Delaware Supreme Court Endorses Reasonable “Conceivability” on Motion to Dismiss Over Twombly-Iqbal’s “Plausibility” Standard
Since the U.S. Supreme Court’s decisions in Bell Atlantic Corp. v. Twombly in 2007 and Ashcroft v. Iqbal in 2009, many Delaware Court of Chancery decisions have applied the Twombly-Iqbal “plausibility” standard in ruling on motions to dismiss. In its recent decision in Central Mortgage Company v. Morgan Stanley Mortgage Capital Holdings LLC, however, the Delaware Supreme Court refused to apply the Twombly-Iqbal “plausibility” standard and, instead, held that — at least for now — Delaware’s less stringent reasonable “conceivability” standard is what governs motions to dismiss in Delaware courts.
Chief Justice Myron T. Steele, writing for the Court, explained that Delaware’s “‘conceivability’ standard is more akin to ‘possibility,’ while the federal ‘plausibility’ standard falls somewhere beyond mere ‘possibility’ but short of ‘probability.’” Under this self-described “minimal” pleading standard, when considering a defendant’s motion to dismiss, “a trial court should accept all well-pleaded facts as true, accept even vague allegations in the Complaint as ‘well-pleaded’ if they provide the defendant notice of the claim, draw all reasonable inferences in favor of the plaintiff, and deny the motion unless the plaintiff could not recover under any reasonably conceivable set of circumstances susceptible of proof.” Accordingly, the Court found that the Court of Chancery, which applied a “plausibility” standard, erred in dismissing breach of contract claims against Morgan Stanley and “inappropriately shifted the burden and held [plaintiff] to a higher standard than required.”
While the Court specifically declined to consider whether the Twombly-Iqbal holdings affect Delaware’s pleading standard, the Court emphasized that the governing pleading standard in Delaware remains reasonable “conceivability.” As a result, while some trial courts in Delaware have applied Twombly-Iqbal, it is likely that they will revert to the less stringent “conceivability” standard until the Delaware Supreme Court expressly addresses the continued viability of the reasonable “conceivability” standard in light of Twombly-Iqbal.