Pleading Requirements Research Articles

Whose Law is it Anyway? The Erie Doctrine, State Law Affidavits of Merit, and the Federal Tort Claims Act

In the wake of the tort reform movement of the 1970s, more than half of the states aimed to curb frivolous medical malpractice claims. Many states accomplished that goal by enacting statutes imposing pleading requirements on medical malpractice cases. The statutes require plaintiffs to file with their complaints an affidavit from a medical expert stating that the claim has merit. But because the Federal Rules of Civil Procedure do not impose a similar requirement, there is an ostensible conflict between the state law the Federal Rules when these claims are brought in federal court. Federal courts have been inconsistent in their analysis of this conflict. Some conclude that the state laws are substantive and should therefore apply in actions in federal court. Others conclude that there is an irreconcilable conflict between the state law and federal law, and thus federal law must prevail. And when the basis of a federal court’s jurisdiction is the Federal Tort Claims Act, another wrinkle emerges: should a court engage in an Erie analysis at all? This article addresses two distinct issues. First, it addresses whether a federal court exercising federal question jurisdiction should engage in an Erie analysis to determine whether a federal law should trump a conflicting state law. Second, it addresses whether there is a conflict between the state laws and the Federal Rules of Civil Procedure. The article concludes that a federal court should engage in an Erie analysis, and that the state statutes conflict with the Federal Rules and thus should not apply in an action brought in federal court. The article further offers a middle ground whereby the states’ substantive goal of dealing with frivolous medical malpractice claims expeditiously can, in some circumstances, still be vindicated.

Revising the Federal Rules of Civil Procedure: Carving Out a More Active Role for Congress

The adoption of the Federal Rules of Civil Procedure was a major victory for progressives in the United States. The Rule made access to justice less about one’s ability to hire a high-priced lawyer and more about the swift determination of the merits of the dispute between the parties. Despite efforts of some business interests to alter the rules, by most accounts, by most accounts, the Rules have been successful. But occasional conflicts between the application of federal vs. state law in diversity actions create hard policy choices. As a rule, in diversity actions, federal courts must apply state substantive law and federal procedural law. Of course, drawing the line between substance and procedure often presents courts with difficult vertical choice of law problems. At time, the application of a federal rule may impair significant state substantive interests. However, allowing litigants too easily to challenge the application of a federal rule conflicts with the overall goal of the Rules, which should advance the “just, speedy, and inexpensive determination of every action and proceeding.” Satellite litigation to determine whether a federal or state rule applies cuts against the policy of inexpensive and uniform application of the federal rules. Two recent conflicts between federal and state law present challenges in the application of Court precedent. In Twombly v. Bell Atlantic Corp. and then in Ashcroft v. Iqbal, the Supreme Court rewrote F.R.C.P. 8(a)(2)’s liberal pleading standard, making access to court more difficult for many plaintiffs. Some states have rejected those holdings and adhere to the more liberal standard reflected in the adoption of the Rules. And yet, plaintiffs face more stringent pleading requirements when defendants can remove actions from state to federal court. Application of federal law impairs an important state substantive policy: liberal access to justice. The second conflict that has divided federal court is whether a federal court must apply federal pleading and summary judgment rules in defamation cases when the state would apply special anti-SLAPP provisions. Those provisions make dismissal of certain defamation actions easier than in cases that do not involve First Amendment speech challenges. Again, at issue is the conflict between the uniform application of the relevant federal procedural rules and an important state substantive policy, the advancement of free speech. These two areas present special problems. Generally, federal procedural rules should apply. The two problems discussed in this article present special problems where application of federal law impairs important state interest. Normally, one could expect the Court in conjunction with the Judicial Conference’s Advisory Committee on Civil Rules to revise the rules. Under Chief Justice John Roberts’ leadership, the conference’s members are now “ideologically predisposed to think like Federalist Society members, demographically predisposed to think like elite white males, or experientially predisposed to think like corporate defense lawyers.” As a result, progressive reforms of the Rules are not likely to originate with the Court and the Advisory Committee. As a general matter, Congress should take a limited role in reforming the Rules. At the same time, Congress has created special rules in the past. For example, it did so for overtly pro-business reasons in its adoption of special pleading standards that were part of the 2005 Class Action Fairness Act. This article argues for Congress to act to modify the F.R.C.P. in two specific areas: one would clarify that more generous state pleading rules must apply to actions removed from state courts in diversity actions, the other would make clear that state pleading and summary judgment rules should apply when the controlling state law includes anti-SLAPP provisions.

After Lexmark Rejects Multifactor Measures for Standing, Which Challengers Stand in the Zone of Interests for Lanham Act Remedies?

The commercial value of trademarks, brand names, and related assets depends heavily on the certainty and predictability of the laws for registering, opposing, protecting, and cancelling these intellectual property assets. Predictability about the trademark laws drives the private recommendations and risk assessments that clients receive from attorneys and advisers. Trademarks, brand names, and other source-identifiers can become the most valuable intellectual property of a company. However, during the five years after a trademark is registered, a petition to cancel that registration can be filed, which can plead any ground on which registration might have been denied at the outset. Thus, after four-plus years of establishing brand identity and committing substantial investment to promoting a trademark, some unknown “person who believes that he is or will be damaged...by the registration” can petition to have it cancelled — if that “person” has statutory standing. Using outdated, multi-factor tests for standing enables overuse or the threat of use of Trademark Trial and Appeal Board (“TTAB”) procedures to challenge registered marks.Lanham Act-standing was bound up in Article III tenets and “prudential” limitations disconnected from the statutory text. The Act’s remedies required resort to civil suits and appeals, as well as petitions to an administrative tribunal whose decisions were reviewable in a district court or by direct appeal to the Federal Circuit.Recent Supreme Court decisions on the Lanham Act’s remedies impact, or should impact, the pleading, practice, and effect of actions to oppose or to cancel a registered trademark. The degree to which these decisions affect the predictability of the Lanham Act and the concomitant effect on the value of trademarks and brand names will evolve through the lower courts. One purpose of this Article is to urge that standing to petition the TTAB administrative tribunal for the remedies of cancellation or opposition should be governed by the pleading and practice standards the Supreme Court articulated in Lexmark International, Inc. v. Static Control Components, Inc. Although, Lexmark only considered Lanham Act § 43(a) claims. Yet, it dealt with statutory text virtually identical to that governing standing in §§ 13 and 14 actions, and as to all of these challenges, the harm typically claimed is a likelihood of marketplace confusion. Based on corresponding text in the statutes and similarities in the basis for the challenges, the Lexmark pleading requirements — being in the statutory “zone of interests” and alleging harm closely connected to those interests — should be extended to the pleading of TTAB challenges to registration of trademarks.

Pleading Standards: The Hidden Threat to Actavis

In FTC v. Actavis, the Supreme Court held that a brand drug company’s payment to a generic firm to settle patent litigation and delay entering the market could violate the antitrust laws.Since the decision, the issue of the pleading requirements imposed on plaintiffs has slipped under the radar. Along those lines, it is concerning that courts recently have imposed unprecedented hurdles. For example, the court in In re Effexor XR Antitrust Litigation failed to credit allegations that a generic delayed entering the market because a brand promised not to introduce its own “authorized generic” that would have dramatically reduced the true generic’s revenues. The same judge, in In re Lipitor Antitrust Litigation, dismissed a complaint despite allegations that the generic delayed entry in return for the brand’s forgiveness of hundreds of millions of dollars in potential damages in separate litigation.This Essay explains why the excessive pleading standards in Effexor and Lipitor are not consistent with Actavis or the leading caselaw on pleading. It discusses cases that apply a more justifiable analysis. And it concludes that the imposition of inappropriate pleading standards significantly weakens the antitrust analysis of potentially anticompetitive settlements.

(CDO) (The Investment and Loss in Mortgage Backed CDO's by Woori Bank)

Korean Abstract: 우리은행은 2005~ 2006년에 여러 은행들(실제로는 그 은행들이 설립한 역외 SPV들)이 발행한 부채담보부 증권(“CDO”)에 약 15억 US달러를 투자하였는데, 그 CDO 는 미국에서 발행된 주택담보부 증권과 연계되어 있었다. 2007~2008년 금융위기의 여파로 우리은행은 그 투자금의 대부분을 대손처리하였고, 시티그룹, 메릴린치, 로열뱅크 오브 스코트랜드, 기타 금융기관을 상대로 미국연방법원에 소송을 제기하였다. 우리은행은 불행하게도 위 소송에서 미연방민사절차규정 §9(b) 조항의 강화된 청구내용요건을 충족시키지 못하였다거나 한국 민법 제766조의 소멸시효규정에 의하여 시효가 완성되었다는 이유로 청구기각 판결을 받았다. 우리 은행의 이러한 청구 기각 결과는, 몇몇 해외 펀드가 거의 동일한 사실관계 하에서, 같은 은행들을 상대로 뉴욕주법원에 제기한 다른 소송들과 분명한 대조를 이루는데, 다른 소송들에서는 민사절차규정 §9(b)를 근거로 한 청구기각 신청이 받아들여지지 않았다. 나아가 우리은행 법원들이 우리은행 사건에 대하여 한국민법의 소멸시효 규정을 잘못 적용하였을 수도 있다. 한편 우리은행의 CDO매입계약들은 모두 뉴욕주법을 준거법으로, 뉴욕법원을 합의관할법원으로 정한 것으로 보이나, 우리은행은 위 소송을 ‘자본시장과 금융투자업에 관한 법률’에 의하여 한국에서 제기할 수도 있었다고 보여진다. 이 사건은 또한 해외 사모증권의 투자자들은 더 이상 뉴욕주법을 준거법으로, 뉴욕법원을 합의관할로 정하는 것을 당연시 하여서는 안 되고, 거래가 일어나는 곳의 법률을 준거법으로, 그곳의 관할법원을 합의관할로 채택하여야 할 필요성을 시사한다.English Abstract: Woori Bank of Korea invested about $1.5 billion in 2005 and 2006 in collateralized debt securities (CDO) issued by various banks (actually, their offshore SPVs) and linked to mortgage backed securities issued in the U.S. In the aftermath of the financial crisis in 2007-2008, Woori Bank wrote off most of the investment and brought actions in the U.S. federal court against Citigroup, Merrill Lynch, Royal Bank of Scotland, and others. Unfortunately for Woori Bank, its suits were dismissed with prejudice for failure to meet the heightened pleading requirements under §9(b) of the Federal Rules of Civil Procedure or being time barred under §766 of the Korean Civil Code. It appears that the purchase agreements under which Woori Bank purchased the CDOs all specified New York law and courts as their governing law and venue. The dismissals are in sharp contrast to several other litigations which were brought by several foreign funds against the same banks, under almost identical fact patterns, in New York State Courts, that have been sustained over similar motions to dismiss for failure to meet the §9(b) pleading requirements. And, the findings by the Woori courts that Woori Bank was time barred under the Korean Civil Code may have been incorrect. In addition, Woori Bank may have been able to bring the claims in Korea under the Financial Investment Services and Capital Markets Act of Korea. This case also strongly suggests that investors in securities in private offerings abroad should no longer accept the New York law and venue as matter of course and require governing law and venue of the jurisdiction where the transaction takes place.

Preliminary Findings on the Colorado Civil Access Pilot Project

Beginning in 2012, Colorado instituted a pilot project in five state district courts to test a new set of pretrial procedures for civil business cases. These procedures relate to pleadings, disclosures, discovery, and case management. This report contains the preliminary findings from IAALS’ evaluation of the project. As a whole, the Colorado Civil Access Pilot Project (CAPP) appears to have succeeded in achieving many of its intended effects: The docket study shows that CAPP reduces the time to resolution over both existing procedures (standard and simplified). Moreover, 80% of surveyed attorneys indicated that the time was proportionate to the subject CAPP case and 81% of surveyed judges indicated that the process allowed sufficient time to fairly resolve the CAPP cases on their dockets. The docket study shows that CAPP cases are more likely to have a single judge. In addition, the parties are 540% more likely to see that judge earlier and will see him or her twice as often. CAPP’s early, active, and ongoing judicial management of cases received more positive feedback in the surveys than any other aspect of the project, with many calling for it to become a permanent feature of the rules. Surveyed judges consider the initial case management conference to be the most useful tool in shaping the pretrial process (discovery and timelines) proportionately to the dispute. A majority of surveyed attorneys with discovery in their subject CAPP case indicated that the discovery actually conducted was either less than or equal to the amount set forth in the initial case management order (98%), proportionate to the needs of the case (70%), and resulted in effective information exchange (just over half). The docket study and survey data suggest that CAPP reduces motions practice (although the project has not had an effect on the number of early motions to dismiss). Three out of four surveyed attorneys indicated that litigation costs were proportionate to the subject case. The docket study and survey data indicate that the CAPP process is not tilted in favor of either plaintiffs or defendants. Specific parts of the rules have presented challenges that ought to be considered in any future rulemaking process: The rolling and staggered deadlines for the initial stages of the CAPP process (pleadings, initial disclosures, and the initial case management conference) raise logistical issues and tend to fall apart in more complex cases. In addition, the plaintiff’s responsibility to file initial disclosures before the defendant appears raises concern about the resources expended to obtain a default judgment. There must be consistent compliance with and enforcement of the expanded pleading and disclosure requirements for them to have the intended effect of providing more information prior to discovery. While CAPP has resulted in a decrease in the number of motions for extension of time filed and granted, surveyed attorneys and judges find that the “extraordinary circumstances” standard is difficult to reconcile with the realities of practicing law and can, in some circumstances, be counterproductive to the goal of an efficient and cost-effective process. The CAPP definition of a “business action” has resulted in confusion and inconsistency in application. Finally, there are aspects of the pilot project about which conclusions cannot be drawn from the data. These include the effects of the expert witness limitations and the impact of the CAPP rules on the trial rate. IAALS will publish a final report in the fall of 2014 that will supplement our conclusions to the extent possible.

Pleading Patent Infringement: Applying the Standard Established by Twombly and Iqbal to the Patent Context

Recent landmark Supreme Court decisions established plausibility as the new pleading standard in a civil lawsuit. However, it is not always clear how the facts of an individual case fit into such a standard, particularly in patent infringement litigation. This Note seeks to address this question by conducting a detailed investigation of the pleading requirements in recent patent infringement cases. First, the Note investigates whether a patent holder must specify the means by which the defendant allegedly infringes at the pleading stage: whether the complaint must identify alleged infringing devices, and whether it must also put forth a theory of infringement. Second, the Note investigates Form 18—an example of a sufficiently pled patent complaint that has not been updated in the Federal Rules since the recent Iqbal and Twombly cases, and finds that judges have used a number of approaches to reconcile Form 18 with the new pleading standard. Third, the Note discusses what should be the applicable precedent for evaluating pleading issues in patent cases. Since procedural issues and substantive patent law issues may become intertwined under a plausibility standard, patent pleading issues should be controlled by the Federal Circuit, rather than the regional circuit courts. Finally, the Note proposes a common line of inquiry that courts should take in resolving patent infringement pleading issues. In ruling on a FRCP 12(b)(6) motion to dismiss, the court should ask whether the plaintiff’s complaint has guided the course of discovery on the issue. If it has not, the motion to dismiss should be granted.

The Liability of Credit Rating Agencies to Investors: A Review of the Current Liability Regime and Recent SEC Proposals

The article attempts to provide a comprehensive review of the current common law and statutory liability of credit rating agencies to investors. In the course of this analysis the authors discuss potential causes of action against credit rating agencies by investors, considering contract law (third-party beneficiary claims), tort law (negligent misrepresentation, product liability. and tortious interference), as well as securities law claims for fraud (Rule 10b-5 under the Securities Exchange Act) and negligence (including potential claims against rating agencies as underwriters and experts engaged in the public offering process of securities). While credit rating agencies before the global financial crisis of 2008 regularly avoided being held liable for their ratings—seeking protection from negligence claims under the First Amendment—growing criticism over the consistency and reliability of their ratings and the independence of credit rating agencies has led to a shift in evaluation of their role as gatekeepers in the securities markets. As a result, in 2009 the SEC proposed to abolish Rule 436(g) under the Securities Act and thereby reclassified credit rating agencies as experts under Section 11 of the Securities Act. Congress, in an attempt to overhaul major parts of the financial system, in 2010 passed the Dodd-Frank Wall Street Reform and Consumer Protection Act, which repealed Rule 436(g) as well as lowered the pleading requirements in securities law actions for fraud under Rule 10b-5 against credit rating agencies. This article reviews these changes while rethinking the current liability scheme. Due to the inherent complexity of a review of credit ratings under the different negligence standards of tort law or the liability instruments of the securities laws, finding an answer to the question of what standard of due care should apply will be decisive for the rating agencies’ daily business practices. Even though, in the authors’ view, the creation of a consistent liability system for rating agencies could be an achievable goal in the near future, the debate on this controversial subject is likely to continue. <b>TOPICS:</b>Information providers/credit ratings, credit risk management

Failure to Carry the Burden of Proof: How Joint Criminal Enterprise Lost its Way at the Special Court for Sierra Leone

This article contends that a flawed interpretation of joint criminal enterprise (JCE) embraced by the Special Court for Sierra Leone (SCSL) has set a dangerous precedent for international criminal adjudication. Breaking from a trend towards more careful application of the liability doctrine at the International Criminal Tribunal for the former Yugoslavia (ICTY), a series of JCE decisions from the Armed Forces Revolutionary Council, Revolutionary United Front, and Charles Taylor cases betray profound doctrinal confusion and overreaching at the Special Court. The problem began with indictments that failed to satisfy the pleading requirements for a common criminal purpose at the core of each alleged JCE. Since this defect in the JCE pleadings has not been recognized as such by the SCSL Appeals Chamber, the Court has struggled to properly assess the individual liability of each accused, with negative consequences for the clarity and correctness of the JCE jurisprudence. Most recently, in Sesay, Kallon and Gbao, Majorities in the Trial and Appeals Chambers entered and upheld convictions based on an interpretation of ‘common purpose’ so flawed that it detached the basic and extended forms of JCE from the core mens rea that defines them, thereby expanding the doctrine from a legitimate liability theory into a vehicle for guilt by association. This article offers a critical assessment of the SCSL’s JCE jurisprudence to date, framing the Court’s experience as a concrete cautionary tale of the doctrine misapplied. JCE fails to be a useful tool for assessing individual liability, unless its basic elements are clearly pled in the indictment and rigorously applied by judges. The authors recommend that future international criminal proceedings abandon the SCSL’s misconceived approach, and instead take care to adhere to the procedural safeguards articulated in recent ICTY jurisprudence - ensuring that the JCE is pled with an unambiguously criminal common purpose, and that the trier of fact strictly construes each legal element of the doctrine in accordance with the culpability principle, the principle of legality and the fair trial rights of the accused.

Dura’s Effect on Securities Class Actions

On April 19, 2005, the United States Supreme Court rendered a unanimous decision in Dura Pharmaceuticals, Inc. v. Broudo, which had been described as “the most important securities case in a decade.” Simply put, the decision raises the pleading standard for Rule 10b-5 cases asserting fraud-onthe-market; instead of requiring a showing of ex ante losses, such as inflation at the time of purchase, Dura requires a showing of ex post losses, such as market decline resulting from a corrective disclosure. This paper assesses the decision’s practical implications by examining and empirically testing whether the Supreme Court’s enhanced pleading requirements have impacted the frequency and magnitude of post-Reform Act (PSLRA) class action securities cases. Specifically, this paper examines Dura’s effect on the filing and settling of cases, as well as on settlement amount. In particular, the results suggest that Dura, ceteris paribus, has had a statistically significant impact on both the filing and settlement of class actions, suggesting a reduction in frivolous litigation.

Constitutional Rules and Institutional Roles: Lessons from the Equal Protection Class of One

This Article examines the Supreme Court's recent equal protection case, Engquist v. Oregon Department of Agriculture, where the Court held that the class-of-one equal protection theory did not apply in the government workplace. The Article concludes that Engquist reflects an implicit balancing of employees' equal protection rights and government's legitimate interests in a flexible workplace and avoidance of litigation, with the Court imposing a categorical rule favoring the government's side of the balance. This Article critiques this categorical balancing. It argues that as a substantive matter such a categorical rule is generally inappropriate where interests of constitutional stature exist on both sides of the balance. However, it is the Engquist Court's method that carries with it the most troubling implications for equal protection and constitutional rights generally. Engquist disregards the sub-constitutional decision rules that lower courts developed to apply the constitutional principle the Court announced when it officially endorsed the class-of-one theory in 2000. Those rules were designed to honor both sides of the balance described above, and drew on trial courts' ability to impose appropriate pleading requirements, sift carefully through facts and thus cull meritless claims at early stages of litigation while allowing potentially meritorious claims to progress. The Court's disregard of the doctrinal rules developed by the lower courts hearkens back to its analogous disregard of congressional factfinding supporting legislation enforcing the Fourteenth Amendment. While the Court's relationship to the lower courts is quite different from its relationship to Congress, the lower courts nevertheless have unique talents useful to the project of applying constitutional principles. Engquist's exclusion of the lower courts from the task of applying Court-announced constitutional principles suggests that the Court will also greet with skepticism future congressional attempts to participate in that project. Indeed, Engquist's method is quite consistent with the most restrictive versions of the modern Court's approach to congressional enforcement legislation. Given that equality claims in the future will likely feature conduct that is subtler and more socially embedded than the more open and obvious unconstitutional conduct of the past, any unwillingness by the Court's to accept Congress as a partner in uncovering and remedying equal protection violations constitutes an ominous portent for advocates of equality. Engquist, while certainly not a conclusive indicator of the Court's likely direction on this issue, gives cause for concern.

Tellabs, Inc. v. Makor Issues &amp; Rights, Ltd – a uniform test for pleading scienter in securities fraud cases

Purpose – The purpose of this paper is to discuss the US Supreme Court's recently enunciated uniform test in Tellabs for determining whether factual allegations in a federal securities fraud complaint give rise to a “strong inference of scienter,” as required by the Private Securities Litigation Reform Act of 1995 (PSRLA).Design/methodology/approach – The paper discusses the way the decision steers a middle course among several recent circuit court approaches and redraws the semantic battle lines for future motions to dismiss securities‐fraud claims under §10(b) of the 1934 Act, but still leaves unresolved some embedded conceptual problems with the heightened pleading requirements under PSRLA.Findings – The findings of the study are that the Court's opinion embraces a robust new vocabulary, calling for “cogent” and “compelling” inferences that solidly hold their own against alternative explanations, but the Court refused to employ the PSLRA's particularily requirement as a screen to remove vague or ambigu...

Supreme Court holds that the federal securities laws implicitly preclude application of the antitrust laws to the underwriting of initial public offerings

PurposeThe purpose of this paper is to describe the background and reasoning behind the June 18, 2007 US Supreme Court decision in Credit Suisse Securities (USA) v. Billing et al.Design/methodology/approachThe paper explains the US District Court for the Southern District of New York's dismissal of two antitrust class action lawsuits filed against a group of investment banks in 2002, the reversal by the US Court of Appeals for the Second Circuit in 2005, and the Supreme Court's rejection of the Second Circuit's analysis in 2007.FindingsThe Court found that, due to the specialized knowledge required to parse the SEC's rules and distinguish permissible from prohibited conduct, there was a “serious risk” that antitrust courts would produce inconsistent results. The Court also expressed a concern that allowing antitrust claims here would weaken the heightened pleading requirements in the Private Securities Litigation Reform Act, which Congress passed to weed out “umeritorious securities lawsuits.”Practical implicationsThe decision undoubtedly will have important implications regarding the extent to which the antitrust laws may be applied to other conduct regulated by the securities laws, or in the context of other regulated industries.Orginality/valueThe paper provides practical interpretation and guidance by experienced securities lawyers.

The PSLRA's Seventh Amendment Problem

This Article is the first to examine the proper role of the jury in private securities fraud litigation. In the Private Securities Litigation Reform Act, Congress required that securities fraud complaint plead a inference of scienter. The courts have disagreed on the standard that satisfies this requirement, and likewise, the involved parties disagree. Defendant corporations argue for stringent standard that would result in the dismissal of many claims, while plaintiff investors support flexible standard that would allow more claims to go forward. Indeed, the Supreme Court's resolution of this issue may have an impact beyond securities litigation. If stringent standard is adopted, special pleading may be permitted in whole variety of other cases, including employment discrimination cases, resulting in many dismissals before any discovery has even been conducted. In the present context, securities law experts have not addressed the constitutional issue posed by the special pleading requirement; whether this requirement violates the Seventh Amendment right to jury trial. The Supreme Court has held that modern procedure must satisfy the substance of the English common law jury trial in 1791 to be constitutional under the Seventh Amendment. Accordingly, the special pleading rules developed in 21st century securities litigation must be viewed through an 18th century common law lens. This Article argues that the scienter standards developed by the courts in securities cases do not comport with substance of the common law jury trial and thus are constitutionally problematic. Contrary to the common law, the courts improperly engage in one or more steps of assessing the reasonableness of facts and corresponding inferences pled by the plaintiffs. This Article proposes constitutionally permissible alternative standard to dismiss securities fraud claim. The Article acknowledges the possible constitutional infirmity posed by the PSLRA's strong inference standard itself and its heightened pleading requirements and argues that because Congress sought to solve problems with the class action nature of securities fraud actions, the focus should have been class actions specifically, instead of the cause of action generally.

Private Securities Litigation and the Courts: Positive Political Theory and Evidence

This paper incorporates insights from Positive Political Theory to examine the role of legislative reform on judicially created legal doctrines relating to private securities litigation. The study bears on the general question of how Congress can influence the use of legal doctrines within a judicial hierarchy. Specifically, we examine the effect of the Private Securities Litigation Reform Act of 1995 on the use of the Group Pleading Doctrine and Fraud on the Market theory - two doctrines that assisted plaintiff-investors in overcoming the strict federal pleading requirements for bringing their claims in federal court.

The Myth of Notice Pleading

This Article challenges the prevailing rhetoric of notice pleading in the federal courts. By examining the reality of pleading practice in eight diverse substantive areas (ranging from antitrust to defamation, negligence to RICO), a rich continuum of fact-based pleading requirements emerges. The scholarly literature, however, largely ignores what federal courts require under this vast umbrella of pleading. This Article uncovers narrowly-targeted forms of fact-pleading, more broad-based particularity mirroring the standard used in fraud claims, and even hyperpleading - mandating virtually every element of a claim be pleaded with particularity. From this micro-examination of pleading, the Article develops the first contemporary model of pleading based on actual federal practice: the pleading circle. Contrary to the notice pleading myth, current practice is not a simple binary choice: fact-based pleading for fraud; notice pleading for everything else. Rather, there is a spectrum beginning with the factless and universally rejected allegation. Simplified notice pleading follows. The varieties of heightened pleading are next with their increasing particularity requirements. Ultimately, pleadings reach the point of prolixity and the same fate as its conclusory cousin. The Article also explores potential explanations for the disconnect between notice pleading rhetoric and reality. One overriding conclusion emerges - notice pleading as a universal standard is a myth.

The Nontrial Adversarial Model

JOEL SELIGMAN [*] I INTRODUCTION During past two decades, a nontrial adversarial model has evolved for deciding private law claims. Underlying this evolution are three different types of dynamics: (1) a dramatic growth in size of class actions, epitomized by Washington Public Power Supply System litigation of 1980s [1] and Court's approval of fraud-on-the-market presumption, rather than a requirement of individual proof of fraud, in Basic, Inc. v Levinson; [2] (2) a significant growth in cost and litigation leverage of discovery; [3] and (3) a fundamental shift in political orientation of Congress in litigation, illustrated by gravitation from unanimous support for greater insider trading penalties during 1980s [4] to hostility toward plaintiffs' attorneys after 1994 congressional election. [5] While this nontrial adversarial model is not unique to field, it is more pronounced in private class actions than in most other areas. Virtually every private class action in recent years has been resolved through a pretrial motion or a settlement. [6] A trial on merits is a rare exception. [7] The central issue raised as a result of this shift is whether nontrial adversarial model makes sense in area of litigation. Professor Elliott Weiss supports this shift in his article Pleading Securities Fraud. [8] However, answer to this question should await a more comprehensive study of Private Securities Litigation Reform Act of 1995 (PSLRA). II DEVELOPMENT OF THE NONTRIAL ADVERSARIAL MODEL The origins of this shift to nontrial adversarial model can be traced back to Supreme Court's discussion of strike suits in its 1975 decision Blue Chip Stamps v. Manor Drug Stores. [9] There, Supreme Court expressed its concern regarding potential for a large number of plaintiffs in class actions to abuse their leverage under Federal Rules of Civil Procedure's discovery rules to force settlements in frivolous lawsuits. [10] As a result, after Blue Chip Stamps, successful assertion of a [Rule 9(b)] defense based on failure of a plaintiff to have pleaded fraud with sufficient particularity increased in federal securities cases. [11] Underlying this increase in number of dismissals based on Rule 9(b) motions were profound changes in judicial interpretation of Rule's application in private cases. During this period, federal courts found Rule to require them to dismiss claims that were mere conclusory allegations to effect that a defendant's conduct was fraudulent or in violation of Rule 10b-5, [12] or that defendant's reports represented a false, misleading, and inflated picture of assets, earnings, and business. [13] An example of this interpretation of Rule is found in following statement by First Circuit Court of Appeals in Wayne Investment Inc. v. Gulf Oil Corp.: It is well settled that Rule 9 'requires specification of time, place, and content of an alleged false representation, but not circumstances or evidence from which fraudulent intent could be inferred.' [14] This opinion epitomized movement toward stricter pleading requirements for fraud for plaintiffs under Rule 9(b) after Blue Chip Stamps. Despite this growing trend, [o]n a motion to dismiss, [courts still] read complaint generously and drew all inferences in favor of pleader. [15] Courts still gave deference to plaintiffs' complaint for two central reasons. First, Rule 9(b) did not require the pleading of detailed evidentiary matter. [16] This meant that courts could not get a clear idea of strength of a case prior to discovery phase of litigation. As a result, judges needed to be more cautious in dismissing claims to protect valid lawsuits. …

Pleading Securities Fraud

In roughly five years since Private Securities Litigation Reform Act of 1995 became law, courts and commentators have devoted considerable attention to two questions relating to requirement, set forth in section 21D(b)(2), that a complaint alleging securities fraud must with particularity facts giving rise to a strong inference that defendant acted with required state of mind. Those questions concern: (1) What constitutes the required state of mind in suits under section 10(b) and Rule 10b-5? And (2) Are facts indicating a defendant had a motive and opportunity to engage in fraud, standing alone, sufficient to create a strong inference that that defendant acted with required state of mind? Courts and commentators have devoted far less attention to what I call Basis Requirement - portion of section 21D(b)(1) that requires a plaintiff to specifying not only each statement alleged to have been misleading and the reason or reasons why statement is misleading, but also, with respect to every allegation made on information and belief, all facts on which that belief is formed. This article argues that issues relating to Basis Requirement in long run will prove to be far more significant than issues relating to motive, opportunity and degrees of recklessness that have preoccupied courts and commentators to date. A threshold question is amount and quality of corroborating information a plaintiff must include in her complaint. The article explains why, in order to implement Congress' goal of discouraging filing and prosecution of speculative claims of securities fraud, courts must adopt an interpretation of Basis Requirement similar to that adopted by Ninth and First Circuits in In re Silicon Graphics Securities Litigation and Greebel v. FTP Software, respectively. Only by doing so will courts prevent plaintiffs from continuing to make speculative allegations of fraud and then relying on discovery process to seek evidence to support their claims. The article next highlights two additional holdings in Greebel: (1) A court must consider nature of corroborating information plaintiff has provided when evaluating whether plaintiff has pled facts sufficient to create a strong inference of scienter. (2) The Reform Act effectively rejects notice pleading philosophy reflected in Conley v. Gibson by requiring plaintiffs in securities fraud actions to plead facts that give rise to a strong, rather than merely a reasonable, inference of scienter. Using analytic framework created by Greebel and Silicon Graphics, article then considers two cases currently pending in courts in Second and Third Circuits. The first is Novak v. Kasaks, in which Second Circuit reversed and remanded a district court decision granting a motion to dismiss. The article points out that Second Circuit's opinion is rather muddled, but can be reconciled with Silicon Graphics and Greebel, and notes that whether Second Circuit so interprets Novak will provide an important indication of whether inferior federal courts are going to adopt a uniform or a fragmented approach to interpreting Reform Act's pleading requirements. (The article also notes that a petition for a writ of certiorari was filed in Novak after article was completed.) The second case is In re Cell Pathways, Inc. Securities Litigation, in which defendants have petitioned Third Circuit for a writ of mandamus to reverse a clearly incorrect district court decision denying their motion to dismiss. As is case with Novak, how Third Circuit deals with this petition will provide an important indication of approach inferior federal courts are going to take to interpreting and enforcing pleading requirements of Reform Act. The article concludes by discussing some potential policy consequences of imposing on plaintiffs in securities class actions these stringent pleading requirements. The article observes that evaluating impact of Reform Act is largely an empirical question and that, because first appellate decisions interpreting Act's pleading requirement were issued relatively recently and legal landscape in several circuits remains unclear, it will be several more years before sufficient data are available to support any informed conclusions as to whether Act's pleading requirements - assuming they are interpreted uniformly - make it too difficult for victims of securities frauds to secure appropriate relief.

Preempting Unintended Consequences

There is something called the “Law of Unintended Consequences.” Who enacted this law, who enforces it, and its exact scope are obscure. However, from time to time it manifests itself, most recently having made an appearance in some of the fallout from the Private Securities Litigation Reform Act of 1995 (“the Act”). One unintended or, perhaps more accurately, unforeseen consequence of the Act has been the increasing appearance of the Milberg, Weiss firm as plaintiffs’ counsel in securities class action litigation. This firm, seen by many advocates of reform as the incarnation of all they dislike in class litigation, has become an ever more commanding presence on that scene. Milberg, Weiss has extraordinarily competent and experienced lawyers in class action litigation who have been extremely successful in securing substantial verdicts and procuring huge settlements. Their increased ascendancy and heightened visibility in the class action arena cannot be a source of joy to the promoters of the Act. The reason for the firm’s rise is very simple: One consequence of the Act has been the lengthening of proceedings. Milberg, Weiss, with its deep pockets and vast experience, is better able than most other smaller plaintiffs’ firms to sustain this lengthy process without suffering crippling financial strain. Another unintended consequence of the Act was the initial migration of securities litigation to the state courts. Most states do not have laws that impose the stringent pleading requirements of the Act, set the hurdles so high in prevailing on fraudulent forecasts, provide for separate and proportionate damages, or place other impediments in the path of success in class actions like those created by the Act. While there initially appeared to be a major move toward state courts, this trend subsequently abated, and at the present writing the pendulum has swung back toward the federal system, both as a proportion of total litigation and in absolute numbers. Not surprisingly, most of the state litigation was initiated in California, largely as a consequence of the fact that