## Facts

- PAE Government Services, Inc. (PAE) and MPRI, Inc. (MPRI) sell services to government agencies.
- The companies collaborated on a bid for a government contract and signed a written “Teaming Agreement” allocating responsibilities; MPRI would serve as the prime contractor.
- The Teaming Agreement contained a Virginia choice-of-law provision.
- MPRI won the government contract.
- PAE sued for breach of contract, alleging the Teaming Agreement obligated MPRI to subcontract specified work to PAE and that MPRI refused to do so after the award.
- The district court dismissed the original complaint, concluding the Teaming Agreement was an unenforceable “agreement to agree” under Virginia law.
- PAE filed a First Amended Complaint alleging that, after the award, the parties entered into a separate subsequent agreement (a subcontract arrangement), “confirmed” through written communications and the parties’ course of conduct; PAE also pleaded promissory estoppel as an alternative theory.
- The district court struck the amended allegations about a post-award agreement as “sham” because they contradicted the original complaint’s allegation that MPRI refused to enter into a subcontract, and dismissed the amended complaint; the court also ruled Virginia law did not recognize promissory estoppel.
- PAE filed a Second Amended Complaint adding more detail supporting the alleged post-award agreement; the district court again struck the allegations and dismissed the action with prejudice.
- PAE appealed.

## Issues

1. Whether a district court may strike allegations in an amended complaint as a “sham” solely because they contradict allegations in an earlier complaint.
2. Whether striking allegedly contradictory amended allegations and dismissing with prejudice improperly resolves factual disputes at the Rule 12 pleading stage.

## Decision

- The Ninth Circuit reversed the district court’s approach of striking the amended allegations as “sham” based only on inconsistency with earlier pleadings.
- The court vacated the dismissal with prejudice and remanded for further proceedings consistent with federal pleading and amendment rules.

## Legal Principles

- An amended complaint ordinarily supersedes prior pleadings; a plaintiff may change factual allegations and legal theories through amendment under the Federal Rules.
- A district court generally may not decide the truth of disputed factual allegations on a Rule 12 motion by treating later allegations as false simply because they conflict with an earlier version.
- Inconsistencies between successive complaints may be used later as evidentiary admissions, but they are not conclusive admissions that automatically bar amended allegations at the pleading stage.
- The “sham affidavit” doctrine from summary judgment practice does not justify striking amended complaint allegations on a motion to dismiss, because doing so requires fact-finding and credibility judgments.
- If a party pleads in bad faith, the proper responses include Rule 11, sanctions, discovery, summary judgment, or trial—not striking allegations as “sham” merely because they differ from earlier pleadings.

## Conclusion

The Ninth Circuit held that contradictions between an amended complaint and an earlier complaint, without more, do not allow a district court to strike amended allegations as “sham” and end the case at the pleading stage; disputes about which version is true must be handled through ordinary litigation procedures, not dismissal with prejudice based on perceived inconsistency.


PAE Government Services, Inc. v. MPRI, Inc., 514 F.3d 856 (2007)