Group Pleading Takes Another Blow

The “group pleading” doctrine creates the presumption that the senior officers of a company are collectively responsible for misrepresentations or omissions contained in public statements made by the company (e.g., press releases, SEC filings). The U.S. Court of Appeals for the Fifth Circuit has recently held, in the first circuit court decision to address the issue, that the group pleading doctrine was abolished by the enactment of the PSLRA’s heightened pleading standards.

That decision is beginning to have an impact outside of the Fifth Circuit. In In re Cross Media Marketing Corp. Sec. Litig. 2004 WL 842350 (S.D.N.Y. April 20, 2004), the court found that the PSLRA’s “use of the singular ‘defendant’ counsels against group pleading in actions arising in securities fraud cases since the enactment of the [statute].” The court cited the Fifth Circuit decision and held that group pleading could not be used to establish that the individual defendants made misrepresentations or acted with scienter (i.e., fradulent intent).

Holding: Motion to dismiss granted with leave to replead.

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