As all competent Minnesota civil litigators know, since 2014, it has been clear that a different and, critically, a more lenient pleading standard has exists in Minnesota state courts than in U.S. federal courts (In Walsh v. U.S. Bank, 851 N.W.2d 598 (Minn. 2014)). Minnesota state courts require “notice pleading,” a looser more generous requirement; it makes it more difficult for defendants to get cases thrown out of court in Minnesota state courts than in our federal courts.
We were therefore surprised to find a recent pending case before the Minnesota Supreme Court in which a question to be answered is: “Does the notice pleading standard set forth in Walsh v. U.S. Bank remain the law in Minnesota?”
The issue comes up in Stacy Demskie, et al. vs. U.S. Bank National Association, A22-0777. In this case, the Plaintiffs alleged that U.S. Bank was a shareholder. “[T]he [Plaintiffs] did not plead sufficient facts to show that U.S. Bank is a shareholder. Although the [Plaintiffs] labeled U.S. Bank a shareholder in their complaint to try to support the legal conclusion that U.S. Bank owed them fiduciary duties in that role, they failed to allege that U.S. Bank was registered on the books or records as the owner of shares of [the Company].” (See here at p. 6.)
We do not think this decision should change the pleading standard in Minnesota state court no matter how it comes out.
In Walsh, the Court specifically acknowledged that Minnesota state courts are “not bound by alleged legal conclusions when deciding whether a complaint survives a motion to dismiss.” (citing Hebert v. City of Fifty Lakes, 744 N.W.2d 226, 235 (Minn.2008)).
It is true that some of the language in Walsh seems to suggest otherwise. Id. (citing Barton v. Moore, 558 N.W.2d 746, 749 (Minn.1997) (“Under our law, the pleading of broad general statements that may be conclusory is permitted.”). The key here is to make the distinction (subtle though it may be for non-lawyers) between conclusory and legal conclusions. It is a critical distinction.
If one makes a conclusory factual allegation (“Defendant stole Plaintiff’s money”), there may be many factual and legal defenses but the fact that Plaintiff’s complaint does not set out the factual basis in exhaustive detail will not open up the risk of dismissal for failure to state a claim because of Minnesota’s notice pleading standard.
If, on the other hand, one makes an unsubstantiated legal allegation (“Defendant owed Plaintiff a fiduciary duty” (without any discernible factual or legal basis in the complaint)), such a complaint should be at risk of dismissal for failure to state a claim based on an unsupported legal conclusion.
The Plaintiffs’ complaint in Demskie appears to have a two-part legal conclusion, if you will: (i) U.S. Bank was a shareholder; (ii) As a shareholder, U.S. Bank owed Plaintiff a fiduciary duty. One might argue that whether U.S. Bank owned shares (i.e., was a shareholder) is a “factual allegation” rather than a legal conclusion. If one looks at the case in this way (and if there are no facts to support the claim that U.S. Bank was a shareholder), then the case would be properly disposed of on summary judgment rather than on a motion to dismiss (and the Court of Appeals decision would have to be reversed). Either way, in our view, this case does not seem difficult to us and we hope that it will not disturb what, in our view, the sound holding in Walsh v. U.S. Bank, 851 N.W.2d 598 (Minn. 2014).