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. Hall, 2016CO50.

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.

Witt named to 2016 Super Lawyers

The Witt Law Firm is proud to announce that its principal, Jesse Howard Witt, has been recognized as one of Colorado’s Super Lawyers in the field of construction law.

Super Lawyers is a rating service of outstanding lawyers who have attained a high-degree of peer recognition and professional achievement. Super Lawyers selects attorneys using a patented multiphase selection process. Peer nominations and evaluations are combined with independent research. Each candidate is evaluated on 12 indicators of peer recognition and professional achievement. Selections are made on an annual, state-by-state basis. The objective is to create a credible, comprehensive and diverse listing of outstanding attorneys that can be used as a resource for attorneys and consumers searching for legal counsel. Since Super Lawyers is intended to be used as an aid in selecting a lawyer, it limits the lawyer ratings to those who can be hired and retained by the public. This is the fourth time that Super Lawyers has recognized Mr. Witt.

Colorado high court upholds firing of quadriplegic for off-the-clock medicinal marijuana use

The Colorado Supreme Court ruled today that a private employer was justified in firing a quadriplegic worker because he had used medical marijuana at home to control muscle spasms. The court concluded that, despite a state constitutional amendment legalizing marijuana in Colorado, and despite a federal policy prohibiting the prosecution of medical marijuana patients in the state, it was technically not “lawful” under the federal Controlled Substances Act (CSA) for the worker to use marijuana off the clock.

The case concerned Brandon Coats. According to a 2014 article in the Huffington Post, Coats was injured at the age of sixteen when he was a passenger in a car that crashed into a tree. The accident paralyzed more than 80 percent of his body, and he has suffered from severe involuntary muscle spasms and seizures ever since. At first, he used prescription drugs to control the spasms, but these soon became ineffective. He later found, however, that smoking small amounts of medical marijuana would halt the spasms and allow him to go to work without pain. He joined Colorado’s medical marijuana registry in 2009.

At the time, Coats worked as a customer service representative for satellite television provider Dish Network, L.L.C. The record did not suggest that Coats ever came to worked stoned, and the company acknowledged that it had no complaints about his performance. The company does perform random drug tests, however, and one of its tests indicated that Coats had been exposed to tetrahydrocannabinol (THC), the psychoactive ingredient in marijuana, within the previous forty days. Dish immediately fired him.

Coats then brought suit under Colorado’s Lawful Activities Statute, Colo. Rev. Stat. section 24-34-402.5. This statute prohibits employers from terminating employees for “engaging in any lawful activity off the premises of the employer during nonworking hours.” Coats argued that, because Colorado voters had amended the state’s constitution in 2000 to permit the use of medical marijuana, it was lawful for him to take medical marijuana in his home during nonworking hours. The amendment provides an affirmative defense to criminal prosecution for violation of state marijuana-possession laws for certain individuals suffering from a “debilitating medical condition” for which a physician has prescribed marijuana. See Colo. Const. art. XVIII § 14. It also requires the return of any medical marijuana plants seized by law enforcement.

The Arapahoe County District Court disagreed and dismissed the case. Judge Elizabeth Volz ruled that the constitutional amendment did not actually make medical marijuana legal under state law, found that Dish was justified in terminating Coats, and ordered Coats to pay Dish’s attorney fees as though it had prevailed on a motion for failure to state a claim for relief in a tort action. In 2013, a divided panel of the Colorado Court of Appeals affirmed in part and reversed in part. The appellate court suggested in dicta that the use of medical marijuana was “lawful” under state law, but it held that it was not “lawful” under federal law. Coats v. Dish Network, L.L.C., 2013 COA 62, 303 P.3d 147 (2013). Possession of marijuana for any purpose—medical or otherwise—has been effectively illegal under federal law since 1937. Because Colorado’s Lawful Activities Statute was not limited to state laws, the majority held that an employer could fire an employee for violating federal laws away from work. The court did reverse the award of attorney fees, however, ruling that an action under the Lawful Activities Statute was not a tort claim. Judge John Webb dissented from the majority and concluded that the reference to “lawful activities” should be measured solely by Colorado law. Because he further concluded that possession of medical marijuana was indeed legal in Colorado, he would have reversed the lower court.

The Colorado Supreme Court granted certiorari review and affirmed in a short opinion. The court noted that marijuana remains illegal in all forms under federal law, citing the United States Supreme Court’s holding in Gonzales v. Raich, 545 U.S. 1 (2005), which had concluded that supremacy clause requires federal statutes to preempt conflicting state laws pertaining to marijuana regulation. Because of this, Coats could not show that the off-duty use of medical marijuana in his home was “lawful,” regardless of its legality under state law or its medical necessity. The court decided the issue only based on federal law and declined to address whether medical marijuana use is “lawful” under state law. Justice Allison Eid authored the unanimous decision. Justice Monica Márquez did not participate. The full text is available online at the court’s website and reported at: Coats v. Dish Network, L.L.C., 2015 CO 44, ___ P.3d ___ (2015).

In a footnote, the court acknowledged that the federal government itself would be precluded from prosecuting Coats. In its December 2014 appropriations bill, the United States Congress prohibited the Department of Justice from using any federal money to prevent Colorado and states with similar medical marijuana laws from “implementing their own State laws that authorize the use, distribution, possession, or cultivation of medical marijuana.” Id. n. 2, quoting Consolidated and Further Continuing Appropriations Act, 2015, Pub. Law No. 113-235, § 538, 128 Stat. 2130, 2217 (2015). This followed an earlier announcement by the Department of Justice stating that it would not prosecute cancer patients or those with debilitating conditions who use medical marijuana in accordance with state law. Id. This did not convince the court to allow Coats’s claims to proceed, however; the court simply stated that “marijuana is still a Schedule I substance, and no medical marijuana exception yet exists in the CSA.” As such, medical marijuana use remains unlawful.

In short, the court recognized that Coats broke a law that no one enforces while he was off-the-clock and in his own home. His marijuana use did not hinder his ability to work; on the contrary, it gave him enough of a respite from pain that he could rejoin the workforce and hold down a steady job. And yet, the court ruled that Coats has no remedy against Dish Network for what would otherwise be a blatant violation of state employment discrimination laws. This serves no purpose and could open the door to pretextual termination of disabled Americans and other minority groups. Indeed, some commentators say that it was racism against blacks and Hispanics that first prompted the federal government to outlaw marijuana use in the 1930s.

This ruling is also a disappointment for those who depend on medical marijuana to live a productive life. The medicinal effects of THC have been known for centuries, and recent studies have suggested that cannabidiol (CBD) from marijuana plants may help to stop cancer and reduce epileptic seizures, among other benefits. Nevertheless, the federal government has been slow to reassess its marijuana laws, though Senator Rand Paul recently introduced a bill that would, among other things, remove medical marijuana from the CSA, reclassify the plant as a Schedule II substance with potential medicinal value, remove CBD and other cannabinoids from the federal definition of marijuana altogether, and relax restrictions on financial institutions dealing with marijuana businesses. The bill has passed the Senate and is currently being reviewed by a House subcommittee.

Although Senator Paul’s bill may be a step in the right direction for the medical marijuana community, some advocates warn that this legislation may be misguided. There is mounting evidence that minute amounts of activated THC may be required in order to achieve successful synergistic results with CBD; there are also many other non-psychoactive components to the marijuana plant, such as Cannabigerol (CBG), Cannabidiolic Acid (CBDA), and Tetrahyrocannabinolic Acid (THCa or unactivated THC) that may have unquantified medical benefits. Though such changes in federal law would offer no relief to Coats in his suit against Dish Network, they would likely protect other individuals in similar situations that may arise in the future.

In addition to the Coats ruling, the supreme court also announced today that it would review te ruling in People v. Crouse, 2013 COA 174, ___ P.3d ___ (2013). In Crouse, the El Paso County District Court had ordered the return of medical marijuana plants to a patient under the same constitutional amendment at issue in the Coats case. In a split decision, the court of appeals affirmed this ruling and held that the CSA was not so broad as to preempt this provision of the Colorado Constitution. Judge Webb, who had dissented in support of Coats, wrote the majority opinion, in which Judge Stephanie Dunn joined. Judge Steve Bernard dissented and argued that the government’s return of the plants was an illegal distribution of a controlled substance under federal law, i.e. that local police could be prosecuted as drug dealers merely for carrying out a state law requiring the return of improperly seized property. The Colorado Supreme Court’s decision to review Crouse on the same day that it announced Coats suggests that the justices may apply a similar rationale and conclude that the CSA prohibits state law enforcement from returning medical marijuana, regardless of whether it was properly taken.

Once it grants a petition for certiorari, the Colorado Supreme Court takes an average of two years to issue an opinion. Thus, it may be some time before the court provides further guidance on this subject. In the meantime, the conflict between state and federal law will continue to cause uncertainty for businesses and employees in the state.

Homebuilder immunity act dies in committee. What's next?

For the third straight year, the Colorado legislature has rejected efforts by the homebuilders’ lobby to provide virtual immunity for construction defects and property damage.

Late Monday night, the House committee on State, Military, and Veterans Affairs voted down Senate Bill 15-177 on straight party lines. All six Democrats on the committee voted against the bill, while all five Republicans voted for it. Similar bills had died in the Senate in 2013 and 2014.

In theory, SB177 would have boosted multifamily construction by shielding builders from liability for negligent work. Unlike the 2013 bill, this version never expressly stated that it was providing homebuilders with immunity, but it would have made it nearly impossible for community associations to take action against a builder who refused to honor a warranty. And even if the homeowners managed to overcome the procedural obstacles, the bill would have forced their claims into costly, private arbitration. Proponents hoped that, by eliminating responsibility for negligent work and property damage, they could entice homebuilders to construct more cheap condominiums.

Meanwhile, economist Pat Pacey testified that sluggish multifamily construction in Colorado is the result of low demand, not litigation. She noted that Colorado’s construction defect laws are about average compared to other states, and that multifamily construction is down across the nation. Nevertheless, many new multifamily projects, including a new 66-unit transportation-oriented development near I-25 and Yale and a 180-unit community in Littleton, have recently broken ground in Colorado. This left bill proponents struggling to find data to support their claim of a homebuilding crisis.

Sponsors also touted SB177 as an “affordable housing” measure, but none of the witnesses on Monday night could explain how eliminating consumer protections would help affordable housing communities. The closest anyone came was a representative of Habitat for Humanity, who suggested that her group might build higher density homes on land it was holding if the legislature could prevent claims for substandard work. In the end, however, the fact that a charity might construct a few more condominiums was not enough to persuade Democrats to strip away consumer protections for the entire state; seeing no guarantee that SB177 would provide any significant increase in affordable housing, they voted to postpone the bill indefinitely, effectively killing the measure for 2015.

The latest defeat for the homebuilders’ lobby poses the question of whether they will run yet another immunity bill in 2016. Initial comments from lobbyists suggest that they may abandon hope of statewide legislation and instead try to enact local ordinances to shield builders, notwithstanding the fact that most legal experts believe that these ordinances are unconstitutional. Lakewood and Lone Tree have passed such measures, but they conflict with state law and most likely exceed the cities’ home rule authority.

For whatever reason, the homebuilders remain unwilling to meet with homeowner advocates to talk about a compromise measure. After Monday’s vote, one prominent lobbyist said that his feelings were hurt by a comment on Twitter about shoddy construction, and that this made the homebuilders less likely to talk. In the meantime, Democrats in both chambers have expressed interest in changing the law to require meaningful mediation of construction defect disputes, create incentives for quality construction, and lower insurance costs, so long as consumer rights are protected. To date, however, the homebuilders’ so-called “coalition” includes only builders, lenders, and business groups who insist that immunity is the only option; those who suggest a compromise have been unwelcome at their table. When homeowner advocates have tried to meet with the coalition, they have been ignored or—in at least one instance—have literally been asked to leave.  As Monday’s vote shows, this unilateral approach is unlikely to succeed, and the homebuilders will need to consider the views of other stakeholders if they wish to change Colorado’s construction defect laws.

UPDATE: Efforts to run a bill in 2016 fell apart late in the session, and no new legislation was introduced.