Friday, December 4, 2009

How Low Can the Pleadings Standard Go?

Recent legislation seeks to overturn the infamous Bell Atlantic v. Twombly and Ashcroft v. Iqbal cases responsible for holding plaintiffs to a higher pleadings standard. Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007); Ashcroft v. Iqbal, 129 S.Ct. 1937 (2009). Before Twombly, FRCP Rule 8 laid out a notice pleading standard which required a short and plain statement of the claim showing that the pleader is entitled to relief in order to give defendants fair notice. At the initial pleadings stage, the plaintiff had the burden of making factual allegations that, if true, stated a cause of action on which relief could be granted. Although the allegations needed to satisfy all elements of the claim, no evidence was required.

However, in Twombly, the Supreme Court created a plausibility standard establishing that a pleading must contain something more than a statement of facts that merely create a suspicion of a legally cognizable right of action. Revisiting Twombly in Iqbal, the Court rejected the theory that the heightened standard applied only to antitrust conspiracies, claiming that “Twombly expounded the pleading standard for ‘all civil actions.’” 129 S.Ct. at 1955. Supporters of these decisions believe that the heightened standard will reduce the amount of frivolous claims and avoid cases in which discovery is unlikely to reveal relevant evidence.

Well, Senator Arlen Specter begs to differ. Proposing the Notice Pleading Restoration Act, he is joined by several other officials in arguing that a higher pleadings standard simply favors defendants who succeed in concealing evidence, especially large corporations. As a result, courts are more likely to wrongly dismiss cases.

In certain respects, I do agree that the standard may be too high. First, it seems unfair to say that a meritorious case is always factually supported from the beginning. For instance, the plausibility standard is likely to be invoked is discrimination cases where the defendants will succeed on the basis of pure information asymmetry. Sometimes, the information necessary to meet the standard is in the hands of the defendants, and plaintiffs get caught in the catch 22 of needing discovery documents to solidify their claim while being stopped short of actually engaging in discovery. Also, I think that courts are able to impose certain limits on the discovery process to avoid the idea that it merely becomes a fishing expedition amounting to a waste of time and money. However, I think the major attack comes from the idea that lawyers, judges, plaintiffs and defendants alike have absolutely no idea what a plausibility standard actually entails. As a result, the Iqbal decision seems to imply that judges are left to decide right from the start whether the plaintiff is likely to have a meritorious claim, and without enough information, this decision can be construed as rather arbitrary.

I will say that, in reading about this new legislation, I was intrigued by the vast number of Twombly supporters who truly believe that the heightened standard will promote worthy claims, save resources, and encourage settlements. I know that I am instinctively uncomfortable with both Twombly and Iqbal, but I am open to being persuaded otherwise.

12 comments:

  1. I think your point about asymmetric information is key. I share your view that Twombly ignores the the fact that defendants often have informational advantages that preclude plaintiffs from making "plausible" claims at the outset. But maybe the way Twombly supporters see it is that nefarious plaintiffs exploit this assumption of asymmetric information: in a non-Twombly world, a greedy potential plaintiff knows that, by bringing a complaint with factual allegations that will be presumed to be true, he or she can put the defendant in the position of having to choose between engaging in extensive discovery to disprove this plaintiff's frivolous allegations or, instead, settle to avoid the costs of producing evidence that will lead to a dismissal of the plaintiff's complaint. These plaintiffs bet that they will be enriched because the defendants will choose to settle.

    So Twombly supporters also perceive information asymmetry, but one that disadvantages defendants. Both sides agree that defendants have the best information to determine the outcome of the claim, but they diverge on who is right. Those with an inherent pro-defendant bias may tend to believe that, while defendants have the best information to prove their innocence, having a simple pleading standard will lead these defendants to choose to settle (and reward plaintiffs with frivolous claims) rather than choose to undertake in costly efforts to produce exonerating evidence. On the other hand, a pro-plaintiff bias leads to the view above - a plaintiff with a legitimate claim will have a hard time being successful because the defendant has the information the plaintiff needs to prove the allegations the plaintiff is making.

    The ideal pleading standard is one that balances these two perspectives and ensures both sides are fairly treated. But given the lack of granularity in what goes into a pleading (they are either just a statement of facts, or they also have something more), a middle ground that balances pro-plaintiff and pro-defendant viewpoints seems difficult to formulate. I think this is where the realities of life need to come into play to dictate the best legal rule. And the reality is that, while there may be frivolous claims brought by plaintiffs who simply seek money and do not care about actually remedying a violation of their rights, there are also many people whose rights are violated and whose only means of redress is the legal system. With the pre-Twombly pleading standard, the cost of having to deal with frivolous claims is more than offset, in my opinion, by the benefit of ensuring that people have an opportunity to address a violation of their rights. Twombly moves the legal system in the wrong direction. While frivolous lawsuits are indeed a problem that needs to be dealt with, I think instituting a heightened pleading standard is too blunt an instrument to deal with this problem; good cases are dismissed for the sake of keeping bad ones out.

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  2. You're about a month late on this...very old news!

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  3. Fair enough! A professor here was asked to testify in front of the Senate about this, which is why it was brought to my attention. I would still appreciate any insight.

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  4. @ 10:04--

    Robin's post did not purport to "break" a news story. She was presenting an issue, and weighing in with her perspective and opinion.

    Robin, you should take a look at this new article: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1494683

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