United States: Second Circuit Decision On Pleading Conspiracy More Welcoming To Plaintiffs

Last Updated: February 11 2013
Article by Paula W. Render, Kevin D. McDonald, Eric P. Enson and Michelle K. Fischer

The Supreme Court recently decided not to review a Second Circuit decision on the standard for pleading conspiracy, leaving in place that decision, Anderson News, LLC v. American Media, Inc., 680 F.3d 162 (2d. Cir. 2012).  In its opinion, the Second Circuit held that, when assessing the sufficiency of the plaintiff's pleadings under Sherman Act § 1, the court should not question whether there are other plausible, or even more plausible, alternatives to the plaintiff's theory.  This decision in Anderson could make pleading conspiracies considerably easier for antitrust plaintiffs, at least in the very important Second Circuit.

Second Circuit precedent on assessing conspiracy claims

The U.S. Supreme Court's 2007 decision in Bell Atlantic v. Twombly set a new standard in antitrust pleadings under Section 1.  The Court held that plaintiffs must plead "plausible grounds to infer an agreement" with "context that raises a suggestion of a preceding agreement."  Under well-established caselaw, allegations of parallel conduct must be accompanied by allegations of so-called "plus factors," which the Supreme Court has defined as "anything that tends to exclude independent action."  But courts and parties continue to wrestle with exactly what is required to plead conduct that crosses that line.

In a prior decision on this question, In re Elevator Antitrust Litigation, the Second Circuit acknowledged that difficulty, observing that "‘considerable uncertainty' surrounds the breadth" of the Twombly decision.  The court there explained that "while Twombly does not require heightened fact pleading of specifics, it does require enough facts to ‘nudge [plaintiff[s'] claims across the line from conceivable to plausible.'"  The Elevator decision further explained that "it is not enough to make allegations of an antitrust conspiracy that are consistent with an unlawful agreement; to be viable, a complaint must contain ‘enough factual matter'… to suggest that an agreement" actually was made.

In Elevator, the Second Circuit dismissed the plaintiffs' complaint for failing to satisfy that requirement.  The plaintiffs had alleged that the defendant-elevator manufacturers violated Section 1 by conspiring to foreclose competitors from providing repair services to the defendants' elevators.  The court explained that the plaintiffs' allegations consisting solely of  parallel conduct were insufficient because, "while that conduct is consistent with conspiracy, [it is] just as much in line with a wide swath of rational and competitive business strategy unilaterally prompted by common perceptions of the market.'"  The court held that, in the absence of plausible allegations of conduct suggesting that the conduct was collusive rather than independent (in other words, allegations of plus factors), the complaint had been correctly dismissed.

Anderson News

The Second Circuit arrived at the opposite conclusion in Anderson, vacating the district court's decision dismissing the complaint.  In Anderson, the plaintiff alleged that defendant publishers and distributors of print magazines conspired to drive the plaintiff out of business after it instituted a price increase.  The district court granted the defendants' motion to dismiss because there was a plausible alternative to the plaintiffs' theory of harm that did not involve an illegal agreement between the plaintiffs.

The Second Circuit vacated the district court's decision.  The court held that, once the plaintiff crosses the threshold from conceivable to plausible, a court should cease weighing the likelihood that the facts provided by the plaintiff increase the chances of discovery unveiling further evidence of an agreement.  Although the Anderson district court identified equally plausible non-collusive alternatives to the plaintiff's characterization of defendants' behavior, the Second Circuit made clear that "the question is not whether there is a plausible alternative to the plaintiff's theory [but] whether there are sufficient factual allegations to make the complaint's claim plausible."  The Second Circuit found the conspiracy claims plausible because the plaintiff had pled:

  • The date, time, and location of alleged conspiratorial meetings, the parties that were involved, and an indication that these meetings were not held in the ordinary course of business;

  • Emails between defendants demonstrating that the defendants communicated about what their reactions were to a particular supplier's price increase and how they planned to respond;

  • Conversations between the defendants and plaintiff that could be construed as an implicit admission to participation in a conspiracy; and

  • A temporal relationship between the above facts and the boycotting behavior.


The district court had relied on the fact that the defendants had "a variety of reactions" when they first learned of the price increase before they allegedly conspired against the plaintiff.  Moreover, it did not believe that it would be in the defendants' best economic interests to remove the plaintiff from the market.  Despite these findings, the Second Circuit found that sufficient plus factors existed and thus the pleading contained plausible grounds to infer the existence of an agreement.

Restricting the court's inquiry in motions to dismiss

Anderson is notable because the court limited the defendant's ability to show that conduct alleged as a plus factor does not "tend to exclude independent action."  When the court is first reviewing the pleadings on a motion to dismiss, the court is permitted to assess whether the facts alleged would establish parallel conduct.  If the plaintiff's grounds for alleging a conspiracy could "conceivably" support the accusation, then the court may weigh the allegations to determine whether there is a plausible claim that the parallel conduct was due to collusive rather than unilateral decision-making, and thus determine whether it is worth the time and expense to find further evidence through discovery and trial.

However, once the court finds that the plaintiff sufficiently pled plus factors and that a conspiracy is "plausible," the inquiry must stop.  The court can consider the facts provided by the defendant as an alternative explanation for the behavior, but the plaintiff need not prove that their theory is more plausible than the defendant's theory to sufficiently plead its case.  As the Second Circuit explained, "on a Rule 12(b)(6) motion, it is not the province of the court to dismiss the complaint on the basis of the court's choice among plausible alternatives."  Thus, the existence of facts that make the defendant's theories equally plausible will not doom the plaintiff's complaint.  Rather – assuming the plaintiff later adduces sufficient evidence to support the factual allegations in its complaint – "the choice between or among plausible interpretations of the evidence" will be left to the factfinder.

Implications

Anderson provides a few insights into the Twombly pleading standard, as interpreted by the Second Circuit.  First, when compared to Elevator, the Anderson case provides guidance on what constitutes adequate pleading of plus factors.  The Anderson plaintiff provided dates, times, and locations of alleged meetings among the defendant-competitors.  These alleged meetings were not trade association meetings but were after-hours or weekend meetings, some of which were supposedly in the offices of a competitor.  Moreover, the plaintiff provided circumstantial evidence showing that the defendants were talking about their planned response to a price increase.  In other words, these allegations provided the "factual context suggesting [that the parties reached an] agreement" required by Twombly as opposed to facts "merely consistent" with an agreement, as in Elevator, where the plaintiffs alleged meetings and agreements, but no specifics about the meetings or communications or agreements among the defendants.

Second, Anderson highlights that, in the Second Circuit, the success of the pleading largely is in the hands of the plaintiff.  The plaintiff has the obligation to plead sufficient facts to demonstrate "plausible grounds" of a conspiracy.  Pleading parallel conduct and plausible plus factors meets that requirement.  The defendants can provide facts to demonstrate the plaintiff's interpretation is implausible.  But if the plaintiff's interpretation still is plausible, then the pleading requirement has been met.  No matter how much explanation the defendant provides in its response or motion to dismiss, the court must refrain from weighing the parties' competing, unproven assertions and only assess whether the plaintiff's allegations are plausible.  "Plausible" is not "most likely."

However, a district court may have difficult drawing the line between whether the plaintiff's allegations of conduct plausibly show collusion and whether plaintiffs' allegations are more or less plausible than defendants' justification for the conduct at issue.  Weekend meetings not in the ordinary course of business may be easy to assign to the collusion side of that line.  But with more ambiguous potential plus factors, precluding any justification from defendants at the motion to dismiss stage could essentially eviscerate the role of plus factors in distinguishing mere parallel conduct from potentially unlawful conduct.

One type of plus factor that courts have considered is "signaling," conduct by defendants that indirectly "signals" their intended price changes to one another, such as through press releases or conferences with industry analysts.  Under Anderson, defendants could try to explain the innocent nature of communications alleged to be signaling, but would succeed only if the court found that the defendants' facts made the plaintiff's allegations implausible.

The takeaway is that courts still struggle with the meaning of "plausibility" and this central conundrum of antitrust law: how to distinguish lawful competitive behavior from unlawful collusion even though the two can look extremely similar.  The Second Circuit's Anderson decision has made the plaintiff's task easier.

(The Supreme Court case is Curtis Circulation Co. v. Anderson News, LLC (No. 12-446).)  

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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