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Litigation Pleading Standards

AICPA Position

Congress is considering the Notice Pleading Restoration Act, S. 1504, introduced by Senator Arlen Specter, a Pennsylvania Democrat, and Open Access to Courts Act, H.R. 4115, introduced by Representative Jerrold Nadler, a New York Democrat, that would overturn two recent Supreme Court decisions upholding the position that plaintiffs need to establish plausible facts in order to sue a defendant. AICPA opposes both bills in their current form and does not support overturning these decisions.

Background

In the Supreme Court’s 2007 Bell Atlantic v. Twombley, an antitrust case, the Court ruled that in order to meet the appropriate pleading standard, the complaint must contain enough facts to “raise a reasonable expectation that discovery will reveal evidence of illegal agreement" and a pleading must “state a claim to relief that is plausible on its face."

In the 2009, the Supreme Court built on Twombley in the Ashcroft v. Iqbal case. In Iqbal, the claimant maintained that the Twombley’s "facial plausibility" test should be limited to the pleadings made in an antitrust dispute, as had been involved in the Twombley case. The Supreme Court held that the argument that Twombley was limited to antitrust actions "is not supported by Twombley and is incompatible with the Federal Rules of Civil Procedure", and the Court also held definitively that Twombley applies to all civil actions.

Claimants now must explicitly include in their initial pleadings substantial factual assertions, not "threadbare," that give "facial plausibility" to their claims instead of notice pleading, which required only a simple statement of the case against the defendant.

Legislative Action

S. 1504 and H.R. 4115, if enacted, would shift the governing legal standard and open the floodgates to frivolous litigation because complaints no longer would need to be specific. Previously established statutory pleading standards would be eviscerated. Filing a complaint to engage in a “fishing expedition” would become an accepted practice increasing litigation burdens on both defendants and the courts.

Further, under existing law, if a federal statute requires a more specific form of pleading and if a claim brought under such statute does not meet the specificity requirements of such a statute, it would be dismissed because the claim would fail to meet the standards upon which relief can be granted. However, S. 1504 and H.R. 4115 would override these previously enacted pleading standards.

For example, the Private Securities Litigation Reform Act (“PSLRA”) was enacted in 1995 and includes a specific pleading standard. If either of these bills were to become law the balanced pleading standard of PSLRA found in 15 U.S.C. § 78u-4(b), which requires the claimant, amongst other requirements, to “state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind”, would be nullified.

Resources

Copy of Legislation

A copy of these bills are available on THOMAS. The most recent version of the bill, and all Congressional actions, are available by searching for S.1504 and H.R. 4115 by bill number.

Staff Contacts

Matthew Iandoli
Director, Congressional Affairs
202.434.9274
miandoli@aicpa.org

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AICPA Letter to House Financial Services Committee Supporting H.R. 1564.

Legislative Letters: The AICPA supported a bill approved on June 19, 2013 by the House Financial Services Committee that would prevent the PCAOB from imposing mandatory audit firm rotation for public companies.
Published on June 19, 2013

ERISA Fiduciary Definition - Appraisers of Employee Stock Ownership Plans

Article: The AICPA believes that CPAs who perform valuation services for employee stock ownership plans (ESOPs) should not be defined as fiduciaries under the Employee Retirement Income Security Act (ERISA). Rather, the AICPA believes that the U.S. Department of Labor (DOL) should implement rules that would require appraisers of ESOPs to
Published on June 18, 2013

XBRL

Article: Extensible Business Reporting Language (XBRL) used in financial and other reporting allows for easier access to more transparent information. AICPA supports legislative proposals to utilize XBRL by companies, Federal agencies and recipients of Federal funds.
Published on June 17, 2013

Audits of FHA-Approved Participants and Related HUD Requirements

Article: FHA proposes new rule to strengthen risk management and shift accountability for the underwriting of FHA-insured loans to the mortgage banks. It may no longer require FHA to approve loan correspondents (mortgage brokers) participating in the FHA program and HUD would no longer require FHA to submit audited financial statements or audits
Published on May 14, 2013

Municipal Advisors

Article: The AICPA generally supports the SEC’s proposed rules as a means to strengthen investor protections in the municipal securities market. The AICPA is concerned, however, because the proposed rule would require that accountants performing customary and usual accounting services would be required to register as municipal advisors.
Published on May 01, 2013

Congressional and Political Affairs Advocacy

Overview: The AICPA monitors and advocates on legislative and other matters that affect the accounting profession. Working with state CPA societies and other professional organizations, the AICPA provides information to and educates federal, state and local policymakers regarding key issues.
Published on May 01, 2013

Convergence of International and US Accounting Principles and IFRS

Article: International Financial Reporting Standards (IFRS) set by the International Accounting Standards Board (IASB) in London is a response to worldwide demand from regulators, investors, businesses, and auditing firms for a single set of high-quality, globally-accepted accounting standards.
Published on April 03, 2013

Tax Legislation and Policy

Article: The Congressional and Political Affairs Team often assists the Tax Team with tax legislation and policy issues, and advocates about them to Members of Congress and other key policymakers on behalf of the profession.
Published on April 03, 2013

Section 404(b) of Sarbanes-Oxley Act of 2002

Article: The Sarbanes Oxley Act requires that the management of public companies assess the effectiveness of the internal control of issuers for financial reporting. Section 404(b) requires a publicly-held company’s auditor to attest to, and report on, management’s assessment of its internal controls. AICPA believes that all investors in public companies
Published on April 03, 2013

GAO Study of Financial Planning

Federal Law: Dodd-Frank required the GAO to conduct a study on the effectiveness of existing regulation of financial planners, including tax advisors. The AICPA met with the GAO during the study to present the profession’s point of view. AICPA strongly opposed any new regulatory structure affecting CPAs as they are already comprehensively
Published on April 03, 2013

Financial Literacy and Education

Article: Learn about the AICPA's award winning financial literacy programs.
Published on April 03, 2013

FASB Independence and Fair Value Accounting

Article: The AICPA strongly and unequivocally supports independence of the U.S. and international accounting standard setting bodies, the Financial Accounting Standards Board (FASB) in Norwalk, Connecticut, and the International Accounting Standards Board (IASB) in London.
Published on April 03, 2013

Extraterritorial Private Rights of Action, also known as F-Cubed Litigation

Article: The accounting profession believes private litigants may utilize U.S. securities laws within the territorial jurisdiction of the U.S. and that the United States Supreme Court decision in Morrison v. National Australia Bank, Ltd. is the correct reading of the Securities Exchange Act of 1934.
Published on April 03, 2013

Consumer Financial Protection Bureau

Article: This article outlines the AICPA's involvement with the development of the Consumer Financial Protection Bureau (CFPB). The AICPA was successful in winning recognition by House and Senate lawmakers of the vital role CPAs play in advising Americans on their financial decisions, thus preventing CPAs from reporting to a new regulatory body.
Published on April 03, 2013

Federal Legislative and Regulatory Issues

Federal Law: This page highlights the advocacy issues in which the Congressional & Political Affairs Team is advocating on behalf of the profession, and also those issues that the team has recently followed.
Published on March 29, 2013

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