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Surviving a Motion to Dismiss: Submission of “Illustrative Materials” In Federal Court

by Neil Garfield | September 4, 2018

If you want to show examples of what you are alleging and can prove at trial (after discovery) the recent rules and decisions of the federal courts may help, if you are careful.

Submission of illustrative materials is most probably advisable in federal practice. It might be allowed in state courts as well. The submission is used after complaint is filed and before hearing the motion to dismiss or motion for judgment on the pleadings.

On the other end of the stick, affirmative defenses or counterclaims may also be supplemented by illustrative materials as long as they are relevant and congruent with the facts alleged in the pleadings — complaint, affirmative defenses and/or counterclaims. The filing should not change anything, but rather elaborate on what the homeowner has already alleged and seeks to prove in court. It’s not an invitation to throw the kitchen sink at the judge.

BOTTOM LINE: If a homeowner files a complaint (or affirmative defense) for relief, it must contain factual allegations that specifically address the cause of action (fraud, negligence, RICO etc). It is NOT enough in Federal court to allege facts that might result in a verdict. The old doctrines allowing the possibility of a case of action that might result in relief ordered by the court do not apply in Federal Court and are less likely to be used in state court proceedings. “Might” is not right.

The pleading in federal courts must be plausible rising to the level of something like probable cause. There must be careful pleading, matching actual facts with the legal theory alleged in the complaint. And, after you file your pleading, you can add supplemental material to illustrate (not add) the context or events that you allege in the complaint, the affirmative defense or the counterclaim. As stated below, the pleading itself must “nudge” past conceivable to plausible. While this may prove challenging in pleading fraud (before opening discovery) there is the possibility of submitting illustrative materials to flesh out what could not be directly alleged in the complaint.

These are my notes from an article Vol. 43 NO. 5 of the LawLetter from National Legal Research Group, Inc. by Paul Ferrer, Esq. If you don’t want your complaint, affirmative defense or counterclaim to be dismissed, read this carefully and see the punch line at the end of the article. Homeowners will like it.

Up until about 10 years ago, pleading requirements for complaints, affirmative defenses and counterclaims were unclear. Now there is a revolution in Federal Pleading practice: Bell Atlantic Corp. v Twombly 550 U.S. 544, 127 S. Ct. 1955, 167 L. Ed 2d 929 (2007) and Ashcraft v. Iqbal 556 U.S. 544, 129 S. Ct. 1937, 173 L. Ed. 2d 868 (2209).

Under the new (2007) standard, a claim is sufficient to withstand motion to dismiss [12(b)(6)] or motion for judgment on the pleadings [12(c)] ONLY WHEN accepting the allegations of fact as true (but not accepting legal conclusions) the claim has “facial plausibility." That is, the court is able to draw "the reasonable inference that the defendant is liable for the misconduct alleged." Iqbar, 556 U.S. at 678, 129 S.Ct. at 1949, 173 L. Ed. 2d at 884. See also Twombly 550 U.S. 570, 127 S. Ct. 1974, 167 L. Ed 2d 949 (2007). (the Plaintiff must allege enough by way of factual [not legal] content to "nudge" her claim "across the line from conceivable to "plausible”).

This requires the Plaintiff to allege more facts than before the Twombly and Iqbal decisions.

It can be difficult for the plaintiff to have access to the facts needed to plead a plausible claim before the doors of discovery are unlocked. So the courts have recognized that in cases alleging fraud, the action will survive motions as long as the allegations are not vague and are sufficient to inform the defendant exactly what the fraud entailed. See 7th Circuit United States ex rel Lusby Rolls Royce Corp. 570 F. 3d 849 (2009).

I think that this means you must still be specific as to when the fraud occurred, by whom (at least with a relevant description), what was misrepresented and misleading, and reasonable reliance especially if the court relied on it, I would argue that alone (court reliance) meets the threshold of reasonable reliance in wrongful foreclosures. And of course describing a plausible theory or statement of damage is essential. Without all of that the case will be dismissed.

In wrongful foreclosure (fraud, misrepresentation) cases it might be wise to allege that the Defendants, individually and collectively conspired to allege and proffer that they knew or must have known were untrue, to wit: (1) that the alleged loan was not owned by the trust and therefore all allegations and proffers of proof relying upon the illusion of ownership by the trust were equally untrue, (2) that among the documents proffered to the court were instruments (fabricated by or on behalf of the Defendants) created solely for the purpose of foreclosure that contained or implied statements of fact that were untrue — i.e., the mortgage loan schedule, the power of attorney executed by a party without any right, title or interest in the subject loan, assignments of mortgage that were abandoned by Defendants at the foreclosure trial, the complaint alleging the "trust" to be plaintiff, the Pooling and Servicing Agreement creating the illusion of a trust and creating the illusion of either entrusting loans to the named trustee or the illusion of purchase of the loan by the alleged "trust."

If RICO or other statutes are invoked as the basis of a cause of action (violation of statute), you may rely on your statements supporting fraud or misrepresentation but you must tie down each fact that fulfills the elements of RICO. The pleading practice of starting with a soup bowl of factual and legal allegations and expecting the judge to make the connections are over in federal court. The Plaintiff must connect the dots or risk a likelihood of dismissal. And the dots must be factual allegations about the factual events and the elements of the statute or duty that Plaintiff alleges has been violated.

The 7th Circuit has gone further and introduced a practice hint, to wit: after presentation of the motion to dismiss or motion for judgment on the pleadings, Plaintiff may and probably ought to fill in the gaps caused by the defendant withholding vital information by submission of illustrative materials (not submitted to augment the complaint or exhibits).

Unless you are very clear about why you are submitting your “illustrative materials” you might inadvertently find your complaint being read differently and the motion to dismiss being treated as a premature motion for summary judgment. Stating that the filing is not meant to change any of the allegations prevents the pending motion to being considered a motion for summary judgment. But showing the court other cases, especially cases or events that are subject to judicial notice, informs the court and the defendant on exactly what you alleged and what you expect a trial to yield as a finding of fact and verdict at law. See Geinosky v. City of Chicago, 675 F. 3d 743, 745 n.1 (7th Cir. 2012).

I think that the 7th Circuit is right that there is nothing to prevent submitting illustrative materials on a pending motion. BUT like the previous discussion on the pleading itself, the "illustrative" materials should be submitted in an orderly fashion if you expect a judge to even look at them. A motion to take judicial notice is probably advised within the notice of filing of the submission of illustrative materials. Other cases involving the same defendants might be excellent examples of patterns of conduct IF the defendants lost those cases. Allegations in other cases might be useful but are problematic if there was no ruling in the case.

The problem with judicial notice and illustrative notice has been that people have widely relied on accusations in complaints rather than the ultimate decision of the court. In cases where the case settled, if the pleader wants to include similar allegations in other cases, the pleader should exercise caution. But if you want to track the "national settlements" and then settlements on the national settlements showing that the servicers and banks continued to act illegally, you might be on more solid ground.

So in short, the submission of illustrative materials must be "consistent with the pleadings." The reason is simple — anything else would be irrelevant to the case at bar. see Heng v Heavner, Beyers and Mihlar, LLC, 849 F. 3d 348, 354 (7th Cir. 2017). Thus if the submission of illustrative materials is an attempt to show that the defendants are simply bad characters and ugly too, the court will at best ignore the submissions and potentially strike the submissions as irrelevant and prejudicial.

But here is the "punchline" for homeowners who are in federal court either defending foreclosure or suing under the general category of "Wrongful Foreclosure." Illustrative materials includes forensic reports and becomes part of the record. see Marion Healthcare v. S. Ill. Healthcare, No. 12-cv-871-SCW, 2018 WL 1318054 (S.D. ILL Mar 14, 2018. So the typical admonition against trying to use the report as evidence without foundation testimony from the author is softened considerably in federal court and potentially in state courts many of whom follow the federal standards. Note that being part of the record does not make it evidence. But whereas before you might not have been able to get the judge to even look at the report, you have a fighting chance if it is submitted as “illustrative materials.”

But here is the caveat: while the court might allow its submission, if the report is not very specific and direct about what is wrong, and what is missing from the fact pattern upon which the defendants rely, it will carry no weight. Similarly if the report is argumentative and contains legal conclusions it will most likely be ignored.

On the other hand an expert opinion (from someone with real education and licensing credentials) that clearly states what facts and what resources serve as basis for the opinion, can get a little argumentative as long as it is clear that the writer is not an advocate for the homeowner.

My general rule of thumb is to treat your witness as a forensic analyst rather than an expert witness unless the witness has specific credentials and letters signifying degrees and licensing after their name. Doing that makes the witness more credible and less susceptible to attack. The opposition must try to attack the facts reported rather than the “opinion” rendered.

Remember this about expert witnesses. The question is not whether the "expert" knows more than the homeowner or an attorney. The question, for the testimony or affidavit to be given any weight at all, is whether the expert knows more than the judge. BUT you can still use the report to the extent that it offers and reports ultimate facts upon which relief can be granted to the Plaintiff homeowner. Proffering the witness as a fact witness instead of an expert witness avoids several pitfalls.



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