Courts dismiss complaints for failure to state a claim

In Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), the Supreme Court concluded, in an antitrust case, that a complaint which provides only “fair notice” of a claim is insufficient. In addition to providing notice, the complaint must state a claim to relief that is plausible on its face. The plaintiff’s factual allegations must be enough to demonstrate a right to relief above the speculative level. The Court reasoned that the need at the pleading stage for allegations plausibly suggesting (not merely consistent with) success on the claim reflects the threshold requirement of F. R. Civ. P. Rule 8(a)(2) that the “plain statement” possess enough heft to show that the pleader is entitled to relief. In a later case, Ashcroft v. Iqbal, _ U.S. _ , 129 S. Ct. 1937 (2009), the Supreme Court held that the “plausibility” standard applies to all civil actions.

Courts in the Seventh Circuit are now regularly being asked to dismiss complaints under the new pleading standards. Three examples follow.

In the first case, Khem Bissessur was expelled from the Indiana University School of Optometry after receiving several poor grades and failing a clinical rotation.

Bissessur’s complaint alleged that his professors arbitrarily assigned his grades, that he did not receive proper feedback from his professors or the University regarding his academic progress, and that the University dismissed him without proper notice or a hearing. The complaint contained claims for violations of Bissessur’s rights to substantive due process, procedural due process, and equal protection, as well as a claim for breach of implied contract.

The district court dismissed the complaint for failure to state a claim pursuant to F. R. Civ. P. 12(b)(6). Bissessur appealed.

According to the appeals court, the district court correctly concluded that Bissessur failed to identify any specific promise by the University which established that Bissessur had an entitlement to a continuing education, or a similar entitlement. Bissessur nevertheless argued that the district COUlt erred by dismissing his claims at the motion to dismiss stage.

Bissessur alleged that the following allegations were enough to allow his claims to survive a motion to dismiss:

• An implied contract existed between Bissessur and lU.

• lU breached the implied contract that existed between Bissessur and lU.

• IU’s actions were arbitrary, capricious, and undertaken in bad faith.

According to the Seventh Circuit, under the standard set forth in Twombly, Bissessur’s complaint fell short The complaint must contain enough facts to state a claim to relief that is plausible on its face and also must state sufficient facts to raise a plaintiff’s right to relief above the speculative level. 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.

Under Twombly, a defendant should not be forced to undergo costly discovery unless the complaint contains enough detail to indicate that the plaintiff has a substantial case. Bissessur’s complaint did nothing more than state that an implied contract existed and was breached. The complaint contained no mention of any entitlements Bissessur had as a result of his relation ship with the University, or any promises that the University or its officials made to him that might have formed the basis of a contract. Nor did the complaint state what entitlement Bissessur had as a result of purported contract. Because Bissessur’s constitutional claims were derivative of the rights he alleged were promised to him as part of this implied contract, the necessary facts to support these claims were also absent from the complaint. Bissessur’s argument that the details of the contract would become clear during discovery was foreclosed by Twombly, which says that the complaint itself must contain sufficient factual detail before discovery may commence.

Dismissal of Bissessur’s complaint was affirmed. Bissessur v. Indiana Univ. Bd. of Trustees. et al., 581 F.3d 599 (7th Cir. 2009).

In the next case, a businessman named Jack Smith sold a controlling interest in his company to Dade Behring, Inc., a closely held corporation. Smith received options, valid for 10 years, to purchase 20,000 shares of Dade Behring’s common stock at $60 a share. In 2002, Smith signed an agreement which ended his employment. He received $1.4 million in cash and retained stock options with their $60 exercise price, although the appraised value of the stock was only $11. Three months later Dade Behring, Inc. declared bankruptcy. Smith sued for fraud.

Smith’s complaint alleged that the defendants fraudulently failed to tell him that the company would be declaring bankruptcy. The district court dismissed for failure to state a claim.

Smith appealed.

The appellate court stated it was at first reluctant to endorse the district court’s citation of Twombly, “fast becoming the citation du jour in Rule 12(b)(6) cases,” as authority for the dismissal of Smith’s suit. This was the case because in Twombly, the Supreme Court held that in complex litigation, the defendant should not to be put to the cost of pretrial discovery, which can be so steep as to coerce a settlement even when plaintiff’s claim is very weak—unless the complaint says enough to allow an inference that the case may have merit. In comparison, Smith’s case was not complex.

However, the appellate court noted that in Iqbal, Twombly was extended to all cases, and Iqbal was a case in which the court of appeals had promised minimally intrusive discovery.

Judge Posner mused that perhaps neither Twombly nor Iqbal governed the outcome. It was apparent from Smith’s complaint and arguments, without reference to anything else, that his case had no merit. Dismissal was affirmed. Smith v. Duffey, et al., 576 F.3d 336 (7th Cir. 2009).

A district court fleshed out some details in our third case. In Riley v. Vilsack et aI., 665 F. Supp. 2d 994 (W.O. Wis. 2009), a former employee sued the Department of Agriculture and two individual defendants. Robert Riley had been employed by defendant U.S. Department of Agriculture for approximately 27 years, most recently as an information technology specialist with the National Forest Agency. He was terminated from employment. The defendants filed a motion to dismiss that relied heavily on Twombly and Iqbal. In particular, defendants argued that Riley’s allegations of age discrimination, disability discrimination and retaliation were too “vague and conclusory” to satisfy F. R. Civ. P. 8.

The district court agreed that Riley’s bare assertions that defendants failed to accommodate his disability and engaged m a “campaign of retaliation” against him were insufficient to satisfy Rule 8.

However, Riley’s allegations of age discrimination were more than conclusions. He alleged that defendants targeted for outsourcing the job responsibilities of older workers while making comments about their preference for younger workers.

The district court observed that in Iqbal, the Supreme Court analyzed the sufficiency of the complaint using a two-step process. First, the Court identified the allegations in the complaint that are not entitled to the assumption of truth. In the second step, the Court looked at the remaining allegations to determine whether they plausibly suggested an entitlement to relief. As mentioned above, the Supreme Court’s interpretation of Rule 8 applied to all civil actions, including discrimination claims.

The Court in Iqbal stated that a plaintiff may not allege discriminatory intent in a conclusory fashion. While the Supreme Court did not identify what level of specificity is required, it concluded that it was not enough for the plaintiff to allege that the defendants “knew of, condoned, and willfully and maliciously agreed to subject the plaintiff to harsh conditions of confinement as a matter of policy, solely on account of his religion, race, and/or national origin and for no legitimate penological interest.”

The problem noted by the district court is that Iqbal and Twombly contain few guidelines to help the lower courts discern the difference between a “plausible” and an implausible claim and a “conclusion” from a “detailed fact.”

According to the district court, the Seventh Circuit is proceeding cautiously. It has continued to emphasize that Twombly and Iqbal have not changed the fundamentals of pleading, citing to Bissessur (“Our system operates on a notice pleading standard; Twombly and its progeny do not change this fact.“).

According to the district court, the bottom line seems to be that “the height of the pleading requirement is relative to circumstances.” Cooney v. Rossiter, 583 F .3d 967, 971 (7th Cir.2009). More specifically, the plausibility standard has greatest force when special concerns exist about the burden of litigation on the defendant or when the theory of the plaintiff seems particularly unlikely. However, in the ordinary case, the burden remains low. So long as the plaintiff avoids using legal or factual conclusions, any allegations that raise the complaint above sheer speculation are sufficient.

A complaint is implausible under Iqbal and Twombly not because the allegations are “fanciful,” but because they are too conclusory or because they fail to include facts about the elements of a claim. For example, a plaintiff in a race discrimination case could allege, “My boss at Big Corporation X fired me right after be told me that I am the best employee he ever had, but that be cannot overcome the animosity he feels toward me because of my race.” Such an allegation may be unlikely, but it is not implausible under Iqbal or Twombly because it is specific and addresses the critical elements of the claim.

The district court stated that after Iqbal and Twombly, a court assessing the sufficiency of the complaint should ask: if all the facts the plaintiff alleges in his complaint are accepted as true, but all the conclusions are rejected, is it still plausible (that is, more than speculative) to believe that additional discovery will fill in whatever gaps are left in the complaint?

At the same time, Iqbal requires courts to consider the context of a particular case. When an element of a claim involves the intent of the defendant, the plaintiff is limited in the facts that be can provide at the pleading stage. Of course, only the defendant knows why he took a particular action and generally the plaintiff will not have access to a significant amount of circumstantial evidence proving his claim without discovery. According to the district court, F. R. Civ. P. 8 should not be construed in such a way that it provides immunity to all but the most brazen violators of the law. Thus, in the ordinary discrimination case, the required “factual context” for the plaintiffs claim should be minimal.

It is evident that the federal courts will continue to refine the pleading requirements established in Twombly and Iqbal, and that motions to dismiss will predictably become more and more common. ■