Supreme Court Hears Bell Case on ‘Parallel Action’

Verizon, AT&T, BellSouth and Qwest have asked the high court to reject a class action charging them with “parallel action” and “conspiracy.” The suit, by consumers William Twombly and Lawrence Marcus, was thrown out by the U.S. Dist. Court, N.Y., but reinstated last year by the 2nd U.S. Appeals Court, N.Y. It centers on whether the Bells were “acting in parallel” to curb competition by not competing in one another’s territories and resisting CLEC entry in their own markets, and whether that constitutes conspiracy. The case has been a cause celebre in the legal community, with DoJ, 16 state attorneys general and the American Bar Assn. (ABA) filing briefs in support of the Bells (CD Aug 29 p2). The suit’s title refers to the fact that Verizon was known as Bell Atlantic.

A loss could subject the Bells to more suits based on “parallel conduct” and involving various issues, including net neutrality, said Stifel Nicolaus analysts. In a Nov. 17 report, they predicted victory for the Bells. For example, what if Verizon and AT&T both demanded additional payment from applications providers for enhanced treatment, the report said: “Could this parallel conduct constitute an antitrust violation?” Acting “in parallel” could apply to activities such as prices, terms or, in the current case, “doing nothing,” said Verizon Deputy Gen. Counsel John Thorne. “The parallel behavior in this case was non- behavior” because the Bells were accused of conspiring not to enter markets, he said.

Is it “parallel conduct… when gas stations on 4 corners of an intersection tend to price alike?” attorney John Peirce said: “If they don’t match competitors’ prices, they don’t sell fuel.” One question the Twombly case is whether such similar conduct alone can be the basis for an antitrust charge, said Peirce, a Bryan Cave lawyer and vice chmn. of the ABA communications section antitrust committee.

The big question in Twombly is how much proof is needed to make a conspiracy allegation stick, said Peirce. Often, plaintiffs often don’t have all details of a conspiracy, since by nature such plots are secret, he said. But the district court and 2nd Circuit disagreed on how much evidence is needed to keep a case from being dismissed. The district court said some facts have to be offered -- “a smoking gun document, an economic report” that show possible conspiracy, he said. In overturning the lower court, the 2nd Circuit adopted a weaker standard that, “unless you can rule out conspiracy,” the case at least will go to discovery, Peirce said. The 2nd Circuit basically said “all you have to do is prove there are no facts that show there is not conspiracy, sort of a negative approach,” Peirce said.

“It matters where you set the threshold,” he said: “My feeling is the 2nd Circuit set it too low.” A lower threshold could mean more cases are filed and more go to discovery, an expensive process, to gauge the evidence of conspiracy, Peirce said. “Is it the end of the world if the Supreme Court upholds Twombly? No. Most of my clients would be disappointed, [but] this is not good versus evil. It’s a case of what is the right threshold to bring an antitrust conspiracy case.”

“To allow mere allegations of parallel conduct to proceed to discovery would impose significant costs on the economy and, thus, on consumers,” Thorne wrote in an essay in Engage, a Federalist Society magazine: “Plaintiffs could pursue class action cases against companies based only on garden-variety economic behavior such as raising prices in response to higher demand or reducing capacity in response to shrinking demand.”

Attorneys for Twombly argued last month in their brief that the Bells and supporters are trying to rewrite pleading standards set in a 1957 case, Conley v. Gibson. “The court has held squarely at least twice that heightened pleading standards in antitrust cases would not be appropriate,” the brief said. Concern about “nuisance suits” is unfounded, the Twombly brief said: “Petitioners have made no showing whatsoever that any such widespread problem even exists in antitrust.” The 2nd Circuit met the “controlling pleading standard” and its decision has been “mischaracterized,” the brief said.

A Bell win could make it harder to bring a legitimate antitrust suit based on conspiracy, said Parker Folse, a Seattle lawyer who co-wrote the American Antitrust Institute amicus brief in Twombly. The Bells say the 2nd Circuit lowered the threshold for accepting conspiracy cases, but actually the court followed the current standard; the Bells are trying to get a higher one, Folse said. “They are asking the Supreme Court to adopt a standard that would require specific details of who, what, when and where,” he said. That’s a standard used once a case is accepted, after discovery is underway and the “issue is whether this is enough evidence to put the case to a jury,” he said. “That kind of evidence is almost never available” when a suit is filed, before discovery starts, Folse said. This case could have “extremely broad ramifications,” he said.

Attorney Michael Kennedy will argue for the Bells; DoJ antitrust div. head Tom Barnett for the govt.; and Douglas Richards of N.Y. firm Milberg Weiss for Twombly.