Suing Lance Armstrong for Lying in His Books: the Hurdle of Specificity and Plausibility under FRCP Pleading Rules?

The lawsuit filed against Lance Armstrong for lying in his books: a gift to civil procedure professors working through heightened pleading requirements of FRCP 9(b) and Twombly-Iqbal.  This morning, NPR’s Only a Game show featured a “lawsuit of the week” segment.  With some laughter, the host talked about how two individuals filed a class action suit against Lance Armstrong and his publisher.  The complaint alleges that defendants defrauded the class into buying Armstrong’s books and seek remedy for being tricked into believing he was a champion.  The lawsuit alleges that the plaintiff class would not have bought the book had they known it contained lies about Armstrong’s doping.

This case sounds a whole lot like litigation brought against Three Cups of Tea author Greg Mortenson, his co-author, their publisher, and marketing consultants after plaintiffs discovered that the book lied about Mortenson’s humanitarian efforts in Afghanistan. Long story short, the complaint alleged that Mortenson tricked readers into thinking he was a hero and he really wasn’t.  As the federal district court Judge Hannon explained in his opinion and order on defendants’ motion to dismiss:

Plaintiffs contended they purchased one or more of Mortenson’s books for approximately $15 each.  They claim that the books should not be categorized as nonfiction, as a number of misstatements relating to their contents have surfaced, and that Mortenson, Relin, MC, CAI, and Penguin entered into a fraudulent scheme to falsely portray Mortenson as a hero in order to boost book sales.

The complaint asserted claims for RICO, fraud, breach of contract, implied contract, unjust enrichment, among others.  Plaintiffs had amended their complaint three times before defendants moved to dismiss.  As the motion was pending, the court allowed plaintiffs to amend the complaint for a fourth time.  Defendants moved to dismiss on the grounds that the complaint failed “(1) to plead fraudulent activity with particularity, (2) meet plausibility standards, (3) plead necessary elements, and (4) allege cognizable injuries.”

Ruling on the motion to dismiss, the court began with an overview of the standard of review, an explanation that for my students now seems like old hat.  FRCP 8(a)(2) requires a short and plain statement of the claim showing the pleading is entitled to relief and giving fair notice of the claim and the grounds on which it rests.  Allegations of material fact are taken as true and construed in the light most favorable to the pleading party (at least the Ninth Circuit says so, the light most favorable part).  The court went on to describe Iqbal and Twombly as having erected a “two-step analytical process” for determining the sufficiency of pleadings under Rule 8.  According to the court, step one involves determining which allegations are merely “labels and conclusions,” “formulaic recitations” of the legal elements, or “naked assertions.”  So identified, those allegations are ignored for the purpose of figuring out if plaintiffs’ complaint plausibly shows wrongful activity.  Step two “requires the court to determine whether the remaining allegations, which the court must accept as true, plausibly give rise to an entitlement to relief.”  In determining plausibility, courts engage in a context-specific task drawing on the court’s experience and common sense.  Satisfaction of this standard does not require a showing that relief is probable, just plausible.

The court went on to explain that Rule 9(b):

requires a party alleging fraud to “state with particularity the circumstances constituting fraud or mistake, [while] [m]alice, intent, knowledge, and other conditions of a person’s mind may be alleged generally.” Iqbal acknowledged that Rule 9(b) allows “a person’s mind to be alleged generally,” but does “not require courts to credit a complaint’s conclusory statements without reference to its factual context.” Iqbal, 556 U.S. at 686, 129 S.Ct. 1937. “Rule 9 … excuses a party from pleading discriminatory intent under an elevated pleading standard,” but does not enable evasion of “the less rigid … strictures of Rule 8.”

Let’s consider the court’s dismissal of the RICO claim whose elements include “(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity (known as ‘predicate acts’) (5) causing injury to plaintiff’s ‘business or property’.”  According to the court, the complaint alleged as the primary racketeering activity: “ongoing scheme to defraud and actually defrauding purchasers of the books over at least an eight year period and continuing to this day, where they continued to misrepresent that the contents of [the Books] were true, nonfiction accounts of what really happened, when, in fact, the contents were false and the accounts did not happen,” all to sell books.  The complaint specified the lies in the book that the enterprise knew about and encouraged the authors to include.  It alleged that the enterprise advanced its scheme by setting up “fraudulent speaking engagements,” by paying for Mortenson’s expenses and by advertising and promoting the books.

The court first assessed whether the allegations met the heightened pleading requirements for allegations of fraud under Rule 9(b).  On this score, the complaint was wanting.  It first noted that plaintiffs’ allegations about the speaking engagements, expenses, and promotion of the books “do not actually appear to be untruthful or illegal” and are “overly vague.”  (So much for accepting them as true).  The court went on to find that the RICO claims were:

fraught with shortcomings, including failure to satisfy causal elements, failure to specify the roles of the Defendants, not adequately pleading enterprise theories, and failure to specify an actionable, identifiable racketeering activity.  Failure to adequately address the causal elements is the ultimate and fatal flaw. The Complaint does not state, nor is it possible to ascertain, whether Plaintiffs would have purchased the Books if: (1) the Books were labeled or marketed as fiction; or (2) the readers knew portions of the Books, as claimed, were fabricated. Plaintiffs’ overly broad statements that they paid approximately $15 for the Books because they were represented as true does not suffice. Additionally, Plaintiffs fail to allege when they purchased the Books, which is crucial in analyzing this case.  Plaintiffs never allege they visited CAI’s website or saw or heard any statements made by it before purchasing the Books. . . . The Complaint likewise does not differentiate allegations against each Defendant, nor does it inform Defendants separately of the allegations surrounding any alleged participation in the fraud.

After addressing Rule 9(b), the court turned to its rationale for dismissal on the grounds of Rule 8:

 General statements that the enterprise caused Mortenson to make various false statements relating to his life experiences do not satisfy Twombly and Iqbal standards.  Pleaded examples of how the enterprise marketed and promoted the Books also fail to satisfy appropriate pleading standards. Members of the enterprise cannot be expected to defend against Plaintiffs’ claims, when each participant’s role is only vaguely described, if at all. Furthermore, it is not clear what role Relin played in this matter, aside from coauthoring Three Cups of Tea, as all references to him are lumped together with Mortenson and Penguin, and any alleged wrongdoings attributed to him are clearly “labels and conclusions” or “naked assertions.

The court ignored as conclusory the allegation that publisher and marketing consultants knew the book contained lies and still published and promoted it.  According to the court, those allegations were asserted without factual context and thus did not deserve to be accepted as true.  Thus, the RICO allegations were dismissed because they were deemed unsupported and thus implausible.

The court dismissed the remaining claims on similar grounds–failure to meet heightened specificity requirement of 9(b), for the fraud claim, and failure to show plausibility of the remaining claims.  On the question of whether the plaintiffs would have a chance to file a fifth amended complaint, the answer was a resounding “no.”  Applying the FRCP 15 leave to amend standard, a fifth bit of the apple would be futile.  Dismissed with prejudice, the decree.

It would be great to get a copy of the Armstrong complaint to see if plaintiffs’ lawyers paid attention to the ruling in the Mortenson case.  More soon, if I find it.

 

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4 Responses

  1. Danielle Citron says:

    Thanks so much for this, Alex! Great coverage.

  2. Jon says:

    Many statutory false statement claims sound in negligence, for example Section 11 of the Securities Act of 1933. 15 U.S.C 77k. Those claims need not be pled with particularity required by Rule 9(b) — only Rule 8 applies. E.g. In re Cendant Corp. Sec. Litig., 60 F. Supp. 2d 354, 364 (D.N.J. 1999). I am not familiar with the California laws at issue to know whether it is possible to plead a negligence theory, but the plaintiffs attempt to do so. E.g. par. 1 (“Defendants knew or should have known […]” The traditional way to do so is to fully plead the facts supporting the negligence counts, plead the negligence counts, and only after the negligence count is fully pled begin to plead the fraud-based counts. See In re Refco Sec. Litig., 503 F. Supp. 2d 611, 632 (S.D.N.Y. 2007). It doesn’t look like the plaintiffs in the Armstrong case have done so, so it’s not clear they’ll be successful.

  3. Howard Wasserman says:

    Why aren’t these claims barred by the First Amendment. The point of Alvarez is that false speech retains its constitutional protection. Can states regulate how speakers market their speech? Wouldn’t that allow someone to sue a newspaper for publishing false information but marketing itself as a newspaper?

    Then we wouldn’t have to worry about Twiqbal–this would be flat-out legal insufficiency.