Whether Alleging 'Motive and Opportunity' Can Satisfy the Heightened Pleading Standards of the Private Securities Litigation Reform Act of 1995: Much Ado About Nothing

Abstract:     
In order to prevent abusive and meritless securities lawsuits, Congress enacted the Private Securities Litigation Reform Act of 1995 ("PSLRA"). One provision of that legislation requires pleading with particularity the relevant state of mind for each defendant. Plaintiff's failure to so plead leads to dismissal of the lawsuit. The question the article examines is the extent to which pleading "motive and opportunity" satisfies the statutory standard.

The article first traces pre-PSLRA law where the Second Circuit enunciated a more stringent pleading standard for securities fraud claims. Initially, it seemed the Second Circuit might be satisfied by plaintiff pleading motive and opportunity. The article then examines the legislative history for the PSLRA. That history is unclear on whether alleging motive and opportunity alone would satisfy the PSLRA's heightened pleading standards.

The article examines case law in the Second, Sixth and Ninth Circuits. The article concludes that the tests of the Second and Sixth Circuit are essentially the same. Both restrictively define motive and opportunity to facts that would give rise to an inference of scienter on the part of a particular defendant.

The article criticizes the position of the Ninth Circuit. Even though that Court recognized that Congress generally did not intend to change requirements for scienter level stringent. But the Ninth Circuit's evaluation of pleadings required the same particularized assessment of pleadings as the Second Circuit. The consequence is needless confusion.

Number of Pages in PDF File: 25

Keywords: Private Securities Litigation Reform Act of 1995, pleadings, motive and opportunity

Accepted Paper Series