Amicus Curiae Brief — Bell Atlantic Corp. v. Twombly

%, ae en a |

2 FILED

= ABA

my - A

No. 05-1126 Rte" a |

a ST

Jn the Supreme Court of the Gnited States

BELL ATLANTIC CORPORATION, ET AL.,

. Petitioners,

WILLIAM TWOMBLY, ET AL.,

Respondents.

On Petition for a Writ of Certiorari to the United States

Court of Appeals for the Second Circuit

BRIEF OF THE CHAMBER OF COMMERCE OF THE

UNITED STATES OF AMERICA, CTIA — THE

WIRELESS ASSOCIATION, THE ALLIANCE OF

AUTOMOBILE MANUFACTURERS, NORTHWEST

AIRLINES, INC., AND UNITED AIR LINES, INC.,

AS AMICI CURIAE IN SUPPORT OF PETITIONERS

ROBIN S. CONRAD RoY T. ENGLERT, Jr.*

AMAR D. SARWAL DONALD J. RUSSELL

National Chamber Litigation Robbins, Russell, Englert,

Center, Inc. Orseck & Untereiner LLP

1615 H Street, N.W. 1801 K Street, N.W.

Washington, D.C. 20036 Suite 41]

(202) 463-5337 Washington, D.C. 20006

(202) 775-4500

MICHAEL FIELD ALTSCHUL

CTIA — The Wireless PETER B. KENNEY, JR.

Association Northwest Airlines, Inc.

1400 16th Street, N.W. Department Al 180

Suite 600 2700 Lone Oak Parkway

Washington, D.C. 20036 Eagan, MN 55121-1534

(202) 785-0081 (612) 726-3663

JOHN T. WHATLEY RICKS P. FRAZIER

Alliance of Automobile Manufacturers United Air Lines, Inc.

140] H Street, N.W., Suite 900 1200 E. Algonquin Rd.

Washington, D.C. 20005 Elk Grove Township, IL 60007

(202) 326-5500 (847) 700-4446

* Counsel of Record

RE

TABLE OF CONTENTS

Page

ee SPIE 0 bc dc cecdcecccscccncenen il

INTEREST OF THE AMICI CURIAE ............0046: 1

PEED. 6c cnchoteuvusuduses cucdaenes sen ones 3

SUMMARY OF ARGUMENT ..................0.05. 5

ET 6dtnn duh 4kendeswhend cadens eke ees 7

I. This Court’s Motion-to-Dismiss Precedents Leave

Ample Room to Weed out Vexatious Litigation

by Applying the Sound Substantive Principle that

Antitrust Law Limits the Range of Permissible

Inferences from Ambiguous Evidence in a Case

Under Section 1 of the Sherman Act ........... 7

II. Allowing Plaintiffs to Proceed Past the Pleading

Stage, Without any Indication that They Have

Evidence or a Theory on Which They Could

Actually Prevail, Will Coerce Blackmail Settle-

ments of Meritiess Cases ...........0020008- 14

SED skecctcceckes Vis eesbadewdsuaceeee 19

TABLE OF AUTHORITIES

Page(s)

Cases

Associated General Contractors v.

California State Council of Carpenters,

RE CE ee ee ee 12, 13

Blue Chip Stamps v. Manor Drug Stores,

Se ME cbt vddvdueleesecenens 6, 8, 12

Conley v. Gibson, 355 U.S. 41 (1957) ..... 5, 7, 8, 9, 12, 13

Coopers & Lybrand v. Livesay,

ii bin ee ele ee ke ea Ae 18

DM Research, Inc. v. College of American

Pathologists, 170 F.3d 53 (ist Cir. 1999) ........ 10-11

Discon, Inc. v. NYNEX Corp.,

93 F.3d 1055 (2d Cir. 1996), rev'd,

PP EE nck oA noe hukeeesantan dae 16

Dura Pharmaceuticals, Inc. v. Broudo,

NG CF EEE dc cavadécdweveeones 6, 12, 13

Heart Disease Research Foundation v. General

Motors Corp., 463 F.2d 98 (2d Cir. 1972) ......... 10

In re Network Associates, Inc., Securities Litigation,

76 F. Supp. 2d 1017 (N.D. Cal. 1999) ............ 14

In re Poly nedica Corp. Securities Litigation,

SR Tero rer Te ere 17

In re Rhone-Poulenc Rorer Inc.,

Pe fy fy te err rrr 18

iil

TABLE OF AUTHORITIES—Continued

Page(s)

In re Visa Check/MasterMoney Antitrust Litigation,

280 F.2d 124, 135 (2d. Cir. 2001), cert. denied,

RIE Ry eer wr ene herrea 17

Law Offices of Curtis V. Trinko, L.L.P. v.

Bell Atlantic Corp., 305 F.3d 89 (2d Cir. 2002),

rev'd, 540 U.S. 398 (2004) ...............44.. 16-17

Matsushita Electric Industrial Co. v. Zenith

Radio Corp., 475 U.S. 574 (1986) ............ 11,18

Sutton v. United Air Lines, Inc.,

rE <cepccivecsedeenneneucacees 8

Swierkiewicz v. Sorema N.A., 534 U.S. 506 (2002)... 12,13

Szabo v. Bridgeport Machines, Inc.,

249 F.3d 672 (7th Cir. 2001) ...............00.. 17

Theatre Enterprises, Inc. v. Paramount Film

Distribution Corp., 346 U.S. 537 (1954) ....... 10, 18

Verizon Communications Inc. v. Law Offices of

Curtis V. Trinko, LLP, 540 U.S. 398 (2004) ........ 9

iv

TABLE OF AUTHORITIES—Continued

\

Statutes and Rules

Federal Rule of Civil Procedure 8 ............

Federal Rule of Civil Procedure 8(f) ..........

Federal Rule of Civil Procedure 12(b)(6) ......

Federal Rule of Civil Procedure 56 ...........

Miscellaneous

6 PHILLIP E. AREEDA & HERBERT HOVENKAMP,

ANTITRUST LAW (2d ed. 2003) ...........

HENRY J. FRIENDLY, FEDERAL JURISDICTION:

A GENERAL VIEW (1973) ...........045.

Milton Handler, 7he Shift from Substantive to

Procedural Innovations in Antitrust Suits —

The Twenty-Third Annual Antitrust Review,

71 COLUM. L. REV. 1(1971).............

Mass Torts and Class-Action Lawsuits: Oversight

Page(s)

Hearings Regarding Mass Torts and Class Action

Lawsuits Before the House Committee on the

Judiciary, Subcommittee on Courts and Intellectual

Property, 105th Cong. 29-30 (Mar. 5, 1998),

available at http://commdocs.house.gov/committees/

judiciary/hju59921.000/hjuS9921_0.HTM ..

S. Rep. No. 109-14 (2005), reprinted in

PEEP CED cicsancnvdscdenns nutes

v

TABLE OF AUTHORITIES—Continued

Page(s)

Linda Silberman, The Vicissitudes of the American

Class Action — With a Comparative Eye,

7 TUL. J. INT'L & Comp. L. 201 (1999) ............ 14

Donald F. Turner, The Definition of Agreement

Under the Sherman Act: Conscious

Parallelism and Refusals to Deal,

Pee 10

BRIEF OF AMICI CURIAE IN

SUPPORT OF PETITIONERS

INTEREST OF THE AMICI CURIAE'

The Chamber of Commerce of the United States of

America is a nonprofit corporation organized under the laws of

the District of Columbia and is the world’s largest business

federation. The Chamber represents an underlying membership

of more than three million companies and professional

organizations of every size, in every industry sector, and from

every region of the country. An important function of the

Chamber is to represent the interests of its members in matters -

before Congress, the Executive Branch, and the courts. To that

end, the Chamber regularly files amicus curiae briefs in cases

that raise issues of vital concern to the Nation’s business com-

munity. The Chamber is well situated to brief the Court on the

importance of the issues presented in the petition to companies

collectively responsible for a substantial portion of total U.S.

economic activity. The Chamber is concerned not only that the

decision below sets a pleading standard for antitrust litigation

that is inconsistent with both substantive antitrust law and

general pleading law, but also that it does so in a context — a

massive consumer class action complaint — that unleashes the

most abusive kind of litigation, often brought to coerce settle-

ment of weak cases rather than with any real prospect of success

on the merits. By diverting resources away from productive

economic uses, meritless antitrust actions threaten to slow the

spread of new investments, reduce the efficiency of capital

markets, and limit the competitiveness of the American

economy. The membership of the Chamber thus has a strong

interest in ensuring that the requirements of the federal antitrust

' The parties’ letters of consent to the filing of this brief have been

lodged with the Clerk. Pursuant to Rule 37.6 of the Rules of this Court,

amici curiae state that no counsel for a party has written this brief in

whole or in part and that no person or entity other than the amici curiae,

their members, or their counsel has made a monetary contribution to the

preparation or submussion of this brief.

2

laws and the Federal Rules of Civil Procedure are applied in a

correct and uniform manner, weeding out meriticss suits as

quickly and regularly as practicable, to avoid undue harm to the

Nation’s commerce and industry.

CTIA — The Wireless Association represents all segments

of the wireless communications industry. Members of CTIA

include service providers, manufacturers, wireless data and

Internet companies, and other industry participants. CTIA has

filed amicus briefs in this Court and other federal courts on a

variety of issues of interest to the wireless industry in such

disparate cases as Bartnicki v. Vopper, 532 U.S. 514 (2001), and

City of Rancho Palos Verdes v. Abrams, 544 U.S. 113 (2005).

Many of CTIA’s members provide service directly to

consumers, and CTIA is concerned that the decision below

might allow massive consumer class actions to proceed without

any real factual basis.

The Alliance of Automobile Manufacturers is a trade asso-

ciation composed of nine car and light truck manufacturers.

The Alliance is the leading advocacy group for the automobile

industry on a range of public policy issues. The Alliance has

long been concerned about abusive antitrust litigation, including

vexatious Class actions.

Northwest Airlines and United Air Lines are two of the

world’s five largest airlines. Each has been providing passenger

service continuously since the 1920s. Northwest and United

operate in an industry in which sustained profitability has been

extremely elusive. Yet the forces of competition often leave

particular routes served only by one or two carriers, and rational

business decisionmaking in this industry necessarily depends on

assessments of — but not agreement on — other carriers’ likely

responses. The resulting high “market shares” and appearances

of interdependent carrier behavior may make airlines attractive

targets for spurious antitrust litigation. If the pleading threshold

is as low as the Second Circuit has indicated in the decision

below, Northwest and United are concerned that they may be

subjected to meritless antitrust litigation, including class actions,

3

brought by counsel in possession of observations of lawful

“parallel” conduct by airlines but no facts at all to suggest an

actual antitrust violation.

STATEMENT

The very first sentence of the district court’s opinion gives

a hint of just how remarkable the present litigation is: “Plaintiffs

William Twombly and Lawrence Marcus bring this putative

class action on behalf of themselves and all other individuals

who purchased local telephone or high speed internet services

in the continental United States between February 8, 1996, and

the present.” Pet. App. 35a (emphasis added). In fact, the case

is even more gargantuan: “This lawsuit is brought as a class

action on behalf of all individuals and entities who purchased

local telephone and/or high speed internet services * * *.” Am.

Compl. ¥ 1 (emphasis added). Essentially, this is a lawsuit on

behalf of virtually every business in the continental United

States and every human being who has set foot in the conti-

nental United States over a multi-year period. Even more re-

markably, this case is one in which the defendants are facilities-

based local telephone service providers that serve the over-

whelming majority of all consumers in the continental United

States, and in which the allegation is that, but for a vaguely

pleaded “conspiracy,” the entire industry structure would have

been different, with each defendant entering markets it has

chosen not to enter. More remarkably still, this case involves

what is essentially smoking-gun evidence that plaintiffs’

counsel are engaged in opportunistic behavior in the hope of

extorting a settlement, as they have filed and abandoned a com-

plaint in one jurisdiction and then repackaged the same allega-

tions — with the addition of a conclusory allegation of “con-

spiracy,” alleged “upon information and belief” — in another

jurisdiction. See Pet. 4-5; Am. Compl. 4 51.

Two courts below examined the complaint. The district

court acknowledged that “[a]ll reasonable inferences are to be

4

>_> —_

drawn in the plaintiffs’ favor.” Pet. App. 40a.’ The district

court believed itself at liberty to examine the complaint through

the lens of substantive antitrust doctrine and to dismiss the

complaint because it alleged only lawful parallel conduct, with

a conclusory “conspiracy” allegation tacked on. The court of

appeals, by contrast — setting up the issue with unusual precision

for this Court’s review — reversed “[bJecause we disagree with

the standard that the district court applied in reviewing the

sufficiency of the plaintiffs’ allegations.” Pet. App. 3a. Al-

though parallel conduct is lawful, and “plus factors” is the short-

hand phrase courts have come up with to describe the factors

that can permit an inference thit otherwise-lawful parallel con-

duct was the product of an unlawful conspiracy, the court re-

garded “plus factors” as irrelevant at the pleading stage. Pet.

App. 25a (“plus factors are not required to be pleaded to permit

an antitrust claim based on parallel conduct to survive dis-

missal”). The court was prepared to let the antitrust complaint

in this case go forward on the theory that “a pleading of facts

indicating parallel conduct by the defendants” — /.e., pleading

only lawful behavior — “can suffice to state a plausible claim of

conspiracy.” Ibid.

The court of appeals criticized district court decisions (in-

cluding the one it was reversing) that have looked to “plus fac-

tors” at the pleading stage as “elid{ing] the distinction between

the standard applicable to Rule 12(b)(6) and Rule 56 motions on

the basis of a well-founded concern that to do so otherwise

would be to condemn defendants to potentially limitless ‘fishing

expeditions’ — discovery pursued just ‘in case anything turn[s]

up’ — in hopes, perhaps, of a favorable settlement in any event.”

Pet. App. 27a (footnotes omitted). Although the point of those

decisions is simply that a complaint alleging only /awful con-

2

The court of appeals, surprisingly, went further and wrote that it

would “accept[] as true all facts alleged in the complaint and draw{| all

inferences” — not just reasonable ones — in favor of the plaintiff.” Pet.

App. lla. Whether or not the court meant to state a different standard,

it accepted inferences antitrust law forbids, as discussed below.

5

duct should be dismissed, the court of appeals viewed them as

imposing an impermissible “heightened pleading requirement.”

Id. at 28a. The court was “not unsympathetic” to concerns

about vexatious litigation (ibid.; see also id. at 30a) but thought

such concerns irrelevant under this Court’s precedents.

SUMMARY OF ARGUMENT

Federal Rule of Civil Procedure 8(f) commands that “all

pleadings shall-be so construed as to do substantial justice.”

Conley v. Gibson, 355 U.S. 41, 48 (1957), relied on that in-

struction and added that pleading should not be treated as a

“game of skill” but that instead “(t]he purpose of pleading is to

facilitate a proper decision on the merits.” Those fundamental

principles supported the position of the plaintiffs in Conley but

support the position of the defendants in this case. Here plain-

tiffs - not defendants — are treating pleading as a game of skill,

in which they can impose great cost on defendants through

artful pleading, with no real facts to support their antitrust

claims, in an effort to coerce settlement. This is neither “sub-

stantial justice” nor consistent with numerous decisions of this

Court that approve the grant of motions to dismiss in analogous

circumstances.

The antitrust claim in this case depends on the existence of

a conspiracy, not mere parallel conduct. Substantive antitrust

law — not a doctrine of civil procedure applicable only at the

summary judgment stage — makes it critical that a plaintiff wish-

ing to pursue conspiracy allegations have something more to

point to than parallel conduct. The something more cannot be

a barebones allegation of conspiracy. Instead, the plaintiff must

allege some facts tending to show that the parallel conduct was

not as innocent as it appears on its face — facts that can take

many forms, but that courts have labeled collectively as “plus

factors.” The absence of any such allegations in the complaint

supports dismissal under this Court’s precedents.

Furthermore, the Federal Rules of Civil Procedure and this

Court’s cases do not constrain courts to close their cyes to the

6

practical consequences of allowing a dubious complaint to go

forward. This Court’s recent opinion in Dura Pharmaceuticals,

Inc. v. Broudo, 125 S. Ct. 1627 (2005), observed — as a factor

supporting a Rule 12(b)(6) dismissal — that “allowing a plaintiff

to forgo giving any indication of the economic loss and

proximate cause that the plaintiff has in mind would * * *

permit a plaintiff ‘with a largely groundless claim to simply take

up the time of a number of other people, with the right to do so

representing an in terrorem increment of the settlement value,

rather than a reasonably founded hope that the [discovery]

process will reveal relevant evidence.” 125 S. Ct. at 1634

(quoting Blue Chip Stamps v. Manor Drug Stores, 42\ U.S. 723,

741 (1975)). In applying the ordinary standards of Rule 8 and

Rule 12(b)(6), the Court found it appropriate to consider the

practical consequences of allowing the litigation to go forward.

It is therefore simply not true — as the Second Circuit believed

~ that only a “heightened pleading requirement” will allow

courts to examine antitrust complaints searchingly enough to

avoid clogging the courts for years and rewarding plaintiffs’

attorneys for bringing meritless claims. Pet. App. 28a.

The Second Circuit’s error presents an issue of tremendous

practical importance and merits review by this Court. Lawyer-

driven class actions like this case systematically lead to what

Judge Friendly, borrowing terminology from antitrust scholar

Milton Handler, called “blackmail settlements.” Just last year,

the Senate Judiciary Committee expressed similar concerns,

which have been voiced by many others through the years. The

Second Circuit’s new, low threshold for pleading antitrust con-

spiracy claims is particularly alarming because the same court

- covering the commercial center of the United States — has

previously announced a particularly low threshold for class cer-

tification. The two main ways that defendants can avoid paying

blackmail settlements before summary judgment (achieving

dismissal under Rule 12(b)(6) or defeating class certification)

are thus both unduly difficult in the Second Circuit.

7

This case at this stage presents no class certification ques-

tion, but it does provide this Court with a golden opportunity to

correct a situation that — by the Second Circuit’s own admission

— leads to “a burden on the courts and a deleterious effect on the

manner in which and efficiency with which business is con-

ducted.” Pet. App. 30a. A proper application of both substan-

tive principles of antitrust law and the Federal Rules of Civil

Procedure supports the district court’s well-reasoned opinion

dismissing the complaint. This Court should grant certiorari

and reverse.

ARGUMENT

I. This Court’s Motion-to-Dismiss Precedents Leave

Ample Room to Weed out Vexatious Litigation by

Applying the Sound Substantive Principle that

Antitrust Law Limits the Range of Permissible

Inferences from Ambiguous Evidence in a Case

Under Section 1 of the Sherman Act

Conley v. Gibson, 355 U.S. 41 (1957), is often quoted for

the plainuff-friendly pleading standard ‘it stated. E£.g., Pet.

App lla. But the case — in which a labor union stood idly by

while a railroad employer purported to abolish 45 jobs held by

African-Americans but then refilled the positions with white

employees or with the same African-American employees with

loss of seniority — is not one in which the Court evaluated the

plaintiffs’ complaint in a vacuum. Rather, the Court “{fJol-

low[ed] the simple guide of [Federal] Rule [of Civil Procedure]

8 (f) that ‘all pleadings shall be so construed as to do substantial

justice.”” 355 U.S. at 48. The Court further decried the notion

that “pleading is a game of skill.” /bid. “The purpose of plead-

ing is to facilitate a proper decision on the merits.” /bid.

Those three principles — doing substantial justice, avoiding

turning litigation into a game, and facilitating proper decisions

on the merits — are principles that, in Conley, favored the

plaintiffs over the efforts of the defendants to interpose

technical objections to the plaintiffs’ pleadings of blatant dis-

8

crimination. But they are nor principles that invariably favor

plaintiffs — at the motion-to-dismiss stage or at any other stage

of litigation.

When a complaint reveals fatal flaws in the plaintiffs’ the-

ory of the case, doing substantial justice requires dismissing the

complaint, not trying to imagine some hypothetical way for the

fatal flaws to be overcome. F.g., Sutton \. United Air Lines,

Inc., 527 U.S. 483, 491 (1999) (affirming grant of motion to

dismiss: “Considering the allegations of the amended complaint

in tandem, petitioners have not stated a claim that respondent

regards their impairment as substantially limiting their ability to

work.”).

The principle that game-playing litigation behavior should

not be rewarded leaves room for courts to separate vexatious

from meritorious litigation when evaluating a complaint. £.g.,

Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 742-743

(1975) (reversing decision that had reversed grant of motion to

dismiss: “in this type of litigation, where the mere existence of

an unresolved lawsuit has settlement value to the plaintiff not

only because of the possibility that he may prevail on the merits,

an entirely legitimate component of settlement value, but be-

cause of the threat of extensive discovery and disruption of nor-

mal business activities which may accompany a lawsuit which

is groundless in any event, but cannot be proved so before trial,

such a factor is not to be totally dismissed”). Conley warned

against making “one misstep by [plaintiffs’] counsel * * * deci-

sive to the outcome,” 355 U.S. at 48, but it is no less true that

one clever step by plaintiffs’ counsel (such as adding a con-

clusory “conspiracy” allegation “upon information and belief”

to an otherwise facially groundless complaint) should not be

enough to force an entire industry to endure massive litigation

with no real foundation: But cf. Pet. App. 30a (suggesting that

it would take a “re-calibration” of existing law to give courts

any power to do anything about “the sometimes colossal ex-

pense of undergoing discovery,” pressures to settle meritless

claims whose success encourages others to be brought, and “the

9

overall result * * * [of] a burden on the courts and a deleterious

effect on the manner in which and efficiency with which

business is conducted”).

And the third governing principle this Court identified in

Conley, facilitating a proper decision on the merits, requires

careful attention by courts to the substantive body of law acom-

plaint seeks to invoke, and the lines that body of law draws be-

tween legal and illegal conduct. E.g., Verizon Communications

Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 408

(2004) (reversing Second Circuit decision that had reversed

grant of motion to dismiss antitrust case: “The question before

us today is whether the allegations of respondent's complaint fit

within existing exceptions [to the general principle that a firm

need not help its rivals} or provide a basis, under traditional

antitrust principles, for recognizing a new one.”’); id. at 414

(“Against the slight benefits of antitrust intervention here, we

must weigh a realistic assessment of its costs.”). Even at the

motion-to-dismiss stage, this Court has never shied away from

a searching application of substantive antitrust principles to the

plaintiffs’ theory of the case. Such an application is not, as the

court of appeals mistakenly believed, applying a “heightened

pleading standard.” Rather, it is recognizing that the distinc-

tions made important by substantive antitrust law should be

observed at every stage of the litigation, so as to facilitate a

proper decision on the merits.

The antitrust claim in this case depends on the existence of

a conspiracy, not mere parallel conduct. The district court ob-

served — correctly, and without contradiction by the court of

appeals — that “parallel action is a common and often legitimate

phenomenon, because similar market actors with similar infor-

mation and economic interests will often reach the same busi-

ness decisions.” Pet. App. 41a; see also 6 PHILLIP E. AREEDA

& HERBERT HOVENKAMP, ANTITRUST LAW ¥ 1405a, at 21 (2d

ed. 2003) (“Problematically, parallel conduct is often forced by

circumstance: under such circumstances a ‘rational’ profit-

10

maximizing firm will always act in a way that is similar to its

rivals.”’).

Courts have long openly grappled with the problems

stemming from the prevalence of “parallel” business behavior,

creating an opening for antitrust plaintiffs to try to claim that the

firms acting in parallel must have agreed with each other to do

so. More than 50 years ago, this Court addressed the issue in an

opinion by Justice Tom C. Clark, who had previously been the

Assistant Attorney General in charge of the Antitrust Division

of the Department of Justice. In Theatre Enterprises, Inc. v.

Paramount Film Distribution Corp., 346 U.S. 537 (1954), the

Court declared emphatically that agreement may not be inferred

from the parallel behavior alone. “Seemingly with some exas-

peration, the Theatre Enterprises opinion declared that ‘circum-

stantial evidence of consciously parallel behavior may have

made heavy inroads into the traditional judicial attitude toward

conspiracy; but “conscious parallelism” has not yet read con-

spiracy out of the Sherman Act entirely.’” 6 AREEDA & HOVEN-

KAMP, supra, | 1412b, at 70 (quoting Theatre Enterprises, 346

U.S. at 541).

Just a few years after this Court decided Theatre Enter-

prises, a leading antitrust commentator wrote: “The point is that

conscious parallelism is never meaningful by itself, but always

assumes whatever significance it might have from additional

facts.” Donald F. Turner, The Definition of Agreement Under

the Sherman Act: Conscious Parallelism and Refusals to Deal,

75 HARV. L. REV. 655, 658 (1962). Substantive antitrust law —

not a doctrine of civil procedure applicable only at the summary

judgment stage — makes it critical that a plaintiff wishing to

pursue conspiracy allegations have something more to point to

than parallel conduct. The something more cannot be a bare-

bones allegation of conspiracy. Even in the Second Circuit, “a

bare bones statement of conspiracy * * * without any supporting

facts permits dismissal of a complaint.” Heart Disease Re-

search Foundation v. General Motors Corp., 463 F.2d 98, 100

(2d Cir. 1972); accord, e.g., DM Research, Inc. v. College of

ll

American Pathologists, 170 F.3d 53, 56 & n.1 (1st Cir. 1999)

(Boudin, J.). Instead, what must be alleged beyond parallel

conduct is some facts tending to show that the parallel conduct

was not as innocent as it appears on its face — facts that can take

many forms, but that courts have labeled collectively as “plus

factors.” E.g., Pet. App. 42a.

Given that the purpose of examining plus factors is to

separate lawful from unlawful conduct, it is mystifying why the

court of appeals thought plus factors relevant at the summary-

judgment stage but irrelevant at the motion-to-dismiss stage. It

is not some peculiar feature of the summary-judgment standard,

but rather “[{aJntitrust law,” that “limits the range of permissible

inferences from ambiguous evidence ina § 1 case.”” Matsushita

Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 588

(1986). “[C]onduct as consistent with permissible competition

as with illegal conspiracy does not, standing alone, support an

inference of antitrust conspiracy.” /bid.

Even if courts were powerless — as the Second Circuit

thought it was — to consider at the motion-to-dismiss stage the

practical consequences of unleashing massive litigation that

would place enormous pressure on the defendants to settle a

meritless lawsuit, there would be no reason to sustain a com-

> Ofcourse, a plaintiff claiming, in more than a conclusory allegation,

to have direct evidence of conspiracy would be entitled to survive a

motion to dismiss. But the closest thing in this complaint to direct

evidence — a single quotation from a Qwest executive that entering

another local telephone market “might be a good way to turn a quick

dollar but that doesn’t make it night,” see Pet. 24 n.6 (quoting Am.

Compl. § 42) — is pathetically inadequate. As Judge Lynch correctly

observed, “[c]onsidered in context, [the quoted] statements suggest only

that [the executive] did not consider becoming a CLEC to be a sound

long-term business plan.” Pet. App. 56a. “One must not characterize a

firm's sacrifice of short-run interest in favor of long-run interest as-

contrary to its self-interest. Such a sacrifice by itself tells us nothing

about possible conspiracy * * *.” 6 AREEDA & HOVENKAMP, supra,

4] 1415Se, at 99-100.

12

plaint that-alleged lawful parallel conduct but none of the plus

factors that might make it unlawful. See Dura Pharmaceuti-

cals, Inc. v. Broudo, 125 S. Ct. 1627, 1634 (2005) (the holding

that plaintiffs must prove particular facts to prevail leads also to

conclusion they must allege those facts to survive a motion to

dismiss); Associated General Contractors v. California State

Council of Carpenters, 459 U.S. 519, 526 (1983) (“It is not

* * * proper to assume the [plaintiff] can prove facts that it has

not alleged or that the defendants have violated the antitrust

laws in ways that have not been alleged.””). But the Federal

Rules of Civil Procedure and this Court’s cases do not, in fact,

constrain courts to close their eyes to the practical consequences

of allowing a dubious complaint to go forward. As already

noted, Federal Rule of Civil Procedure 8(f) commands that

“{a]ll pleadings * * * be so construed as to do substantial jus-

tice,” a command hardly compatible with knowingly allowing

“potentially limitless ‘fishing expeditions’” (Pet. App. 27a) and

‘ta deleterious effect on the manner in which and efficiency with

which business is conducted” (id. at 30a). And this Court’s re-

cent Dura opinion found it appropriate to observe — as a factor

supporting a Rule 12(b)(6) dismissal — that “allowing a plaintiff

to forgo giving any indication of the economic loss and

proximate cause that the plaintiff has in mind would * * *

permit a plaintiff ‘with a largely groundless claim to simply take

up the time of a number of other people, with the night to do so

representing an in terrorem increment of the settlement value,

rather than a reasonably founded hope that the [discovery]

process will reveal relevant evidence.”” 125 S. Ct. at 1634

(quoting Blue Chip Stamps, 421 U.S. at 741).

Notably, before making those observations, the Court stated

that it “assume[d], at least for argument’s sake, that neither the

Rules nor the securities statutes impose any special further re-

quirement in respect to the pleading of proximate causation or

economic loss.” 125 S. Ct. at 1634. The Court acknowledged

the “simple test” of Conley v. Gibson, supra, and the “not * * *

great burden” of Swierkiewicz v. Sorema N.A., 534 U.S. 506,

513-515 (2002). Still, in applying the ordinary standards of

13

Rule 8 and Rule 12(b)(6), the Court found it appropriate to

consider the practical consequences of allowing the litigation to

go forward. It is therefore simply not true — as the Second Cir-

cuit believed — that only a “heightened pleading requirement”

will allow courts to examine antitrust complaints searchingly

enough to avoid clogging the courts for years and rewarding

plaintiffs’ attorneys for bringing meritless claims. Pet.

App. 28a.

The present case is based on a theory that an entire industry

would have been structured differently but for antitrust viola-

tions. [t should give a court pause that such a far-reaching law-

suit might be allowed based on such a toothless review of the

complaint’s allegations as that undertaken below. The massive

scope of plaintiffs’ complaint is not irrelevant to the degree of

scrutiny it should have received in the courts below. This is not

a complaint about 45 railroad jobs, as in Conley v. Gibson, or a

complaint about one person’s allegedly discriminatory demotion

and constructive discharge, as in Swierkiewicz. It is not even a

complaint about declines in the price of one stock, as in Dura ~

in which this Court nevertheless found the in terrorem effect of

litigation highly relevant to the 12(b)(6) inquiry. It is a mega-

lawsuit in which the purported plaintiff class is hundreds of

millions of persons and businesses, and the defendants are an

entire industry. A rule of civil procedure meant to promote

“substantial justice” does not require a pretense that such a

lawsuit is the same as a relatively small case, when the conse-

quence is to empower the organized class-action bar to bring

meritless lawsuits for the sole purpose of coercing settlements.

“Certainly in a case of this magnitude, a district court must

retain the power to insist upon some specificity in pleading

before allowing a potentially massive factual controversy to

proceed.” Associated General Contractors, 459 U.S. at 528

n.17.

14

Il. Allowing Plaintiffs to Proceed Past the Pleading

Stage, Without any Indication that They Have

Evidence or a Theory on Which They Could

. Actually Prevail, Will Coerce Blackmail Settle-

ments of Meritless Cases

The question presented by this case is of tremendous

practical importance and merits resolution by this Court. In-

deed, the Second Circuit itself was forthright in acknowledging

the nature of the beast its decision was unleashing. See Pet.

App. 27a-28a, 30a. The court even went so far as to admit that

“the success of such meritless claims [in coercing settlements]

encourages others to be brought.” /d. at 30a.

It is no accident that the pleading question presented by this

case arises in the context of a putative class action brought by

a law firm that is part of the organized plaintiffs’ class-action

bar. Lawyers, not clients, drive cases of this sort. See /n re

Network Associates, Inc., Securities Litigation, 76 F. Supp. 2d

1017, 1032 (N.D. Cal. 1999) (quoting attorney William S.

Lerach: “I have the greatest practice in the world because I

have no clients. I bring thecase. | hire the plaintiff. Ido not

have some client telling me what to do. I decide what to do.”).

The impetus for cases like this one is not actual suspicion

of wrongdoing, and certainly not the expectation that an actual

trial on the merits will yield success, but the hope that the thin-

nest of allegations, with the greatest of legal consequences, will

survive motions to dismiss and begin to put pressure on defen-

dants to settle complex litigation. See Linda Silberman, The

Vicissitudes of the American Class Action — With a Comparative

Eye, 7 TUL. J. INT’L & Comp. L. 201, 205 (1999). Judge

Friendly — borrowing a term used earlier by antitrust scholar

Milton Handler — termed this the “blackmail settlement.”

HENRY J. FRIENDLY, FEDERAL JURISDICTION: A GENERAL VIEW

120 (1973) (citing Milton Handler, The Shift from Substantive

to Procedural Innovations in Antitrust Suits —- The Twenty-Third

Annual Antitrust Review, 71 COLUM. L. REV. 1, 9 (1971)).

15

The Senate Judiciary Committee observed last year:

Because class actions are such a powerful tool, they

can give a class attorney unbounded leverage, particularly

in jurisdictions that are considered plaintiff-friendly. Such

leverage can essentially force corporate defendants to pay

ransom to class attorneys by settling — rather than litigating

— frivolous lawsuits. This is a particularly alarming abuse

because the class action device is intended to be a pro-

cedural tool and not a mechanism that affects the sub-

Stantive outcome of a lawsuit. * * * [WJhen plaintiffs seek

hundreds of millions of dollars in damages, basic eco-

nomics can force a corporation to settle the suit, even if it

is meritless and has only a five percent chance of success.

Not surprisingly, the ability to exercise unbounded

leverage over a defendant corporation and the lure of huge

attorneys’ fees have led to the filing of many frivolous class

actions.

S. Rep. No. 109-14, at 20-21 (2005), reprinted in 2005

USCCAN 3, 21.

. Former Attorney General Dick Thornburgh put the matter

even more bluntly seven years earlier in testimony before the

House Judiciary Committee:

There is nothing inherently wrong with the general

concept of the class action lawsuit or the theory of

aggregation oi claims. These suits have held an honored

place in American law and in British common law for

centuries. Adjudication for a class has always been feasible

whenever class members have a common legal interest that

could not practically be resolved one at a time.

*e*&* *&

Relatively recently, however, plaintiffs’ lawyers, often

styling themselves consumer attorneys, have been allowed

to wield class actions as judicial weapons of mass

destruction.

16

These suits promise such devastating consequences

that even the most innocent of defendants must settle or

risk near total annihilation.

To add insult to these injuries, these plaintiffs’ lawyers

purport to hold the moral high ground. They act as if they

were not mere attorneys, but private sector attorneys

general. Yet, they are not bound or constrained in any way

by Democratic processes.

*_** *& *

Far more corrupting to the law, these class actions are

often initiated, not by the class members themselves, but by

a group of class action lawyers who divide up shares of

litigation as if lawsuits were investment properties.

Mass Torts and Class-Action Lawsuits: Oversight Hearings Re-

garding Mass Torts and Class Action Lawsuits Before the

House Committee on the Judiciary, Subcommittee on Courts

and Intellectual Property, 105th Cong. 29-30 (Mar. 5, 1998)

(testimony of former Attorney General Dick Thornburgh),

available at http://commdocs.house.gov/committees/judiciary/

hjuS9921.000/hjuS9921_0.HTM.

The pressure to settle does not begin only as a case

approaches trial, but as discovery expenses mount up, before the

defendants can ever move for summary judgment. In most

cases, there are only two opportunities for the defendants to ease

the settlement pressure before the summary-judgment stage: the

filing of a motion to dismiss, and opposition to a motion for

class certification. In the decision below, the Second Circuit has

made the first opportunity practically unavailable even in the

most obviously meritless of antitrust cases, in which a warmed- —

over complaint adds a conclusory allegation of “conspiracy” to

allegations of lawful parallel conduct. See also Discon, Inc. v.

NYNEX Corp., 93 F.3d 1055 (2d Cir. 1996) (reversing dismissal

of antitrust complaint), rev’d, 525 U.S. 128 (1998) (unanimous

decision); Law Offices of Curtis V. Trinko, L.L.P. v. Bell

Atlantic Corp., 305 F.3d 89 (2d Cir. 2002) (reversing dismissal

17

of antitrust complaint), rev’d, 540 U.S. 398 (2004) (unanimous

decision).

In an earlier — and widely criticized — decision, the Second

Circuit made the second opportunity practically unavailable in

a case of any complexity as well. In another massive antitrust

case, the Second Circuit declared that a district court may

certify a class as long as a plaintiff can come up with admissible

expert testimony to support class certification. A district court

must only “ensure that the basis of the expert opinion is not so

flawed that it would be inadmissible as a matter of law.” Jn re

Visa Check/MasterMoney Antitrust Litigation, 280 F.2d 124,

135 (2d. Cir. 2001), cert. denied, 536 U.S. 917 (2002). “{A]

district court may not weigh conflicting expert evidence or

engage in ‘statistical dueling’ of experts. The question for the

district court at the class certification stage is whether plaintiffs’

expert evidence is sufficient to demonstrate common questions

of fact warranting certification of the proposed classes, not

whether the evidence will ultimately be persuasive.” J/bid.

(citations omitted). Other circuits have rejected that approach.

The most recent example is /n re Polymedica Corp. Securities

Litigation, 432 F.3d 1, 5-6 (lst Cir. 2005), in which the First

Circuit expressly rejected the Visa Check/MasterMoney

precedent, and instead opted to follow “the majority of courts of

appeals that have addressed this issue, [holding that] a district

court * * * instead should make whatever legal and factual

inquiries are necessary to an informed determination of the

certification issues.” An earlier and pithier criticism was that an

approach to class certification like the Second Circuit’s “cannot

be found in Rule 23 and has nothing to recommend it.” Szabo

v. Bridgeport Machines, Inc., 249 F.3d 672, 676 (7th Cir.

2001).*

* Amici the Chamber, the Alliance of Automobile Manufacturers, and

Northwest Airlines have each unsuccessfully urged this Court to resolve

the circuit split pertaining to class certification standards between, on the

one hand, courts that follow the Second Circuit's approach and, on the

other hand, the approach of at least the First, Third, Fourth, Fifth, and

18

Combining an inappropriately low threshold for pleading

antitrust claims with an inappropriately low threshold for

achieving class certification makes the Second Circuit — which

includes the commercial center of the United States — a night-

mare jurisdiction in which to defend a putative class action

under the antitrust laws. This Court has recognized that “[{c]erti-

fication of a large class may so increase the defendant’s poten-

tial economic damages liability and litigation costs that he may

find it economically prudent to settle and to abandon a meritori-

ous defense.” Coopers & Lybrand v. Livesay, 437 U.S. 463, 476

(1978). Class certification presents such pressures because de-

fendants cannot “stake their companies on the outcome of a

single jury trial.” Jn re Rhéne-Poulenc Rorer Inc., 51 F.3d 1293,

1299 (7th Cir. 1995). Yet defeating certification has long been

unduly difficult in the Second Circuit, and now defeating merit-

less antitrust claims at the motion-to-dismiss stage will be un-

duly difficult as well. The result is an intolerable burden on the

business community. :

This case presents the Court with an excellent opportunity

to apply to massive antitrust class actions both the substantive

principles of Matsushita and Theatre Enterprises and the prin-

ciple expressly stated in the governing Federal Rule of. Civil

Procedure that pleadings shall be so construed as to do sub-

stantial justice. The well-reasoned opinion of the district court

dismissing the complaint complies with those principles, and the

opinion of the court of appeals semi-apologetically reversing,

while recognizing all the deleterious features of its own deci-

sion, does not. Parallel conduct is not a violation of the antitrust

Seventh Circuits. See Petition for a Writ of Certiorari, Northwest

Airlines Corp. v. Chase, No. 02-1447 (filed March 31, 2003, denied

June 2, 2003); Brief for the Chamber of Commerce of the United States

as Amicus Curiae in Support of Petitioner, UnitedHealth Group, Inc. v.

Klay, No. 04-522 (brief filed Dec. 3, 2004, cert. demied Jan. 10, 2005);

Brief of the Alliance of Automobile Manufacturers et al. as Amici Curiae

in Support of Petitioners, Visa U.S.A. Inc. v. WalMart Stores, Inc.,

No. 01-1464 (fi'ed May 6, 2002, cert. denied June 10, 2002).

19

laws, and a complaint that adds nothing of real substance to

lengthy allegations of parallel conduct should not be allowed to

launch huge, costly litigation purportedly on behalf of hundreds

of millions of plaintiffs. This Court can and should grant

certiorari and reverse.

CONCLUSION

For the foregoing reasons and those stated in the petition,

the petition for a writ of certiorari should be granted.

Respectfully submitted.

ROBIN S. CONRAD

AMAR D. SARWAL

Roy T. ENGLERT, JR.*

DONALD J. RUSSELL

National Chamber Litigation Robbins, Russell, Englert,

Center, Inc.

1615 H Street, N.W.

Washington, D.C. 20036

(202) 463-5337

MICHAEL FIELD ALTSCHUL

CTIA — The Wireless

Association

1400 16th Street, N.W.

Suite 600

Washington, D.C. 20036

(202) 785-0081

JOHN T. WHATLEY

Alliance of Automobile

Manufacturers

1401 H Street, N.W.

Suite 900

Washington, D.C. 20005

(202) 326-5500

APRIL 2006

Orseck & Untereiner LLP

1801 K Street, N.W.

Suite 4/1

Washington, D.C. 20006

(202) 775-4500

PETER B. KENNEY, JR.

Northwest Airlines, Inc.

Department Ai 180

2700 Lone Oak Parkway

Eagan, MN_ 55121-1534

(612) 726-3663

RICKS P. FRAZIER

United Air Lines, Inc.

1200 E. Algonquin Rd.

Elk Grove Township, IL 60007

(847) 700-4446

* Counsel of Record |