Seventh Circuit Examines Pleading Requirements After Twombly/Iqbal

The Seventh Circuit has issued an opinion in Swanson v. Citibank, N.A., No. 10-1122, 614 F.3d 400 (7th Cir. July 30, 2010), that explores the nature of federal civil pleading after Bell Atlantic Corp. v. Twombly, 500 U.S. 544 (2007), Erickson v. Pardus, 551 U.S. 89 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009). In an opinion by Judge Wood, joined by Judge Easterbrook, the majority evaluated the Supreme Court's new "plausibility" standard and ruled that the district court had raised the bar too high in dismissing plaintiff's complaint. In dissent, Judge Posner said that the majority's ruling was difficult to square with Iqbal because the plaintiff's allegations of housing discrimination were implausible.

Swanson clarified the Seventh Circuit's pleading standard, and should be required reading for all practitioners with civil cases in Illinois, Indiana and Wisconsin federal courts.

In Swanson, the majority held that the Supreme Court's movement away from the long-standing rule of Conley v. Gibson, 355 U.S. 41, 45-46 (1957), meant that it is now clear "that a plaintiff must do better than putting a few words on paper that, in the hands of an imaginative reader, might suggest that something has happened to her that might be redressed by the law." However, the "question with which courts are still struggling is how much higher the Supreme Court meant to set the bar" when it decided Twombly, Erickson and Iqbal. The majority framed the issue this way: "On the one hand, the Supreme Court has adopted a 'plausibility' standard, but on the other hand, it has insisted that it is not requiring fact pleading, nor is it adopting a single pleading standard to replace Rule 8, Rule 9, and specialized regimes like the one in the Private Securities Litigation Reform Act."

The majority emphasized that Rule 8 has never been abandoned, and that the Supreme Court "was not engaged in a sub rosa campaign to reinstate the old fact-pleading system." This was shown by the pronouncement in Erickson that the short-and-plain-statement required under Rule 8 "need only give the defendant fair notice of what the . . . claim is and the grounds upon which it rests" and "[s]pecific facts are not necessary." Erickson, 551 U.S. at 93. It also is evident from the Court's reaffirmance of the validity of Swierkiewicz v. Sorema N.A., 534 U.S. 506 (2002), cited with approval in Twombly, 550 U.S. at 556, under which the Court struck down attempts to impose heightened pleading requirements not listed in Fed. R. Civ. P. 9(b).

Given the continued validity of notice pleading, the majority held that under the new requirement that a pleader "state a claim to relief that is plausible on its face" (Twombly, 550 U.S. at 570; Iqbal, 129 S. Ct. at 1949), plausibility "does not imply that the district court should decide whose version to believe, or which version is more likely than not." It set forth the Seventh Circuit's view of what the requirements now are for pleading in civil cases not governed by Fed. R. Civ. P. 9(b) or special statutory pleading requirements:

"As we understand it, the Court is saying instead that the plaintiff must give enough details about the subject-matter of the case to present a story that holds together. In other words, the court will ask itself could these things have happened, not did they happen. For cases governed only by Rule 8, it is not necessary to stack up inferences side by side and allow the case to go forward only if the plaintiff’s inferences seem more compelling than the opposing inferences."

Judge Posner disagreed with the majority because in his view the plaintiff's housing discrimination claim simply was implausible, and the majority gave too much leeway to allow pleading of a mere possibility. He emphasized that while Iqbal stated, "The plausibility standard is not akin to a 'probability requirement'" (quoted by the majority), the rest of the sentence said, "but it asks for more than a sheer possibility that a defendant has acted unlawfully." As I read Posner's dissent, he seems to be saying that the majority's holding that a district court "will ask itself could these things have happened, not did they happen," would allow the "sheer possibility" that Iqbal expressly rejected.

The case also includes an interesting discussion of the role of discovery in this debate. The majority acknowledged that "one powerful reason that lies behind the Supreme Court’s concern about pleading standards is the cost of the discovery that will follow in any case that survives a motion to dismiss on the pleadings." It noted that the Supreme Court's new standard was intended to make it more difficult to earn the right to engage in discovery. But it drew the line at using judicial interpretation to impose higher pleading standards than Rules 8 and 9 contemplate, which is what the majority evidently thought was the consequence of the dissent's approach.

In his dissent, Judge Posner wrote that the asymmetrical nature of much discovery in a pure notice-pleading regime was a structural flaw that helps explain and justify the Supreme Court's new approach. "It requires the plaintiff to conduct a more extensive precomplaint investigation than used to be required and so creates greater symmetry between the plaintiff’s and the defendant’s litigation costs, and by doing so reduces the scope for extortionate discovery." To those who argue that a restrictive interpretation of the "plausibility" requirement would close the courthouse door too easily, Judge Posner offered an intriguing suggestion:

"If the plaintiff shows that he can’t conduct an even minimally adequate investigation without limited discovery, the judge presumably can allow that discovery, meanwhile deferring ruling on the defendant’s motion to dismiss. Miller v. Gammie, 335 F.3d 889, 899 (9th Cir. 2003) (en banc); Coss v. Playtex Products, LLC, No. 08 C 50222, 2009 WL 1455358 (N.D. Ill. May 21, 2009); Edward A. Hartnett, 'Taming Twombly, Even After Iqbal,' 158 U. Pa. L. Rev. 473, 507-14 2010); Suzette M. Malveaux, 'Front Loading and Heavy Lifting: How Pre-Dismissal Discovery Can Address the Detrimental Effect of Iqbal on Civil Rights Cases,' 14 Lewis & Clark L. Rev. 65 (2010)."

Judge Posner also offered an interesting opinion, echoing Judge Easterbrook of the majority, on the practical aspects of the use of magistrate judges to handle discovery disputes. It appears that in his view, district courts do not limit discovery as effectively as a restrictive interpretation of the "plausibility" requirement would:

"It is true, as critics of Twombly and Iqbal point out, that district courts have authority to limit discovery. [Citations omitted.] But especially in busy districts, which is where complex litigation is concentrated, the judges tend to delegate that authority to magistrate judges. And because the magistrate judge to whom a case is delegated for discovery only is not responsible for the trial or the decision and can have only an imperfect sense of how widely the district judge would want the factual inquiry in the case to roam to enable him to decide it, the magistrate judge is likely to err on the permissive side. 'One common form of unnecessary discovery (and therefore a ready source of threatened discovery) is delving into ten issues when one will be dispositive. A magistrate lacks the authority to carve off the nine unnecessary issues; for all the magistrate knows, the judge may want evidence on any one of them. So the magistrate stands back and lets the parties have at it. Pursuit of factual and legal issues that will not matter to the outcome of the case is a source of enormous unnecessary costs, yet it is one hard to conquer in a system of notice pleading and even harder to limit when an officer lacking the power to decide the case supervises discovery.' Frank H. Easterbrook, 'Discovery as Abuse,' 69 B.U. L. Rev. 635, 639 (1989)."

The court's split illustrates the great difficulty encountered in attempting to apply a "plausibility" standard without straying into evaluating probabilities, which Iqbal said was not the proper approach, or flat-out requiring fact pleading, which the Court repeatedly rejected. The majority's view in Swanson is that it is better to apply plausibility by applying a sliding scale of factual detail, varying with the particular case, so that there is just enough to tell a coherent story from which the legal conclusions plausibly could flow.


Illinois Supreme Court Considering Allowing Discovery Depositions at Trials

I previously reported on the Illinois practice of differentiating between "discovery depositions" and "evidence depositions, and the unfortunate consequences that sometimes result -- as in the case of Berry v. American Standard, Inc., 382 Ill. App.3d 895 (2008). Motivated by the situation discussed in Berry and the strict result mandated under the current version of the applicable rule, the Illinois Supreme Court Rules Committee has proposed an amendment to Supreme Court Rule 212 to allow the use of a discovery deposition transcript as trial evidence in a very limited set of circumstances. The Committee's comments for the proposal state:

"The Committee believes that a trial court should have the discretion under Rule 212(a)(5) to permit the use of a party’s discovery deposition at trial. The current version of the Rule is absolute in its prohibition against the use of a party’s discovery deposition at trial. It appears, however, that there may be rare, but compelling circumstances under which a party’s discovery deposition should be permitted to be used. In the Committee’s view, Berry presents such circumstances. Given that in most cases, counsel will have the opportunity to preserve a party’s testimony via an evidence deposition, it is expected that the circumstances that would justify use of a discovery deposition would be extremely limited."

Click here for the proposed rules change. The Rules Committee is holding public hearings on the proposal in Chicago on July 28, 2010.


Supreme Court Clarifies Corporation's Citizenship for Diversity Jurisdiction

In Hertz Corp. v. Friend, 130 S.Ct. 1181 (Feb. 23, 2010), the Supreme Court unanimously held that a corporation's state of citizenship for diversity purposes is its nerve center. For a detailed discussion of the background of this case, see the article I posted previously.