Affirmative Defenses in the Wake of Twombly and Iqbal
The United States Supreme Court’s decisions in Bell Atlantic Corp. v. Twombly[i] and Ashcroft v. Iqbal[ii]brought fundamental change to the review of complaints and counterclaims under motions to dismiss in federal court. Instead of courts reviewing these pleadings to determine whether there was no set of facts to support the claims, the Supreme Court stated that review should be undertaken to determine whether the allegations state a plausible claim for relief.[iii] An increasing number of federal courts across the country and in Wisconsin have now started applying this more stringent standard of review to affirmative defenses. This article discusses this emerging trend and advises defense practitioners of those arguments which district courts have found persuasive in refusing to apply the new plausibility standard to affirmative defenses.
I. From "No Set of Facts" to "Plausability"
When confronting a motion to dismiss under Fed. R. Civ. P. 12(b)(6), a plaintiff’s complaint was traditionally reviewed to determine whether the allegations set forth “no set of facts” to support the claims.[iv] This standard of review existed for many decades and often tolerated complaints that were “notice pleadings,” containing little more than skeletal recitations of factual allegations and claims.
In 2007 and 2009, the United States Supreme Court decisions in Twombly and Iqbal ushered in a heightened standard of review for motions to dismiss. The Twombly decision arose out of an antitrust lawsuit claiming that the “baby bell” telephone companies had acted in violation of the Sherman Antitrust Act to stifle competition from local upstart telephone and internet companies. The Supreme Court determined that the claim under § 1 of the Act warranted dismissal as the complaint failed to set forth sufficient evidence of an antitrust conspiracy.[v] The court explained that a plaintiff must allege sufficient facts to “state a claim to relief that is plausible on its face.”[vi] The complaint warranted dismissal because it “failed in toto to render plaintiffs’ entitlement to relief plausible.”[vii] Although the court denied that it was altering the pleading standard,[viii] most courts and commentators following the decision interpreted the decision in this manner.[ix]
Two years later, the Supreme Court in Iqbal clarified its analysis from the Twombly decision. The court explained that the pleading standard stated in Twombly extends beyond the antitrust context of that case to “all civil actions and proceedings in the United States district courts.”[x] Substantively, the court clarified that Fed. R. Civ. P. 8(a), the rule governing the pleading of claims for relief, requires the factual allegations of a complaint to support “more than the sheer possibility” of wrongful conduct.[xi] The court stated that lower courts are not required to take at face value allegations that constitute legal conclusions or which constitute a “formulaic recitation of the elements of a cause of action.”[xii] A claim must have “facial plausibility” and contain “content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”[xiii]
This fundamental change was a boon to defense attorneys confronted with either skeletal or preposterously alleged complaints. No longer did a defense attorney, upon receipt of a complaint, have to wait patiently for answers to a first set of discovery requests in order to determine the nature of a claim filed against a client. Instead, a deficient complaint could prompt an immediate motion to dismiss under the heightened pleading standards.
In response, plaintiffs have sought to apply the same heightened pleading standards to defendants’ affirmative defenses through motions to dismiss. These motions have generated a significant volume of differing opinions as federal district courts have either applied or refused to apply Twombly and Iqbal to their analysis. The majority of district courts have found that affirmative defenses should be subject to the heightened pleading requirement.[xiv] A minority have refused to depart from the traditional standard of notice pleading.[xv] To date, no federal circuit court of appeal has issued a decision on the issue.[xvi]
The United States District Court for the Eastern District of Wisconsin recently issued a decision and order in line with the majority of states applying the heightened standard of pleading to affirmative defenses.[xvii] In a lawsuit arising out of the alleged embezzlement of thirty million dollars from the Koss Corporation, the Securities and Exchange Commission moved to strike a defendant’s affirmative defense. The defendant contended in her affirmative defenses that the agency’s civil enforcement action violated the Separation of Powers principle contained in Article III of the United States Constitution.[xviii] Citing Twombly and Iqbal, the district court stated that an “affirmative defense should be stricken unless it contains sufficient factual matter, accepted as true, to state an affirmative defense to relief that is plausible on its face.”[xix] It proceeded to grant the plaintiff’s motion and strike the affirmative defense finding that the defendant’s argument for a separation of powers violation was not plausible.[xx]
The United States District Court for the Western District of Wisconsin has yet to directly address whether it will apply Twombly and Iqbal to an analysis of affirmative defenses facing motions to dismiss. To date, this district has only had the opportunity to apply the more stringent pleading requirements to pleadings seeking affirmative redress. In Genetic Technologies, Ltd. v. Interleukin Genetics, Inc.,[xxi] the court dismissed a defendant’s counterclaim in a patent lawsuit. In doing so, the court stated that a party’s allegations in support of its claim for relief must be “plausible on [their] face and ‘raise the right to relief beyond the speculative level.’”[xxii] The court further explained that a pleader must offer more than conclusory statements and “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.”[xxiii] It remains to be seen whether the court will apply this same analysis to affirmative defenses.
III. Arguments for the Defense
As defendants are increasingly confronted by arguments that their affirmative defenses should be summarily dismissed at the outset of a lawsuit, it is beneficial for practitioners to be aware of salient arguments against the application of a plausibility standard. Following are several arguments that were adopted by district courts across the country in refusing to extend Twombly and Iqbal to the review of affirmative defenses.
- A. Neither Twombly nor Iqbal Addressed Affirmative Defenses or Defensive Pleadings.
Both decisions of the United States Supreme Court focused upon a plaintiff’s claim for relief. At no point did either decision discuss defensive pleadings, much less overtly or furtively state that a more stringent standard of review should be applied to affirmative defenses.[xxiv]
- B. The Difference between Fed. R. Civ. P. 8(a) and 8(b) and (c) is Significant.
Federal Rule of Civil Procedure 8(a) sets the standard of pleading for complaints and claims for relief. Under Rule 8(a), a party asserting a claim is required to plead “a short plain statement of the claim showing that the pleader is entitled to relief.” In contrast, Rule 8(b) and (c) govern the pleading of affirmative defenses. Rule 8(b) requires a defendant to merely state its defenses “in short and plain terms.” Rule 8(c) is even less stringent, only mandating that a defendant “affirmatively state” its affirmative defenses. Neither Rule 8(b) nor (c) mandate a “showing” from the pleader like that of Rule 8(a) to demonstrate an entitlement to relief. Rather, those two sections mundanely call for defenses to be stated and make no reference to a showing on the part of the pleader. A handful of district courts have acknowledged the significance of this difference.[xxv] As one district court judge noted, the pleading requirement of Rule 8(b) and (c) is “markedly less demanding than that of Rule 8(a), where a pleading must show an entitlement to relief. The rule drafters chose to use different language in the three sections. The court cannot overlook that difference and require a factual showing where the rules do not require such showing.”[xxvi]
- C. The Time Limitations Imposed upon Defendants by the Federal Rules of Civil Procedure Preclude a Similar Pleading Standard.
A plaintiff’s ability to factually develop her case prior to filing is limited by the statute of limitations. Consequently, a plaintiff may often have three (or more) years to investigate the facts surrounding a case in preparation for filing a complaint. In contrast, a defendant is required to file its responsive pleading, including affirmative defenses, within twenty-one days of being served with a summons and complaint or a counterclaim.[xxvii] Such a shortened time frame for investigating and filing responsive pleadings is not conducive to the preparation of affirmative defenses that are anything more than notice pleadings.[xxviii]
- D. A Less Stringent Standard for the Pleading of Affirmative Defenses is in the Interest of Judicial Efficiency.
The application of a plausibility pleading standard to affirmative defenses is likely to plague cases with unnecessary motions that lengthen lawsuits. As a district court in Minnesota has explained, under the time-honored standards for pleading affirmative defenses, “it quickly becomes apparent that most of the affirmative defenses are not viable, and the parties simply ignore them. No judicial intervention is necessary.”[xxix] If a more stringent pleading standard is imposed, defendants may be forced to initially plead a few affirmative defenses and then move for leave to amend after discovery reveals the factual basis for additional affirmative defenses.[xxx] Alternatively, defendants filing a notice-based list of affirmative defenses may trigger a motion to dismiss from opposing counsel. Under either scenario, a court’s time and resources will be taxed to address an additional round of motion practice and briefing that it previously did not have to address under a notice pleading standard.[xxxi]
Finally, as a tactical measure, defendants have met with success in moving to amend their affirmative defenses at the same time that they respond to a plaintiff’s motion to strike.[xxxii] By seeking to amend their affirmative defenses, defendants can specifically address any factual deficiencies targeted by a plaintiff’s motion to dismiss. Federal courts have often thereafter denied the plaintiff’s motion as moot.[xxxiii]
It remains unsettled whether the heightened pleading standards enunciated by Twombly and Iqbal are meant to be applied to affirmative defenses. Counsel for defendants should take the opportunity, when confronted by a motion seeking to dismiss their affirmative defenses, to fully inform their district court of the various meritorious arguments disfavoring the application of these standards to the review of affirmative defenses.
[i] 550 U.S. 544 (2007).
[ii] 129 S. Ct. 1937 (2009).
[iii] Twombly, 550 U.S. at 570.
[iv] Conley v. Gibson, 355 U.S. 41, 45-46 (1957) (“[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.”).
[v] Twombly, 550 U.S. at 565-66.
[vi] Id. at 570.
[vii] Id. at 569 n.14.
[ix] See Colleen McMahon, The Law of Unintended Consequences: Shockwaves in the Lower Courts After Bell Atlantic Corp. v. Twombly, 41 Suffolk U. L. Rev. 851 (2008).
[x] Iqbal, 129 S. Ct. at 1953; see also Brooks v. Ross, 578 F.3d 574, 581 (7th Cir. 2009).
[xi] Id. at 1950.
[xii] Id. at 1949.
[xiii] Id. at 1949-50.
[xiv] See, e.g., Hayne v. Green Ford Sales, Inc., 263 F.R.D. 647, 649-50 (D. Kan. 2009); Shinew v. Wszola, 2009 U.S. Dist. LEXIS 33226, at *7 (E.D. Mich. April 21, 2009) (unpublished decision); Palmer v. Oakland Farms, Inc., 2010 U.S. Dist. LEXIS 63265, at **16-17 (W.D. Va. June 24, 2010) (unpublished decision); Topline Solutions v. Sandler Systems, Inc., 2010 U.S. Dist. LEXIS 76174, at **2-3 (D. Md. July 27, 2010) (unpublished decision); Castillo v. Roche Labs, Inc., 2010 U.S. Dist. LEXIS 87681, at *7 (S.D. Fla. Aug. 2, 2010) (unpublished decision).
[xv] See, e.g., Tyco Fire Products LP v. Victaulic Co., 2011 U.S. Dist. LEXIS 40012, at **26-27 (E.D. Pa. April 13, 2011) (unpublished decision); McLemore v. Regions Bank, 2010 U.S. Dist. LEXIS 25785, at **46-47 (M.D. Tenn. March 18, 2010) (unpublished decision); Falley v. Friends Univ., 2011 U.S. Dist. LEXIS 40921, at **10-11 (D. Kan. April 14, 2011) (unpublished decision); Schlief v. Nu-Source, Inc., 2011 U.S. Dist. LEXIS 44446, at **24-25 (E.D. Minn. April 25, 2011) (unpublished decision).
[xvi] Falley, 2011 U.S. Dist. LEXIS 40921, at *3.
[xvii] Securities and Exchange Commission v. Sachdeva, 2011 U.S. Dist. LEXIS 32544 (E. D. Wis. March 16, 2011) (unpublished decision).
[xviii] Id. at **2-3.
[xix] Id. at *2.
[xx] Id. at **4-5.
[xxi] 2010 U.S. Dist. LEXIS 87238 (W.D. Wis. Aug. 24, 2010) (unpublished decision).
[xxii] Id. at *4 (citing Iqbal, 129 S. Ct. at 1949, and Twombly, 550 U.S. at 570).
[xxiii] Id. at *5 (quoting Swanson v. Citibank, 614 F.3d 400, 403 (7th Cir. 2010)) (emphasis in original).
[xxiv] McLemore, 2010 U.S. Dist. LEXIS 25785, at **46-47.
[xxv] Schlief v. Nu-Source, Inc., 2011 U.S. Dist. LEXIS 44446, at *24 (E.D. Minn. April 25, 2011) (unpublished decision); Charleswell v. Chase Manhatten Bank, N.A., 2009 U.S. Dist. LEXIS 116358, at **12-13 (D.V.I. Dec. 8, 2009) (unpublished decision); Holdbrook v. SAIA Motor Freight Line, LLC, 2010 U.S. Dist. LEXIS 29377, at **4-5 (D. Colo. Mar. 8, 2010) (unpublished decision); Tyco Fire Products LP, 2011 U.S. Dist. LEXIS 40012, at *16.
[xxvi] Falley, 2011 U.S. Dist. LEXIS 40921, at * 7.
[xxvii] Fed. R. Civ. P. 12(a).
[xxviii] See Wells Fargo & Co. v. United States, 750 F. Supp. 2d 1049, 1051 (D. Minn. 2010) (The plausibility standard “is more fairly imposed on plaintiffs who have years to investigate than on defendants who have 21 days.”).
[xxix] Id. at 1052.
[xxxi] See Falley, 2011 U.S. Dist. LEXIS 40921, at *10 (“Applying the Twombly standard, therefore, would likely result in increased motions practice with little practical impact on the case’s forward progression.”).
[xxxii] Hayne, 263 F.R.D. at 652 (acknowledging that in the majority of cases where a plaintiff has moved to dismiss a defendant’s affirmative defenses, the court has permitted a defendant to amend its affirmative defenses).