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March 18, 2013 Articles

Class Actions 101: Surviving a Rule 12 Motion to Dismiss

In the wake of Twombly and Iqbal, here are five lessons to keep in mind when drafting your next complaint.

By Christopher E. Roberts

On their face, the Federal Rules of Civil Procedure appear to offer a simple framework for drafting a class-action complaint. The rules simply require a complaint to offer a short and plain statement as to why the court has jurisdiction over the complaint, a short and plain statement of the claim that shows relief is appropriate, and a statement of the relief demanded. Fed. R. Civ. P. 8(a).

The rules make drafting a complaint easy, right? Not so fast. In light of the Supreme Court’s decisions in Bell Atlantic Corp v. Twombly, 550 U.S. 444 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009), a complaint that complies with Rule 8 could be dismissed under Rule 12(b)(6).

The Twombly and Iqbal Pleading Standards
Prior to the Supreme Court’s decisions in Twombly and Iqbal, a complaint could not be dismissed under Rule 12 unless it appeared “beyond a reasonable doubt” that the plaintiff could not prove its claim. Conley v. Gibson, 355 U.S. 41 (2007). Twombly and Iqbal drastically changed this standard. Essentially, Twombly and Iqbal represent a shift from a notice pleading standard to a heightened pleading standard.

The Twombly and Iqbal standards make it more difficult for class-action complaints to survive a Rule 12(b)(6) motion to dismiss. To do so, a complaint must (1) contain more than conclusions and formulaic recitations of the elements necessary to prove a claim; (2) contain factual allegations that rise above speculation; and (3) be plausible on its face.

Using Rule 12 to Dismiss Class Allegations
With Twombly and Iqbal in mind, defense counsel may try to use a Rule 12 motion to dismiss class allegations because they do not satisfy Rule 23’s requirements of numerosity, commonality, typicality, and adequacy of representation. Essentially, defense counsel may try to use a Rule 12 motion to provide themselves an early opportunity to defeat class certification.

Courts do not typically dismiss class allegations at the pleading stage for failing to meet the requirements of Rule 23. Rather, most courts will decide class issues only after discovery and the class-certification motion. Class complaints, however, will be readily dismissed if they do not plead all of the Rule 23 requirements. Roberts v. Target Corp., 2012 WL 400030 (W.D. Okla. 2012). While most courts do not ordinarily conduct a Rule 23 analysis at the pleadings stage, some courts do engage in this analysis. In fact, the heightened pleading standards of Twombly and Iqbal have led some courts to dismiss class action complaints for failing to specifically plead how Rule 23 is satisfied.

One court dismissed a class complaint at the pleadings stage for defining the class such that the class could not be ascertained in an objective manner. Schilling v. Kenton Cnty., Ky., 2011 WL 293759 (E.D. Ky. 2011). Schilling concluded that the class was improperly defined because the class could not be ascertained unless the court found in the plaintiff’s favor on the merits. The class was defined in a way that class membership was predicated on a finding of a violation of the putative class members’ constitutional rights. Because the class was improperly defined, the Schilling court also concluded that the Rule 23 numerosity, commonality, typicality, and adequacy requirements were not satisfied.

Another court dismissed a class complaint at the pleadings stage for failing to satisfy Rule 23’s commonality requirement. Barrus v. Dick’s Sporting Goods, Inc., 732 F. Supp. 2d 243 (W.D.N.Y. 2010). The plaintiffs in Barrus contended that the common laws of over 30 states entitled them to relief. The court dismissed the complaint and concluded that because the common law of all of the various states was not similar, common issues could not predominate.

Although Twombly,and Iqbal may be concerning to plaintiffs’ counsel, they offer lessons as to how to effectively plead a class-action complaint.

Lesson 1: The Class Definition Must Not Be “Fail-Safe”
The foundation, and one of the most critical requirements, of drafting a class complaint is defining the class. The class must be defined in a manner in which the class members are objectively ascertainable. Schilling demonstrates that a court may use Rule 12(b) to dismiss class allegations when the proposed class is not ascertainable.

The definition of a class must not be “fail-safe.” In other words, membership in the class cannot be conditioned on the legality of the defendant’s conduct. For example, a class defined as “all individuals who received unsolicited text messages from the defendant from January 1, 2012, through December 1, 2012, in violation of the Telephone Consumer Protection Act” is fail-safe and not readily ascertainable. The class is fail-safe because it requires a merits determination as a condition of class membership. Under this definition, the court cannot objectively ascertain the class members before making a determination on the merits about the legality of the defendant’s conduct.

A more objectively ascertainable class could be defined as “all individuals who received unsolicited text messages from the defendant from January 1, 2012, through December 1, 2012.” This definition allows the court to ascertain the class members without determining that the defendant violated the law.

Properly defining a class lays a strong foundation for surviving a motion to dismiss. Failing to properly define a class may give a court multiple avenues to dismiss a case.

Lesson 2: If Multiple States’ Laws Are at Issue, Separate Classes Should Be Defined
If a class complaint concerns issues of varying state law and if class members reside in more than one state, plaintiff’s counsel should define a separate class for each state’s applicable law. Simply because a principle of law may appear to be fundamental to all of the states at issue does not mean that there are not nuances distinguishing the states’ laws.

Separating each state-based class may persuade the court not to dismiss the complaint for failing to satisfy the Rule 23 commonality requirements. Moreover, defining separate classes may allow certain classes to survive a motion for class certification, whereas the court may have otherwise been inclined to not certify a broadly defined class.

Lesson 3: The Complaint Must Contain More than Conclusions and Formulaic Recitation
Although courts view a class action complaint in a light most favorable to the plaintiff when analyzing a motion to dismiss, not all of the complaint’s allegations are viewed in this light. Under the Twombly and Iqbal standards, a court will not accept as true “threadbare recitals” of the elements of a claim. A complaint will likely be dismissed under Rule 12 if it simply recites the elements of a statute without connecting specific factual allegations (i.e., names, dates, and events) to the statute or applicable law.

Lesson 4: The Complaint Must Contain More than Speculative Factual Allegations
Drafting a complaint that does not contain some degree of speculation can be difficult. A pleading party usually does not know all the critical facts of the case before discovery is undertaken. Most complaints are therefore based on a certain level of speculation.

Courts have interpreted this requirement to mean that a complaint is not required to rebut all possible explanations for the offending party’s conduct. Braden v. Wal-Mart Stores, Inc., 588 F.3d 585 (8th Cir. 2009). Rather, the complaint will be dismissed under Rule 12 only if there is an “obvious alternative explanation” for the party’s conduct. The complaint will not be dismissed if it alleges enough facts to suggest to the court (not prove) that the offending party is liable.

Lesson 5: The Complaint Must Be Plausible on Its Face
Although Twombly and Iqbal do not suggest that a complaint needs to allege all of the critical facts, the complaint’s allegations must contain enough specific facts to move the complaint from “possible” to “plausible.”

To survive a motion to dismiss, a complaint must be plausible on its face. A complaint contains “facial plausibility” if the allegations allow the court to draw a reasonable inference that the defendant is liable for the alleged misconduct. Iqbal and Twombly allow a court to determine whether a complaint is plausible based on “experience” and “common sense.” A court may also dismiss a complaint if there is an alternative plausible and legal explanation for the alleged misconduct.

To ensure that the complaint is plausible, the complaint must discuss the applicable law in connection with the facts. If a complaint ignores the applicable law and plausible alternative explanations, it may open the door for a court to dismiss the case. Although the complaint need not plead around affirmative defenses, counsel may wish to address certain defenses to avoid the possibility that a defense is an alternative plausible explanation for the alleged conduct.

Twombly and Iqbal have given new life to motions to dismiss class claims. They also provide defense counsel with another avenue to seek dismissal of plaintiffs’ class allegations for failing to comply with the Rule 23 requirements. However, plaintiffs’ counsel will increase the chances of surviving a motion to dismiss by keeping these five lessons in mind when drafting the complaint.

Keywords: litigation, class action, derivative suits, ascertainability, dismissal, commonality, Federal Rule of Civil Procedure 12(b)(6), fail-safe class

Christopher E. Roberts – March 18, 2013