Nothing frustrates a general counsel more than a judge who refuses to dismiss a meritless lawsuit until after the company has incurred huge legal bills for discovery that proves what the GC knew all along–the plaintiff didn't have a case.

Now the Supreme Court has opened the door for defense counsel to avoid discovery by winning more early dismissal motions in federal cases. In Bell Atlantic Corp. v. Twombly, the Court rejected a 50-year-old standard that lower courts relied on to set a low bar for allowing cases to proceed.

The plaintiffs in Twombly alleged that companies providing local telephone and Internet services throughout the U.S. violated the Sherman Antitrust Act by conspiring not to compete with each other or to let other companies compete in their areas.

The High Court's decision did not deal with the substance of whether the telecom companies violated antitrust law. Instead, it focused on the technical issue of whether the defendants' complaint contained enough specific evidence of conspiracy for the case to proceed to discovery. In a 7?? 1/2 2 ruling written by Justice David Souter, the Court dismissed the case “because plaintiffs here have not nudged their claims across the line from conceivable to plausible.”

In doing so, the Court apparently set a new, higher pleading standard for plaintiffs in antitrust cases, and arguably in other federal litigation, including employment and securities class actions. But the decision is sufficiently muddy that it may take years for the courts to sort out exactly what it means.

“The important thing is that it raises the bar for plaintiffs,” says Scott Dodson, assistant professor of law at the University of Arkansas. “How far the bar is raised, and in what cases, we can only figure out through more litigation.”

Lack of 'Heft'

The case that raised the bar started in 2003 when William Twombly and Lawrence Marcus filed a class action lawsuit on behalf of local telephone and Internet service customers in a New York federal court. The suit alleged the telecom companies engaged in “parallel conduct”–taking similar steps to prevent competitors from entering their territories–and that they agreed not to compete in each other's markets. It said an illegal agreement could be inferred from the companies' failure to pursue opportunities in each other's markets.

Previous antitrust case law has established that mere parallel conduct is not illegal if the defendants acted unilaterally. Arguing that the plaintiffs did not state sufficient grounds for their allegation of an agreement, the defendants moved to dismiss the complaint. The district court granted the motion, but the 2nd Circuit reversed. In May 2007, the Supreme Court reversed the 2nd Circuit, saying that a claim of antitrust conspiracy “requires a complaint with enough factual matter ?? 1/2 to suggest that an agreement was made.” Souter found that the plaintiffs' complaint wasn't “plausible” and lacked sufficient “heft” to proceed to discovery.

Souter argued courts should stop plaintiffs from coercing defendants into settling “to avoid the potentially enormous expense of discovery in cases with no reasonably founded hope that the [discovery] process will reveal relevant evidence.”

“Everybody recognizes the problem,” says Michael Simon, partner in Perkins Coie. “It's not fair to have defendants overburden the plaintiff to the point you drive them out of court, and at the same time, it's not fair for the plaintiff to extort a settlement by demanding massive discovery. The Supreme Court is trying to craft a solution.”

Retiring Conley

But the court's solution to out-of-control discovery has stirred up controversy.

That's because the justices threw out an interpretation of Rule 8(a)(2) of the Federal Rules of Civil Procedure that has guided the courts since the Supreme Court decided Conley v. Gibson in 1957. Federal judges have used language from that discrimination decision–”[a] complaint should not be dismissed for failure to state a claim 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”–to set a low bar for plaintiffs' pleadings.

But Souter unceremoniously dispensed with that language. “After puzzling the profession for 50 years, this famous observation has earned its retirement,” he wrote. Souter said courts may dismiss any complaint that does not contain “enough facts to state a claim to relief that is plausible on its face.”

Litigators believe this will result in a new “plausibility” test. But in a puzzling statement, the Court asserted that it was not setting a new pleading standard, perhaps because changing the Federal Rules requires an amendment by Congress or the High Court itself.

“If they are not raising the standard, what does plausible mean?” Simon asks. “Everybody used Conley as the test. If the new test is whether the complaint has enough heft or plausibility, it has the potential for very broad implications.”

Time Will Tell

In his dissent, Justice John Paul Stevens noted that “the future will answer” the question of just how broad the implications of Twombly will be. The key issue is whether it will benefit only defendants in antitrust lawsuits, or whether it will extend to other cases. Defense attorneys in a range of cases will test the waters by seeking dismissals before discovery starts.

Paul Patten, of counsel in Jackson Lewis, plans to use Twombly to seek dismissals of class action employment cases. But he recognizes plaintiffs' attorneys will cite a 2002 decision, Swierkiewicz v. Sorema, in which the Supreme Court said plaintiffs in employment cases do not need to plead facts establishing a prima facie case of discrimination.

“Plaintiffs will attempt to say Swierkiewicz is still good law and none of this applies to employment cases,” Patten says. “As a defense lawyer, I would say it does.”

For cases in which Twombly is found to apply, judges also will have to determine whether the complaints have enough “heft” to be “plausible.”

“It's a standard that litigants and judges will not consistently apply, and that is a problem,” Simon says.

Patten estimates it will be five to 10 years before the courts sort out all the implications of Twombly. Meanwhile, parties in federal cases will be venturing into uncharted territory.

“Supreme Court opinions influence the direction of litigation, but they don't tend to give you a clear road map,” says Mark Botti, partner in Akin Gump Strauss Hauer & Feld. “Using terms like 'heft' and 'plausible' requires the federal district courts to exercise judgment and lawyers to apply their skills.”