Tips for In-House Counsel

August 18, 2009

Ashcroft v. Iqbal: Raising the Federal Pleading Standard for Plaintiffs and Providing a New Defense Tool for Corporate Defendants

By Yuri Mikulka of Stradling Yocca Carlson & Rauth

Background

In a split decision, the Supreme Court in Iqbal determined that the plaintiff had failed to meet the pleading requirement because he had made only conclusory allegations and the facts in the complaint were more likely explained by lawful conduct than illegal activity.

The plaintiff in Iqbal was a Muslim Pakistani who was arrested and detained by the FBI and INS on immigration charges following September 11, 2001, along with hundreds of others who were classified as “of high interest” and kept in highly restrictive conditions. Iqbal pleaded guilty to fraud charges in connection with his presence in the U.S. and served an 18-month sentence. Upon his release and deportation to Pakistan, he brought a Bivens action against various levels of federal government officials, including former Attorney General John Ashcroft and current FBI director Robert Mueller, alleging abusive conditions while detained. Iqbal alleged that Ashcroft and Mueller had designed and adopted an unconstitutional policy that subjected him to abusive conditions due to his race, religion, or national origin.

Ashcroft and Mueller moved to dismiss, arguing that the allegations of their involvement were too conclusory to state a claim. The trial court denied the motion and defendants appealed. During the pendency of the appeal, the Supreme Court decided Twombly.

Judicial interpretations of Twombly pre-Iqbal

In Twombly, consumers brought a putative class action, alleging that regional telephone and internet service providers had joined in an antitrust conspiracy to stifle competition. 550 U.S. at 550-51. Plaintiffs set forth their conspiracy allegations in the complaint on “information and belief,” based on defendants’ parallel pricing and failure to enter each other’s respective service areas. The Twombly opinion, written by Justice Souter, stated that parallel pricing and failure to compete in others’ service areas were not enough to give rise to a plausible inference of conspiracy. Id. at 553-54, 567-68. Although the plaintiffs had made direct allegations that the defendants had engaged in a “contract, combination or conspiracy,” the court determined that these allegations were “merely legal conclusions resting on the prior allegations.” Id. at 564-65.

Twombly held that a complaint that merely states a legal theory and vaguely states the elements of a claim does not sufficiently state a plausible claim for relief. The Court expressly overruled Conley v. Gibson, 355 U.S. 41 (1957), in which the Court had 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.” 550 U.S. 561-563. Rather, the Twombly court clarified that “a plaintiff’s obligation to provide the ‘grounds’ for his ‘entitle[ment] to relief’ requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action.” Id. at 555 (citations omitted). A complaint that survives a motion to dismiss must set forth “enough factual matter (taken as true) to suggest” real plausibility that the plaintiff’s claims are true. Id. at 556.

Since Twombly was decided, numerous lower courts have determined that the standard set forth in Twombly only applies to “expensive, complicated litigation” like the antitrust conspiracy litigation claims in Twombly. Gunasekera v. Irwin, 551 F.3d 461, 466 (6th Cir. 2009). See also Filipek v. Krass, 576 F. Supp. 2d 918 (N.D. Ill. 2008); In re Papst Licensing GMBH & Co. KG Litig., 602 F. Supp. 2d 17 (D.D.C. 2009).

When Iqbal came to the Second Circuit on appeal three weeks after Twombly was decided, the Second Circuit did not apply the Twombly standard and as a result, affirmed the lower court’s denial of the motion to dismiss. Iqbal v. Hasty, 490 F.3d 143 (2nd Cir. 2007). The Second Circuit found that Twombly created “considerable uncertainty concerning the standard for assessing the adequacy of pleadings,” concluding that Twombly “is not requiring a universal standard of heightened fact pleading, but is instead requiring a flexible ‘plausibility standard’ which obliges the pleader to amplify a claim with some factual allegations in those contexts where such amplification is needed to render the claim plausible.” Id. at 155, 157-158.

The Iqbal opinion clarifies the broad scope and application of Twombly

In Iqbal, the majority of the Supreme Court, in a 5-4 decision, took the opportunity to tell the Second Circuit and the other lower courts who had narrowed or discounted the application of Twombly that they were wrong. The Court rejected the theory that the heightened standard set forth in Twombly applied only to antitrust conspiracies, stating that “Twombly expounded the pleading standard for ‘all civil actions.’” 129 S.Ct. at 1955 (quoting Fed. R. Civ. P. Rule 1).

The majority explained that, under Twombly, when a court is reviewing a complaint in the face of a motion to dismiss, it must consider a “two-pronged approach.” Id. at 1950. First, “the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions.” 129 S.Ct. at 1949. In other words, a court has to differentiate pleadings of fact, which are entitled to a presumption of the truth, from pleadings of conclusion, which are not so entitled. This is easier said than done, as indicated by the split decision itself. The majority felt that plaintiffs’ allegations that Ashcroft and Mueller “each knew of, condoned, and willfully and maliciously agreed to “ the unconstitutional policies about which Iqbal complained were too conclusory to be entitled to a presumption of truth. Id. at 1951. The dissent, on the other hand, felt that those were merely allegations of fact that were entitled to a truth presumption. Id. at 1959-60.

The second prong requires that “only a complaint that states a plausible claim for relief survives a motion to dismiss.” Id. at 1950. The Court explained that the “plausibility” required by Fed. R. Civ. P. Rule 8 – providing that a complaint must contain a “short and plain statement of the claim showing that the pleader is entitled to relief”—requires more than the “mere possibility of misconduct.” Id. The Court further explained that the complaint will be insufficient and a motion to dismiss will be granted if the facts in the complaint are “not only compatible with, but indeed…more likely explained by lawful… behavior.” Id.

Like the fact-versus-conclusion determination, the question of plausibility will not always be obvious or easy to resolve. The Iqbal court explained that determining “whether a complaint states a plausible claim for relief will… be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” Id. at 1950. In resolving Iqbal, the Court in fact did look outside the four corners of the complaint and relied on its experience and common sense to determine that Arab Muslims were likely detained not because of their race, religion, or national origin – it was more likely because of the focus on Arab Muslims in the immediate aftermath of the terrorist attacks of 9/11 that were carried out by Arab Muslims. Because a “more likely explanation” existed than the one alleged by plaintiff in a conclusory manner, the allegations in Iqbal’s complaint “do not plausibly establish [a discriminatory] purpose.” Id. at 1951..

The Impact of Iqbal

Undoubtedly, the primary impact of Iqbal will be uptick in Rule 12(b)(6) motions to dismiss, as well as an increase in the number of such motions that will be granted. Federal courts will now have the opportunity to dismiss a case at the very beginning if in the court’s view the allegations appear implausible. Seizing this opportunity, the defense bar has been busy. According to the New York Times, Iqbal was cited more than 500 times in just the first two months after it was decided, and a number of courts have dismissed cases based on Iqbal.

Indeed, in California alone, every federal court has issued at least one opinion dismissing a case for insufficient pleadings under the Twombly/ Iqbal standard. See, e.g., Cartwright v. Regents of University of California, No. 2:05-cv-02439, 2009 WL 2190072, *11, (E.D. Cal. July 22, 2009) (Dismissing causes of action and stating: “Although Plaintiff’s allegations were sufficient to defeat a Rule 12(b)(6) motion to dismiss in 2006, the Supreme Court’s recent rulings in Twombly and Ashcroft v. Iqbal compel this Court to reconsider its prior Order.”); Cole v. Sunnyvale, No. C-08-05017, 2009 WL 2157535 (N.D. Cal., July 20, 2009) (relying on the Iqbal standard to grant a motion to dismiss parts of complaint with leave to amend); Martorello v. Sun Life Assur. Co. of Canada, No. C 09-0912, 2009 WL 2160652 (N.D. Cal. July 20, 2009) (relying the standard set forth in Twombly and Iqbal to dismiss the defendant’s amended counterclaim without prejudice); Sanford v. Cate, No., 2009 WL 2135882 (S.D. Cal. July 15, 2009) (relying on Iqbal to dismiss the complaint against one defendant).

Perhaps one of the most notable weapons that the Iqbal decision provides defendants is a stronger ability to prevail on a motion to stay discovery pending any motions to dismiss. Some plaintiffs file thin, “upon information and belief” complaints with the intent and hope that subsequent discovery will enable them to uncover facts they really need to support their complaint. Though defendants have denounced these “fishing expeditions” by plaintiffs, their requests for stays pending motions to dismiss are often dismissed. In Iqbal, the Supreme Court has finally recognized defendants’ concern and addressed it directly, stating that “Rule 8… does not unlock the doors to discovery for a plaintiff armed with nothing more than conclusions.” 129 S.Ct. at 1950. As the result of Iqbal, courts must now require plaintiffs to plead a plausible, sufficient claim, before allowing them to proceed with expensive discovery.

The Iqbal decision is not without controversy. For one thing, in his dissent, Justice Souter, author of the Twombly opinion, along with three other judges contended that the majority misapplied Twombly, resulting in too high a standard for plaintiffs. Id. at 1959. In addition to whether Iqbal and Twombly set too high a standard, Twombly has sparked a debate among federal courts and practitioners about whether this heightened standard also applies to affirmative defenses plead under Rule 8(c). Compare, e.g., Holtzman v. B/E Aerospace Inc., No. 07-80551-CIV, 2008 WL 2225668, at *2 (S.D. Fla. May 29, 2008) (citing Twombly as support for the proposition that a defendant must “alleg[e] facts as part of the affirmative defenses” and granting plaintiff’s motion for a more definite statement); First Nat’l Ins. Co. of Am. v. Camps Svcs, No. 08-cv-12805, 2009 WL 22861 (E.D. Mich. Jan. 5, 2009) (holding Twombly’s analysis of the Rule 8(a) requirement inapplicable to motions to strike affirmative defenses). Watch for these debates to ripen further in the wake of Iqbal.

CONCLUSION

The name “Iqbal” means prosperity and wealth in Arabic. Yet, for plaintiffs lacking requisite facts to support a claim at the outset, it will mean fewer opportunities for relief. This is good news for defendants looking for some reprieve from the onslaught of civil litigation filed against corporations in the economic downturn.

About the Author

Yuri Mikulka serves as Chair of the Intellectual Property Department of Stradling Yocca Carlson & Rauth, a law firm that represents high tech companies

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Yuri Mikulka

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