Smoking Gun Not Required For Texters’ Class Action Complaint

Recently, in an opinion written by Judge Richard Posner, the U.S. Court of Appeals for the Seventh Circuit affirmed a district court’s refusal to dismiss a class action complaint alleging that cell phone companies conspired to fix text message prices in violation of the Sherman Act.  The Court of Appeals provided much needed clarification about pleading standards in light of the U.S. Supreme Court’s decisions in Ashcroft v. Iqbal and Bell Atlantic Corp. v. Twombly.  This clarification was provided in a section 1292(b) interlocutory appeal by defendants in In re Text Messaging Antitrust Litig., No. 10-8037. The Court of Appeals agreed to accept the appeal because “[p]leading standards in federal litigation are in ferment after Twombly and Iqbal and therefore an appeal seeking a clarifying decision that might head off protracted litigation is within the scope of 1292(b).”

The Court of Appeals agreed with the district judge that the complaint alleged a conspiracy with sufficient plausibility to satisfy the Twombly pleading standard and permitted the plaintiffs to proceed with discovery.  The plaintiffs alleged that defendants engaged in parallel behaviors and were members of a trade association and exchanged price information directly at the trade association meetings.  The complaint also alleged that despite steeply falling costs defendants increased their prices and adopted a uniform pricing structure.  These allegations, along with others, were enough for the court to conclude that the complaint alleged a sufficiently plausible case of price fixing.

The cell phone companies argued that plaintiffs had not alleged the “smoking gun” in a price-fixing case, which is direct evidence such as an admission by a conspirator that the defendants met and agreed to raise text messaging prices.  The Court of Appeals clarified that direct evidence isn’t required and circumstantial evidence can establish a conspiracy at the pleading stage.