plaintiffs contend that Marsh only used new

business and business transferred from non-partner insurers to

satisfy these thresholds. More problematic for plaintiffs’ claim

of guaranteed incumbent protection may be the complaint’s

statement that Marsh “grouped its preferred insurers into three

tiers, classified as A, B, and C tiers, based on how much they

were paying in contingent commissions. Tiers A and B were the

more preferred markets to which the bulk of premium was

allocated.” Comm. SAC ¶ 101. It is unclear from the

105

not the insurers, had the negotiating power to set the terms of

participation in the scheme. It does not make implausible the

inference, created by the bid-rigging allegations, that insurer-

partners agreed not to compete for one another’s renewal

business. As we have noted, plaintiffs’ allegations paint a

conspiracy in which the hub, Marsh, held an unusual amount of

power and may even have been able economically to “coerce”

the insurers into the non-competition agreement. Defendants

have failed, however, to show why this feature would preclude

per se condemnation of the horizontal agreement. See 6 Areeda

& Hovenkamp, supra, ¶ 1408c (“[S]ociety prefers that coerced

parties seek the protection of public authorities rather than help

create a cartel.”).

Defendants next argue that “even if there were

agreements that could have existed among the insurers,” the

vertical element of the hub-and-spoke conspiracy would defeat

plaintiffs’ claim. Tr. of Oral Arg. 43. In defendants’ view,

“horizontal restraints that are ancillary to vertical arrangements,

in other words horizontal agreements that exist to facilitate the

vertical ones, are judged under the rule of reason which the

plaintiffs have disclaimed.” Id. (citing United States v.

Addyston Pipe & Steel Co., 85 F. 271 (6th Cir. 1898), modified

complaint’s brief description whether incumbent business from

lower-tier insurers would sometimes be transferred to higher-tier

insurers or whether the “premium” mentioned came on

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