Special Cases Lecture Note

Special Cases: Requiring and Forbidding Specificity in Pleadings - Courts, rulemakers, and legislators have long wrestled w the Q of how much specificity to require in pleadings In rule 9, the drafters carved out some areas where a rule requires more detail, and statutes have sometimes required either extra specificity or forbidden it Stradford v Zurich Insurance Co Facts Issue Rule Decision Reasoni ng P is a dentist in NY. D are corporate insurers. They gave him insurance from 1999-2000. Apparently during the term he failed to pay and they cancelled the policy from October to December. In December, he submitted a no claims letter certifying he had no losses from October to date. He resumed paying and the policy was reinstated and he was notified in January. 10 days later he submitted a claim that he had found water damage when he came back from vacation. He further notified that certain dental implants got damages as well so he submitted a claim of approx. 150 000. After the insurance company made the payments, he submitted a revised claim of 1.2 million for property damage and business interruption. Insurers thought the damages occurred during the period when the time lapsed on his insurance Insurers claimed that P knowingly and willfully devised a scheme and artifice to defraud defendants and obtain money by false pretenses and representations and seeking the return of the 150 000, punitive damages, and investigation expenses Whether the pleading by the defendants is sufficiently specific Rule 9(b) – in alleging fraud or mistake, a party must state w particularity the circumstances constituting fraud or mistake Malice, intent, knowledge, and other conditions of a persons mind may be made generally First sentence requires that time, pace, and nature of the alleged misrepresentations be disclosed to the party accused of fraud Primary purpose of rule 9(b) is to afford a litigant accused of fraud “fair notice of the claim and the factual ground upon which it is based” Grant D’s leave to amend their counterclaims. They also have request permission to move to summary judgment asserting P breached their contractual obligations under the policy by failing to cooperate in the investigation of the claim. Request is granted D’s counterclaims succeed in alleging facts that give rise to a strong inference of fraudulent intent as required by the second sentence of rule 9(b) BUT the counterclaims don’t satisfy the first sentence o Don’t ID a statement made by P that they claim to be false o Is also unclear from the counterclaims whether the D asserts that Dr. Stratford’s claimed losses are improperly inflated, that the office never even flooded, or that it did but not during the policy time period D’s failed to provide P w fair notice of precisely which statement or aspect of his claim on the policy they allege to be false Usual practice in the circuit when there was not prior opportunity to replead to grant a litigant who has suffered a dismissal under rule 9(b) leave to amend so that he may conform his pleadings to the rule Notes - - - Why did the above case go from breach of contract to fraud o Punitive damages are available for fraud but not for breach of contract  Although punitive damages are awarded rarely, the possibility that they might be imposed could strengthen the insurers hand during settlement o ALSO makes it better for the jury  No one likes an insurance company that collects premiums but then fails to pay claims  By turning into a case about fraud, the insurer can present themselves as a victim Under rule 9(b) – it will fail if they are vague and don’t specify the obligations they agreed to undertake o Courts have dismissed fraud claims pursuant to 9(b) even where the pleader alleged specific communications bc the claims lacked particularized facts to support the inference that a party acted w fraudulent intent Why does rule 9(b) require more specificity in pleading o For the fraud plaintiff the problem is that if fraud occurred, P is likely still to be in the dark about some of the salient facts In average cases the fraud P’s lawyer wants to get to discovery to uncover info proving D was misrepresenting the facts  BUT discovery will be unavailable if the complaint is dismissed for failure to plead w sufficient specificity to comply w Rule 9(b) o For D the problem is that fraud and mistake cases threaten the legal framework of the contract  Like contract, fraud grows from some dealing btwn the parties but has different consequences than contract  Contract disputes can easily turn into claims of fraud, exposing the D to punitive damages, thwarting the rule of expectation damages typical of contract claims  Mistake has similar but less dramatic consequences  A valid mistake claim regarding the terms of an agreement will void a contract  If it is easy to plead mistake, a basic institution of current economic life – contract – is weakened Although rule 9(b) is the only fed rule requiring specificity, there are other state and fed law claims that have adopted special pleading requirements for certain claims o Ca Code §425.13(a) – no complaint may state a claim for punitive damages against a health care provider unless the court enters n order allowing an amended pleading and that the court may enter such an order only after supporting and opposing affidavits show tat the P has est there is a substantial probability P will prevail  CA procedure seeks to prevent insubstantial claims from advancing to discovery but through diff means than rule 9(b) Specialized area involving fraud – securities – congress has gone well beyond requirements of rule 9(b) o Private securities litigation reform act of 1995  Sets for elaborate pleading requirements that apply to claims alleging fraud under fed securities statutes o Two go beyond rule 9(b)  One provides the complaint shall specify each statement alleged to have been misleading, the reason or reasons why the statement is misleading, and if an allegation regarding the statement or omission is made on info and belief, the complaint shall state w particularity all facts on which that belief is formed  Replaces the relative leniency of rule 9(b) regarding states of mind, requiring instead a P state w particularity facts giving rise to a strong inference that the D acted w the required state of mind In other areas, courts, legislatures and drafters have gone in the other direction – forbidding specificity or making it clear it wasn’t required o CA legislature has forbidden a P seeking damages in such cases from stating any specific amount in the initial complaint, instead allowing the D, after receiving the complaint, to demand a statement of damages  - - -