How much more than possible is “plausible?” After the Supreme Court’s seminal decisions in Bell Atlantic v. Twombly and Ashcroft v. Iqbal, a plaintiff must allege enough facts to show a plausible right to relief. What this means in practice has been left to the lower courts and has yielded arguably disparate outcomes. Is the plausibility standard met by allegations that a loan officer “motivated by personal animosity” after not receiving personal guarantees from a bank-customer-corporation’s shareholders acted to put the corporation into receivership, convincing others, including a professional receiver, to share in his animosity and join in a plan to maliciously injure the shareholders in violation of Wis. Stat. 134.01? Judge Crabb thought no, dismissing the claim, in part because it seemed implausible that a professional receiver, who did not know the shareholders, would risk his livelihood to join a malicious scheme to injure them.
The Seventh Circuit, however, disagreed. It ruled that questions about why a receiver would risk his livelihood to engage in malicious acts against persons he didn’t know and why any person motivated by a malicious plan to do harm would decide to use the instrumentality of a court-supervised receivership were questions that had to await summary judgment—that is, questions that must await potentially long and costly discovery. Virnich v. Vorald, No. 10-3271 (CA7 Dec. 20, 2011). Ultimately the court upheld the dismissal on the alternative ground that the action was barred by issue preclusion, because a state court had ruled that the plaintiffs had waived their challenge to the receiver’s actions.
When the economy turns south, there is no shortage of disgruntled former loan customers and owners of failed businesses who are eager to sue banks and those who associate with them in collecting the bank’s collateral. Bankers and receivers in Wisconsin beware.