Runnion Ex Rel. Rsunnion v. Girl Scouts of Greater Chicago

In the

United States Court of Appeals

For the Seventh Circuit

____________________

No. 14-1729

MEGAN RUNNION, a minor, through

her mother and next friend, EDIE RUNNION,

Plaintiff-Appellant,

v.

GIRL SCOUTS OF GREATER CHICAGO

AND NORTHWEST INDIANA,

Defendant-Appellee.

____________________

Appeal from the United States District Court for the

Northern District of Illinois, Eastern Division.

No. 12 C 6066—Harry D. Leinenweber, Judge.

____________________

ARGUED DECEMBER 10, 2014 — DECIDED MAY 8, 2015

____________________

Before EASTERBROOK, SYKES, and HAMILTON, Circuit Judg-

es.

HAMILTON, Circuit Judge. This appeal presents substantive

issues concerning the scope of the federal Rehabilitation

Act’s coverage of private organizations (like the Girl Scouts)

that receive federal funding. Before addressing the merits,

2 No. 14-1729

though, we must address some recurring procedural issues

involving Federal Rule of Civil Procedure 12(b)(6) dismissals

and plaintiffs’ opportunities to amend complaints before en-

try of a final judgment of dismissal. In particular, we focus

on how the 2009 amendment to Federal Rule of Civil Proce-

dure 15(a)(1) affects amendment practice in district courts.

Plaintiff Megan Runnion was active in a Girl Scout troop

run by defendant Girl Scouts of Greater Chicago and

Northwest Indiana, which is the largest regional Girl Scout

organization in the United States. Megan is deaf. For several

years she benefitted from sign language interpreters provid-

ed by the Girl Scouts that enabled her to participate fully in

the troop’s activities. The Girl Scouts then stopped providing

interpreters. When her mother complained, Megan’s entire

troop was disbanded.

Megan alleges that the Girl Scouts violated the Rehabili-

tation Act by refusing to provide her with sign language ser-

vices and then by disbanding her troop because her mother

complained. The district court ultimately dismissed the case

under Rule 12(b)(6), finding that Megan had failed to allege

sufficiently that the Girl Scouts are subject to the Rehabilita-

tion Act. Thinking amendment would be futile under its in-

terpretation of the Rehabilitation Act, the district court dis-

missed the case without leave to amend.

We reverse. We first set out the facts and procedural his-

tory of the case, including the substantive issue about the

scope of the Rehabilitation Act’s coverage. We then turn to

the procedural issues and seek to clarify the proper ap-

proach to motions for leave to amend complaints. We then

resolve the substantive issues under the Rehabilitation Act

and conclude that the district court erred by dismissing the

No. 14-1729 3

entire case without giving plaintiff an opportunity to amend

her complaint. The district court corrected that error in part

by vacating its judgment but then erred again by refusing to

allow a proposed amended complaint that is more than suf-

ficient to state a viable claim for relief.

I. Statutory and Procedural Background

Megan filed her original complaint under the Rehabilita-

tion Act in August 2012 when she was twelve years old. The

Rehabilitation Act of 1973 uses the Congressional spending

power to protect the rights of individuals with disabilities.

Section 504 of the Act provides: “No otherwise qualified in-

dividual with a disability in the United States … shall, solely

by reason of her or his disability, be excluded from the par-

ticipation in, be denied the benefits of, or be subjected to dis-

crimination under any program or activity receiving Federal

financial assistance … .” 29 U.S.C. § 794(a). A person who

has been excluded, denied, or discriminated against may sue

the recipient of federal funds to enforce her rights. 29 U.S.C.

§ 794a(a)(2) (incorporating “remedies, procedures, and

rights” from Title VI of the Civil Rights Act of 1964, 42 U.S.C.

§ 2000d et seq.).

Megan alleged that she has a hearing impairment, that

she was otherwise qualified to participate in and to benefit

from programs and activities offered by the Girl Scouts, and

that the defendant violated the anti-discrimination provi-

sions of the Rehabilitation Act when it stopped providing

her with sign language interpreters that she needs to partici-

pate in group activities. The decision excluded her from par-

ticipating in and denied her the benefits of Girl Scout pro-

grams and services solely by reason of her disability. Megan

also alleged that the Girl Scouts retaliated against her for re-

4 No. 14-1729

questing these services when they disbanded the troop in

response to her mother’s complaints.

This appeal does not present any question about wheth-

er, if the Rehabilitation Act applies to the Girl Scouts, the or-

ganization must supply sign-language interpretation. The

disputed issue on the merits of this appeal is whether Megan

alleged sufficiently that the activities from which she was

excluded are covered under the Rehabilitation Act by virtue

of the Girl Scouts receiving Federal funding. The act forbids

discrimination on the basis of disability in any “program or

activity” receiving “Federal financial assistance.” 29 U.S.C. §

794(a). As relevant here, the Act defines “program or activi-

ty” as “all of the operations” of a private organization, 29

U.S.C. § 794(b), if either (i) the private organization “as a

whole” receives federal financial assistance, § 794(b)(3)(A)(i),

or (ii) the private organization receives some federal funding

and “is principally engaged in the business of providing ed-

ucation, health care, housing, social services, or parks and

recreation,” § 794(b)(3)(A)(ii). 1

In her initial complaint, Megan alleged without more that

the Girl Scouts are “a recipient of federal financial assistance

within the meaning of 29 U.S.C. § 794.” The Girl Scouts

promptly moved to dismiss that complaint under Federal

Rules of Civil Procedure 12(b)(1) (lack of subject-matter ju-

risdiction) and 12(b)(6) (failure to state a claim), arguing that

Megan had not alleged sufficiently that they received federal

financial assistance and were covered by the Rehabilitation

1 The Act also contains provisions covering schools systems and a

wide range of other federal, state, and local government activities that

receive federal financial assistance but those provisions are not relevant

in this appeal. See 29 U.S.C. § 794(b)(1) & (b)(2).

No. 14-1729 5

Act. All parties now agree (correctly) that whether the Girl

Scouts receive federal financial assistance has no effect on

subject-matter jurisdiction and that federal-question jurisdic-

tion under 28 U.S.C. § 1331 is proper. See generally Arbaugh

v. Y&H Corp., 546 U.S. 500 (2006) (whether employer falls

within the limited definition of an employer covered by Title

VII of Civil Rights Act of 1964 is a merits-related determina-

tion and does not concern subject-matter jurisdiction). We

need not worry further about subject-matter jurisdiction.

In its first decision, issued October 26, 2012, the district

court sided with the Girl Scouts in an opinion granting the

motion to dismiss under Rule 12(b)(6). The district court

found that Megan’s original complaint had not alleged with

sufficient factual detail that the Girl Scouts received federal

financial assistance within the meaning of 29 U.S.C. § 794(b).

Though Megan tried to argue that the defendant organiza-

tion received financial assistance as a whole or was princi-

pally engaged in providing education or social services, the

district court concluded that she had failed to allege facts

supporting either theory.

The conclusion that Megan needed to allege in her com-

plaint facts supporting specific legal theories was problemat-

ic, to say the least. Even after Bell Atlantic Corp. v. Twombly,

550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009),

the Federal Rules of Civil Procedure do not require code

pleading. Under the old pre-Rules regime of code pleading,

plaintiffs were required to plead the elements of a cause of

action along with facts supporting each element. 5 Charles

Alan Wright & Arthur R. Miller, Federal Practice and Proce-

dure § 1216 (3d ed.) (describing code pleading as requiring

“the pleader [to] set forth the ‘facts’ constituting a ‘cause of

6 No. 14-1729

action’”). Under the modern regime of the Federal Rules, the

complaint need contain only factual allegations that give the

defendant fair notice of the claim for relief and show the

claim has “substantive plausibility.” Johnson v. City of Shelby,

135 S. Ct. 346 (2014) (per curiam). As explained in Johnson:

Petitioners stated simply, concisely, and direct-

ly events that, they alleged, entitled them to

damages from the city. Having informed the

city of the factual basis for their complaint,

they were required to do no more to stave off

threshold dismissal for want of an adequate

statement of their claim.

135 S. Ct. at 347; accord, Bausch v. Stryker Corp., 630 F.3d 546,

559–62 (7th Cir. 2010) (reversing dismissal where complaints

gave fair notice of claims); Bartholet v Reishauer A.G. (Zurich),

953 F.2d 1073, 1078 (7th Cir. 1992) (Federal Rules of Civil

Procedure do not require complaint to specify legal theory

or statute that supports claim for relief). Plaintiff has not ar-

gued on appeal that her original complaint was sufficient,

though, so we need not reach a conclusion on that question.

Normally, the plaintiff would have an opportunity to

avoid any harm caused by a problematic dismissal by

amending her complaint to try to add what the district court

found was lacking. Here, however, the district court took an

unusual step after finding that the original complaint failed

to state a claim. Without affording plaintiff any opportunity

to try to correct the deficiencies the court had identified, the

district court entered final judgment in favor of defendant. 2

2 We must note the confusion about whether the district court en-

tered a final judgment on October 26, 2012. The court’s opinion conclud-

No. 14-1729 7

In light of the presumption in favor of giving plaintiffs at

least one opportunity to amend, see, e.g., Luevano v. Wal-

Mart Stores, Inc., 722 F.3d 1014, 1024 (7th Cir. 2013), denying

a plaintiff that opportunity carries a high risk of being

deemed an abuse of discretion. The district court supported

its decision with a finding that amendment would be futile,

but that conclusion was based on a novel interpretation of

the Rehabilitation Act and a preliminary view of the facts

that could prove mistaken following amendment.

ed by saying only that “the Court grants Defendant’s Motion to Dis-

miss.” Though the court considered whether amendment might be futile,

it said nothing about dismissing the case, let alone dismissing it with

prejudice or denying leave to amend the complaint. The same day the

court docketed a separate piece of paper called “Judgment in a Civil

Case,” but that document also failed to acknowledge the difference. It

said: “It is hereby ordered and adjudged that the motion by defendant to

dismiss is granted,” but said nothing about dismissal of the action or

whether plaintiffs were denied all relief.

If that were all we had before us, those documents would not have

amounted to a final judgment. See Paganis v. Blonstein, 3 F.3d 1067, 1070

(7th Cir. 1993) (noting that a judgment entry that simply grants a motion

is too ambiguous to determine the disposition of the case). However, the

court’s electronic docket entry for the “Judgment” includes a notation

that is not on the judgment itself: “Case Terminated.” The discrepancy

between the electronic docket and the docketed judgment is unfortunate,

but the “Case Terminated” notation is a sufficiently clear indication that

the district court believed it was finished with the case, at least where no

party was prejudiced by the inconsistency. The parties reasonably con-

cluded that final judgment of dismissal had been entered. See Luevano v.

Wal-Mart Stores, Inc., 722 F.3d 1014, 1020–21 (7th Cir. 2013); Furnace v.

Board of Trustees of Southern Illinois Univ., 218 F.3d 666, 669–70 (7th Cir.

2000); Principal Mutual Life Ins. Co. v. Cincinnati TV 64 Ltd. Partnership, 845

F.2d 674, 676 (7th Cir. 1988).

8 No. 14-1729

Faced with a judgment entered without an opportunity

to amend, Megan filed a motion to alter the judgment under

Federal Rule of Civil Procedure 59(e) and for leave to file an

amended complaint under Rule 15(a)(2). Megan attached a

proposed amended complaint that set forth more specific

allegations about the Girl Scouts’ funding and why she be-

lieved the defendant both had received funding as a whole

and is an organization primarily engaged in education and

social services. The proposed amended complaint cited pub-

licly available information, including public statements by

the Girl Scouts, about the organization’s funding and pro-

gramming.

On March 12, 2013, the district court granted the motion

and vacated the judgment of October 26, 2012. There was a

catch, though. The court said Megan could try to establish

that defendant was a private organization receiving financial

assistance “as a whole,” but the court refused to allow her to

pursue the theory that the defendant was principally en-

gaged in education or social services. The district court gave

Megan thirty days to file a new amended complaint elabo-

rating on only the “as a whole” theory for finding federal

financial assistance.

Megan filed such an amended complaint on April 11,

2013. The Girl Scouts then filed a new motion to dismiss,

which the district court granted on March 7, 2014. This time,

the court’s judgment was clear: it said the court was indeed

entering a final judgment in favor of defendant and against

plaintiff. Megan then filed this appeal. She no longer pur-

sues the theory that the Girl Scouts receive federal financial

assistance “as a whole.” She stakes her appeal instead on the

argument that the district court erred by refusing to allow

No. 14-1729 9

her to pursue the theory that the Girl Scouts are “principally

engaged in the business of providing education, health care,

… social services, or parks and recreation” as alleged in the

proposed amended complaint submitted with her Rule 59(e)

motion.

II. Procedural Issues

Before turning to the merits, we must sort out some pro-

cedural issues posed by the district court dismissing the

original complaint and entering judgment without granting

leave to amend the complaint. First, we consider the general

approach district courts must take in reviewing motions for

leave to amend. Second, we address how review of such mo-

tions is affected by the district court’s entry of judgment. Fi-

nally, we examine the impact of the 2009 amendment to Rule

15(a)(1) on both pre- and post-judgment motions for leave to

amend.

A. General Rule—Liberal Approach to Amending Pleadings

When the district court granted the motion to dismiss the

original complaint, Megan no longer had a right to amend

her complaint as a matter of course. See Fed. R. Civ. P.

15(a)(1) (right to amend expires 21 days after service of de-

fendant’s motion to dismiss under Rule 12(b)). Ordinarily,

however, a plaintiff whose original complaint has been dis-

missed under Rule 12(b)(6) should be given at least one op-

portunity to try to amend her complaint before the entire ac-

tion is dismissed. We have said this repeatedly. E.g., Luevano

v. Wal-Mart Stores, Inc., 722 F.3d at 1024; Bausch v. Stryker

Corp., 630 F.3d at 562; Foster v DeLuca, 545 F.3d 582, 584 (7th

Cir. 2008); Barry Aviation Inc. v. Land O’Lakes Municipal Air-

port Comm’n, 377 F.3d 682, 687 & n.3 (7th Cir. 2004) (collect-

10 No. 14-1729

ing cases). Rule 15(a)(2) governs when court approval is

needed to amend a pleading: “The court should freely give

leave [to amend] when justice so requires.” See generally

Foman v. Davis, 371 U.S. 178, 182 (1962) (reversing denial of

leave to amend by citing to Rule 15(a)(2)’s mandate to freely

give leave to amend and stating “this mandate is to be heed-

ed”).

When a district court denies a plaintiff such an oppor-

tunity, its decision will be reviewed rigorously on appeal. In

Barry Aviation, we said that giving leave to amend freely is

“especially advisable when such permission is sought after

the dismissal of the first complaint. Unless it is certain from

the face of the complaint that any amendment would be fu-

tile or otherwise unwarranted, the district court should grant

leave to amend after granting a motion to dismiss.” 377 F.3d

at 687 (emphasis added). We also endorsed the reasons for

this practice given by Professors Wright and Miller:

The federal rule policy of deciding cases on the

basis of the substantive rights involved rather

than on technicalities requires that plaintiff be

given every opportunity to cure a formal defect

in his pleading. This is true even though the

court doubts that plaintiff will be able to over-

come the defects in his initial pleading.

Amendment should be refused only if it ap-

pears to a certainty that plaintiff cannot state a

claim. The better practice is to allow at least

one amendment regardless of how unpromis-

ing the initial pleading appears because except

in unusual circumstances it is unlikely that the

court will be able to determine conclusively on

No. 14-1729 11

the face of a defective pleading whether plain-

tiff actually can state a claim.

Id. at 687, quoting 5A Charles Alan Wright & Arthur R. Mil-

ler, Federal Practice and Procedure § 1357 (2d ed. 1990).

Where it is clear that the defect cannot be corrected so

that amendment is futile, it might do no harm to deny leave

to amend and to enter an immediate final judgment, just as

when an amendment has been unduly delayed or would

cause undue prejudice to other parties. See, e.g., Airborne

Beepers & Video, Inc. v. AT & T Mobility LLC, 499 F.3d 663, 666

(7th Cir. 2007); James Cape & Sons Co. v. PCC Construction Co.,

453 F.3d 396, 400–01 (7th Cir. 2006); see also Foman, 371 U.S.

at 182 (leave to amend may be denied based on futility, un-

due delay, undue prejudice, or bad faith). Such cases of clear

futility at the outset of a case are rare, though, and this is not

one of them.

The liberal standard for amending under Rule 15(a)(2) is

especially important where the law is uncertain. In the wake

of Twombly and Iqbal, there remain considerable uncertainty

and variation among the lower courts as to just how de-

manding pleading standards have become. For a good recent

illustration, see the majority and dissenting opinions in

McCleary-Evans v. Maryland Dep’t of Transportation, 780 F.3d

582 (4th Cir. 2015), which disagree about how to reconcile

Swierkiewicz v. Sorema N.A., 534 U.S. 506 (2002), with Twombly

and Iqbal. In the face of that uncertainty, applying the liberal

standard for amending pleadings, especially in the early

stages of a lawsuit, is the best way to ensure that cases will

be decided justly and on their merits. See Foman, 371 U.S. at

181–82, citing Fed. R. Civ. P. 1 (Federal Rules of Civil Proce-

dure “should be construed and administered to secure the

12 No. 14-1729

just, speedy, and inexpensive determination of every action

and proceeding.”).

B. Amendment Following Entry of Judgment

Despite the liberal standard for amending pleadings, the

Girl Scouts argue that our review of the district court’s deci-

sion to bar Megan from pursuing the “principally engaged”

theory of Rehabilitation Act coverage should be more defer-

ential because it was made as part of a decision on a Rule

59(e) motion to modify a final judgment. We reject this ar-

gument, which contends in essence that one error by the dis-

trict court (prematurely entering a final judgment on the ba-

sis of futility) should insulate another error (erroneously

denying leave to amend on the basis of futility) from proper

appellate review.

It is true that when a district court has entered a final

judgment of dismissal, the plaintiff cannot amend under

Rule 15(a) unless the judgment is modified, either by the dis-

trict court under Rule 59(e) or 60(b), or on appeal. Camp v.

Gregory, 67 F.3d 1286, 1289 (7th Cir. 1995), citing Car Carriers,

Inc. v. Ford Motor Co., 745 F.2d 1101, 1111 (7th Cir. 1984); see

also Fed. R. Civ. P. 59(e) (motion to alter or amend judg-

ment); Fed. R. Civ. P. 60(b) (motion for relief from final

judgment). It is also true that Rules 59(e) and 60(b) provide

“extraordinary remedies reserved for the exceptional case.”

Foster, 545 F.3d at 584, citing Dickerson v. Board of Educ. of Ford

Heights, 32 F.3d 1114, 1116 (7th Cir. 1994); see also 6 Charles

Alan Wright & Arthur R. Miller, Federal Practice and Proce-

dure § 1489 (3d ed.) (noting importance of finality of judg-

ments and collecting cases noting same).

Because Rules 59(e) and 60(b) are reserved for extraordi-

nary cases, the Girl Scouts urge us to apply a more demand-

No. 14-1729 13

ing standard to post-judgment motions to amend than we do

to motions to amend filed prior to the entry of judgment. But

the extraordinary nature of these remedies does not mean

that a different standard applies—at least when judgment

was entered at the same time the case was first dismissed.

When the district court has taken the unusual step of enter-

ing judgment at the same time it dismisses the complaint,

the court need not find other extraordinary circumstances

and must still apply the liberal standard for amending

pleadings under Rule 15(a)(2). See Foster, 545 F.3d at 584–85

(noting that district courts “routinely do not terminate a case

at the same time that they grant a defendant’s motion to

dismiss”); Bausch v. Stryker Corp., 630 F.3d 546, 562 (7th Cir.

2010).

Lest there be any doubt about the soundness of applying

the liberal amendment policy of Rule 15(a)(2) to post-motion

judgment motions for relief, the Supreme Court’s decision in

Foman v. Davis, 371 U.S. 178 (1962), itself illustrates the point.

The district court had granted a motion to dismiss a contract

claim based on the statute of frauds and immediately en-

tered judgment dismissing the case. Id. at 179. Plaintiff

sought post-judgment relief that was treated as a Rule 59(e)

motion, and because of some confusion about the timing of a

notice of appeal, the appeal was dismissed. Foman v. Davis,

292 F.2d 85, 87 (1st Cir. 1961). The Supreme Court reversed,

and it applied the liberal amendment policy of Rule 15(a)(2)

to the post-judgment motion for relief. Foman, 371 U.S. at

182.

Consistent with that approach, we have repeatedly ap-

plied that same liberal policy of amendment when reviewing

district court decisions on post-judgment motions for leave

14 No. 14-1729

to amend. Bausch, 630 F.3d at 562; Foster, 545 F.3d at 584–85;

Camp, 67 F.3d at 1290. We have reversed district court deci-

sions that provide no explanation for why they denied

amendment. See Foster, 545 F.3d at 584–85 (vacating denial of

post-judgment relief made without explanation); accord,

Foman, 371 U.S. at 182 (“[T]he grant or denial of an oppor-

tunity to amend is within the discretion of the District Court,

but outright refusal to grant the leave without any justifying

reason appearing for the denial is not an exercise of discre-

tion; it is merely abuse of that discretion and inconsistent

with the spirit of the Federal Rules.”). Similarly, we have af-

firmed a decision to grant post-judgment leave to amend

when there was no reason the amendment should otherwise

have been denied. See Camp, 67 F.3d at 1289–90. Finally, we

have reversed a decision denying post-judgment amend-

ment when the reason given by the district court for denying

the amendment—futility of amendment—was not supported

by the record. See Bausch, 630 F.3d at 562.

In other words, a district court cannot nullify the liberal

right to amend under Rule 15(a)(2) by entering judgment

prematurely at the same time it dismisses the complaint that

would be amended. As with pre-judgment motions for leave

to amend, the district court must still provide some reason—

futility, undue delay, undue prejudice, or bad faith—for

denying leave to amend, and we will review that decision

under the same standard we would otherwise review deci-

sions on Rule 15(a)(2) motions for leave to amend.

C. Effect of the 2009 Amendment

The Girl Scouts also argue that the district court was

right to reject Megan’s “principally engaged” theory because

the 2009 amendment to Rule 15(a)(1) requires district courts

No. 14-1729 15

reviewing motions for leave to amend under Rule 15(a)(2) to

apply a more demanding standard than we have previously

applied. The 2009 amendment imposed a new and shorter

deadline for a plaintiff to exercise her right to amend her

complaint as a matter of course, so the Girl Scouts suggest

that we should similarly restrict plaintiff’s ability to amend

with leave of the court.

Before 2009, a plaintiff who lost a Rule 12(b)(6) motion

challenging an original complaint had an absolute right to

file an amended complaint. The rule then provided: “A party

may amend its pleading once as a matter of course: … before

being served with a responsive pleading … .” A motion un-

der Rule 12(b)(6) is not a “pleading,” so the plaintiff had a

right to amend “as a matter of course” after the motion was

granted. E.g., Camp, 67 F.3d at 1289.

In 2009, Rule 15(a)(1) was amended to limit this right to

amend as a matter of course:

A party may amend its pleading once as a mat-

ter of course within:

(A) 21 days after serving it, or

(B) if the pleading is one to which a responsive

pleading is required, 21 days after service of a

responsive pleading or 21 days after service of

a motion under Rule 12(b), (e), or (f), whichev-

er is earlier.

The advisory committee notes explain that the 2009 amend-

ment

will force the pleader to consider carefully and

promptly the wisdom of amending to meet the

16 No. 14-1729

arguments in the motion. A responsive

amendment may avoid the need to decide the

motion or reduce the number of issues to be

decided, and will expedite determination of is-

sues that otherwise might be raised seriatim.

Based on the 2009 amendment, the Girl Scouts argue that

if Megan thought she might need to amend her complaint in

light of the motion to dismiss, she should have done so with-

in 21 days after she received that motion to dismiss pointing

out deficiencies in her complaint. Her decision not to amend,

according to the Girl Scouts, exposed her to the risk that the

district court would grant the motion to dismiss and enter

judgment dismissing the entire case, which the Girl Scouts

argue is reason enough to find that the district court did not

abuse its discretion in denying leave to amend.

We disagree. The 2009 amendment did not impose on

plaintiff’s choice a pleading regime of “one-and-done.”

Adopting that regime would attribute to the 2009 amend-

ment of Rule 15(a)(1) a far greater coercive power than is ev-

ident in the text of the amended rule or the advisory com-

mittee’s explanation. The only coercive effect evident in the

text is that 21 days after service of a Rule 12 motion, a plain-

tiff’s right to amend changes from one guaranteed under

Rule 15(a)(1) to one governed by the liberal standard under

Rule 15(a)(2). The loss of a guaranteed right to amend as a

matter of course can be important, and the prospect of that

loss may help persuade some plaintiffs confronted with a

Rule 12 motion to respond by amending rather than spend-

ing time and money arguing about easily corrected deficien-

cies, whether real or imagined. The advisory committee

No. 14-1729 17

hoped that such a response might resolve a motion to dis-

miss without court action.

But a plaintiff who receives a Rule 12(b)(6) motion and

who has good reason to think the complaint is sufficient may

also choose to stand on the complaint and insist on a deci-

sion without losing the benefit of the well-established liberal

standard for amendment with leave of court under Rule

15(a)(2). That subsection was not amended and still applies

after the right to amend as a matter of course has lapsed. The

need for a liberal amendment standard remains in the face of

uncertain pleading standards after Twombly and Iqbal. 3

III. Merits of the Proposed Amendment

This excursion through the procedural history brings us

to the question whether the district court erred by refusing

to consider the “principally engaged” theory of Rehabilita-

tion Act coverage alleged in Megan’s proposed amended

complaint. Under that theory, all of the Girl Scouts’ opera-

tions would be subject to the Act if the organization “is prin-

cipally engaged in the business of providing education,

health care, housing, social services, or parks and recrea-

tion.” 29 U.S.C. § 794(b)(3)(A)(ii). The sole reason the district

court gave for denying amendment was that under its inter-

pretation of the statute, any amendment asserting the “prin-

cipally engaged” theory would be futile. In the district

court’s view, the complaint could never be amended to state

a valid claim because the Rehabilitation Act excludes private

3 A district court does not have the discretion to remove the liberal

amendment standard by standing order or other mechanisms requiring

plaintiffs to propose amendments before the court rules on a Rule

12(b)(6) motion on pain of forfeiture of the right to amend.

18 No. 14-1729

membership organizations like the Girl Scouts from its reach

even if they might otherwise be principally engaged in

providing one of the services designated in the statute.

Despite the Girl Scouts’ argument to the contrary, none of

the other grounds for denying leave to amend apply here.

Plaintiffs did not fail to take advantage of several opportuni-

ties to amend. See, e.g., Agnew v. Nat’l Collegiate Athletic

Ass’n, 683 F.3d 328, 347 (7th Cir. 2012) (affirming denial of

fourth opportunity to amend). Nor is there any evidence that

Megan unduly delayed amending the complaint or acted in

bad faith. Once the district court told Megan that her com-

plaint was deficient and entered judgment, she filed her Rule

59(e) motion and proposed amended complaint within 28

days. Upon consideration of that motion, the district court

made no finding of delay or bad faith and was willing to al-

low Megan to amend her complaint on the other theory in

her motion seeking leave to amend—that the Girl Scouts re-

ceived federal funding “as a whole.” The district court treat-

ed the two theories differently only because it thought one

was futile while the other was not.

In this case there is a further reason for concluding that

Megan did not unduly delay by waiting to amend her com-

plaint until after it was dismissed by the district court: there

is uncertainty as to whether the Rehabilitation Act covers

private organizations like the Girl Scouts. The relevant statu-

tory language has been the subject of relatively few deci-

sions, so this is not a case where a plaintiff obtusely failed to

comply with well-established legal standards. Accordingly,

Megan could reasonably have expected that the allegations

in her original complaint would survive a motion to dismiss.

Moreover, given how difficult it might be to discover all of

No. 14-1729 19

the Girl Scouts’ activities, the disputed issue is one that may

require considerable time, effort, and money to litigate. It

was reasonable for her to avoid that expense until she was

sure that she failed to survive the motion to dismiss. Cf.

Bausch v. Stryker Corp., 630 F.3d at 560–61 (recognizing that

plaintiffs’ pleading burden is “commensurate with the

amount of information available to them”) (citation and in-

ternal quotation marks omitted).

That leaves us with a denial based on futility. Generally,

denials of leave to amend are reviewed for abuse of discre-

tion. Gandhi v. Sitara Capital Management, LLC, 721 F.3d 865,

868 (7th Cir. 2013). But when the basis for denial is futility,

we apply the legal sufficiency standard of Rule 12(b)(6) to

determine whether the proposed amended complaint fails to

state a claim. See, e.g., General Electric Capital Corp. v. Lease

Resolution Corp., 128 F.3d 1074, 1085 (7th Cir. 1997). Accord-

ingly, our review for abuse of discretion of futility-based de-

nials includes de novo review of the legal basis for the futility.

See Gandhi, 721 F.3d at 868–69; accord, Ervin v. OS Restaurant

Servs., Inc., 632 F.3d 971, 976 (7th Cir. 2011) (“If … the district

court applies an incorrect legal rule as part of its decision,

then the framework within which it has applied its discre-

tion is flawed, and the decision must be set aside as an

abuse.”).

We conclude that the district court erred by finding that

amendment would be futile. The proposed amended com-

plaint here did not fail to state a claim upon which relief

could be granted. Neither the text nor the legislative history

of the Rehabilitation Act suggests that Megan’s claim is

barred as a matter of law because organizations like the Girl

Scouts are categorically exempt from the Rehabilitation Act.

20 No. 14-1729

Absent that categorical bar, Megan’s proposed amended

complaint is more than sufficient to state a claim upon which

relief can be granted.

A. The Rehabilitation Act and Private Membership Organiza-

tions

We turn first to whether the district court correctly inter-

preted § 794(b)(3)(A) as not applying to organizations like

the Girl Scouts. In finding that private membership organi-

zations like the Girl Scouts could never be subject to the Re-

habilitation Act, the district court found in the statute a re-

quirement that the private organization provide a public

service and be open to the public. This interpretation cannot

be squared with the text of § 794(b)(3)(A). As written, the

provision applies broadly to all sorts of private organizations

so long as they receive federal funding and are “principally

engaged” in providing one of the services enumerated in the

statute. Since § 794(b)(3)(A)’s very purpose is to set out when

private organizations are subject to the Rehabilitation Act, it

is reasonable to assume that Congress would have been

more explicit if it had wanted to exempt private membership

organizations.

For example, Congress might have expressly exempted

private membership organizations or private organizations

not open to the public, as it has done in other similar stat-

utes. See, e.g., 42 U.S.C. § 2000a(e) (exempting from Title II

of Civil Rights Act of 1964 “a private club or other estab-

lishment not in fact open to the public”); 42 U.S.C. § 2000e(b)

(excluding “bona fide private membership club” from defi-

nition of employer subject to Title VII); 42 U.S.C. §

12111(5)(B)(ii) (excluding “bona fide private membership

No. 14-1729 21

club” from definition of employer subject to Americans with

Disabilities Act).

No such express exemptions are found in the text of the

Rehabilitation Act. To find a broad exemption for private

membership organizations, we would have to read into the

statute an implied requirement that the private organization

be open to the public. The district court did exactly that,

supporting its categorical exemption with reference to case

law interpreting similar anti-discrimination statutes and

with legislative history of the Civil Rights Restoration Act of

1987, which amended the Rehabilitation Act. The fact that

other anti-discrimination statutes exempt private member-

ship organizations expressly, see Welsh v. Boy Scouts of Ameri-

ca, 993 F.2d 1267, 1276–77 (7th Cir. 1993), does not support

but instead undermines the argument for an implied exemp-

tion here. We conclude that the Rehabilitation Act covers

private organizations not open to the public if they receive

federal financial assistance within the scope of § 794.

Because the text of the statute can apply so clearly to all

private organizations that receive federal financial assis-

tance, there is no need to resort to legislative history. See

EEOC v. Chicago Club, 86 F.3d 1423, 1434 (7th Cir. 1996). In

any event, the nuggets of legislative history cited by the dis-

trict court do not support a categorical exemption for private

membership organizations or organizations not open to the

public. In the district court’s reading of the legislative histo-

ry, the Rehabilitation Act should apply only to private enti-

ties that “provide[] a public service,” S. Rep. No. 100-64, at 4,

20 (1988), or “perform governmental functions,” id. at 20. In

the court’s view, a private membership organization cannot

be deemed to provide a “public service” because it provides

22 No. 14-1729

services only to its members and is not generally open to the

public.

When read in context, however, the passages from the

legislative history merely explain why the provision was

limited to covering organizations providing the enumerated

services. See S. Rep. No. 100-64, at 4 (“if the corporation pro-

vides a public service, such as social services, education, or

housing, the entire corporation is covered”); id. at 18 (ex-

plaining that the bill under consideration would cover “pri-

vate entities … that provide services that are traditionally

regarded as within the public sector, i.e., those enumerated

in part (3)(A)(ii) of the definition of ‘program or activity’”);

id. at 20 (“Even private corporations are covered in their en-

tirety … if they perform governmental functions, i.e., are

‘principally engaged in the business of providing education,

housing, social services, or parks and recreation.’”). To be

sure, the services enumerated in the statute are often provid-

ed by governmental or public service entities. But private

corporations choosing to provide these services—whether to

their own members (or tuition-paying students) or to the

public at large—are providing a “public service” in the way

Congress envisioned.4

4Under the Girl Scouts’ narrower reading, it is difficult to explain

the presence of 29 U.S.C. § 794(b)(2), which provides that traditional pri-

vate and public school systems are subject to the Rehabilitation Act. See

34 C.F.R. § 104.39; 65 Fed. Reg. 68050, 68051 (Nov. 13, 2000) (explaining

application of Act to private schools). Thus, for § 794(b)(3)(A)(ii) to have

any substance for education services, it must apply to private organiza-

tions providing education services outside of the traditional school con-

text.

No. 14-1729 23

Even so, private membership organizations could still be

exempt from the statute if they were thought to be, as a cate-

gorical matter, principally engaged in businesses other than

providing the services enumerated in the statute. Cf. S. Rep.

No. 100-64, at 18 (“Because they are principally religious or-

ganizations, institutions such as churches, dioceses and syn-

agogues would not be considered to be ‘principally engaged

in the business of providing education, health care, housing,

social services or parks or recreation,’ even though they may

conduct a number of programs in these areas.”). But nothing

about the nature of private membership organizations

makes it impossible for them to be engaged principally in

providing the services found in the statute.

The primary activity of at least some private membership

organizations that receive federal financial assistance is to

engage in programs that fall within the statute. Others may

not engage in any such programs, and some might engage in

providing those sorts of services on the side. Whatever the

case may be, the statute provides the standard—“principally

engaged in the business of providing education, health care,

housing, social services, or parks and recreation”—that can

be applied on a case-by-case basis to private membership

organizations to determine if they are covered by the Reha-

bilitation Act. Cf. Doe v. Salvation Army in U.S., 685 F.3d 564,

571 (6th Cir. 2012) (declining to adopt a categorical rule for

religious organizations because the legislative history “says

nothing about a religious organization whose participation

in such programs is its primary activity, or that churches

may never be subject to liability under 29 U.S.C. § 794(a) if

the vast majority of their activities are the provision of social

services”).

24 No. 14-1729

B. “Principally Engaged” Coverage Under 29 U.S.C.

§ 794(b)(3)(A)(ii)

Since no categorical exemption applies, we next evaluate

whether plaintiff’s proposed amendment was otherwise fu-

tile. We apply the Rule 12(b)(6) standard for evaluating the

legal sufficiency of a complaint. General Electric Capital, 128

F.3d at 1085 (“The opportunity to amend a complaint is futile

if ‘the complaint, as amended, would fail to state a claim up-

on which relief could be granted.’”) (citation omitted). That

means we must accept as true all factual allegations in the

complaint. Carlson v. CSX Transportation, Inc., 758 F.3d 819,

826 (7th Cir. 2014). A claim for relief must be plausible rather

than merely conceivable or speculative. See Ashcroft v. Iqbal,

556 U.S. 662, 678 (2009); Bell Atlantic Corp. v. Twombly, 550

U.S. 544, 556 (2007); Carlson, 758 F.3d at 826–27. But all this

means is that the plaintiff must “include ‘enough details

about the subject-matter of the case to present a story that

holds together.’” Carlson, 758 F.3d at 827, quoting Swanson v.

Citibank, N.A., 614 F.3d 400, 404–05 (7th Cir. 2010). At this

pleading stage, we do not ask whether these things actually

happened; instead, “the proper question to ask is still ‘could

these things have happened.’” Id., quoting Swanson, 614 F.3d

at 404–05.

Turning to the requirements for establishing that the Re-

habilitation Act covers a private organization under

§ 794(b)(3)(A)(ii), we know that a plaintiff must eventually

prove that the private organization is “principally engaged

in the business of providing education, health care, housing,

social services, or parks and recreation.” The statute does not

define what these individual businesses entail or explain

No. 14-1729 25

what it means to be “principally engaged” in them. See Sal-

vation Army, 685 F.3d at 568.

Because the list of activities in § 794(b)(3)(A)(ii) is written

in the disjunctive, Megan must eventually show that de-

fendant engages in any one of these businesses. Megan fo-

cuses on the education and social services provided by the

Girl Scouts. 5 In terms of what businesses might qualify as

providing education, the statute envisions that education is

not limited to the sort of instruction received in a traditional

school system. As noted above, formal educational systems

are covered by a separate provision, § 794(b)(2). Section

794(b)(3)(A)(ii), then, covers the sort of education offered by

stand-alone schools or by other private organizations seek-

ing to train and develop individuals. As to what constitutes

a social service, it is “an activity designed to promote social

well-being” such as “organized philanthropic assistance of

the sick, destitute, or unfortunate.” Salvation Army, 685 F.3d

at 570, quoting Merriam Webster’s Collegiate Dictionary

1115 (10th Ed. 1995). 6

5Though she focuses on education and social services, plaintiff also

points to some Girl Scout projects that involve providing health care and

parks and recreation.

6 The district court adopted a definition of social service that re-

quired the service to be performed by trained personnel. Though some

definitions of social services may hint at the need for trained personnel,

we see no textual basis for this limit, nor can we see why Congress

would have imposed such a requirement here. Even if it had, nothing in

the proposed amended complaint suggests that the Girl Scouts’ volun-

teer efforts are carried out without supervision by trained personnel.

While the district court speculated that troop leaders are generally par-

ent volunteers, it would be just as easy to infer that those volunteers

26 No. 14-1729

What it means to be “principally engaged” in providing

these services poses a distinct question. “Principally en-

gaged” has been interpreted in other contexts to mean “the

primary activities of a business, excluding only incidental

activities.” See Doe, 685 F.3d at 571. If any one of the desig-

nated activities is principal, that would be sufficient. Contra-

ry to the Girl Scouts’ suggestion, however, a private organi-

zation would also fall within the statute if it engages in a mix

of the statutorily enumerated services, e.g., if it provides so-

cial services and education services and those services in the

aggregate make up the primary activities of the private or-

ganization. There is no reason to think Congress was laying

out mutually exclusive conditions. Reading the statute this

way also ensures that organizations that focus on providing

more than one of the enumerated public services without

committing to just one are still covered. 7 This reading also

renders unnecessary the difficult task of classifying hybrid

activities that provide, for example, both education and so-

cial services. At bottom, then, the relevant inquiry is whether

have received at least some training from the organization. Either way,

this is the sort of dispute that cannot be resolved on the pleadings.

7 A simple example inspired by the federal government’s amicus

brief illustrates why this is the correct reading. Suppose a private organi-

zation devotes 35% of its resources to education, 25% to social services

and 40% to selling food. If each enumerated activity were considered in

isolation, the organization might be deemed principally engaged in sell-

ing food even though 60% of its resources were spent providing the ser-

vices enumerated in the statute. Now suppose a second organization

devotes 51% of its resources to education, 9% to social services, and 40%

to selling food. The second organization would certainly be covered. We

find it hard to believe that Congress intended the statute to cover the

second organization but not the first. Both are principally engaged in

providing the enumerated services.

No. 14-1729 27

providing the statutorily enumerated services—the public

services Congress specified—make up the primary activities

of the organization.

Megan’s proposed amended complaint alleges plausibly

that the Girl Scouts are a private organization principally

engaged in the business of providing the services found in

§ 794(b)(3)(A)(ii). Beyond merely alleging that the Girl

Scouts received federal funds and were engaged in some of

those activities as their principal business activities, which

would have been sufficient for pleading purposes, the pro-

posed amended complaint went much further. Megan’s

complaint cites numerous instances in which the defendant

has characterized itself and its programs as educational. The

constitution of the national organization—which plaintiff

alleges the Chicago-area defendant must follow—provides

that “Girl Scouting is a nonformal, experiential, and coopera-

tive education program that promotes girls’ personal growth

and leadership development.” Plaintiff also cites a 2011 fi-

nancial statement saying that defendant’s organization is “an

out-of-school educational program designed to help girls put

into practice the fundamental principles of the Girl Scout

movement.” 8

8 It does not pose a problem for plaintiff that she attached these ex-

hibits to her complaint. In evaluating the sufficiency of a complaint, “the

court may also consider documents attached to the pleading without

converting the motion into one for summary judgment.” Wigod v. Wells

Fargo Bank, N.A., 673 F.3d 547, 556 (7th Cir. 2012), citing Fed. R. Civ. P.

10(c). Further, and contrary to the district court’s suggestion in its opin-

ion dismissing the first complaint, plaintiff also would have been permit-

ted to use these exhibits for the first time in opposition to a Rule 12(b)(6)

motion in the district court. Geinosky v. City of Chicago, 675 F.3d 743, 745

n.1 (7th Cir. 2012) (“a party opposing a Rule 12(b)(6) motion may submit

28 No. 14-1729

Going even further, the proposed amended complaint

identifies many examples of programs the organization of-

fers that indicate the organization is principally engaged in

providing the services enumerated in the statute. Many of

these programs are plausibly classified as providing educa-

tion, health care, social services, or parks and recreation. The

defendant even classifies the sale of cookies—perhaps the

Girl Scouts’ most publicly visible program—as an integral

part of achieving its overall educational goals. Taken all to-

gether, the allegations in the complaint exceed what is need-

ed to allege plausibly that defendant is principally engaged

in the business of providing the services enumerated in the

statute. It would not have been futile to permit Megan to

amend, and the district court’s contrary conclusion was a le-

gal error that caused it to abuse its discretion in denying

leave to amend.

Lest we be misunderstood, a plaintiff need not provide

all the level of detail provided by Megan’s proposed amend-

ed complaint to survive a motion to dismiss. As detailed as

the proposed amended complaint is, we recognize that

plaintiff has focused on the portion of defendant’s activities

and statements that are publicly available. Discovery may

reveal additional activities and other evidence that will in-

form how best to classify defendant under the statute. That

is why we have explained that plaintiffs’ “pleading burden

should be commensurate with the amount of information

available to them.” See Bausch, 630 F.3d at 561 (internal quo-

materials outside the pleadings to illustrate the facts the party expects to

be able to prove”).

No. 14-1729 29

tation marks omitted), quoting In re Medtronic, Inc. Sprint Fi-

delis Leads Products Liability Litig., 623 F.3d 1200, 1212 (8th Cir.

2010) (Melloy, J., dissenting). We cannot expect, nor does

Federal Rule of Civil Procedure 8 require, a plaintiff to plead

information she could not access without discovery.

The district court thus erred first when it entered judg-

ment on the original complaint and again when it rejected as

futile the “principally engaged” theory of Rehabilitation Act

coverage in plaintiff’s proposed amended complaint. The

final judgment of the district court is REVERSED and the

case is REMANDED for further proceedings consistent with

this opinion.