Congress Overturning Twombly And Iqbal Would Be The Real Revolution In Pleading

Monday, August 30, 2010 - 01:00

John Thorne

Senior Vice President and Deputy General Counsel Verizon

Editors Note: Mr. Thorne was counsel for Verizon's predecessor Bell Atlantic Corp. in Bell Atlantic Corp. v. Twombly , 550 U.S. 544 (2007) .

Corporate counsel need to bestir themselves in defense of two Supreme Court decisions that are under attack from the professional plaintiffs' bar. The two decisions, Bell Atlantic Corp. v. Twombly , 550 U.S. 544 (2007) and Ashcroft v. Iqbal , 129 S. Ct. 1937 (2009), are unremarkable in requiring that before a lawsuit can proceed to expensive discovery, the plaintiff must plead a valid cause of action based on facts (not conclusions) that make the claim plausible in the circumstances. Precisely because the two decisions are so unremarkable, their possible repeal is cause for grave concern. Repeal bills have been introduced in both the House and Senate, hearings have been held in the relevant committees, and the trial lawyers are now planning an intensive push to pass the bills this fall before the current Congress adjourns.

Two Pleading Standards Decisions

Justice Souter's 7-2 opinion in Bell Atlantic v. Twombly did little more than restate and apply the federal pleading standard that lower courts had long been implementing. The question before the Twombly Court was whether an antitrust conspiracy complaint alleging nothing more than lawful parallel conduct could survive a motion to dismiss. It held that it could not. The Court clarified that judges should accept a complaint's pleaded facts but not its conclusory allegations nor facts that aren't pleaded and should require a plausible connection between those facts and the asserted liability. If a complaint can pass that test, it survives a motion to dismiss.

As Justice Souter explained, courts had been applying that test for years. This traditional federal pleading test carefully balances the need to let plausibly meritorious cases go forward against the need to avoid excessive and unjustified litigation expenditures and the unwarranted pressure to settle just to avoid those costs. Citing a twenty-plus-year-old case, Justice Souter concluded that "a district court must retain the power to insist upon some specificity in pleading before allowing a potentially massive factual controversy to proceed."1

Two years later the Court in Iqbal confirmed that the pleading requirements explained in Twombly are not limited to antitrust cases. 129 S. Ct. at 1953. The Court further instructed the lower courts to consider whether the plaintiff should be permitted to modify a complaint to cure its deficiencies. Id. at 1954.

Both decisions make clear that what a plaintiff must plead is context specific. A traffic accident complaint alleging negligence needs very few facts.2A civil rights discrimination complaint needs very few facts.3A massive antitrust conspiracy complaint, by contrast, needs facts that plausibly suggest a violation. More generally, "in complex litigation . . . the defendant is not to be put to the cost of pretrial discovery - a cost that in complex litigation can be so steep as to coerce a settlement on terms favorable to the plaintiff even when his claim is very weak - unless the complaint says enough about the case to permit an inference that it may well have real merit."4

Judge Lee H. Rosenthal, the Chair of the Judicial Conference Committee on Rules of Practice and Procedure, and her clerk, Andrea Kuperman, have been collecting and analyzing all the significant post- Twombly and Iqbal decisions, looking at whether the decisions have had a big impact on dismissals of cases at the pleadings stage. The study concludes that "the case law to date does not appear to indicate" any dramatic change in the application of pleading standards.5Across the board, since Twombly was decided, dismissals on the pleadings have increased only slightly, from 12 percent to 14 percent of all cases,6 although the granting of leave to amend also has increased and it is not possible to tell how many of the initially-dismissed cases were reinstated following a second chance at stating a plausible claim.7

In short, the Twombly and Iqbal decisions appear to be not revolutionary at all and to have done very little to modify the accumulated wisdom of the lower courts over many years.

Proposed Repeal Legislation

But new proposed legislation would change all that. For the past year, the American Association for Justice (formerly known as the Association of Trial Lawyers of America) has put its substantial muscle into seeking to have the current Congress repeal the decisions. "Congress must act," urges AAJ President Anthony Tarricone, "to return these pleading standards to their prior precedent ."8

The bills before Congress now do not, as their proponents claim, "restore" federal pleading law to the age before the Supreme Court decisions in Twombly and Iqbal. Rather, in the struggle to devise better language than the Supreme Court has used in explaining the pleading standards of the Federal Rules, the drafters of these bills have ended up proposing - perhaps unintentionally - new and fairly incomprehensible standards that would lead to chaos in the courts and frivolous cases crowding out meritorious ones.

One bill (H.R. 4115) would prohibit judges from dismissing cases if any facts - even entirely unpleaded facts - could support relief. Under this bill, a complaint that pleads no facts at all would go forward to discovery. That was not the law before Twombly and would be a radical departure from our legal system's requirement of notice of grounds, not just claims. See Rule 8, Fed. R. Civ. P. (requiring pleadings to "show" entitlement to relief). The proposal would impose vast new burdens of litigation and raises questions of consistency with the due process right to notice.

Another federal pleading "restoration" bill (S. 1504) would simply codify the 1957 Supreme Court pleading case Conley v. Gibson , 355 U.S. 41 (1957), without saying what the standard actually is. In one passage, the Conley Court stated that "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." 355 U.S. at 45-46. Justice Souter in Twombly explained why a proper analysis of Conley 's often-quoted "no set of facts" language did not, in the context of the Conley case itself, establish a standard for what allegations are needed to survive a motion to dismiss and should not be so understood, consistent with the rest of the Conley opinion, with other Supreme Court opinions, with fundamental notice requirements, with the regular practice of courts of appeals for decades, and with common-sense practicalities of litigation. The courts before Twombly had regularly made clear that Conley cannot mean "no set of facts" without regard to what is actually pled. That was so in the courts of appeals ( Twombly, 550 U.S. at 562) and in the Supreme Court ( Assoc. Gen. Contractors , 459 U.S. at 526; Papasan v. Allain , 478 U.S. 265 (1986)). See also 5 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1216 (3d ed. 2004). Codifying " Conley " either would produce Twombly itself (as Twombly authoritatively decided what Conley meant, properly understood) or would produce the very debate about Conley that required resolution in Twombly .

No Urgency For Congressional Action

In May 2010, the Judicial Conference of the United States took the very rare inter-branch step of writing to Congress and urging that it not proceed with the legislation.9Under the Rules Enabling Act, Congress has authorized the federal judiciary to prescribe rules of practice, procedure, and evidence for the federal courts.10(Congress reserves the right to reject, modify, or defer such rules.) The Rules Enabling Act review of Twombly and Iqbal is already underway, with judges and other members of the Judicial Conference Committee on Rules of Practice and Procedure intensely examining federal pleading developments to see whether there is a problem warranting change, and if so, what change might make sense. Those are both serious questions - are meritorious complaints in fact being dismissed and if so how can pleading standards be adjusted so that meritless complaints do not flood the courts? Neither can be answered without careful study of the real-world impact (if any) of Twombly and Iqbal on federal pleading standards. The thorough deliberations and empirical studies now being conducted through the Rules Enabling Act process are the likeliest way to reach sound answers to those questions. Short-circuiting it with misguided legislation is a mistake. In light of the well-documented lack of dramatic change in court practice, there is no urgency demanding immediate congressional intervention.

What Corporate Counsel Should Do

When Twombly was pending in the Supreme Court, the business community filed amicus briefs in favor of requiring plausible pleading before plaintiffs were entitled to discovery.11

Following the introduction of the repeal bills in the House and Senate, over forty companies and business associations have urged Congress in a joint letter to leave the decisions alone and to allow the Rules Enabling Act process to continue. As these companies pointed out, discovery costs can amount to millions of dollars even in routine cases. Legislative "fixes" that allow plaintiffs to use thin complaints to impose serious discovery costs on defendants - and compel substantial settlements as a result - would impede private-sector investment and job creation.

Corporate counsel should contact members of Congress and join the business coalition being led by the U.S. Chamber of Commerce's Institute for Legal Reform. The trial lawyers' plan for passing the legislation appears to be to try to attach language from these bills to popular, must-pass legislation at the eleventh hour. That makes it important for Congress to hear about the problems with the bills now, well before any last-minute attempts to include it in other legislation. 1 550 U.S. at 558, quoting Associated Gen. Contractors of Cal., Inc. v. Carpenters, 459 U.S. 519, 528, n. 17 (1983).

2See Fed. R. Civ. P., Form 11.

3See Swierkiewicz v. Sorema N.A., 534 U.S. 506 (2002) (cited with approval by Twombly , 550 U.S. at 569-70); Swanson v. Citibank, N.A., No. 10-1122 (7th Cir. July 30, 2010) (Wood, J.).

4Smith v. Duffey, 576 F.3d 336 (7th Cir. 2009) (Posner, J.).

5 Mem. of Andrea Kuperman to the Civil Rules Committee at 2 (July 26, 2010), available at http://www.uscourts.gov/uscourts/RulesAndPolicies/rules/Iqbal_memo_072610.pdf.

6See Statistics Division, Administrative Office of the U.S. Courts, Cases and Motions to Dismiss Filed From May 2007 through June 2010, table entitled "Rate of Motions to Dismiss Granted as Percentage of Total Cases Filed" (July 28, 2010), available at http://www.uscourts.gov/uscourts/RulesAndPolicies/rules/Motions_to_Dismiss_081210.pdf.

7 Moreover, the built-in asymmetry of judicial review of pleading standards protects plaintiffs from unwarranted dismissals. Dismissals can be reviewed on appeal, allowing any errors in district court to be corrected, and plaintiffs who successfully challenge a dismissal can win a remand and discovery. But this doesn't work the other way around: District court refusals to dismiss do not generally get reviewed, so plaintiffs can go forward with discovery even where a district court judge wrongfully allowed the case to proceed. Dismissal thus requires a double defendant victory: the district court must dismiss, and the court of appeals must affirm.

8 Press Release, AAJ Calls on Congress to Restore Americans' Basic Legal Protections (Nov. 19, 2009) (quoting AAJ President Tarricone and the AAJ press release).

9 Letter from James C. Duff, Secretary, Judicial Conference of the United States, to Hon. John Conyers, Jr., Chair, House of Representatives Committee on the Judiciary (May 11, 2010).

10 28 U.S.C. § 2072.

11Amicus briefs were filed in the Supreme Court by the U.S. Chamber of Commerce, the Alliance of Automobile Manufacturers, the American Petroleum Industry, the Cellular Telephone Industry Association, the National Association of Manufacturers, the Pharmaceutical Research and Manufacturers of America, MasterCard, Northwest Airlines, Inc., United Air Lines, Inc., Visa, and Weyerhaueser Company. The business community was joined by the United States and the Department of Justice Antitrust Division, 16 individual States, the American Bar Association, and 24 renowned economists, including two Nobel Prize winners, one former chair and one former member of the President's Council of Economic Advisors, and four former chief economists for DOJ, the FTC, and the FCC.