Delaware Business Litigation Report

Supreme Court Clarifies Test Of Pleadings

Central Mortgage Company v. Morgan Stanley Mortgage Capital Holdings LLC, No. 595, 2010 (August 18, 2011)

This important decision clarifies that Delaware courts should apply the "conceivability" test to determine if a complaint states adequate facts to state a claim.  Previously, Delaware's trial courts had applied the "plausibility" test from the United States Supreme Court's Twombly decision.  As the Delaware Supreme Court makes clear, the "conceivability" test is the more liberal test and will result in sustaining more complaints in response to motions to dismiss.

For years, the Chief Justice has cautioned in public statements that Twombly was not Delaware law.  While his opinion in this case may leave that open for a later review,  for now he has the last word.

The decision also significantly liberalizes the scope of a "good faith and fair dealing" claim.  So long as such a claim does not depend on an actual breach of the contract involved, it may survive a motion to dismiss as well.

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