What Particularity Requires

What Particularity Requires

Rule 9(b) tells a party alleging fraud or mistake to “state with particularity the circumstances constituting fraud or mistake.”¹ The key phrase is “circumstances constituting fraud,” because it identifies which facts must be particular: the events of the alleged deception. The rule's second sentence separately allows malice, intent, knowledge, and other conditions of mind to be alleged generally, so the demand for detail attaches to what happened and leaves the defendant's state of mind for the next part of the chapter.

Courts read that phrase by its function. An important objective of Rule 9(b) is to apprise the defendant of the transaction involved with enough particularity to permit an adequate responsive pleading,² and the Seventh Circuit has called fair notice perhaps the most basic consideration underlying the rule.³ The working question is whether the defendant can tell what conduct is charged and prepare an answer to it. A defendant who cannot identify the statement or transaction in dispute cannot decide what to admit, what to deny, or which records to gather. The rule prescribes no fixed inventory of facts, and the amount of detail that suffices depends on the case: a claim built on one identifiable conversation can be pinned down in a few sentences, while a claim spread across years of dealings and many speakers needs correspondingly more.

The decisions turn that test into three recurring demands. The complaint must identify each alleged misrepresentation by its speaker, content, time, place, and method. It must explain why each statement was false. And when it charges several defendants, it must tell each of them what it is accused of doing. A court applying the demands asks a single question: does the complaint give this defendant an identifiable charge to answer? A missing detail matters when, and because, it leaves the defendant unable to identify the charge.

Who, What, When, Where, How

Rule 9(b) directs a party alleging fraud to state the circumstances of the fraud with particularity,⁴ and courts have compressed that direction into a five-part shorthand: the who, what, when, where, and how of the alleged deception. In Ridgelawn Cemetery Association, Inc. v. Granite Resources Corporation a federal court in Indiana, quoting Seventh Circuit authority, likened the formula to the first paragraph of any newspaper story and translated it into the details a complaint must contain: the person who made the misrepresentation, the time, place, and content of the misrepresentation, and the method by which it was communicated to the plaintiff.⁵ A complaint that supplies those answers has described the circumstances of the fraud, while one that omits them has announced a conclusion and left the defendant to find the facts.

The formula reads like a checklist, but each part answers a question the defendant would otherwise have to guess at. The who tells the defendant whose conduct is charged and whose memory and files to consult. The what identifies the statement to admit or deny. The when and where place the communication within the defendant's calendars and records, so the defendant can test the claim against its own documents. The how shows whether the statement came in a meeting, over the telephone, or in writing, and so what kind of record might exist. Without those answers a defendant can only deny wrongdoing in general, and the rule demands enough specificity for the defendant to defend against the charge and “not just deny that they have done anything wrong.”⁶

The circuits word the formula differently, but the wording converges on identifying the communication. The Tenth Circuit's phrasing adds the consequences of the false statement, the Second and Fifth Circuits' phrasing adds an explanation of why the statements were fraudulent, and the Sixth Circuit's adds the fraudulent scheme, the intent, and the injury.⁷ Each version keeps the speaker, the content, the time, and the place at its center, and the additions belong to the treatment of falsity in the next part and of conditions of mind after it. Because the formula is shorthand for the circumstances of the fraud, a pleading is measured by whether the defendant can prepare an adequate answer from its allegations.⁸

Courts decide close cases by applying the formula one element at a time, and T & M Solar and Air Conditioning, Inc. v. Lennox International Inc. shows a complaint that satisfied some elements for some statements and missed them for others. The plaintiffs alleged, among other things, that Lennox had said another company in Sacramento was using its systems and that it would reimburse the plaintiffs or make the product work.⁹ The who was supplied for some statements, which the complaint attributed to named employees, Peter Martinez and Stu Quinn, but missing for others, which referred only to Lennox generally. The where followed the same pattern, present for some statements and absent for others, and the complaint said nothing about where the parties negotiated or otherwise dealt. The when was weakest: the only timing alleged was that Lennox's representatives began working with T & M in July 2013, and the plaintiffs did not even argue that they had pleaded it. The court concluded that the fraud claim could not proceed without facts about the timing of the particular representations.¹⁰

The failure can also be total. In Espire Ads v. TAPP Influencers Corp. the plaintiffs alleged only that an individual defendant had “made myriad intentional misrepresentations of fact and/or omissions,” and the court dismissed the fraud claims because the complaint neither stated any misrepresentation with specificity nor said why any was fraudulent.¹¹ “Myriad” reports how many statements were made and gives the defendant nothing to look up, so the complaint failed at the first step of the Second Circuit's version of the formula, which requires the pleader to specify the statements claimed to be fraudulent.

A complaint that clears the line need not be exhaustive. In Barinaga v. JP Morgan Chase & Co. a borrower alleged that between July and December 2009 the bank's employees repeatedly told her that a trial modification plan was a mere condition precedent to a final modification, that three months of compliance would automatically produce one, and that the final modification was on track, although the bank never intended to modify the loan permanently; she added that she made payments in reliance.¹² The court acknowledged that the allegations might not be as specific as the bank would like, held them sufficient, and observed that in some cases the requisite particularity can be supplied with great simplicity.¹³ The dealings were a single, discrete episode, so the bank knew which loan, which plan, and which months were meant, and the missing exact dates and names left it little to guess at. The Seventh Circuit states the underlying principle directly: the exact level of particularity differs with the facts of the case, and a plaintiff who provides a general outline of the fraud scheme, enough to reasonably notify the defendants of their role in it, satisfies Rule 9(b).¹⁴

The principle has limits, and G-I Holdings, Inc. v. Baron & Budd marks one. The complaint there referred to more than 900 cases without saying which of them involved fraudulent product identifications or false testimony, and the court dismissed the claim, reasoning that a failure to specify any individual false statement and the dates and times it was transmitted is fatal.¹⁵ The defendants had no particular communication to examine, and a scheme described only in sweeping terms is the kind of label the ordinary pleading standard already rejects: a complaint must provide more than labels and conclusions, and a court is not bound to accept a legal conclusion couched as a factual allegation.¹⁶

The speaker element has one wrinkle when the defendant is a company. In Ridgelawn the defendant asked who at the company had made which misrepresentations to whom, and the court answered that the complaint identified the company's representatives and that nothing required it to name the natural person who spoke.¹⁷ A Michigan federal court's list of what a mortgage borrower had to add to an insufficient fraud allegation points the same way, since it asks for the names of the individuals who made the representation or the name of their employer.¹⁸ The accommodation follows from the element's function. A corporation speaks only through people, and when the content, time, place, and method are pleaded, the company can usually trace the communication to its own personnel from its own records, so the employee's name adds little notice. The accommodation reaches only the speaker's name. The T & M court treated statements attributed to the defendant generally as noncompliant, in a complaint that also lacked the place and the timing for many of them,¹⁹ and a complaint that names no one and supplies nothing else leaves the company nothing to trace. Courts are not uniform on how far this goes, so naming the individual remains the safer course whenever the plaintiff knows who spoke.

Because the formula identifies a communication, it must be satisfied communication by communication. The T & M court tracked which statements had speakers and places and which did not, so gaps in some statements counted against the claim even though others were adequately attributed.²⁰ The same count-by-count reading appears in Federal Trade Commission v. D-Link Systems, where the agency challenged security claims about routers and IP cameras. The court held that three of the deception counts supplied the who, what, when, where, and how, because they identified deceptive statements, the year the statements were made, and why they were false or misleading, such as the allegation that the products could be hacked through hard-coded user credentials or command injection flaws. Two other counts failed in part because the complaint did not describe some deceptive statements and did not allege when others were made.²¹ The court dismissed the separate unfairness claim under Rule 8, so it did not apply Rule 9(b) to that claim.²² A rule that let a few detailed examples carry a broad charge would leave the defendant guessing about every other statement the complaint has in mind. A complaint rich in detail about one conversation that says only that the defendant “repeatedly misled” the plaintiff has therefore pleaded one statement with particularity and left the rest unpleaded, and the opposite error, demanding every detail in a simple single-episode case, overstates what the rule requires.

Why the Statement Was False

The who, what, when, where, and how formula pins down which statement the plaintiff is challenging, but Rule 9(b) asks for the circumstances constituting fraud, and identifying a statement does not do that.²⁵ In re GlenFed, Inc. Securities Litigation the Ninth Circuit observed that the time, place, and content of an alleged misrepresentation may identify the statement or omission complained of, yet those circumstances do not themselves “constitute” fraud, because a statement must be false to be fraudulent.²⁶ A complaint that identifies a statement and says nothing about why it was wrong has described the occasion of the alleged fraud and omitted the fraud.

Falsity belongs among the particularized circumstances because it is the one circumstance without which no fraud exists. A complaint that names the speaker, the date, and the words, and then stops, tells the defendant which conversation is at issue and leaves open what the defendant is supposed to have gotten wrong. The defendant cannot tell whether the charge is an outright misstatement, a half-truth, or a prediction that did not come true, so it cannot decide what to admit, what to deny, or which records to gather. The requirement also screens out claims built on hindsight. A plaintiff disappointed by later events can always say that an earlier statement turned out to be wrong, but the question is whether the statement was false when made, so the complaint must allege facts that plausibly establish falsity at that moment.²⁷ One court of appeals found a complaint challenging a company's optimistic predictions not specific enough where it pointed only to the company's poor results in later years and to a document showing cash-flow problems that surfaced a few months after the predictions.²⁸

GlenFed states the demand directly: the plaintiff “must set forth what is false or misleading about a statement, and why it is false.”²⁹ The court added that a plaintiff who sets out only the neutral facts needed to identify the transaction may still have identified the statement and even some circumstances of the fraud, but cannot comply with the rule without also explaining why the statement was false or misleading.³⁰

The explanation can be very short, and the Ninth Circuit's own illustration shows how short. Counsel posited a plaintiff who alleges that he bought a house from the defendant, that the defendant assured him it was in perfect shape, and that the house was in fact built on landfill, with the time and place of the assurance added and the defendant's knowledge alleged only in conclusory terms. The court agreed that such a pleading would satisfy Rule 9(b).³¹ The reason is that “in perfect shape” and “built on landfill” are at least arguably inconsistent, so the plaintiff has set forth the most central circumstance constituting the fraud, that what the defendant said was false.³² The falsity is measured against a fact outside anyone's state of mind, the ground beneath the house, and that fact was as true on the day of the sale as on the day of discovery. The defendant can check the claim by looking at the lot, so one pleaded fact does the work that a long explanation would do in a more complicated case.

The complaint in T & M Solar and Air Conditioning, Inc. v. Lennox International Inc. went wrong at this step. The plaintiffs challenged statements that another company in Sacramento was using Lennox's systems and that Lennox would reimburse the plaintiffs or make the product operate. A complaint that highlights a statement as false, the court held, must say what is false or misleading about it and why, and it must allege facts sufficient to plausibly establish that the statement was false when made; conclusory allegations of falsity are insufficient.³³ The complaint offered no facts from which falsity when made could be inferred, and the allegation that the representations “turned out to be fraudulent and false” was not enough.³⁴ The landfill pleading and this one both look back from later events, and what separates them is what follows the hindsight. The landfill pleading supplies a physical fact about the lot, and this one supplies an adjective. A statement that another company was using the system can likewise be checked against an outside fact, so facts showing that no such company was using it would have supplied what was missing.

Lower courts build the same demand into their versions of the formula. The Second Circuit's list requires the complaint to explain why the statements were fraudulent as a separate element, and in Espire Ads v. TAPP Influencers Corp. the plaintiffs' claim that one defendant made “myriad intentional misrepresentations of fact and/or omissions” failed because it neither stated any misrepresentation with specificity nor said why any statement was fraudulent.³⁵ The Ninth Circuit's formulation makes the same demand: a plaintiff must allege particular facts about time, place, persons, and statements made, “and an explanation of how or why such statements are false or misleading.”³⁶

How a plaintiff shows falsity depends on what makes the statement false, and at one edge of the doctrine falsity merges with state of mind. In In re ValueVision International, Inc. Securities Litigation a federal court in Pennsylvania adopted the GlenFed explanation requirement and applied it by asking what the plaintiff can point to. If offering documents state that a corporation has $100 million in assets, the plaintiff can show falsity by pointing to facts suggesting the corporation had fewer assets, because the accuracy of the statement can be measured against an external fact.³⁷ The plaintiffs in that case instead alleged that the defendants intended from the beginning to pursue only junk bond financing, so that statements about the likelihood of obtaining financing were false. The likelihood of obtaining financing is not a fact entirely external to the company; it involves the defendants' state of mind, and because Rule 9(b) allows state of mind to be averred generally, the court held that the plaintiffs had satisfied their pleading requirement.³⁸ The court added that the specific information that would prove the defendants' true intentions, such as internal corporate memoranda, lies within the defendants' control, so the plaintiffs need not allege such facts at the pleading stage, although they would have to produce supporting facts to survive summary judgment.³⁹ That relaxation for facts within the defendant's control is taken up later in this chapter. One district court's reasoning does not settle how much a plaintiff must say about state of mind, which is why that subject has its own treatment in the next part.

Multiple Defendants

When a complaint names several defendants, the circumstances that Rule 9(b) requires to be stated with particularity include each defendant's own part in the alleged deception.⁴² The formula from the preceding parts identifies a communication, but a complaint can describe a communication in full and still leave open which of several defendants sent it. Brown v. Hutton Group, a federal district court decision from New York, states the consequence: where multiple defendants are asked to respond to allegations of fraud, the complaint should inform each of them of the nature of its alleged participation.⁴³ The same court's account of a sufficient complaint approaches the point from the other side: the pleader must specify the statements claimed to be false, say when and where they were made, and identify those responsible for them.⁴⁴

The demand follows from what the particularity requirement is for. Courts describe the requirement as serving fair notice to the defendant, protection of the defendant's reputation or goodwill, and a reduction in strike suits.⁴⁵ Collective pleading defeats each purpose. A defendant can decide what to admit, what to deny, and which records to gather only if it knows what it is accused of having done, and a complaint that attributes every act to “the defendants” tells each of them only that somebody in the group did something. The reputational damage of a fraud charge then attaches to every named defendant whether or not it had anything to do with the statement. A plaintiff who can reach a well-funded defendant by label alone also gains the settlement leverage the rule exists to remove, whereas a complaint that must sort the defendants forces the pleader to have a reason for each name.

A ticketholder's complaint failed on this ground in Druyan v. Jagger. The plaintiff alleged a fraudulent scheme to delay announcing that a concert had been cancelled, and she sued defendants that included the performer Jagger, the ticket seller Ticketmaster, and the Borgata Hotel. The court stated that where multiple defendants are alleged to have committed fraud, the complaint must “allege specifically the fraud perpetrated by each defendant.”⁴⁶ The plaintiff failed to allege specifically what each defendant did in furtherance of the scheme; she simply alleged that “defendants” did everything.⁴⁷ The hotel shows where the line fell. Without any allegation that the plaintiff or any other putative class member had ever corresponded with it, the court could not infer that the hotel even had the means to contact ticketholders, and an umbrella allegation that “defendants” knew could not move knowledge held only by the ticket seller onto the other defendants.⁴⁸

Collective labels fail outside Rule 9(b) as well. The plausibility standard asks for factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged,⁴⁹ and a collective noun supplies none about any particular defendant. In Arar v. Ashcroft the Second Circuit dismissed a due process count alleging that “Defendants,” undifferentiated, denied the plaintiff access to consular help, the courts, and his lawyers, because the complaint specified no culpable act by any single defendant and attributed the denials, in the passive voice, to no one.⁵⁰ That ruling rested on the plausibility standard and on the requirement that a Bivens plaintiff allege each defendant's personal involvement, and Rule 9(b) applies the same principle with extra force to defendants accused of deceit.

Identifying a defendant does not always mean naming a person. In Ridgelawn, the defendant company asked who at the company had made which misrepresentations to whom, and the court held the complaint sufficient because it attributed the statements to the company's representatives and nothing required it to identify the natural person who spoke.⁵¹ That accommodation fits the multiple-defendant demand, because the demand concerns which defendant is charged, and a complaint that says the company's representatives made a described statement puts the charge on the company. A complaint that attributes statements only to “Defendant” generally, and also leaves out where and when many of them were made, stays short of the line, as the court found in T & M Solar.⁵²

The demand for defendant-by-defendant detail has a limit that comes from the rule's own words. Particularity attaches to the “circumstances constituting fraud,” so a fact that is not itself one of those circumstances need not be pleaded with particularity. In Guaranty Residential Lending, Inc. v. International Mortgage Ctr., Inc. a federal district court in Illinois read the rule that way, holding that an agency relationship establishing vicarious liability for fraud generally does not have to be pleaded with particularity, and that a conspiracy to commit fraud generally need not be alleged with particularity either.⁵³ The reason is that the false statement and its surrounding facts are what constitute the fraud, while agency only explains why a principal answers for an agent's statement. A principal knows from its own dealings whether the speaker worked for it, so once the complaint describes the statement and says the defendant is charged as the speaker's principal, the defendant has the notice the rule requires.

The limit gives way when agency or conspiracy is the whole of the charge against a defendant. The Guaranty court added that where the same circumstances establish both the fraud and an otherwise independent basis for liability, both must be alleged with particularity, so that a defendant reached only as a coconspirator, with no separate agency relationship, must have its participation in the conspiracy pleaded with particularity.⁵⁴ The explanation lies in what such a defendant has been accused of. It made no statement of its own, so its alleged agreement is the only thing connecting it to the deception, and that connection has become the circumstance constituting fraud as to it. If a bare label sufficed there, a plaintiff could add any defendant by calling it a conspirator, and the notice and reputation concerns of Rule 9(b) would apply in full to a defendant that had been told nothing.

A fraud complaint against several defendants therefore calls for two questions, asked in order. The first is whether the complaint says what each defendant did, since a pleading that attributes every act to “the defendants” fails for lumping. The second is whether the allegation at issue is itself a circumstance constituting fraud. If it is merely agency supporting vicarious liability, or a conspiracy that is not the only basis of liability, it may be alleged generally; if it is the only basis on which a defendant is reached, it must be particularized.