Twombly v. Bell Atlantic Corp.

• Decision Date: 08 October 2003
• Docket Number: No. 02 Civ. 10220(GEL).,02 Civ. 10220(GEL).
• Citation: 313 F.Supp.2d 174
• Parties: William TWOMBLY and Lawrence Marcus, individually and on behalf of all others similarly situated, Plaintiffs, v. BELL ATLANTIC CORP., Bellsouth Corp., Qwest Communications Int'l, Inc., SBC Communications, Inc., and Verizon Communications, Inc., Defendants.
• Court: U.S. District Court — Southern District of New York

313 F.Supp.2d 174

William TWOMBLY and Lawrence Marcus, individually and on behalf of all others similarly situated, Plaintiffs, v. BELL ATLANTIC CORP., Bellsouth Corp., Qwest Communications Int'l, Inc., SBC Communications, Inc., and Verizon Communications, Inc., Defendants.

No. 02 Civ. 10220(GEL).

United States District Court, S.D. New York.

October 8, 2003.

J. Douglas Richards, Milberg Weiss Bershad Hynes & Lerach LLP, New York, N.Y. (Michael M. Buchman, Milberg Weiss Bershad Hynes & Lerach LLP, New York, NY; Richard S. Schiffrin, Joseph H. Meltzer, and Krishna Narine, Schiffrin & Barroway, LLP, Bala Cynwyd, PA, on the brief), for Plaintiffs.

Steven G. Bradbury, Kirkland & Ellis, Washington, DC (Colin R. Kass, Kirkland & Ellis, Washington DC; John Thorne and Robert J. Zastrow, Verizon Communications Inc., Arlington, VA, on the brief), for Defendant Verizon Communications, Inc.

Hector Gonzalez, Mayer, Brown, Rowe & Maw, New York, N.Y. (Richard J. Favretto, Mayer, Brown, Rowe & Maw, New York, NY; J. Henry Walker, Marc W.F. Galonsky, and Ashley Watson, BellSouth Corp., on the brief), for Defendant BellSouth Corp.

Mark C. Hansen, Kellogg, Huber, Hansen, Todd & Evans, P.L.L.C., Washington, DC (Neil M. Gorsuch and Michael Guzman, Kellogg, Huber, Hansen, Todd & Evans, P.L.L.C.; Maria T. Galeno, Pillsbury Winthrop, LLP, on the brief), for Defendant SBC Communications Inc.

Peter K. Vigeland, Wilmer, Cutler & Pickering, New York, N.Y. (William J. Kolasky, Wilmer, Cutler & Pickering, Washington, DC, on the brief), for Defendant Qwest Communications Int'l, Inc.

OPINION AND ORDER

LYNCH, District Judge.

Plaintiffs William Twombly and Lawrence Marcus bring this putative class action on behalf of themselves and all other individuals who purchased local telephone or high speed internet services in the continental United States between February 8, 1996, and the present. They allege that defendants Verizon Communications, Inc. ("Verizon"), BellSouth Corporation ("BellSouth"), Qwest Communications International, Inc. ("Qwest"), and SBC Communications, Inc. ("SBC"), (collectively, "defendants"), conspired to prevent competitive entry into their respective local telephone and internet services markets, in violation of section 1 of the Sherman Act, 15 U.S.C. § 1. Defendants now move to dismiss plaintiffs' Amended Complaint, pursuant to Fed.R.Civ.P. 12(b)(6), for failure to state a claim on which relief can be granted. For the reasons discussed below, defendants' motion will be granted.

BACKGROUND

The following facts are taken from the Amended Complaint, except where noted. All factual allegations in the Amended Complaint are assumed to be true for purposes of this motion.

Defendants Verizon, BellSouth, Qwest, and SBC together control over ninety percent of the market for local telephone and high-speed internet services in the continental United States. (Am.Compl.¶ 21.) They are the descendants of American Telephone and Telegraph Company ("AT & T"), and its wholly owned subsidiaries, the Bell Operating Companies ("BOCs"), which in 1934 owned 80 percent of all local telephone lines and services in the country. (Id. ¶ 17.) While the provision of local telephone service was initially competitive, the inconvenience of navigating multiple, unconnected telephone networks led "to the establishment of telephone as a monopoly service" and to AT & T's dominance. H.R.Rep. No. 104-204(I) (1995), reprinted in 1996 USCCAN 10, 50.

In 1974, the United States filed suit against AT & T, alleging that it had violated the Sherman Act by using its control of local exchange facilities to suppress competition in related markets. (Id. ¶ 19.) Eight years later, the parties settled the case by entering into a consent decree, which the District Court memorialized by signing the Modified Final Judgment ("MFJ"), thereby creating the industry structure that persists today. (Id. ¶ 20.) In 1984, pursuant to the MFJ, AT & T divested itself of the seven regional Bell Operating Companies and exited from the local telephone market. (Id. ¶ 21.) The BOCs were given monopoly power over local telephone services in their respective regions, but were restricted from competing in the long distance market, and were required to provide exchange access to all interexchange (long-distance) carriers such as Sprint and MCI. (Id. ¶ 20.) See United States v. AT & T, 552 F.Supp. 131 (D.D.C.1982).

The structure created by the MFJ allowed the seven BOCs exclusive control over their respective regions. This did not change even as the original seven merged into larger companies controlling larger regions, resulting in the four companies named as defendants controlling the local telephone markets for ninety percent of the continental United States. (Am.Compl.Ex. A.) Thus, since 1982, the local phone service market has consisted of "state-sanctioned local monopolies." Law Offices of Curtis V. Trinko L.L.P. v. Bell Atlantic Corp., 305 F.3d 89, 93 (2d Cir.2002), cert. granted, Verizon Comms., Inc. v. Law Offices of Curtis V. Trinko L.L.P., 538 U.S. 905, 123 S.Ct. 1480, 155 L.Ed.2d 224 (2003). (See also Am. Compl. ¶ 23.) While the business activities of these monopolies were heavily regulated by state and federal agencies, they were also "frequently protected from competition by government barriers to entry[, as] the majority of States restrict[ed] full and fair competition in the local exchange, either by statute or through the public utility commission's regulations." H.R.Rep. No. 104-204(I), 1996 USCCAN at 49. Thus, as plaintiffs allege, "[l]ocal exchange carriers historically operated in their local franchise areas free of competition, pursuant to exclusive franchises granted by state regulatory agencies." (Am.Compl.¶ 23.)

The Telecommunications Act of 1996, Pub.L. No. 104, 110 Stat. 56 (the "Act"), is designed to replace the heavy regulation in the local telephone markets with competition. H.R.Rep. No. 104-204(I), 1996 USCCAN at 50. It "opens the markets for both local telephone and long-distance services to effective competition." (Am.Compl.¶ 26.) Specifically, the Act requires incumbent local exchange carriers ("ILECs"), such as the defendants, to facilitate competitors' entry into their local telephone markets, in return for the opportunity to compete in the long-distance market. (Id. ¶ 30.) Because building their own telecommunications infrastructure would be prohibitively expensive for most competing local exchange carriers ("CLECs"), the Act provides CLECs with a shortcut into the market by obligating ILECs to sell access to elements of their networks at wholesale rates. 47 U.S.C. § 251.

A CLEC may "obtain access to an incumbent's network in [one of] three ways: It can purchase local telephone services at wholesale rates for resale to end users; it can lease elements of the incumbent's network on an unbundled basis; and it can interconnect its own [network] with the incumbent's network" and infrastructure. AT & T v. Iowa Utils. Bd., 525 U.S. 366, 371-72, 119 S.Ct. 721, 142 L.Ed.2d 835 (1999) (citing 47 U.S.C. § 251); Trinko, 305 F.3d at 94 (describing operation of § 251). (See Am. Compl. ¶ 32.) A CLEC's business is therefore founded on its relationship with the ILEC. This relationship is itself regulated by the duties that the Act places on ILECs, but the parties may opt out of the Act's provisions by negotiating an interconnection agreement and having it approved by a state commission. 47 U.S.C. § 252. The interconnection agreement, rather than § 251, then governs the relationship between the parties, and disputes arising thereunder may be arbitrated by the state commission. Trinko, 305 F.3d at 102-03.

Plaintiffs allege that, despite the Act's mandate that the ILECs provide access to their telecommunications infrastructure on "just, reasonable and non-discriminatory terms," (Am.Compl.¶¶ 27-28), the defendants have made it nearly impossible for CLECs to enter their local service markets. According to plaintiffs, defendants have refused to provide potential CLECs with network connections and services of equal quality to those they provide to their retail customers, billed CLEC customers in order to ruin CLECs' customer relations, delayed in providing network elements, refused CLECs the use of certain facilities, and generally used their "monopoly power and exclusive control over essential facilities" to negotiate unfair agreements with would-be CLECs. (Id. ¶ 47.) The complaint alleges that these actions were taken not simply on behalf of each individual defendant within its local territory, but pursuant to an agreement among all defendants to collectively thwart the efforts of competing companies. (Id. ¶ 50.) Plaintiffs assert that this anti-competitive behavior has been quite successful, citing Congressman John Conyers's 2001 statement that potential CLECs "invested tens of billions of dollars ... today, most of those companies have been devastated by the anti-competitive behavior and procrastination of the Bell monopolies." (Pls. Mem. at 2; Buchman Aff. Ex. B; see also Am. Compl. ¶ 47.)

Plaintiffs also allege that defendants have engaged in parallel conduct by not competing as CLECs in each others' respective territories, "which would be anomalous in the absence of an agreement among the [defendants] not to compete with one another." (Am.Compl.¶¶ 40-41.) Because the territories serviced by defendants are, in part, non-contiguous, sometimes looping around and surrounding each other (see id. Ex. B), defendants' collective failure to move into adjacent local phone service markets is, plaintiffs assert, highly suspicious. In addition, Qwest's CEO, Richard Notebaert, has made statements that could suggest that becoming CLECs in other markets would have been in defendants' economic interests, absent an agreement not to compete. (Id. ¶ 42.)

Defendants' alleged motives for conspiring, both to keep out CLECs in general, and to refrain from entering each others'...