Twombly and Iqbal aligned the case law with the Federal Rules’ pleading standards, they didn’t change them (nor could they). That was Judge Colloton’s message last week in Horras v. American Capital Strategies, Ltd., an Iowa case about minority shareholder rights.
Thomas Horras owned a minority interest in a home healthcare business and the majority shareholder purported to sell out without telling him. So Horras sued. He claimed that the majority shareholder had a duty to disclosure the sale to him, especially because the majority shareholder represented that it was selling all of the company’s shares, not just a controlling interest.
The district court dismissed the lawsuit, and last week an Eighth Circuit panel affirmed that ruling 2-1. The majority of the panel, Judge Gruender writing, concluded that if given the chance, the Iowa Supreme Court would not require majority shareholder to tell the minority shareholder that he intended to sell the majority interest. While the Iowa Supreme Court might very well recognize such a claim for a closely held company, Horras hadn’t pled that this was a closely held company. And according to Judge Gruender (joined by Judge Benton) Twombly and Iqbal require that he plead it.
As for Horras’s claim that the majority shareholder purported to sell all of the company’s shares, Judge Gruender wrote that Horras hadn’t properly pled that either. The breach-of-fiduciary-duty count stated only that the majority shareholder failed to notify Horras of “corporate activity [a]ffecting his shares.” The part about purporting to sell off the shares was in a separate breach-of-contract count, which the district court also dismissed. (That dismissal was unanimously affirmed.).
Judge Colloton dissented. In an interesting opinion about what Twombly and Iqbal do and what they don’t, Judge Colloton–who served on the Advisory Committee on Civil Rules from 2008-2013– concluded that Horras said enough to get by the motion to dismiss. Here’s the relevant portion of his dissent: