Saturday, May 23, 2009

Ashcroft v. Iqbal: Back to the Future?

By John L. Watkins

When I was in law school, now quite a few years ago, we were taught that a complaint filed under the Federal Rules of Civil Procedure had to meet a very low threshold to survive a motion to dismiss. The allegations of the complaint were to be taken as true, and the complaint was to be dismissed only if it could not state a claim for relief under any circumstances that might reasonably be imagined.

We were also taught that the Federal Rules were in derogation of the former system of "code pleading," in which a plaintiff had to set forth the allegations of the complaint or petition with great specificity. Code pleading allowed the defendant to challenge the complaint through general and special "demurrers." There are probably not many lawyers, at least those who practice in states where the state civil procedure rule are modeled after the Federal Rules, who can even tell you what a demurrer is with any specificity.

Nevertheless, the gist of what we were taught was that code pleading was essentially unfair, because it resulted in many cases being thrown out of court at the outset -- some potentially meritorious -- due the the failure to plead the right "magic words." The "enlightened" Federal Rules, in contrast, were designed to make sure that cases were decided on the merits and without regard to technicalities. Hence, all but the most general or manifestly insufficient complaints would "state a claim" and survive a motion to dismiss.

Georgia's procedural rules were changed many years ago, well before I started practicing, to mirror the Federal Rules. Nevertheless, when I started practicing at the Hansell & Post firm (now Jones, Day's Atlanta office), there were still some old dogs (one in particular), who lamented the passing of the general and special demurrer. I remember a comment along the lines of, "They let them [plaintiffs] get by with anything these days."

Well, my old colleague and mentor would probably be pleased about the United States Supreme Court's decision this past week in Ashcroft v. Iqbal (No. 07-1015, May 18, 2009). The Ashcroft case was about whether a Pakistani citizen could maintain a civil action against former Attorney General John Ashcroft and former FBI Director Robert Mueller for violation of the plaintiff's civil rights in the aftermath of the 9/11 attacks. However, the opinion has a much broader application, because the Supreme Court clarified the standards applicable for pleading a valid cause of action under Federal Rule of Civil Procedure 8 in all civil cases in federal court. Some would argue that the Supreme Court's opinion represents a trip "back to the future" because it establishes rules somewhat reminiscent of what we were taught years ago about code pleading.

In Ashcroft, the district court and the Second Circuit Court of Appeals ruled that the plaintiff had adequately pled a cause of action. Based on the allegations of the complaint that are repeated in the Supreme Court's opinion, it certainly appears that the complaint was pled with at least a typical degree of specificity. However, the Supreme Court disagreed, ruling 5-4 that the complaint was not adequately pled under Federal Rule 8. Somewhat typically, Justice Kennedy represented the swing vote, and he also wrote the majority opinion.

The significance of the Court's decision goes far beyond its particular facts. Much of the Court's discussion of the pleading requirements, is based on its recent prior decision in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007). Twombly established stricter fact-based pleading requirements for antitrust cases.

Ashcroft, however, makes explicitly clear that the pleading requirements specified in Twombly, and amplified in Ashcroft itself, apply generally to Federal Rule 8, and hence to all civil cases filed in federal court.

To state a claim for relief, the Court stated that a complaint must contain sufficient factual matter, accepted as true, to state a claim for relief that is "plausible on its face." The requirement is not a "probability" requirement, but requires enough for a district court to conclude there is more than a "sheer possibility" that the defendant has violated the law. Complaints that plead facts that are "merely consistent with" liability fall short. Complaints that contain well-pleaded facts that only show the possibility of misconduct will not survive a motion to dismiss, because they do not show that the pleader is entitled to relief, as provided in Rule 8.

The Court also makes clear that pleading legal conclusions, or "threadbare recitals of a cause of action" supported by conclusory statements are insufficient. Further, the district court is not bound to accept as true a legal conclusion couched as a factual allegation. Although repeating the familiar mantra that Rule 8 is a significant departure from code pleading, the court cautioned that it "does not unlock the doors of discovery" to plaintiffs armed with only conclusory allegations.

Turning to the specifics of the Complaint, the Court found certain allegations to fail because they were merely a conclusory recitation of the elements of a cause of action. The Court made clear that these allegations were disregarded not because they were "extravagantly fanciful," but simply because they were conclusory.

The Court then considered allegations that the defendants subjected plaintiffs and others to detention because of their race, religion and national origin. The Court found these allegations consistent with purposeful illegal conduct. However, the Court found these allegations not sufficient because "given more likely explanations, they do not plausibly establish this purpose." Specifically, the Court found that, because the September 11 attacks were committed by members of Al Qaeda, it was no surprise that the efforts of law enforcement had a disparate, incidental impact on "Arab Muslims," even though the purpose of the policy was probably not to target Arabs or Muslims. Thus, the arrests overseen by Mueller were likely based on a non-discriminatory intent to detain aliens illegally present in the United States who had a connection to those who committed terrorist acts. Given this alternative explanation, a discriminatory intent was not a "plausible conclusion."

As previously noted, the Court also rejected the argument that Twombly only applied to antitrust cases, and held that the rules applied to all civil cases under Rule 8. The Court also rejected the argument that the district court's ability to limit and supervise discovery should excuse meeting stricter pleading requirements. Finally, the Court rejected an argument that Rule 9 allowed the plaintiff to allege discriminatory intent generally. The Court held that, although intent does not have to meet the heightened requirements of pleading fraud with particularity, as provided under Rule 9(b), the plaintiff must still plead intent consistent with the requirements of Rule 8, as they are set forth in the opinion. Rule 8, in turn, does not permit the pleading of the bare allegations of a cause of action to survive a motion to dismiss.

The practical significance of the Ashcroft decision remains to be seen. I can say, however, that it sure seems different than the rules that have applied for many years. Ashcroft applies a much greater level of scrutiny regarding the sufficiency of the allegations of a complaint than I am used to seeing. The way in which the Court considered an alternative explanation and weighed the plausibility of the allegations against the alternative explanation is like nothing I have seen in the district courts. Parenthetically, there seems to be more than a smattering of inconsistency in reasoning holding that well-pled allegations must be accepted as true, but then weighed for plausibility. In addition to this difference of approach, which will almost certainly be Ashcroft's primary legacy, here are my best guesses regarding the likely effects of the opinion:

  • Plaintiffs will file more detailed and fact-specific complaints. No one will want to take the risk of "notice pleading."

  • Defendants in federal court will be much more likely to file a motion to dismiss to challenge the sufficiency of a complaint. Because of the increased possibility of securing a dismissal and avoiding the expense and hassle of discovery, there is little incentive not to do so. The cost/benefit analysis (weighing the certain cost of filing a motion vs. the potential benefit) has substantially shifted.

  • More motions will mean a greater workload for federal district judges, a reality they will certainly not appreciate.

  • It is difficult to say, however, how federal judges will actually apply Ashcroft. Old teaching and old habits die hard. For example, despite recent amendments to the Federal Rules that, as written, require the Court to scrutinize and limit discovery, many judges seem to apply the discovery rules as broadly as they always have. Further, Ashcroft clearly leaves a great deal of discretion to the district courts, and there are not going to be many appeals from orders denying motions to dismiss.

  • It is also questionable whether Ashcroft will have any substantive effect for another reason: Litigants are almost always given at least one opportunity to amend and re-plead. In Ashcroft itself, the Supreme Court remanded to the Second Circuit to consider whether to remand to the district court so that the plaintiff could seek leave to amend.

  • My best guess -- although there is an argument to the contrary -- is that the net effect will be to increase the cost of litigating in the federal courts.

  • My best guess is that the decision will also increase the average time it takes to litigate a case in federal court.

Regardless of the effects, I am sure that my old colleague is somewhere smiling.

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