On April 4, the Court of Appeals for the Third Circuit, which
includes New Jersey, clarified the law on how an amended pleading
affects judicial admissions made in an original pleading. Judicial
admissions are formal concessions that are binding on a party that
makes them in a judicial proceeding. Factual allegations made by
litigants in their pleadings are binding judicial admissions on
those litigants. In West Run Student Housing Associates, LLC v.
Huntington National Bank, No. 12-2430, 2013 U.S. App. Lexis
6804 (3d Cir. Apr. 4, 2013), the Third Circuit held that factual
allegations made in an original complaint are not binding judicial
admissions where such allegations have been omitted from a
subsequent amended complaint. Id. at *17-18. To the extent
that an amended pleading does not repeat or incorporate factual
allegations in the original pleading, the legal effect of an
amended pleading is that it supersedes and nullifies the
allegations made in the original pleading. Id. at
*14-15.
Background
Plaintiffs in West Run brought suit against Huntington
National Bank ("Huntington"), alleging claims for breach
of contract and breach of the duty of good faith and fair dealing,
in connection with loan agreements for financing three commercial
real estate development projects. Plaintiffs sought funding for
three off-campus student housing projects at West Virginia
University (the "West Run Project"), Virginia Tech (the
"Mt. Tabor Project") and James Madison University (the
"Campus View Project").
Plaintiffs claimed Huntington violated the implied duty of good
faith and fair dealing regarding the loan agreement for the West
Run Project when Huntington financed a competitor. Plaintiffs
alleged that such action created an occupancy crisis in the West
Run Project and diminished its revenues. Plaintiffs also alleged
that Huntington disclosed confidential information about the West
Run Project to that competitor.
Plaintiffs and Huntington also entered into loan agreements in
connection with the Mt. Tabor Project and the Campus View Project.
Plaintiffs claimed Huntington breached these loan agreements by
refusing to provide certain construction advances pursuant to the
agreements. The loan agreements expressly conditioned
Huntington's funding obligation upon each project first
securing a certain number of presold condominium units. In
plaintiffs' original complaint, they alleged that the Mt. Tabor
Project presold 27 units and the Campus View Project presold 36
units, both amounts insufficient to trigger Huntington's
obligation to fund the loans. Huntington moved to dismiss the
breach of contract claims, contending that because plaintiffs had
not met the express contractual condition related to presold units,
Huntington had no obligation to provide the financing.
District Court Ruling
In response to Huntington's motion to dismiss the complaint,
plaintiffs amended their complaint, omitting from the amended
pleading the factual allegations related to the insufficient number
of presold units. Thereafter, Huntington filed a second motion to
dismiss, contending (among other things) that the allegations in
the original complaint pertaining to the number of presold units
were binding judicial admissions.
The district court dismissed the claims for breach of good faith
and fair dealing, concluding that plaintiffs failed to plead
sufficient facts to support such claims and that the express
language of the contract did not prohibit Huntington from financing
competitors. Further, the district court agreed with Huntington
regarding the breach of contract claims, finding that a plaintiff
is not permitted to take a contrary position in the amended
complaint to avoid dismissal. Id. at *13. The district
court dismissed the breach of contract claims, holding that the
allegations related to the number of presold units in the original
complaint were binding judicial admissions.
The Third Circuit affirmed the district court's decision to
dismiss the good faith and fair dealing claims related to the West
Run Project but vacated and remanded the part of the decision that
dismissed the breach of contract claims related to the Mt. Tabor
Project and the Campus View Project.
Third Circuit Ruling: Amended Complaint Nullifies the
Original Complaint
On appeal, plaintiffs contended (among other things) that the
presale numbers in the original complaint should not have been
binding judicial admissions. The original complaint, they argued,
was superseded by an amended complaint that omitted those factual
allegations, which plaintiffs contended were made in error.
The Third Circuit began its analysis by reviewing Rule 15(a), which
permits a party to amend the pleadings within 21 days of service,
and by reiterating well-established law that this rule is to be
applied liberally to allow corrections to errors in the pleadings
in order to ensure that claims will be decided on their merits, not
on technicalities. Id. at *12-13. An amended complaint
supersedes the original, and therefore judicial admissions made in
an original complaint can be withdrawn by amendment. Id.
at *14. The court found that, to the extent an amended pleading
does not repeat or incorporate factual allegations in the original
pleading, the effect of an amended pleading is that it supersedes
and nullifies the original. Id. at *14-15.
The court rejected the district court's finding that a party is
not permitted to take a contrary position in an amended complaint
in order to avoid dismissal. To the contrary, the Third Circuit
observed, plaintiffs routinely amend complaints to correct factual
inadequacies in response to a motion to dismiss. Id. at
*15-16. Thus, a party can cure a defective pleading even when the
amended pleading contains allegations that contradict the
allegations in the original pleading. Id.
The procedural posture in West Run was a key factor in the
court's conclusion that the omitted allegations were not
binding judicial admissions. Persuaded by the Seventh Circuit's
reasoning in Kelley v. Crosfield Catalysts, 135 F.3d 1202
(7th Cir. 1998), the court in West Run found that, in
determining viability of claims at the motion to dismiss stage, a
court cannot consider evidence outside the four corners of the
amended complaint to resuscitate facts that have been omitted via
amendment. Id. at *17. Evidence outside the pleading is
normally not permitted at the motion to dismiss stage, and
allegations made in a superseded complaint are outside the
pleading. Id. Therefore, the court found, a plaintiff
cannot be bound by such superseded allegations at the motion to
dismiss stage. Id. at *18-19.
Significantly, the court emphasized that a party asserting contrary
allegations in an amended pleading does not do so without a
consequence. Id. at *18. At the summary judgment stage,
for example, a superseded pleading may be offered as evidence for
rebutting a subsequent contrary assertion in an amended pleading.
Id. Here, because plaintiffs' original complaint was
verified (in state court), plaintiffs will have a heavy burden
explaining why the allegations contained therein were incorrect.
Id. at *18 n. 4. The court concluded that, rather than
looking outside the four corners of the amended complaint to the
presale numbers alleged in the original complaint, the district
court should have converted Huntington's motion to dismiss into
a motion for summary judgment before considering such omitted
allegations. Id. at *19.
The court's ruling serves as a reminder of the advisability of
amending pleadings, where permitted by the federal rules, when
errors are discovered. Failure to do so could bind a party to such
erroneous factual allegations, rendering them judicial admissions
that could result in dismissal of the claim. As always, a defendant
moving for dismissal of a complaint should be aware that the motion
may provide a road map to a plaintiff as to how to immunize its
claims against dismissal.
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