If you’re a reader of this blog, you’re undoubtedly familiar with Bell Atlantic v. Twombly and Ashcroft v. Iqbal, a pair of Supreme Court cases which altered the pleading standards applicable to civil cases filed in federal court.

Defense lawyers have jumped all over those two opinions in an attempt to dismiss lawsuits — particularly complex commercial class actions, like antitrust cases — before any discovery can be taken. Every lawsuit, they claim, no matter how detailed and compelling, is "implausible" under Twombly and Iqbal. I taught CLEs to help other trial lawyers defeat those arguments.

Back when the Iqbal opinion first came out, I wasn’t impressed. Sure, the Supreme Court added the word "plausible" to the Rule 8 standard, but frankly I didn’t think Twombly or Iqbal would make Rule 8 and Rule 12(b)(6) any more dispositive than they already were. Before either of those cases were decided, if a judge read a plaintiff’s complaint and thought that the claim was "implausible," they would dismiss it under Fed.R.Civ.P. 12(b)(6) for failing to state a claim upon which relief could be granted. Twombly and Iqbal simply codified a practice that was already widespread in the federal judiciary.

That’s not to say I think the opinions do nothing — by way of their vague, ambiguous and amorphous language, they confuse a lot of judges into arbitrarily deeming certain allegations to be "conclusions" instead of "facts" (and even Judge Posner can’t figure out the "plausibility v. probability" distinction) — but the underlying legal principles are the same.

I said as much at the time. Time has proven me correct.

Almost exactly a year ago I posted Second Circuit Revives Digital Music Price-Fixing Case, Takes A Bite Out Of Twombly, noting a Second Circuit opinion which held:

Although the Twombly court acknowledged that for purposes of summary judgment a plaintiff must present evidence that tends to exclude the possibility of independent action, 550 U.S. at 554, and that the district court below had held that plaintiffs must allege additional facts that tended to exclude independent self-interested conduct, id. at 552, it specifically held that, to survive a motion to dismiss, plaintiffs need only “enough factual matter (taken as true) to suggest that an agreement was made,” id. at 556; see also 2 Areeda & Hovenkamp § 307d1 (3d ed. 2007) (“[T]he Supreme Court did not hold that the same standard applies to a complaint and a discovery record . . . . The ‘plausibly suggesting’ threshold for a conspiracy complaint remains considerably less than the ‘tends to rule out the possibility’ standard for summary judgment.”).

Defendants next argue that Twombly requires that a plaintiff identify the specific time, place, or person related to each conspiracy allegation. This is also incorrect. The Twombly court noted, in dicta, that had the claim of agreement in that case not rested on the parallel conduct described in the complaint, “we doubt that the . . . references to an agreement among the [Baby Bells] would have given the notice required by Rule 8 . . [because] the pleadings mentioned no specific time, place, or person involved in the alleged conspiracies.” 550 at 565 n.10. In this case, as in Twombly, the claim of agreement rests on the parallel conduct described in the complaint. Therefore, plaintiffs were not required to mention a specific time, place or person involved in each conspiracy allegation. 

The Second Circuit’s opinion was significant. The case was right up Twombly‘s alley — an allegation of an illegal agreement in violation of antitrust laws, the details of which were still known only to the defendants — and so the Second Circuit’s reinstatement of the case dealt a powerful blow to the defense lawyers who had been arguing that Twombly and Iqbal had slammed the courthouse shut on plaintiffs who couldn’t prove their whole case before even filing it.

The record companies in that case weren’t inclined to throw in the towel, so they filed a petition for certiorari to the Supreme Court arguing, as you would imagine, that the Second Circuit failed to follow Twombly and Iqbal.

A funny thing happened yesterday. Tucked in among pages and pages of summary orders at the Supreme Court was this:

10-263
SONY MUSIC ENTERTAINMENT, ET AL. V. STARR, KEVIN, ET AL.
The petition for a writ of certiorari is denied. The Chief Justice and Justice Sotomayor took no part in the consideration or decision of this petition.

The Second Circuit’s opinion thus stands firm. Even after Twombly and Iqbal, all a plaintiff needs to allege, even in a complex antitrust case, is “enough factual matter (taken as true) to suggest" the elements of the claim.

That’s the same as the Third Circuit recently held in In re Ins. Brokerage Antitrust Litig., 618 F.3d 300, 314 (3d Cir. 2010) and later applied to all cases, including complex cases, in W. Penn Allegheny Health Sys. v. UPMC, No. 09-4468, (3d Cir. November 29, 2010)(precedential).

In short, the Circuit Courts have taken a hard look at Twombly and Iqbal and have rejected the numerous attempts by big corporations to slam the courthouse doors shut on meritorious cases, and the Supreme Court hasn’t stopped those Courts from setting the record straight.

In celebration, below the fold are some plaintiff-friendly precedential opinions over the last year in various Courts of Appeals (in addition to the Second Circuit and Third Circuit opinions above). 

Continue Reading Another Twombly/Iqbal Victory for Plaintiffs: SCOTUS Denies Certiorari for Digital Music Price-Fixing Case

There are two components of every court opinion: first, the “holding,” which is what the court did — dismiss the case, uphold the jury verdict, remand for a new trial, overturn a sentence, et cetera — and, second, the “reasoning,” where the court explains why it did what it did. For the parties to the case, the most important part is the holding: it tells the parties who won this round, sometimes who won the fight. For everyone else, the holding is meaningless: we want to know the reasoning which will guide future courts in deciding future cases.

The Supreme Court decides very few cases; in a a small number of those very few cases, the holding has a big impact on the nation (just ask Al Gore), but most of the time it’s their reasoning that matters. As the New York Times reported last week (Justices Are Long on Words but Short on Guidance), though, it seems their reasoning has room for improvement:

The Supreme Court under the leadership of Chief Justice John G. Roberts Jr. is often criticized for issuing sweeping and politically polarized decisions. But there is an emerging parallel critique as well, this one concerned with the quality of the court’s judicial craftsmanship.

In decisions on questions great and small, the court often provides only limited or ambiguous guidance to lower courts.

And it increasingly does so at enormous length.

Brown v. Board of Education, the towering 1954 decision that held segregated public schools unconstitutional, managed to do its work in fewer than 4,000 words. When the Roberts court returned to just an aspect of the issue in 2007 in Parents Involved v. Seattle, it published some 47,000 words, enough to rival a short novel. In more routine cases, too, the court has been setting records. The median length of majority opinions reached an all-time high in the last term.

Critics of the court’s work are not primarily focused on the quality of the justices’ writing, though it is often flabby and flat. Instead, they point to reasoning that fails to provide clear guidance to lower courts, sometimes seemingly driven by a desire for unanimity that can lead to fuzzy, unwieldy rulings.

If you’re still reading this post, then you should read the article. To summarize it here would be a disservice to the many issues addressed and the wealth of links provided.

So let’s move to the big question: considering how “fuzzy” and “unwieldy” the Supreme Court’s reasoning can be, do lawyers and courts still rely on their opinions?

At first blush, the answer to that question is obvious: of course everyone does. When the Supreme Court says that a corporation’s principle place of business is its nerve center, or that Fed. Rule Civ. Proc. 23 trumps state restrictions on class actions, or that people have no right to police enforcement of restraining orders, then that’s the law. We all follow it.

But those are holdings. What about the reasoning?

That’s where things get tricky. Consider Bilski v. Kappos. Can you patent a business method or not? The Supreme Court said: maybe you can in theory, but we’ve never seen one worthy of patenting.

What’s that mean going forward? Nobody knows. It’s up to the USPTO, the District Courts, and the Federal Circuit to figure it out until the Supreme Court gives us a better answer.

Fact is, in the day-to-day operation of the law, even federal courts rarely look to the Supreme Court’s reasoning to decide cases. Most of the time — like in the trial court opinions and unpublished appellate opinions that resolve the bulk of cases — courts don’t even address the Supreme Court’s reasoning, much less use that reasoning as a means of deciding the case at hand.

Tellingly, even in published Court of Appeal decisions, the most important opinions short of the Supreme Court, the Supreme Court’s reasoning is typically not worth more than a passing reference.  Consider two published opinions from the Courts of Appeal on the same day the article was published.

The Sixth Circuit examined whether an insurer had arbitrarily and capriciously denied long-term disability coverage. After citing mostly their own opinions, the Sixth Circuit tried to figure out what a 2008 Supreme Court opinion meant:

Guardian, after all, is both the payor of any long-term disability benefits and the administrator vested with discretion to determine his eligibility for those benefits. Indeed, such an inherent conflict of interest is “one factor” that must be considered when evaluating a plan administrator’s decision to deny benefits under ERISA. Metro. Life Ins. Co. v. Glenn, 554 U.S. 105, 128 S. Ct. 2343, 2351 (2008); Firestone Tire & Rubber Co. v. Burch, 552 U.S.101, 115 (1989). But there are many other factors a reviewing judge must consider as well. Glenn, 128 S. Ct. at 2351. In its opinion below, the district court acknowledged Guardian’s conflict of interest, but concluded, based on the record as a whole, that its decision to terminate Schwalm’s benefits was nevertheless supported by substantial evidence. The district court’s consideration of the inherent conflict of interest was proper.

The Supreme Court made clear in Glenn that such a conflict is a red flag that may trigger a somewhat more searching review of a plan administrator’s decision, but the arbitrary and capricious standard remains in place. Glenn, 128 S. Ct. at 2350.

In other words, the Supreme Court’s opinion in Glenn meant that a conflict of interest is “one factor” that “may trigger a somewhat more searching review.” Sure seems “fuzzy” and “unwieldy” to me — and apparently seemed that way to the Sixth Circuit, since they ignored it for the rest of the opinion.

The Eleventh Circuit tried to figure out the extent to which past bad behavior can be used to enhance a sentence for child pornography. To answer the question, the Court ignored the Supreme Court and looked solely to other Circuits:

The five circuits that have addressed this question have consistently concluded that the plain language of § 2G2.2(b)(5) does not place a time limit on past instances of sexual abuse or exploitation a court may consider in finding a pattern of activity.  See United States v. Olfano, 503 F.3d 240, 243 (3d Cir. 2007) (involving convictions approximately 16 and 13 years old); United States v. Garner, 490 F.3d 739, 742-43 (9th Cir. 2007) (involving sexual abuse occurring “at least 35 years earlier”); United States v. Gawthrop, 310 F.3d 405, 412-14 (6th Cir. 2002) (involving an 11-year-old conviction); United States v. Woodward, 277 F.3d 87, 90-92 (1st Cir. 2002) (involving multiple convictions between 22 and 27 years old); United States v. Lovaas, 241 F.3d 900, 903-04 (7th Cir. 2001) (involving sexual abuse that occurred 26 years earlier).

First, Third, Sixth, Seventh, and Ninth Circuits — but no Supreme Court.

If you have a case in federal court, odds are that the holdings of the Supreme Court will generally dictate its course, the way a compass generally guides a sailor, but the reasoning of the Supreme Court won’t enter the picture. The specific direction of your case will be decided on the basis of your local Court of Appeal’s reasoning and how other District Courts in that Circuit have interpreted that reasoning; failing that, your case will likely be decided on the reasoning of other Circuit Courts, but not the Supreme Court.

That said, let’s play Devil’s Advocate.

The Supreme Court doesn’t decide appeals; that’s the Court of Appeals job. The Supreme Court picks and chooses its docket through the grant or denial or certiorari, and presumably chooses cases not because they’re easy but because they’re hard. Typically, the Supreme Court grants certiorari either where Courts of Appeal (and/or State Supreme Courts) have answered a single question in different ways or where a case raises an issue of national significance.

Consider Bruesewitz v. Wyeth. The Georgia Supreme Court came down one way on vaccine product liability preemption and the Third Circuit came down another. The question raised is neither obvious nor simple to answer; if it was, the courts would have both come to that same obvious and simple answer.

It wouldn’t be surprising if, in deciding Bruesewitz in a way that was meant to give guidance to other courts in future issues, the Supreme Court ended up with some abstract, obtuse reasoning. Some issues are just plain messy and prone to misinterpretation; if these questions were easy, we wouldn’t need all these levels of appeal to decide them.

But being the devil’s lawyer only gets us so far; there’s really no excuse for some of the gibberish that has come out of the court as of late. Prof. Arthur Miller is quite right that Twombly and Iqbal are “shadowy at best,” causing “confusion and disarray among judges and lawyers.” The Supreme Court took a long-standing, well-understood rule about complaints and apparently (at least this is what defense lawyers claim) reinterpreted it to allow courts to determine, at their subjective discretion, if allegations were “facts” or “conclusions” and if the “facts” were “plausible,” whatever that means — the Supreme Court didn’t bother to explain any further than that.

Maybe the problem has to do, as Liptak noted, with the increasing length of opinions or, as Judge Posner argued, with excessive delegation to inexperienced law clerks. I think the problem goes a bit deeper than that: some of the opinions are not based on principled legal reasoning but upon politics. It’s no surprise that cases decided on the basis of judicial activism don’t have the best reasoning underlying the holding — if appropriate legal reasoning had been used, they would have reached a different conclusion.

Unfortunately, there’s no easy cure for that. We just have to wait them out and pick better Justices next time.

Those are the charming words of a vice president at Lundbeck, Inc., which claims to be "committed to providing innovative therapies that fulfill unmet medical needs of people with severe, and often rare, diseases for which few, if any, effective treatments are available."

By "these," he was, by way of an email to others at the company, referring to a small group of pharmaceutical drugs the rights to which Lundbeck was in the process of acquiring from Merck, including Indocin IV. Indocin IV was, at that time, the primary pharmaceutical treatment for patent ductus arteriosus, in which the shunt that connects a baby’s pulmonary artery to his or her aortic arch fails to close after birth. PDA is mostly found in very premature babies.

Ever seen a two pound preemie that can’t get enough oxygen hold out for a better deal? The vice president at Lundbeck hadn’t either, so Lundbeck came up with a plan: once they had the rights to Indocin IV, they would increase the price of each treatment course from $78 to $1,500.

Lundbeck didn’t actually do anything to earn themselves a twenty-fold raise, they just bought themselves a monopoly on the unmet medical need of certain people with a severe disease for which few other effective treatments were available. That’s their "commitment."

It gets better.

Lundbeck learned that two other companies, Farmacon-IL and Abbott Laboratories, had developed a competitor to Indocin IV, called NeoProfen, which could also treat PDA. Abbott Laboratories forecast NeoProfen could be sold for $450-500 per treatment course.

So Lundbeck bought the rights to NeoProfen, too. Once the FDA approved it, Lundbeck sold NeoProfen for $1450 per treatment course.

Despite preening over "innovation," Lundbeck invented nothing at all to treat the "severe disease" of PDA. Instead, Lundbeck bought the primary treatment and made it twenty times more expensive, then bought the drug’s new competitor and made the new drug three times more expensive than even its inventors thought it could be.

One would think there should be a law against that. In fact, there is such a law — really, more than one of them, like Section 5 of the FTC Act, Section 2 of the Sherman Act, Section 7 of the Clayton Act, and many state’s antitrust laws — but those laws do not always work the way they should:

The case looked like a slam-dunk for the Federal Trade Commission.

A drug company allegedly cornered the market on a medicine — not just any medicine, but one used to treat premature babies with life-threatening heart defects — then raised prices 1,300 percent.

The FTC sued the company, Ovation Pharma­ceuticals, now Lundbeck Inc., in Minneapolis federal court in December 2008, seeking the strongest civil antitrust penalties possible — divestiture and disgorgement of $105 million in profits. The state of Minnesota joined in as a plaintiff as well.

All the elements seemed to be in place: the most sympathetic victims one could ask for, clear-cut evidence of an astronomical price hike, no other drugs available to treat the condition. And yet, after a two-week bench trial, the government lost the case — lost across the board, on every claim.

For Ericksen, the case boiled down to one basic question: Are Indocin and NeoProfen in the same product market? Although both treat the same condition and have "functional substitutability," Ericksen found they are not in the same market.

It was Ericksen’s first antitrust trial decision, according to a review of court records by The National Law Journal, although during her eight years on the federal bench, she has presided over private antitrust cases that were dismissed, transferred or otherwise resolved before trial.

The finding destroyed the FTC’s case. It meant there was no monopoly, no substantially lessened competition and indeed no antitrust wrongdoing at all.

The opinion is here.

In many ways, it’s surprising that the Federal Trade Commission and the State of Minnesota were able to pursue the lawsuit in the first place, given the efforts undertaken by the Supreme Court to dismantle the century-old antitrust laws in this country. For example, just because several products or services are being sold in a manner that demonstrates collusion among the suppliers doesn’t make it "plausible" there is such collusion, said the Supreme Court in Twombly v. Bell Atlantic. Once you say that judges can deem every case they don’t like as "implausible" by arbitrarily re-classifying factual allegations as "legal conclusions," there’s no telling how many meritorious cases won’t even be allowed into the courthouse.

But pursue they did, all the way through trial, just to have a judge rule that two drugs used to treat the same condition are somehow not in the same market, but are rather in some undefined, theoretical other market in which the massive price increases by a holding company which neither invented nor manufactured the drug were the result of a free, fair and competitive market.

I would bet that the FTC will appeal the ruling and it will be reversed and remanded. Even if that happens, however, the point is been made: our antitrust laws are so weak that they cannot be reliably enforced against a company that cornered the market for treatments of a severe condition and then used its monopoly position to raise the price of both to "anywhere they wanted."

At the WSJ Law Blog, The Rising Tide of Job Bias Claims:

There’s often a debate about whether litigation in counter-cyclical. Do lawsuits increase when the economy heads south?

In one area of litigation, there’s no debate: employment discrimination claims. A lot of folks have been fired, and many of them are are claiming that they were let go because of their race, age, gender, or because of a disability.

Job bias claims, to put it mildly, are through the roof, according to this WSJ article.

For the six months that ended April 30, more than 70,000 people filed claims with the Equal Employment Opportunity Commission saying they had suffered job discrimination, a 60% increase in bias claims compared with the same period a year earlier. Not all of these complainants will sue, but plenty will.

"Plenty" will, but the EEOC’s own statistics show that most of those claims will go nowhere.

A little under 1 in 5 of them will be closed for "administrative" reasons, like if the claimant fails to timely prosecute the claim, if the claimant withdraws the claim without a settlement, or if the EEOC thinks the claim is outside its jurisdiction.

The bulk of them — more than 3 in 5 — will be dismissed by the EEOC after an investigation for "no reasonable cause." After the dismissal, the employees can, in theory, still bring a lawsuit, but they likely won’t. Most employment discrimination lawyers won’t touch a claim that has been dismissed.

Most of the remaining 1 in 5 claimants, about 17% of the overall claims, will reach some sort of favorable settlement (i.e., formal settlement, withdrawal with benefits, or successful conciliation). Dividing the total value of the merits resolutions (~$290 million annually) by the number of merits resolutions (~17,500 annually) gives us an average settlement of about $16,500.

The last little bit remaining — 3% of overall claims, fewer than 3,000 claims nationwide — will have a "reasonable cause" determination that isn’t settled thereafter, leading to litigation. I suppose that’s "plenty," as the WSJ Law Blog says, but not in the big picture. 3,000 lawsuits nationwide is a tiny fraction of the civil justice system.

They are right about this part:

“In a down economy, companies look to replace older workers with younger workers who they can hire at lower salaries,” said Cliff Palefsky, a San Francisco plaintiffs’ attorney.

In other words, young lawyers, forget bankruptcy law. That’s so 2009. Employment litigation is where it’s at.

True, but most of the action is, unfortunately, on the defense side, in front of the EEOC and the state agencies. I’ve seen modestly-valued employment discrimination claims in the agency process that turned into endless paper wars, with the employer’s lawyers submitting dozens, sometimes hundreds, of pages of repetitive letters to the investigator raising preposterous and contradictory arguments. There is indeed money to be made engaging in a flame war against someone who just lost their job.

I don’t know if most lawyers are cut out to do employment discrimination defense work, though. The lawyers don’t get much control over which cases they take or when to settle them, and the cases can turn personal — we’re talking about discrimination after all, not some contract dispute between business — really quickly. That’s even harder to swallow when, in a lot of the cases, the claim has a substantial merit.

From the plaintiff’s side, there can be money in employment discrimination claims, and the EEOC statistics only tell part of the story, since there are state agencies, too. But unless you can get a class action certified — tricky, but possible, like in Dukes v. Wal-Mart, 603 F.3d 571 (9th Cir. 2010), which the largest companies in America have asked the Supreme Court to reverse — these claims are tough to win, even tougher to make a living doing, moreso since Ashcroft v. Iqbal made them even harder to file, much less win.

Last week, after more than a year of drafting following oral argument, and nearly two years after the original District Court order, a Third Circuit panel (Chief Judge Scirica and Judges Fisher and Greenberg) issued their magnum opus on pleading Section 1 antitrust violations after Twombly and Racketeer Influenced and Corrupt Organizations ("RICO") Act "enterprises" after Boyle in the consolidated Multi-District Litigation In re: Insurance Brokerage Antitrust Litigation.

The plaintiffs alleged a massive, "global" conspiracy among the major insurance companies and insurance brokers to artificially allocate customers and rig prices for commercial insurance:

Plaintiffs are purchasers of commercial and employee benefit insurance, and defendants are insurers and insurance brokers that deal in those lines of insurance. According to plaintiffs, defendants entered into unlawful, deceptive schemes to allocate purchasers among particular groups of defendant insurers. The complaints assert that conspiring brokers funneled unwitting clients to their co-conspirator insurers, which were insulated from competition; in return, the insurers awarded the brokers contingent commission payments—concealed from the insurance purchasers and surreptitiously priced into insurance premiums—based on the volume of premium dollars steered their way. As a result of this scheme, plaintiffs allege they paid inflated prices for their insurance coverage and were generally denied the benefits of a competitive market. The question on appeal is whether plaintiffs have adequately pled either a per se violation of § 1 of the Sherman Act (plaintiffs have foresworn a full-scale rule-of-reason analysis) or a violation of the Racketeer Influenced and Corrupt Organizations (RICO) Act. Concluding they had not, the District Court dismissed the complaints. 

(Here’s the First Amended Complaint; the Second Amended Complaint was, I believe, sealed).

§ 1 of the Sherman Act and § 1962 of the RICO Act are almost constitutional in their breadth and power. Here’s the relevant part of § 1 of the Sherman Act:

Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.

And here’s § 1962(c) of the RICO Act:

It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise’s affairs through a pattern of racketeering activity or collection of unlawful debt.

Such breadth is a blessing and a curse for plaintiffs; like with the Bill of Rights, § 1 of the Sherman Act and § 1962 of the RICO Act are so broad, and so empowering, that Courts have spent decades literally ignoring the statutes’ text to narrow the relief available to plaintiffs. See, e.g., Fitzgerald v. Chrysler Corp., 116 F. 3d 225 (7th Cir. 1997)(admitting that a judicially-created exclusion to the meaning of "enterprise" under the RICO Act "doesn’t emerge from the statutory language," but applying it anyway).

The Third Circuit panel does an exceptional job summarizing this unwieldy body of extra-textual precedent on pages 32-42 of the opinion (for § 1 antitrust claims) and 153-172 (for RICO enterprises); any associates or clerks trying to figure out these complex fields could do worse than to review them.

These artificial restrictions force plaintiffs bringing antitrust and RICO claims — who typically only have circumstantial evidence at the beginning of their case given the efforts undertaken by the defendants to conceal their wrongdoing — to make suppositions about how the defendants carried out their scheme.

That’s where Twombly and Iqbal come in. 

In the Insurance Brokerage Antitrust cases, there were, shall we say, a lot of defendants*, defendants who, for purposes of antitrust and RICO allegations, could have been configured in a wide variety of ways. The plaintiffs thus, understandably, had to make some tactical decisions about their allegations, like with the type of antitrust violation alleged:

Although plaintiffs’ 16 First Amended Complaints (FAC) expressly pled a rule-of-reason claim in the alternative, see, e.g., Comm. FAC ¶ 530; EB FAC ¶ 454, their Second Amended Complaints omit any reference to the rule of reason, and their moving papers and appellate arguments make clear they are alleging exclusively per se violations. In their initial motions to dismiss, defendants contended that the First Amended Complaints had not adequately defined a market or pled anticompetitive effects and had thus failed to state a claim under the rule of reason. In response, plaintiffs did not assert that they had, in fact, met these requirements; they argued only that “where plaintiffs allege per se claims,” these requirements do not apply.

And with the type of RICO enterprise they alleged:

While plaintiffs strenuously insist they have adequately pled the existence of “broker-centered enterprises,” they have conspicuously refrained, throughout the district-court proceedings and on appeal, from asserting alternative bilateral or single-entity enterprises.

Presumably, the plaintiffs deliberately chose to avoid rule-of-reason claims (in which the plaintiff is required to demonstrate, e.g., the defendant’s market power in a defined market) and the allegation of "bilateral or single-entity enterprises" to preserve their class action status against all defendants. If, for example, the plaintiffs had split their claims up into multiple allegations of single-entity enterprises, each of those respective defendants tied to a particular scheme would move to decertify themselves from the bigger case. 

In the end, that’s what did the plaintiffs in; their "parallel conduct" allegations ran smack into Twombly**:

Contrary to plaintiffs’ arguments, one cannot plausibly infer a horizontal agreement among a broker’s insurer-partners from the mere fact that each insurer entered into a similar contingent commission agreement with the broker. As the District Court concluded, the first stage of the alleged brokercentered conspiracies—the consolidation of the groups of insurers to which each broker referred business—evinces nothing more than a series of vertical relationships between the broker and each of its “strategic partners.” 2007 WL 2533989, at *15.

Moreover, plaintiffs’ argument proves too much. If the parallel decisions by several insurers to pay contingent commissions imply a horizontal agreement, then it is difficult to see why parallel decisions to pay standard commissions (that is, a fixed percentage of each policyholder’s premium payment) would not also imply an agreement. For that matter, plaintiffs’ logic would divine a horizontal agreement from virtually any parallel expenditures for marketing services, on the mistaken ground that a firm would not pay for advertising, for example, in the absence of an agreement with its competitors to enter into similar contracts with the advertising company. Cf. Twombly, 550 U.S. at 566 (noting that “resisting competition is routine market conduct,” and that “if alleging parallel decisions to resist competition were enough to imply an antitrust conspiracy, pleading a § 1 violation against almost any group of competing businesses would be a sure thing”)

And the same problem hit the RICO claims:

In seeking to establish a “rim” enclosing the insurer-partners in the alleged RICO enterprises, plaintiffs rely on the same factual allegations we found deficient in the antitrust context: that each insurer entered into a similar contingent-commission agreement in order to become a “strategic partner”; that each insurer knew the identity of the broker’s other insurer-partners and the details of their contingent-commission agreements; that each insurer entered into an agreement with the broker not to disclose the details of its contingent-commission agreements; that the brokers utilized certain devices, such as affording “first” and “last looks,” to steer business to the designated insurer; and that, in the Employee Benefits Case, insurers adopted similar reporting strategies with regard to Form 5500. As noted, these allegations do not plausibly imply concerted action—as opposed to merely parallel conduct—by the insurers, and therefore cannot provide a “rim” enclosing the “spokes” of these alleged “hub-andspoke” enterprises. Even under the relatively undemanding standard of Boyle, these allegations do not adequately plead an associationin- fact enterprise. They fail the basic requirement that the components function as a unit, that they be “put together to form a whole.” Boyle, 129 S. Ct. at 2244 (internal quotation marks omitted). Because plaintiffs’ factual allegations do not plausibly imply anything more than parallel conduct by the insurers, they cannot support the inference that the insurers “associated together for a common purpose of engaging in a course of conduct.” Id. (quoting Turkette, 452 U.S. at 583); see id. at 2245 n.4 (stating that “several individuals” who “engaged in a pattern of crimes listed as RICO predicates” “independently and without coordination” “would not establish the existence of an enterprise”) …

In short, plaintiffs’ allegations didn’t "plausibly" suggest any actual agreement among all the insurers; instead, they merely suggested parallel conduct that, in the Third Circuit’s eyes, could just as equally be explained by way of the insurers acting independently.

Thus, the bulk of the claims were dismissed, although the plaintiffs can continue on some of their bid-rigging claims against the Marsh-connected defendants.

But there’s plenty for plaintiffs to be relieved about with the opinion.

First, there’s the massive size of the case. Although the Third Circuit couldn’t outright say it — just like the Supreme Court didn’t say it in deciding Twombly — the sheer size of the Insurance Brokerage Antitrust cases was undoubtedly a factor. The cases were an indictment of the entire commercial insurance industry, with a demand for treble damages (and attorney’s fees) for years of industry-wide conduct, damages that reached into the billions. If you bring a case of that magnitude, you invite heightened scruinty.

Moreover, and more importantly, the sheer number of defendants, and the extraordinary breadth of the allegations against them, is what stretched the plaintiffs claim from "probable" into "implausible." It is understandably difficult for a court to swallow allegations of a vast conspiracy across an entire industry when the plaintiffs only have concrete evidence against a single group of defendants (the Marsh defendants whose misdeeds launched the whole investigation). The real lesson is, if you’re going to file a nationwide suit of that scope, you need either to find yourself a whistleblower or to follow on the coattails of a government investigation (as the claims against the Marsh defendants did). Fair or not, nothing else will work these days.

Second, there’s the actual law in In Re: Insurance Brokerage Antitrust:

 “[A] plaintiff’s obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555 (quoting Fed. R. Civ. P. 8(a)(2)). Because Federal Rule of Civil Procedure 8(a)(2) “requires a ‘showing,’ rather than a blanket assertion, of entitlement to relief,” courts evaluating the viability of a complaint under Rule 12(b)(6) must look beyond conclusory statements and determine whether the complaint’s well-pled factual allegations, taken as true, are “enough to raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555 & n.3. The test, as authoritatively formulated by Twombly, is whether the complaint alleges “enough fact[] to state a claim to relief that is plausible on its face,” id. at 570, which is to say, “‘enough fact to raise a reasonable expectation that discovery will reveal evidence of illegal[ity],’” Arista Records, LLC v. Doe 3, 604 F.3d 110, 120 (2d Cir. 2010) (quoting Twombly, 550 U.S. at 556) (alteration in Arista Records).Fn 17

FOONOTE 17:


Twombly affirms that Rule 8(a)(2) requires a statement of facts “suggestive enough” (when assumed to be true) “to render [the plaintiff’s claim to relief] plausible,” that is, “enough fact to raise a reasonable expectation that discovery will reveal evidence of illegal” conduct. Twombly, 550 U.S. at 556. Iqbal, which reiterated and applied Twombly’s pleading standard, endorses this understanding. See Iqbal, 129 S. Ct. at 1949–51. Although Fowler v. UPMC Shadyside, 578 F.3d 203 (3d Cir. 2009), stated that Twombly and Iqbal had “repudiated” the Supreme Court’s earlier decision in Swierkiewicz v. Sorema N.A., 534 U.S. 506 (2002), see Fowler, 578 F.3d at 211, we are not so sure. Clearly, Twombly and Iqbal inform our understanding of Swierkiewicz, but the Supreme Court cited Swierkiewicz approvingly in Twombly, see 550 U.S. at 555–56, and expressly denied the plaintiffs’ charge that Swierkiewicz “runs counter” to Twombly’s plausibility standard, id. at 569–70. As the Second Circuit has observed, Twombly “emphasized that its holding was consistent with [the Court’s] ruling in Swierkiewicz that ‘a heightened pleading requirement,’ requiring the pleading of ‘specific facts beyond those necessary to state [a] claim and the grounds showing entitlement to relief,’ was ‘impermissibl[e].’” Arista Records, 604 F.3d at 120 (quoting Twombly, 550 U.S. at 570 (alterations in Arista Records). In any event, Fowler’s reference to Swierkiewicz appears to be dicta, as Fowler found the complaint before it to be adequate. 578 F.3d at 212; see also id. at 211 (“The demise of Swierkiewicz, however, is not of significance here.”).

(Bolding mine). I previously covered the Second Circuit’s approach to antitrust post-Twombly; it’s good news for plaintiffs to see the same approach approved in the Third Circuit, particularly over a prior Third Circuit case (Fowler). Under Twombly and Iqbal, the issue isn’t whether or not the plaintiff has uncovered enough evidence to make a prima facie case on the face of their complaint — as some defense lawyers have claimed — but rather whether the plaintiff has alleged "enough fact to raise a reasonable expectation that discovery will reveal evidence of illegality."

The dismissal in In Re: Insurance Brokerage Antitrust might thus prove to have made the law better for plaintiffs in the Third Circuit. That the plaintiffs in the case itself lost many of their claims is of no moment; the case quite literally alleged an industry-wide agreement to commit antitrust and racketeering violations. Plaintiffs with cases of lower orders of magnitude — like those against anything less than dozens of companies at the top of two major industries, insurance and insurance brokering — will have little trouble distinguishing those facts.

Continue Reading Thoughts On The Third Circuit’s New Section 1 and RICO Enterprise Opinion in the Insurance Brokerage Antitrust Litigation

Tomorrow, July 15, 2010, I’m giving the plaintiff’s perspective in a webinar CLE titled: Pleadings Standards Post-Iqbal: Meeting Tougher Plausibility Standards in Commercial Litigation.

Photobucket

If you’ve not yet had the pleasure of litigating the heck out of Iqbal v. Ashcroft, this CLE is a good opportunity to get some case cites and perspective.

If you have litigated the heck out of it, you might still find some use in it (e.g., my part of the presentation cites 16 plaintiff-friendly cases interpreting Iqbal, including opinions from the Second, Third, Fifth, Seventh, Eighth, Ninth, Tenth, and D.C. Circuits) and you’ll get 1.5 hours CLE credit from the comfort of your home or office.

The reviews for last year’s presentation were quite positive (there’s some quotes on the linked website), and one of the highly-informative slides from my part is embedded in this post.

Alternatively, if you’re not up for a 1.5 hour CLE, you can spend a few hours perusing some poor, poor federal clerk’s nearly 300-page summary of all the recent decisions on Iqbal for the Federal Rules Committee, or perhaps the Administrative Office’s statistical analysis of motions to dismiss since Iqbal.

Last week, Prof. Edward A. Hartnett (of Seton Hall University School of Law) posted Responding to Twombly and Iqbal: Where Do We Go from Here?

Hartnett’s idea was eminently reasonable:

I also offer my own proposal, which focuses on the core issue at stake in debates about Twombly and Iqbal: should a plaintiff be able to obtain discovery in an effort to uncover evidence without which he or she cannot prevail?

Hartnett proposes amending Rule 12 of the Federal Rules of Civil Procedure to include:

Rule 12(j): Allegations Likely To Have Evidentiary Support After a Reasonable Opportunity for Discovery

If, on a motion under Rule 12(b)(6) or 12(c) that has not been deferred until trial, the claim sought to be dismissed includes an allegation specifically identified as provided in Rule 11(b)(3) as likely to have evidentiary support after a reasonable opportunity for discovery, the court must either (1) assume the truth of the allegation, or (2) decide whether the allegation is likely to have evidentiary support after a reasonable opportunity for discovery. In deciding whether an allegation is likely to have evidentiary support after a reasonable opportunity for discovery, the court must consider the parties‘ access to evidence in the absence of discovery and state on the record the reason for its decision.

If the court decides that the allegation is likely to have evidentiary support after a reasonable opportunity for discovery, it must allow for that discovery, under the standards of Rule 26, and deny the motion to dismiss. If the court decides that the allegation is not likely to have evidentiary support after a reasonable opportunity for discovery, the court must treat the motion as one for summary judgment under Rule 56, and provide all parties a reasonable opportunity to present all the material that is pertinent to the motion.

Again, eminently reasonable. Such an addition would immediately focus litigation on the real issues, thereby (1) enabling plaintiffs to conduct discovery into the most important areas while also (2) empowering defendants to have cases dismissed—prior to full discovery—if the plaintiff won’t be able to prove an essential element of their case.

How could anyone think that was unfair?

The defense bar champions at Drug and Device Law tried to manufacturer an objection, but the argument degenerated into blather and insults. They barely even mention the details of Hartnett’s proposal. Instead, they summarily dismissed him with:

Most of these proposals (except Professor Burbank’s) actually go far beyond Twombly/Iqbal and would overrule all or most of the prior precedent we cited above. That strikes us as facially overkill and indicative of unexpressed (and in some cases, ulterior) motives at work.

We understand that a lot of academics feel that they have to help their students get jobs, or else eventually they won’t have jobs either.  Thus, they tend to support anything and everything that results in more, rather than less, litigation.

Oh, snap.

Then again, an accusation of "ulterior motives" probably would have meant more if it didn’t come from someone paid by the hour to ensure corporations pay as little as possible to the people and families they hurt.

Frankly, reading through the post, I can’t help but wonder if Beck et al. indeed have some "ulterior motive" in misrepresenting how defense lawyers use Ashcroft v. Iqbal in their practice:

So when we get a complaint, we look to see whether, there’s at least one actual fact pleaded that supports each essential element of a cause of action.  A plaintiff can plead more if s/he so pleases, but there has to be at least one – otherwise we’ll probably file a Twombly/Iqbal motion.

The implied concession there—that they won’t file a motion to dismiss if "there’s at least one actual fact pleaded that supports each essential element of a cause of action"—is rubbish. They don’t run a charity over there at Dechert: if you file a case against one of their clients, they will come up with any argument they can to get it dismissed.

And that’s where the problem with Twombly / Iqbal—really, just Iqbal—comes in. Every time a case is filed today, the defendant inevitably files a motion to dismiss claiming that the "actual facts" plead aren’t "facts" at all, they’re "conclusions," and so are not, under Iqbal, entitled to an assumption of truth.

What’s the difference between a "fact" and a "conclusion?" Merriam-Webster says:

fact: an actual occurrence

conclusion: a reasoned judgment

Let me ask you, Dear Reader: who really won more votes in Florida in 2000, Bush or Gore?

Is your answer a "fact" or a "conclusion?" Do you know it as an actual occurrence, or did you make a reasoned judgment?

The problem with Iqbal is that it instructs courts—at the very beginning of the lawsuit, when they have nothing in front of them but a "short and plain" complaint—to perform a wildly subjective analysis about which allegations are merely "conclusions" and which of the non-conclusory allegations are "plausible." 

There’s nothing new about that problem. It’s the same problem that prompted Rule 8—the Rule supposedly interpreted by Iqbal—to be enacted in the first place:

You used to have the requirement that a complaint must allege the “facts” constituting the “cause of action.” I can show you thousands of cases that have gone wrong on dialectical, psychological, and technical argument as to whether a pleading contained a “cause of action”; and of whether certain allegations were allegations of “fact” or were “conclusions of law” or were merely “evidentiary” as distinguished from “ultimate” facts. In these rules there is no requirement that the pleader must plead a technically perfect “cause of action” or that he must allege “facts” or “ultimate facts.”

Rules of Civil Procedure for the District Courts of the United States: Hearings Before the H. Comm. on the Judiciary, 75th Cong. 94 (1938) (statement of Edgar B. Tolman, Secretary of the Advisory Committee on Rules for Civil Procedure Appointed by the Supreme Court); quoted by p.4 of Professor Stephen Burbank’s testimony before the Senate.

The whole point of Rule 8 was to ensure that the right to civil justice didn’t turn on metaphysical word games.

And yet we’re supposed to come full circle because, as Beck et al. continue,

Twombly/Iqbal are about reining in the cost of litigation; we might feel differently about Professor Hartnett’s proposal if it required payment of all a defendant’s costs of “appropriate” (the Article’s term) discovery – should designated allegations nonetheless turn out to be unfounded.  But under the proposal as offered, there’s no penalty for over-designation.  If it’s one thing that the fifty-year life span of Conley established, it’s that unrestrained pleading imposes huge discovery costs on defendants.  Even Professor Burbank (who really tried hard) was reduced to relying upon a single study of tiny cases in which even then 25% of the parties believed the process was too expensive.  The excessive cost of modern discovery is simply not a issue capable of dispute any longer.

At least Burbank actually cited something. Defense lawyers think they’re entitled to assert the cost of discovery—a cost due primarily to their own practice of relentlessly frustrating discovery at every turn—is "excessive" through sheer ipse dixit.

Sounds like a "conclusion" to me, not an "actual fact."

Before Ashcroft v. Iqbal improperly re-wrote the Federal Rules of Civil Procedure, Bell Atlantic Corp. v. Twombly foolishly imposed a new hurdle for plaintiffs who brought antitrust claims. Specifically, in Twombly the Supreme Court held,

In applying these general standards to a §1 claim [e.g., a price-fixing claim], we hold that stating such a claim requires a complaint with enough factual matter (taken as true) to suggest that an agreement was made. Asking for plausible grounds to infer an agreement does not impose a probability requirement at the pleading stage; it simply calls for enough fact to raise a reasonable expectation that discovery will reveal evidence of illegal agreement. …[A]n allegation of parallel conduct and a bare assertion of conspiracy will not suffice. Without more, parallel conduct does not suggest conspiracy, and a conclusory allegation of agreement at some unidentified point does not supply facts adequate to show illegality. Hence, when allegations of parallel conduct are set out in order to make a §1 claim, they must be placed in a context that raises a suggestion of a preceding agreement, not merely parallel conduct that could just as well be independent action.

… A statement of parallel conduct, even conduct consciously undertaken, needs some setting suggesting the agreement necessary to make out a §1 claim; without that further circumstance pointing toward a meeting of the minds, an account of a defendant’s commercial efforts stays in neutral territory. An allegation of parallel conduct is thus much like a naked assertion of conspiracy in a §1 complaint: it gets the complaint close to stating a claim, but without some further factual enhancement it stops short of the line between possibility and plausibility of “entitle[ment] to relief.”

A number of defense lawyers — and, unfortunately, courts — have interpreted the above language to mean that an antitrust plaintiff can only "raise[ ] a suggestion of a preceding agreement" by proving, at the beginning of the lawsuit, that the defendants secretly agreed to raise prices together.

But how do you prove a secret agreement before you can use court processes to conduct an investigation?

Normally, you can’t.

Catch-22.

Thankfully, the Second Circuit has just corrected those errors in reversing dismissal of a price-fixing case against several digital music companies. As the opinion (PDF) holds:

Defendants’ arguments that plaintiffs have failed to state a claim are without merit. Defendants first argue that a plaintiff seeking damages under Section 1 of the Sherman act must allege facts that “tend[] to exclude independent self-interested conduct as an explanation for defendants’ parallel behavior.” Appellee’s Br. 15-17. This is incorrect. Although the Twombly court acknowledged that for purposes of summary judgment a plaintiff must present evidence that tends to exclude the possibility of independent action, 550 U.S. at 554, and that the district court below had held that plaintiffs must allege additional facts that tended to exclude independent self-interested conduct, id. at 552, it specifically held that, to survive a motion to dismiss, plaintiffs need only “enough factual matter (taken as true) to suggest that an agreement was made,” id. at 556; see also 2 Areeda & Hovenkamp § 307d1 (3d ed. 2007) (“[T]he Supreme Court did not hold that the same standard applies to a complaint and a discovery record . . . . The ‘plausibly suggesting’ threshold for a conspiracy complaint remains considerably less than the ‘tends to rule out the possibility’ standard for summary judgment.”).

Defendants next argue that Twombly requires that a plaintiff identify the specific time, place, or person related to each conspiracy allegation. This is also incorrect. The Twombly court noted, in dicta, that had the claim of agreement in that case not rested on the parallel conduct described in the complaint, “we doubt that the . . . references to an agreement among the [Baby Bells] would have given the notice required by Rule 8 . . [because] the pleadings mentioned no specific time, place, or person involved in the alleged conspiracies.” 550 at 565 n.10. In this case, as in Twombly, the claim of agreement rests on the parallel conduct described in the complaint. Therefore, plaintiffs were not required to mention a specific time, place or person involved in each conspiracy allegation.

Starr et al v. Sony BMG et al., slip op., 08-5637 (2d Cir., January 13, 2010), pp. 15-16.

It’s hard to call the opinion a "win" for antitrust plaintiffs — Twombly should have been better decided — but it definitely leaves antitrust plaintiffs better off than they were before.

Oh, Ashcroft v. Iqbal, will we ever stop blogging about you?

The newest online debate pits the class action defense lawyers at Drug & Device Law against University of Pennsylvania Law School Professor Stephen Burbank at PENNumbra, the online supplement to UPenn’s Law Review.

Beck and Herrmann open with a defense of Iqbal on several grounds, including:

[C]ourts have no legitimate basis for favoring plaintiffs when interpreting pleading standards. A just system does not pick sides in advance, but instead establishes neutral rules. We reject the normative view that it is somehow “better” to let unmeritorious cases proceed than to risk that meritorious cases will be dismissed. Either way represents error, and neither error is inherently better than the other. Indeed, given the enormous transaction costs that litigation entails, Type II errors (false negatives) are probably preferable to Type I errors (false positives) from a purely economic perspective.

From a "purely economic perspective" it is better if corporations stop wrongfully causing damage in the first place, which they will only do if they have an economic incentive like the threat of legal liability.

But there’s a bigger problem with Beck and Herrmann’s argument.

It is an "error" when a court dismisses a meritorious case. It is a particularly unjust, unfair, and avoidable "error" when a court dismisses a meritorious case prior to any discovery.

It is not, however, an "error" for a court to refuse to dismiss a case that may be unmeritorious.

Why not? Because the case may be meritorious and, if it is not, the defendant has four more opportunities to resolve the case favorably by testing the merits of plaintiff’s claim: judgment on the pleadings, summary judgment, trial, and post-trial relief. That is to say, even after the motion to dismiss, Plaintiff’s claims will be assessed, re-assessed, re-re-assessed, then re-re-re-assessed. Then there’s an appeal to re-re-re-re-assess each and every element of plaintiff’s claims and each and every element of plaintiff’s damages.

When a court declines to dismiss an unmeritorious case, there is ample room for error-correction down the road to ensure plaintiff’s claims have merit. It’s why we have a civil justice system: to provide a thorough airing and evaluation of disputes.

When a court dismisses a meritorious case, however, the only error-correction is a single appeal that will be evaluated under the same unfair anti-plaintiff standard established by Iqbal.

Beck and Herrmann have it exactly backwards: there is "no legitimate basis" for not favoring plaintiffs when interpreting pleading standards. Their "neutral" interpretation of pleading rules is not "neutral" at all, but rather a "normative view" that plaintiffs are not entitled to the same error-correcting procedures to which defendants are entitled.

A "just system" wouldn’t pick defendant’s side in advance.

Not too long ago, I argued that Ashcroft v. Iqbal was not nearly as important as commentators thought, and that the sky had not fallen on plaintiffs. Instead, Iqbal merely put into words the standard that numerous courts had already applied to large-scale litigation without saying as much. I also argued that Iqbal in particular involved a very unique circumstance — a Bivens suit against top-level official — and so was easily distinguishable from the vast majority of civil litigation.

For a while, it seemed no one agreed with me. Every week there was another "[pharmaceutical manufacturing defect / establishment clause / whatever] case dismissed under Iqbal" story.

It’s not easy being green.

But I’m no longer alone.

Drug & Device Law has more news, referencing a law review article and a post by a law professor who, like me, but in a more scholarly fashion, reject the argument that six paragraphs of Iqbal radically re-rewrote the rules of civil procedure.

"They’re just professors," the defense bar nay-sayers will nay-say, "Iqbal has nonetheless overruled centuries of precedent, making it nearly impossible to file a lawsuit against anyone anymore."

I, of course, disagree. So how about I up the ante with recent opinions from two of the most respected conservatives judges in the federal appellate courts?

Like Judge Frank Easterbrook:

Lusby contends that Rolls-Royce defrauded the United States about the quality of the turbine blades in the T56 engine. The complaint alleges that five contracts between Rolls-Royce and the United States require all of the engine’s parts to meet particular specifications; that the parts did not do so (and the complaint describes tests said to prove this deficiency); that Rolls-Royce knew that the parts were non-compliant (not only because Lusby told his supervisors this but also because audits by Rolls-Royce’s design and quality-assurance departments confirmed Lusby’s conclusions); and that Rolls-Royce nonetheless certified that the parts met the contracts’ specifications. The complaint names specific parts shipped on specific dates, and it relates details of payment. Simple breach of contract is not fraud, but making a promise while planning not to keep it is fraud, see Wharf (Holdings) Ltd. v. United Int’l Holdings, Inc., 532 U.S. 588, 121 S. Ct. 1776, 149 L. Ed. 2d 845 (2001), and this complaint alleges the promise, the intent not to keep that promise, and the details of non-conformity. What else might be required to narrate, with particularity, the circumstances that violate 31 U.S.C. §3729(a)(1)?

Rolls-Royce’s answer is: the specific request for payment. Lusby has not seen any of the invoices and representations that Rolls-Royce submitted to its customers. He knows about shipments and payments, but he does not have access to the paperwork. The district court held that, unless Lusby has at least one of Rolls-Royce’s billing packages, he lacks the required particularity. Since a relator is unlikely to have those documents unless he works in the defendant’s accounting department, the district court’s ruling takes a big bite out of qui tam litigation.

We don’t think it essential for a relator to produce the invoices (and accompanying representations) at the outset of the suit. True, it is essential to show a false statement. But much knowledge is inferential–people are convicted beyond a reasonable doubt of conspiracy without a written contract to commit a future crime–and the inference that Lusby proposes is a plausible one

United States ex rel. Lusby v. Rolls-Royce Corp., No. 08-3593, 2009 U.S. App. LEXIS 14119, at *10–11 (7th Cir. Jun. 30, 2009)(reversing dismissal of qui tam / false claims act complaint).

And Judge Richard Posner:

In our initial thinking about the case, however, we were reluctant to endorse the district court’s citation of the Supreme Court’s decision in Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007), fast becoming the citation du jour in Rule 12(b)(6) cases, as authority for the dismissal of this suit. The Court held that in complex litigation (the case itself was an antitrust suit) the defendant is not to be put to the cost of pretrial discovery–a cost that in complex litigation can be so steep as to coerce a settlement on terms favorable to the plaintiff even when his claim is very weak–unless the complaint says enough about the case to permit an inference that it may well have real merit. The present case, however, is not complex. Were this suit to survive dismissal and proceed to the summary judgment stage, it would be unlikely to place on the defendants a heavy burden of compliance with demands for pretrial discovery. The parties did not negotiate face to face over the termination agreement, and though some of the negotiations were over the telephone rather than in letters or emails, Smith recorded those and the transcripts are attached to his complaint. So almost all the potentially relevant evidence is already in the record.

But Bell Atlantic was extended, a week after we heard oral argument in the present case, in Ashcroft v. Iqbal, 129 S. Ct. 1937, 173 L. Ed. 2d 868 (2009)–over the dissent of Justice Souter, the author of the majority opinion in Bell Atlantic–to all cases, even a case (Iqbal itself) in which the court of appeals had ‘promise[d] petitioners minimally intrusive discovery.’ Id. at 1954. Yet Iqbal is special in its own way, because the defendants had pleaded a defense of official immunity and the Court said that the promise of minimally intrusive discovery ‘provides especially cold comfort in this pleading context, where we are impelled to give real content to the concept of qualified immunity for high-level officials who must be neither deterred nor detracted from the vigorous performance of their duties.’ Id. (emphasis added).

So maybe neither Bell Atlantic nor Iqbal governs here. It doesn’t matter. It is apparent from the complaint and the plaintiff’s arguments, without reference to anything else, that his case has no merit. That is enough to justify, under any reasonable interpretation of Rule 12(b)(6), the dismissal of the suit.

Smith v. Duffey, No. 08-2804, 2009 U.S. App. LEXIS 17211, at *11–13 (7th Cir. Aug. 3, 2009).

Neither Easterbrook nor Posner are bleeding hearts, and neither has shown much sympathy for plaintiffs in the past. Yet, even they believe the Twombly and Iqbal chatter is overblown.

Chalk two victories up for plaintiffs. It seems the battle over pleading standards is far from over.