The Impact of the PSLRA on Post-Discovery Amendment of Pleadings

The Impact of the PSLRA on Post-Discovery Amendment of Pleadings

Wendy Gerwick CoutureUniversity of Idaho College of Law

Annual Institute for Investor ProtectionLoyola University Chicago School of Law

October 16, 2015

PSLRA

Heightened pleading required, including “facts giving rise to a strong inference” of scienter

Stay of discovery “during the pendency of any motion to dismiss”

PSLRA



Prevent “fishing expeditions”

Prevent extortive discovery

Claim survives dismissal DISCOVERY


EVIDENCE


EVIDENCE

Amend complaint?

Additional Claim(s)

Federal Rules of Civil Procedure

FRCP 15(a)(2)

“The Court should freely give when justice so requires.”


FRCP 15(a)(2)


FRCP 16(b)(4)

“for good cause”


FRCP 15(a)(2)


FRCP 16(b)(4)


FRCP 54(b)

“may be revised at any time before the entry of a judgment adjudicating all the claims and all the parties’ rights and liabilities” + “law of the case” doctrine


FRCP 15(a)(2)


FRCP 16(b)(4)


FRCP 54(b)

FRCP 60(b)

“On motion and just terms, the court may relieve a party or its legal representative from a final judgment . . . newly discovered evidence that, with reasonable diligence, could not have been discovered in time to move for a new trial”




FRCP 15(a)(2)


FRCP 16(b)(4)


FRCP 54(b)

FRCP 60(b)


PSLRA ?

Courts Inviting Post-Discovery Amendment When Dismissing Claims

Dow Corning Corp. v. BB&T Corp., No. 09-5637, 2010 WL 4860354, at *9 n.10 (D.N.J. Nov. 23, 2010) (Hochberg, J.):

“Defendants’ motion to dismiss the claims against BB&T is granted without prejudice. If discovery subsequently reveals a factual basis to rejoin BB&T as a defendant, plaintiffs may seek leave to amend their complaint at that time, if they can meet the PSLRA pleading standards as to BB&T.”

McIntire v. China MediaExpress Holdings, Inc., 927 F. Supp. 2d 105, 129 (S.D.N.Y. Feb. 28, 2013) (Marrero, J.):

“Because Plaintiffs have not established a strong inference of scienter, Green and Bird’s motion to dismiss Plaintiffs’ § 10(b) and Rule 10b-5 claims is granted. The Court, however, dismisses these claims without prejudice. In the event that during the course of discovery Plaintiffs come upon sufficient evidence that could reasonably support a finding of knowledge or conscious recklessness on the part of Green or Bird in connection with the fraudulent conduct Plaintiffs allege, Plaintiffs may seek leave to replead the claims dismissed.”


In re Bridgepoint Education, Inc. Securities Litigation, No. 3:12-CV-1737, 2013 WL 5206216, at *22 (S.D. Cal. Sept. 13, 2013) (Miller, J.):

“But the court notes that Plaintiffs may eventually be able to demonstrate that Defendants were aware that WASC would not accredit Ashford well before the WASC denied accreditation in July 2012. If discovery reveals that Defendants knew that . . . accreditation would be denied, then Plaintiff may be permitted to amend its complaint to reassert this claim based on prior misleading statements made during conference calls or other disclosures to investors.”


WPP Luxembourg Gamma Three Sarl v. Spot Runner, Inc., 655 F.3d 1039, 1059 (9th Cir. 2011):

“Here, where some claims survive a motion to dismiss, the district court, in its discretion, has power to allow an amended complaint even with regard to claims it earlier dismissed. Although not common, this procedure would be appropriate should discovery reveal evidence indicating that previously dismissed Defendants were in fact involved in the alleged fraudulent conduct. . . . To some extent, the ability of a district court to revive dismissed claims should evidence come to light tempers the heightened pleading standards of the PSLRA in securities actions where claims survive against co-defendants.”


Bolling v. Gold, No. C13-0872, 2015 WL 2406487, at *3-4 (W.D. Wash. May 19, 2015) (Robart, J.):

“The court also finds that the PSLRA sets up no barrier to Plaintiffs’ motion [to amend the complaint]. . . . Thus, the court concludes that it has the authority to revisit its earlier order dismissing Plaintiffs’ federal securities claims. Because the court’s deadline for filing amended pleadings has not passed, the court also concludes that the proper standard for considering Plaintiffs’ motion to amend is Rule 15(a).”

Courts Analyzing Post-Discovery Amendment Without PSLRA Overlay

In re Constellation Energy Group, Inc. Securities Litigation, No.08-2854, 2012 WL 1067651, at *4 (D. Md. March 28, 2012) (Blake, J.):

“The purpose of the PSLRA provision at issue is to limit the pressure on innocent defendants to settle cases in lieu of proceeding to expansive discovery, . . . but it is not meant to shield all defendants from any adverse evidence that may properly be discovered over the course of litigation. . . . The court need not read into the PSLRA a limit that Congress did not create.”


Transcript, In re Longtop Financial Technologies Limited Securities Litigation, No. 11-3658, at 21 (S.D.N.Y. Jan. 8, 2013) (Scheindlin, J.):

“I don’t see why the world stops on the day that the original complaint was filed. . . As long as they didn’t put you to the trouble of responding to discovery, which is what the PSLRA does, it protects you, they didn’t get it from you, they didn’t bother you, you didn’t spend money responding to the discovery, I don’t see why they’re estopped from adding whatever they learned as long as it wasn’t learned improperly, and it wasn’t.”


Greebel v. FTP Software Inc., 182 F.R.D. 370, 376 (D. Mass. 1998) (Tauro, J.):

“[T]he court will not allow Plaintiffs leave to amend their complaint for the third time. Plaintiffs would not have discovered the additional evidence but for the inclusion of the white-out claim, which saved Plaintiffs from earlier dismissal, and has since turned out to be groundless. To allow Plaintiffs to amend at this point would fly in the face of the PSLRA and the First Circuit’s pre-PSLRA pleading standard. The new law requires Plaintiffs to plead particular facts sufficient to show their case has merit before gaining unfettered access to Defendants’ files.”

Courts Analyzing Post-Discovery Amendment With PSLRA Overlay

Capital Ventures Int’l v. Network Commerce, Inc., No. 02-682, 2006 WL 681033, at *1 (W.D. Wash. March 16, 2006) (Lasnik, J.):

“Allowing plaintiff to reopen claims that had been dismissed with prejudice and without leave to amend based on new evidence obtained during discovery would be an end run around the PSLRA’s pleading requirement and this Court’s prior orders.”


In re Bisys Securities Litigation, 496 F. Supp. 2d 384, 387 (S.D.N.Y. 2007) (Rakoff, J.):

“It would wholly defeat this [PSLRA] policy to allow plaintiffs who failed as to a given defendant to sustain their pleading burden at the outset of the case to wait until all discovery in the rest of the case was completed and then add that defendant back into the case. If plaintiffs could not allege fraud with specificity as to PwC, they should not have included PwC as a defendant in the original complaint. They chose to do so anyway, thereby running the risk that their claims would be dismissed, which is exactly what happened. Having precipitously tried to pluck the fruit from the tree of knowledge when it was not yet ripe, they are in no position to now demand a second bite at the apple.”


In re Bisys Securities Litigation, 496 F. Supp. 2d 384, 387 (S.D.N.Y. 2007) (Rakoff, J.) (denying motion to amend the complaint).


Public Employees Retirement Ass’n of N.M. v. PwC, LLP, No. 07-3756, 305 Fed. Appx. 742, 745 n.3 (2d Cir. 2009) (affirming as within the court’s discretion).

“Also, we need not decide whether the PSLRA bars a plaintiff from using evidence obtained in discovery in litigation with one defendant to re-instate a claim against a defendant which had previously been dismissed for failure to state a claim.”



FRCP 15(a)(2)


FRCP 16(b)(4)


FRCP 54(b)

FRCP 60(b)


PSLRA ?

PSLRA






EVIDENCE

Current FRCP 26(b)(1): “Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party’s claim or defense . . .”


Current FRCP 26(b)(1): “Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party’s claim or defense . . .”

Commentary to 2000 Amendments: “The rule change signals to the court that it has the authority to confine discovery to the claims and defenses asserted in the pleadings, and signals to the parties that they have no entitlement to discovery to develop new claims or defenses that are not already identified in the pleadings.”


Current FRCP 26(b)(2)(C)(iii): “[T]he court must limit the frequency or extent of discovery otherwise allowed by these rules . . . if it determines the burden or expense of the proposed discovery outweighs its likely benefit, considering the needs of the case, the amount in controversy, the parties’ resources, the importance of the issues at stake in the action, and the importance of the discovery in resolving the issues.”


Current FRCP 26(b)(2)(C)(iii): “[T]he court must limit the frequency or extent of discovery otherwise allowed by these rules . . . if it determines the burden or expense of the proposed discovery outweighs its likely benefit, considering the needs of the case, the amount in controversy, the parties’ resources, the importance of the issues at stake in the action, and the importance of the discovery in resolving the issues.”

Commentary to 1983 Amendments: “The court must apply the standards in an even-handed manner that will prevent use of discovery to wage a war of attrition or as a device to coerce a party, whether financially weak or affluent.”


Effective Dec. 1, 2015, absent contrary Congressional actionFRCP 26(b)(1): “Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party’s claim or defense and proportional to the needs of the case, considering the importance of the issues at stake in the action, the amount in controversy, the parties’ relative access to relevant information, the parties’ resources, the importance of the discovery in resolving issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit.”





FRCP 15(a)(2)


FRCP 16(b)(4)


FRCP 54(b)

FRCP 60(b)


PSLRA - no additional

barrier to amendment


Commentary to Pending 2015 Amendments: “The present amendment again reflects the need for continuing and close judicial involvement in the cases that do not yield readily to the ideal of effective party management.”


FRCP 15(a)(2)


FRCP 16(b)(4)


FRCP 54(b)


FRCP 60(b)



EVIDENCE

Amend complaint?

Additional Claim(s)

Case to watch: The Hemmer Group v. Southwest Water Co., No. 14-56235, currently pending before the 9th Circuit

Wendy Gerwick Couture, The PSLRA Discovery Stay Meets Complex Litigation: Five Questions Answered, 42 SEC. REG. L.J. 243 (2014).

The Impact of the PSLRA on Post-Discovery Amendment of Pleadings

Wendy Gerwick CoutureUniversity of Idaho College of Law

Thank you!

The Impact of the PSLRA on Post-Discovery Amendment of Pleadings

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Transcript of The Impact of the PSLRA on Post-Discovery Amendment of Pleadings