New England Biz Law Update
Every business involved in litigation has confronted the dilemma that large amounts of money and time must often be spent early in discovery and other preliminary stages – even in cases based on the slimmest of grounds.
This dilemma is linked at least in part to the low hurdle set for plaintiffs by “notice pleading.” For decades, Federal Rule of Civil Procedure 8(a)(2) (and the cognate rule in at least 28 states, including Maine, Massachusetts, Rhode Island, and Vermont) has required that a pleading contain merely “a short and plain statement of the claim showing that the pleader is entitled to relief.”
The U.S. Supreme Court in May issued a dramatic (and somewhat surprising) opinion that will raise this hurdle, to the benefit of at least some defendants. Although the full import of the decision cannot yet be known with certainty, our initial survey reveals that it is already changing the face of civil litigation in the federal courts.
Plausibility, not possibility
In Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955 (Twombly), the court considered a putative antitrust class action against Bell Atlantic Corporation (now Verizon) and other major telecommunications providers.
The complaint alleged conspiracy to restrain trade in two ways: (1) engaging in parallel conduct to inhibit the entry of new competitors into the local telephone and high-speed Internet markets; and (2) agreeing to refrain from competition with one another in those same markets. Twombly, 127 S. Ct. at 1958.
However, the complaint failed to include facts indicating that defendants had made an illegal agreement, rather than each having taken “the natural, unilateral” course of action of a major telecommunications company “intent on keeping its regional dominance.” Id. at 1960.
For this reason, the District Court granted the defendants’ motion to dismiss. See Twombly v. Bell Atlantic Corp., 313 F. Supp. 2d 174, 179 (S.D.N.Y. 2003) (“allegations of parallel business conduct, taken alone, do not state a claim under § 1”).
But the plaintiff was not deterred. In his defense, and more successfully on appeal, he raised the well-worn precedent of Conley v. Gibson, 355 U.S. 41(1957). As memorized for their Civil Procedure courses by a half-century’s worth of law students, Conley states: “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.” Id. at 45-6 (emphasis supplied).
The Conley standard has long given pleaders a significant benefit of the doubt. Only rarely does a court find, at the preliminary stage, that a pleader has no chance of proving facts sufficient to make out a prima facie case.
The 2nd Circuit extended to Twombly exactly that – the Conley “benefit of the doubt” – and reversed the District Court’s dismissal. The appeals court held that, even in the absence of “plus factors,” an antitrust claim based on parallel conduct may survive dismissal because “a court would have to conclude that there is no set of facts that would permit a plaintiff to demonstrate that the particular parallelism asserted was the product of collusion rather than coincidence.” See Twombly v. Bell Atlantic Corp., 425 F.3d 99, 114 (2d Cir. 2005) (emphasis supplied).
However, to the eventual dismay of the plaintiff, the U.S. Supreme Court was prepared to revisit the Conley standard.
In 1957, Conley had observed that “simplified ‘notice pleading’ is made possible by the liberal opportunity for discovery and the other pretrial procedures established by the [Federal] Rules to disclose more precisely the basis of both claim and defense and to define more narrowly the disputed facts and issues.” 355 U.S. at 47-48 (emphasis supplied).
In stark contrast, and with the benefit of 50 years experience, the court in Twombly observed: “The threat of discovery expense will push cost-conscious defendants to settle even anemic cases . . . . Probably then, it is only by taking care to require allegations that reach the level suggesting conspiracy that we can hope to avoid the potentially enormous expense of discovery in cases with no ‘reasonably founded hope that the [discovery] process will reveal relevant evidence’ to support a §1 claim.” 127 S. Ct. at 1967 (quoting Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336, 347 (2005) (emphasis supplied)).
The court in Twombly held that “an allegation of parallel conduct and a bare assertion of conspiracy” is insufficient to survive a motion to dismiss in an antitrust case. 127 S. Ct. at 1966. Rather, allegations of parallel conduct advanced to support a Section 1 Sherman Act claim “must be placed in a context that raises a suggestion of a preceding agreement, not merely parallel conduct that could just as well be independent action.” Id.
In reaching this holding, the court expressly abandoned the famous Conley standard, which it disparaged as “best forgotten as an incomplete, negative gloss on [the proper] pleading standard: Once a claim has been stated adequately, it may be supported by showing any set of facts consistent with the allegations in the complaint.” Id. at 1969.
The court reasoned that despite the low hurdle of Fed.R.Civ.P. 8(a)(2) – and in order to provide the defendant with fair notice of what “the claim is and the grounds upon which it rests” – a plaintiff necessarily must plead “more than labels and conclusions.” Id. at 1964-65.
The court noted that its decision does not require “heightened fact pleading of specifics, but only enough facts to state a claim to relief that is plausible on its face.” Id. at 1960 (emphasis added).
Applying the new “plausibility standard” to the plaintiff’s allegations, the court agreed with the District Court that the complaint neither suggested more than a lawful response to a set of changing economic factors, nor “invest[ed] either the action or inaction alleged with a plausible suggestion of conspiracy.” Id. at 1971.
Impact on on-antitrust cases unsettled
As noted above, the court expressed concern for the tremendous expense of discovery associated with antitrust cases. However, because the court did not restrict its holding to antitrust claims, the intended effect of Twombly on other types of lawsuits remains unclear.
Some of the opinion’s language signals that the court intended to limit its application of the plausibility standard to cases involving as extensive a discovery process as would have been required in Twombly.
For example, the court referred to its decision in Associated Gen. Contractors of Cal., Inc. v. Carpenters, 459 U.S. 519, 528 (1983), that “a district court must retain the power to insist upon some specificity in pleading before allowing a potentially massive factual controversy to proceed.” 127 S. Ct. at 1967 (emphasis supplied).
Further, the 2nd Circuit has very recently suggested the fact that because Twombly explicitly approves of Federal Rules of Civil Procedure Form 9 (requiring only that plaintiff give defendant notice of the date, time, and place of complained-of negligent conduct) “seems to weigh heavily against reading Twombly to condemn the insufficiency of all legal conclusions in a pleading,” so long as these basic facts are supplied. Iqbal v. Hasty, No. 05-5768-CV(L), 2007 WL 1717803, at *10 (2nd Cir. June 14, 2007).
Early decisions signal broad impact
Despite the reservations of the 2nd Circuit and some other courts, the Twombly opinion provides a number of indications that the “plausibility standard” is intended to be universally applied – including the court’s statement that the oft-quoted Conley observation “has earned its retirement.” See Twombly, 127 S. Ct. at 1969.
To date, in more than 160 cases, federal courts considering the issue have almost unanimously adopted this interpretation. For example, in an eminent domain case in the Eastern District of New York, the court applied the Twombly rule that a complaint must be plausible on its face and declared that the Supreme Court intended the plausibility standard to extend beyond antitrust cases: “The Supreme Court could have used Twombly to announce a narrow exception to Conley for claims of antitrust conspiracy. Instead, however, the Court explained that Conley has been widely misunderstood and that a court applying a ‘focused and literal reading’ of Conley’s ‘no set of facts’ rule would improperly decline to dismiss a ‘wholly conclusory statement of a claim.’” Goldstein v. Pataki, No. 06-CV-5827 (NGG)(RML), 2007 WL 1654009, at *36 (June 6, 2007) (quoting Twombly, 127 S. Ct. at 1968); see also Lucht v. Encompass Corp., No. 4:06-CV-00562-JEG, 2007 WL 1748387, at *3 (S.D. Iowa June 18, 2007) (applying the “recently-clarified” [sic] Twombly standard for 12(b)(6) motions to plaintiff’s discrimination and wrongful termination claims); Aktieselskabet v. Fame Jeans, Inc., 2007 WL 1655877, at *15 (D.D.C. June 7, 2007) (citing Twombly, 127 S. Ct. at 1964-65) (dismissing a trademark-use complaint where plaintiff failed to provide more than “‘a formulaic recitation of the elements of the cause of action’”).
Even where a pro se prisoner asserted unconstitutional treatment, the Eastern District of Tennessee has explained that, in light of “the demise of the Conley formulation of pleading requirements,” a pleading that fails to meet the Twombly plausibility standard “must be dismissed.” Reid v. Purkey, No. 2:06-CV-40, 2007 WL 1703526, at *2-3 (June 11, 2007).
Law professors and judges will continue to divine the practical meaning and application of the new plausibility standard established in Twombly.
The court (which decided Twombly by a 7-2 vote) seems prepared to accept further cases in which to elucidate its view of the balance to be struck between insufficient and sufficient facts in notice pleading. Meanwhile, defendants have a new arrow in their quiver, and can be expected to urge early on, in more cases than ever, that the plaintiff has failed “to state a claim upon which relief can be granted” under Rule 12(b)(6).
George Field is partner in charge of the Boston office of Verrill Dana, LLP (www.verrilldana.com) and is a member of the firm’s litigation department and intellectual property and bankruptcy practices. George has more than 25 years’ experience litigating and resolving business cases in more than 20 jurisdictions. Through his firm’s six regional offices spanning from Maine to Washington, D.C., George represents businesses and individuals across the full range of commercial dispute resolution. George can be reached at [email protected].
Leslie Kersey is a member of the Class of 2009 at Boston College Law School, and a summer associate in the Boston office of Verrill Dana, LLP. Leslie is also enrolled in a joint degree program at the Fletcher School of Law and Diplomacy at Tufts University, and expects to receive an M.A. in that program in 2009. Leslie can be reached at [email protected].
