Opinion ID: 212733
Heading Depth: 3
Heading Rank: 2

Heading: Private Securities Litigation Reform Act

Text: In the mid-nineties, Congress took up the issue of reforming securities litigation, with twin goals: to curb frivolous, lawyer-driven litigation, while preserving investors' ability to recover on meritorious claims. Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 127 S.Ct. 2499, 2509, 168 L.Ed.2d 179 (2007). As the Court recently recounted: Policy considerations similar to those that supported the Court's decision in Blue Chip Stamps [ v. Manor Drug Stores, 421 U.S. 723, 95 S.Ct. 1917, 44 L.Ed.2d 539 (1975),] prompted Congress, in 1995, to adopt legislation targeted at perceived abuses of the class-action vehicle in litigation involving nationally traded securities. While acknowledging that private securities litigation was an indispensable tool with which defrauded investors can recover their losses, the House Conference Report accompanying what would later be enacted as the Private Securities Litigation Reform Act ... identified ways in which the class-action device was being used to injure the entire U.S. economy. H.R. Conf. Rep. No. 104-369, p. 31 (1995). According to the Report, nuisance filings, targeting of deep-pocket defendants, vexatious discovery requests, and manipulation by class action lawyers of the clients whom they purportedly represent had become rampant in recent years. Ibid. Proponents of the Reform Act argued that these abuses resulted in extortionate settlements, chilled any discussion of issuers' future prospects, and deterred qualified individuals from serving on boards of directors. Dabit, 547 U.S. at 81, 126 S.Ct. 1503 (citation omitted). The Private Securities Litigation Reform Act of 1995, Pub.L. No. 104-67, 109 Stat. 737 (codified as amended in scattered sections of 15 and 18 U.S.C.), created a host of substantive reforms addressing issues from class certification and lead plaintiff selection, to limitations on recoverable damages and mandatory sanctions for frivolous litigation. In addition, it created a safe-harbor provision for forward-looking statements when not made with knowledge of falsity or when the statement itself is identified as forward-looking and is accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statement. 15 U.S.C. § 78u-5(c)(1)(A)(i). Finally, and particularly relevant to our analysis in the present case, the PSLRA made a number of procedural changes applicable in securities actions, including the creation of specific pleading requirements for 10b-5 actions. Prior to the PSLRA, such actions were governed by the heightened pleading requirements of Rule 9(b) of the Federal Rules of Civil Procedure. Rule 9(b) provides that, in the context of fraud claims, the usual requirement of a short and plain statement of the claim, Fed.R.Civ.P. 8(a)(2), must be exceeded. Specifically, a party alleging fraud must state with particularity the circumstances constituting fraud in the pleading, but [m]alice, intent, knowledge, and other conditions of a person's mind may be alleged generally. Fed.R.Civ.P. 9(b). The PSLRA went further, requiring that a pleading (1) specify each statement alleged to have been misleading [and] the reason or reasons why the statement is misleading and (2) if an allegation regarding the statement or omission is made on information and belief, the complaint shall state with particularity all facts on which that belief is formed. 15 U.S.C. § 78u-4(b)(1). With regard to the element of scienter, the PSLRA requires that the pleading state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind. Id. § 78u-4(b)(2)(A). The Supreme Court has held that, in order for the facts to give rise to the requisite strong inference, the allegations must be more than merely plausible or reasonable[they] must be cogent and at least as compelling as any opposing inference of nonfraudulent intent. Tellabs, 127 S.Ct. at 2504-05.