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WhatYouNeedtoKnowAboutTwombly:TheUseandMisuseofEconomicandStatisticalEvidenceinPleadings
DavidS.EvansUniversityofChicagoandUniversityCollegeLondon
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What
You
Need
to
Know
About
Twombly:
TheUseandMisuseofEconomicandStatisticalEvidenceinPleadingsDavidS.Evans1
I.INTRODUCTIONnBellAtlanticv.Twombly2theSupremeCourtclarifiedwhatplaintiffsmustpleadfor theircomplaints topassmuster. Itretired theConley3 rule thatacourtshouldnot dismiss a complaint unless it appears beyond doubt that the plaintiff can
provenosetoffactsinsupportofhisclaimwhichwouldentitlehimtorelief.Thenewrule isbasedonwhether thecomplaint statesasetof facts that,assuming their truth,
makes it plausible that the plaintiff has a claimwhichwould entitle her to relief.Although Twombly involved an antitrust conspiracy claim,most commentators agree
thatitmodifiedgeneralpleadingstandardsforallcasesandthathasbeenconfirmedin
the Supreme Courts May 2009 ruling in Ashcroft v. Iqbal.4 Lower courts have citedTwomblymore than12,000 times inawide rangeofcases since itcamedown inMay
2007.5These cases involveawideareaof claims including the fullgamutofantitrustcases.Defendantsnowroutinelyseektodismisscomplaintsonthegroundsthattheydonotstateaplausibleclaim.Thisarticleexploreswhatsortsofeconomicand statisticalevidencehelpestablishthataclaimisplausibleandwhatdonot.
II.THETWOMBLYDECISIONTwombly concerned economic evidence of a conspiracy to restrain trade in
violationofSection1oftheShermanAct.Theplaintiffs,ledbyWilliamTwombly,weresubscribersoflocaltelephoneandhighspeedInternetservices.Thedefendantswerethemajorregionaltelephonecompanies,includingBellAtlantic,whichlaterbecamepartof
Verizon. The BabyBells, as they are sometimes called,were required to allow othertelephonecompaniestousetheirnetworksforvariouspurposes.Theplaintiffsclaimed
1TheauthorwastheleadauthoroftheBriefbyAmiciCuriaeEconomistsinBellAtlanticv.WilliamTwomblywhich25leadingacademiceconomistssigned,seeinfranote8. HeisLecturer,UniversityofChicagoandExecutiveDirector,Jevons
Institute
for
Competition
Law
and
Economics,
Visiting
Professor,
University
College
London.
He
would
like
to
thankHowardChang,LubomiraIvanova,andDanielGarciaSwartzforveryhelpfulcommentsandMarinaDanilevsky
forexcellentresearchassistance.2BellAtlanticCorp.v.Twombly,127S.Ct.1955(2007).3Conleyv.Gibson,355U.S.41(1957).4 OurdecisioninTwomblyexpoundedthepleadingstandardforallcivilactions,.,anditappliestoantitrust
anddiscriminationsuitsalike.See,Ashcroftv.Iqbal,No.071015(U.S.S.Ct.May18,2009),at20,availableat
http://www.supremecourtus.gov/opinions/08pdf/071015.pdf(lastaccessedJuly23,2009).ForfurtherdiscussionofIqbal,
seeCarolineMitchell&DavidWallach,Ashcroftv.Iqbal: TakingTwomblyaStepFurther,7(2)GCPMAGAZINE(Jul09),availableathttp://www.globalcompetitionpolicy.org/index.php?&id=1780&action=907.
5AsearchrunonLexisNexisonJuly23,2009turnedupmorethan12,000decisionswhichcitedTwombly.
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thattheBabyBellsconspiredtokeepotherstelephonenetworksoutoftheirregionsand
notentereachothersregions.Themainevidenceofthisconspiracywastheexistenceofparallelconduct:thatcompetitionwaslimitedinalltheregionsoftheBabyBellsand
noneoftheBabyBellsofferedserviceintheterritoriesofanyoftheotherBabyBells.TheDistrictCourtdismissedthecomplaintonthegroundsthatparallelconduct
wasnotenough.Theplaintiffsneeded evidence thattended toexclude independent
selfinterestconductasanexplanation fordefendantsparallelbehavior.6TheSecond
CircuitCourtofAppealssaid,inreversing,thatthecourtwouldhavetoconcludethat
there is no set of facts that would permit a plaintiff to demonstrate the particular
parallelismassertedwastheproductofcollusionratherthancoincidence.7Theproblemwith that conclusion,which follows from Conley, is that itwould permit conspiracy
complaints against numerous firms in a wide range of settings. As a group of 25
academic
economists
noted
in
their
amicus
brief,Virtuallyallfirmsintheeconomywillbeatriskunder[theparallelbehavioris
enoughstandard]. Incumbentswillhavechangedprice inparallel inresponse
todemandandcostchanges.Firmsmayhaveallloweredpricewhensignificant
entryoccurred.Theywillhavereliedonthesameinformationandanalysisofthe
same business conditions, to entermarkets, choose business locations, design
products, invest in innovation, and make other decisions that affect market
outcomesincludingnot availing themselvesofamyriadofpossiblebusiness
opportunitiesandthereforetakingnoactionatall.8
The Supreme Court agreed with this reasoning as well as with the concern
expressedby thoseeconomists that theparallelbehavior isenough standardwould
imposesignificantcostsontheeconomythroughunnecessarydiscovery,thesettlement
of frivolous lawsuits, and the chilling of legitimate competitive behavior to avoid
litigation.ItthereforeagreedwiththeDistrictCourtthataconspiracyclaimneedsmorethan just parallel behavior; it needs something to exclude routine competition as an
explanation.
Twombly would be mainly of interest to antitrust lawyers who specialize inconspiracycasesiftheSupremeCourthadendeditsanalysisthere.Infact,severalotherCircuit Courts of Appeal required plaintiffs to have more than parallel behavior to
surviveamotiontodismissforaShermanSection1case.ButtheSupremeCourtusedtheopportunitytoreverseits1957decisioninConleywhichmanycourtshadreliedonto
6BellAtlanticCorpvTwombly,supranote2,at5.7Id.at6.8Baumol,WilliamJ.,Boskin,MichaelJ.,Crandall,RobertW.,Elzinga,KennethG.,Evans,DavidS.,Faulhaber,
GeraldR.,Fisher,FranklinM.,Froeb,LukeM.,Gilbert,RichardJ.,Joskow,PaulL.,Katz,MichaelL.,Milgrom,PaulR.,
Moore,ThomasG.,Ordover,JanuszA.,Porter,RobertH.,Scherer,FredericM.,Schmalensee,Richard,Schwartz,Marius,
Sibley,DavidS.,Smith,VernonL.,Snyder,EdwardA.,Spence,A.Michael,Spiller,PabloT.,Sykes,AlanO.,Teece,David
J.&Whinston,MichaelD.,BriefofAmiciCuriaeEconomistsinSupportofPetitioners,BellAtlanticV.Twombly(April6,
2006),at11, availableathttp://ssrn.com/abstract=1330591.
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allowcomplaintstomoveforwardwithlittleifanyplausibleevidenceinthecomplaint
that the plaintiff was entitled to relief. It thus changed the pleading standards foreffectively all Rule 8 federal cases, and hence the thousands of citations that have
followedinthetwoyearssincethedecisioncamedown.9III.TWOMBLYMEETSREVERENDBAYES
Professor Robert Bone has provided a way of looking at Twombly that helps
identifywhatthecourtswilllookforinaplaintiffscomplaint.HearguesthatTwomblyrequires that theallegationsdescribeastateofaffairsthatdifferssignificantly froma
baseline of normality and supports a probability of wrongdoing greater than the
backgroundprobability forsituationsof thesamegeneral type.10Thisstandardhelpsexplain two Supreme Court decisions that some commentators have argued reflect
ambiguityinwheretheCourthascomeoutonpleading.
InSwierkiewiczv.SoremaN.A11theCourt,in2002,reversedalowercourtrulingthatdismissedacomplaintinanemploymentdiscriminationmatter.SwierkiewiczwasaHungarianemployeeofaFrenchcompanyintheUnitedStates.Thecompanyreplacedhim with a native French employee. The plaintiff provided details on the dates ofvariousactionsandthenationalitiesofcompanyemployeesthatmadevariousdecisions
related tohim. Putting thesedetails aside, a French company replacing an employeewithaFrenchnativespeakerintheUnitedStateswouldappearfarenoughawayfrom
thenormthatitwouldappearplausiblethatemployeecouldhaveavalidclaim.
Fifteen days after issuing Twombly the Supreme Court, in William Erickson v.BarryJ.Pardusetal.12,reversedalowercourtdismissalofacomplaintbyaprisonerthathisconstitutionalrightshadbeenviolatedasaresultofthedenialofmedication.Totheconfusionof some readersofTwombly thecourtemphasized the importanceof liberalpleadingstandardsandnoted,citingTwombly,thataplaintiffisonlyrequiredtopresent
a short and plain statement that he is entitled to relief. But in this case the plaintiff
claimedthehehadstartedayearlongprogramforthetreatmentofHepatitisCandthat
theprisondecidedtowithdrawitstreatmentfromhimeventhoughhewasinneedofit.(Duringtreatmentsforsomeoftheprisonersasyringehadbeenfoundinthetrashand
9Rule8(a)(2)oftheFederalRulesofCivilProcedure,whichprovidesthegeneralrulesofpleading,requiresa
complaint
to
provide
a
short
and
plain
statement
of
the
claim
showing
that
the
pleader
is
entitled
to
relief.
See
FED.
R.
CIV.P.8(A)(2). CasessubjecttomorestringentpleadingrequirementsthanRule8arelikelyunaffectedbyTwombly. Rule
9(b),whichcoverspleadingrequirementsforcasesinvolvingfraudormistakes,statesaparticularityrequirementfor
thepleadingsnotgenerallyapplicableunderRule8. Inaddition,therearecasesbroughtunderstatuteswithspecificand
morestringentstatutorypleadingrequirements,suchasthePrivateSecuritiesLitigationReformAct(PSLRA)of1995. In
addition,casesthatarebroughtprosealsogenerallyallowmorelatitudefortheplaintiffandmaynothavebeenaffectedbyTwombly.
10RobertBone,Twombly,PleadingRules,andtheRegulationofCourtAccess67(BostonUniversitySchoolofLawWorkingPaperNo.0834,2008),availableathttp://www.bu.edu/law/faculty/scholarship/workingpapers/2008.html.
11Swierkiewiczv.SoremaN.A.,534U.S.506(2002).12Ericksonv.Pardus,127S.Ct.2197(2007).
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the prison officials concluded that it was used for dispensing illegal drugs. TheysuspectedErickson.)Itisunusualfordoctorstowithdrawtreatmentfrompatientswithseriousdiseases.ThusitwasplausiblethatEricksonhadavalidclaimforrelief.
Common experience tellsus that the claims in Swierkiewicz andEricksonwereplausible.TheydescribedsituationsthatdifferedfromtheroutineenoughtomaketheSupremeCourtbelieve that therecouldbesomething there.A layobservermightsaythesamethingaboutTwombly.TheSupremeCourt,however,haslongexperiencewithantitrust conspiracy cases and hasmastered some economics through its analysis of
antitrust matters. The Court was well aware that firms routinely act in parallel forpurely competitive reasons such as responding to changes in demand; and it has
decidedfirmsdonotviolateSection1oftheShermanActevenwhentheyconsciously
act inparallel tomaintainpricesandprofits.Theacademiceconomistswhosubmittedan
amicus
brief
in
support
of
reversing
the
Second
Circuit
emphasized
these
points
as
well.Section1requiresaconspiracywhich, inturn,entailscommunicationamongthefirms.Theplaintiffsthereforeneedfactsthat,takenastrue,would indicatethatsuchaconspiracywasplausible.Parallelbehaviordidnot,becauseitisnormalconductamongbusinessesinthesamemarket.
Statistical theory provides a helpful way to think about the role of facts in
meeting the Twombly plausibility standard. Reverend Thomas Bayes, an early 18thcenturymathematician, is the intellectual fatherofabranchofstatistics thatexamines
howinformationchangesonesestimatesofwhethersomethingislikely.IfithadneversnowedinLosAngelesinJunemostpeoplewouldexpectthatitwouldnotsnowinLos
Angelesthis
coming
June. If last June ithad snowed for the first timepeoplewould
update theirpriorbeliefsandconclude that itwasat leastpossible that itcouldsnow
thiscomingJune.
The Supreme Courts plausibility test starts with the prior belief that before
examiningthecomplainttheplaintiffdoesnothaveacauseofaction.Thepurposeofthecomplaintistoprovidefactsthat,takenastrue,wouldchangethatexpectationtosome
degree.ThatisconsistentwiththeliberalpleadingstandardsreaffirmedinEricksontwoweeksafterTwombly.Thecourthastotakethefactsinthecomplaintastrue.Itthenhasto determine whether those facts move the needle from neutral (the plaintiff is no
differentfromother individualsorbusinessesthatarenotentitledtorelief)topositive
(theplaintiffhaspresentedsomefactsthatmakeitplausiblethatsheistitledtorelief).InTwomblytheparallelbehaviorevidencelefttheneedleonneutralwhilethefactspledinEricksonandSwierkiewiczmovedtheneedle intheplaintiffsdirection intheCourtsmind.IV.HOWFARMUSTPLAINTIFFSMOVETHENEEDLE?
Ofcourseonemansplausibleisanothermansgivemeabreak.Thatleaves
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thequestionofhowfarplaintiffsmustmovetheneedletofendoffamotiontodismiss.InTwomblytheplaintiffshadabitmorethanthebaldclaimofparallelbehavior,suchasa letter from aCongressman to theU.S.Department of Justice complaining about a
conspiracyandanewspaperarticlethatquotedaBabyBellexecutiveinawaythatthe
plaintiffsclaimedpointedtoaconspiracy.InSwierkiewiczonecouldarguethataFrenchcompany viewing a native French employee as better than an American (or an
HungarianAmerican) is not so surprising. But in any event Twombly did not haveenoughforsevenoftheSupremeCourtJustices.
Aninterestingquestioniswhetherhowfartheneedlemustmovedependson
thecase.TheSupremeCourtexpressedaconcerninTwomblythatatoolenientpleadingstandard would unleash massive and expensive discovery and could result in a
settlement just to avoid the costof anuisance case.TheBabyBellswouldhavebeensubject
to
discovery
of
information
on
their
dealings
with
each
other
and
with
potential
entrantsoveradecade.TheplaintiffssoughttocertifyaclassthatwouldincludealargeportionoftheAmericanpopulation.IfthecasesurvivedcertificationahardlyunusualeventforSection1casestheBabyBellswouldhavebeensubjecttomassivefinancial
exposureandwouldhavelikelysettledeveniftheywerelikelytoprevailattrialoron
appeal.(Theflipsideofthis isthatiftheplaintiffsdidhaveavalidclaimforreliefthedefendantsactionsprobablycausesubstantialongoingharm.)
Whetherthecourtssaysoornot,onecanimaginethecourtsrequiringtheneedle
tomovefarther inallowingacasetoproceedthatwill imposesubstantialcostsonthe
defendant and the court system, thus resulting in settlement that isnotbasedon the
merits,and
demanding
the
needle
to
move
less
far
in
allowing
acase
to
proceed
that
will not impose significant costs, or has other extenuating circumstances. BothSwierkiewicz and Erickson were singleplaintiff cases. William Erickson filed withoutcounseland theSupremeCourt insistedongreater latitudeforpleadings foramotion
filedprose.V.MEETINGTHEPLAUSIBILITYTEST
TwomblyandIqbalservenoticetoplaintiffsthatwhileashortplainstatementoftheircaseisallthatisneeded,thatstatementbettersaysomethingthatpersuadesacourt
thattheplaintiffshaveaplausiblecase.Italsoprovidesaroadmaptodefendantswho
wantashotatgettingacasetossedbeforerunningupsignificant legalbills.Economicand statistical evidence will often play a role in these considerations especially inantitrustandemploymentdiscriminationcases.
VI.ANTITRUSTThe courts rely extensivelyon economic reasoning as reflected in the spate of
SupremeCourtdecisions in the last fiveyears,especially thosecases involvingsingle
firmconduct.Moderneconomicshasidentifiedcircumstancesinwhichitispossiblethat
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business practices reduce consumer welfare, which is the touchstone of modern
antitrust.But ithasalsodemonstrated thatmuchbehaviorthatwasviewedassuspectcanbeexplainedonthegroundsofeconomicefficiency.Courtsmaybemorereluctant,following Twombly, to allow antitrust complaints that do not plead something that
wouldallowthecourttodistinguishanticompetitivefromprocompetitivebehavior.
The plaintiff in Port Dock, for example, claimed that the defendants verticalintegration and subsequent refusal to dealwas anticompetitive.13 The SecondCircuitthought itwas possible that vertical integration could lead to a claim that deserved
relief.Itnotedtheremaybe specialcircumstances inwhichamonopolistsverticalexpansion
could be anticompetitive, such as where the monopolist uses the vertical
integration to facilitatepricediscrimination, toavoidgovernmentregulationof
priceat
one
level,
or
to
preserve
its
production
monopoly
by
putting
up
entry
barrierstonewcompetitorsseekingtoenterattheproductionlevel.
Buttheplaintiffhadnotpledanyfactstomaketheclaimplausible.InupholdingthelowercourtsdismissalofthisShermanSection2case,theSecondCircuitnotedthat
theplaintifffailedtoallegeanysuchcircumstancethatwouldmake[thedefendants]
vertical integrationand refusal todealwith itanticompetitive.To succeedwith theircomplaints,antitrustplaintiffsmuststartwithaviableanticompetitivetheoryandplead
factsthatsupportit.Twombly andPortDock point to a general lesson.An antitrustplaintiff has to
show that thedefendant engaged inpractices that firmsdonotordinarily engage in.Importantly, for Section 2 cases,modern economicshas shown thatmanypreviouslysuspectactsarecommonlyundertakenbycompetitivefirms.Itisnowwellknownthatfirmswithoutsignificantmarketpowerengageinpricediscrimination,tieandbundle,
offerpricediscounts,andenter intoexclusivearrangements.Theydosobecause these
practicesbenefittheircustomers,lowercosts,orsolveothereconomicproblemssuchas
therecoveryoffixedcosts.Sincefirmswithoutmarketpowerengageinthesepractices,thefactthatafirmhasmarketpowerandengagesinthesepracticesshouldnotbyitself
move the needle. As it was with the Baby Bell parallel behavior, conduct that isconsistentwithcompetitiveconductshouldnotbethebasisforrelief.
A question is how far the courtswill go in allowing evidence of competitive
conduct. The Supreme Court has recognized in Independent Ink14 that tying iscommonplace.Onecouldargue thataplaintiffpursuinga tyingclaimshouldhave toshownotonlythatthedefendanthasmarketpowerandengagedintyingbutalsothat
there issignificantdemandtoofferthetyingproductseparatelyfromthetiedproduct
and that its behavior does notmake economic sense.Theremay be other situations,13PortDock&StoneCorp.v.OldcastleNortheast,Inc.,507F.3d117(2dCir.2007).14IllinoisToolWorks,Inc.v.IndependentInk,Inc.,125S.Ct.2937(2005).
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however,inwhichthecourtshavenotrecognizedthatcertainbehavioriscommonplace.It remains to be seen how far the courts will go in allowing defendants to submit
evidenceatthemotiontodismissstageforexampleanaffidavitfromaneconomist
thatthebehaviorisroutine.
Antitrustplaintiffscanovercomethesehurdlesbypresentingplusfactorsthat
movetheneedlesufficientlyfar.Economicscanhelphereaswell.Footnote4ofTwomblyevenprovided somepointers.Quoting thedefendantsbrief, theCourtnoted that theparties agreed thata conspiracywasplausiblewhen therewas evidenceof complex
andhistoricallyunprecedentedchangesinpricingstructuremadeattheverysametime
bymultiplecompetitors,andmadefornootherdiscerniblereason.15TheplaintiffsinInreGraphicsProcessingUnitsAntitrustLitigation16recoveredfromthegrantingofamotiontodismissby filing an amended complaint thatpointed to this sortof evidence.Thedistrict
court
let
them
through
the
gate
the
second
time.VII.EMPLOYMENTDISCRIMINATION
Statistical evidence is commonly used in employment discrimination cases,
especiallythose thataredestined forclasscertification.Aswithantitrustcases thekeyquestion is whether plaintiffs have pled enough facts to make the claim for relief
plausible.Twoexamples,onemadeupandtheotherreal,illustratehowTwomblyaffectstheuseofstatisticalevidenceforplaintiffsanddefendants.
Consider a company thathas 50 regionaldistricts.A smallgroupofplaintiffs
belonging toaprotectedminoritygroupargues that there isapatternandpracticeof
discrimination against the minority group because, in the last 5 years, no minority
promotions from thedistrictmanagerposition to thedivisionmanagerpositionhave
takenplacein5districts.IsthisenoughinlightofTwombly?Alaypersonmightthinksoand thecourtshavepointed to theinexorablezero17asevidenceofnefariousgoings
on.Toastatistician,however,thosefactsbythemselvesdonotmovetheneedleatall.Thefactthatthereare5districtswithnominoritypromotionscouldbeduetoa
numberof factorsamong them, it isat leastpossible thatnopromotionswhatsoever
weremade in somedistrictsand, furthermore,even if someweremade, it ispossible
thatnominoritycandidatesforpromotionwereavailableatthetime.Plaintiffsshouldpresentenoughfactualevidencetodemonstrate,evenqualitatively,thatthattherewere
enoughpromotions
and
enough
minority
candidates
to
make
it
likely
that
there
would
bestatisticallysignificantdisparities.Whenplaintiffsdonotpresentenoughevidence,thereisanopeningfordefendantstotheextentthestatisticalevidenceiscentraltothe
complaint.
15BellAtlanticCorpvTwombly,supranote2,footnote4at9.16InreGraphicsProcessingUnitsAntitrustLitig.,483F.Supp.2d1356(Jud.Pan.Mult.Lit.2007).17Teamstersv.UnitedStates,431U.S.324(1977).
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Plaintiffsoftenpresentevidenceofgrossstatisticaldisparities intheworkforce
compositionorwagedisparitiesaspartoftheircomplaint.Forexample,intheWalMartemployment litigation in theNinthCircuittheplaintiffspresentedevidenceofthe fact
that twothirds ofWalMart employeeswere female but only onethird ofWalMart
managerswere female. They interpreted this fact as evidence of discrimination. Thedistrictcourtcertifiedaverylargeclassofplaintiffs.TheNinthCircuitupheldtheclass
onappeal.Amemberoftheappealspanel,JudgeKleinfeld,wroteadissentingopinionwhich echoed considerations that are importantpost Twombly.18Hepointed out thatplaintiffs statistics did not compare allwomenwhowanted to becomemanagers at
WalMart with all men who wanted to become managers at WalMart. The one
third/twothirds comparison just focused on allmale and female employees,whether
theydesiredmanagement jobsornot.These sortsofgross statisticalcomparisonsdidnothaveanyimplicationforwhethertherewasorwasnotgenderdiscrimination.Inour
language,theydidnotmovetheneedleintermsofplausibility.As a general matter, one could argue under Twombly that plaintiffs have to
presentevidenceontheworkforcethatshowsthatdiscriminationinparticularpractices
isplausible.Basedongenerallabormarketdataandexperience,thefactthatmanagerswerelesslikelytobewomenthanwereemployeesoverallshouldnotsurpriseus.Asof2000,womencomprised46.8percentofthecivilianlaborforcebutonly26.3percentof
general and operational managers.19 Whether the particular breakdown at WalMart
shouldsurpriseuswoulddependonthepreciseoccupationalmixandotherfactorssuch
asthequalificationsforbeingastoreclerkversusbeingamanager.Evidencethatothersimilarretailershaveahigherproportionofwomeninmanagerialpositionswould,on
the other hand, surprise us and make the claim of classwide discrimination more
plausible.VIII.CONCLUSION
Plaintiffshavetopresentfactsintheircomplaintthatmakeitplausiblethatthey
are entitled to relief.Thatmeans stating facts that aredifferent enough from routinebehavior and that support the claim for relief. Lawyers should consider the use ofeconomicandstatisticalevidencecarefullyinfashioningtheircomplaintsandinseeking
the dismissal of complaints. Disciplines such as economics and statistics provideframeworksforestablishingwhetherfactsarefarenoughawayfromneutraltomake
itplausiblethattheplaintiffhasavalidclaim.
18Dukesetal.v.WalMart,Inc.Nos.0416688,041672020079thCir.WL329022(Feb.6,2007).19U.S.BureauoftheCensus,2000.CalculatedusingtheEEODataTool.