Pleading State of Mind After Ashcroft v. Iqbal CAROLINE N. MITCHELL AND DAVID L. WALLACH The Supreme Court’s decision in Ashcroft v. Iqbal marks a welcome and significant stiffening of the federal pleading standard. This article explores the background of the case, the decision and its ramifications. The authors conclude that by requiring sufficient specificity and plausible allegations of misconduct or misfeasance in all civil actions, the Supreme Court has made clear that non-specific “notice” pleadings can no longer unleash costly litigation. n May 18, 2009, in a 5-to-4 decision in This welcome development makes it consider- Ashcroft v. Iqbal, the Supreme Court stiffened ably more difficult for plaintiffs armed only with Othe federal pleading standard under Rule 8 of vague factual allegations to launch expensive litiga- the Federal Rules of Civil Procedure. Iqbal contin- tion. At the same time, Iqbal raises difficult questions ues down the path set by the Court’s 2007 decision in about how to properly apply this new federal plead- Bell Atlantic Corp. v. Twombly. It makes clear that the ing standard and complicates the calculus for plain- stricter pleading standard announced in Twombly ap- tiffs and defendants alike at the pleading stage of civil plies to all civil actions in federal court, not just to anti- cases in federal courts. trust or other complex cases, as many courts had held. Federal securities law claims have been subject to BACKGROUND a heightened pleading standard since the advent of the Private Securities Litigation Reform Act (“PSLRA”) Iqbal arose from the Federal Bureau of Investiga- of 1995. However, other types of civil claims for al- tion’s (“FBI”) investigation of the terrorist attacks of leged financial wrongs are still governed by the gen- September 11, 2001. Following the attacks, the FBI erally applicable standards of Rules 8 and 9. With and Immigration and Naturalization Service (“INS”) Iqbal, the Supreme Court significantly narrowed the arrested and detained hundreds of individuals on im- gap between the PSLRA and these general standards. migration charges. The FBI classified a subset of Under Iqbal, in every type of case in which the de- these detainees, including Javaid Iqbal, a Muslim fendant’s state of mind is an element of the claim, a Pakistani, as of “high interest” and kept them in high- pleading must state facts supporting a plausible infer- ly restrictive conditions until the FBI cleared them. ence that the defendant acted with the relevant state In addition to complaining about the restrictive con- of mind. A conclusory allegation that the defendant ditions, Iqbal alleged that he was subjected to a series acted with “malice,” “intent,” or “reckless disregard” of abuses, including being beaten and denied medical will no longer suffice. care. Iqbal pled guilty to fraud charges in connection Caroline N. Mitchell, a partner at Jones Day, litigates complex commercial disputes with a focus on defending cor- porations against claims related to events in foreign countries, as well as to RICO, the Alien Tort Statute, antitrust, fraud, and unfair competition law. David L. Wallach, an associate at the firm, specializes in complex civil and in- ternational litigation. Contact the authors at [email protected] and [email protected], respectively. Published in the October 2009 issue of Financial Fraud Law Report. Copyright ALEXeSOLUTIONS, INC. 1-800-456-2430. 201 FINANCIAL FRAUD Law REport This welcome development makes it considerably more difficult for plaintiffs armed only with vague factual allegations to launch expensive litigation. At the same time, Iqbal raises difficult questions about how to properly apply this new federal pleading standard and complicates the calculus for plaintiffs and defendants alike at the plead- ing stage of civil cases in federal courts. with his presence in the United States and served an complaint…does not need detailed factual allegations, 18-month sentence. a plaintiff’s obligation to provide the ‘grounds’ for his After he was released and deported to Pakistan, ‘entitle[ment] to relief’ requires more than labels and Iqbal brought a Bivens action against officials at vari- conclusions, and a formulaic recitation of the elements ous levels of the federal government, from low-level of a cause of action will not do.”9 Thus, a complaint prison staff all the way up to former Attorney General alleging conspiracy must include “enough factual mat- John Ashcroft and current FBI director Robert Muel- ter (taken as true) to suggest that an agreement was ler. Ashcroft and Mueller moved to dismiss, argu- made.”10 The Court emphasized the enormous cost ing, inter alia, that the allegations of their involve- of discovery in antitrust suits and the impossibility of ment were too conclusory to state a claim. The trial alleviating such costs through careful management of court denied the motion to dismiss and defendants ap- discovery or summary judgment.11 pealed. While the appeal was pending, the Supreme Court decided Bell Atlantic Corp. v. Twombly.1 The Second Circuit’s Interpretation of Twombly Bell Atlantic Corp. v. Twombly Three weeks after Twombly, the Second Circuit In Twombly, consumers brought a putative class affirmed the denial of the motion to dismiss inIqbal .12 action alleging that regional telephone and internet The Second Circuit noted that Twombly created service providers engaged in an antitrust conspiracy “[c]onsiderable uncertainty concerning the standard to stifle competition.2 The conspiracy allegation was for assessing the adequacy of pleadings.”13 The court stated on “information and belief” arising from the then examined Twombly in detail.14 It concluded that defendants’ parallel pricing and failure to attempt to Twombly “is not requiring a universal standard of compete in each other’s respective service areas.3 In heightened fact pleading, but is instead requiring a an opinion by Justice Souter, the Court held that nei- flexible ‘plausibility standard,’ which obliges a plead- ther the alleged parallel pricing nor the failure to enter er to amplify a claim with some factual allegations in each others’ areas gave rise to a plausible inference of those contexts where such amplification is needed to conspiracy.4 The Court discounted the direct allega- render the claim plausible.”15 tion that defendants engaged in a “contract, combi- Applying this standard, the Court of Appeals nation or conspiracy,” holding that “these are merely found that plaintiff’s allegations that Ashcroft and legal conclusions resting on the prior allegations.”5 Mueller knew of, condoned and agreed to a policy of Thus, the Court held that plaintiffs failed to state an detaining individuals in severe conditions based on antitrust conspiracy claim. discriminatory criteria were not implausible, and thus Twombly expressly overruled the statement from required no further factual enhancement. Accord- Conley v. Gibson6 that “a complaint should not be dis- ingly, the Court of Appeals affirmed.16 missed for failure to state a claim unless it appears be- yond doubt that the plaintiff can prove no set of facts in The Supreme Court’s Explanation of Twombly support of his claim which would entitle him to relief.”7 Twombly held that a complaint which merely states the The Supreme Court rejected the Second Circuit’s legal theory of the claim is not sufficient.8 “While a and other lower courts’ readings of Twombly’s plausi- 202 Published in the October 2009 issue of Financial Fraud Law Report. Copyright ALEXeSOLUTIONS, INC. 1-800-456-2430. PLEADING StatE OF MIND AFTER ASHCROFT V. IQBAL bility requirement.17 The Court, in a decision written agreed to” the unconstitutional policies pursuant to by Justice Kennedy, held that whether a complaint is which Iqbal was detained was too conclusory to be “plausible,” as that term is used by Twombly, turns entitled to the presumption of truth. The four-Justice not on whether the alleged conduct is unlikely, but dissent — written by Justice Souter, the author of on whether the complaint contains sufficient non- Twombly — just as easily viewed the same as allega- conclusory factual allegations to support a reasonable tion of fact. Lower courts have pointed to the tension inference that the conduct occurred.18 between the Twombly pleading standard and Federal Rule of Civil Procedure 84, which provides that cer- To be clear, we do not reject these bald allegations tain form pleadings set forth in the Appendix to the on the ground that they are unrealistic or nonsen- Federal Rules “suffice under these rules and illustrate sical. We do not so characterize them any more the simplicity and brevity that these rules contem- 24 than the Court in Twombly rejected the plaintiffs’ plate.” Many of these form pleadings contain direct express allegation of a ‘contract, combination or allegations similar to those found insufficient inIqbal conspiracy to prevent competitive entry,’ because and Twombly. For example, Form 11 provides that it thought that claim too chimerical to be main- “[o]n date, at place, the defendant negligently drove a motor vehicle against the plaintiff.” Form 14 pro- tained. It is the conclusory nature of respondent’s vides that “[a]s a result of the defendant’s negligent allegations, rather than their extravagantly fanci- conduct and the unseaworthiness of the vessel, the ful nature, that disentitled them to the presump- plaintiff was injured.” tion of truth.19 It is difficult to draw a clear line between the al- Likewise, the Court rejected the narrow reading that legations found insufficient in Iqbal and Twombly, on had been percolating in some lower courts that Twom- the one hand, and the allegations of Forms 11 and 14, bly’s pleading standard applied only to “expensive, on the other, which are, by rule, sufficient. Neverthe- complicated litigation like that considered in Twom- less, the distinction between factual allegations and bly.”20 The Court held that “Twombly expounded the those that are merely conclusory will often determine pleadings standard for ‘all civil actions,’…and it ap- whether a given complaint survives a 12(b)(6) motion.