Iqbal and Twombly transform federal litigation

Courts are unevenly applying two infamous Supreme Court decisions

In a now infamous pair of decisions, Bell Atlantic v. Twombly in 2007 and Ashcroft v. Iqbal in 2009, the Supreme Court announced a new pleading standard that shook the foundations of federal litigation. The decisions allow district court judges to dismiss a complaint if it does not set out a “plausible” claim—a departure from the rule established in the 1957 case Conley v. Gibson that a court cannot dismiss a complaint unless it is apparent that the plaintiff could prove “no set of facts” that would entitle him to relief.

The defense bar heralded the decisions as a path to early dismissal of frivolous cases. Meanwhile, plaintiffs decried Iqbal as a barrier to legitimate claims. But according to a recent study by the Federal Judicial Center (FJC), neither prediction has come true.

The FJC studied data from 23 federal district courts and found that although defendants are filing more motions to dismiss—a 2.2 percent increase over pre-Twombly levels—those motions aren’t resulting in more cases being dismissed with prejudice. Rather, courts are giving plaintiffs a chance to replead. A study published by the Washington College of Law at American University showed that the percentage of motions to dismiss that were granted with leave to amend “increased from 6 percent under Conley to 9 percent under Twombly to 19 percent under Iqbal.”

In practice, the data doesn’t tell the whole story. Although most cases aren’t summarily dismissed, defendants are successfully invoking Iqbal to whittle down claims and ultimately to get courts to throw out amended complaints. But litigants also are discovering that not every jurisdiction gives Iqbal equal force.

“It depends what part of the country you’re in whether you can get through the courthouse door with the same complaint,” says University of Pennsylvania law professor Stephen Burbank.

Chipping Away

Even when motions citing Iqbal do not result in dismissal, there are several ways in which the decision helps defendants. The first is narrowing the theories asserted.

“The plaintiff might file a complaint with seven counts, and some will get chopped off,” says Max Kennerly, an attorney with the Beasley Firm. “For instance, in a recent breach of fiduciary duty case, the court cut off the plaintiff’s claim for consequential damages, ruling that it wasn’t pleaded with enough specificity.”

Likewise, courts may dismiss certain defendants without throwing out the whole case. In the 2011 breach of contract case Two Old Hippies v. Catch the Bus, for example, the District of New Mexico dismissed claims against the individual defendants, ruling that under Conley, it was acceptable to attribute allegations to all of the defendants, but that collective pleading did not satisfy Iqbal.

Iqbal also made it harder for plaintiffs to piggyback class actions on government antitrust investigations.

“It used to be that plaintiffs would see a government investigation and rush to file a bare-bones complaint regurgitating the language of the federal statute and hope to learn more in discovery,” says Caroline Mitchell, a partner at Jones Day. “Now, you can’t force a company to come to court and spend millions on its defense without first having facts.”

Mitchell also points out that although most dismissals under Iqbal are without prejudice, they often result in outright dismissal if the plaintiff can’t discover additional facts. This is particularly true in employment cases, in which plaintiffs rely on employers’ records to prove their claims. For instance, in the Southern District of Florida case Desrouleaux v. Quest Diagnostics, the court dismissed the initial complaint and allowed the plaintiff to replead. Although she added more specifics, the court ultimately wasn’t satisfied.

“Often, the plaintiff cannot get enough information without discovery into the employer’s personnel records,” Kennerly points out.

Uneven Application

Burbank is critical of how district courts are applying Iqbal and Twombly. He calls the situation “lawlessness cubed.”

“First, the Supreme Court amended the federal rules without going through the legal process for doing so,” he says. “Second, you have a number of federal courts continuing to apply a heightened pleading standard where they’re not supposed to; and third, you have some federal courts ignoring the clear implications of Iqbal and Twombly.”

The 7th Circuit, for example, has pushed back against the idea that Iqbal raised pleading standards. In Swanson v. Citibank, the court reversed the district court’s dismissal and wrote, “It is not necessary to stack up inferences side by side and allow the case to go forward only if the plaintiff’s inferences seem more compelling than the opposing inferences.”

Some state courts have declined to follow Iqbal. Delaware announced in the January case Cambium v. Trilantic Capital Partners III that it would continue to follow its “reasonable conceivability” standard.

Meanwhile, certain district courts apply Iqbal stringently. The American University study showed that district judges in the 2nd Circuit granted 60 percent of motions to dismiss, whereas courts in the 7th Circuit granted only 33 percent.

District courts exercise significant discretion in applying the “plausibility” standard. If a court denies a motion to dismiss, the defendant doesn’t have an immediate appeal, so there’s no choice but to litigate the case.

“There’s not a good mechanism for enforcing it,” Mitchell says.

In a strange twist, the Federal Circuit rejected the applicability of Iqbal to patent cases, where so-called “trolls” famously drag defendants to court with little factual support. Patent plaintiffs may still initiate a case by filling out a form identifying the patent and stating that the defendant is infringing on it without additional details.

“The disparity is shocking and grossly unfair,” Kennerly says.

Affirmative Defenses

Defendants need to be aware that Iqbal can be a sword as well as a shield. District courts remain divided on whether Iqbal also applies to affirmative defenses. Of the approximately 30 courts that have weighed in on the issue, about half apply Iqbal to affirmative defenses. No appellate courts have ruled on the issue.

“In their wake, Twombly and Iqbal have provoked a frenzy of district court opinions reexamining ... the pleading standard by which a court should judge a defendant’s affirmative defenses,” wrote Western District of Kentucky Chief District Judge Thomas Russell.

Adele Nicholas

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