Bell Atlantic v. Twombly and Its Aftermath

One of the most important decisions that corporate counsel must make in any case is whether to file a motion to dismiss. While a motion can put an early end to the case, it can also prompt a judge to make damaging pronouncements about the law, without the benefit of a fully developed factual record.

Until now, a defendant who moved to dismiss faced an uphill battle. Federal courts routinely held that a complaint was sufficient, as long as it provided the defendant with fair notice of the plaintiff's claims. Most courts followed the 'accepted rule' that a complaint should not be dismissed 'unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.' Conley v. Gibson, 355 U.S. 41, 45-6 (1957). The courts preferred to use discovery, not the pleadings, to weed out frivolous claims. The results were often frustrating for defendants. Armed with almost no facts, a plaintiff could file a complaint, defeat a motion to dismiss, and then go on a protracted and expensive fishing expedition.

All of this began to change last year, when the United States Supreme Court decided Bell Atlantic v. Twombly, 127 S. Ct. 1955 (2007). Bell Atlantic was a class action alleging an unlawful conspiracy under the antitrust laws. The plaintiffs, subscribers of local telephone and high speed internet services, alleged that the Regional Bell Operating Companies or 'Baby Bells' conspired to restrain trade in two ways: 1) they engaged in parallel conduct intended to prevent independent carriers from competing effectively; and 2) they agreed not to compete with one another. The United States District Court for the Southern District of New York dismissed the complaint, holding that the plaintiffs had failed to plead facts suggesting a conspiracy, but the Second Circuit reversed.

By a 7 to 2 majority, the Supreme Court reversed, concluding that the complaint was inadequate under the Federal Rule of Civil Procedure 8(a)(2). This rule requires that a complaint contain a 'short and plain statement of the claim showing that the pleader is entitled to relief.' Quoting from Rule 8, Justice Souter wrote for the majority that, 'While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations ' 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 actions will not do ' ' 127 S. Ct. at 1964-65 (citation omitted). The complaint's '[f]actual allegations must be enough to raise a right to relief above the speculative level ' ' Id. at 1965 (citations omitted). While the Federal Rules sanction notice pleading, they do not dispense with the pleading of facts altogether. 'Rule 8(a)(2) still requires a 'showing,' rather than a blanket assertion, of entitlement to relief. Without some factual allegation in the complaint, it is hard to see how a claimant could satisfy the requirement of providing not only 'fair notice' of the nature of the claim, but also 'grounds' on which the claim rests.' Id. at 1965 n. 3.

What This Means

In an antitrust conspiracy case, this means that a complaint must contain 'enough factual matter (taken as true) to suggest that an agreement was made.' Id. at 1965. The plaintiff must provide 'plausible grounds to infer an agreement,' meaning 'enough fact[s] to raise a reasonable expectation that discovery will reveal evidence of an illegal agreement.' Id. This requirement emanates directly from Rule 8: 'The need at the pleading stage for allegations plausibly suggesting (not merely consistent with) agreement 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.” Id. at 1966, quoting Rule 8(a)(2).

The Discovery Process

The Court also took aim at the discovery process, remarking that, 'It is no answer to say that a claim just shy of a plausible entitlement to relief can, if groundless, be weeded out early in the discovery process through careful case management ' given the common lament that the success of judicial supervision in checking discovery abuse has been on the modest side.' Id. at 1967 (citation omitted). Discovery in antitrust cases is a 'sprawling, costly and hugely time-consuming undertaking' and 'the threat of discovery expense will push cost-conscious defendants to settle even anemic cases ' ' Id. at 1967. The Court concluded, 'Probably, then, it is only by taking care to require allegations that reach the level suggesting conspiracy that we can hope to avoid the potentially enormous expense of discovery in cases with no 'reasonably founded hope that the [discovery] process will reveal relevant evidence' to support a ' 1 claim.' Id.

Plausibility

The Court concluded that 'nothing contained in the complaint invests either the action or inaction alleged with a plausible suggestion of conspiracy.' Id. at 1971. The Bell Atlantic plaintiffs alleged that the defendants had engaged in parallel conduct, but the Court found more than one possible explanation for this conduct. Two businesses may engage in parallel behavior because they have illegally agreed to act in the same way or because they rationally perceive the market in the same way. 127 S. Ct. at 1964. The Court explained, '[W]ithout some further factual enhancement,' an allegation of parallel conduct 'stops short of the line between possibility and plausibility of 'entitle[ment]' to relief.' Id. at 1966. The Court was careful to note that in reaching this conclusion it was not 'requir[ing] heightened fact pleading of specifics, but only enough facts to state a claim to relief that is plausible on its face.' Id. at 1974. Because the plaintiffs had not 'nudged their claims across the line from conceivable to plausible, their complaint must be dismissed.' Id.

The plaintiffs argued that even if their complaint did not meet this 'plausibility' standard, dismissal was inappropriate under the 'no set of facts' language in Conley. Noting that many courts have refused to read Conley literally, the Court concluded that this language 'has been questioned, criticized, and explained away long enough' and 'after puzzling the profession for 50 years, this famous observation has earned its retirement.' Id. at 1969.

Bell Atlantic is significant, not just because the Supreme Court abrogated Conley, but because, for the first time, it held that under Rule 8 a complaint must do more than provide fair notice; it must also provide enough information to convince a court that the claim is 'plausible.' Furthermore, a district court is no longer forced to rely on discovery and other pre-trial procedures to expose the weaknesses in a claim. Instead, the court can weed out non-meritorious claims at the pleading stage.

While Bell Atlantic was an antitrust conspiracy case, its new 'plausibility' rule clearly applies to all cases. One month after the Supreme Court decided Bell Atlantic, the Second Circuit Court of Appeals held that, by relying on Rule 8, the Supreme Court intended for its holding to apply broadly. Iqbal v. Hasty, 490 F.3d 143, 157 (2d Cir. 2007). Since then dozens of federal district courts have assumed that Bell Atlantic applies outside the antitrust arena, citing it as the controlling authority in every kind of case imaginable.

This does not mean that corporate counsel should rush to file a motion to dismiss in every case or that defendants should expect to win more of these motions, at least in the near term. Right now, the lower federal courts are proceeding with caution. To be sure, when ruling on a motion to dismiss, every court now cites Bell Atlantic and there are some cases where the Supreme Court's landmark decision seems to have made a difference. But, there are many more cases where Bell Atlantic has had little or no impact. For example, there are many cases where the district court cites Bell Atlantic, but then dismisses on the ground that the complaint is legally deficient, a result that the court undoubtedly would have reached even before Bell Atlantic. There are also many cases where the court orders dismissal, because the plaintiff has pled 'conclusions' rather than 'facts,' but in these cases Bell Atlantic probably is superfluous. Even before Bell Atlantic many courts held that a complaint that pled only 'conclusions' did not provide fair notice and should be dismissed. See 2 James Wm. Moore et al., Moore's Federal Practice, ' 8.04[2] n. 8 (3rd ed. 2007) (collecting cases).

The district courts may be cautious, because they do not know exactly what Bell Atlantic means. The Supreme Court muddied the pleading waters when, two weeks after Bell Atlantic, it reversed a lower court order dismissing a complaint. In Erickson v. Pardus, 127 S. Ct. 2197 (2007), the Court quoted Bell Atlantic to support its hold that, 'Specific facts are not necessary; the statement need only 'give the defendant fair notice of what the ' claim is and the grounds upon which it rests.” Id. at 2200. Since then, the courts have disagreed over the meaning of Bell Atlantic and Erickson. According to the Seventh Circuit, Bell Atlantic 'did not signal a switch to fact pleading in the federal courts.' Airborne Beepers & Video, Inc. v. AT&T Mobility LLC, 499 F.3d 663, 667 (7th Cir. 2007). The Supreme Court only meant that 'the factual detail in a complaint may be so sketchy that the complaint does not provide the type of notice of the claim to which the defendant is entitled under Rule 8.' Id. If this interpretation is correct, Bell Atlantic changed nothing. The Second Circuit seems to interpret Bell Atlantic somewhat differently: '[W]e believe the Court is not requiring a universal standard of heightened fact pleading, but is instead requiring a flexible 'plausibility standard,' which obliges a pleader to amplify a claim in those contexts where such amplification is needed to render the claim plausible.' Iqbal v. Hasty, 490 F.3d at 157-58. Id. Apparently siding with the Second Circuit, the Tenth Circuit has interpreted Bell Atlantic to mean that, '[T]he mere metaphysical possibility that some plaintiff could prove some facts in support of the pleaded claims is insufficient; the complaint must give the court reason to believe that this plaintiff has a reasonable likelihood of mustering factual support for these claims.' Ridge at Red Hawk, LLC v. Schneider, 493 F.3d 1174, 1177 (10th Cir. 2007) (emphasis in original).

The Seventh Circuit

The Seventh Circuit is undoubtedly correct that Bell Atlantic did not mark a return to fact pleading. The Supreme Court said as much in both Bell Atlantic and Erickson. But the Seventh Circuit probably misinterprets these cases when it concludes that dismissal is appropriate only when a complaint is so 'sketchy' that it does not provide fair notice. The Supreme Court clearly held that a plaintiff must do more than provide fair notice; a complaint must be 'plausible' and contain 'enough fact[s] to raise a reasonable expectation that discovery will reveal evidence' to support his claims. 127 S. Ct. at 1965. The Seventh Circuit simply ignores this aspect of the Court's ruling. The Second and Tenth Circuits are probably correct that Bell Atlantic means that plaintiffs must plead more facts, at least in some cases, in order to make their claims 'plausible.' As time goes on, more courts will probably embrace this interpretation.

Conclusion

With Bell Atlantic, the pleading pendulum has begun to swing in the defendants' direction. In the long term, the lower courts probably will dismiss more cases, once more courts of appeal (or the Supreme Court) have further clarified the meaning of this landmark decision. In the meantime, some courts may use Bell Atlantic to clear their crowded dockets, while many others may act as if it did little to change the law. This means that before deciding to file a motion to dismiss, it is more important than ever for corporate counsel to heed the advice, 'know your judge,' and carefully scrutinize his or her track record under Bell Atlantic.

Linda L. Listrom is a senior partner in Jenner & Block's Chicago office. Ms. Listrom, a fellow in the American College of Trial Lawyers, focuses on complex commercial litigation. A member of the firm's Litigation Department and a member of its Business Litigation Practice, she co-chairs the firm's Defense and Aerospace Industry Practice. She may be reached at llistrom@jenner.com.

One of the most important decisions that corporate counsel must make in any case is whether to file a motion to dismiss. While a motion can put an early end to the case, it can also prompt a judge to make damaging pronouncements about the law, without the benefit of a fully developed factual record.

Until now, a defendant who moved to dismiss faced an uphill battle. Federal courts routinely held that a complaint was sufficient, as long as it provided the defendant with fair notice of the plaintiff's claims. Most courts followed the 'accepted rule' that a complaint should not be dismissed 'unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.' Conley v. Gibson , 355 U.S. 41, 45-6 (1957). The courts preferred to use discovery, not the pleadings, to weed out frivolous claims. The results were often frustrating for defendants. Armed with almost no facts, a plaintiff could file a complaint, defeat a motion to dismiss, and then go on a protracted and expensive fishing expedition.

All of this began to change last year, when the United States Supreme Court decided Bell Atlantic v. Twombly, 127 S. Ct. 1955 (2007). Bell Atlantic was a class action alleging an unlawful conspiracy under the antitrust laws. The plaintiffs, subscribers of local telephone and high speed internet services, alleged that the Regional Bell Operating Companies or 'Baby Bells' conspired to restrain trade in two ways: 1) they engaged in parallel conduct intended to prevent independent carriers from competing effectively; and 2) they agreed not to compete with one another. The United States District Court for the Southern District of New York dismissed the complaint, holding that the plaintiffs had failed to plead facts suggesting a conspiracy, but the Second Circuit reversed.

By a 7 to 2 majority, the Supreme Court reversed, concluding that the complaint was inadequate under the Federal Rule of Civil Procedure 8(a)(2). This rule requires that a complaint contain a 'short and plain statement of the claim showing that the pleader is entitled to relief.' Quoting from Rule 8, Justice Souter wrote for the majority that, 'While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations ' 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 actions will not do ' ' 127 S. Ct. at 1964-65 (citation omitted). The complaint's '[f]actual allegations must be enough to raise a right to relief above the speculative level ' ' Id. at 1965 (citations omitted). While the Federal Rules sanction notice pleading, they do not dispense with the pleading of facts altogether. 'Rule 8(a)(2) still requires a 'showing,' rather than a blanket assertion, of entitlement to relief. Without some factual allegation in the complaint, it is hard to see how a claimant could satisfy the requirement of providing not only 'fair notice' of the nature of the claim, but also 'grounds' on which the claim rests.' Id. at 1965 n. 3.

What This Means

In an antitrust conspiracy case, this means that a complaint must contain 'enough factual matter (taken as true) to suggest that an agreement was made.' Id. at 1965. The plaintiff must provide 'plausible grounds to infer an agreement,' meaning 'enough fact[s] to raise a reasonable expectation that discovery will reveal evidence of an illegal agreement.' Id. This requirement emanates directly from Rule 8: 'The need at the pleading stage for allegations plausibly suggesting (not merely consistent with) agreement 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.” Id. at 1966, quoting Rule 8(a)(2).

The Discovery Process

The Court also took aim at the discovery process, remarking that, 'It is no answer to say that a claim just shy of a plausible entitlement to relief can, if groundless, be weeded out early in the discovery process through careful case management ' given the common lament that the success of judicial supervision in checking discovery abuse has been on the modest side.' Id. at 1967 (citation omitted). Discovery in antitrust cases is a 'sprawling, costly and hugely time-consuming undertaking' and 'the threat of discovery expense will push cost-conscious defendants to settle even anemic cases ' ' Id. at 1967. The Court concluded, 'Probably, then, it is only by taking care to require allegations that reach the level suggesting conspiracy that we can hope to avoid the potentially enormous expense of discovery in cases with no 'reasonably founded hope that the [discovery] process will reveal relevant evidence' to support a ' 1 claim.' Id.

Plausibility

The Court concluded that 'nothing contained in the complaint invests either the action or inaction alleged with a plausible suggestion of conspiracy.' Id. at 1971. The Bell Atlantic plaintiffs alleged that the defendants had engaged in parallel conduct, but the Court found more than one possible explanation for this conduct. Two businesses may engage in parallel behavior because they have illegally agreed to act in the same way or because they rationally perceive the market in the same way. 127 S. Ct. at 1964. The Court explained, '[W]ithout some further factual enhancement,' an allegation of parallel conduct 'stops short of the line between possibility and plausibility of 'entitle[ment]' to relief.' Id. at 1966. The Court was careful to note that in reaching this conclusion it was not 'requir[ing] heightened fact pleading of specifics, but only enough facts to state a claim to relief that is plausible on its face.' Id. at 1974. Because the plaintiffs had not 'nudged their claims across the line from conceivable to plausible, their complaint must be dismissed.' Id.

The plaintiffs argued that even if their complaint did not meet this 'plausibility' standard, dismissal was inappropriate under the 'no set of facts' language in Conley. Noting that many courts have refused to read Conley literally, the Court concluded that this language 'has been questioned, criticized, and explained away long enough' and 'after puzzling the profession for 50 years, this famous observation has earned its retirement.' Id. at 1969.

Bell Atlantic is significant, not just because the Supreme Court abrogated Conley, but because, for the first time, it held that under Rule 8 a complaint must do more than provide fair notice; it must also provide enough information to convince a court that the claim is 'plausible.' Furthermore, a district court is no longer forced to rely on discovery and other pre-trial procedures to expose the weaknesses in a claim. Instead, the court can weed out non-meritorious claims at the pleading stage.

While Bell Atlantic was an antitrust conspiracy case, its new 'plausibility' rule clearly applies to all cases. One month after the Supreme Court decided Bell Atlantic, the Second Circuit Court of Appeals held that, by relying on Rule 8, the Supreme Court intended for its holding to apply broadly. Iqbal v. Hasty , 490 F.3d 143, 157 (2d Cir. 2007). Since then dozens of federal district courts have assumed that Bell Atlantic applies outside the antitrust arena, citing it as the controlling authority in every kind of case imaginable.

This does not mean that corporate counsel should rush to file a motion to dismiss in every case or that defendants should expect to win more of these motions, at least in the near term. Right now, the lower federal courts are proceeding with caution. To be sure, when ruling on a motion to dismiss, every court now cites Bell Atlantic and there are some cases where the Supreme Court's landmark decision seems to have made a difference. But, there are many more cases where Bell Atlantic has had little or no impact. For example, there are many cases where the district court cites Bell Atlantic, but then dismisses on the ground that the complaint is legally deficient, a result that the court undoubtedly would have reached even before Bell Atlantic. There are also many cases where the court orders dismissal, because the plaintiff has pled 'conclusions' rather than 'facts,' but in these cases Bell Atlantic probably is superfluous. Even before Bell Atlantic many courts held that a complaint that pled only 'conclusions' did not provide fair notice and should be dismissed. See 2 James Wm. Moore et al., Moore's Federal Practice, ' 8.04[2] n. 8 (3rd ed. 2007) (collecting cases).

The district courts may be cautious, because they do not know exactly what Bell Atlantic means. The Supreme Court muddied the pleading waters when, two weeks after Bell Atlantic, it reversed a lower court order dismissing a complaint. In Erickson v. Pardus , 127 S. Ct. 2197 (2007), the Court quoted Bell Atlantic to support its hold that, 'Specific facts are not necessary; the statement need only 'give the defendant fair notice of what the ' claim is and the grounds upon which it rests.” Id . at 2200. Since then, the courts have disagreed over the meaning of Bell Atlantic and Erickson. According to the Seventh Circuit, Bell Atlantic 'did not signal a switch to fact pleading in the federal courts.' Airborne Beepers & Video, Inc. v. AT&T Mobility LLC, 499 F.3d 663, 667 (7th Cir. 2007). The Supreme Court only meant that 'the factual detail in a complaint may be so sketchy that the complaint does not provide the type of notice of the claim to which the defendant is entitled under Rule 8.' Id. If this interpretation is correct, Bell Atlantic changed nothing. The Second Circuit seems to interpret Bell Atlantic somewhat differently: '[W]e believe the Court is not requiring a universal standard of heightened fact pleading, but is instead requiring a flexible 'plausibility standard,' which obliges a pleader to amplify a claim in those contexts where such amplification is needed to render the claim plausible.' Iqbal v. Hasty, 490 F.3d at 157-58. Id. Apparently siding with the Second Circuit, the Tenth Circuit has interpreted Bell Atlantic to mean that, '[T]he mere metaphysical possibility that some plaintiff could prove some facts in support of the pleaded claims is insufficient; the complaint must give the court reason to believe that this plaintiff has a reasonable likelihood of mustering factual support for these claims.' Ridge at Red Hawk, LLC v. Schneider , 493 F.3d 1174, 1177 (10th Cir. 2007) (emphasis in original).

The Seventh Circuit

The Seventh Circuit is undoubtedly correct that Bell Atlantic did not mark a return to fact pleading. The Supreme Court said as much in both Bell Atlantic and Erickson. But the Seventh Circuit probably misinterprets these cases when it concludes that dismissal is appropriate only when a complaint is so 'sketchy' that it does not provide fair notice. The Supreme Court clearly held that a plaintiff must do more than provide fair notice; a complaint must be 'plausible' and contain 'enough fact[s] to raise a reasonable expectation that discovery will reveal evidence' to support his claims. 127 S. Ct. at 1965. The Seventh Circuit simply ignores this aspect of the Court's ruling. The Second and Tenth Circuits are probably correct that Bell Atlantic means that plaintiffs must plead more facts, at least in some cases, in order to make their claims 'plausible.' As time goes on, more courts will probably embrace this interpretation.

Conclusion

With Bell Atlantic, the pleading pendulum has begun to swing in the defendants' direction. In the long term, the lower courts probably will dismiss more cases, once more courts of appeal (or the Supreme Court) have further clarified the meaning of this landmark decision. In the meantime, some courts may use Bell Atlantic to clear their crowded dockets, while many others may act as if it did little to change the law. This means that before deciding to file a motion to dismiss, it is more important than ever for corporate counsel to heed the advice, 'know your judge,' and carefully scrutinize his or her track record under Bell Atlantic.

Linda L. Listrom is a senior partner in Jenner & Block's Chicago office. Ms. Listrom, a fellow in the American College of Trial Lawyers, focuses on complex commercial litigation. A member of the firm's Litigation Department and a member of its Business Litigation Practice, she co-chairs the firm's Defense and Aerospace Industry Practice. She may be reached at llistrom@jenner.com.