The Private Securities Litigation Reform Act of 1995 (PSLRA) establishes a statutory scheme for the selection of a lead plaintiff in a securities class action. Under the PSLRA, the presumptive lead plaintiff is the applicant with the largest financial interest in the relief sought by the class, but that presumption may be rebutted by “proof by a member of the purported plaintiff class that the presumptively most adequate plaintiff . . . will not fairly and adequately protect the interests of the class; or . . . is subject to unique defenses that render such plaintiff incapable of adequately representing the class.” But what is the applicable standard of proof that the member of the plaintiff class must satisfy in providing this rebuttal?
While the PSLRA is silent on that issue, the U.S. Court of Appeals for the Ninth Circuit has now weighed in. In In re Crain Walnut Shelling, LP, 2026 WL 1252327 (9th Cir. May 7, 2026), the district court found that Crain Walnut’s status as the presumptive lead plaintiff had been successfully rebutted by another lead plaintiff applicant based on a showing that Crain Walnut had made inaccurate statements about its ownership structure and demonstrated an unwillingness to fully participate in discovery. While the district court initially applied a “genuine and serious doubts” standard of proof (based on language in earlier Ninth Circuit decisions analyzing the PSLRA’s lead plaintiff provisions), upon reconsideration it also found that the stricter “preponderance of the evidence” standard had been met.
Crain Walnut petitioned for a writ of mandamus to overturn the district court’s order. The Ninth Circuit denied the petition, finding that the district court did not commit clear error, but also wrote separately to clarify that the required standard of proof under the PSLRA is “preponderance of the evidence.” In support of its holding, the Ninth Circuit noted that “preponderance of the evidence” is both the default standard of proof in civil litigation and generally applies to “adequacy determinations” under Federal Rule of Civil Procedure 23.
Holding: Mandamus petition denied.
Quote of note: “The determination as to a presumptive lead plaintiff’s adequacy or typicality under the PSLRA does not change the plaintiff’s separate entitlements in a securities class action (the plaintiffs can still vindicate their rights in a separate action) or abridge the defendant’s rights in any manner. Like a class representative being chosen in the Rule 23 context, the appointment of a lead plaintiff only impacts ‘how the claims are processed.’ We hold that the preponderance of the evidence standard applies to a rebuttal of the presumption of adequacy under the PSLRA.”
The 10b-5 Daily 