08 July 2016

Colorado adopts Twombly-Iqbal “Plausibility” standard

Last week, the Colorado Supreme Court announced a dramatic shift in its rules of pleading, adopting the federal courts’ requirement that a claim must be “plausible on its face” to survive a motion to dismiss. Although seemingly subtle, this change transfers much more power to district court judges and weakens the right to a jury in civil actions.

For decades in Colorado, courts have held that a plaintiff’s complaint need merely provide a defendant with notice of the transaction that caused an alleged injury. Judges would not dismiss the complaint unless it appeared “beyond doubt” that the plaintiff could prove “no set of facts” which would entitle him or her to relief. See Davidson v. Dill, 180 Colo. 123, 131, 503 P.2d 157, 162 (1972), quoting Conley v. Gibson, 355 U.S. 41 (1957). This was rooted in the notion that the civil jury was the ultimate arbiter of disputed facts in American jurisprudence. Every party was entitled to have his or her “day in court” and present claims to a group of jurors selected from the community, rather than a judge appointed by the governor.

In 2007, however, the United States Supreme Court began a move away from this long-standing rule. In Bell Atlantic v. Twombly, 550 U.S. 544, 547 (2007), Justice Souter wrote for the majority when it held that an antitrust complaint must be pleaded with “enough facts to state a claim to relief that is plausible on its face.” Because the Court found that the plaintiffs “have not nudged their claims across the line from conceivable to plausible,” Souter concluded that “their complaint must be dismissed.”

Two years later, the Court expanded Twombly to dismiss a discrimination claim in Ashcroft v. Iqbal, 556 U.S. 662 (2009). This time, Souter dissented and argued that the majority was misinterpreting his earlier opinion in Twombly to suggest that a judge should “consider whether the factual allegations are probably true” at the motion-to-dismiss stage, an implication he had been careful to avoid in Twombly. See Iqbal, 522 U.S. at 696 (Souter, J., dissenting). Nevertheless, the court’s four conservative members joined Justice Kennedy’s majority opinion, which held 5-4 that the “plausible” standard would henceforth apply to all actions in federal courts.”

At first, Colorado seemed poised to resist this change. In Western Innovations, Inc. v. Sonitrol Corp., 187 P.3d 1155, 1158 (Colo. App. 2008), the Colorado Court of Appeals acknowledged the federal courts’ “plausible” standard but adhered to the state courts’ “no set of facts” precedent. On 27 June 2016, however, the Colorado Supreme Court expressly adopted the holdings of Twombly and Iqbal when it announced Warne v. Hall2016CO50.

In Warne, a resident of Gilcrest sued the town’s mayor alleging tortious interference with his contract to sell land to a drilling company. The resident’s complaint contained allegations of the mayor’s misconduct, but the district court concluded that these allegations were not specific enough, dismissed the resident’s case, and awarded attorney fees to the mayor. The court of appeals reversed in an unpublished decision, holding that it was not beyond doubt that the plaintiff could prove no set of facts entitling him to relief. In a divided 4-3 ruling, the state supreme court reversed after adopting Twombly and Iqbal, finding that the resident’s claim was not plausible on its face.

Justice Coats wrote the majority opinion in Warne, ¶¶ 15-20. He reviewed the history of the Colorado Rules of Civil Procedure and noted that they had been drafted to mirror those of the federal courts. Having different pleading standards in the state and federal courts could confuse attorneys and promote forum shopping. In addition, he also relied on “the costs of modern litigation and the inadequacy of discovery and case management alone to weed out groundless complaints.” Considering these factors, the majority held that Twombly and Iqbal represented the better interpretation of the Colorado rules and adopted their standard moving forward.

Justice Gabriel, the newest member of the court, wrote an impassioned dissent. He criticized the majority’s decision to “jettison[] a rule that had stood the test of time for over fifty years” simply to promote uniformity with the federal courts. Warne ¶ 31 (Gabriel, J., dissenting). He expressed concern that “the majority’s preferred standard allows a single district judge, at the incipient stages of a case, to weigh what the judge speculates the plaintiff will plausibly be able to prove, based on the individual judge’s subjective experience and common sense, and then to decide whether the plaintiff’s action is viable.” Id. He emphasized the problem of the “information asymmetry” that exists when a plaintiff must make detailed allegations of facts known only to a defendant. Id. ¶ 39. He also noted the existing protections that already allow judges to weed out unmeritorious claims. Id. ¶ 41.

While the full effect of the court’s ruling in Warne may not manifest for some time, it is quite likely to result in judges dismissing more cases before the jury ever hears the evidence. It is certain to mean more motion practice at the outset of cases. This shift may unfairly penalize the victims of large corporations able to pay large legal bills to keep their dealings private. In an age where civil jury trial rights have already been eroded by ubiquitous consumer arbitration clauses, this is reason for concern. In the past, a plaintiff could at least rely on discovery to determine if a defendant had withheld or concealed details about how a wrong occurred. Now, judges may dismiss meritorious lawsuits at the pleading stage, before a plaintiff ever has any opportunity to access materials that the defendant has kept secret.

Two other problems may arise from Warne. First, the acknowledged “information asymmetry” may have a much more draconian effect in state courts due to their different pre-trial procedures. Although Justice Coats was correct in recognizing that the state rule governing motions to dismiss is nearly identical to the corresponding federal rule, compare Colo. R. Civ. P. 12(b)(5) with Fed. R. Civ. P. 12(b)(6), this similarity does not extend to those rules that govern pre-trial case management. In the federal courts, judges must generally issue scheduling order providing for commencement of discovery within sixty days after a complaint has been served, regardless of whether a defendant has answered or moved to dismiss. See Fed. R. Civ. P. 16(b)(2); see also D.C.COLO.LCivR 16.2. Although federal judges may elect to stay discovery while a motion to dismiss is pending, such stays are “generally disfavored” in the District of Colorado. See, e.g., Wason Ranch Corp. v. Hecla Mining Co., 2007 WL 1655362 (D. Colo. June 6, 2007). Thus, a plaintiff in Colorado federal court facing a motion to dismiss under Iqbal may still have a chance to obtain some discovery and correct deficiencies in his or her pleading before a motion to dismiss is granted. By contrast, the corresponding rule in state court does not allow for any discovery until after the case is deemed “at issue,” which is defined to occur after all motions to dismiss have been ruled on and every party has either answered or been held in default. See Colo. R. Civ. P. 16(b). In state court actions, one may now expect cases to be dismissed under Warne before any discovery takes place.

Second, the expansion of the “plausibility” standard into Colorado courts may indirectly increase the power of state court judges to award attorney fees to defendants, further stacking the deck against some tort victims. Colorado generally follows the “American Rule,” whereby each party pays his or her own lawyer regardless of who wins the case. This tends to promote settlement and discourage parties from suing one another over minor disputes or losses. A statutory exception exists, however, to tort claims dismissed under state Rule 12(b); if a plaintiff’s claim is so weak that a judge can dismiss it without hearing the evidence, Section 13-17-201 of the Colorado Revised Statutes allows a defendant to recover attorney fees. In the past, this exception has been narrow, insofar as the statute itself makes clear that it does not apply to cases where the judge elects to consider the factual basis of a plaintiff’s allegations by treating a motion to dismiss as a motion for summary judgment. Under the new standard announced in Warne, by contrast, this statutory exception may indeed allow judges to award attorney fees when a complaint’s factual basis is deemed to be not “plausible on its face” under the Iqbal test, a huge shift in Colorado jurisprudence. In the Warne case itself, 2016CO50 ¶ 29, Justice Coates spared the plaintiff this penalty by granting him leave to amend his pleadings to meet the new standard, but future litigants may not be so lucky.

For further information about the Warne v. Hall decision or other matters of Colorado law, please contact The Witt Law Firm.