Posted June 28th, 2018.
By Kat Greene
Law360 (June 28, 2018, 10:30 PM EDT) — Associate Justice Anthony Kennedy spent his three decades on the high court making a name for himself as a champion of individual freedoms, but he also authored the majority opinion in Ashcroft v. Iqbal that changed corporate litigation so much, it is cited in nearly every dismissal bid and has become the bane of the plaintiffs bar.
In the decision, Justice Kennedy, who is set to retire July 31, led a narrow majority in raising the bar for bringing claims in court from a so-called notice pleading under Rule 8 of the Federal Rules of Civil Procedure. Under the new regime, plaintiffs have to demonstrate that their claims are plausible in the eyes of the judge, even before evidence is exchanged, according to the 2009 decision.
The ruling gave attorneys defending companies a new weapon to shred weaker causes of action and sometimes entire lawsuits early on. But it has also meant that some legitimate claims have been rejected without the plaintiffs even getting a chance to gather evidence to prove their allegations, Jeremy Heisler, vice chairman of Sanford Heisler Sharp LLP, told Law360 on Thursday.
“It basically is a reactionary step back,” he said. “In our view, it’s part of an anti-litigation, pro-business trend by the court. … They’re anti-worker, they’re anti-class action, and they’re willing to abandon their own stated principles of federalism in order to favor business.”
He called the decision a “radical break” from the prior standard, and one that opens up a “subjective can of worms” because the plausibility standard is determined by judicial experience and common sense, both of which are amorphous and will change depending on which judge is overseeing a case.
The same sorts of claims that could stand in court before Iqbal can’t now, as they’re being scrutinized and second-guessed by judges with different educations, philosophies, biases, and social backgrounds who have different opinions about what is and is not “plausible,” Heisler said.
“One judge’s common sense will be another judge’s nonsense,” he said. “It really made it tougher for plaintiffs to successfully plead causes of action.”
Since the decision was handed down in May 2009, Iqbal has become the fourth most-cited U.S. Supreme Court decision, according to data compiled by Ravel Law. It’s Justice Kennedy’s most-cited case.
The underlying case alleged that then-U.S. Attorney General John Ashcroft and Robert Mueller — who at the time was the FBI director but who is now responsible for investigating Russian interference into the 2016 presidential election — were liable for alleged abuse by their subordinates of a Pakistani-American man arrested and kept in custody after the Sept. 11 attacks.
Justice Kennedy, who had often been considered a swing vote on the high court, wrote in the majority opinion that the man, Javaid Iqbal, hadn’t presented the court with enough facts in his complaint to support his allegations.
Iqbal piggybacks on the 2007 high court’s antitrust ruling in Bell Atlantic Corp. v. Twombly, authored by Justice David Souter, who wrote that a complaint must contain specific facts that would entitle a plaintiff to relief, rather than just conclusory allegations. Where Twombly — the high court’s second-most cited case — laid out the rule, Iqbal expanded it to all civil cases in federal courts, and laid out a framework for applying it.
The decision hasn’t necessarily meant dark clouds for all litigants. Robins Kaplan LLP partner Matthew Woods, who represents clients like Honeywell Inc. as both plaintiff and defendant in cases involving intellectual property, antitrust and other matters, told Law360 on Thursday that the plausibility standard has helped filter out frivolous cases or litigation that was “on the margins,” making space for stronger claims to shine through.
“What this decision imposed on all litigants was a discipline that arguably wasn’t there before,” he said. “The impact, clearly, was to ‘up the game,’ I think, of the overall federal bar. … And I think that serves the overall interests of justice even though it sometimes comes at the cost of individual litigants.”
The effect hasn’t always been positive, he said, noting that plaintiffs seeking to sue companies on causes of action that require proof the company or its employees knew they were in the wrong — such as patent infringement or discrimination claims — now have a harder time at the pleadings stage. The evidence of that knowledge, also known as scienter, is often in the hands of the defendant company, which puts the plaintiff at a disadvantage before discovery, he said.
But a higher standard also means stronger pleadings and more efficiency in court, Woods said.
“There’s a greater intellectual rigor at that early stage, and in many instances plaintiffs are able to assert it and meet that standard,” he said.
Meanwhile, the Iqbal standard has delighted defense attorneys who had previously been tasked with sorting through sometimes mysterious notice pleadings that didn’t always identify what, exactly, their client was supposed to have done wrong, Lauri A. Kavulich, member-in-charge of the Philadelphia office of Clark Hill PLC, told Law360 on Thursday.
Kavulich defends clients against claims under labor and employment and civil rights laws, and the Iqbal plausibility standard, together with the Twombly fact requirement, has made it so the cases she’s up against are at least about something specific, and not just conclusory allegations that could turn out to be nothing later.
“What we used to get before this [were claims like], ‘Joe was a bad guy,’ and it’s like, really, how do we defend against that?” she said. “Those two cases really put plaintiffs in a position where they had to put enough facts in there. They really have to be specific.”
It also makes it easier to narrow down the issues in a case before her company clients have spent excessive time and money answering interrogatories from plaintiffs, she said.
“What this did is, it nailed down the plaintiffs to their story a lot earlier in the case. They couldn’t just bob and weave,” she said.
Paul Bessette, co-lead of the securities litigation group at King & Spalding LLP, told Law360 that the plausibility standard laid out by Justice Kennedy helped weed out less substantial allegations, and it has demonstrated that some causes of action that made it past the motion to dismiss stage pre-Iqbal probably shouldn’t have.
“Plausibility is a bar that, if you have a legitimate case, you should be able to meet rather easily,” he said. “With any new standard, first plaintiffs resist and argue anything can be plausible. … As courts issue opinions over time, it starts to clarify what is and is not plausible.”
And courts have been doing that sorting through how to define a plausible claim since 2009, creating new interpretations as the legal landscape adapts to Iqbal’s legacy, he said. The decision has been so important for securities and derivatives litigation — which often require plaintiffs to show scienter — that he expects it to be cited in every motion to dismiss in those cases, he said.
“It has proven to be a very consequential decision and opinion,” Bessette said. “It’s a tool, if you will, an arrow in the defendant’s quiver to help deal with claims that really shouldn’t have been brought in the first place.”
–Additional reporting by Brandon Lowrey and Jimmy Hoover. Editing by Pamela Wilkinson and Breda Lund.