Insurance Defense Blog

Bell Atlantic v Twombly -- the death of notice pleading?

Ted Frank at Point of Law was early to recognize the import of the May 21, 2007 decision in Bell Atlantic v. Twombly, 127 S.Ct. 1955 (2007).  A longer look at the decision was taken in Dodson, Pleading Standards After Bell Atlantic Corp. v. Twombly, 93 Va. L. Rev. In Brief 121 (July 9, 2007), which gives a thorough overview and will convince you that it is worth your while to read the decision.  (Thanks to the SW Virginia Law Blog for the link to the Dodson article.)

It does now appear that the decision will have a major effect on notice pleading rules.  As of today, the decision had already been cited around 470 times.  Its effect is not going to be limited to antitrust cases.  Essentially, where the previous standard was 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", under Twombly a complaint must present enough facts to state a claim that is plausible on its face. 

Defense counsel are going to have to rethink the cost benefit analysis of when it makes sense to file Rule 12(b)(6) motions.  There is more of a chance of success now in light of Twombly.   In particular, fraud claims and conspiracy claims that are pled without sufficient supporting facts should be candidates for a Twombly motion.  Also claims for punitive damages that are not supported by plausible factual allegations should be attacked at the outset of the litigation with a Twombly motion. 

Surprisingly, the first decision from the D.C. Court of Appeals to cite Twombly did so in the context of a motion to strike affirmative defenses and counterclaims under Rule 12(f).  See Franco v. National Capital Revitalization Corp., No. 06-CV-645 (July 12, 2007). As that opinion suggests, Twombly may also require changes in the way that affirmative defenses, counterclaims, and cross-claims are pled.

Diversity Jurisdiction in Class Actions -- Using CAFA As A Sword

The Maryland Daily Record has a good piece covering a Maryland class action involving the defective installation of mobile homes, in which the plaintiffs' counsel are trying to defeat diversity jurisdiction based on the Class Action Fairness Act (CAFA).  Kind of a legal version of a man bites dog story.

The defendants removed the class action to federal court under 28 U.S.C. sec. 1332(a). 

At the risk of oversimplification, the plaintiffs' argument appears to be that for class actions, 28 U.S.C. sec. 1332(a) no longer is applicable and diversity jurisdiction must be found under the "minimal diversity" test of 28 U.S.C. sec. 1332(d). 

Under 1332(d), plaintiffs argue that the "principal defendant" cannot be a citizen of the forum state.  Here, the principal defendant is an unincorporated association, which would be diverse under the test of sec. 1332(a), but which is arguably non-diverse under the test of 1332(d). 

For more on the Class Action Fairness Act of 2005, you can start by browsing the CAFA Blog written by McGlinchy Stafford of Mississippi.  The CAFA Blog has links to case summaries and articles about the Act, as well as the complete text.

DRI's magazine, For the Defense, has an article on CAFA in the Oct. 2005 issue:  "The Class Action Fairness Act of 2005 -- Navigating Through Its Sea of Uncertainty," by Steven M. Puiszis.  Perhaps his firm will post a copy of the article on their website.

Filing Fees in U.S. District Court, District of Maryland

The fee schedule, revised as of 9/19/2005.

Moving Company's Forum Selection Clause in Contract Not Enforced by U.S. District Court for D.C.

In Byrd v. Admiral Moving and Storage,  the U.S. District Court for the District of Columbia denied the Florida-based moving company's motion to dismiss based on a statute of limitations defense and a forum selection clause in the moving contract  which specified that in the event of any dispute, "the parties specifically agree that venue shall lie in Broward County, Florida."  Among other things, the Court stated that it is arguable that the forum selection clause was not exclusive, but permissive.  The Court also took into consideration the plaintiff's pro se status and the hardship to her if the venue was transferred to Florida. 

According to plaintiff's allegations, a breach of contract by the defendant resulted in her belongings, which were supposed to be held in storage, being sold at auction by the storage company.

Class Action Against D.C. Water and Sewer Authority Has Been Remanded To Superior Court

The class action against the D.C. Water and Sewer authority based on lead in the drinking water in the District has been remanded from federal court to D.C. Superior Court, on the grounds that there is no longer federal question jurisdiction.

The issue was whether the plaintiffs' negligence per se theory of liability, based on alleged violations of federal statutes or regulations, created federal question jurisdiction.  The Court held that it did not, because it was an alternative theory of liability.

Summary Judgment Awarded To Defendant In Maryland Slip and Fall Case

In Yates v. Walmart, the U.S. District Court for the District of Maryland awarded summary judgment to Walmart, on the grounds that the plaintiff has no evidence to establish a requisite element of Walmart's liability, i.e., that it had actual or constructive notice of the leaked shampoo upon which the plaintiff slipped. The Court reasoned as follows:

Plainly, Ms. Yates has not marshaled any evidence, aside from her own speculation, to establish how long the dangerous condition was present. Evidence is legally sufficient to warrant the submission of a case to a jury only if it rises above speculation and conjecture. Moulden, 239 Md. at 232. See Carter v. Shoppers Food Warehouse MD Corp., 126 Md. App. 147 (1999) (where plaintiff slipped and fell in produce department and claimed the cause was store’s negligent maintenance of a mat in allowing edge to become turned up, court reasoned that plaintiff failed to present evidence that store owner had actual or constructive knowledge of the condition where it was not clear how long the mat was turned up before the fall). The mere fact that the spilled shampoo had spread to a diameter of from eight to ten inches simply does not support a rational inference as to the length of time the condition existed. Because defendant has no continuing duty to inspect and plaintiff cannot present any evidence as to how long the shampoo was on the floor, she is unable to establish a prima facie case of negligence.

New Trial Denied In Legg Mason Copyright Infringement Case Involving $19 Million Jury Verdict

That this is the golden age of intellectual property is evidenced further by the Legg Mason case, which looks like it will be headed to the 4th Circuit and from there, to the U.S. Supreme Court.

Last October, a jury found Legg Mason liable to Lowry's Reports for wilful copyright infringement and breach of contract, and awarded $19,725,270.00 in damages.

The U.S. District Court for the District of Maryland has recently denied Legg Mason's motion for a new trial and judgment as a matter of law. Lowry's Reports, Inc. v. Legg Mason, Inc., No. WDQ-01-3898.

Legg Mason argued that the awards in this case were excessive, based on erroneous jury instructions, and contrary to the evidence. It argued that the actual harm in this case was limited to $59,000 and that the $19 million dollar verdict is so disproportionate that it violates due process.

Lowry argued that its registered works were copied over 40,000 times but the recovery was limited to 240 awards.

The trial court found that because the jury's finding of willfulness is sustainable based on the evidence, and the award is within the statutory range, it is entitled to substantial deference.

There was evidence that Legg Mason was a sophisticated entity that repeatedly infringed Lowry's copyrights, even when asked to stop.

Legg Mason also relied on State Farm Mutual v. Campbell and BMW of North America v. Gore, in arguing that the jury's award must be reduced because its connection to the actual damages is so attentuated.

The trial court held that the Gore guideposts do not limit the statutory damages here because of the difficulties in assessing compensatory damages in this case. Statutory damages exist in part because of the difficulties in proving and providing compensation for actual harm in copyright infringement actions. The Court concluded that:

The unregulated and arbitrary use of judicial power that the Gore guideposts remedy is not implicated in Congress’ carefully crafted and reasonably constrained statute.

The trial court denied Lowry's request for another $1,573,178.38 in attorney's fees, on the grounds that the jury award will compensate Lowry's and allow it to pay its attorney's fees.

Fourth Circuit Upholds $90,000 Judgment Under Fair Credit Reporting Act For Failure To Conduct Reasonable Investigation

In Johnson v. MBNA America Bank, N.A., No. 03-1235 (4th Cir. Feb. 11, 2004), the Court affirmed a jury verdict in favor of the plaintiff based on an action against the defendant bank for violation of the Fair Credit Reporting Act (FCRA) by failing to conduct a reasonable investigation of the plaintiff's dispute concerning a credit card account issued by the bank that appeared on the plaintiff's credit report.

The account in question was a MasterCard account opened by the plaintiff's ex-husband. Apparently the account was originally opened prior to the marriage; and during the marriage the plaintiff was listed as an authorized user and was placed on the billing address. However, the plaintiff claimed that she was merely an authorized user and was never a co-applicant.

After the divorce, the ex-husband filed for bankruptcy, and the bank promptly removed his name from the account. At the same time, the bank contacted the plaintiff, and informed her that she was reponsible for the approximately $17,000 balance on the account.

The plaintiff disputed the account with each of the three major credit reporting agencies. Each credit reporting agency sent the bank an automated consumer dispute verification. In response, the bank reviewed its records and notified the credit reporting agencies that the disputed information was correct.

The plaintiff then brought suit on the grounds that the bank violated the FCRA by failing to conduct a proper investigation of her dispute. A jury found that the bank had negligently failed to comply with the FCRA, and awarded the plaintiff $90,300 in actual damages.

The bank appealed on the grounds that the FCRA only imposed a minimal duty on creditors to briefly review their records to determine whether the disputed information is correct, and that the Act does not contain any qualitative component that would allow courts or juries to assess whether the creditor's investigation was reasonable.

The 4th Circuit held that section 1681s-2(b)(1) of the Act requires creditors, after receiving notice of a consumer dispute from a credit reporting agency, to conduct a reasonable investigation of their records to determine whether the disputed information can be verified.

The 4th Circuit also held that a jury could reasonably conclude based on the evidence that the bank acted unreasonably in failing to verify the accuracy of the information in dispute. The bank's agents testified that in investigating consumer disputes generally, they do not look beyond the information contained in its computer system and never consult underlying documents such as account applications.

Thirty-Day Removal Period When Service Is On Statutory Agent

In White v. Lively, No. 1:03CV00138 (W.D. Va. Feb. 12, 2004), U.S. District Judge James P. Jones considered the application of the 30-day period for removal to federal court where service was made on a statutory agent, who was in this case, the Commissioner of the Department of Motor Vehicles of Virginia.

The Court held that:

While there is no decision by the Supreme Court or the Fourth Circuit on point, the overwhelming view among other courts is that service on a statutory agent such as the Commissioner does not start the running of the thirty-day removal period. See Lilly v. CSX Transp., Inc., 186 F. Supp. 2d 672, 673-74 (S.D.W. Va. 2002) (reviewing cases). I agree with the reasoning of those courts that because statutory agents for service of process are not true agents, it would be contrary to the plain meaning of the removal statute to limit a defendant’s removal period before actual receipt of the suit papers. See 14C Charles Alan Wright et al., Federal Practice and Procedure § 3732, at 288-89 (3d ed. 1998) (explaining rationale of majority view).

The Court cautioned that the same reasoning does NOT apply to cases where substitute service is made on an agent designated by the defendant.

In the opinion, the Court also pointed out that under Fed. R. Civ. P. 81(c), in a removed action in which the defendant has not answered, the defendant shall file a responsive pleading within the longest of the following periods: (1) within 20 days after the receipt through service or otherwise of a copy of the complaint; or (2) within 20 days after service of summons; or (3) within 5 days after the filing of the petition for removal.

Thus, in this case, the defendant's answer, filed on the same date as the notice of removal, was timely, even though under Virginia procedural rules, it was filed two days late.

The Court cautioned that the better practice is to answer within the deadline under state procedure, if possible, since if the case is thereafter remanded by the federal court, the state court may then enter a default judgment.

U.S. District Court for Maryland Remands Due To Improper Notice of Removal

In Nozick v. Davidson Hotel Co., No. CCB-03-2988, U.S. District Judge Catherine Blake remanded a suit which had been removed to federal court under diversity jurisdiction due to technical discrepancies in the notice of removal. In brief, the notice of removal did not sufficiently indicate that another defendant joined in and consented to the removal, even though the other defendant's counsel had in fact given verbal consent to counsel for the removing defendant. The opinion teaches the basics of removal in a multi-defendant situation.