How to Survive A Motion to Dismiss After Twombly

Josh Wright —  12 August 2007

David Fischer at Antitrust Review points to a decision out of the Eastern District of Pennsylvania where plaintiffs’ allegations of conspiracy in violation of Section 1 of the Sherman Act survived a motion to dismiss. Recall that Twombly rejected the “any set of facts” or “conceivability” standard set forth in Conley v. Gibson in favor of a “plausibility” standard (see, e.g. Manfred Gabriel’s article in the Antitrust Source exploring Twombly‘s implications).

So what sort of activity was alleged in the complaint that allowed the plaintiff class in In Re: OSB Litigation to survive the pleading stage? Judge Diamond points to a few features of the complaint that are worth exploring:

  • Plaintiffs explicitly alleged communications between rivals announcing an intention to shutdown North American OSB mills and reduce output
  • Plaintiffs detail that the same communication was later repeated by one of the defendants
  • Plaintiffs allege communications between competitors followed directly by a reduction in production during a time period when demand was increasing
  • Plaintiffs allege that prices increased to a record high level subsequent to these communications and reduction in production
  • Importantly, thePlaintiffs also described in detail the mechanism by which the collusion was to take place. Specifically, the complaint contained allegations describing the use of a twice-weekly published price list in an industry periodical which included OSB prices by region and allowed conspirators to monitor competitors and detect cheating

This level of detail of the collusive agreement or conditions conducive to such an agreement are far greater than in Twombly. Specifically, the complaint in OSB features detailed allegations describing who was cartelizing what and how they were doing it appears to be a key feature of the new Twombly standard. The Horizontal Merger Guidelines provide a somewhat useful way to think about information that might describe the mechanism of collusion, and thus help to satisfy the Twombly standard, in Sections 2.11 and 2.12 which describe conditions conducive to both reaching a collusive agreement as well as detecting and punishing deviations — necessary components of a successful conspiracy.

OSB doesn’t appear to be a great test case for the scope of Twombly precisely because the allegations in the complaint are so detailed. A more interesting test case might involve Twombly-type allegations along with a “plus factor” or two. One important issue for district courts to grapple with involves the assignment of relative weights to various plus factors at the pleading stage for the purposes of “plausibility analysis.”

I am also interested to see if the post-Twombly world will involve extensive expert economic testimony at the pleading stage concerning the “plausibility” of collusion given market conditions (such as those described in the Guidelines in the coordinated effects context). There was obviously no such need here given allegations of an explicit agreement — but I would suspect that such expert testimony and economic analysis will likely play a greater role in these cases at the pleading stage.

One response to How to Survive A Motion to Dismiss After Twombly

  1. 

    I think any one of the OSB Litigation complaint would meet the Twombly standard (this may be what you mean by saying it is not a good test case).

    The question of what kinds of plus factors are sufficient, and what are not, is interesting. Courts have treated all sorts of things — opportunity and motive to conspire are pernicious examples — as “plus factors.” That does not mean they even approach the plausibility standard. Professor Page has an interesting recent article noting that the definition of sufficient plus factors should boil down to allegations of “communication.”

    Finally, regarding expert analysis, it’s an interesting conundrum. On the one hand, if the substantive rule of law (per Matsushita) prescribes economic rationality, it seems fair to require in the complaint that somebody schooled in economics speak to the economic rationality of the conduct plaintiffs believe occurred. On the other hand, do we want judges to weigh expert testimony at the MTD stage? And if not, can any junk science overcome the Twombly problem?