Delaware Supreme Court Declines to Apply Iqbal-Twombly "Plausibility" Pleading Standard
In two recent decisions, the Delaware Supreme Court clarified that the governing pleading standard in Delaware state court is “reasonable conceivability” notwithstanding the United States Supreme Court’s adoption of a more stringent “plausibility” pleading standard in Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009), and Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 556 (2007).
In Iqbal and Twombly, the United States Supreme Court retired the lenient “no set of facts” standard derived from Justice Black’s oft-quoted passage in Conley v. Gibson 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.” 355 U.S. 41, 45-46 (1957). The Supreme Court instead mandated that “to survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Iqbal, 129 S. Ct. at 1949 (quoting Twombly, 550 U.S. at 570). In order to meet this standard, the plaintiff must plead sufficient, non-conclusory facts to bring its claims “across the line from conceivable to plausible.” Id. at 1950.
In Central Mortgage Company v. Morgan Stanley Mortgage Capital Holdings LLC, 27 A.3d 531, 535 (Del. 2011), the Delaware Supreme Court addressed for the first time whether the pleading standard in Delaware was altered by Iqbal and Twombly. In the lower court decision, Chancellor Strine (then Vice Chancellor Strine) granted a defendant’s motion to dismiss, citing the Twombly-Iqbal “plausibility” standard with approval. The Supreme Court noted the “plausibility” standard had been cited with approval in a number of Chancery Court decisions since Twombly was decided in 2007.
The Court expressly contrasted Delaware’s conceivability standard with the Twombly-Iqbal standard, stating that “the Twombly-Iqbal ‘plausibility’ pleading standard is higher than our governing ‘conceivability’ standard, and it invites judges to ‘determin[e] whether a complaint states a plausible claim for relief’ and ‘draw on . . . judicial experience and common sense.’” Id. at 537 (quoting Iqbal, 129 S. Ct. at 1950). The Court nonetheless declined expressly to resolve the impact, if any, of the Twombly-Iqbal decisions on Delaware’s pleading standard. Rather, the Court held that Delaware’s governing pleading standard remained reasonable conceivability “until [it] decides otherwise or a change is duly effected through the Civil Rules process.” Id.
In Winshall v. Viacom International, Inc., C.A. No. 6074-CS (Del. Ch. Nov. 10, 2011), Chancellor Strine took the opportunity to address the Central Mortgage decision. In a lengthy, and colorful, footnote, Chancellor Strine did not conceal his disagreement with the Delaware Supreme Court’s adoption of “an approach to dismissal motions that builds on the most liberal federal approach” – namely, the Conley v. Gibson “no set of facts” standard. Id. at n.23. Addressing the distinction drawn by the Supreme Court between “plausibility” and “conceivability,” Chancellor Strine opined that “[i]n the hands of Marc Vetri, Daniel Boulud or Mario Batali, thin slicing of this kind results in delightful salumi or charcuterie. For the purposes of helping to formulate a workable pleading standard, I confess to finding such minute cutting to have more false precision than utility.” Id. In closing, Chancellor Strine stated that he was “chary . . . about reading Central Mortgage as a marked departure from Delaware’s longstanding tradition of requiring that a plaintiff plead sufficient non-conclusory facts to support a pleading stage inference that a cause of action exists.” Id.
Most recently, in Cambium v. Trilantic Capital Partners, No. 363, 2011 (Del. Jan. 20, 2012), the Delaware Supreme Court again had occasion to address Delaware’s pleading standard in the wake of Iqbal and Twombly. Like in Central Mortgage, the Court reversed a Chancery Court ruling that granted a motion to dismiss based on the Twombly/Iqbal standard. Although the Chancery Court did not expressly state what pleading standard it was applying in its bench ruling, the Delaware Supreme Court noted that the transcript reflected that the Chancery Court used the term "plausibility” nine times. Citing extensively to Central Mortgage, the Supreme Court held that the Chancery Court erred by applying the federal “plausibility” standard. However, quoting Central Mortgage, the Supreme Court again declined to expressly resolve the impact, if any, of Twombly and Iqbal on the Delaware pleading standard.
In sum, although the Delaware Supreme Court has not explicitly rejected the Twombly-Iqbal “plausibility” standard, it seems to have done so implicitly. Until it rules otherwise, or the legislature chooses to intervene, the governing pleading standard to be applied by Delaware state courts is “reasonable conceivability.”1 As the Supreme Court emphasized in Central Mortgage and Cambium, this standard is a “minimal” one. Ultimately, the effect of these decisions may be that Delaware state courts are less willing to dismiss claims on motions to dismiss, which, as a practical matter, could lead to increased litigation costs for Delaware corporations.