The plaintiff neutrality principle: pleading complex litigation in the era of Twombly and Iqbal.

• Author: Effron, Robin J.

ABSTRACT

Two recent Supreme Court cases have stirred the world of pleading civil litigation. Bell Atlantic Corp. v. Twombly introduced the concept of "plausibility pleading" in which the plaintiff is required to plead facts sufficient to suggest that the claim for relief is "plausible," and Ashcroft v. Iqbal affirmed that the plausibility standard applies to all aspects of a complaint subject to Rule 8(a) of the Federal Rules of Civil Procedure. This Article examines the consequences of the plausibility standard for pleadings in complex litigation cases.

The Article argues that it is unacceptable to automatically equate the existence of a class action with a high cost of litigation--a prominent concern in Twombly and Iqbal--because this reasoning fails to differentiate among types of class actions, to differentiate class actions from other potentially costly types of litigation, and to account for the efficiencies and judicial economy that some class actions are, themselves, supposed to create.

The Article then considers the role of the plausibility standard itself in complex litigation by introducing the plaintiff neutrality principle, which states that when a plaintiff makes neutral allegations concerning her own condition or conduct--that is, subject to inferences of both lawful and unlawful conduct on the part of the defendant--they are not speculative and therefore entitled to a presumption of truth for the purposes of deciding a Rule 12(b)(6) motion to dismiss.

Complex litigation pleadings, like pleadings in ordinary lawsuits, contain allegations of conduct and condition that plaintiffs make about themselves as well as those made about defendants or third parties. This peculiarity of complex litigation pleading creates an additional arena of allegations from which one might attack the factual sufficiency of a complaint: allegations that a named or lead plaintiff makes about other plaintiffs. For this scenario, a group plaintiff neutrality principle addresses how inferences drawn from "neutral" behavior should apply to allegations of class members' conduct.

The Article concludes by analyzing situations in which the baseline for plaintiff conduct differs because of publicly available data about the condition of a group of plaintiffs, particularly those that are consolidated through multidistrict litigation, rather than as class actions. It concludes that application of the Twombly/Iqbal principle to this context may not be as harmful as application to allegations about defendant conduct because of the plaintiff's ability to access the relevant information and, if necessary, replead the case.

TABLE OF CONTENTS INTRODUCTION I. VIEWING PLEADING DOCTRINE THROUGH THE LENS OF COMPLEX LITIGATION A. Pre-Twombly Pleading Practice B. Twombly's Role in Class Action Complaints C. The Improper Use of Twombly and Iqbal in 4. Class Certification Proceedings II. POST-TWOMBLY PLEADINGS OF ALLEGATIONS OF DEFENDANT CONDUCT IN COMPLEX LITIGATION A. Targeting Class Action Complaints Under Twombly's Cost of Litigation Rationale B. Scrutinizing Allegations of Defendant Conduct in Class Action Complaints 1. Size of the Plaintiff Class 2. Relationship Between Any Increase in the Cost of Discovery and Plaintiffs' Ability To State a Claim 3. Who Bears the Cost of Discovery? 4. Whether the Class Action Promotes or Reduces Relevant Efficiencies C. The Existence of the Second Gate III. APPLYING THE TWOMBLYIIQBAL STANDARD TO ALLEGATIONS OF PLAINTIFF, GROUP PLAINTIFF, AND CLASS CONDUCT A. The Plaintiff Neutrality Principle B. The Group Plaintiff Neutrality Principle 1. Nonspeculative Allegations of Group Plaintiff Conduct 2. Speculative Allegations of Group Plaintiff Conduct C. Twombly, Iqbal, and Multidistrict Litigation Master Complaints 1. Attacking the Sufficiency of a Master Complaint 2. Plausibility by the Numbers CONCLUSION INTRODUCTION

Class actions and other large, aggregated actions are easy targets for those disparaging the current state of litigation in America. These critics bemoan the phenomenon of judges allowing supposedly "nonmeritorious" lawsuits to proceed far enough to force defendants to choose between mounting an expensive defense or settling the claims early in the process. Class actions, viewed as expensive both to litigate and to settle, are singled out as the worst offenders.

Litigation critics have pursued many avenues to minimize the specter of the nonmeritorious lawsuit. One such tactic is to give judges increased gatekeeping powers, that is, processes by which judges can screen nonmeritorious lawsuits and dismiss them before they reach the latter stages of litigation. Numerous stages in a lawsuit present the potential for dismissing nonmeritorious cases, from the opening bell of pleading through a post-trial review of a jury verdict. For nearly fifty years, courts and commentators viewed the pleading stage as a relatively weak point for the exercise of gatekeeping.

This changed with two recent Supreme Court cases concerning the standard for pleading and its role in litigation. (1) The first, Bell Atlantic Corp. v. Twombly, marked the end of the fifty-year reign of the pleading mantra familiar to generations of civil procedure students, that a district court should not dismiss a complaint for failure to state a claim for which relief can be granted "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." (2) In Twombly, the Supreme Court replaced this standard with "plausibility pleading," in which the plaintiff is required to plead facts sufficient to suggest that the claim for relief is "plausible," (3) and in Iqbal, affirmed that the plausibility standard applies to all aspects of a complaint subject to Rule 8(a) of the Federal Rules of Civil Procedure. (4)

Twombly arose in a complex litigation context, and the Court intoned several warnings about the "problem[s] of discovery abuse" and "costs" of class actions. (5) Despite this fact, the analyses of Twombly and Iqbal thus far have treated all forms of litigation as the same for the purposes of pleading. This Article examines the consequences of the plausibility standard for pleadings in complex litigation cases by providing a detailed study of how the Twombly/Iqbal standard applies to the allegations that are typical in complaints filed in complex litigation cases.

The inquiry reveals two ways in which isolating the complex litigation context contributes to a clearer understanding of the application of Twombly and Iqbal. First, Twombly changes the landscape for understanding pleadings and causes of action in complex litigation cases through both direct and indirect applications of the plausibility pleading standard. Second, a study of class action pleadings contributes a further clarification of the meaning of "plausible" in the Twombly and Iqbal opinions themselves, which has been a subject of considerable confusion among judges, litigators, and academic commentators.

Complex litigation pleadings, like pleadings in ordinary lawsuits, contain allegations of conduct and condition that plaintiffs make about themselves as well as those made about defendants or third parties. A more robust understanding of the plaintiff plausibility standard emerges by separating allegations about plaintiffs from allegations about defendants. Allegations of plaintiff conduct in a complex litigation complaint, however, sometimes contain speculation about the conduct or condition of other plaintiffs as well as the conduct of defendants. This peculiarity of complex litigation pleading creates an additional arena of allegations from which one might attack the factual sufficiency of a complaint.

In the complex litigation arena, a limited and nuanced application of the plausibility standard to allegations of both plaintiff and defendant conduct might actually serve as an effective and fair use of Twombly and Iqbal. The danger, however, is that a broad or unin formed application of Twombly in the complex litigation context may produce bad outcomes, such as shifting an evidence-based Rule 23 class certification decision to the pleadings-based motion to dismiss context, resulting in an improper dismissal of an entire lawsuit rather than a denial of class certification.

This Article proceeds in three parts. Part I argues that complex litigation, particularly class actions, presents a special problem because the named plaintiffs must also plead facts about unnamed or absent class members that might be viewed as speculative, and that the plausibility pleading standard might alter doctrines surrounding class certification. After a brief examination of the possibility of applying the plausibility standard to motions for class certification, this Article argues that the Twombly/Iqbal standard cannot be applied directly to the question of class certification because Rule 23 class certification is explicitly not a matter to be pled or decided on a Rule 12(b)(6) motion to dismiss.

Part II examines the problems associated with applying the Twombly/Iqbal standard to allegations of defendant conduct in complex litigation complaints. Part II.A sets out the doctrinal basis for tying the level of "plausibility" needed in a complaint to the cost of litigation in a given case. Focusing on class actions, this section then demonstrates that both the Supreme Court and lower courts consistently have presumed class actions to be costly, and thus such cases are in need of special scrutiny at the motion to dismiss phase of litigation.

Part II.B argues that it is unacceptable to automatically equate the existence of a class action with high costs of litigation because this comparison fails to differentiate among types of class actions, and to differentiate class actions from other potentially costly types of litigation. It also fails to account for the efficiencies and judicial economy that some class actions are...