In its first post-Tellabs securities decision, the First Circuit in ACA Fin. Guar. Corp. v. Advest, Inc., 2008 U.S. App. LEXIS 451 (1st Cir. Jan. 10, 2008), decided a series of pleading questions and held that the customary liberal pleading standard of Rule 15(a) survives enactment of the Private Securities Litigation Reform Act.

The Circuits are split as to whether the PSLRA mandates application of a stricter standard than the liberal test ordinarily applied under Fed.R.Civ.P. 15(a) in determining whether to allow the amendment of a complaint. Compare Miller v. Champion Enters., Inc., 346 F.3d 660, 692 (6th Cir. 2003) ("[T]he purpose of the PSLRA would be frustrated if district courts were required to allow repeated amendments to complaints filed under the PSLRA."), with Belizan v. Hershon, 434 F.3d 579, 583-84 (D.C. Cir. 2006) (holding PSLRA does not alter operation of Rule 15(a)), and Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir. 2003) (per curiam) (same).

The First Circuit opted for the preexisting liberal standard, reasoning as follows:

We agree with the D.C. Circuit that "had the Congress wished to make dismissal with prejudice the norm, and to that extent supercede the ordinary application of Rule 15(a), we would expect the text of the PSLRA so to provide." Belizan, 434 F.3d at 584. The text of the Act neither purports to affect Rule 15(a), nor does it require that all dismissals be with prejudice. See, e.g., 15 U.S.C. § 78u-4(b)(3)(A) (requiring dismissal for failure to meet the Act's pleading requirements, but not specifying dismissal with prejudice). In the absence of a legislative directive to the contrary, Rule 15 applies as in the normal course. That is one of the lessons of Tellabs. Cf. Tellabs, 127 S. Ct. at 2509 (applying Rule 12(b)(6) standard that all factual allegations in a complaint must be accepted as true in the securities fraud context "as with any motion to dismiss"); Aldridge v. A.T. Cross Corp., 284 F.3d 72, 78 (1st Cir. 2002) (applying usual Rule 12(b)(6) standard in PSLRA context).

Interpreting the PSLRA as constricting the operation of Rule 15(a) would be contrary to the purposes of the Act. The PSLRA serves "twin goals: to curb frivolous, lawyer-driven litigation, while preserving investors' ability to recover on meritorious claims." Tellabs, 127 S. Ct. at 2509. The heightened pleading standard furthers the goal of deterring frivolous litigation by erecting a significant hurdle for a plaintiff to clear before her complaint can survive a motion to dismiss. A blanket rule that the PSLRA modifies Rule 15(a) would tip the scales too far, compromising plaintiffs' ability to have meritorious claims presented in court.

The Court also held that Tellabs was compatible with prior First Circuit PSLRA pleading rules, other than the holding “that where there were equally strong inferences for and against scienter, this resulted in a win for the defendant.... This is no longer the law.”