Insurance Litigation & Regulatory Law Blog : California Insurance Lawyer & Attorney : Barger & Wolen Law Firm : CA Insurance & Bad Faith Litigation

In an article appearing in today's Los Angeles and San Francisco Daily Journals (pdf), I discuss H.R. 4115, which, if passed, will overturn the Supreme Court's recent rulings in Bell Atlantic Corporation v. Twombly and Ashcroft v. Iqbal. Twombly and Iqbal held that a complaint filed in federal court could be dismissed if it does not contain sufficient factual matter to state a claim for relief that is plausible on its face.  

H.R. 4115 (called "The Open Access To Courts Act of 2009"), by contrast, would prohibit a federal district judge from dismissing a complaint unless it appears

beyond doubt that plaintiff can prove no set of facts in support of their claim which would entitle plaintiff to relief.

A judge would also be prohibited from dismissing a complaint based on the determination that the factual contents of the complaint do not show their claim to be plausible or do not warrant a reasonable inference that the defendant is laible for the misconduct alleged.  

The exact effect of this legislation is unclear, but, if passed, it is certain to invite the argument from plaintiff's lawyers that all they need to do to get a complaint past the pleading stage is to include as few facts as possible. Vagueness may become the order of the day, and it will certainly become more difficult to dismiss a case under Federal Rules of Civil Procedure Rule 12.  

This law may mean that we will soon see complaints in federal court containing fewer and vaguer allegations. For the insurance industry, this may mean rethinking the generally accepted practice of invariably removing state court actions to federal court on diversity grounds. If a motion to dismiss is being contemplated, it may see more success as a state court demurrer. 

Please feel free to contact me directly for more information.

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In Kearns v. Ford Motor Company, --- F.3d ----, 2009 WL 1578535 (9thCir. June 8, 2009), plaintiff William Kearn sued Ford for alleged violations of California’s Consumers Legal Remedies Act (“CLRA”) and California’s Unfair Competition Law (“UCL”) arising out of Ford’s Certified Pre-Owned (“CPO”) vehicle program. Kearn’s complaint generically alleged that Ford had made false and misleading statements concerning the safety and reliability of its CPO vehicles (without identifying who made the statements, the specific content of the statements, or when and how Kearn was exposed to such statements), and failed to disclose to consumers Ford’s lack of actual oversight in determining whether used vehicles qualify for the CPO program.  Kearn alleged that he was harmed by the foregoing conduct because he had paid a higher price for a CPO vehicle then he would have paid for a non-CPO vehicle, even though there was no difference between the two. While Kearn alleged that Ford’s conduct constitutes an unfair business practice under California law, he did not assert any claims for fraud in the complaint.

In the district court, Ford brought a motion to dismiss Kearn’s complaint for failure to comply with the heightened pleading standards of Federal Rule of Civil Procedure 9(b). The district court granted the motion and Kearn appealed, principally arguing that Rule 9(b) does not apply to California’s consumer protection statutes because California courts have not applied Rule 9(b) to such statutes, and that Rule 9(b) does not apply to his CLRA and UCL claims because they are not grounded in fraud. 

In rejecting Kearn’s arguments, the Ninth Circuit held that it is well established that the Federal Rules of Civil Procedure – including Rule 9(b) – apply in federal court, “irrespective of the source of the subject matter jurisdiction, and irrespective of whether the substantive law at issue is state or federal.” The Court further noted that while a federal court examines state law to determine whether the elements of fraud have been sufficiently pled to state a cause of action, the Rule 9(b) requirement that fraud be pled with specificity is a federally imposed rule. The Court also held that, while fraud is not a necessary element of a claim under the CLRA or UCL, if the plaintiff nevertheless alleges a unified course of fraudulent conduct and relies entirely on that course of conduct as the basis of the CLRA or UCL claim, the CLRA or UCL claim is considered to be “grounded in fraud” or sounding in fraud such that the complaint as a whole must satisfy the particularity requirement of Rule 9(b).

Get a copy of the opinion here.

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