In the several years since the Supreme Court decided Bell Atlantic Corp. v. Twombly and Ashcroft v. Iqbal, scholars and litigators have argued back and forth about the appropriate pleading standard for various kinds of lawsuits. One of the most vociferous parts of that debate is over whether class actions should be subject to increased pleading standards.
Former federal trial attorney Matthew J.B. Lawrence (now a fellow at Harvard’s Petrie-Flom Center) has recently published an article, Courts Should Apply a Relatively More Stringent Pleading Threshold to Class Actions, 81 U. Cin. L. Rev. 1225 (2013), that makes an interesting argument: Class actions require a more stringent pleading standard, and that may have motivated the decision in Twombly, if not Iqbal.
His thesis, courts should apply a more stringent standard
because the relative expected costs and benefits of allowing a suit brought via the class action past the pleading stage are different than the costs and benefits of allowing into court a lawsuit brought via a traditional, individual action. These differences are driven by a crucial categorical distinction between suits brought as class actions and those filed individually: ordinary lawsuits are subject to a gate-keeping device both antecedent to and more important than pleading-the individual litigant’s decision to sue-but the class action mechanism short circuits around this gate-keeping device.
(Emphasis added.) In other words, because the class action sweeps in the claims of people who most likely would not have sued given the chance (as distinguished from those might not sue simply because the economic incentives did not favor it), it already represents an imbalance in judicial gatekeeping, bringing in more litigation than is necessary for effective deterrence.
He also points out that the class action tends to result in greater expected costs, some dependent on the outcome (such as the large liability from a "false positive" verdict) and some independent of the outcome (such as increased discovery costs).
But the really interesting part of Lawrence’s article is his analysis of Twombly, which he suggests means that the Supreme Court may have already been implicitly applying a more stringent pleading standard to class actions:
The Supreme Court agreed. The long line of precedent holding that notice is enough was incorrect, it held, and had always been. A liberal notice-pleading rule would allow prospective plaintiffs to bring lawsuits even though their case was at best speculative, the Court explained, just to bully defendants into a settlement. Rather, it reminded courts that, "a district court must retain the power to insist upon some specificity in pleading before allowing a potentially massive factual controversy to proceed." Applying the newly-announced "plausibility" standard to the case before it, the Court held that the plaintiffs had failed to state a claim. The Court’s heavy emphasis on the class action features of the Twombly complaint and the defendants’ explicit reliance upon Twombly’s status as a would-be class action in making their case to the Court provide reason to believe the Court considered this fact about the case in doing so.
So what does this mean for defense counsel? It reinforces an argument that many make at the motion to dismiss stage: the court should decide the motion to dismiss based on whether the pleadings are sufficient, but also keeping in mind that the cost of letting a class action go forward is far greater than the cost of letting an individual lawsuit do so.