How Many Bites At The Apple Are Too Many?

Rule 15(a) of the Federal Rules of Civil Procedure provides that leave to amend a complaint “should be freely given when justice so requires.” The PSLRA, on the other hand, states “[i]n any private action arising under this chapter, the court shall, on the motion of any defendant, dismiss the complaint if the [pleading] requirements . . . are not met.” It is a tension-packed clash leading to the inevitable question: how many bites at the apple are too many in a securities class action?

The U.S. Court of Appeals for the Sixth Circuit does not give an exact answer in Miller v. Champion Enterprises, Inc., 2003 WL 22298649 (6th Cir. Oct. 8, 2003), but it does conclude that repeated amendments should not be permitted. In Miller, the plaintiffs moved for leave to file a second amended complaint (the fourth complaint in the action) after their first amended complaint was dismissed for failure to meet the PSLRA’s pleading requirements. The district court denied the motion for two reasons: (1) the PSLRA was designed to prevent strike suits and “could not achieve this purpose if plaintiffs were allowed to amend and amend until they got it right;” and (2) the proposed amended complaint was futile because it did not correct the earlier pleading deficiencies.

In affirming the decision, the Sixth Circuit states that the “district court also correctly held that allowing repeated filing of amended complaints would frustrate the purpose of the PSLRA.” The appellate court expressly rejects the argument that courts should be lenient in allowing amendments to pleadings in securities fraud cases because plaintiffs do not have discovery available to them.

Holding: Dismissal affirmed.

Quote of note: “In light of [the PSLRA’s heightened pleading] requirements, we think it is correct to interpret the PSLRA as restricting the ability of plaintiffs to amend their complaint, and thus as limiting the scope of Rule 15(a) of the Federal Rules of Civil Procedure.”

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