Prior to May 21, 2007, motions to dismiss complaints in federal courts for failure to state a claim were uneventful affairs. Unless a plaintiff failed to provide any set of facts to support his claims, he could rest assured that the motion would be denied. In May 2007, the Supreme Court in Bell Atlantic v. Twombly1 sent notice to plaintiffs that the old standard was changing. No longer would plaintiffs have a quick and easy road to the often costly discovery phase of litigation. The Supreme Court extended the reach of Twombly in May of 2009 when it decided Ashcroft v. Iqbal.2 Twombly and Iqbal are changing civil litigation. Plaintiffs now have a real hurdle to overcome before being permitted access to the discovery phase of litigation.
To understand the current changes it is helpful to understand the historical context in which Twombly and Iqbal were decided.
In 1957 the Supreme Court issued its decision in Conley v. Gibson.3 For the last fifty years Conley has been the seminal case construing federal pleading requirements that complaints contain “a short and plain statement of the claim showing that the pleader is entitled to relief.”4 Failure to do so allowed a defendant to dismiss the case under Federal Rule of Civil Procedure 12(b)(6) for “failure to state a claim upon which relief can be granted.” Conley established the liberal pleading standard, holding 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.”5
The practical impact of Conley was that the vast majority of cases survived a 12(b)(6) motion to dismiss and progressed to the discovery phase. This was favorable to plaintiffs as they were permitted to probe a defendant for facts to support their argument, regardless of how frivolous their claim may have been. Advancing to the discovery phase of litigation, while advantageous to plaintiffs, was a clear setback for defendants. Plaintiffs could impose huge costs in terms of time and money on defendants in the discovery phase, forcing cost-conscious defendants to settle claims not based on the merits, but based on a cost-benefit analysis of defending the litigation.
Electronically Stored Information (“ESI”)
The financial cost of civil litigation has grown exponentially in recent years. The advent of computers and the rise of e-mail and electronically stored data is a significant part of these rising costs.6 Cottage industries of consultants and specialists qualified to manage this new data trove have sprung up. New terms unheard of just a few years ago are now part of the legal lexicon. ESI, electronically stored information, is now a major concern in civil litigation.
In December of 2006 the Supreme Court approved a number of significant changes to the Federal Rules of Civil Procedure in an attempt to more effectively regulate ESI. The amendments provide a framework for conducting electronic discovery, obliging litigants to identify, preserve, and collect ESI very early in a case. For example, Federal Rule of Civil Procedure 26(f)(3)(c) directs parties to address ESI in their discovery plans. All of these factors and burdens on defendants may have contributed to the Supreme Court’s newfound reasoning in Twombly.
I. Bell Atlantic v. Twombly
Bell Atlantic v. Twombly7 was an anti-trust case brought by a putative class of subscribers of local telephone and/or high speed internet services against local telecommunication carriers (so called “Baby Bells”). Plaintiffs argued that parallel business behavior between defendants suggested a conspiracy to restrain competition. The question before the Supreme Court was what facts needed to be stated in the complaint in order to state a claim under Section 1 of the Sherman Act.
In dicta, Justice Souter, writing for the majority, discussed the impact that expensive discovery has on litigation, noting that “when the allegations in a complaint, however true, could not raise a claim of entitlement to relief, ‘this basic deficiency should . . . be exposed at the point of minimum expenditure of time and money by the parties and the court.’”8 Justice Souter continued in this vein, stating that “it is one thing to be cautious before dismissing an antitrust complaint in advance of discovery, but quite another to forget that proceeding to antitrust discovery can be very expensive.”9 He went on to acknowledge specifically the practical impact of today’s modern litigation with increased discovery expenses can “push cost-conscious defendants to settle even anemic cases before reaching … proceedings.”10
Turning to the specific issues in Twombly, Justice Souter stated that “the complaint leaves no doubt that the plaintiffs rest their [ ] claim on descriptions of parallel conduct and not on any independent allegation of actual agreement among the [telecommunication carriers].”11 By failing to allege facts that support their allegations, plaintiffs did not meet the standard for avoiding a 12(b)(6) motion to dismiss. The Court held, 7-2, that a plaintiff who wants to avoid having his case dismissed must plead “enough facts to state a claim to relief that is plausible on its face. Because the plaintiffs here have not nudged their claims across the line from conceivable to plausible, their complaint must be dismissed.”12
The Twombly standard is based on whether the complaint states a set of facts that, assuming their truth, makes it “plausible” that the plaintiff has a claim which would entitle him to relief. By repudiating Conley’s “no set of facts” standard, the Court ushered a heightened element of fact-pleading back into the complaint procedure, thus making it easier to dismiss meritless complaints at the pleading stage before engaging in costly discovery.
By adding plausibility language to the analysis, Twombly gives federal judges the ability to dismiss cases based on their subjective understanding of what is probably true, not simply what is conceivably true. While the change in language is subtle, the impact is not. As the gatekeepers of the discovery phase, federal judges now have a Supreme Court decision to rely on when they believe a claim is meritless and should be dismissed, even if plaintiff provides some set of facts that conceivably can support their complaint.
Twombly was an antitrust case and a putative class action, a type of proceeding (and area of law) prone to excessive discovery costs. Even a judge committed to limited discovery would be hard pressed to limit the expenditure of significant time and money by the parties. For example, in Twombly the representative plaintiffs represented a proposed class of 90 percent of all local telephone and/or high-speed Internet subscribers in the continental United States against some of America’s largest telecommunication carriers in an alleged conspiracy that spanned seven years. Even limited discovery would involve significant manpower and tremendous resources. It was obvious that the Supreme Court intended to short circuit potentially frivolous large scale litigation in Twombly, but the question on the minds of legal scholars was whether Twombly would apply in a different, smaller – so – called “normal” – litigation setting.
II. Ashcroft v. Iqbal
In May of 2009 the Supreme Court provided some answers in Ashcroft v. Iqbal.13 Iqbal arose from government policies instituted after the terrorist attacks of September 11, 2001. Following September 11, Mr. Iqbal, a Pakistani Muslim living in New York, was arrested on criminal charges and detained by federal officials. Iqbal was held for months in isolation in a maximum security prison and subjected to intense interrogation. He claims he was shackled, kicked, punched, strip-searched, and denied medical attention during his incarceration.
After his release, Iqbal brought suit against the U.S. government, alleging that FBI officials carried out a discriminatory policy by designating him as a person of “high interest” in the investigation of the September 11 attacks solely because of his race, religion, or national origin. At issue was whether current and former federal officials, including current FBI Director Robert Mueller and former U.S. Attorney General John Ashcroft, were entitled to qualified immunity against an allegation that they knew of or condoned racial and religious discrimination against individuals detained in the wake of September 11.
Iqbal’s case was clearly outside the antitrust realm and did not lend itself to the excessive discovery concerns that were prominent in the Twombly litigation. Furthermore, the appellate court in Iqbal promised petitioners minimally intrusive discovery. Despite these vastly different circumstances, Justice Kennedy, writing for the majority in a 5-4 decision, applied the reasoning of Twombly and dismissed Iqbal’s complaint. By doing so, the Supreme Court strongly implied that Twombly applied to all civil actions, not simply complex antitrust, putative class action cases.
In explaining the meaning of “plausible” from the Twombly decision, the Court in Iqbal described a plausible claim for relief as a “context-specific task that requires the reviewing court to draw on its judicial experience and common sense.”14 This type of language gives federal judges considerable leeway to dismiss cases based on their own subjective opinions and experience. Lower courts have taken note, citing to Iqbal well over 500 times since it was decided just several months ago. Based on these numbers, it is easy to conclude that Iqbal represents a significant setback for plaintiffs in civil litigation and a boon for defendants. However, there are prominent legal scholars and judges who view Twombly and Iqbal as not representing as dramatic a departure from the Conley era as perhaps might appear at first blush.
Judge Posner of the Court of Appeals for the Seventh Circuit, a prominent and well-regarded jurist, has gone against the grain and suggested that perhaps Twombly and Iqbal are more limited in reach than previously suggested. In a recent Seventh Circuit case15 he suggested in dicta that perhaps Twombly (because of its complexity and sheer expense) and Iqbal (because it deals with qualified immunity for high level officials who must be neither deterred nor detracted from performing their governmental duties) are unique cases. Judge Posner’s argument is that the special circumstances in these cases suggests that Twombly and Iqbal are not as instructive on how the Supreme Court or lower courts should decided future 12(b)(6) motions to dismiss.
There is certainly room for debate. Supreme Court Justice Ginsburg, part of the dissent in Iqbal, later told a group of federal judges that the majority opinion in Iqbal “messed up the federal rules” governing civil litigation.16 Justice Souter himself, the author of the majority opinion in Twombly, drafted the dissent in Iqbal, stating that the majority “misapplie[d]” the pleading standard from Twombly in Iqbal. Adding more uncertainty to the matter is the fact that Justice Souter has since stepped down from the bench, meaning that a Supreme Court with a different composition will answer future questions on this issue.
Even the U.S. Senate has jumped into the fray. Senator Arlen Specter (D-Pa.) has filed the “Notice Pleading Restoration Act of 2009.” This legislation, if passed, would direct federal courts to interpret the Federal Rules of Civil Procedure as they did in the pre-Twombly/Iqbal era. Senator Specter wants to return the days of Conley. In remarks prepared for the Senate floor, Senator Specter stated:
The effect of the Court’s actions will no doubt be to deny many plaintiffs with meritorious claims access to the federal courts and, with it, any legal redress for their injuries. I think that [it] is an especially unwelcome development at a time when, with the litigating resources of our executive-branch and administrative agencies stretched thin, the enforcement of federal antitrust, consumer protection, civil rights and other laws that benefit the public will fall increasingly to private litigants.
Senator Specter’s proposed legislation and remarks underscore the view that Twombly and Iqbal are a meaningful departure from the old rules.
While Congress debates legislation to address Twombly and Iqbal, the federal courts have been busy applying the new standards. Federal courts around the country are faced with 12(b)(6) motions citing Twombly and Iqbal as they have become the du jour cases for defendants to rely on. In New York alone, well over 1,500 cases have either cited to or thoroughly examined Twombly in the mere two years since it was decided.17
Recent New York Federal Court Decisions
To see the impact of Twombly and Iqbal, one need only look at recent federal court decisions. In Air Atlanta Aero Engineering Limited v. SP Aircraft Owner I, L.L.C.18 the Southern District of New York relied on Twombly and Iqbal in granting defendants’ 12(b)(6) motion to dismiss on all counts. Plaintiff, a maintenance service provider, brought suit claiming breach of contract, unjust enrichment, quantum meruit, and promissory estoppel in connection with services rendered. Defendants, aircraft lessors, successfully argued that plaintiff’s claims were not pled with sufficient specificity to avoid a motion to dismiss for failure to state a claim. The court analyzed each of plaintiff’s claims in light of Twombly’s plausibility standard and concluded that the allegations by plaintiff were no more than legal conclusions unsupported by facts, and hence did not pass muster under Twombly.
The Eastern District of New York applied Twombly and Iqbal in granting a 12(b)(6) motion to dismiss all claims in Vaughn v. Air Line Pilots Association, International.19 Plaintiffs, pilots currently or formerly employed by U.S. Airways, filed a complaint against the pilot union, alleging breach of duty of fair representation, age discrimination and other claims. The court granted the union’s motion to dismiss on all counts because plaintiffs failed to support their claims with sufficient facts to meet the plausibility standard. After establishing the 12(b)(6) legal standard by citing to Twombly and Iqbal, the court found that plaintiffs had either not met an element of the claim or did not support an element of a claim with sufficient facts for the claim to be considered plausible.
The Court of Appeals for the Second Circuit also has applied the new Twombly plausibility standard in upholding a lower court’s dismissal of claims under a 12(b)(6) motion. In In re Elevator Antitrust Litigation20 the appeals court affirmed the lower court decision that purchasers of elevators and elevator maintenance services had failed to sufficiently plead an antitrust violation under the Sherman Act. The purchasers alleged a horizontal price fixing conspiracy against the defendant elevator manufacturers. The court held that plaintiffs’ bare assertions of anticompetitive wrongdoing did not amount to much more than a suggestion that a violation of the antitrust laws could be occurring. While this type of pleading may have survived in the Conley era, it was not sufficient in light of Twombly.
The Second Circuit also addressed Twombly and Iqbal in South Cherry St. L.L.C. v. Hennessee Group L.L.C.21 South Cherry involved a group of investors who brought contract and securities fraud claims against investment advisors for failure to discover and disclose that a hedge fund recommended by the advisors was part of a Ponzi scheme. On appeal, the Second Circuit held that the factual allegations in the complaint did not give rise to a strong inference that the alleged failure to conduct due diligence was indicative of an intent to defraud. Relying on Twombly and Iqbal, the court held that plaintiffs’ claims were without merit and affirmed the lower court’s dismissal of the complaint.
While many view Twombly and Iqbal as retiring the old Conley standard, there are those who disagree. For now it seems the general consensus is that plaintiffs have a higher bar to meet in their pleadings if they want access to the discovery kingdom. This is welcome news to defendants in civil litigation in light of rising discovery costs. Either the Supreme Court in future decisions or Congress in passing the Notice Pleading Restoration Act of 2009 will ultimately decide the future of 12(b)(6) motions in federal courts.
1 Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007).
2 Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009).
3 Conley v. Gibson, 355 U.S. 41 (1957).
4 Fed. R. Civ. P. 8(a)(2).
5 Conley at 45-46.
6 Ann G. Fort, Rising Costs of E-Discovery Requirements Impacting Litigants, FULTON COUNTY DAILY REPORT, March 20, 2007.
7 Bell Atlantic, 550 U.S. 544.
8 Id. at 11. (quoting Daves v. Hawaiian Dredging Co., 114 F. Supp. 643, 645 (Haw. 1953)).
9 Id. (citation omitted).
10 Id. at 13.
11 Id. at 18.
12 Id. at 24.
13 Ashcroft, 129 S. Ct. 1937.
14 Id. at 15.
15 Smith v. Duffy, 576 F.3d 336 (7th Cir. 2009).
16 Adam Liptak, 9/11 Case Could Bring Broad Shift in Civil Suits, N.Y. TIMES, July 21, 2009, at Sidebar.
17 Citing references on Westlaw for Bell Atlantic Corp. v. Twombly.
18 Air Atlanta Aero Eng’g Ltd. v. SP Aircraft Owner I, L.L.C., No. 08 Civ. 8852, 2009 WL 2191318 (S.D.N.Y.).
19 Vaughn v. Air Line Pilots Ass’n, Int’l, 395 B.R. 520 (E.D.N.Y. 2008).
20 In re Elevator Antitrust Litig., 502 F.3d 47, 2007 (2d Cir.).
21 South Cherry St., L.L.C. v. Hennessee Group L.L.C., 573 F.3d 98, 2009 (2d Cir.).