Belizan v. Hershon
| Decision Date | 27 July 2007 |
| Docket Number | No. 06-7104.,06-7104. |
| Citation | 495 F.3d 686 |
| Parties | Monica BELIZAN, and all others similarly situated and William Prather, Dr., as Trustee for the Avon Medical Group PC Employees Profit Sharing Plan & Trust, and as Trustee for the Judith Ann Prather Revocable Trust, Appellants v. Simon HERSHON, et al., Appellees. |
| Court | U.S. Court of Appeals — District of Columbia Circuit |
Appeal from the United States District Court for the District of Columbia (No. 02cv01490).
Donald J. Enright argued the cause for appellants. With him on the briefs were Burton H. Finkelstein, Tracy D. Rezvani, and Benjamin J. Weir.
Michael L. Martinez argued the cause and filed the brief for appellee Radin Glass & Co, LLP.
Alexander Maltas, David M. Brodsky, Jeff G. Hammel, and Donna G. Patel were on the brief for appellee CIBC World Markets Corporation. DeMaurice F. Smith entered an appearance.
Before: GINSBURG, Chief Judge, and GARLAND and BROWN, Circuit Judges.
Opinion for the court filed by Chief Judge GINSBURG.
An uncertified class of plaintiffs appeals an order of the district court dismissing with prejudice their claims against Radin Glass & Co. and CIBC World Markets Corp. under §§ 11 and 12(a)(2) of the Securities Act of 1933 and under § 10(b) of the Securities Exchange Act of 1934. On the plaintiffs' previous appeal we remanded the case for the district court "to enter a new order either dismissing without prejudice or explaining its dismissal with prejudice in a manner consistent with [our] opinion." Belizan v. Hershon, 434 F.3d 579, 584 (D.C.Cir.2006) (Belizan II). On remand, the district court once again dismissed all the plaintiffs' claims with prejudice. In re Interbank Funding Corp. Sec. Litig., 432 F.Supp.2d 51, 57 (D.D.C.2006) (Belizan III).
We hold the district court did not abuse its discretion by dismissing the plaintiffs' § 11 claim with prejudice because their two unsuccessful attempts to replead the claim adequately demonstrated, as the district court found, that they could not plead additional facts consistent with, but sufficient to cure the deficiency in, their original pleadings. The district court did not, however, adequately explain why the plaintiffs' attempt in their Pre-Appeal Draft Complaint, submitted with a motion to reconsider the first dismissal of their complaint, was inadequate to demonstrate they could cure the deficiencies in pleading their §§ 10(b) and 12(a)(2) claims. Accordingly, we vacate the order in part and again remand the question of prejudice for clarification with respect to those two claims.
The plaintiffs allege they purchased debt securities from InterBank Funding Corp. (IBF) and its subsidiaries between 1997 and 2002, including the class period of July 26, 1999 to June 7, 2002. IBF, at least a majority of which was owned by Simon Hershon, had formed several investment funds with the purpose of purchasing and restructuring or rehabilitating underperforming loans. The plaintiffs claim IBF's funds were actually part of a "Ponzi scheme," wherein proceeds from successive securities offerings were used to make interest payments to those who had invested in prior offerings. CIBC World Markets Corp. sold securities to the plaintiffs and Radin Glass & Co. served as IBF's independent auditor for IBF's Fund VII, now called Collateralized Finance Corporation.
The plaintiffs' suits against Hershon, Radin, CIBC, and others were consolidated, after which they filed a Consolidated Amended Complaint and settled their claims against Hershon. In the Consolidated Amended Complaint, the plaintiffs alleged Radin and CIBC had disseminated materially false and misleading information about IBF's funds and engaged in a scheme to defraud investors, in violation of § 10(b) of the '34 Act, 15 U.S.C. § 78j(b), and of Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5. In addition, they claimed Radin, by attesting that IBF's financial statements complied with Generally Accepted Accounting Principles (GAAP) when, in fact, the statements were materially false or misleading, had violated § 11 of the '33 Act, 15 U.S.C. § 77k. Finally, they alleged CIBC had violated the prospectus delivery requirements of § 12(a)(1) and (2) of the '33 Act, 15 U.S.C. § 77l(a)(1)-(2), when it sold IBF's securities to investors.
Radin and CIBC each moved, pursuant to Federal Rule of Civil Procedure 12(b)(6), to dismiss the complaint for failure to state a claim upon which relief can be granted. After a hearing, the district court granted the defendants' motions to dismiss. See In re Interbank Funding Corp. Sec. Litig., 329 F.Supp.2d 84, 96 (D.D.C.2004) (Belizan I). With respect to the alleged violations of § 10(b), the court held the plaintiffs had failed adequately to: (1) plead scienter; (2) allege their claims with the specificity required by Federal Rule of Civil Procedure 9(b) and the Private Securities Litigation Reform Act of 1995 (PSLRA), 104 Pub.L. No. § 101, 109 Stat. 737, 743, 15 U.S.C. § 78u-4; and (3) plead causation. 329 F.Supp.2d at 89-94. The district court also held they failed properly to plead a violation of § 11; failed to plead with specificity that their § 12(a)(1) was timely; and lacked standing to bring the § 12(a)(2) claim. Id. at 94-96.
The district court also held the plaintiffs would not be allowed to amend their complaint, which it dismissed "with prejudice." Id. at 96. The court explained that counsel's references at the hearing to the possibility of amending the complaint did not "amount to formal motions for leave to amend" and that even if they did, the PSLRA "counsel[s] restraint in granting leave to amend." Id. As for the dismissal being with prejudice, the court cited In re Champion Enterprises Inc. Securities Litigation, 145 F.Supp.2d 871, 873 (E.D.Mich. 2001), for the proposition the PSLRA "set[s] a high standard of pleading which if not met results in a mandatory dismissal .... with prejudice." Id.
The plaintiffs filed a motion under Federal Rule of Civil Procedure 59(e) seeking reconsideration insofar as the court had not permitted them leave to amend the complaint and dismissed their claims with prejudice. With their motion, they submitted the Pre-Appeal Draft Complaint. The district court denied reconsideration and stated that the plaintiffs' revised complaint "share[d] important failings with [their] earlier effort."
On the plaintiffs' first appeal, we held the district court did not err in determining counsel's oral reference to the possibility of amending the Consolidated Amended Complaint was not a proper motion for leave to amend. Belizan II, 434 F.3d at 582-83. We vacated the order of dismissal with prejudice, however, and remanded the case for the district court "to exercise its discretion under Firestone," which required the court to "determine whether the allegation of other facts consistent with the challenged pleading could not possibly meet the heightened pleading requirements of the PSLRA." Id. at 584 (citing Firestone v. Firestone, 76 F.3d 1205, 1209 (D.C.Cir.1996)).
On remand, the district court once again dismissed the plaintiffs' claims with prejudice, holding they "could not possibly have alleged other facts consistent with the challenged complaint sufficient to make out a proper cause of action against CIBC or Radin." Belizan III, 432 F.Supp.2d at 57. The district court also denied as moot the plaintiffs' post-remand motion to amend, to which their Post-Remand Draft Complaint was attached. Id.
The parties dispute whether the district court abused its discretion when it denied their post-remand motion to amend and looked to the Pre-Appeal Draft Complaint but not the Post-Remand Draft Complaint and, if not, then whether the new allegations in the Pre-Appeal Draft Complaint indicated the plaintiffs possibly could have cured the deficiencies of their Consolidated Amended Complaint.
Invoking the policy of Federal Rule of Civil Procedure 15(a) that leave to amend is liberally to be granted, the plaintiffs argue that the district court abused its discretion (1) in denying their post-remand motion for leave to amend their complaint and (2) in determining whether to dismiss their claims with prejudice by looking solely to the Pre-Appeal Draft Complaint, rather than evaluating their Post-Remand Draft Complaint. CIBC and Radin argue the district court correctly denied the plaintiffs' post-remand motion to amend and ignored the allegations in the Post-Remand Draft Complaint because the district court "has no power or authority to deviate from [this court's] mandate," Indep. Petroleum Ass'n of Am. v. Babbitt, 235 F.3d 588, 596 (D.C.Cir. 2001), which instructed the district court to "enter a new order either dismissing without prejudice or explaining its dismissal with prejudice in a manner consistent with [our] opinion," Belizan II, 434 F.3d at 584.
In our view, it would not have been inconsistent with our mandate for the district court to have considered the Post-Remand Draft Complaint in order to determine whether the plaintiffs could cure the deficiencies of their previous efforts, nor would the court have erred in granting the plaintiffs' post-remand motion to amend. Nothing in the mandate required the court to do so, however, and the court certainly did not abuse its discretion by looking solely at the record as it stood before the first appeal or by denying the post-remand motion to amend. Cf. Doe v. McMillan, 566 F.2d 713, 720 (D.C.Cir. 1977) ().
Section 10(b) of the '34 Act makes it unlawful "to use or employ, in connection...
To continue reading
Request your trial
-
In Re Synchronoss Securities Litigation.
...explanation is more likely than any guilty inference, the court must find that plaintiffs failed to state a claim); Belizan v. Hershon, 495 F.3d 686, 690 (D.C.Cir.2007) (district court's failure to conduct a comparison of alleged culpable and plausible non-culpable explanation warrants rema......
-
In re Intelligroup Securities Litigation
...is more likely than, any guilty inference, the court must find that plaintiffs failed to establish scienter, and Belizan v. Hershon, 495 F.3d 686, 690 (D.C.Cir.2007), to state that a district court's failure to conduct a comparison of alleged culpable and plausible non-culpable explanation ......
-
Bauer v. Devos, Civil Action No. 17-1330 (RDM)
...583 (1986) ; Sec'y of the Interior v. California , 464 U.S. 312, 319 n.3, 104 S.Ct. 656, 78 L.Ed.2d 496 (1984) ; Belizan v. Hershon , 495 F.3d 686, 689, 694 (D.C. Cir. 2007) ; Nuclear Energy Inst., Inc. v. EPA , 373 F.3d 1251, 1266 (D.C. Cir. 2004) ; cf. Pub. Citizen, Inc. v. Nat'l Highway ......
-
Am. Freedom Defense Initiative v. Wash. Metro. Area Transit Auth.
...AFDI should be given an opportunity to refine its argument and to supplement the record accordingly. See, e.g. , Belizan v. Hershon , 495 F.3d 686, 692 (D.C. Cir.2007) (remanding securities fraud claims to the district court to reconsider in light of intervening Supreme Court precedent). Gu......