The law firm, Bryan Cave, one of the defendants with Darl McBride in the litigation brought by Pelican Equity, has now joined McBride in filing a motion to dismiss the complaint. Technically, it's the First Amended Complaint [PDF]. Bryan Cave argues that the plaintiff was given a chance to amend but that the amended complaint is also deficient. It has not shown any evidence of any wrongdoing by the firm. If there was wrongdoing, it didn't know about it, and without actual knowledge of the alleged conspiracy, how can the firm be guilty of aiding and abetting? And it relies upon the Supreme Court's May ruling in Ashcroft v. Iqbal, that a complaint has to be plausible, with sufficient facts to state a claim.
Here's the pertinent section of the ruling in Iqbal:
Under Federal Rule of Civil Procedure 8(a)(2), a complaint must contain a “short and plain statement of the claim showing that the pleader is entitled to relief.” “[D]etailed factual allegations” are not required, Twombly, 550 U. S., at 555, but the Rule does call for sufficient factual matter, accepted as true, to “state a claim to relief that is plausible on its face,” id., at 570. A claim has facial plausibility when the pleaded factual content allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Id., at 556. Two working principles underlie Twombly. First, the tenet that a court must accept a complaint’s allegations as true is inapplicable to threadbare recitals of a cause of action’s elements, supported by mere conclusory statements. Id., at 555. Second, determining whether a complaint states a plausible claim is context-specific, requiring the reviewing court to draw on its experience and common sense. Id., at 556. A court considering a motion to dismiss may begin by identifying allegations that, because they are mere conclusions, are not entitled to the assumption of truth. While legal conclusions can provide the complaint’s framework, they must be supported by factual allegations. When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief. Bryan Cave asks a pertinent question: Is it plausible that a law firm of Bryan Cave's stature would risk everything just to please a client involved in wrongdoing? I'll explain further, but to follow along, you need the filings, so here they are:
In the Memorandum of Law, the firm presents its arguments. Here's the Preliminary Statement:
10/13/2009 - 31
- MOTION to Dismiss Plaintiff's First Amended Complaint. Document filed
by Bryan Cave LLP. (Attachments: # 1 First Amended
Complaint)(Silverman, Moses) (Entered: 10/13/2009)
10/13/2009 - 32
- MEMORANDUM OF LAW in Support re: 31 MOTION to Dismiss Plaintiff's
First Amended Complaint.. Document filed by Bryan Cave LLP. (Silverman,
Moses) (Entered: 10/13/2009)
Plaintiff claims that AIP’s senior executives stole AIP’s business. The Amended Complaint contains specific allegations of how these executives – the individual Defendants in this action – had access to and misappropriated all of AIP’s Confidential Business Information, set up a new business to compete with AIP – defendant Talos Partners, LLC (“Talos”) – and diverted AIP’s business opportunities.
So that's the overview. Here is how they use Iqbal:
Bryan Cave was AIP’s counsel. Plaintiff charges Bryan Cave with misappropriation of trade secrets, with aiding and abetting the individual defendants’ alleged actions, with malpractice and with breach of fiduciary duty. But after charging AIP’s executives with specific wrongful acts, the Amended Complaint fails to plead any facts showing what Bryan Cave supposedly did to misappropriate anything, to aid and abet wrongdoing, to commit malpractice or to breach fiduciary duties. The specific facts it does plead flatly contradict the hollow conclusory allegations of wrongdoing by Bryan Cave.
Bryan Cave and all of the Individual Defendants are collectively accused of misappropriating trade secrets. But the Amended Complaint specifically alleges that the individual Defendants obtained all of AIP’s Confidential Business Information when they worked for AIP, without any help from Bryan Cave. There are no facts pleaded that show what Bryan Cave did that constitutes misappropriation.
The facts pleaded in the Amended Complaint also contradict, and certainly do not explain or support, Plaintiff’s claims of aiding and abetting, malpractice and breach of fiduciary duties. First, Plaintiff alleges that in January 2009, Defendant Robert Brazell asked Bryan Cave to create a new corporate entity, Talos, and asked Bryan Cave to draft some basic documents for Talos including employment agreements. But according to the Amended Complaint, Brazell was an officer, principal and co-chair of AIP when he made these requests. There is simply no explanation in the Amended Complaint of how Bryan Cave committed malpractice, breached a duty or aided and abetted wrongdoing by acting on the instructions of a senior officer and director of AIP.
Second, Plaintiff claims Bryan Cave knew that Brazell was working against AIP’s interest because of a January 19, 2009 email sent by Brazell to Bryan Cave suggesting that AIP’s founder, Mark Robbins, might not remain “friendly.” At best, this email suggested a possible conflict between AIP’s two principals, Brazell and Robbins. It does not explain how Bryan Cave was supposed to know which of the two was properly acting for AIP. The Amended Complaint then pleads facts showing that Bryan Cave did exactly what one would expect a responsible law firm to do when confronted with a possible conflict between principals of a client. Plaintiff acknowledges in its pleadings that, two days after receiving the January email, Bryan Cave sent a conflict-waiver request to Robbins that disclosed Brazell’s and Talos’s plans and asked Robbins to obtain counsel before executing the requested waiver. There is no specific allegation of anything Bryan Cave did for Brazell and Talos after requesting the waiver.
Finally, the Amended Complaint charges that Bryan Cave kept information about Brazell’s and Talos’s planned activities secret from Robbins. But the Amended Complaint quotes Bryan Cave’s conflict-waiver request that discloses precisely what Plaintiff says was not disclosed.
In addition to its failure to plead facts showing wrongdoing by Bryan Cave, the Amended Complaint is also deficient for its failure to plead facts showing that anything Bryan Cave did was the proximate cause of harm to AIP.
Plaintiff amended its complaint once following the pre-motion conference, which was designed to give plaintiffs an opportunity to fix deficiencies in their pleading in advance of a motion to dismiss. Because it still fails to allege specific facts showing a claim against Bryan Cave, the Amended Complaint should be dismissed with prejudice.
To establish aiding and abetting, Plaintiff must plead facts sufficient to show that Bryan Cave had actual knowledge of, and provided substantial assistance to, the alleged wrongdoing. See Goldson v. Walker, 885 N.Y.S.2d 133, 134 (N.Y. App. Div. 2009). Only actual knowledge, and not constructive knowledge, is sufficient in pleading aiding and abetting. Kaufman v. Cohen, 760 N.Y.S.2d 157, 169 (N.Y. App. Div. 2003).
The Iqbal decision is somewhat controversial. One reason is because life is stranger than fiction, and a conspiracy that sounds utterly implausible and which would never pass the common sense prong of Iqbal sometimes turns out to be absolutely true. Courts don't want to start favoring the well-established based on whether they are likely to have done something wrong, because sometimes they do; but on the other hand, you want to protect the prominent from wild and unprovable allegations. Having been the victim of something like that, I was, frankly, somewhat glad to see the Iqbal decision. And I wished it had been in place when SCO first filed its accusations against IBM and the World. But I also see how it could be stretched or misused to the point that true injustices could occur.
Plaintiff has not pleaded facts showing that Bryan Cave had knowledge of wrongdoing. The Court should not credit Plaintiff’s vague and conclusory allegation that Bryan Cave “came to know” about the Individual Defendants’ improper conduct. See Iqbal, 129 S.Ct. at 1951 (disregarding as conclusory plaintiff’s allegation that defendants “knew of” and “condoned” allegedly discriminatory government policy); Air Atlanta Aero Eng’g Ltd. v. SP Aircraft Owner I, LLC, No. 08 Civ. 8852 (VM), 2009 WL 2191318, at *12 (S.D.N.Y. July 23, 2009) (“conclusory statements ... presented without alleging any facts supporting this conclusion, cannot suffice”). For the same reason, this Court should not credit Plaintiff’s vague and conclusory allegation that Bryan Cave “knew that Brazell and his co-conspirators were misappropriating [the Confidential Business] information in their own virtually identical competing stock loan business.” (Cmplt. ¶ 39.)
The only factual allegation regarding Bryan Cave’s purported “knowledge” of the alleged wrongdoing by its co-defendants is the January 19, 2009 email sent by Brazell to Bryan Cave that stated: “Please let me know what I need to do to facilitate this. I don’t know how long Mark will remain friendly.” (Id. ¶ 38.) On its face, this does not impart any knowledge of misappropriation, breach of fiduciary duty, or unfair competition. As set forth above, Plaintiff alleges that at the time of this email Brazell was still “an AIP officer,” “partner” and “cochairman.” (Id. ¶ 8). Thus, the most reasonable interpretation of this email and the actions that preceded it was that Brazell, still an officer and co-chair of AIP, instructed AIP’s counsel, Bryan Cave, to set up a new business to utilize the stock lending program. There is nothing particularly unusual about such a request. To the extent that the email questions whether “Mark will remain friendly,” the more reasonable inference is that there may have been a conflict brewing between the two principals of AIP – Robbins and Brazell. Bryan Cave’s prompt request to Robbins for a waiver, which disclosed Brazell’s intention to form a new business, strongly rebuts any possible inference that Bryan Cave was aware of or participated in any wrongdoing.
Iqbal directs a court in considering whether a plaintiff’s factual allegations state a plausible claim for relief “to draw on its judicial experience and common sense.” Iqbal, 129 S.Ct. at 1950. “Where a complaint pleads facts that are 'merely consistent with’ a defendant’s liability, it 'stops short of the line between possibility and plausibility of entitlement to relief.’” Id. at 1949 (quoting Twombly). The recent case of United States v. Lloyds TSB Bank PLC, No. 07 Civ. 9235 (CSH), 2009 WL 23715762 (S.D.N.Y. Aug. 4, 2009), is instructive. In that case, the United States government alleged that a bank had participated in a conspiracy with two overseas depositors to commit securities fraud. Id. at *2. In finding that the government’s pleading did not meet Iqbal’s standard, the court stated:
[C]ommon sense counsels against inferring that a substantial international bank, bearing an historic name and presumably wishing to maintain a global reputation for integrity and honorable dealing, would, with no stake in the criminal securities fraud itself, and no financial incentive other than to maintain the patronage of a fee-generating client, enter into a conspiracy with two Cypriot depositors to defraud investors in the United States. Id. at *16. The Lloyds court used its common sense to determine that the government’s factual allegations did not suggest a plausible cause of action. Id. It makes equally little sense for Bryan Cave – “bearing an historic name and presumably wishing to maintain a global reputation for integrity and honorable dealing” – to risk a malpractice suit and possible ethical sanction merely to assist a client in stealing another client’s intellectual property in the absence of pleaded facts to support the allegation.
Because Plaintiff’s one factual allegation of Bryan Cave’s actual knowledge of wrongdoing is consistent with perfectly lawful conduct, Plaintiff’s aiding and abetting claim fails under the Iqbal standard and should be dismissed. See Kregler v. City of New York, No. 08 Civ. 6893 (VM), 2009 WL 2524628, at *4 (S.D.N.Y. Aug. 17, 2009) (where complaint “contains no factual allegations about any direct, personal knowledge of” alleged wrongdoing, claim failed under Iqbal); Willey v. J.P. Morgan Chase, N.A., No. 09 Civ. 1397 (CM), 2009 WL 1938987, at *4 (S.D.N.Y. July 7, 2009) (where factual pleadings did not “rise above the speculative level,” motion to dismiss was granted under Iqbal) (internal quotation marks omitted).
In this case, I have no idea who is telling the truth, although I found Bryan Cave's explanation about the waiver convincing, but for sure Bryan Cave has now raised the right question, so it's clear there is no moss growing on that firm or on Paul, Weiss, Rifkin, Wharton & Garrison, the firm which is representing Bryan Cave in this litigation.
And in general I'd present a simple rule to live by: try not to sue lawyers. It hardly ever works out.