Rule 15(a) — Court Can’t Order Plaintiff to Amend before Decision on 12(b)(6) Motion or Lose Right to Do So — Liberal Amendment Especially Important in Light of Twiqbal — Rigorous Appellate Review If No Amendment Allowed

Runnion v. Girl Scouts of Greater Chicago, 786 F.3d 510 (7th Cir. 2015):

This appeal presents substantive issues concerning the scope of the federal Rehabilitation Act's coverage of private organizations (like the Girl Scouts) that receive federal funding. Before addressing the merits, though, we must address some recurring procedural issues involving Federal Rule of Civil Procedure 12(b)(6) dismissals and plaintiffs' opportunities to amend complaints before entry of a final judgment of dismissal. In particular, we focus on how the 2009 amendment to Federal Rule of Civil Procedure 15(a)(1)  [*516]  affects amendment practice [**2]  in district courts.

Plaintiff Megan Runnion was active in a Girl Scout troop run by defendant Girl Scouts of Greater Chicago and Northwest Indiana, which is the largest regional Girl Scout organization in the United States. Megan is deaf. For several years she benefitted from sign language interpreters provided by the Girl Scouts that enabled her to participate fully in the troop's activities. The Girl Scouts then stopped providing interpreters. When her mother complained, Megan's entire troop was disbanded.

Megan alleges that the Girl Scouts violated the Rehabilitation Act by refusing to provide her with sign language services and then by disbanding her troop because her mother complained. The district court ultimately dismissed the case under Rule 12(b)(6), finding that Megan had failed to allege sufficiently that the Girl Scouts are subject to the Rehabilitation Act. Thinking amendment would be futile under its interpretation of the Rehabilitation Act, the district court dismissed the case without leave to amend.

We reverse. We first set out the facts and procedural history of the case, including the substantive issue about the scope of the Rehabilitation Act's coverage. We then turn to the procedural [**3]  issues and seek to clarify the proper approach to motions for leave to amend complaints. We then resolve the substantive issues under the Rehabilitation Act and conclude that the district court erred by dismissing the entire case without giving plaintiff an opportunity to amend her complaint. The district court corrected that error in part by vacating its judgment but then erred again by refusing to allow a proposed amended complaint that is more than sufficient to state a viable claim for relief.

***

II. Procedural Issues

Before turning to the merits, we must sort out some procedural issues posed by the district court dismissing the original complaint and entering judgment without granting leave to amend the complaint. First, we consider the general approach district courts [**12]  must take in reviewing motions for leave to amend. Second, we address how review of such motions is affected by the district court's entry of judgment. Finally, we examine the impact of the 2009 amendment to Rule 15(a)(1) on both pre- and post-judgment motions for leave to amend.

 

A. General Rule--Liberal Approach to Amending Pleadings

When the district court granted the motion to dismiss the original complaint, Megan no longer had a right to amend her complaint as a matter of course. See Fed. R. Civ. P. 15(a)(1) (right to amend expires 21 days after service of defendant's motion to dismiss under Rule 12(b)). Ordinarily, however, a plaintiff whose original complaint has been dismissed under Rule 12(b)(6) should be given at least one opportunity to try to amend her complaint before the entire action is dismissed. We have said this repeatedly. E.g., Luevano v. Wal-Mart Stores, Inc., 722 F.3d at 1024; Bausch v. Stryker Corp., 630 F.3d at 562; Foster v DeLuca, 545 F.3d 582, 584 (7th Cir. 2008); Barry Aviation Inc. v. Land O'Lakes Municipal Airport Comm'n, 377 F.3d 682, 687 & n.3 (7th Cir. 2004) (collecting cases). Rule 15(a)(2) governs when court approval is needed to amend a pleading: "The court should freely give leave [to amend] when justice so requires." See generally Foman v. Davis, 371 U.S. 178, 182, 83 S. Ct. 227, 9 L. Ed. 2d 222 (1962) (reversing denial of leave to amend by citing to Rule 15(a)(2)'s mandate to freely give leave to amend and stating "this mandate is to be heeded").

When a district court denies a plaintiff such an opportunity, its decision will be reviewed rigorously on appeal. [**13]  In Barry Aviation, we said that giving leave to amend freely is "especially advisable when such permission is sought after the dismissal of the first complaint. Unless it  [*520]  is certain from the face of the complaint that any amendment would be futile or otherwise unwarranted, the district court should grant leave to amend after granting a motion to dismiss." 377 F.3d at 687 (emphasis added). We also endorsed the reasons for this practice given by Professors Wright and Miller:

   The federal rule policy of deciding cases on the basis of the substantive rights involved rather than on technicalities requires that plaintiff be given every opportunity to cure a formal defect in his pleading. This is true even though the court doubts that plaintiff will be able to overcome the defects in his initial pleading. Amendment should be refused only if it appears to a certainty that plaintiff cannot state a claim. The better practice is to allow at least one amendment regardless of how unpromising the initial pleading appears because except in unusual circumstances it is unlikely that the court will be able to determine conclusively on the face of a defective pleading whether plaintiff actually can state a claim.

Id. at 687 [**14] , quoting 5A Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1357 (2d ed. 1990).

Where it is clear that the defect cannot be corrected so that amendment is futile, it might do no harm to deny leave to amend and to enter an immediate final judgment, just as when an amendment has been unduly delayed or would cause undue prejudice to other parties. See, e.g., Airborne Beepers & Video, Inc. v. AT & T Mobility LLC, 499 F.3d 663, 666 (7th Cir. 2007); James Cape & Sons Co. v. PCC Construction Co., 453 F.3d 396, 400-01 (7th Cir. 2006); see also Foman, 371 U.S. at 182 (leave to amend may be denied based on futility, undue delay, undue prejudice, or bad faith). Such cases of clear futility at the outset of a case are rare, though, and this is not one of them.

The liberal standard for amending under Rule 15(a)(2) is especially important where the law is uncertain. In the wake of Twombly and Iqbal, there remain considerable uncertainty and variation among the lower courts as to just how demanding pleading standards have become. For a good recent illustration, see the majority and dissenting opinions in McCleary-Evans v. Maryland Dep't of Transportation, 780 F.3d 582 (4th Cir. 2015), which disagree about how to reconcile Swierkiewicz v. Sorema N.A., 534 U.S. 506, 122 S. Ct. 992, 152 L. Ed. 2d 1 (2002), with Twombly and Iqbal. In the face of that uncertainty, applying the liberal standard for amending pleadings, especially in the early stages of a lawsuit, is the best way to ensure that cases will be decided justly and on [**15]  their merits. See Foman, 371 U.S. at 181-82, citing Fed. R. Civ. P. 1 (Federal Rules of Civil Procedure "should be construed and administered to secure the just, speedy, and inexpensive determination of every action and proceeding.").

B. Amendment Following Entry of Judgment

Despite the liberal standard for amending pleadings, the Girl Scouts argue that our review of the district court's decision to bar Megan from pursuing the "principally engaged" theory of Rehabilitation Act coverage should be more deferential because it was made as part of a decision on a Rule 59(e) motion to modify a final judgment. We reject this argument, which contends in essence that one error by the district court (prematurely entering a final judgment on the basis of futility) should insulate another error (erroneously denying leave to amend on the basis of futility) from proper appellate review.

 [*521]  It is true that when a district court has entered a final judgment of dismissal, the plaintiff cannot amend under Rule 15(a) unless the judgment is modified, either by the district court under Rule 59(e) or 60(b), or on appeal. Camp v. Gregory, 67 F.3d 1286, 1289 (7th Cir. 1995), citing Car Carriers, Inc. v. Ford Motor Co., 745 F.2d 1101, 1111 (7th Cir. 1984); see also Fed. R. Civ. P. 59(e) (motion to alter or amend judgment); Fed. R. Civ. P. 60(b) (motion for relief from final judgment). It is also true that Rules 59(e) and 60(b) provide "extraordinary remedies reserved [**16]  for the exceptional case." Foster, 545 F.3d at 584, citing Dickerson v. Board of Educ. of Ford Heights, 32 F.3d 1114, 1116 (7th Cir. 1994); see also 6 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1489 (3d ed.) (noting importance of finality of judgments and collecting cases noting same).

Because Rules 59(e) and 60(b) are reserved for extraordinary cases, the Girl Scouts urge us to apply a more demanding standard to post-judgment motions to amend than we do to motions to amend filed prior to the entry of judgment. But the extraordinary nature of these remedies does not mean that a different standard applies--at least when judgment was entered at the same time the case was first dismissed. When the district court has taken the unusual step of entering judgment at the same time it dismisses the complaint, the court need not find other extraordinary circumstances and must still apply the liberal standard for amending pleadings under Rule 15(a)(2). See Foster, 545 F.3d at 584-85 (noting that district courts "routinely do not terminate a case at the same time that they grant a defendant's motion to dismiss"); Bausch v. Stryker Corp., 630 F.3d 546, 562 (7th Cir. 2010).

Lest there be any doubt about the soundness of applying the liberal amendment policy of Rule 15(a)(2) to post-motion judgment motions for relief, the Supreme Court's decision in Foman v. Davis, 371 U.S. 178, 83 S. Ct. 227, 9 L. Ed. 2d 222 (1962), itself illustrates the point. The district court [**17]  had granted a motion to dismiss a contract claim based on the statute of frauds and immediately entered judgment dismissing the case. Id. at 179. Plaintiff sought post-judgment relief that was treated as a Rule 59(e) motion, and because of some confusion about the timing of a notice of appeal, the appeal was dismissed. Foman v. Davis, 292 F.2d 85, 87 (1st Cir. 1961). The Supreme Court reversed, and it applied the liberal amendment policy of Rule 15(a)(2) to the post-judgment motion for relief. Foman, 371 U.S. at 182.

Consistent with that approach, we have repeatedly applied that same liberal policy of amendment when reviewing district court decisions on post-judgment motions for leave to amend. Bausch, 630 F.3d at 562; Foster, 545 F.3d at 584-85; Camp, 67 F.3d at 1290. We have reversed district court decisions that provide no explanation for why they denied amendment. See Foster, 545 F.3d at 584-85 (vacating denial of post-judgment relief made without explanation); accord, Foman, 371 U.S. at 182 ("[T]he grant or denial of an opportunity to amend is within the discretion of the District Court, but outright refusal to grant the leave without any justifying reason appearing for the denial is not an exercise of discretion; it is merely abuse of that discretion and inconsistent with the spirit of the Federal Rules."). Similarly, we have affirmed a decision to grant post-judgment leave to amend when [**18]  there was no reason the amendment should otherwise have been denied. See Camp, 67 F.3d at 1289-90. Finally, we have reversed a decision denying post- [*522]  judgment amendment when the reason given by the district court for denying the amendment--futility of amendment--was not supported by the record. See Bausch, 630 F.3d at 562.

In other words, a district court cannot nullify the liberal right to amend under Rule 15(a)(2) by entering judgment prematurely at the same time it dismisses the complaint that would be amended. As with pre-judgment motions for leave to amend, the district court must still provide some reason--futility, undue delay, undue prejudice, or bad faith--for denying leave to amend, and we will review that decision under the same standard we would otherwise review decisions on Rule 15(a)(2) motions for leave to amend.

C. Effect of the 2009 Amendment

The Girl Scouts also argue that the district court was right to reject Megan's "principally engaged" theory because the 2009 amendment to Rule 15(a)(1) requires district courts reviewing motions for leave to amend under Rule 15(a)(2) to apply a more demanding standard than we have previously applied. The 2009 amendment imposed a new and shorter deadline for a plaintiff to exercise her right to amend her complaint as a matter of course, so the Girl Scouts suggest [**19]  that we should similarly restrict plaintiff's ability to amend with leave of the court.

Before 2009, a plaintiff who lost a Rule 12(b)(6) motion challenging an original complaint had an absolute right to file an amended complaint. The rule then provided: "A party may amend its pleading once as a matter of course: ... before being served with a responsive pleading ... ." A motion under Rule 12(b)(6) is not a "pleading," so the plaintiff had a right to amend "as a matter of course" after the motion was granted. E.g., Camp, 67 F.3d at 1289.

In 2009, Rule 15(a)(1) was amended to limit this right to amend as a matter of course:

   A party may amend its pleading once as a matter of course within:

(A) 21 days after serving it, or

(B) if the pleading is one to which a responsive pleading is required, 21 days after service of a responsive pleading or 21 days after service of a motion under Rule 12(b), (e), or (f), whichever is earlier.

The advisory committee notes explain that the 2009 amendment

   will force the pleader to consider carefully and promptly the wisdom of amending to meet the arguments in the motion. A responsive amendment may avoid the need to decide the motion or reduce the number of issues to be decided, and will expedite determination of issues that otherwise [**20]  might be raised seriatim.

Based on the 2009 amendment, the Girl Scouts argue that if Megan thought she might need to amend her complaint in light of the motion to dismiss, she should have done so within 21 days after she received that motion to dismiss pointing out deficiencies in her complaint. Her decision not to amend, according to the Girl Scouts, exposed her to the risk that the district court would grant the motion to dismiss and enter judgment dismissing the entire case, which the Girl Scouts argue is reason enough to find that the district court did not abuse its discretion in denying leave to amend.

We disagree. The 2009 amendment did not impose on plaintiff's choice a pleading regime of "one-and-done." Adopting that regime would attribute to the 2009 amendment of Rule 15(a)(1) a far greater coercive power than is evident in the text of the amended rule or the advisory committee's explanation. The only coercive effect  [*523]  evident in the text is that 21 days after service of a Rule 12 motion, a plaintiff's right to amend changes from one guaranteed under Rule 15(a)(1) to one governed by the liberal standard under Rule 15(a)(2). The loss of a guaranteed right to amend as a matter of course can be important, and the prospect of [**21]  that loss may help persuade some plaintiffs confronted with a Rule 12 motion to respond by amending rather than spending time and money arguing about easily corrected deficiencies, whether real or imagined. The advisory committee hoped that such a response might resolve a motion to dismiss without court action.

But a plaintiff who receives a Rule 12(b)(6) motion and who has good reason to think the complaint is sufficient may also choose to stand on the complaint and insist on a decision without losing the benefit of the well-established liberal standard for amendment with leave of court under Rule 15(a)(2). That subsection was not amended and still applies after the right to amend as a matter of course has lapsed. The need for a liberal amendment standard remains in the face of uncertain pleading standards after Twombly and Iqbal.3

3   A district court does not have the discretion to remove the liberal amendment standard by standing order or other mechanisms requiring plaintiffs to propose amendments before the court rules on a Rule 12(b)(6) motion on pain of forfeiture of the right to amend.

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