Commercial Litigation and Arbitration

Securities — Group Pleading Doctrine Abolished by PSLRA

The Third Circuit held in Winer Family Trust v. Queen, 2007 U.S. App. LEXIS 22620 (3d Cir. Sept. 24, 2007), that the group pleading doctrine did not survive enactment of the Private Securities Litigation Reform Act of 1995. (The group pleading doctrine is a judicial presumption that statements in group-published documents such as annual reports and press releases are attributable to officers and directors who have day-to-day control over, or involvement in, regular company operations.) The Winer Trust Court noted that the only courts of appeals to have directly addressed the survival of the group pleading doctrine post-PSLRA have abolished the doctrine. Fin. Acquisition Partners L.P. v. Blackwell, 440 F.3d 278, 287 (5th Cir. 2006); Makor Issues & Rights, Ltd. v. Tellabs, Inc., 437 F.3d 588, 602-03 (7th Cir. 2006), rev'd on other grounds, 127 S. Ct. 2499 (2007). See also Phillips v. Scientific-Atlanta, Inc., 374 F.3d 1015, 1018 (11th Cir. 2004) (acknowledging "the most plausible reading in light of congressional intent is that a plaintiff, to proceed beyond the pleading stage, must allege facts sufficiently demonstrating each defendant's state of mind regarding his or her alleged violations"). Judge Anthony Scirica observed that: ‛If a private securities case proceeds past the pleadings stage against a corporation and discovery reveals individual culpability, a plaintiff may seek permission to amend the complaint to assert claims against individual defendants. See Fed. R. Civ. P. 15.“ Given that discovery in a securities action begins, if at all, a long time after filing, a dispositive question will be whether that amendment relates back to the date of filing. To put the potential defendants on notice, is the plaintiff better off naming them, even if they are dismissed on motion, as a means of helping to insure relation back? Note: We are now 12 years post-enactment of the PSLRA, and it has taken this long to develop a trend of appellate court decisions on this issue, which arises in many, if not most, securities cases.

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