Twombly and Iqbal: the latest retreat from notice pleading.

Author:Sullivan, John P.
 
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  1. Introduction

    In May of 2007, the Supreme Court issued its opinion in Bell Atlantic Corp. v. Twombly (1) that literally revolutionized the standard for determining the legal sufficiency of a complaint. In that decision, which Justice Souter wrote for the majority, the Court abandoned the fifty-year-old "no set of facts" standard set out in Conley v. Gibson, (2) and substituted a "plausibility" standard. Some two years later, in May of 2009, the Court handed down Ashcroft v. Iqbal, (3) a case that provided the Court the opportunity of reaffirming and clarifying Twombly and in which the Court extended the Twombly standard to all civil cases filed in the federal district courts. Significantly, this time, in Iqbal, Justice Souter dissented. (4) This article will examine the impact of these two decisions on the concept of notice pleading and on motions to dismiss filed pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure.

    1. A Preliminary Look at the Twombly Decision

      In Bell Atlantic Corp. v. Twombly, the Supreme Court chose to consider whether a complaint under [section] 1 of the Sherman Act could survive a motion to dismiss when the plaintiff had alleged that the defendant telecommunication providers engaged in parallel conduct that was unfavorable to competition, but failed to allege sufficient factual content to suggest an actual agreement rather than identical independent action. (5) The Court affirmed the district court's dismissal of the complaint on the grounds that "the plaintiffs ... have not nudged their claims across the line from conceivable to plausible." (6)

      While Twombly was a complex class action antitrust case, the Supreme Court approached the pleading issue in a broader context. Thus, whatever the complexity of the case, if a pleading does not satisfy the Twombly plausibility standard, it would now be subject to a successful Rule 12(b)(6) motion. Given the Court's intent, it became reasonably clear that motions to dismiss would become the first serious point of attack in complex litigation, especially where the action involved an essential element that would commonly be within the defendant's sole knowledge and control. In Twombly, the missing but essential element was whether the defendants' parallel conduct was the product of an actual agreement. What was not wholly clear from the opinion was the role such motions would play in less complicated cases and whether the new plausibility standard would have any practical impact on the viability of such cases.

      The judicial dialogue between the dissent and the majority in Twombly involved the majority's overriding concern about the enormous costs that the parties would incur if such a complex case were to advance to discovery. There can be little doubt that the majority's concern about the costs of discovery was reasonable. A single class action antitrust case could easily involve many hundreds of thousands of dollars, perhaps millions, in costs and hundreds of hours in judicial supervision. The dissent's answer to the majority's concern, that close judicial supervision of discovery should control costs, ran against the oft-stated experience of the trial bar that there is a chronic lack of such supervision.

      The immediate result of the majority's decision was that the Twombly plaintiffs would never advance to discovery. The plaintiffs might complain that only the defendants could know whether their parallel conduct was the product of agreement and, hence, unlawful, or the product of independent action and, thus, legitimate. Because defendants understandably keep such knowledge a closely guarded secret, the plaintiffs' only chance of uncovering that secret would be by engaging the defendant in discovery.

      Given the majority's well-taken concerns about discovery costs, the central question that the Court actually decided was whether the plaintiffs should advance to discovery. The majority answered that question in the negative, even where the existence or nonexistence of the critical agreement was totally within the defendants' knowledge and control and, most significantly, when the plaintiffs never had an opportunity to explore for an explanation of the defendants' parallel conduct.

      In reaching its conclusion, the Court was not interested in whether the plaintiffs actually had a legitimate claim or whether, as a result of discovery, they could have proven their claim at trial. Logically, the undisputed parallel conduct was either the result of an actual agreement or it was not. If discovery had established that the parallel conduct was, in fact, the result of an actual agreement, the plaintiffs indisputably would have had a claim and it is equally indisputable that, because of the Court's opinion, that issue will never be resolved.

      Rather than directing its analysis to the conceivability of the claim, as would have been the procedure under Conley v. Gibson, the majority focused solely on the content of the complaint itself to determine whether it set out adequate facts to establish plausibility. The majority concluded that the plaintiffs did not plead sufficient facts to establish a plausible claim under [section] 1 of the Sherman Act, even though they had pleaded parallel conduct. The court reached this conclusion because the plaintiffs did not allege facts indicating an actual agreement, as distinguished from merely stating that there had been an actual agreement. Such allegations certainly provided notice that the plaintiffs were claiming the defendants had violated [section] 1 of the Sherman Act, first, by agreeing not to compete one against the other and, second, by failing to provide third party competitors lawful access to their territories. In addition, final judgment on the plaintiffs' claims would have barred subsequent claims arising out of the same subject matter. Adequate notice of the plaintiffs' claim and res judicata applied to the subject matter of the claim were the essential elements required in Judge Charles Clark's concept of notice pleading. In Twombly, the majority either abandoned that view of notice pleading or substantially modified it.

      After analyzing the complaint, the majority ruled that plaintiffs' allegations of an agreement were ultimately founded on the fact of parallel conduct and were, thus, simply "legal conclusions." (7) Here, the majority was harkening back to a distinction that was well known in jurisdictions that practiced under the Field Code. There, dismissals were often granted when the Court ruled that facts essential to establishing a claim were framed in legal conclusions. This distinction between facts and legal conclusions had already found its way into federal appellate decisions that involved antitrust, securities, or civil rights issues, but in Twombly, the Supreme Court itself utilized this distinction to decide that not only antitrust cases but, as it became clear in Iqbal, any case filed in a federal district court could not advance to discovery and should be dismissed where essential "facts" were missing and "legal conclusions" had been substituted.

      In effect, the majority ruled that an adequate notice of a claim sufficient to proceed to discovery must now satisfy a plausibility standard and that standard could be satisfied only when the pleadings contained sufficiently detailed facts to make out a prima facie case. If a pleading failed to meet this standard, the action would be dismissed just as if the defendant had successfully moved for Summary Judgment under Rule 56 or for a Judgment as a Matter of Law under Rule 50. The only difference is that final judgment would enter at the pleading stage rather than after discovery or trial.

      Immediately after Twombly, it was unclear what would be the full impact of the opinion on responsive pleadings. As the trial bar came to understand the full significance of Twombly, would there be an increase in Rule 12(b)(6) motions in complex litigation, especially in cases such as Twombly, where an essential fact, such as scienter, was within the exclusive control of the defendant? Would a significantly higher percentage of such motions be successful where the plaintiff did not satisfy the plausibility standard because the court ruled that the claims set out in the complaint relied solely on "legal conclusions?"

      The impact of the plausibility standard on less complex cases was far from clear. As drafted, the Rules made no distinction between simple and complex cases. While the Court initially granted certiorari to address "the proper standard for pleading an antitrust conspiracy through allegations of parallel conduct," its opinion spoke in broader terms. (8) In the course of its decision, the majority chose to retire the "no set of facts" language from Conley and introduced a plausibility standard in its place. This new standard for determining the adequacy of a pleading, as became clear in Iqbal, applied to all cases and not just to antitrust conspiracies or complex litigation.

      The question immediately after Twombly was whether future courts would strike down complaints because legal conclusions were pleaded instead of detailed facts. Certainly, cases that fell within the Appendix of Forms should pass muster. This should be so even where the forms themselves were infiltrated with legal conclusions. (9) See for example Form 11. But what would be the fate of the many typical cases for which there was no immediately applicable form? After all, the forms were only intended to be "guides in pleading," illustrative not exhaustive. (10) How, indeed, would future courts decide whether a pleading was sufficiently fact-driven or whether it improperly relied on "legal conclusions?" There was no shortage of conflicting decisions under so-called code jurisdictions that were sure to provide confusion. The decision on whether an allegation was fact- driven or a legal conclusion was not always an easy one. In addition, the governing concern of the...

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