I turn now in this post to a critique of Twombly and Iqbal.  As I noted in my first post, these are actually two different standards.  Twombly assumes facts in a complaint to be true but bars implausible inferences.  Iqbal goes farther and does not assume certain alleged facts to be true, if given the judges common sense and experience, the allegation is implausible.  More concerns with Twombly are more process based, while my concerns with Iqbal are more substantive.  In this post,  however, I begin with a concern common to both cases.

The real issue in both these cases is not, actually, an abstract fight about the detail needed in a complaint (although that is how the Court frames the issues).  Rather both of these cases are about discovery (i.e., the process during which both sides in a lawsuit gather evidence in preparation for trial).  More precisely, these cases are concerned with the costs of discovery.  The assumed truth (I question this is a bit) is that discovery always costs large sums of money and that this disproportionately affects defendants. 

The Court, in a moment of clarity, noted this as well:  the Court fears that “the threat of discovery expense will push cost-conscious defendants to settle even anemic cases before reaching” summary judgment.  Bell Atl. Corp. v. Twombly, 127 S. Ct. 1955, 1967 (2007).  The Court also noted that allowing a weak case proceed to discovery “represent[s] an in terrorem increment to settlement value.”  The operative theory, then, is that discovery costs too much and that this cost hits defendants the hardest.  This huge cost, the argument goes, pushes defendants to settle cases that are unmeritorious.  This is unjust.   Therefore, we should prevent weak cases from proceeding to discovery by tightening pleading rules.  The key planks here are that discovery is always too expensive and that this cost disproportionately affects defendants.  I dispute these in turn.

As two, non-partisan Senior Researchers at the Federal Judicial Center observed “the debate over discovery reform has proceeded largely, but not entirely, with reference to salient personal experiences and not with benefit of empirical evidence.”  See Glenn. S. Koppel, Reflection on the Chimera of a Uniform Code of State Civil Procedure, 58 DePaul L. Rev. 971, 1001-02 (2009).  Anecdotes and political rhetoric have filled the knowledge vacuum created by the dearth empirical information.   Id.  In fact, recently the Advisory Committee recommended the scope-narrowing amendment to the discovery rules, despite the lack of an empirical case for the amendment, “largely because of the political preferences of the leadership of the American College of Trial Lawyers and the ABA Litigation Section.”  Id.

The question is: do we have evidence to support the notion that discovery is usually too costly.  The answer is we do not.  Rather the evidence supports the opposite conclusion.  In the overwhelming majority of cases, discovery comes to about 3% of the amount at stake.  Thomas E. Willging et al., An Empirical Study of Discovery and Disclosure Practice Under the 1993 Federal Rule Amendments, 39 B.C. L. Rev. 525, 531 (1998).  This is not a picture of discovery run amok or of a scary weapon to be wielded against hapless defendants.  To be sure, in 5% of cases filed discovery may run as much as 33% of the amount at stake.  Id.  But we know, by and large, which cases these are and can account for them by a separate rule.  (I will discuss this in a future post.)  There is no need to have a one-size-fits all approach, which is what Iqbal creates.  Indeed, the Federal Rules already allow for exceptions to the notice-pleading approach by way of Rule 9, where cases such as fraud are required to conform to the old fact-pleading scheme. 

I end by noting that the costs of discovery are not a one-way street.  In those few cases where discovery is very expensive, these cost must be borne by plaintiffs as well.  Moreover, given the typically contingency payment scheme for plaintiffs’ attorneys, this cost must be financed with the mere hope that a judgment or settlement is forthcoming.  Defendants, and defense attorneys, pay monthly, typically out of pocket.  Thus, the costs of discovery are certainly daunting and scary for plaintiffs too.  Proceeding to expensive discovery on a dog of a case will likely be a financial disaster for plaintiffs’ attorneys.  Thus, the in terrorem threat of discovery is not one-sided.  There is already a financial disincentive for plaintiffs to proceed to discovery on meritless cases.