HASSETT’S OBJECTIONS
No More “Because I Said So”
By Lewis E. Hassett

Like most U.S. reinsurance attorneys, I have advised U.S. companies on English litigation. One of the most striking differences in English procedure versus typical American procedure is the different pleading standards. While English solicitors investigate the facts and meticulously articulate them in an initial complaint, American lawyers tend to do the opposite.

No wonder. The Federal Rules of Civil Procedure, enacted in 1937, were designed to streamline and shorten the pleading process. Over the ensuing seventy years, many states abandoned strict rules of pleading in favor of “notice pleading.” The American system of laissez faire pleading reached its apex in Conley v. Gibson, 355 U.S. 41 (1957), where the U.S. Supreme Court held that “a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.” 355 U.S. at 45-46. Under that standard, a wholly conclusory complaint would survive a motion to dismiss. As a result, plaintiff attorneys tended to eschew factual allegations in favor of broad conclusions.

These relaxed pleading rules, coupled with the American system of broad discovery, has generated an inefficient legal system. Litigation is expensive and triggers settlements driven not by the merits of the claim but by the direct and indirect costs of litigation. Nowhere is this better evidenced than in the class action context where vague pleadings coupled with extensive discovery have generated a monster divorced from the wrongs sought to be remedied.

Two years ago, the Supreme Court of the United States said “enough.” In Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), the Supreme Court disapproved Conley’s “no set of facts” framework, holding instead that the complaint must involve factual allegations “plausibly suggesting (not merely consistent with)” a cognizable claim. Conley, 550 U.S. at 557. The Twombly plaintiff alleged that competing local exchange carriers had entered into an agreement to suppress competition and to exclude new competitors. The Supreme Court held that the allegation of an “agreement” was merely a conclusion and was insufficient to allege a conspiracy. Although the complaint also had alleged parallel price movements, the Court held that such price movements could plausibly have arisen from factors other than a conspiracy, thereby rendering the complaint insufficient.

But Twombly involved antitrust law, an area laden with federal policy concerns. So, courts were uncertain of its application outside the antitrust context. We now have at least a partial answer. In a recent decision, Ashcroft v. Iqbal, Case No. 07-1015 (May 18, 2009), the Supreme Court buttressed and expanded Twombly. The Iqbal decision has been in the news, not because of the Court’s analysis with respect to pleading, but because the effect of the holding was to dismiss discrimination claims against John D. Ashcroft and Robert Mueller, the former attorney general and the head of the FBI, respectively. The Iqbal plaintiff alleged that he had been arrested in connection with post-9/11 security sweeps and abused at a detention facility and that such abuse arose from Ashcroft’s and Mueller’s discriminatory intent. Iqbal alleged that Ashcroft and Mueller “knew of, condoned, and wilfully and maliciously agreed to subject” him 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.” Id. at 14. Ashcroft was alleged to be the “principal architect” of the policy and Mueller was alleged to be “instrumental” in executing it. Id. at 14. The issue was whether Iqbal had pleaded “sufficient factual matter to show that [Ashcroft and Mueller] adopted and implemented the detention policies at issue not for a neutral, investigative reason but for the purpose of discriminating on account of race, religion or national origin.” Id. at 11.

The Court found Iqbal’s allegations to be “bare assertions” and nothing more than a “formulaic recitation of the elements of a constitutional discrimination claim.” Id. at 14. “As such, the allegations are conclusory and not entitled to be assumed true.” Id. at 14. The Court noted, “Respondent’s complaint does not contain any factual allegation sufficient to plausibly suggest Petitioners’ discriminatory state of mine. His pleadings thus do not meet the standard necessary to comply with Rule 8.” Id. at 15.

From a pleading perspective, the Iqbal decision borders on revolutionary. Facts must be alleged from which a state of mind may be inferred. The Court noted that its decision was based upon Rules 8 and 9 of the Federal Rules of Civil Procedure, and not on the specific area of law involved.

However, the application of Twombly and Iqbal to commercial cases remains to be seen. As a constitutional claim, Iqbal involved the important federal policy of qualified official immunity. Lower courts may yet narrow the application of these holdings by describing Twombly as an antitrust case and Iqbal as a qualified immunity case. However, commercial defendants now have authority with which to challenge a conclusory complaint at the pleading stage.

Lew Hassett is Co-Chairman of the firm’s Insurance and Reinsurance Practice. His practice concentrates in the areas of complex civil litigation, including insurance and reinsurance matters, business torts and insurer insolvencies. Lew received his bachelor’s degree from the University of Miami and his law degree from the University of Virginia.

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