Health-Care Tech Startup Case Sheds Light on Federal Procedures

A recent decision holding that a health-care tech startup plausibly stated a defamation claim against Michigan State University’s health system helps bring clarity to an area of law that has divided courts within the Sixth Circuit. The court’s conclusion in AHC Holdings v. MSU Health Care, Inc. is the latest decision confirming that federal procedural rules control in federal courts, including in defamation cases. Practitioners representing clients who want to bring defamation claims should remain mindful of this trend when deciding whether to file suit in federal or state court.

For years, federal courts have struggled with how to consistently apply what has come to be known as the Erie doctrine: that federal courts sitting in diversity are required to apply state substantive law and federal procedural law. In the defamation context, federal courts are frequently forced to confront Erie’s contours when deciding whether heightened state-specific pleading standards apply, or whether the liberal pleading standard enshrined in the Federal Rules of Civil Procedure governs when adjudicating motions to dismiss.

An intra-circuit conflict has emerged on this issue in the Sixth Circuit, with some unpublished decisions by the US Court of Appeals for the Sixth Circuit holding that Michigan’s heightened pleading rules apply in federal court and others reaching the opposite conclusion.

Whether defamation plaintiffs can defeat motions to dismiss can turn on the question of whether a state’s more demanding pleading requirements apply in federal court. The Federal Rules of Civil Procedure require “only enough facts to state a claim to relief that is plausible on its face” not “heightened fact pleading of specifics.” Michigan courts, on the other hand, require defamation claims to be specifically pleaded. Similarly, some defendants have argued that in Washington state, defamation plaintiffs are required to plead the elements of their claims with “convincing clarity,” a standard irreconcilable with what the Federal Rules of Civil Procedure prescribe.

In AHC Holdings, the US District Court for the Western District of Michigan assessed claims based on false and defamatory statements that sabotaged a health-care tech startup. The court acknowledged the Sixth Circuit’s divergent approaches on the question of whether Michigan’s pleading rules apply in federal court. The district court resolved this conflict by relying on the core principles animating Erie and Shady Grove.

First, the court noted that the “Federal Rules of Civil Procedure displace state law when a Federal Rule answers the question in dispute.” Next, the court observed that the “question of a pleading standard is addressed in Rules 8 and 9 of the Federal Rules of Civil Procedure,” and it was undisputed that these rules were statutorily authorized. Accordingly, the court concluded that the “Federal Rules of Civil Procedure apply here,” obviating the need for the court to wade into Erie’s murky waters.

The court acknowledged the Sixth Circuit’s decisions in Ryniewicz and Bhan but found both cases unpersuasive because neither case “discuss[ed] the rationale behind the[] decision to apply (or not to apply) Michigan’s heightened standard.” It then held that the startup plausibly stated a defamation claim.

The decision in AHC Holdings is part of a broader and recent trend of federal courts’ rejection of states’ idiosyncratic and defamation-specific procedural rules. These rejections have manifested themselves not only when courts have resisted applying a state’s particularized pleading rules, but also when courts have concluded that states’ laws concerning so-called “strategic lawsuits against public participation” (that is, anti-SLAPP laws) don’t apply in federal court.

As a result, federal courts have become friendlier places for defamation plaintiffs to bring their claims. These developments should be a key part of any lawyer’s calculus in deciding whether to bring defamation claims in federal or state court.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Megan Meier is a founding partner at Meier Watkins Phillips Pusch with experience litigating defamation cases for companies and high net-worth individuals facing high-profile reputational attacks from the media, corporate competitors, activist organizations, and others.

Archith Ramkumar is a defamation attorney at Meier Watkins Phillips Pusch with litigation experience at three federal agencies, including the Securities and Exchange Commission.

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