Gauging the Hurdle to Strike Suits: Reconciling the Circuit Split over the Proper Interpretation of the Heightened Pleading Standard under the Private Securities Litigation Reform Act of 1995

Abstract:     
The abuse of securities fraud litigation-the so-called strike suits- has unduly burdened the stock markets. To curb the abusive practice, Congress passed the Private Securities Litigation Reform Act of 1995(the Reform Act), which imposes, among others, a heightened pleading requirement on private securities fraud actions brought under the federal securities law. However, the heightened pleading standard set forth in the Reform Act has caused confusion among federal courts. Recently, six federal courts of appeals have issued conflicting decisions interpreting the Reform Act's pleading standard provision. The purpose of this Note is to clarify the Reform Act's pleading standard and promote a uniform interpretation of the pleading standard.

This Note will fist present the legal landscape for the recent circuit split over the Reform Act's pleading standard. It will then review those circuits cases interpreting the pleading standard. Finally, the Note will critique those circuit decisions, reconcile their differences, and propose a uniform interpretation of the pleading standard.

The author concludes that the divisions among circuits courts are reconcilable. The interpretations of the Reform Act's pleading standard by the First, Sixth, and Eleventh Circuits essentially represent the reconciled results. With the reconciled results, a plaintiff in securities fraud litigation can not satisfy the Reform Act's pleading standard by simply alleging motive or opportunity to commit fraud, but alleging circumstantial evidence of reckless conduct would be sufficient to meet the standard.

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