Do Differences in Pleading Standards Cause Forum Shopping in Securities Class Actions?: Doctrinal and Empirical Analyses

38 Pages Posted: 22 Dec 2008 Last revised: 24 Aug 2017

See all articles by James D. Cox

James D. Cox

Duke University School of Law

Randall S. Thomas

Vanderbilt University - Law School; European Corporate Governance Institute (ECGI)

Lynn Bai

University of Cincinnati - College of Law


Federal appellate courts have promulgated divergent legal standards for pleading fraud in securities fraud class actions after the Private Securities Litigation Reform Act (PSLRA). Recently, the U.S. Supreme Court issued a decision in Tellabs v. Makor Issues & Rights that could have resolved these differences, but did not do so. This article provides two significant contributions. We first show that Tellabs avoids deciding the hard issues that confront courts and litigants daily in the wake of the PSLRA's heightened pleading standard. As a consequence, the opinion keeps very much alive the circuits' disparate interpretations of the PSLRA's fraud pleading standard. To be sure, Tellabs might ultimately be applied by lower courts to narrow the range of permissible approaches to satisfying the strong inference standard, but leaves a good deal of room within which wide variations in approach will continue.

Our second contribution is empirical in that we seek to answer the question: do plaintiffs' attorneys take advantage of the differences among the circuits' interpretation of the pleading standard to select more favorable venues to file their cases as some scholars have claimed? We find that 85% of the securities fraud class actions in our sample are filed in the home circuit of the defendant corporation. In the remainder of cases, those that are filed outside the defendant's home jurisdiction, our analysis shows that differences in the pleading standards do not explain a statistically significant amount of the reason for that decision.

While the differences in the circuits' pleading standards do not have a statistically significant impact on the plaintiffs' choice of venue, we find that plaintiffs are more likely to file low value cases in jurisdictions other than the one in which the defendants' headquarters is located. In particular, we find that cases with smaller provable losses and without an accompanying SEC investigation are statistically significantly more likely to be filed in circuits other than where the defendant's principal place of business is located. We interpret the former result as consistent with the hypothesis that in lower value cases, plaintiffs' counsel is more likely to select jurisdictions that are convenient to themselves rather than to the defendant. Conversely, when an SEC investigation is proceeding on the basis of the same operative facts, our results are consistent with the claim that plaintiffs' counsel will avoid filing outside of the defendant corporation's home jurisdiction to avoid procedural delays.

Keywords: Securities, class actions, Tellabs, fraud, PSLRA

JEL Classification: K22, K41, G3

Suggested Citation

Cox, James D. and Thomas, Randall S. and Bai, Lynn, Do Differences in Pleading Standards Cause Forum Shopping in Securities Class Actions?: Doctrinal and Empirical Analyses. 2009 Wisconsin Law Review 421; Vanderbilt Law and Economics Research Paper No. 08-32; Duke Law School Public Law & Legal Theory Paper No. 227; U of Cincinnati Public Law Research Paper No. 09-01. Available at SSRN:

James D. Cox

Duke University School of Law ( email )

210 Science Drive
Box 90362
Durham, NC 27708
United States
919-613-7056 (Phone)
919-613-7231 (Fax)

Randall S. Thomas (Contact Author)

Vanderbilt University - Law School ( email )

131 21st Avenue South
Nashville, TN 37203-1181
United States

European Corporate Governance Institute (ECGI)

B-1050 Brussels

Lynn Bai

University of Cincinnati - College of Law ( email )

P.O. Box 210040
Cincinnati, OH 45221-0040
United States
513-556-0194 (Phone)

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