Opinion ID: 76625
Heading Depth: 2
Heading Rank: 2

Heading: Showing Scienter for Each Defendant with Respect to Each Alleged Violation

Text: 6 Notwithstanding that the above issue was the only one certified for appeal, Defendants also argue that a strong inference of scienter must be found with respect to each defendant and with respect to each act or omission alleged to violate the statute. We exercise our discretion 3 to address that issue because it is closely related to the certified question. We hold that scienter must be found with respect to each defendant and with respect to each alleged violation of the statute. The text of the PSLRA requires that plaintiffs, with respect to each act or omission alleged to violate this chapter, state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind. 15 U.S.C. § 78u-4(b)(2) (emphasis added). We believe that the plain meaning of the statutory language compels the conclusion that scienter must be alleged with respect to each alleged violation of the statute. 4 Although the plain language is less compelling with respect to alleging the scienter of each defendant, the statute does use the singular term the defendant, and we believe that the most plausible reading in light of congressional intent 5 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. Nor do we perceive that requirement as posing unrealistic burdens on plaintiffs. 6 Cf. Southland Secs. Corp. v. Inspire Ins. Solutions, 365 F.3d 353, 364-65 (5th Cir.2004) (These PSLRA references to `the defendant' may only reasonably be understood to mean `each defendant' in multiple defendant cases[.]). 7 Despite our agreement with Defendants on this point, our holding does not aid them because Plaintiffs' complaint sufficiently alleges facts giving rise to a strong inference of scienter on the part of each defendant alleged to have committed each violation of the statute. 7 Finding no error, we affirm the district court. 8 Defendants frame this issue as the viability of the group pleading doctrine in the wake of the PSLRA, a question the courts are now debating. See, e.g., Cabletron, 311 F.3d at 40 (identifying the issue without deciding it); Southland, 365 F.3d at 363-65 (holding that group pleading did not survive the PSLRA). The group pleading doctrine in securities litigation varies somewhat among the circuits, but it can be broadly characterized as a presumption of group responsibility for statements and omissions in order to satisfy the particularity requirements for pleading fraud under Federal Rule of Civil Procedure 9(b). See, e.g., Cabletron, 311 F.3d at 40 (1st Cir.2002) (identifying one form of the group pleading presumption as an approach in which the court need not consider the liability of each individual defendant, but may attribute all the statements to all the defendants as `collective actions'). 8 In the case that spawned the group pleading doctrine, Wool v. Tandem Computers, Inc., 818 F.2d 1433 (9th Cir.1987), plaintiffs needed a group pleading theory to save their complaint from dismissal because they had fail[ed] to attribute particular fraudulent statements or acts to each individual defendant. Id. at 1440. Rather, plaintiffs had attributed fraudulent conduct to all defendants. Id. The Ninth Circuit determined that such pleading satisfied Rule 9(b)'s particularity requirement because 9 In cases of corporate fraud where the false or misleading information is conveyed in prospectuses, registration statements, annual reports, press releases, or other group-published information, it is reasonable to presume that these are the collective actions of the officers. Under such circumstances, a plaintiff fulfills the particularity requirement of Rule 9(b) by pleading the misrepresentations with particularity and where possible the roles of the individual defendants in the misrepresentations. 10 Id., at 1440 (citations omitted). Some courts have applied the group pleading doctrine to impute the actions or knowledge of some defendants to other defendants, or to presume action or knowledge solely from a defendant's title or position. See, e.g., In re Solv-Ex Corp. Sec. Litig., 210 F.Supp.2d 276, 283 (S.D.N.Y.2000) (Under the group pleading doctrine, Plaintiffs may rely on a presumption that statements in prospectuses, registration statements, annual reports, press releases, or other group-published information, are the collective work of those individuals with direct involvement in the everyday business of the company.) (quotation marks omitted); In re Livent, Inc. Sec. Litig., 78 F.Supp.2d 194, 219 (S.D.N.Y.1999) ([G]roup pleading doctrine ... permits a plaintiff to allege that misstatements contained in company documents may be presumed to be the work of the company's officers and directors.) (quotation marks omitted). 11 It is not necessary to address the group pleading doctrine for the disposition of this appeal. Unlike in Tandem Computers, Plaintiffs here have attributed allegedly fraudulent statements and omissions to specific defendants. We have reviewed 9 the complaint and we conclude that it contains factual allegations amply linking each defendant to his alleged violations of the statute and attributing the required scienter to each defendant with respect thereto. Accordingly, for purposes of this appeal, Plaintiffs need not rely upon the group pleading doctrine. 10