Contracting Around Twombly

Abstract

The Supreme Court's recent decisions in Bell Atlantic Corp. v. Twombly and Ashcroft v. Iqbal have generated a heated debate over which is the most just and efficient transsubstantive pleading standard. Unlike the vast scholarship that followed these decisions, we do not take sides in this debate. Instead, we focus on a subset of cases in which litigants have prior contractual relationships. We argue that if contracting parties are allowed to contract around the Twombly pleading standard, they will be able to overcome problems of inadequate screening and to realize both pre-dispute and post-dispute opportunities that would prove unfeasible otherwise. Hence, we propose a novel approach for addressing the question whether the Twombly standard performs better than its predecessor in contract cases. We suggest that the answer to this question should be informed by analyzing the costs of modifying the Twombly standard and the difficulties in implementing such modification, in addition to the proportion of cases where this modification would have been chosen by contracting parties. As we show, even if aggregatively, over all contracts, the Twombly pleading standard would have been chosen less often, it may still promise improved efficiency and justice in contract cases, due to the lower costs of contracting around it.

Keywords: Pleading Standard, Default Rules, Twombly, Iqbal