Caseflicks

Court of Appeals for the Seventh Circuit • 2010

In Re Text Messaging Antitrust Litigation

630 F.3d 622

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Takeaway

In short, this case holds that a concentrated market, coordinated price-structure changes, economically suspicious price increases, and opportunities to exchange information can make a price-fixing conspiracy plausible enough under Twombly to justify discovery, even without a smoking gun.

Background

Consumers brought a consolidated class action alleging that the four major providers of U.S. text-messaging services conspired to fix prices in violation of § 1 of the Sherman Act. The second amended complaint alleged that the defendants controlled roughly 90 percent of the market, exchanged pricing information through a trade association and its leadership council, adopted a uniform pricing structure at nearly the same time, and then raised their per-message prices to ten cents despite falling costs.

The district court had dismissed an earlier complaint but allowed the plaintiffs to file the second amended complaint and declined to dismiss it under Bell Atlantic Corp. v. Twombly. Believing that Twombly's application to these allegations was unsettled, the district judge certified the pleading question for interlocutory appeal under 28 U.S.C. § 1292(b). The defendants sought the Seventh Circuit's permission to appeal; the plaintiffs opposed permission and argued that the adequacy of this particular complaint was not a controlling question of law.

Issues

Issue #1

Whether the sufficiency of the second amended complaint under Twombly was a controlling question of law appropriate for interlocutory review under 28 U.S.C. § 1292(b).

Holding

Yes. In these unusual circumstances, the Twombly pleading issue was a controlling question of law warranting interlocutory appeal.

Reasoning

The question was controlling because a ruling that the complaint failed to state a claim would likely end the litigation. Without discovery, the plaintiffs were unlikely to obtain additional facts sufficient to support a further amended complaint.

Although the appeal concerned a particular set of pleaded facts, it did not ask the court to reweigh evidence or overturn factual findings. The defendants accepted the complaint's factual allegations as true and asked whether those allegations satisfied the legal pleading standard announced in Twombly.

The appeal also required clarification of Twombly itself, rather than a routine application of a settled rule. Twombly and Ashcroft v. Iqbal had left federal pleading doctrine in flux, and the Seventh Circuit had given little guidance on Twombly's application to antitrust claims.

Twombly seeks to prevent defendants from being forced into expensive and burdensome discovery when a complaint does not plausibly suggest a meritorious claim. In a complex antitrust case, an erroneous refusal to dismiss can immerse parties in a costly discovery process that cannot be undone after final judgment. The dual-certification requirement of § 1292(b) prevents such appeals from becoming routine.

Issue #2

Whether the consumers' allegations plausibly stated a Sherman Act § 1 price-fixing conspiracy under Twombly.

Holding

Yes. The complaint alleged sufficient parallel-plus circumstances to make an unlawful price-fixing agreement plausible and to permit discovery.

Reasoning

A Sherman Act § 1 claim requires an agreement or conspiracy, not merely a failure to compete. As Twombly explains, allegations of parallel conduct alone are insufficient when that conduct is equally consistent with independent action in a market that permits firms to avoid competing without an agreement.

The complaint alleged more than parallel pricing. It described a concentrated market in which four defendants sold about 90 percent of text-messaging services, a structure that would make collusion easier to form and easier to police because a cheating firm could be detected without elaborate enforcement mechanisms.

The defendants allegedly participated in a trade association, exchanged pricing information at association meetings, and joined an elite leadership council whose stated purpose was to encourage “co-opetition” rather than competition. These practices were not themselves unlawful, but they were circumstances that could facilitate covert price fixing.

The complaint further alleged economically anomalous conduct: despite sharply declining costs, the defendants increased prices rather than using lower costs to compete for customers. It also alleged that the firms rapidly replaced varied and complex pricing systems with a common structure and then simultaneously raised prices by approximately one-third.

Those allegations fit Twombly's concept of parallel-plus conduct: complex and historically unusual simultaneous pricing changes that would not likely result merely from chance, independent responses to common market conditions, or ordinary interdependence. The plaintiffs did not need direct proof, such as an admission that executives explicitly agreed on prices, because an antitrust conspiracy may be established through circumstantial evidence.

At the pleading stage, plausibility does not require a showing that liability is more likely than not. The complaint need only show more than a sheer possibility of illegality and a nonnegligible probability that the claim is valid. Because discovery might uncover direct evidence or additional circumstantial proof, the pleaded facts were sufficient to allow the case to proceed.