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As I walked out of a
Civil Litigation Rules and Case Law Update seminar at the 2008 State Bar
Convention, an Arizona Supreme Court Justice asked me what topics had sparked
the most interest and discussion. I replied that quite a few experienced
litigators expressed uncertainty as to the controlling pleading standard in
Arizona in light of the United States Supreme Court’s decision in Bell Atlantic
Corp. v. Twombly1 and the Arizona Court of Appeals’ citation to
Twombly in Cullen
v. Koty-Leavitt Insurance Agency, Inc.2
(“Cullen I”).
Understandably, the
Justice offered no opinion or comment. Mindful that the Arizona Supreme Court
had granted review of Cullen I, I changed the subject. Just a few weeks later,
the Court set the record straight on the present applicability of Twombly in
Arizona with its decision in Cullen v. Auto-Owners Insurance Co.3 (“Cullen II”).
Arizona and (Pre-Twombly)
Federal Pleading Standards4
Challenges to the sufficiency of claims for relief are commonplace and, to most
seasoned litigators, expected chapters in the lives of cases. Arizona’s pleading
standards are grounded in the Arizona Rules of Civil Procedure and the
interpretation and application of the rules by our courts over many years. By
reference to these standards, we attempt to craft complaints that will sustain
attack by motion to dismiss for failure to state a claim or, if defending a
claim, we evaluate the likelihood that such a motion might succeed. Given the
potentially case-dispositive nature of motions to dismiss, understanding the
analysis our courts employ in deciding them is of paramount importance to
litigators.
Last year, the United States Supreme Court’s decision in
Twombly and the Arizona
Court of Appeals’ treatment of Twombly in Cullen I sparked great interest. In
some quarters, it also raised significant concern that the proper analysis to be
conducted by the courts of Arizona in evaluating the sufficiency of claims for
relief had dramatically changed.
What prompted this reaction? The starting place is identification of the
standards by which our state courts have been directed to measure claims for
relief when attacked by motion to dismiss.
Rule 8, adopted in 1956, lists the minimum requirements for a claim for relief
as (1) a statement of the basis for the court’s jurisdiction (unless previously
established in a matter); (2) “a short and plain statement of the claim showing
that the pleader is entitled to relief”; and (3) a request for judgment for the
relief sought.5 Rule 12(b)(6), in turn, furnishes the procedural mechanism by
which to challenge the sufficiency of the statement of a claim. As observed by
the Arizona Supreme Court in Mackey v. Spangler the same year as adoption of the
Arizona Rules of Civil Procedure:
[T]he test as to whether a complaint is sufficient to withstand a motion to
dismiss is whether enough is stated therein which, if true, would entitle
plaintiff to some kind of relief on some theory. The court should not grant a
motion to dismiss unless it appears certain that the plaintiff would be entitled
to no relief under any state of facts which is susceptible of proof under the
claim as stated.6
The Court further
identified the rule’s purpose as avoidance of “technicalities” and giving “the
opponent fair notice of the nature and basis of the claim and indicate generally
the type of litigation involved.”7
Prior to Twombly, the bulk of decisions interpreting the federal counterpart to
Rule 12(b)(6) relied on the oft-repeated Conley v. Gibson standard that “a
complaint should not be dismissed for failure to state a claim unless it appears
beyond doubt that the plaintiff can prove no set of facts in support of his
claim which would entitle him to relief.”8
Along Came Twombly … and
Its Aftermath
As many fine legal minds have expounded on the meaning of
Twombly9, I will not do
so here. However, a cursory understanding of Twombly is necessary to appreciate
the context in which Cullen I and Cullen II arose, and to explain the public
reaction.
By its 2007 decision in
Twombly, a case involving federal antitrust law, the
United States Supreme Court dismissed the Conley “no set of facts” standard as
“an incomplete, negative gloss on an accepted pleading standard.”10 Rather, the
Court held that a complaint must set forth such facts as render the plaintiff’s
claim “plausible,” as opposed to merely “conceivable,” and “raise a right to
relief above the speculative level”—a more exacting standard by which claims for
relief are to be measured.11
Twombly generated much discussion among those of us who (for better or worse)
find ourselves thinking about such things as the United States Supreme Court’s
rejection of a 50-year-old federal pleading standard. Conventional speculation
seemed to focus on the notion that, because Twombly involved antitrust law, the
“plausible” standard announced might fairly be read as limited in its
application to the antitrust context. Caution was urged; a wait-and-see approach
was adopted.
Then, in October 2007, Division Two of the Arizona Court of Appeals issued its
decision in Cullen I, a case in no manner involving antitrust claims.12 The
plaintiff, Cullen, argued that the trial court erred in granting a motion to
dismiss his claims for breach of (insurance) contract and bad faith denial of
claim predicated upon the policy’s failure, on its face, to extend coverage to
Cullen.13 Citing to
Phelps Dodge Corp. v. El Paso Corp.,14 a Court of Appeals
opinion, Cullen asserted that dismissal could only be affirmed “if there are no
possible facts that would allow” his claim, even if not pled.15 The Court of
Appeals corrected him, noting that Phelps actually quoted the relevant standard
as requiring dismissal to be sustained “only if the plaintiffs ‘could not be
entitled to relief under any facts susceptible of proof under the claims
stated.’”16 Affirming dismissal, the Court stated that “recent standards
articulated” by the Arizona Supreme Court prohibited a trial court from
speculating about “hypothetical facts that might entitle the plaintiff to
relief.”17
But the Court of Appeals went further. Observing the persuasive weight accorded
to federal court interpretations of the federal analogues to the Arizona Rules
of Civil Procedure, the Court devoted three paragraphs of its decision to a
discussion of Twombly18; remarked upon the United States Supreme Court’s
rejection of the Conley “no set of facts” formulation and holding that a
complaint’s factual allegations “must be enough to raise a right to relief above
the speculative level”19 ; and arguably measured the sufficiency of Cullen’s
complaint by reference to Twombly.20
More questions were raised than answered. Was
Twombly now the law in Arizona?
Did the Arizona Court of Appeals intend to signal a departure from the accepted
Arizona pleading standard by citing to, discussing and perhaps relying on
Twombly in Cullen I? How different was the new Twombly “plausibility” standard
from the standard previously announced by the Arizona courts?
Uncertainty was the order of the day.
The Arizona Supreme Court
Rules
On July 25, 2008, the Arizona Supreme Court issued its decision in
Cullen II. The
Court approved of the standard employed by the Court of Appeals in Cullen I
for
evaluating motions to dismiss, namely that “dismissal is appropriate only if a
plaintiff is not entitled to relief, as a matter of law, on any interpretation
of the facts alleged in the plaintiff’s complaint.”21 The Supreme Court went on to
catalog various principles governing application of this standard and
disposition of Rule 12(b)(6) motions to dismiss for failure to state a claim.
First, the Court stated that the Court of Appeals had correctly observed its
admonition against speculation about “hypothetical facts that might entitle the
plaintiff to relief” by lower courts.22 Second, a court faced with a motion to
dismiss must limit its consideration to the pleading and its well-pled factual
allegations.23 Third, the court must “assume the truth of all well-pled factual
allegations and indulge all reasonable inferences therefrom.”24
The standard recited by the Supreme Court in
Cullen II closely resembles the
Mackey formulation, as well as those quoted by the Court of Appeals in Cullen I,
including that dismissal under Rule 12(b)(6) will be upheld “only if the
plaintiffs would not be entitled to relief under any facts susceptible of proof
in the statement of the claim”25 and affirmed “only if, as a matter of law, the
plaintiff would not be entitled to relief on any interpretation of those facts”
alleged in the complaint and assumed to be true for Rule 12(b)(6) analysis
purposes.26
The Arizona Supreme Court noted that this standard (and, implicitly, the
principles governing application of the controlling formulation) reflected a
divergence between Arizona and federal procedural law, with federal litigants
governed by one “broader” than that employed in the Arizona courts.27 Thus,
although Arizona courts are limited to consideration of the well-pled facts
contained in a pleading and the reasonable inferences that might be drawn from
such facts, prior to Twombly federal courts were seemingly at liberty to
consider facts not pled by the claimant, but that otherwise might be proven in
support of a claim.28
Moreover, the Arizona Supreme Court observed that its prior interpretation of an
Arizona Rule of Civil Procedure may be modified only in two ways: through
subsequent interpretation by that Court or successful rule petition.29 As Rule 8
had been the subject of neither in light of Twombly’s announcement of the
“plausibility” standard and rejection of Conley, the Court held that the pre-Twombly
Arizona pleading standard quoted above continues to control in our state courts.30
In disposition of the case before it, the Court concluded that the Arizona Court
of Appeals neither modified nor abandoned Arizona’s Rule 8 notice pleading
standard by its citation to Twombly, and affirmed Cullen I.31 So as to eliminate
the confusion caused by Cullen I, however, the Arizona Supreme Court further
vacated the Arizona Court of Appeals’ discussion of Twombly.32
Questions Remain
Several questions should be asked in the wake of
Cullen II.
First, how did so much confusion come about? After all, in
Cullen II, the
Arizona Supreme Court simply told us that the standard applicable in Arizona
prior to Twombly continues to control.
To begin with, the language used in
Mackey and those decisions quoted in Cullen
I33 is very similar to the now-rejected
Conley standard.34 The
Mackey Court itself
cited, in part, to Moore’s Federal Practice in support of the standard it
announced. Indeed, in its 1961 decision in Long v. Arizona Portland Cement Co.,36
another case relied on by the Cullen II Court,37 the Arizona Supreme Court cited
directly to Conley in support of this formulation.38 Given this facial
resemblance, those (apparently rogue) Arizona Court of Appeals decisions that
expressly applied the Conley test in evaluating trial court treatment of motions
to dismiss,39 and the persuasive authority in Arizona of federal decisions
interpreting federal counterparts to our Rules,40 it is hardly surprising that the
Arizona Court of Appeals treated and (arguably) applied the Twombly standard in
Cullen I.41
Second, apart from the Arizona Supreme Court’s observation in
Cullen II that the
pleading standard in Arizona is more restrictive than that set forth in Conley,
is there any precedential, practical manner in which to measure or describe the
difference? Perhaps.
The Conley standard refers to a pleader being able to “prove no set of facts in
support of his claim that would entitle him to relief.”42 By contrast, the Arizona
standard speaks in terms of certainty that the “plaintiff would be entitled to
no relief under any set of facts susceptible of proof under the claim as
stated.”43 Those last two words, “as stated,” would seem to support the
distinction drawn by the Arizona Supreme Court in Cullen II between the Arizona
standard, which restricts a court to consideration of the well-pled facts and
reasonable inferences drawn therefrom, and the pre-Twombly federal standard,
which seemingly permitted a court to speculate about facts that might be proven
in support of a claim, whether pled or not.
The Cullen II Court declined to compare and contrast Arizona’s standard with
that announced in Twombly,44 instead indicating that the Arizona test is less
broad than Conley’s and hasn’t been changed by Twombly.45 Though the Supreme Court
identified the two exclusive means by which its prior interpretation of our
Rules can be revised, the relevant federal and Arizona rules are identical,46
presumably leaving only the Court’s future interpretation to guide us with
respect to how Arizona’s standard compares to Twombly’s.
It has been argued that review of a decision of the Court of Appeals affirming
the dismissal of claims by the trial court and discussing Twombly at length
“created a unique opportunity” for the Supreme Court to weigh in on this
question,47 and the Court has been criticized for “miss[ing] an opportunity” and
“compound[ing] the confusion.”48 Given the lack of any indication that Arizona’s
standard does not function as intended, however, the Supreme Court may have
purposefully determined not to replace it with Twombly’s (or even compare the
two) at the present time so as to afford the Court a sufficient opportunity to
observe and consider how the Twombly standard develops through subsequent
federal court application and interpretation.
Practical Implications
What specific guidance did the Arizona Supreme Court provide in
Cullen II as to
how a complaint should be pled to withstand attack by motion to dismiss in the
Arizona courts?
The Supreme Court expressly reaffirmed that lower courts cannot speculate about
hypothetical facts that might give rise to entitlement to relief,49 and that,
while not invalidating a complaint, “mere conclusory statements are insufficient
to state a claim.”50 Thus, ignoring distinctions between fact and notice pleading,
the reasoned answer is that the drafting and substance of a complaint should be
fact-intensive and element-driven. By this, I mean that each essential element
to each claim should be supported by a well-grounded, non-conclusory factual
allegation, if possible.
Though not a new or revolutionary idea, this can be problematic conceptually and
in practice.
In his article on Ashcroft v. Iqbal,
Andy Halaby explores the difficulty in
attempting to distinguish between “mere conclusions” and “factual allegations.”
Furthermore, pleading factual substance is often hindered by the limited
information a plaintiff possesses prior to discovery or the nebulous nature of
necessary elements to certain types of claims, each of which may give rise to a
need to plead upon information and belief.
Consider, for example, trying to plead as a fact that an entity was
undercapitalized for alter ego purposes or that a debtor made a fraudulent
transfer with actual intent to hinder, delay and defraud a creditor under A.R.S.
§ 44-1004(A)(1). Although the Supreme Court didn’t tackle this issue in Cullen
II, the analysis it approved suggests that, when faced with these circumstances,
a pleader should ensure that its allegations made upon information and belief
are supported by such other non-conclusory factual matter as required to make
them “reasonable inferences” in the view of the court. In other words, the
element that defies being pled as a fact must be grounded to such related and
supportive factual allegations as will render the former reasonably inferred
from the latter.
The simple answer is that if your manner and style of pleading withstood attack
by motion to dismiss before Twombly and Cullen I, it should continue to do so
after Cullen II. Nothing has changed in Arizona … at least for now.
[1]
550 U.S. 544 (2007).
[2]
168 P.3d 917 (Ariz. Ct. App. 2007).
[3]
189 P.3d 344 (Ariz. 2008).
[4]
The following analysis presupposes that the claim pled is not of a type that is
subject to the heightened particularity requirements of Rule 9(b).
[5]
Rule 8(a), Ariz.R.Civ.P.
[6]
301 P.2d 1026, 1027 (Ariz. 1956).
[7]
Id.
at 1027-28.
[8]
355 U.S. 41, 45-46 (1957).
[9]
See
Andy Halaby’s companion piece in this issue of the
Arizona Attorney, as well as
those cited by Andy in endnote 12 of his article.
[10]
Twombly,
550 U.S. at 563.
[11]
See id.
at 555-56, 570.
[12]
See Cullen I,
168 P.3d at 920-21.
[13]
Id.
[14]
142 P.3d 708 (Ariz. Ct. App. 2006).
[15]
Cullen I,
168 P.3d at 922.
[16]
Id.
(citing Phelps Dodge, quoting Donnelly Constr. Co. v. Oberg/Hunt/Gilleland,
677 P.2d 1292, 1294 (Ariz. 1984)).
[17]
Cullen I,
168 P.3d at 923.
[18]
Id.
[19]
Id.
[20]
Id.
at 923-24; see also Justice Andrew Hurwitz’s dissent in Cullen II.
[21]
Cullen II,
189 P.3d at 346 (citing Cullen I, 168 P.3d at 923).
[22]
Id.
at 345-46 (citing Cullen I, 168 P.3d at 923).
[23]
Id.
at 346 (citing Dressler v. Morrison, 130 P.3d 978, 980 (Ariz. 2006), and
Long v. Ariz. Portland Cement Co., 362 P.2d 741, 721 (Ariz. 1961)).
[24]
Id.
(citing Doe ex rel. Doe v. State, 24 P.3d 1269, 1270 (Ariz. 2001), and
Long, 362 P.2d at 742).
[25]
Cullen I,
168 P.3d at 923 (citing Mohave Disposal, Inc. v. City of Kingman, 922
P.2d 308, 311 (Ariz. 1996)).
[26]
Id.
(citing Doe, 24 P.3d at 1270).
[27]
Cullen II,
189 P.3d at 346.
[28]
See id.
at 346-47.
[29]
Id.
at 347.
[30]
Id.
[31]
Id.
at 347-48.
[32]
Id.
at 348.
[33]
See Cullen I,
168 P.3d at 923 (citing Mohave Disposal, 922 P.2d at 311, and
Doe, 24 P.3d at 1270).
[34]
Cf.
Conley, 355 U.S. at 45-46, with Mackey, 301 P.2d at 1027,
Mohave Disposal, 922 P.2d at 311, and Doe, 24 P.3d at 1270.
[35]
See Mackey,
301 P.2d at 1027 (citing 2 Moore’s Federal
Practice, ¶ 8.13, and 6 Moore’s
Federal Practice, ¶ 54.60).
[36]
362 P.2d 741 (Ariz. 1961).
[37]
Cullen II,
189 P.3d at 346 (citing Long, 362
P.2d 741).
[38]
Long,
362 P.2d at 742 (citing Conley, 355 U.S. 41).
[39]
E.g., Newman v. Maricopa County,
808 P.2d 1253, 1255 (Ariz. Ct. App. 1991).
[40]
See
Edwards v. Young, 486 P.2d 181, 192 (Ariz. 1971).
[41]
Apparently, those confused by the proper controlling standard in Arizona
included United States Supreme Court Justice John Paul Stevens who, in his
dissent in Twombly, referred to Arizona as a jurisdiction adhering to the
Conley “no set of facts” standard. See Twombly, 550 U.S. at
578 n.5 (Stevens, J., dissenting).
[42]
See
Conley, 355 U.S. at 45-46 (emphasis added).
[43]
Mackey,
301 P.2d at 1027 (emphasis added). See also Mohave Disposal, 922
P.2d at 311 (“[U]nder any facts susceptible of proof in the statement of the
claim.”) (emphasis added); Doe, 24 P.3d at 1270 (“[W]e assume as true
the facts alleged in the complaint and affirm the dismissal only if, as a
matter of law, the plaintiff would not be entitled to relief on any
interpretation of those facts.”) (emphasis added).
[44]
See
Brooke T. Mickelson, Case Note, Cullen v. Auto-Owners Insurance Co.:
Evaluating the Sufficiency of a Complaint Under Arizona’s Rule 8 Notice-Pleading
Standard in Light of Bell Atlantic Corp. v. Twombly, 50
Ariz. L. Rev. 1215 (2008), an
examination of Cullen II and some of its possible ramifications.
[45]
See
Cullen II, 189 P.3d at 346-47.
[46]
Cf.
Rule 8(a)(2),
Fed.R.Civ.P., with Rule
8(a)(2), Ariz.R.Civ.P.
[47]
See
Mickelson Note, supra note 44, at 1221.
[48]
Id.
at 1226.
[49]
Cullen II,
189 P.3d at 345-46 (citing Cullen I, 168 P.3d at 923).
[50]
Id.
at 346. |
