So Long, Twombly, We Hardly Knew You

When the Supreme Court recently dismissed a consumers telecom antitrust suit, judges also disappointed industry insiders who hoped suspected Bell collusion would be brought to light.

The Bell Atlantic v. Twombly case didnt promise to directly affect entities such as CLECs unless judges agreed the arguments had merit. All along, however, the likelihood of justices siding with William Twombly looked slim because of the implications for all antitrust lawsuits in the United States a free-for-all evocative of the rampant tobacco lawsuits of the late 1990s.

If the judges had accepted the case, it would have been the most important antitrust suit in 20 years. Instead, in rejecting Twomblys claim, the court raised the pleading standards for plaintiffs alleging conspiracies among companies, said lawyers for Morrison & Foersters telecom practice firm after the May 21 decision.

Agreed, says Victor Schnee, a telecom analyst and co-founder of Probe Financial Associates Inc. He has followed the Twombly case since its inception. I think what [CLECs] really lost here was some hope that, in the course of the case, they [would] find out something that really proves that the RBOCs did something illegal to crush them, which they have not been able to do in the past, Schnee says.

In 2003, William Twombly, a U.S. citizen, filed his suit with the help of Milberg Weiss Bershad & Schulman LLP, a law firm notorious for bringing securities class-action lawsuits against corporations. (Milberg Weiss since has been indicted for fraud and bribery, and its motivations for filing cases often are questioned.) Twombly filed the case on behalf of everyone in the continental United States who bought Internet access and local telephone service from February 1996 to the present. He alleged the Bell companies (reduced from seven to three since the case hit the dockets) illegally conspired to prevent competitors from entering their territories after Congress passed the 1996 Telecom Act. He also accused the Bells of agreeing not to compete in each others markets.

The case has been through several courts after different judges disagreed on the nitty-gritty details. In essence, the Supreme Court had to decide whether there was evidence the Bells had intentionally agreed not to compete, to allow the case to proceed.

If the suit had moved forward, the competitive telecom world would have been all ears because of discovery the process of culling through e-mails, handwritten memos and other company directives that could have proven the Bells were in cahoots. In January, Schnee told PHONE+ the threat of discovery had the RBOCs trembling in their boots, given that e-mail evidence alone has toppled other firms, including accounting giant Arthur Andersen.

The judges knew a lot was at stake and, Schnee notes, did not unanimously agree to shelve the case. Justice John Paul Stevens, for example, argued dismissal would set a precedent for protecting big, powerful companies from antitrust cases. Justice John Paul Stevens, for example, questioned his colleagues for seeming to change their minds on the financial costs of carrying out the discovery process. In the past, the justices have not been too concerned about the expense imposed on a company undergoing discovery. Why, he argued, were the majority of judges suddenly concerned about the cost of such an undertaking? Those justices, in Schnees opinion, failed to make a convincing argument. Thus, tossing the case adds up to one conclusion: This is law for the rich and famous thats what it is, says Schnee.

So what happens next? Well, if someone wants to reintroduce the case, they will have to do so from scratch. That seems like a slim possibility, though, given the costs and time involved. Plaintiffs also would have to present a stronger complaint than did those in the Twombly case, Schnee says. He speculates states could go after the Bells, but chances are greater that a private party would pursue the matter first. I dont know if the states feel particularly aggrieved right now, like they did about tobacco in the late 1990s, he says.

Twombly Suit Timeline

April 2003: William Twombly files suit against Bell Atlantic Corp. on behalf of nearly everyone in the United States in the Southern District of New York, amending his original complaint filed the previous December after changes to the Sherman Act, which governs antitrust matters, take place.

October 2003: District Court judges dismiss the case, a move applauded by the four Bell Atlantic companies. Twombly appeals the decision.

October 2005: The United States Court of Appeals for the Second Circuit overrides the district courts dismissal and sent the suit back to court for further proceedings.

June 2006: The Supreme Court agrees to hear arguments in Bell Atlantic v. Twombly because of its possible implications on antitrust issues in all business sectors.

November 2006: The Supreme Court considers whether there is enough, or any, evidence of agreement not to compete, and whether it will send the case back to district court for trial or settlement.

May 21, 2007: Supreme Court dismisses Twombly case.

Morrison & Foerster www.mofo.com
Probe Financial Associates Inc. www.probefin.com