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Tuesday, December 16, 2014

Dodson on Twombly Creep

The following is by Scott Dodson (Hastings):

Yesterday’s Supreme Court’s opinion in Dart Cherokee held that a notice of removal need not be accompanied by evidence of the amount in controversy in a CAFA-removal case. The Court split 5-4 on the nerdy question of whether the Court could even review the issue itself because the Court of Appeals declined, in its discretion, to hear the appeal from the district court. That latter issue got quite a bit of play at oral argument, and coverage of the opinion’s resolution of that issue has overshadowed the Court’s decision on the merits, which pretty much everyone—myself included—thought fairly obvious.

But there’s something funny, and potentially important, in the merits part of the decision that people seem to be overlooking.

Section 1446(a), which sets the standards for a notice of removal, requires the defendant to file a notice “containing a short and plain statement of the grounds for removal.” This language mirrors Rule 8(a)(1), which sets the standards for pleading the jurisdictional basis for a claim filed in federal court, requiring a complaint to provide: “a short and plain statement of the grounds for the court’s jurisdiction.” The parallel language is not coincidence. In drafting the removal standard, Congress meant to borrow and incorporate the liberalized pleading standard from Rule 8(a)(1), which contains the identical language “a short and plain statement of the grounds for,” and focuses on allegations of jurisdiction. Removal, after all, is concerned primarily with jurisdiction rather than the merits of the claim.

The Court has interpreted these standards before. For jurisdictional allegations, both in cases filed in federal court and in cases removed to federal court, the amount-in-controversy alleged in good faith by the plaintiff controls unless contested by the defendant. Mt. Healthy City Bd. of Ed. v. Doyle, 429 U.S. 274, 276 (1977); St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 288 (1938). Thus, the standard for a “short and plain statement of the grounds for” the jurisdictional allegation of the amount in controversy for diversity jurisdiction is “good faith.”

This standard of a good-faith allegation leaves no room, at least prior to contestation by the defendant, for an evidentiary requirement. Dart was surely correct, then, in holding that a notice of removal requires no evidence beyond the good-faith allegation of the jurisdictional amount.

But, oddly, the Court did not phrase the question that way. The opinion sets the question presented a somewhat different way, with my emphasis added:

To assert the amount in controversy adequately in the removal notice, does it suffice to allege the requisite amount plausibly, or must the defendant incorporate into the notice of removal evidence supporting the allegation? That is the single question argued here and below by the parties and the issue on which we granted review. The answer, we hold, is supplied by the removal statute itself. A statement “short and plain” need not contain eviden­tiary submissions.

 The answer is correct: A “short and plain statement,” at least without other requirements, need not contain evidentiary submissions. But the italicized language is perplexing. It suggests that, though evidence is not required, the standard does require that the removal notice allege the requisite amount “plausibly.”

And, later, the opinion concludes (my emphasis added): “In sum, as specified in § 1446(a), a defendant’s notice of removal need include only a plausible allegation that the amount in controversy exceeds the jurisdictional thresh­old. Evidence establishing the amount is required by §1446(c)(2)(B) only when the plaintiff contests, or the court questions, the defendant’s allegation.” Again, last sentence is clearly correct. But the Court also seems to hold that the removal standard requires a “plausible” allegation of the amount in controversy.

Where in the world did the insertion of the “plausibility” standard come from? The Court offers neither citation for it, nor textual support for it, nor reasoning for it. Further, the Court’s reasoning repeats the proper standard of “good faith.” What’s up with plausibility?

The answer must be the infectious case Twombly, which established a new pleading standard of plausibility under Rule 8(a)(2) in federal court. This plausibility standard had never before been a part of any pleading regime; rather, Twombly imported it from the substantive antitrust context.

But importing plausibility to removal makes little sense. For one, removal already has a perfectly fine standard that has worked for 75 years: good faith. It is possible that the Court thinks that “plausible” is a useful, clarifying synonym for good faith. But it’s far from obvious that “good faith” and “plausible” are synonyms in this context. And there’s no indication that the standard of “good faith” was unclear (as if the gloss of “plausibility” would be helpfully clarifying).

For another, Twombly grafted plausibility onto Rule 8(a)(2), which has a different standard from either the removal standard or the Rule 8(a)(1) standard. True, all three standards use the same preliminary language requiring “a short and plain statement.” But the removal and Rule 8(a)(1) standards go on to use the phrase “of the grounds [for jurisdiction],” while the merits pleading standard of Rule 8(a)(2) uses the different language “of the claim showing that the pleader is entitled to relief.” In developing the “plausibility” standard, Twombly focused on Rule 8(a)(2) and its unique concluding language: “The need at the pleading stage for allegations plausibly suggesting (not merely consistent with) agreement reflects the threshold requirement of Rule 8(a)(2) that the ‘plain statement’ possess enough heft to ‘sho[w] that the pleader is entitled to relief.’” Twombly’s textual support for the plausibility standard—such as it is—has no bearing on jurisdictional allegations under Rule 8(a)(1) or § 1446(a).

For yet another, the rationale of Twombly maps poorly onto plausibility for removal allegations. Twombly foisted plausibility on merits allegations to guard against excessive discovery costs imposed on defendants at the behest of an implausible claim for relief: “Probably, then, it is only by taking care to require allegations that reach the level suggesting conspiracy that we can hope to avoid the potentially enormous expense of discovery in cases with no ‘“reasonably founded hope that the [discovery] process will reveal relevant evidence”’ to support a . . . claim.” Removal, of course, merely shifts the forum; discovery cannot be avoided simply by defeating removal. And, in removal, the notice is filed by the defendant, the putative beneficiary of the plausibility standard. Applying the plausibility standard to removal turns Twombly on its head.

So, in Dart, it appears that, without citation or, frankly, any reasoning at all, “plausibility” has snuck in to yet another place where it doesn’t belong: removal. If so, this opens the door to arguments that Twombly’s standard is even more broadly applicable than previously thought.

Posted by Howard Wasserman on December 16, 2014 at 04:28 PM in Civil Procedure, Howard Wasserman | Permalink


In most cases, I'd guess there may not be much daylight between plausibility and good faith. But good faith implies some knowledge on the part of the plaintiff. After all, the plaintiff knows something about her own damages. So there's a subjective element to the good-faith standard for cases filed in federal court originally (or removed on the basis of the plaintiff's specification of damages in a state-court complaint). Plausibility strikes me as lacking this subjective element (in Iqbal, it's a product of "judicial experience and common sense"). All that is to say that a rare case might present a specified set of damages made in good faith and yet deemed implausible by a court.

Things are a bit different when the plaintiff doesn't plead a sum certain and the defendant removes on the basis of the AIC being exceeded. There, perhaps plausibility is a better standard than good faith.

But these are off-the-cuff thoughts on what seems to me to be a fairly complicated issue. And the fact that it is complicated suggests to me that the Court's approach of dropping the "plausibility" bomb without explanation may have been unwise.

Posted by: Scott Dodson | Dec 17, 2014 12:17:26 AM

Howard, I was wondering if there was any difference myself. I haven't looked into the good-faith standard, but there may be a slight procedural difference, in that lack of plausibility is (allegedly) apparent from the face of the complaint, whereas lack of good faith would have to be demonstrated, or inferred if the plaintiff could not prove up, right?

Posted by: Bruce Boyden | Dec 16, 2014 9:42:17 PM

Well, I imagine that would fail on good-faith grounds. So plausibility is either doing no work at all or it is ratcheting it up so a less extreme case runs into trouble.

Posted by: Howard Wasserman | Dec 16, 2014 5:18:43 PM

Interesting. Let me see if I can work this out. Plausibility, as I understand it (although who knows what it really means), is about whether the existence of the claim comports with common sense based on the factual allegations. Here it seems to refer to the pleading of the amount rather than the ultimate existence of jurisdiction, so I guess the question is whether the amount comports with common sense based on the other allegations. So if the claim is a conversion claim based on theft of a pencil, and the complaint alleges $80,000 damages, that would be implausible. If this is what the court means to suggest, then it looks like such a jurisdictional statement fails unless supported by further allegations, without even having to be contested by the defendant.

Posted by: Bruce Boyden | Dec 16, 2014 5:01:38 PM

There you are, Howard! I've been waiting for you to make this post. I think Dodson (and you) are exactly correct, and the Dart Cherokee Court has done something very surprising. It has implied (perhaps without fully thinking it through) that Twiqbal applies to issues of subject-matter jurisdiction -- a proposition that seems flatly contradicted by the verbs in Rules 8(a)(1) and 8(a)(2), and by the sharp jurisdiction/merits distinction you and Justice Scalia (perhaps not in that order) have been pushing for many years.

This is most disappointing from Justice Ginsburg, who wrote the opinion sharpening the jurisdiction/merits boundary in Arbaugh.

As you say, there has previously been a "good faith" standard in the removal context. St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 288–89 (1938); see Jacob J. Taber, Note, 89 NYU L. Rev. 1867, 1878 (2014). And in the jurisdiction context generally, the standard for many years has been that jurisdictional allegations in a pleading are good enough unless they are "wholly insubstantial or frivolous,” Bell v. Hood, 327 U.S. 678, 682-83 (1946), or shown to be false after discovery on the question in a nonfacial challenge.

Twombly and Iqbal displaced the very lenient Conley standard for 12(b)(6), but there was no reason to think the Supreme Court was disapproving it for 12(b)(1). See Taber, 89 NYU L. Rev. 1867, passim; James E. von der Heydt, Note, 60 Clev. St. L. Rev 799 (2012), passim.

This instance in the highest court of "Twiqbal creep" (nice phrase; I called it a "ripple effect" in my article) will only exacerbate the confusion that has already reached several circuit courts: does a facial 12(b)(1) challenge now trigger Iqbal scrutiny? The answer, as Mr. Taber and I independently determined, seemed surely to be No. But that single word in Dart Cherokee muddies the waters.

Posted by: Jim von der Heydt | Dec 16, 2014 4:56:08 PM

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