Opinion ID: 198674
Heading Depth: 2
Heading Rank: 1

Heading: Pleading Standards for Fraud Allegations

Text: 42 The text of the Act requires now that any complaint alleging that a statement or omission is misleading must: 43
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45 3. and, if an allegation regarding the statement or omission is made on information and belief, . . . state with particularity all facts on which that belief is formed. 46 15 U.S.C. § 78u-4(b)(1). The effect of this is to embody in the Act itself at least the standards of Rule 9(b), Fed. R. Civ. P. 47 Before the PSLRA, a securities fraud claim had to meet the standards set by Rule 9(b). See Simcox v. San Juan Shipyard, Inc., 754 F.2d 430, 439 (1st Cir. 1985). Rule 9(b) provides that [i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent, knowledge, and other condition of mind of a person may be averred generally. Fed. R. Civ. P. 9(b). This circuit has interpreted Rule 9(b) to require specification of the time, place, and content of an alleged false representation. McGinty v. Beranger Volkswagen, Inc., 633 F.2d 226, 228 (1st Cir. 1980). 7 Even where allegations are based on information and belief, supporting facts on which the belief is founded must be set forth in the complaint. And this holds true even when the fraud relates to matters peculiarly within the knowledge of the opposing party. Hayduk v. Lanna, 775 F.2d 441, 444 (1st Cir. 1985) (internal quotation marks and citations omitted). 48 The PSLRA's pleading standard is congruent and consistent with the pre-existing standards of this circuit. This circuit has been notably strict and rigorous in applying the Rule 9(b) standard in securities fraud actions. See Maldonado v. Domnguez, 137 F.3d 1, 9 (1st Cir. 1998) (This court has been especially rigorous in applying Rule 9(b) in securities fraud actions . . . .) (quotation marks omitted); Shaw v. Digital Equip. Corp., 82 F.3d 1194, 1223 (1st Cir. 1996) (similar); Romani v. Shearson Lehman Hutton, 929 F.2d 875, 878 (1st Cir. 1991) (We have been especially rigorous in demanding . . . factual support in the securities context . . . .). 49 The requirements of the PSLRA's new pleading standard in § 78u-4(b)(1) were largely imposed under First Circuit law, although this court has not used the same precise terminology. First, this court had already required a fraud plaintiff to specify each allegedly misleading statement or omission. See, e.g., Romani, 929 F.2d at 878 (plaintiffs' isolation of the offering materials as the source of the alleged fraud was sufficient to identify the time and place of the alleged misrepresentations); New England Data Servs., 829 F.2d at 292 (rejecting plaintiffs' claims as merely conclusory allegations of mail and wire fraud . . . with no description of any time, place or content of the communication). 50 Second, this court has required a securities fraud plaintiff to explain why the challenged statement or omission is misleading by requiring that the complaint . . . provide some factual support for the allegations of fraud. Romani, 929 F.2d at 878 (citation omitted). This means that the plaintiff must not only allege the time, place, and content of the alleged misrepresentations with specificity, but also the factual allegations that would support a reasonable inference that adverse circumstances existed at the time of the offering, and were known and deliberately or recklessly disregarded by defendants. Id. 51 Finally, this court has required plaintiffs who bring their claims on information and belief to set forth the source of the information and the reasons for the belief. Romani, 929 F.2d at 878; see also New England Data Servs., 829 F.2d at 288; Hayduk, 775 F.2d at 444-45; Wayne Inv., Inc. v. Gulf Oil Corp., 739 F.2d 11, 13 (1st Cir. 1984). 52 Our previous strict pleading requirements under Rule 9(b) are, in our view, consistent with the PSLRA. See Maldonado, 137 F.3d at 10 n.6. 53