Starr v SME Brief in Opposition

8/8/2019 Starr v SME Brief in Opposition

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QUESTIONS PRESENTEDIn their Fed.R.Civ.P. 12(b)(6) motions to dismiss a

claim for agreement to fix prices in violation ofSect.ion1 of th e Sherman Antitrust Act, Defendants failed toarticulate how certain of th e alleged faeLs could beconsidered independent, self-interested cunduct. E.g.,(1) th e chiefexecutive of one Defendant admitted thatt.he Defendants ha d formed jointventures expressly sothat "we [the music industry] determine" and controlprices; an d (2) th e chief executive of anotherDefendant admitted that the Defendants placed theirparallel "most favored nations" clauses in "secret "ideletters" because "there ar e legal1antitrust reasons whyit would be bad idea to have MFN clauses in any, orcertainly all, of these agreements."

Tn rejecting Defendants' factually incompletearguments, th e Court ofAppeals for th e Second Circuitquoted from and applied this Court's standards forpleading plausible grounds to infer an illegalagreement under Rule 8 of the Federal Rules of CivilProcedure, as recently articulated in Bell AtlanticCorp. lI . Twombly, 550 U.S. 544 (2007) an d in Ashcroftu.lqbal, 129 S.Ot. 1937 (2009), to fourteen separatefacts which it found were probative of a prioragreement to fix prices. Defendant.s' arguments forrehearing or rehearing en bane were unanimouslyrejected. Pet.App.30a-31a.

In such motions, Defendants also failed to cite toDura Pharmaceuticals, l,te. u. Broudo, 544 U.s. 336(2005), an d to argue (as they do here) thatFcd.R.Civ.P. 8 requires a plaintiff"toallege t h o ~ p . facts


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in a complaint that the plaintiff will later need tosubstantiate at summary judgment or prove at trial."

Question tn . Where Defendants failed even to tr yto articulate how their chief executives' inculpatoryadmissions ar c consistent with independent action,have Defendants satisfied their burden aR movants ona Feu.R.Civ.P. 12(b)(6) motion to dismiss?

Question #2. In light of this Court's expressrejection in Twombly an d Iqbal of a "probability"standard under Rule 8, did th e court ofappeals er r inconcluding that Plaintiffs alleging a conspiracy underSection 1 of the Shenna" Ad were not required toplead facts which satisfy a probability standard, to-wit,which "tend tu rule out even the 'pussibility' thatindependent self-interested conduct" is 3. n explanationfor Defendants' parallel behavior?

Question #3. Where Defendants failed toarticulate below th e sale question presented by th ePetition --- whether, under Rule 8, a complaint mustallege "sufficient facts that, if proved, plausibly showan ent.itlement La relief ullder th e ,;ubstantive legalstandard that will govern the claim at summaryjudgment or trial" --- should this Court follow it s usualpractice and decline. to consider th e question in thefirst instance?

ii iTABLE OF CONTENTS

QUESTIONS PRESENTED ................... i'l'AHLl!: OF CONTENTS ..................... iiiTABLE OF AUTHORITIES .................. viCOUNTERSTATEMENT OF THE CASE . . . . . . . 1REASONS FOR DENYING THE PETITION 8

L DEFENDANTS' FAILURE TOARTICULATE AN EXPLANATION FORTHEIR CH l E F EXECUTIVES 'ADMISSIONS DID NOT SATISFY THEIRBURDEN ON '1'HE MOTIONS TODISMISS, AND THE DENIAL OF THOSEMOTIONS RAISES NO ISSUE FORREVIEW ........................... 10

ll . THE SECOND CIRCUIT'S CORRECTAPPLICATlON OI


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lVC. 'rhe Second CircuitCorrectly DeterminedThat Iqbal Di d Not Impose a SummaryJUdgment Standard on Motions toDismiss ......................... 20D. Should th e Court Consider Defendants'

New-Found Reliance on a SecuritiesF'ra ud Case, That Case Did Not Impose aSlllnrnary Judgment Standard onl'vIotions to Dismiss .......... : . . . . . 22

E. 41though Defendants Complain that theSecond Circuit Failerl to Consider"Obvious Alternative Explanations" fOj'1'hcir Conduct, Defendants NeverOffererl Such Explanations ......... 23

m.BEC


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VITABLE OF AUTHORITIES

Cases

Anderson News, L.L.C. u. American Media, Inc.,No. 09 Civ. 2227, 2010 WL 3001746 (S.D.N.Y.Aug. 2, 2010) .......................... 31Apex Oil Co. u. DiMauro,

822 F.2d 246 (2d Cir.l987) ............... 17Ashcroft; u. Iqbal,129 S.Ct. 1937 (2009) ................. passimBell Atlantic Corp. u: Twumbly,550 U.S. 544 (2007) .................. paSSImBell v. Hood,327 U.S. 678 (1946) ..................... 10Bradenv. Wal-Mart Stores, Inc.,588 F.3d 585 (8th Cir. 2009)Conley V. Gibson,

33,34,35

355 U.S. 41 (1957) ...................... 36Dura Pharmaceuticals, Inc. V. Brauda,544 U.S. 336 (2005) ............ 11,22,23,26Erickson V. Pardus,5511LS.89(2007) .................. . . . . 15F.T.C. u. Grolier, Inc.,462 U.S. 19 (1983) ...................... 26

V ll

Flying J, Inc. u. TA Operating Corp.,No. 1:06-CV-30-TC, 2007 WL 4165749 (D.UtahNov. 20, 2007) ......................... 11Hall v. United Air Lines, Inc.,296 F.Supp.2d 652 (E.D.N.C. 2003), affd subnom. Hall f). American Airli1U'.s, Inc., 118 Fed.Appx. 680 (4th Cir. 2004) . . . . ,......... 29,30High Fructose Corn Syrup Antitrust Litig.,295 F.3d 651 ( 7th Cir. 2002) . . . . . . . . . . . . . .. 6In re Compact DiHc ildinimum Advertised Price

Antitrust Ijtig.,216 F.R.D. 197 (D . Me. 2003) .............. 3In re Compact Disc Litig.,MDL No. 1216 (C.D.Cal. 1997) ............. 3In re Flat Glass Antitrust Litig.,385 F.3d 350 (3d Cir.2004) ............... 32In re Insurance Brokerage Antitrust Litig.,618 F.3d 300 (3d Cir. 2010) . . . . . . . .. 31,32, 33In re Packaged Ice Antitrust Litig.,

No. 08-MD-01952, 2010 WL 2671306 (E.D.Mich.July 1, 2010) . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

In re Sony Entm't, Inc.,No. C-3971, 2000 WL 1257796 (F.T_C. Aug. 30,2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3Interstate Circuit v. United Stales,

306 U.S. 208 (1939) ..................... 29


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VI U

Kehr Packages, Inc. II. Fidelcor, Inc.,926 F.2d 1406 (:ld Cir.), cert. denied, 501 US.1222 (1991) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Kramer v. Pollock-Krasner Found.,890 F.Supp. 250 (S.D.N.Y.1995) .......... 17

Matsushita Elec. Indus. Co., Ltd. v. Zenith RadioCorp.,475 U.S. 752 (1984) ................... 9,28Monsanto Co. u. Spray-Rite Service Corp_,

561 U.S. 752 (1984) ...................... 9N,dtzke v. Williams,

490 U.S. 31 9 (1989) _.................... 11Ottinger v. EM I Music Distrib.,No. 24865-TI (Tenn. Cir . Ct.) . . . . . . . . . . . . . . . 3Premier Elec. CanstI'. Co. u. Nat'l Elec_ ContractorsAss'n, Inc.,

814 F.2d 358 (7th Cir.1987) . . _ _ . . . . . . . . . 30Scheuer v. Rfwdes,416 U.S. 232 (1974) ...... _..... __ . __ . . _. 16Springfield v. Kibbe,480 U.S. 257 (1987) ..................... 26Swierkielllir.z II. Sorema N.A.,

534 U.S. 506 (2002) ............ 18, 19,20, 23Tam Travel, Inc. v. Delta Airlines, Inc.,

583 F.3d 896 (6th Cir. 2009) . . . . . 28,29, 30, 31

IX

Twombly v. Bell Atlantic Corp.,313 F.Supp.2d 174 (S.D.N.Y. 2003) ..... 17,18

RulesFed.R.Civ.P.8 ......................... passimJ:


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xShows Just lIow Strict the Standard Is,N.Y.L.J. at 88 , col. 1 (Vol. 243, June 11,2010) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35, 36

Plaintiffs' Memorandum in Opposition to TA's andPilot Defendants' Motion for Judgment on thePleadings at 7-9, submitted in Flying J, Inc. D.TA Operating Corp., No. 1:06-CV-30-TC, Doc.No. 157 CD.Utah, Aug. 20, 2007) . . . . . . . . . . . 12

Richard A. Posner, THE CRISIS OF CAPITALISTDEMOCRACY (Harvard University Press,2010) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Richard A. Posner, THE l"AlLURE OF CAPITALISM(Harvard University Press 2009) ........... 1

Charles Wright & Arthur Miller, FEDERALPRACTICE AND PROCEDURE (3d ed. 2010supp.) ....... ,........................ 10

1BRIEF IN OPPOSITION

COUNTERSTATEMENT OF THE CASEIn 2008-2009, the United States took

unprecedented actions to tr y to stop th e snowball ofdeleterious eUects from too much capitalism andefficiency and not enough law, deterrence,andindividual character. Compare, e.g., Richard A.Posner, THE CRISIS OF CAPITALIST DEMOCRACY,(Harvard University Press, 2010) (reliance oncorporate self-interest and the mark?t policewrongdoing, and discouragement of Judlcml an dregulatory deterrence, were IIlistaken) with RichardA.Posner, THE FAILURE m' CAPITALISM, (HarvardUniversity Press 2009) (same).

Seeking to shift th e imbalance of efficiency over lawfurther in the wrong direction, the PetitionersDefendants ("Defendants") moved under Fed.R.Civ.P.12(b)(6) to have th e courts below dismiss price-fixingconspiracy charges against Defendants, an dDefendants

(a) did not deign to mention, much les5 try toexplain, the alleged inculpatory admissionR of twoof Defendants' chiefexecutives (Pet.App.16a-17al ,and(b) effectively argued for th e "probability"standardthat wa s expressly rejected in Twombly, 55 0 U.s.at 5G6.

Such inculpatory admisf;ions were that Defendantsoriginally combined together to determine and controlprices an d later each engaged in the highly unusual


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behaviorofhidingmost-favored-nations clauses in sideagreements due to antitrust concerns. SecondConsolidated Amended Complaint ("complaint" or"C")'ll'll86,95;Pet.App.93a, 95a.

In rejecting Defendants' f.'lctually incompleteargu ments, the Court ofAppeals for the Second Circuitquoted from and applied this Court's standards forpleading plausible grounds to infer an illegalagreement under H.ule 8 of th e }


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4improvements that reduced th e cost of digitizing newreleasel3_" Pet.App.17a.

In addition to th e foregoing, th e Second Circuit init s decision below (the ''Decision")cited to th e following"non-conclusory factual allegations" of the complaintas providing plausible grounds for inferring an illegalagreement:

Defendants agreed to launch the joint venturesMusicNet an d pressplay, both of which chargedunreasonably high prices and contained similarDRMs. Pet.App.14a_

None of th e defendants dramatically reducedtheir prices for Internet Music (as compared toCDs), despite the fact that all defendantselCperienced dramatic cost reductions il lproducing Jnt.ernet Music. [d . When defendants began to sell Internet Musicthrough entities they did no t own or control,

they maintained th e same unreasonably highprices and DRMs as MusicNet itself. Id.

Defendants used MFNs in their licenses thathad the effect of guaran eeing tha the licensorwho signed th e MFN received terms no lessfavorable than terms offered to other licensors.Id .

According to th e executivedirector of he DigitalMusic Association, seller-side MFNs ~ u c h asthose alleged here are "inherently priccincreasing an d anticompetitive." Pet.App.17a.

Defendants used the MFNs to enforce awholesale price floor ofabout 70 cents per song.Pet.App.15a. All Defendants refuse to do business witheMusic, th e II 2 Internet Music retailer. Id. In or about May 2005, al l defendants raisedwholesale prices from about $0.65 per song to$0.70 per song, an increase enforced by MFN,,Id_ 2 Defendants control over 80% of Digital Musicsold to end purchasers in th e United St.ates.

Pet.App.16a. An industry commentator noted that "nobody intheir right mind" would want to use MusicNctor pressplay, suggesting that some form of

agreement among Defendants would have beenneeded to render th e enterprises profitable. Id. Whereas eMusic charges $0.25 pe r song,

Defendants' wholesale price is about $0.70 pe rsong. Pet.App.17a_

Defendants' price-fixing is the subject of apending investigation by th e New York State

2 The f)econd Circuit included lhe allegations in proposedamended 'lI !l9 of the complaint, which amendment contained'{enough fact to raise a reasonable expectation that discovery willreveal evidenceof an illegal agreement: amI thus had erroneollslybeen denied by the district. court_ Pet.App.15a n_ 3 (cilingTwombly, 550 U_S. at 556)_


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8t.he complaint, including the fourteen facts the SecondCircuit enumerated above. I t concluded that "[tJhiscomplaint does not resemble those our sister circuitshave held fail to state a claim under Twomhly."Pet.App.17a-18a (citations omitted).

REASONS FOR DENYING THE PETITIONThe Petition is a fatally flawed vehicle seeking the

improper goal of udicial amendmentof Rule 8. By notattempting to articulate a response to the complaint'scritical allegations, the Defendants failed their burdenuIlde . Rule 12(b)(6).

Defendants' assertion that the Second Circuit erredby no t imposing a summary judgment plausibilitypleading standard is meritless. In holding that Rule 8of t.he Federal Rules of Civil Procedure requires anant.itrust plaintiff to allege "enough factual matter(taken as true) to suggest that an agreement was~ a d e , " Twombly, 550 U.S. at 556, this Court madeclear that: "Asking for plausible grounds to infer anagreement does not impose a probability requirementat the pleading stage; it simply call s for enough fact toraise a reasonable expectation that discovery willreveal evidence of illegal agreement. And, of course, awell-pleaded complaint may proceed even if it strikesa savvy judge that actual proof of those facts isimprobable, and that a recovery is very remote andunlikely." Id. (citation and internal quotation marksomitted). The lower courts have uniformly understoodan d applied the "plausible pleading" standardannounced by this Court in Twombly and Iqbal as notimposing a "probability" requirement.

9The Second Circuit correctly quoted , followed an dapplied this Court's standards to the extensive,

detailed facts pleaded in the complaint. In arguingthat complaints must allege facts which "tend toexclude" independent action, Defimdants seek th esame plausibilitystandard which Defendants' counselsuccessfully (and correctly) argued in a different casewas expressly disclaimed in Twombly. Superimposingonto Twombly the "Matsushita 'tends to exclude'standard for summary udgment," Petition at 17 n. 3,' .Defendants seek to create precisely the "probabilityrequirement" that Twombly rejected.

Finally, by posing a new question seeking an evenbroader ruling than they sought below, an d by citinga securities case which they did no t cite below,Def'mdantshave without ustification asked this Courtto consider the question in the fi"st instance, which theCourt should decline to do.

Thus, it is the Petition, not th e Decision, whichconflicts with Twombly.

" :twombly described the standard as requiring that 011 summaryjudgment,"'a -l plaintiffs offerorconspiracy evidence roust'"tendto rule out the possibility that th e defendants were actingindependently." 550 U.S. at 554 (citing Mut.


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12that case's express disclaimer that it was imposing a"probability" standard."

Th e Second Circuit painstakingly quoted an dcorrectly applied th e Twombly and Iqbal standards toth e very extensive an d robust fact allegations of th ecomplaint --- including fact allegations which negatedany lawful explanation for Defendants' conduct an dwhich Defendants, in three sets of briefs below,conspicuously failed to mention, le t alone try toexplain. The Petition presents no issue meriting thisCourt's review.

A. The Second Circuit Correctly Applied ThisCourt's Rule Standards to the RobustAllegations of the Complaint

Unable to avoid the complaint's non-conclusory factallegations" of conduct placed in a context that raisesa suggestion of a preceding agreement," Twombly, 550U.S. at 557, Defendants argued that Twombly requireda Section 1 plaintiff to allege facts that "tend[] toexclude independonL self-interested conduct as an

, Defendants' counsel in this OM e successfully argued in Hying Jthat Twombly did not adopt a standard requiring plaintiffs toallege "additional facts that tend to exclude independent self-interested conduct as an explanation for defendants' parallelbehavior." Plaintiffs' Memorandum in Opposition ti l TA's an dPilo! Defendants' Motion for Judgment on the Pleadings at 7-9,submitted in FlyingJ, Inc. v. TA Operating Corp., No.l:06-CV-30-Te, Uoc. No. 15'/ (D.Utah, Aug. 20, 2007).6 The Second Circuit did not accept as true those of thecOlnp1aint's allegatiuns thal it considered were "no more t.hanconclusions." Pct.App.3a l. 1 (cihngJqbal, 129 S.Ct. at 1919-50).see nl;' parallel behavior."Pet.App.18a. The Second Circuit properly rEtiected theargument.

This is incorrect. Although the Twombly courtacknowledged that for purposes of summaryjudgment a plaintiffmust present evidence thattends to exclude th e possibility of independentaction, 550 U.S. at 554, 127 S.Ct. 1955, an d thatth e district court below had held that plaintiffsmust allege additional facts thAt tended toexclude independent. self-interested conduct, id.at 552,127 S.Ct. 1955, il, specifically held that,to survive a motion Lo dismiss, plaintiffs needonly [allegel 'enough factual matter (taken astrue) to suggest that an agreement wa s made;id. at 556, 127 S.Ct. 1955; see also 2 Areeda &Hovenkamp [AN'rI'l'RUS'T LAW] 307d1 (3d ed.2007) ('ITlhe Supreme CourL did nol hold thatth e same standard applies to a cOlllplaint an d adiscovery record ... The "plausibly suggesting"threshold for a conspiracy complaint remainsconsiderably less than th e "tends to rule out thepossibility" standard for summary judgment.').

Id . (emphasis in original).7

'J Defendants' c o u m n ~ l .in lItis case ha s written that the existenceof scholarly opinion, most particularly from th e AreedaHovenkamp treatise, "appears La be Ulle of the most importantfactors in the Court's decision whether to grant certiorari in anantitr ust case." Thomas G. Hungar and Ryan G_ KoopmanstAppellate Advocacy in AntitrustCases: Lessons from the SupremeCourt, ANTITRUST (Vol . 23, No.2, Spring 2Q09) ill. 5455, availableathttp.ilwww.glbsondunn.com/publications/Documents/HungarAppellateAdvocacylnAnt.itrustCases. pd f.


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14Contrary to Defendants' unsupported argument

that th e court adopted "an amorphous consideration of'context' unmoored to th e correct legal standard,"Petition at 22, th e Second Circuit correctly appliedTwombly's requirement for "context."

lAln allegation of parallel comlud cuupled withonly a bare assertiun uf conspiracy is no tsufficient to state a Section 1 claim. [Twombly,550 U.S. a t 556]. Instead, allegations ofparallelconduct must be placed in a context that raisesa suggestion of a preceding agreement, notmerely parallel conduct that could just as wellbe independent action: Id . at 557, 127 S.Ct.1955.

Id . at 12a. Th e Second Circuit scrupulously followed"the language an d reasoning" of'l'wombly in applyingthose standards to th e facts alleged. Id . at 14a. Thecourt correctly found that particular allegations placeth e parallel conduct in th e required context. Id . at12a, quoting Twombly, 550 U.S. at 557. Inconsideration of Defendants' failure to offer an y"obvious alternative explanation" in response toPlaintiffs allegations, see Point iL K in/i'a, the courtalsu cOI'I'ectly concluded that "in this case plaintiffshave alleged behavior that would plausibly conlraveneeach defcmlanrs self-interest in Lhe absence of similarbehavior by r i v a l ~ . ' " Pet.App.24a (citations omitted).

B. The Second Circuit C orrect ly D eterminedThat Twombly Did Not Impose a SununaryJudgment Standard on Motions to Dismiss

Defimdants' insistence that Twombly applied thesummary judgment standard in dismissing an

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15antitrust complaint under Rule 8, Petition at 14,denies tl,e plain language of th e decision. Twomblyrequired not that plaintiffs allege facts which "tendedto exclude" independent conduct, but rather that theyallege "enough fact to raise a reasonable expectationthat discovery will reveal evidence of illegalagreement." 550 U.S. at 556. Twombly endursed Rule8's "general standards," id.,8 including accepting th ewell-pleaded allegations as true (whether or no t theyar e believed) an d drawing al l reasonable inferencesfrom such allegations in favor of plaintiffs. Althoughit did no t require "particularity," Twombly requiredpleading "more than labels an d conclusions"in supportof grounds that "raise a right to relief above th especulative level." Id . at GGG-56.

Twombly's new "gloss" on th e well-settledstandards of Rule 8(a)(2) did not include an yrequirement that a plaintiff plead facts tending tonegate the possibility that defendants ha d acted fromtheir independent self-interest rather than fromagreement to divide markets in violation of Section 1of the Sherman Act:

In applying these general slanrlanls to a 1claim, we hold that stating such a claimrequires a complaint with enough factualmatter (taken as true) to suggest that anagreement was made. Asking for plausible

8 For example,Twombly did not disturb Rule 8(a)(2)'s requirementthat a complain t provide only "'a short and plain statementof heclaim showing that the pleader is entitled to relief.' Specific factsare not necessary; the statement need only give the defendant fairnotice of what the ... claim is and tile gruunds upon which it rests:Erickson v. Pardus. 551 U.S. 89, 93 (20(m (collecting cases).


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16grounds to infer an agreement does notimpose a probability requirement at th epleading stage; i t shnply calls for enoughfact to raise a reasonable e:xpectation thatdiscovery will reveal evidence of illegalagreement. And, of course, a well-pleadedcomplaint may proceed oven if it strikes a savvyjudge that actual proof of those facts isimprobable, an d 'that a recovery is very remotean d unlikely.'

Id. at 55 6 (emphasis supplied) (footnote omitted),quoting Scheller v. Rh()des, 416 U.S. 232, 236 (1974).A plaintiff's allegations need only raise a plausible, no tprobable, inference ofagreement in order to permit thecase to go forward. Twombly also confirmed that Rule8(a)(2) requires no heightened degree of pleadingparticularity, and that th e heightened standard ofFederal Rule 9(b) does not apply in determiningwhether a Section 1 claim ha s been slated. Id. at 569n. 14 (broadening t.he sCOP" of Rul" 9 "can only b"accomplished 'by the Pl'OCCSf; of amending t.h.-, F.-,dcrnlRules, an d no t by judicial interpretation"').Defendants' argument that Twombly raised th emotion-to-dismiss .standard to that for submittingevidence on summary judgment thus finds no supportin Twombly.

Defendants misconstrue this Court's discussion ofthe Twombly district judge's use of th e term "plusfactors" LO augment bare allegaliom; uf parallelconduct:

The Court. also noted that. Judge Lynch, whoauthored the dist.rict court opinion in Twom.bly,'understood that allegations ofparallel business

17conduct, taken alom" do no t state a claim under 1; plaintiffs must allege additional facts that"tcn[d] to exclude independent self-interestedconduct as an explanation for defimdants'parallel behavior.'" Id . at 552 (citation omitted).

Petition at 14. The citation omitted by Defendantswas to th e district court's decision in Twombly D. BellAtlantic Corp_, 313 F.Supp.2d 174, 179 (RD.N.Y.:l003), where th e district court actually said:

In the summary judgment context, theSecond Circuit requircR pJaintifls to presentevidence suggesting that tlie defendants'parallel conduct ha s resulted from anagreement rather than 'merely fromindependent __ . conduct by firms acting in theirown self-interests: Kramer D. Polloch-KrasnerFound., 890 F.Supp. 250, :l55 (S.D.N.Y.1995)(citing Apex Oil CO. D. DiMallro, 822 F.2d 246,254 (2d Cir.1987)). Plaintiffs ma y satisfy thisstandard by establishing at least one 'plusfactor ' that tends to exclude independentself-interested conduct as an explanationfor defendants' parallel behavior. The plusfactors include evidence that th., parallelbehavior would have been against individualdefendants' economic interests absent anagreement, or that defendants possessed astrong common motive to conspire. Apex Oil,822 F.2d at 253-54. .

313 F.Supp.2d at 179 (emphasis supplied). By hisexpress qualifier to "the summary judgment context,"and by the citation to th eApex Oil summary udgmentdecision, it is dear that then-District Judge Lynch


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18"understood" that the "tends to exclude" standardreferred to evidence submitted on motions forsummary judgment. See also id. at 179-80 (separatean d distinct from SUl!!mary judgment, district courtsin the Second Circuithave required antitrust plaintiffsasserting parallel conduct conspiracies to "allege plusfactors" in order to withstand motions to disrnif;s;where plaintiffs "allege parallel action that could bethe result of a conspiracy . . . plaintiffs are entitled 1.0[go forward and] explore in discovery. . . . ) (emphasissupplied).

This Court's citation to th " district court's Twomblydecision does not suggest a heightened standardrequiring the pleading of evidentiary "plus factors."Indeed, that lerm is virtually absent from Twombly.Twombly holds that a Section 1 complaint allegingparallel conduct must also contain "additional facts,"550 U.S. at 552, 570, or some "further circumst.ance,"id. at 557, in order to prov ide plausible grounds forinferring the agreement which makes th e parallelconduct unlawful. Becausebare allegations of parallelconduct do no t without more suggest conspiracy, such"additional facts" ar e necessary at th e pleading stagein order adequately to notify th e defendant of th enature of the claim. Id . Thus, Twombly stated thatthe district court ha d "correctly understood" thatrequiring that "further circumstances" be alleged didno t ru n counter to the rule, reemphasi7.ed inSwierkiewicz v. Sorema N.A., 534 U.S. 506 (2002), thatimposing a higher pleading standard under Rule 8"was contrary to th e J:


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20merits if direct evidence of discrimination is discovered.

534 U.S. a t 511-12.In sum, Twombly's requirement that a Section 1

plaintiff allege fact!; which provide fair notice of hi sclaim an d plausible grounds of his entitlement torelief, docs no t impose a requirement that a plaintiffplead evidence which tends to exclude (or eliminatesth e possibility of) independent self-interested conductas an explanation for defendants' parallel behavior.

C. The Second Circuit Correctly Determ inedThat Iqbal Did Not Impose a SummaryJudgment Standard on Motions to Dismiss

Iqbal, a civil rights case, made explicit thatapplication of the Twombly "plausible pleading"standard was no t limited to antitrust complaints. 129S.Ct. at 1953. Contrary to Defendants' arguments,however, Iqbal docs not require a summary judgmentpleading standard. Plaintiffs in Iqbal challenged theconstitutionality of their pretrial confinement afterthey had been classified as persons of "high interest"because oftheirsuspected links to th e September 11attack". They asserted that th e challenged detentionpolicies purposefully discriminated against ArabMuslim defendants on prohibited grounds. Althoughthe well-pleaded allegations of th e complaint ar edeemed to be true on a Rule 12(b)(6) motion, th e Courtdeemed plaintiffs' allegations that th e AttorneyGeneral an d th e director of the 1


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22Defendants seize upon th e snippet "lilt follows,"

constructing a facially flawed argument that "i tfollows" from Iqbal's citation to summary judgmentdecisions that it was applying th e summary judgmentevidentiary standard to the complaint's allegations ona motion to dismiss. Petition at 15, quoting 129 S.Ct.at 1948-19. Iqbal, however, also made clear that"[tjhe plausibility standard is no t akin to a 'probabilityrequirement,' bu t it asks for more than a sheerpossibiliLy that a defendant ha s acted unlawfully." 129S.Ct. at 1949, citing Twombly, 550 U.S. at 556. Thus,as th e parallel conduct alleged in Twombly remained,without more, in "neutral ten-itory," 550 U.S. at 557,so th e conduct alleged in Iqbal did no t provide duenotice of th e claim an d it s grounds under Rule 8,unless fads were alleged "plausibly showing thatpetitioners purposefully adopted a policy of classifyingpost-September-ll detainees as 'of high interest'because of their race, religion, or national origin." 1 ~ 9 S.Ct-. at 1952. It plainly does not "follow" that th eCourt wa s requiring satisfaction of th e qummaryjudgment evidentiary standard by requiring plainti!!'to plead "more than a sheer possibility that adefendant ha s acted unlawfully." Id. at 1949.

D. Should the Court Consider Defendants'New-FoundReliance on a Securities FraudCase, That Case Did Not Impose aSUllllllary Judgment Standard on Motionsto Dismiss

Tn light ofDefendants' failure to cite or present anyargument regarding Dura Pharmaceuticals to an ycourt below, this Court should follow it s usual practicean d decline to consider it now. &e Point II I infra.Should th e Court consider Dura, that case provides no

23support for the summary judgment pleading standardDefendants seek here.

Dura, a case brought under the elevated pleadingstandards of the Private Securities Litigation ReformAct, held that plaintifls' allegation of share purchasesat an ~ n f l a L e d price insufficiently alleged proximatecausatIOn. Dura did no t impose a summary judgmentstandard at th e pleading stage, or "any special furtherrequir:ment in respect to th e pleading of proximatecausatIon or economic loss" under Rule 8. Dura, 544U . ~ . , ~ t 346. Rather, I.he Court considered th e "purelOgIC of share transactions to be that an y loss occursno t at th e time of the inflated-priced purchase bu t atth e lower-priced sale, which lower price Hlay reflect, inwhole or in part, facts or conditions no t suggestive ofwrongdoing. Id. at 342-43. Thus, a securities.complaintdoes not provide defendants with "fair noticeof what th e plaintiffs claim is an d th e grounds uponwhich it rests," id. at 346 (citation omitted), if it failsto plead "some indication of th e loss an d th e causalconnection that the plaintiff has in mind" Id . at 347~ c i t i n g Sw,:rkiewicz, 5 ~ 4 U.S. at 513-15). This againIS hardly a substantive legal standard th " L willgovern th e claim at summary judgment or trial."

E. Although Defendants Complain that th eSecond Circuit Failed to Consider"O b ..IOUS Alternative Explanations" forTheir Conduct, Defendants N ever OfferedSuch Explanations

Defendants argue that the Second Circuiterroneously failed to test the plausibility of thecomplaint's allegations against "obvious alternativeexplanations" for defendants' conduct. Petition at 19-


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2422. Rut the Second Circuit was well aware ofTwombly's requirement.; and concluded that "in thiscase plaintiffs have alleged behavior that wouldplausiblycontravene each d.,fendant's self-interest 'i nthe absence of similar behavior by rivals.'"Pet.App .24a (citations omitted). Defendan ts' realgrievance is no t that th e Second Circuit failed toconsider obv OIlS alternative explanations; it is that th ecourt disagreed that Defendants had offered any.Such disagreement with factual findings does no tprovide a good ground for granting the writ ofcertiorari. See Rule 10, Rules of he Supreme Court. ofth e United States.

Defendants have never explained why theirintere3t in combating illegal downloading of music onth e Intern.et, a' subject which does no t appear in th ecomplaint,'O provided an "obvious alternativeexplanation" for their conduct. Considering suchalternatives within th e context of the complaintrequires a court "to draw on its judicial experience andcommon sense." Iqbal, 12 9 S.Ct. at 1950. Tn orrler foran eXPlanation to be an "obvious alternative," it mu"tat a rninilllUIIl comport with common sense.

Defeudants uniformly imposed supracompetitiveprices qnd onerous DR M terms, by which consumersWflre restricted in their downloading, copying an d useof Defendants' Internet Music and, after a period,could actually lose access to those downloads. C'll'll74-77;Pet.App.87a_89a. The common sense eITed of----------------------10 The district court thus ha d to reach outside th e complaint tocOllside:r,- ~ a . n envirunment of widespread unauthorizeddownlOQ


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26commentator," Petition at 21-22,25, but after a c>lrefulreview of all Defendants' alleged admissions andconduct which made Defendants' own Internet Musicbusiness unpopular. Rather than intended to addressillegal downloading, Defendants' conduct was, as theSecond Circuit correctly concluded, plausiblytluggeRtive of a prior agreement to impose non-cumpetitive terms and conditions on Internet Music,which each Defendant could not have accomplishedseparately, to benefit their more lucrative CDbusiness. Pet.App.24a.III. BECAUSE DEFENDANTS FAILED TO

RAISE OR LITIGATE BELOW THE SOLEQUESTION THEY PRESENT HERE, TIlECOURT SHOULD FOLLOW IT S USUALPRACTICE AND DECLINE TO CONSIDERIT

Having failed to carry their burden below,Defendants now present a single question, which theyhave never previously raised: "whct,hp.T th e court ofappeals erred in holding that a complaint can state aclaim without alleging sufficient facts that, if proved,plausibly "how an entitlement to relief under thesubstantive legal standard that will govern th e claimat summary judgment or trial." D e t ~ m d a n t s oUer astheir first authorityDura Pharmaceuticals, a case theynever cited below. Although Dura does no t supportany argument Defendants make here (see Point II,D.8upra), this Court should follow its usual practice anddecline to decide questions no t raised or litigated inth e first instance in th e lower courts, See Springfieldv. Kibbe, 480 U.S. 257, 258 (1987); F,T.C. v. Gralier,inc., 462 UB . 19,23 n. 6 (1983),

27Defendants' new question misstates the Decision

which rejected the argument DetEmdants had actuaU;made: that Twombly requires a plaintiff o allege factsthat "ten


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28in a complaint that the plaintiff will later need tosub:;Lantiate at summary judgment or prove at trial."Petition at 12. No court has so held.Tam Travel

Defendants assert that the Sixth Circuit's decisionin Tam Travel, Inc. v. Delta Airlines, Inc., 583 F.3d 896(6'h Cir. 2009), which alleged an antitrust conspiracyof airlines to reduce, cap an d eliminate commissionpayments to travel agents, con:f1icts with th e Decision.But as Defendants correctly state, Tam Travel didno t hold that" complaint must be evaluated under th e"tends to exclude" standard. Rather, as Defendantsacknowledge, th e Sixth Circuit said only that theMatsushita "tends to exclude" standard can"illuminatell the plausibility" of antitrust conspiracyallegations. Petition at 23. The Sixth CircuiL's"illuminate" ubservation appears in a discussion of asummary judgment decision and is accompanied by areminder that "[hlere, ou r review is constrained byFed.RCiv.P. 12(b}(6)." 583 F.3d at 907 n. 7. TamTravel thus did not endorse a. standard of "tending toexclude 'reasonable, alternative explanations'" indismissing the complaint. Petition at 23. Rather, th eSixth Cifcuit actually held as follows:

We therefore hold that plaintiffs have failedto allege sufficient facts plausibly suggesting(not merely consistent wiLh) an agreement inviolation of 1 of the Sherman Act becausedefendants' conduct 'was no t only compatiblewith, but indeed was more likely explained by,lawful, un choreographed free-market behavior.'

29Id. at 908 (quoting Iqbal, 129 S.Ct. at 1950). Theactual holding thus used language taken directly fromIqbal and Twombly, rather than th e "tending toexclUde" formulation for summary judgment, andraIses no conflict with th e Decision.

No r is Tam Travel's use of Iqbal's description of~ e f e n d a n t s ' conduct as "more likely explained by"mdependent behavior an adoption of th eprobability/summary judgment standard expresslydisclaimed in Twombly and Iqbal. 11 AI; used in Iqbal,~ h : phrase again refers to Defendants' conduct beingm neutral territory," according to evidence availahleby reason of the fact tha t Tam Travel wa s brought, byplflintifls who had opted out of the putative class inHall v. United Ai r Lines, Inc., 296 F.Supp.2d 652. (E.D.N.C. 2003). Tam TralJel, 583 F.3d at 900 n. 3.The Sixth Circuit noted that defendant:; had wo nsummary judgment in Hall, after the district court

11 Th e Sixth Circuit described it . standard of review asrecogniz[ing) thatIn/erstateCircuit [u. United States, 306U.S. 208 (1939)) was decided a ta more advanced stage ofthe legal process, and we do not suggest that th e samestandards ought to be applied on a motion to dismisseven under Twombly. However, plaintiffs argue that the;have alleged enough factual matter to raise a reasonableexpectation that discuvery will reveal' circumstantial'evidence of llegal agreement: Twombly, 550 U.S. at556,127 S.Ct. 1955, analogous to the circumstantial evidencediscovered in Interstate CircuiL Thus. we examineplaintiffs' cornplaintwit.h an eye to any factual alleg-ationsthat would make it reasonable' to 'expect I] ' that .llnilarcircumstantial evidence would surface during discovery.[d.

583 F.3d at 906 ll . 6. There is no conflict with th e standard usedby th e Second Circuit in the Decision. Pet.App.12a, 15 a n. 3.


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32meriL. Insurance Brokerage involved allegationsprimarily of vertical "hub an d spo.ke" c o n s p i r a c i ~ s toallocate markets among favored Insurance earners.Id. at 318-19. From the 83-page opinion Defendantsextract a single phrase, stating that a plaintiff relyingon parallel conduct must allege at least one "plusfactor," as adopting the slunmary judgment s t a n d ~ r d on a motion to dismiss. Petition at 25 , quotmgInsurance Broherage, 618 F.3d at 323, quoting in turnthe appeal of summary judgment in In re Flat GlassAntitrust Litig., 385 F.3d 3GO, 360 (3d CIr.2004).

In light of insurance Brokerage's extendeddiscussion ofTwombly, th e "plus fad.or" reference doesno t support an assertion of conflict or even a "middlecourse." E.g.:

618 F.3d at n. 21 ("the standards applicable toRule 12(b)(6) an d Rule fi6 motions remaindistincL," which Defendants ineffectivelydismiss as a "cryptic observation,"Petitiollat 25n.6);

id. (Twombly's plausibility formulation callingfor "enough fact to raise a reasonableexpectation that discovery will reveal evidenceof llegal agreement," 550 U.S. at 55?, " a p ~ e l n ' s to support" Judge Newman's concurnng oplIllonin this case that even allegations insufficient togo to th e jury ma y still allow some discovery togo forward);

id. at 324 n. 24 ("Sometimes, of course,discovery will uncover both direct an dcircumstantial evidence of agreement. We donot imply that a plaintiff must commit to a

33single method ofproofat the plead jngstage, butmerely that a plaintiff must put forth somestatement of facts suggestive of unlawfulconspiracy.") (emphasis in original);

id. at 337 n. 35, citing 550 U.S. at 51}6 ("We notethat, nnder Twombly, th" test is not whetherplaintiffs' allegations necessarily amount to anunlawful horizontal agreement, but ratherwhether they plausibly imply-that is , 'raise areasonable. expectation that discovery willreveal evidence of-such an a g l ' e e ~ e n t . " ) (emphasis in original); and

id . at 341 n. 42 ("As th e Supreme Courtreiterated in Iqbal, th e Twombl)' standard doesno t imposc a 'probability requirement.'")(citations omitted).

Rather than introduce "confusion and uncertainty"Petition at 27, Insurance Brokerage followed th eTwombly standards and, by it s Own acknowledgementfound support in those standards for even t,he SecondCircuit's concurrence in this case.Braden

In Braden v. Wal-Mart Stores, Inc., 588 F.3d 585(8"' Cir. 2009), th e Eighth Circuit reversed theclismissal ofan action chargingERISA fiduciaries withbreach of duty in sdecting Plan investments, finding~ l T O r s by th e district Court in ignoring reasonableInferences and in drawing inferences adverse to th enon-movant. Id. at 595. In language only partiallyexcerpted in the Petition (a t 26), th e court stated that


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31there may well be lawful reasons appelleeschose th e challenged investment options. I t isno t Braden's responsibility to rebut thesepussibilities in his complaint, however. Thedistrict court erred by placing that burden onhim, finding the complaint inadequate forfailing to rule out potential lawful explanationsfor appellees' conduct. I t stated that appellees'could have chosen funds with higher fees foran y number of reasons, including potential forhigher return, lower financial risk, moreservices offered, or greater managementflexibility: That ma y be so, bu t Uule 8 does no trequire a plaintiITto plead facts tending to rebutal l possible lawful explanations for adefendant's conduct.

Id. at 596. However, as in Iqbal, where there existedwhat in judicia experience. an d common sense were"more likely explanations" for defendants' conduct, aplaintiff may need to rule ou t [suchl alternativeexplanations." 588 F.3d at fi95-97.

Such a requirement is neither a special rule nora new one. It is simply a coronary of the basicplausibility requirement. An inference pressedby the plaintiff is no t plausible if the facts hepoints to ar e precisely the result one wouldexpect from lawful conduct in which thedefendant is known to have engaged.

Id. at 597. None of this presents a conflict in light ofthe Secund Circuit's application of the correctstandards to the complaint's allegations, especiallyconsidering Defendants' inability to o11er an "obvious

35alternative explanation" for their conduct. Bradenpl'Ovides no reason for this Court to grant review here.v. DEFENDANTS FAIL TO DEMONSTRATE

IMPORTANT AND RECURRING ISSUESRAISED BY THE SECOND CIRCUIT'S FACT-INTENSIVE DECISION WHICH REQUIRERESOI,UTION BY THIS COURTDefendants reflexively warn that the Decision "will

subject defendants to cosLly, protracted Sherman Actlitigation based on nothing mure than lawful conductthat is common in dynamic markets." Petition at 29.Rather than being a harbinger of "unwarranteddiRcuvery" precipitated by "deficient" and "bare-bonescomplaints," id. at 28-31, however, the Decision ha sb e ~ m positively received as a rigorous application ofthls Court's Rule 8 jurisprudence applied to a factintensive complaint. E.g_, MichacI B. Miller, Clearingthe TWombly Pleading Hurdle: 'Starr' ComplaintSucceeds Bu t Decision Shows Just How Strict theStandard Is, N.Y.L.J. at 88 , col. 1 (Vol. 243, June 14,2010) (while finding that the complaint hereinsatisfied Twombly, "the Second Circuit seemed toemphasize how demanding that standard ha s become,rather than suggest that it is likely to be relaxed asth e Twombly progeny grows").

In fact, however, when one considers th e scopean d breadth of the factual allegations includedin the Starr complaint, and th e pains theSecond Circuit took to both carefully list ou t th ecategories ofrelevant allegatiom, one by one andas part of a cohesive narrative, practitionersmight well conclude that Starr is ademonstration of just how strict th e Twombly


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36standard is pruving to be in practice, no t how'lax' it might become.

Id . The author, who represents antitrust defendants,concludes that th e court of appeals' decision should no tbe read as an attempt to "soften Twombly's impact."

Indeed, empirical evidence shows no t tha Twomblyis being loosely enforced, but that motions to dismissar e being granted with greater frequency sinceTwombly an d Iqbal were decided.

A recent study of randomly selected federal civilcases (all cases, no t just antitrust) found that,pre-Twombly, Rule 12(b) (6) motions weregranted 46 percent of the time; post-Iqbal thaLnumber had increased to 56 percent. Thestudy's author took th e analysis a f;tep further,conducting a 'multinomial logistic regression'that indicated a Rule 12(b)(6) motion underTwombly was 1.81 times more likely to begranted with leave to amend rather than deniedthan under Conley [0. Gibson, 355 U.S. 41(1957)], and under Iqbal Lhose odds increased tomore than four times greater than underConley.

Id . (citing Patricia Hatmayer, The Tao ofPlmding: DoTwombly and Iqbal Malter Empirically? 59 Al',L U. L.REV. 553, 556 (2010)).

Defendants fail to demonstrate an y recurringissues arising from the fact-bound Decision requiringresolution by this Court.

37CONCLUSION

The petition for writ of certiorari should be denied.Dated: November 22, 2010

Respectfully submitted,CHRISTOPHER LOVELLCounsel ofRecordGARY S. JACUBSONLOVELL STEWART HALEBIAN,JACOBSON LLP61 Broadway, Suite 501New York, NY 10006(212) 608-1900clove][email protected] ,1. STOIA, JR .BONNY E. SWEENEYROBBINS GELLER RUDMAN& DOWDLLP655 West Broadway, Suite 1900San Diego, CA 92101(619) 231-1058Coun;;el for Respondents