© 2015 The Texas Lawbook.
By David S. Coale of Lynn Pinker
(May 3) – The Fifth Circuit recently reversed the dismissal on the pleadings of a products liability claim, noting the difficulties faced by plaintiffs who lack access to critical information in the defendants’ files. At least one other recent opinion voiced a similar concern in a Sarbanes-Oxley case.
This reasoning creates some tension with Bell Atlantic v. Twombly, the Supreme Court’s 2007 landmark about proper pleading, which considered and rejected such considerations in antitrust cases.
Whether these cases signal a broader trend remains to be seen, but they definitely show receptiveness to principled arguments about the scope of Twombly.
In Flagg v. Stryker Corp., plaintiff Kale Flagg alleged that he received toe implants that did not work properly and caused him ongoing pain and medical complications. He sued the manufacturers under the Louisiana Products Liability Act. No. 14-31169 (5th Cir. Apr. 26, 2016) (unpublished).
Defendants sought to dismiss his claim because his pleading lacked enough detail about how the implants deviated from specifications and performance standards, and did not adequately allege an existing and nonburdensome design. The district court granted the motion and the Fifth Circuit reversed.
The Court found Flagg’s allegations that “that the shape and sizing of the implants led to the implants’ fracturing,” and that “a different alloy . . . would have performed better,” sufficient to satisfy Fed. R. Civ. P. 12 and Twombly.
Critically, the Court observed: “Perhaps after discovery Flagg will not prevail, but at a pre-discovery stage of this case, in an area of law where defendants are likely to exclusively possess the information relevant to making more detailed factual allegations, we cannot say that he is merely on a fishing expedition.”
The Fifth Circuit sounded a similar note in Wallace v. Tesoro Corp., a wrongful discharge claim based on the Sarbanes-Oxley Act. The district court dismissed; the Fifth Circuit affirmed in part and reversed in part.
Specifically, the Court rejected the argument that Fed. R. Civ. P. 9(b) applied to the pleading of an employee’s belief that his employer is committing fraud: “[A]n employee who is providing information about potential fraud . . . might not know who is making the false representations or what that person is obtaining by the fraud; indeed, that may the point of the investigation.” 796 F.3d 468, 480 (5th Cir. 2015); see also Richardson v. Axion Logistics LLC, 780 F.3d 304 (5th Cir. 2015) (reversing a Rule 12 dismissal because of the permissible inferences from the facts alleged about the defendant’s reasons for terminating the plaintiff).
Both Flagg and Wallace make valid points – deserving plaintiffs may well lack relevant information through no fault of their own.
But Justice John Paul Stevens made similar points in his Twombly dissent, noting that in antitrust cases “the proof is largely in the hands of the alleged conspirators,” and that by allowing recovery of treble damages under the Sherman Act, Congress “intended to encourage, rather than discourage, private enforcement of [that] law.”
Accordingly, he warned: “It is therefore more, not less, important in antitrust cases to resist the urge to engage in armchair economics at the pleading stage.” Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955, 1983-84 (2007) (Stevens, J., dissenting).
The Supreme Court rejected his arguments, and it remains to be seen how it will evaluate similar arguments in different substantive contexts.
David Coale is a partner at Lynn Pinker Cox Hurst in Dallas.
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