Recently, the Delaware Bankruptcy Court in the Six Flags bankruptcy issued a decision addressing whether an adversary complaint alleged facts sufficient to overcome a motion to dismiss. The Court’s decision provides analysis of recent decisions by the Supreme Court and the Third Circuit regarding standards for pleading. More specifically, the Six Flags decision looks at whether the underlying complaint satisfies the “factual plausability” pleading requirement set forth by the Supreme Court in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007). The Court’s decision in Six Flags, in addressing recent decisions regarding pleading standards, provides a useful analysis of an issue common in litigation.
The Contract Dispute
Six Flags filed for bankruptcy in June of 2009. Two years prior to filing for bankruptcy, the company sold nine amusement parks to Parc Management LLC and other Parc entities (hereinafter “Parc”). Parc paid Six Flags $275 million in cash for the amusement parks and issued subordinated promissory notes to Six Flags having a face value of $37 million. Decision at *4. The notes contained a provision providing for the payment of an “Excess Amount” in the event certain conditions were satisfied. Six Flags claimed that Parc owed it an Excess Amount of $1,001,875, which Parc refused to pay. Decision at *10.
Allegations in the Complaint
Through its Complaint, Six Flags alleged it was entitled to the recovery of the Excess Amount from Parc. In response, Parc filed a motion to dismiss all counts alleged in the Complaint, arguing that the Excess Amount was a one time payment that was no longer due. Parc also argued that the Excess Amount was no longer due pursuant to the terms of a subordination agreement. Decision at *11-12.
Sufficiency of Pleadings Under Fed.R.Civ.P. 12(b)(6)
The Court began its analysis by noting that motions brought pursuant to Fed.R.Civ.P. 12(b)(6) test the sufficiency of the factual allegations set forth in a plaintiff’s complaint. Next, the Court reiterated the Third Circuit’s recent observation that “[s]tandards of pleading have been in the forefront of jurisprudence in recent years.” Decision at *12, citing Fowler v. UPMC Shadyside, 578 F.3d 203 (3d Cir. 2009). As a result of the Supreme Court’s decisions in Bell Atlantic Corp. v. Twombly and Ashcroft v. Iqbal, “pleading standards have seemingly shifted from simple notice pleading to a more heightened form of pleading, requiring a plaintiff to plead more than the possibility of relief to survive a motion to dismiss.” Decision at *13, citing Fowler, 578 F.3d at 210.
The heightened pleading requirement under Twombly requires claims be “facially plausible.” Decision at *13. Under Iqbal, the Supreme Court extended the facial plausibility requirement to all civil suits brought before federal courts. Id., citing Fowler, 578 F.3d at 210. In order for a claim to be facially plausible, the Supreme Court in Iqbal requires a plaintiff plead “factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Decision at *13-14, citing Iqbal, 129 S. Ct. at 1950.
The Third Circuit has interpreted Iqbal to require “a two-part analysis. First, the factual and legal elements of a claim should be separated. The [court] must accept all of the complaint’s well-pleaded facts as true, but may disregard any legal conclusions.” Next, the court “must then determine whether the facts alleged in the complaint are sufficient to show that the plaintiff has a plausible claim for relief.” Decision at *14, citing Fowler, 578 F.3d at 210-11. More recently, the Third Circuit clarified that “[s]ome claims will demand relatively more factual detail to satisfy this standard, while others require less.” Id. at *15, citing In re Ins. Brokerage Antitrust Litig., 2010 U.S. App. LEXIS 17107, 46-47 n. 18 (3d Cir. Aug. 16, 2010).
The Plausibility of Plaintiff’s Claims
To determine whether Six Flags’ claims against Parc were in fact plausible, the Court considered the parties’ various interpretations of the notes and related documents. See Decision at *15-26. Although the parties offered differing interpretations of certain contract provisions, the court found the disputed language clear and unambiguous. Id. at *24. Parc argued that Six Flags’ interpretation of the disputed language “would lead to an absurd result” and the court agreed with Parc’s conclusion. Id. at *26. In rejecting Six Flags’ interpretation of the disputed language, the Court found that “[a]lthough Six Flags has pled sufficient facts taken as true to support its claims, the Note contradicts the allegations and controls.” Id. at *26, citing Sierra Invs., LLC v. SHC, Inc., (In re SHC, Inc.), 329 B.R. 438, 442 (Bankr.D.Del. 2005).
Ultimately, the Court found that Six Flags’ interpretation of the disputed provision was not logical when the language in the provision was considered in its entirety. Id. at *27. In reaching its decision, the Court considered many different provisions in the notes (provisions, many of which are not discussed in this blog post but are discussed in detail in the Court’s decision available here) and found that Six Flags’ claims contradicted the language of the notes and “simply does not make sense.” Id. at *26. Here the Court shows the discretion provided to federal courts under Iqbal to assess the plausibility of a plaintiff’s claims. Citing Iqbal, the Court recognized that the law “promotes the use of judicial experience and common sense.” Id. at *26, n. 75, citing Iqbal, 129 S. Ct. 1950.