Belizan v. Hershon, 04-7187.

• Citation: 434 F.3d 579
• Decision Date: 17 January 2006
• Docket Number: No. 04-7187.,04-7187.
• 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: United States Courts of Appeals. United States Court of Appeals (District of Columbia)

434 F.3d 579

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.

No. 04-7187.

United States Court of Appeals, District of Columbia Circuit.

Argued October 21, 2005.

Decided January 17, 2006.

Appeals from the United States District Court for the District of Columbia (No. 02cv01490) (No. 02cv01886).

Donald J. Enright argued the cause for appellants. With him on the briefs were Burton H. Finkelstein and Tracy D. Rezvani. Adam T. Savett and Steven J. Toll entered appearances.

Michael L. Martinez argued the cause and filed the brief for appellee Radin Glass & Co., LLP.

Jeff G. Hammel argued the cause for appellee CIBC World Markets Corporation. With him on the brief were David M. Brodsky, Donna C. Goggin, and DeMaurice F. Smith.

Before: GINSBURG, Chief Judge, and ROGERS and GRIFFITH, Circuit Judges.

Opinion for the Court filed by Chief Judge GINSBURG.

GINSBURG, Chief Judge.

Monica Belizan appeals an order of the district court because it dismissed "with prejudice" her claims under the Securities Act of 1933 and the Securities Exchange Act of 1934 against Radin Glass & Co. and CIBC World Markets Corp. She also contends the district court erred in determining she failed to move for leave to amend her complaint.

Because Belizan's oral request for leave was not a proper motion under Federal Rule of Civil Procedure 15(a), the district court did not err in refusing to recognize it. The district court, however, failed adequately to explain, in light of the standard set in Firestone v. Firestone, 76 F.3d 1205, 1209 (D.C.Cir.1996), why it dismissed Belizan's complaint with prejudice. Accordingly, we vacate the order in part and remand the question of prejudice for clarification.

I. Background

According to Belizan's complaint, between 1997 and 2002 she and other members of an uncertified class of plaintiffs purchased debt securities from InterBank Funding Corp. (IBF) and its subsidiaries. IBF, which was owned by Simon Hershon, had formed several investment funds with the purpose of purchasing and restructuring or rehabilitating underperforming loans. Belizan claims 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. During the relevant period, Radin Glass & Co. served as IBF's independent auditor and CIBC World Markets Corp. sold IBF's debt securities to investors.

Investors' suits against Hershon, Radin, CIBC, and others were consolidated and Belizan, designated as lead plaintiff pursuant to the Private Securities Litigation Reform Act of 1995 (PSLRA), 15 U.S.C. § 78u-4 et seq., filed a consolidated complaint. (Belizan and the others then settled their claims against Hershon.) In the complaint, Belizan 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 Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5. In addition, she claimed Radin, by attesting that IBF's financial statements complied with Generally Accepted Accounting Principles when, in fact, the statements were materially false or misleading, had violated § 11 of the Securities Act of 1933, 15 U.S.C. § 77. Finally, she 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. At a hearing on the motions to dismiss, Belizan's counsel defended the complaint but volunteered his "belie[f] that at this point we probably could, if it was required, file [an] amended complaint," and later, referring to an unnamed officer of IBF who was the source of some allegations in the complaint, reiterated that "if the Court requires us to, we can plead that [source] in an amended pleading if the Court would like." Belizan did not, however, follow up with a written motion for leave, much less a proposed amended complaint.

Some weeks after the hearing, the district court granted the defendants' motions to dismiss Belizan's claims. See In re Interbank Funding Corp. Sec. Litig., 329 F.Supp.2d 84 (D.D.C.2004). With respect to the alleged violations of § 10 and Rule 10b-5, the court held Belizan had failed adequately to: (1) plead scienter; (2) allege her claims with the specificity required by Rule 9(b) and the PSLRA, 15 U.S.C. § 78u-4; and (3) plead causation. 329 F.Supp.2d at 89-94. The district court also held Belizan failed properly to plead a violation of § 11; her claim under § 12(a)(1) was time-barred; and she and her fellow class members lacked standing to bring the claim under § 12(a)(2). Id. at 94-96.

The district court also said Belizan would not be allowed to amend her complaint, which was dismissed "with prejudice." The court explained that counsel's references 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." 329 F.Supp.2d at 96. 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." 329 F.Supp.2d at 96.

Belizan filed a motion under Rule 59(e) seeking reconsideration insofar as the court had not permitted her leave to amend the complaint and dismissed her claims with prejudice. With her motion, Belizan submitted an amended complaint in draft form. The district court denied reconsideration and further stated that Belizan's draft amended complaint "share[d] important failings with [her] earlier effort."

II. Analysis

On appeal Belizan does not take issue with the district court's determination that she failed properly to plead her various claims under the '33 and '34 Acts. Rather, Belizan first argues she made an adequate motion for leave to amend and then contests the district court's decision to dismiss her complaint "with prejudice." Radin and CIBC defend the district court on both counts.^*

A. Leave to Amend

Belizan argues the district court erred in determining she never properly moved to amend her complaint because her oral offer to amend was sufficient in view of the instruction in Rule 15(a) that "leave shall be freely given when justice so requires." She also relies upon Taylor v. Beckas, 424 F.2d 905, 908 (D.C.Cir.1970), in which we implied the now defunct District of Columbia Court of General Sessions could grant an oral motion for leave to amend a complaint under a local rule similar to Rule 15(a). Proceeding from that premise, Belizan goes on to argue the district court would not have been justified in denying leave on the substantive grounds raised by the defendants, had it addressed them.

Radin and CIBC respond that Belizan's request was properly refused because oral "motions" are not acceptable under the local rules of the district court. Specifically, Local Rule 7(a) requires that every "motion shall include or be accompanied by a statement of the specific points of law and authority that support the motion." Furthermore, Local Rule 15.1 provides each "motion for leave ... shall be accompanied by an original of the proposed pleading as amended." The defendants also note that even if Belizan had requested leave in her brief in opposition, she would not have satisfied Rule 15(a) because "a bare request in an opposition to a motion to dismiss — without any indication of the particular grounds on which amendment is sought — does not constitute a motion within the contemplation of Rule 15(a)." United States ex rel. Williams v. Martin-Baker Aircraft Co., 389 F.3d 1251, 1259 (D.C.Cir.2004) (internal quotation marks and citations omitted). As for Taylor v. Beckas, Radin and CIBC point out that the permissibility of an oral motion for leave was not there in issue and, in any event, the case involved a D.C. rule of procedure, not Rule 15(a) or Local Rule 15.1.

When the district court denies a motion for leave to amend under Rule 15(a), we review its decision for abuse of discretion, see Caribbean Broad. Sys., Ltd. v. Cable & Wireless PLC, 148 F.3d 1080, 1083 (D.C.Cir.1998), bearing in mind that the rule is to be construed liberally. For in Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962), the Supreme Court instructed:

In the absence of any apparent or declared reason — such as undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, [or] undue prejudice to the opposing party ... the leave sought should... be "freely given."

Nevertheless, Rule 15(a) — even as liberally construed — applies only when the plaintiff actually has moved for leave to amend the complaint; absent a motion, there is nothing to "be freely given."

Contrary to Belizan's suggestion, a request for leave must be submitted in the form of a written motion, as is made clear by the local rules of the district court and implied by our decision Ex rel. Williams, 389 F.3d at 1259. The statement of Belizan's counsel at oral argument that he "probably could, if it was required, file another ... complaint" was not a proper motion for leave to amend under Rule 15(a) or Local Rule 15.1. Therefore, as the district court correctly determined, Belizan never moved for leave.

B. Dismissal with Prejudice

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