United States District Court, E.D. Kentucky, Northern Division, Covington
In Re FLYING J REBATE CONTRACT LITIGATION (NO. II)
MEMORANDUM OPINION AND ORDER
AMUL R. THAPAR, District Judge.
Unless a plaintiff's complaint can survive a motion to dismiss, "he is not entitled to discovery, cabined or otherwise." Ashcroft v. Iqbal, 556 U.S. 662, 686 (2009); see also Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 558-59 (2007). That familiar principle more or less suffices to decide the narrow issue before the Court: Whether the plaintiffs in these cases may conduct discovery to buttress their allegations of fraud before the defendants may move to dismiss. Because a plausible complaint is a condition precedent to discovery, the plaintiffs may not use the discovery process to construct an adequate complaint.
The plaintiffs in these cases are various companies who purchased diesel fuel from Pilot Flying J. See, e.g., Complaint at 1, Wright Transp., Inc. v. Pilot Corp., No. 2:14-cv-68 (E.D. Ky. July 10, 2013), R. 1. The companies contracted with Flying J to pay reduced prices, via either rebates or discounts. Id. ¶¶ 8-12. According to the plaintiffs, Flying J fraudulently breached the agreements, by paying only a portion of the rebates or discounts to which its customers were entitled. Id. ¶ 13. Flying J allegedly targeted customers whom it believed lacked the manpower and sophistication to discover that they were being cheated. Id.
If the allegations are true (and the Court must accept them as true at this stage), then Flying J picked its victims wisely: But for some sleuthing by the Federal Bureau of Investigation, the plaintiffs here might never have caught on. An unsealed affidavit from an FBI investigation, however, exposed the details of what another court has described as a "breathtakingly vast" fraudulent scheme. Order on Motion to Dismiss at 2, Wright Transp., Inc. v. Pilot Corp., No. 13-0352, R. 68 (S.D. Ala. Jan. 9, 2014) (" Wright Transp. "). Shortly after the plaintiffs learned of the affidavit, they initiated these actions, each of which included claims of fraud.
Although the affidavit described portions of the scheme vividly, it was not exactly a smoking gun for these particular plaintiffs. In fact, the affidavit did not mention them at all. The plaintiffs' absence from the affidavit has created some predictable problems for their allegations of fraud. Before the Panel on Multidistrict Litigation consolidated these cases here, one transferor court dismissed one of the plaintiffs' fraud claims, holding that the plaintiff-Wright Transportation-had failed to allege with particularity the circumstances underlying the alleged fraud, as required by Federal Rule of Civil Procedure 9(b). Wright Transp., R. 68 at 3. The court pointedly noted that "the affidavit does not reference the plaintiff at all, much less assert that any particular individual associated with any particular defendant made any particular statement to any particular representative of the plaintiff...." Id.
Fearing a similar fate, the other plaintiffs now seek immediate discovery-before the defendants are allowed to file motions to dismiss-so that they can reinforce their allegations of fraud with sufficiently particular facts. See R. 9 at 2-3. Wright seeks permission to conduct discovery before amending its complaint, so that it can re-plead the fraud claims with additional factual support. See generally R. 46. Because Wright and the other plaintiffs all seek the same relief-discovery on fraud claims before the defendants may move to dismiss them (or, in Wright's case, dismiss them again)-they advance shared arguments, and the Court addresses their arguments together.
This case demonstrates why being at the bottom of the totem pole is not always a bad thing: Sometimes, it makes life easy. Iqbal held that a plaintiff who had filed a deficient complaint was "not entitled to discovery." 556 U.S. at 686. "The language of Iqbal, not entitled to discovery, ' is binding on the lower federal courts." New Albany Tractor, Inc. v. Louisville Tractor, Inc., 650 F.3d 1046, 1051 (6th Cir. 2011) (quoting Iqbal, 556 U.S. at 686). Those cases do not leave much for this Court to chew: Either the plaintiffs can state plausible claims, and so commence discovery, or they cannot. To determine whether the complaints state plausible claims for relief, the Court must allow the defendants to test them with motions to dismiss. See Kolley v. Adult Protective Servs., 725 F.3d 581, 587 (6th Cir. 2013) ("A plaintiff is not entitled to discovery before a motion to dismiss...."); see Iqbal, 556 U.S. at 686. Allowing discovery now would require the Court to ignore these unequivocal cases and flout the rule that emerges from them: No discovery for plaintiffs who cannot survive a motion to dismiss.
It is therefore unsurprising that the plaintiffs have failed to identify a single case from a federal court of appeals holding that a district court should have allowed discovery before entertaining motions to dismiss, so that a plaintiff could construct a plausible complaint. The plaintiffs nevertheless contend that they are entitled to such discovery here. For the reasons explained below, they are not.
I. Whether The Court Should Relax Rule 9(b)'s Particularity Requirement Has Nothing To Do With Whether The Plaintiffs Are Entitled To Discovery Now.
The plaintiffs' first argument misses the mark, because it addresses the standard that the Court should apply to evaluate a future motion to dismiss-not whether the plaintiffs may conduct discovery now. According to the plaintiffs, all the information they need to state a plausible fraud claim lies within the defendants' exclusive control. See, e.g., R. 49 at 8-10. Under such circumstances, the argument goes, courts apply a relaxed version of Federal Rule of Civil Procedure 9(b). See id.
The plaintiffs are free to raise that point when the defendants move to dismiss, but it has little bearing on the present dispute. The question before the Court is whether the plaintiffs may conduct discovery now, before the defendants have filed a motion to dismiss. Whether the plaintiffs may take discovery immediately has nothing to do with how leniently the Court should evaluate their allegations when later considering a motion to dismiss.
Whether the Court should relax Rule 9(b)'s heightened pleading requirements in a case like this one is an interesting question. Compare Michaels Bldg. Co. v. Ameritrust Co., N.A., 848 F.2d 674, 680 (6th Cir. 1988) ("Courts have held that [Rule 9(b)] may be relaxed where information is only within the opposing party's knowledge."), with Chesbrough v. VPA, P.C., 655 F.3d 461, 472 (6th Cir. 2011) ("This court, however, has rejected the argument that a claim should survive a motion to dismiss on the basis that necessary information is exclusively within the defendant's control...."). Sooner or later, the Court may need to decide this point. The defendants will move to dismiss, citing Rule 9(b), and perhaps the outcome will turn on whether the Court chooses to relax that ...