PAE Government Services, Inc. v. MPRI, INC.
514 F. 3d 856, 2007 U.S. App. LEXIS 29221, 2007 WL 4394427 (2007)
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Rule of Law:
A district court generally cannot strike allegations from an amended complaint solely because they contradict an earlier iteration of the same pleading, unless there is a specific finding of bad faith conducted under the procedural safeguards of Federal Rule of Civil Procedure 11.
Facts:
- PAE Government Services, Inc. (PAE) and MPRI, Inc. (MPRI) are companies that provide services to government agencies.
- PAE and MPRI entered into a 'Teaming Agreement' to collaborate on a bid for a government contract, which outlined their respective duties.
- MPRI successfully submitted the bid as the prime contractor and won the government contract.
- PAE initially claimed that after MPRI won the contract, MPRI refused to subcontract to PAE all the work specified in the original Teaming Agreement.
- PAE subsequently alleged that, following MPRI winning the government contract, MPRI entered into a second agreement with PAE, which was 'confirmed' through 'written communications' and the parties' 'course of conduct'.
- PAE also added a promissory estoppel claim against MPRI, contending that MPRI should be held to certain promises.
Procedural Posture:
- PAE sued MPRI in a federal district court.
- The district court dismissed PAE's original complaint, ruling that the Teaming Agreement was an unenforceable 'agreement to agree' under Virginia law.
- PAE filed a First Amended Complaint, introducing allegations of a second agreement between the parties and adding a promissory estoppel claim.
- The district court found PAE's new allegations of a second agreement to be 'sham pleadings that contradict allegations made in the original Complaint' and struck these allegations from the First Amended Complaint.
- The district court then dismissed the remainder of the First Amended Complaint, holding that Virginia law also barred PAE's promissory estoppel claim.
- PAE filed a Second Amended Complaint, providing additional details about the alleged second agreement.
- The district court deemed the Second Amended Complaint 'merely a revision' of the prior one, struck the new allegations, and dismissed the complaint with prejudice.
- PAE appealed the district court's dismissal with prejudice to the United States Court of Appeals for the Ninth Circuit.
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Issue:
Does a district court have the inherent authority under the Federal Rules of Civil Procedure to strike allegations from an amended complaint simply because they appear to contradict allegations made in an earlier version of the same pleading?
Opinions:
Majority - Kozinski, Chief Judge
No, a district court does not have the authority to strike allegations from an amended complaint merely because they appear to contradict earlier allegations, absent a showing of bad faith under the procedures of Rule 11. The Federal Rules of Civil Procedure do not permit a district court to adjudicate claims on the merits, such as whether allegations are 'unfounded' due to contradiction, at the early pleading stage; such determinations must await summary judgment or trial. Rule 12(f) allows striking only 'insufficient defense' or 'redundant, immaterial, impertinent, or scandalous matter,' which typical contract claims are not. The court emphasized that inconsistent allegations do not automatically render a later pleading a 'sham,' as parties often face factual and legal uncertainties at the outset of litigation and refine their claims as discovery progresses. This process of refinement is inherent to 'litigation,' not 'sham pleading.' The proper mechanism for addressing bad faith conduct or frivolous allegations is Federal Rule of Civil Procedure 11, which mandates specific procedural safeguards and a finding of bad faith, neither of which were invoked or found by the district court here. A prior version of Rule 11 that allowed striking 'sham and false' pleadings was explicitly eliminated in 1983. Furthermore, the court held that the Teaming Agreement's choice-of-law clause, which specified Virginia law, governed PAE’s promissory estoppel claim, and Virginia law does not recognize promissory estoppel as a cause of action, leading to its proper dismissal.
Analysis:
This case significantly clarifies the limited scope of a district court's authority to strike pleadings based on alleged inconsistencies. It reinforces the principle that federal courts favor liberal amendment of pleadings, recognizing that parties legitimately refine their legal theories and factual allegations as discovery unfolds. By requiring a specific finding of bad faith under the strictures of Rule 11, the Ninth Circuit prevents district courts from prematurely adjudicating the merits of claims under the guise of policing 'sham' pleadings. This ruling protects plaintiffs' ability to adjust their complaints as they gather more information, distinguishing between legitimate litigation strategy and sanctionable conduct. It also provides an important reminder that choice-of-law provisions in foundational agreements can broadly apply to related claims, even those sounding in tort or quasi-contract.
