Typically, plaintiffs at the pleading stage satisfy the Private Securities Litigation Reform Act’s requirement of “pleading with particularity” by invoking the so-called “group pleading doctrine.” The doctrine allows plaintiffs to make allegations of misstatements and omissions in group-published documents, for instance, without having to marshal specific factual evidence as to a particular individual’s responsibility in connection with such misstatements and omissions.
It was the Ninth Circuit that originally developed the doctrine (in the late-1980s, prior to the enactment of the PSLRA) as an exception to the stricter pleading requirements in fraud suits as dictated by the Federal Rules of Civil Procedure. Behind the doctrine is the well-founded supposition that officers and directors with day-to-day corporate responsibilities are generally aware of the goings on at their companies -- such that requiring a plaintiff to identify precisely who did and/or said what creates an unnecessarily high hurdle at the beginning stages of a securities lawsuit.
Despite the sound logic behind this doctrine, however, the Third Circuit in Winer Family Trust v. Queen -- decided at the end of September -- opined that the group pleading doctrine’s “presumption of particularity” is inconsistent with the PSLRA.
The Ninth Circuit has neglected specifically to revisit group pleading since passage of the PSLRA, and the Second Circuit has never defined its precise contours. Perhaps the doctrine -- logical and important as it is -- will ultimately create a circuit split resolvable only by the Supreme Court.
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