Twombly and Iqbal: Opinions from the Fifth Circuit

Perhaps the wonkiest Twombly Case at the Fifth Circuit

Life Partners’ Creditors’ Trust v. Cowley, No. 17-11477 (May 31, 2019), reviewed the dismissal of several highly-technical claims brought by a bankruptcy trustee about the sale of “viaticals” (investments in life insurance policies sold to third parties by the insureds – who are generally deemed to be near death).

For each claim, the Fifth Circuit reviewed whether FRCP 9(b) or 8(a) applied, and then assessed the pleaded allegations, reaching these conclusions:

Motion to Strike Hopkins Fictitious Brief – https://t.co/wRQMxhw8RP

— LawsInTexas (@lawsintexasusa) October 5, 2020

CONVERGENCE OF FEDERAL RULES

8(A) AND 9(B):

THE FIFTH CIRCUIT’S APPLICATION OF

TWOMBLY AND IQBAL

DAVID S. COALE

INTRODUCTION

Federal Rule of Civil Procedure 8(a) requires a plaintiff plead “a short and plain statement of the claim,” while Rule 9(b) requires a  plaintiff “state with particularity the circumstances constituting fraud or mistake.”

After 2007, the landmark Supreme Court cases of Bell Atlantic Corporation v. Twom bly 1 and Ashcroft v. Iqbal2 have clarified and augmented the requirements of Rule 8(a).

The Fifth Circuit has applied those cases several times in its review of dismissals on the  pleadings.  This article surveys those opinions, and concludes that the Fifth Circuit’s approach to Twombly and Iqbal may be converging on its approach to Rule 9(b).

I. FEDERAL COURT PLEADING RULES

A. Rule 8(a)

Federal Rule of Civil Procedure 8(a), enacted as part of the original rules in 1938, provides:

(a) Claim for Relief. A pleading that states a claim for relief must contain:

(1) a short and plain statement of the grounds for the court’s jurisdiction, unless the court already has jurisdiction and the claim needs no new jurisdictional support;

(2) a short and plain statement of the claim showing that the pleader is entitled to relief; and

(3) a demand for the relief sought, which may include relief in the alternative or different types  of relief.3

As recently as 1957, the Supreme Court saw Rule 8 as implementing a system of “simplified ‘notice pleading”‘ that “reject[s] the approach that pleading is a game of skill in which one misstep by counsel may be decisive to the  outcome  ….”4 The Court noted “[t]he illustrative forms appended to the Rules plainly demonstrate  this,”  and  explained that notice pleading was “made possible by the liberal opportunity for discovery and the other pretrial procedures established by the Rules to disclose more precisely the basis of both claim and defense and to define more narrowly the disputed facts and issues.”5

Fifty years later, the Supreme Court took a very different view of Rule S(a). In 2007, it reviewed the dismissal on the pleadings of a large­ scale antitrust case in Bell Atlantic Corporation v. Twombly. 6 In concluding the action was properly dismissed, the  Court  wrote perhaps  its most influential paragraph for modern civil litigation:

Federal Rule of Civil Procedure S(a)(2) requires only ‘a short and plain statement of the claim showing that the pleader is entitled to relief,’ in order to ‘give the defendant fair  notice of what the … claim is and the grounds upon which it rests.’ While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiffs 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[.] Factual allegations must be enough to raise a right to relief above the speculative level  7

Two years later, the Supreme Court further elaborated on this holding in Ashcroft v. Iqbal, a civil rights case:8

Two working principles underlie our decision in Twombly. First, … [t]hreadbare  recitals of the  elements  of a  cause of action, supported by mere conclusory statements, do  not suffice. Rule 8 marks a notable and  generous departure from the hyper-technical, code-pleading regime of a prior era, but it does not unlock the doors of discovery for a plaintiff armed with nothing more than conclusions.

Second, only a complaint that states a plausible claim for relief survives a motion  to dismiss. Determining whether  a complaint states a plausible claim for relief will, as the Court of Appeals observed, be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense. 9

The Court concluded: “[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged-but it has not ‘show[n]’-‘that the pleader  is  entitled  to relief.”’10

The Supreme Court set an outer bound  on Twombly  and  Iqbal  in its unanimous 2014 opinion of Johnson v. City of Shelby. 11 The plaintiff alleged civil rights violations in connection with his employment, but  pleaded a somewhat garbled basis  for  legal  relief  that  did  not  reference the correct statute, 42 U.S.C. § 1983.  The  Supreme Court  reversed  the Fifth Circuit’s affirmance of the complaint’s dismissal stating:

Our decisions in [Twombly and Iqbal] are not in point, for they concern the factual allegations a complaint must contain to survive a motion to dismiss. A plaintiff, they instruct, must plead facts sufficient to show  that  her  claim has substantive plausibility. Petitioners’ complaint was not deficient in that  regard.

Petitioners  stated simply, concisely, and directly events that, they alleged, entitled them to damages from the  city.12 Accordingly, “[h]aving informed the city of the factual basis for their complaint, they were required to do no more to stave off threshold dismissal for want of an adequate statement of their claim.”13

The Twombly and Iqbal opinions have “significantly changed pretrial pr actice”14  in  federal court,  although  their  full effect  remains to be seen,15 and courts continue to develop procedures to  manage  cases in  light of  the   opinions. 16 A good example  of their  influence  is  the Judicial

Conference’s recommendation (since accepted) to abandon  the “illustrative forms” referred to in Conley v. Gibson, which were included in the original Federal Rules. The Conference observed that while the forms were promulgated in 1938 “to indicate, subject to the provisions of these rules, the simplicity and brevity of statement which the rules contemplate,’ at the present time: The purpose of providing illustrations  for the rules, although useful when the rules were adopted, has been fulfilled.”17

Impeach https://t.co/u1sNyBk8Ja @CatoInstitute @ACLU @iDueProcess @bakerbotts @NACDL @TPPF @andrewmgrossman @kmanguward @RealClearNews @YALiberty @CloseUp_DC @J_Policastro @MOVE_texas @Center4Politics @RepKatiePorter @CSGJC @BLaw @ReutersLegal @Law360 @TexasLawyer @TexasLawbook pic.twitter.com/93yCIq28NC

— LawsInTexas (@lawsintexasusa) October 2, 2020

(b) Rule 9(b)

Federal Rule of Civil Procedure 9(b), also enacted as part of the original 1938 rules, provides: “In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person’s mind may be alleged  generally.”18

Courts  have  uniformly  understood  that  this  rule “requires the complaint to set forth ‘the who, what, when,  where,  and how’ of the  events at  issue.”19

Litigation  about this rule  has focused  on two main issues: (1) the level of detail required to satisfy the above requirements, 20 and (2) whether the rule extends to fraud-like claims such as negligent misrepresentation.21

II. FIFTH CIRCUIT CASES

The Fifth Circuit has addressed pleading standards several times since Twombly and Iqbal.

When the Court affirms a dismissal on the pleadings, its language about Rule 8(a) often resembles language from its cases about the heightened pleading requirements of Rule 9(b).

Conversely, when the. Court reverses a pleading-based dismissal, it tends to focus on the allegations of the specific pleading rather than the particular requirements of Rule 8(a).22

(A) Twombly Not Satisfied

During 2014, the Fifth Circuit thoroughly reviewed the Supreme Court’s pleading requirements in Merchants & Farmers Bank v. Coxwell. 23

The plaintiff alleged that an attorney had unlawfully converted certain funds in violation of a court order.

https://t.co/fjkGwH981t CA5; “..and our inquiry’s ’emphasis on the plausibility of a complaints allegations does not give district courts license to look behind those allegations and independently assess the likelihood that the plaintiff will be able to prove them at trial.” pic.twitter.com/BHmDdT7IuK

— LawsInTexas (@lawsintexasusa) October 15, 2020

The Court noted that Mississippi law could potentially  recognize such a claim,24 and  “[u]nder the older Rule 12(b)(6) standard from Conley v. Gibson, those allegations might be sufficient to state a claim.”25 Under Twombly and Iqbal, however:

The complaint did not specify what court issued the order, when it was issued, or to whom it was directed; the complaint did not describe what the order required and therefore whether the allegation of a violation is plausible or merely fantastical. Further, merely alleging a perfected security interest is insufficient  to  establish  ownership, and the complaint did not describe whether the court order established M&F’s  possessory  interest  in  the  funds by reducing its claim to judgment .26

This language strongly resembles the language of the Court’s Rule 9(b) opinions. It faults the pleading for not adequately stating “who” (‘did not specify what court issued the order … or to whom it  was  directed’); “when” (‘when it was issued’); “what” (‘what the order required’); or “how” (‘the complaint did not describe whether the court order established  M&F’s possessory interest in the funds by reducing its claim  to judgment’).

Two other recent Fifth Circuit cases have found pleadings inadequate  under Twombly using similar language and analysis.    First,· Patrick v. Wal-Mart 27 rejected this pleading about the alleged bad-faith handling of insurance claims:

Defendants have engaged in a continuing pattern of bad faith … [and] have among other things, unreasonably delayed and/or denied authorization and/or payment of reasonable, necessary and worker’s comp related medical treatment, as well as permanent indemnity benefits, as ordered by [the state agency.28

The court held, while this allegation “invokes three potentially cognizable theories of liability” under Louisiana law, it was inadequate because it “does not identify by date or amount or type of service, any of the alleged bad-faith denials and delays.”29 In other words, the pleading  lacked “when” (‘date’) or “what” (‘amount or type of service’).

Similarly, in Bowlby v. City of Aberdeen,30 the Fifth Circuit rejected an equal protection claim about the handling of a permit to operate a snow cone stand.

The Court stated the plaintiffs “complaint simply states that no black-owned businesses have been closed, and that there are black-owned businesses operating despite their non-compliance with City laws and regulations. She then summarily concludes that this amounts to a denial of equal protection.”31 The Court concluded:

Nowhere, however, does she allege that the Defendants­ Appellees’ treatment of her is the result of intentional discrimination. Furthermore, Bowlby pleads no facts to establish that she and the black business owners to whom she broadly refers are similarly situated. For instance, there are no allegations regarding the types of businesses owned by black individuals, the size of their businesses, where they are located, or what laws and regulations they have violated. Bowlby therefore provides mere ‘labels and conclusions,’ and consequently has failed to state a plausible claim for relief.s2

Again, the Court found a lack of sufficient detail about matters that are familiar to case law about Rule 9(b)-“who” (‘the black business owners to whom she broadly refers’); “what” and “how” (‘what laws and regulations they have violated’); and “where” (‘where they are located’),33

This is in violation of your own Bar rules, and as the Burkes have discussed with several Bars. The simple response comes from Court of Appeals for the Eleventh Circuit Judge Barbara Lagoa’s own lips, while sitting as a Florida Supreme Court Justice. https://t.co/T9xHM1GLw9 pic.twitter.com/hOUNPHt4NQ

— LawsInTexas (@lawsintexasusa) October 2, 2020

(B) Twombly Satisfied

A counterpoint to those cases appears in the 2015 case of Richardson v. Axion Logistics, L.L.C.34 Richardson alleged that his employer terminated him in violation of  Louisiana’s  whistleblower statute, for revealing the employer’s improper billing pr actices.35 The district court dismissed, concluding as to a key element of the claim: “Richardson merely alleged that some of his co-workers engaged in unethical billing practices, only devoting one conclusory paragraph to stating that such illegal activity was authorized by [Axion].”36

The Fifth Circuit disagreed and reversed,37 taking a broader view of the relevant allegations:

While paragraph 5 of the complaint did include an undetailed allegation that  Axion  authorized  the fraudulent billing practices, other portions of  the complaint provided the facts necessary to support the allegation. Namely, paragraph 13 alleged that Axion’s president tried to fire one of the dishonest employees because of his fraud but the CEO refused to allow it, and paragraph 14 alleges that Axion’s president expressly admitted knowledge of the fraud. In addition,  paragraph 16 alleges that Axion’s president, after the vice  president of administration informed him of fraudulent billing, directed that the client be billed (and the dishonest employee  be paid) for  the  extra  time. Finally, paragraphs 18  and 18a  allege that Richardson reported the fraudulent billing to the CEO and CFO, both of whom instructed him to keep quiet about the matter.SB

Under Twombly’s “plausibility” standard, the Court concluded that “[t]aken together, these facts make plausible the allegation” made by the plaintiff about his employer’s knowledge of the alleged misconduct. 39

A similar analysis appears in Wooten v. McDonald Transit Associates, Jnc.,40 in the context of reviewing the record in support of a default judgment in an employment dispute. After first finding the plaintiffs pleading inadequate, 41 the Fifth Circuit issued a new opinion holding that the pleading complied with the Rules, and summarizing it as follows:

Wooten’s complaint contains the following factual allegations: (1) Wooten is a former employee of McDonald Transit; (2) Wooten was employed by McDonald Transit from 1999 until May 1, 2011; (3) at the time he was fired, Wooten was a Class B mechanic earning $19.50 per hour, plus benefits; (4) in October 2010, Wooten filed an age­ discrimination claim with the EEOC, after which McDonald Transit ‘”discriminated and retaliated against [Wooten], and created a hostile work environment, until such time that [Wooten] was constructively discharged on or about May 1, 2011′”; and (5) McDonald Transit’s unlawful conduct caused Wooten harm,  including damages in the form of lost wages and benefits, mental anguish, and noneconomic damages.42

The court held “that these allegations, while perhaps less detailed than McDonald Transit would prefer, are nevertheless sufficient to satisfy the low threshold of Rule 8.”43

In its analysis, Wooten acknowledged that the “complaint could have specified the nature of the discrimination and the  retaliation [Wooten] experienced; but his allegations are not so vague that McDonald

Transit lacked notice of the contours of Wooten’s claim.” The court supported this conclusion by reference to the level of detail in the  pattern form for negligence in the Federal Rules of Civil Procedure44- one of the forms the official Advisory Committee deemed  irrelevant  after  Twombly and Iqbal.45

In  the  same  vein,  in  Highland  Capital  Mgmt.  u.  Bank  of America,46 the plaintiff alleged the breach  of  an  oral  contract  to sell a  loan portfolio. The Fifth Circuit reversed the Rule  12 dismissal  of  that claim, noting the  plaintiffs  allegations  about  the  role  of  industry  custom in defining the terms used by  the  parties. 47  Twombly  and  Iqbal  were cited, but only by way of introduction;  48  their  effect  on the  requirements of Rule 8(a) did not factor into the court’s analysis.

Two other recent cases also show how a pleading can withstand a Rule 12(b)(6) motion. In Martin-Janson v. JP Morgan Chase,49 the plaintiff  alleged promissory  estoppel based on  five specific representations by a mortgage servicer, and sought “discovery to reveal either the draft loan modification agreement that JPMorgan allegedly prepared, or the terms of her promised modification based on the lender’s standard for mulae.” 50

While not directly relying on industry custom, the plaintiffs argument about “standard formulae” is reminiscent of the plaintiffs contention in Highland Capital. 51

The Fifth Circuit accepted that argument and reversed the dismissal of that claim.52

As to Rule 8(a), the Court cited Iqbal in its conclusion, but only to support its overall holding:

Viewing Martin-Janson’s factual allegations, and the reasonable inferences to be drawn therefrom, in the light most favorable to her, we conclude that she has pled a

plausible promissory estoppel claim that potentially avoids  JPMorgan’s  statute  of  frauds  defense.  See Iqbal, 556 U.S. at 678 (citation omitted) (“A claim has facial plausibility  when  the  plaintiff  pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”)53

While the Court did not go further into the specific requirements of Rule S(a) in this section, it was clearly impressed favorably with the detailed pleading of the five alleged acts, quoting them verbatim earlier in its analysis.54

Finally, building on the substantive analysis of Bowlby v. City of Aberdeen, 55 the Fifth Circuit partially reversed a Rule 12(b)(6) dismissal in Jabary v. City of Allen. 56

The plaintiff claimed that a city had treated his “hookah shop” unfairly in the zoning process.57

While affirming the dismissal of  other  defendants,  the  Court observed  that  the plaintiff had adequately alleged that the mayor had a motive to harm his store, as well as the  specific opportunity to do so from his  position in city government.58

In other words, the  Court credited the way in which the  plaintiff alleged the “who,” “what,” and “how” of his alleged injury through the zoning process.

CONCLUSION

In its application of Twombly and Iqbal to allegations made under Fed. R. Civ. P. 8(a), the Fifth Circuit has maintained a distinct analytical framework from that required by Fed. R. Civ. P. 9(b). As a practical matter, however, there is considerable overlap.

Deficiencies about the pleading of “who,” “what,” and other aspects of Rule 9(b) have been identified on more than one occasion as reasons to affirm a dismissal on the pleadings. 59

On the other hand, when a Rule 12(6)(6) dismissal is reversed, the Court is clearly impressed when a pleading states a legally plausible theory in a detailed way.60

Practitioners and judges should note this convergence in the Fifth Circuit’s case law and consider it in their application of Twombly and Iqbal to specific pleadings.

Many pro se’s get ejected at https://t.co/3AEdYLyLuY before discovery as the lower courts incorrectly rely upon a higher pleading standard (Twombly). Here Raffi was arguing for such a high standard against https://t.co/wX7G2JRMDL at Oral Argument. Turn On Sound #appellatetwitter pic.twitter.com/9Zem5V0vGh

— LawsInTexas (@lawsintexasusa) September 30, 2020

US Supreme Court: Statement of the Legal Theory Supporting a Claim Is Not Required in a Pleading

Originally Published; March 17, 2015 | Reposted by LIT; October 16, 2020

The US Supreme Court recently emphasized that pleadings under the Federal Rules of Civil Procedure do not require a statement of the legal theory supporting the claim.

In Johnson v. City of Shelby, 135 S. Ct. 346 (U.S. 2014), the plaintiffs were former police officers of the City of Shelby, Mississippi, who filed suit against the city claiming they were unlawfully fired because they uncovered criminal activity by a city Alderman.

The District Court granted summary judgment against the plaintiffs, ruling their Complaint failed to cite the applicable statute for their cause of action, 42 U.S.C. § 1983.

The Fifth Circuit affirmed, holding the invocation of § 1983 in the Complaint was “not a mere pleading formality,” but a notice requirement as “[c]ertain consequences flow from claims under § 1983.” 743 F. 2d 59, 62 (5th Cir. 2013).

The Supreme Court reversed, holding the Complaint’s failure to invoke § 1983 did not warrant dismissal. The Court emphasized that Rule 8(a)(2) of the Federal Rules of Civil Procedure requires only a “short and plain statement for the claim showing that the pleader is entitled to relief.” Johnson, 135 S. Ct. at 346 (citing Fed. R. Civ. P. 8(a)(2)).

The Court noted that its decisions in Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955 (2007) and Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009) were not applicable “for they concern the factual allegations a complaint must contain to survive a motion to dismiss.” Id. at 347 (emphasis in original).

It found the plaintiffs’ Complaint was not factually deficient because it stated, “simply, concisely, and directly events that, they alleged, entitled them to damages from the city.” Id.

The Court held the Rules “do not countenance dismissal of a complaint for imperfect statement the legal theory supporting the claim asserted.” Id. at 346.

As such, “Having informed the city of the factual basis for their complaint, [plaintiffs] were required to do no more to stave off threshold dismissal for want of an adequate statement of their claim.” Id.

https://t.co/7dpyf1Q5HQ https://t.co/A3wC5kqKPP pic.twitter.com/JOUvZ5pYlS

— LawsInTexas (@lawsintexasusa) September 23, 2020