The May 18, 2009 decision of the Supreme Court in Ashcroft v. Iqbal, No. 07-1015, 556 US __ (2009), has broader impact than the allegations in the Complaint might suggest. Iqbal makes clear that the so-called Twombly pleading standards apply to all Federal civil cases. This is an important development for all courts and defendants dealing with or considering a motion to dismiss.

Iqbal alleged his Constitutional rights as a detainee after the attacks of September 11, 2001 were violated by former Attorney General John Ashcroft and Robert Mueller, the Director of the FBI, as well as others. Messrs. Ashcroft and Mueller moved to dismiss for failure to state a claim; the District Court denied the motion. While their appeal was pending before the Second Circuit, the Supreme Court decided Bell Atlantic Corp. v. Twombly, 55 US 544 (2007). The Second Circuit affirmed the denial of the motion to dismiss and held that Twombly did not apply to the claims asserted by Iqbal.

The Supreme Court reversed in a decision that touches matters beyond the discrimination claims pleaded by Iqbal. This decision will further complicate life for plaintiffs in a variety of actions, especially those with a heightened pleading standard such as securities fraud, RICO, and class action claims premised on any type of fraud.

Iqbal settles any question as to whether the Twombly pleading rationale is limited to antitrust matters.

Though Twombly determined the sufficiency of a complaint sounding in antitrust, the decision was based on our interpretation and application of Rule 8. That Rule in turn governs the pleading standard “in all civil actions and proceedings in the United States district courts.” Fed. Rule Civ. Proc. 1. Our decision in Twombly expounded the pleading standard for “all civil actions,”… .

Slip Op. at 20 (internal citations omitted; emphasis added). Both Iqbal and Twombly recognize that “[a] claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Slip Op. at 14. However, the Iqbal Court explained:

As the Court held in Twombly, the pleading standard Rule 8 announces does not require “detailed factual allegations,” but it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation. … Nor does a complaint suffice if it tenders “naked assertion[s]” devoid of “further factual enhancement.”

To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to “state a claim to relief that is plausible on its face.”

Slip Op. at 13 –14 (internal citations omitted). Iqbal summarized the Twombly rationale:

Two working principles underlie our decision in Twombly. First, the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice. … Second, only a complaint that states a plausible claim for relief survives a motion to dismiss. … [W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged—but it has not “show[n]”—“that the pleader is entitled to relief.”

Slip Op. at 14 –15. The Court explained that whether a complaint sets out a plausible claim for relief is context-specific. A decision by a court addressing this issue requires “judicial experience and common sense.” Slip Op. at 15. Thus, Iqbal directs the lower courts to read complaints closely and to parse allegations to determine whether a plausible claim is in fact pleaded.

Of particular importance to the survivability of federal securities law complaints and Rule 9 (which sets out particular requirements for fraud but allows intent or knowledge to be pleaded generally), Iqbal explained:

It is true that Rule 9(b) requires particularity when pleading “fraud or mistake,” while allowing “[m]alice, intent, knowledge, and other conditions of a person’s mind [to] be alleged generally.” But “generally” is a relative term. In the context of Rule 9, it is to be compared to the particularity requirement applicable to fraud or mistake. Rule 9 merely excuses a party from pleading discriminatory intent under an elevated pleading standard. It does not give him license to evade the less rigid—though still operative—strictures of Rule 8. … And Rule 8 does not empower respondent to plead the bare elements of his cause of action, affix the label “general allegation,” and expect his complaint to survive a motion to dismiss.”

Slip Op. at 22 – 23.

The Iqbal Court gave little deference to the argument that discovery is necessary to flesh out otherwise wanting pleadings: “Rule 8 marks a notable and generous departure from the hyper-technical, code-pleading regime of a prior era, but it does not unlock the doors of discovery for a plaintiff armed with nothing more than conclusions.” Slip Op. at 14. This is a significant comment because it recognizes the in terrorem effect discovery and discovery costs may have on the conduct of an otherwise weak case.

Succinctly stated: Iqbal unmistakably states that Twombly applies to all Federal civil complaints, and together these cases enhance the opportunities for defendants to successfully move to dismiss civil complaints which do not meet their requirements.