If a securities class action is dismissed prior to class certification, is there anything stopping another investor from bringing the same case again? In Dempsey v. Vieau, et al., 2015 WL 5231339 (S.D.N.Y. Sept. 8, 2015), the defendants (former officers and directors of A123 Systems, Inc.) argued that the case was barred by the doctrine of res judicata because a District of Massachusetts court previously had dismissed a substantially similar case brought by a different plaintiff.
The Supreme Court has held that a proposed class action or a rejected class action cannot bind nonparties. The defendants argued that under the Private Securities Litigation Reform Act, however, the appointed lead plaintiff is charged with representing the class. Accordingly, once the earlier securities class action was dismissed with prejudice, that ruling had a preclusive effect on any putative class member who sought to bring the suit again.
The district court disagreed, finding that there is “nothing in the plain language of the Private Securities Litigation Reform Act (“PSLRA”) that would preclude later litigation by an absent class member of a previously dismissed putative class action prior to certification, so long as the statute of limitations has not run.” In sum, “lead plaintiff designation does not abnegate the necessity of class certification” for purposes of res judicata preclusion.
Holding: Denied motion on res judicata grounds, but dismissed case based on the plaintiffs’ failure to adequately plead their claims.