Shearman & Sterling's Antitrust Digest Explores Aftershocks of Twombly

NEW YORK, May 6 /PRNewswire/ -- When the U.S. Supreme Court issued its decision in Bell Atlantic Corp. v. Twombly and Ashcroft v. Iqbal, in 2007 and 2009, respectively, it created a sea change in the minimally acceptable pleading standards to survive a motion to dismiss. Twombly is generally recognized for having changed the sufficiency of a pleading requirement from "notice" to "plausibility." That is, a plaintiff need not simply give the defendant notice of the claim, but must now plead enough facts for the claim to be "plausible" on its face. Iqbal clarified the "working principles" of the "plausibility" standard and also clarified that it extends to all pleadings, not just complex cases.

In the second edition of Shearman & Sterling's Antitrust Digest, Washington, D.C. partner Heather Kafele examines how federal courts have been interpreting pleading requirements for antitrust claims for violations of either Section 1 or Section 2 of the Sherman Act after Twombly. As the parameters of the plausibility standard are still being defined, this edition of the Antitrust Digest examines almost 170 post-Twombly federal antitrust cases to reveal how federal courts have been applying the plausibility standard to motions to dismiss for failure to state a claim.

"There is little doubt that the plausibility standard in Twombly has altered the landscape for sufficiently pleading a violation of the Sherman Act," says Kafele, who regularly litigates antitrust cases. "This is significant because it provides defendants a stronger tool to dispose of, at an early stage of the case, frivolous lawsuits that have no factual basis."

In particular, the research shows that:

(1) the dismissal rate for plaintiffs' complaints still equates to almost a 2:1 ratio (65%);

(2) circuit courts clearly have differing views as to what must be alleged to survive a motion;

(3) circuit courts collectively affirmed lower courts' granting of defendants' motion to dismiss 86% of the time;

(4) congressional action is being proposed to stem the general rising tide of dismissal rates in federal courts; and

(5) the antitrust cases most likely at risk of dismissal are those filed with nothing more than bare allegations, including especially those cases filed on the heels of government investigations with little factual information.

The second edition of the Antitrust Digest examines how Twombly's plausibility standard has been applied in federal antitrust actions and details the substantial impact this standard has had on the viability of plaintiffs' antitrust claims. For example, of the 170 substantive cases investigated in the Antitrust Digest, 111 of defendants' motions were granted. This dismissal rate still equates to almost 2:1 ratio (65.3%) for granting defendants' motion to dismiss.

Kafele points out that, with regard to circuit court results, depending upon the party's interest, knowing which circuit court is more favorable or less favorable to a particular argument, position, or theory could mean the difference between a motion to dismiss being granted or denied. For example, the Ninth, Third, and Second Circuits still heard and decided the majority of the motions to dismiss (57.6%). The Ninth Circuit continued to have the highest volume of antitrust cases among these three circuits; it also continued to have the highest percentage for granting defendants' motions to dismiss (70%), with the Second and Third Circuits granting defendants' motions to dismiss only 64% and 50% of the time, respectively.

According to the Antitrust Digest, the plausibility standard has undoubtedly created additional hurdles for plaintiffs bringing antitrust claims without much specific factual information. With this knowledge, defendants have inundated the courts with motions to dismiss for failure to state a claim. As one district court noted, "an undesired effect of Twombly is that the argument that plaintiffs have not pleaded sufficient facts appears to have become the mantra of defendants in antitrust cases."

In Kafele's view, the building of momentum towards congressional action suggests just how much the plausibility standard has altered the pleading landscape, especially in antitrust actions where plaintiffs have traditionally relied on the courts acceptance of the veracity of their allegations.

"But only time will reveal whether such legislation is in fact ever enacted," she says. "So, for now, the developing case law suggests that plaintiffs can no longer proceed on mere theory and the knowledge that courts seldom constrain discovery."

Thus, Kafele adds, relying on the courts to allow plaintiffs to proceed past the pleading stage with general unsupported allegations in the hope of later uncovering facts sufficient to survive summary judgment or leveraging claims and the costs of discovery into more favorable settlement terms, seems an imprudent legal strategy.

As the cases in the second edition of Antitrust Digest allude to, the most likely antitrust complaints at risk of dismissal are those filed on the heels of government investigations where there are few public details about the activity under investigation.

"The message is clear," Kafele says. "Lawyers who want to win the race to the courthouse to claim the position of lead counsel in follow-on class action lawsuits may now want to either wait for sufficient information to emerge from the investigation or conduct an 'inquiry reasonable under the circumstances' themselves. Either way, the complaint when filed must contain more than threadbare recitals and legal conclusions."

Read the complete text of the Second Edition of the Antitrust Digest here.

ABOUT SHEARMAN & STERLING

Shearman & Sterling LLP is a global law firm with approximately 900 lawyers in 20 offices in 12 countries around the world. The firm is a leader in mergers and acquisitions, capital markets, project development and finance, complex business litigation and international arbitration, asset management and tax.

SOURCE Shearman & Sterling LLP

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