What is a motion to dismiss?

[German version]

You have just been sued in the United States, so what now? The first step is often to file a motion to dismiss. This asks the court to refuse to even hear the complaint because the plaintiff alleges no facts that indicate a right to sue you in the first place.  It is the rough equivalent under German civil procedure of finding the “Unschlüssigkeit” of the plaintiff’s complaint.

Federal Rule of Civil Procedure 12(b) enumerates seven reasons to dismiss a complaint, most of which turn on technicalities of civil procedure or jurisdiction.

For example, the defendant may be beyond the jurisdiction of the court. Fed. R. Civ. P. 12(b)(2). This blog has already explored the lack of jurisdiction over German Corporations here.

Nordenfan/wikimedia

Nordenfan/wikimedia

The most common motion to dismiss, however, is for “failure to state a claim on which relief can be granted.” Fed. R. Civ. P. 12(b)(6). But what does that mean? It means that the complaint must be dismissed and no further lawsuit will be heard if no facts as pleaded by the plaintiff justify any legal remedy.

The standard is even more favorable to the plaintiff than a motion for summary judgment. This is because all facts alleged by the plaintiff “must be construed in the light most favorable to plaintiff and must be taken as true.” Bowman v. Grolsche Bierbrouwerij B.V., 474 F. Supp. 725, 728 (D. Conn. 1979). The defendant cannot win at this stage, unless it appears beyond doubt that the plaintiff can alleges no facts in support of his claim which would entitle him to relief.

Nevertheless, a motion to dismiss for failure to state a claim on which relief can be granted is a powerful tool. Winning means escaping the lawsuit before discovery begins and thus avoiding the most expensive phase of litigation.

The motion to dismiss is often useful in breach of contract actions, where disputes can be narrowed to a specific interpretation of contract terms.

Deutsche Bank A.G. recently prevailed in in such a case in Integra FX3X, L.P. v. Deutsche Bank, A.G., 2016 U.S. Dist. LEXIS 164680 (S.D.N.Y. Nov. 29, 2016). Integra used Deutsche Bank as its prime broker, and Deutsche Bank required Integra to maintain cash on deposit as margin. Deutsche Bank changed its method for calculating the amount of cash needed for margin, a method that turned out to be plagued by error. The error resulted in Deutsche Bank demanding even more cash deposits from Integra amounting to $5 million. Integra could not do so. So Deutsche Bank informed Integra that it had to liquidate its entire portfolio. Integra sued.

The margin calculation was subject to a contract, which allowed Deutsche Bank to change its methods of calculation at any time, provided that the bank did not impose a method on Integra that was not “normal.” “Normal” was to be judged by reference to the methods “applicable to [Deutsche Bank's] FX margin clients.”

Integra complained that Deutsche Bank’s method was prone to error, that Deutsche Bank had admitted this error, and therefore the method was not “industry standard.”   But Integra did not plead any evidence of how Deutsche Bank calculated cash margin deposits for its other customers. There was no evidence of what was or was not “applicable” to other “FX margin clients.” Therefore, the court dismissed the complaint, Integra lost, and Deutsche Bank escaped the case without entering discovery.