, 550 U.S. 544 (2007), federal courts have been grappling with the change, if any, to what needs to be pleaded in order to get past a motion to dismiss under
. On June 30, 2010, the Seventh Circuit issued a decision in
, 614 F.3d 400 (7th Cir. 2010), Case No. 10-1122, that promises to have a major impact on how courts ultimately resolve this question
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In
Swanson, a plaintiff brought a discrimination action based on a denial of her application for a home-equity loan, but the district court dismissed her complaint. The plaintiff then appealed the case to the Seventh Circuit. The Court noted that a plaintiff
must do better than putting a few words on paper that, in the hands of an imaginative reader, might suggest that something has happened to her that might be redressed by the law.
But the Court noted that there were questions about just how high the bar is set after
Twombly.
This is not an easy question to answer, as the thoughtful dissent from this opinion demonstrates. On the one hand, the Supreme Court has adopted a "plausibility" standard, but on the other hand, it has insisted that it is not requiring fact pleading, nor is it adopting a single pleading standard to replace
Rule 8, Rule 9, and specialized regimes like the one in the Private Securities Litigation Reform Act ("PSLRA"), 15 U.S.C. § 78u-4(b)(2).
Critically, in none of the three recent decisions —
Twombly,
Erickson, or
Iqbal — did the Court cast any doubt on the validity of Rule 8 of the Federal Rules of Civil Procedure. To the contrary: at all times it has said that it is interpreting Rule 8, not tossing it out the window.
The Court then went on to examine the text of Rule 8 and the language of recent Supreme Court decisions and concluded the following:
As we understand it, the Court is saying instead that the plaintiff must give enough details about the subject-matter of the case to present a story that holds together. In other words, the court will ask itself could these things have happened, not did they happen. For cases governed only by Rule 8, 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.
[I]n many straightforward cases, it will not be any more difficult today for a plaintiff to meet that burden than it was before the Court’s recent decisions. A plaintiff who believes that she has been passed over for a promotion because of her sex will be able to plead that she was employed by Company X, that a promotion was offered, that she applied and was qualified for it, and that the job went to someone else. That is an entirely plausible scenario, whether or not it describes what "really" went on in this plaintiff’s case. A more complex case involving financial derivatives, or tax fraud that the parties tried hard to conceal, or antitrust violations, will require more detail, both to give the opposing party notice of what the case is all about and to show how, in the plaintiff’s mind at least, the dots should be connected.
The Court concluded by addressing one of the major reasons defendants use in arguing in favor of a higher pleading standard.
We realize that one powerful reason that lies behind the Supreme Court's concern about pleading standards is the cost of the discovery that will follow in any case that survives a motion to dismiss on the pleadings. The costs of discovery are often asymmetric, as the dissent points out, and one way to rein them in would be to make it more difficult to earn the right to engage in discovery. That is just what the Court did, by interring the rule that a complaint could go forward if any set of facts at all could be imagined, consistent with the statements in the complaint, that would permit the pleader to obtain relief. Too much chaff was moving ahead with the wheat. But, in other contexts, the Supreme Court has drawn a careful line between those things that can be accomplished by judicial interpretation and those that should be handled through the procedures set up in the Rules Enabling Act, 28 U.S.C. §§ 2071 et seq.
This is not the first decision from the Seventh Circuit that has described the pleading standard after
Twombly as essentially being the same as it was before
Twombly. However, this is likely to be a very important decision for the bar. Judge Wood took the time to analyze the issues surrounding the applicable pleading standard in depth and has provided plaintiffs with ammunition to use when defendants argue that a motion to dismiss should be granted, in part, because of the burdens the defendants will have to face if it is not. Similarly, it provides a focus on whether the pleadings actually provide notice of the claims that defendants can use to attack pleadings. To say the least, lawyers both inside and outside the Seventh District will soon be citing this decision.
