Factual Allegations in Superceded Complaint Not Judicial Admissions, But May Be Used for Rebuttal Purposes

In West Run Student Housing Associates., LLC v. Huntington National Bank, the United States Court of Appeals for the Third Circuit ruled that, under the liberal policy of allowing amendment under Rule 15, factual allegations made in a superceded complaint are not binding judicial admissions for purposes of a motion to dismiss, but such allegations may be used in the litigation to rebut the plaintiff’s subsequent factual contentions.

Plaintiffs, a group of student-housing developers, filed a verified complaint against a bank, alleging two claims for breaches of contract because the bank allegedly failed to fund two construction projects in accordance with the parties’ loan agreements. The bank moved to dismiss under Rule 12(b)(6) on the grounds that the loan agreements required pre-sale of twenty-nine and fifty-four units before the bank was obligated to provide further funding, while the verified complaint alleged the sale of only twenty-seven and thirty-six units for the two projects. In response, the plaintiffs filed an amended complaint under Rule 15(a), omitting their prior allegations as to the number of units constructed.

Upon the bank’s motion, the District Court dismissed the amended complaint, stating: “Allegations in a complaint are binding admissions; a party is bound by the admissions made in his original complaint and cannot simply erase these details by omitting them from his amended complaint.”

The Third Circuit disagreed and reversed, in relevant part, emphasizing that a plaintiff may amend a complaint to address factual shortcomings, even if the amendment contradicts the original complaint. Thus, given that Rule 15 is to serve the judicial purpose of resolving cases on their merits rather than technicalities, the plaintiffs were entitled to establish that they had pre-sold sufficient units.

The Court warned, however, that the factual allegations contained in the prior pleading do not vanish entirely upon amendment because, “[a] superseded pleading may be offered as evidence rebutting a subsequent contrary assertion,” and that on remand the bank could present the original complaint—verified by the plaintiffs themselves—to rebut the new allegations. Consequently, notwithstanding the Third Circuit’s ruling, extreme care should be taken to make sure all factual allegations in a complaint, or any pleading, are accurate.