District Court Granted Defense Motion to Dismiss Securities Fraud Class Action Lawsuit, Seeking Damages Under § 10(b) and § 20(a) of the Securities Exchange Act of 1934 and Common Law Fraud, but Second Circuit Reversed
A class action securities fraud lawsuit was filed against American Express and its subsidiaries, and against individual corporate officers of those companies (“Amex”), arising from high-risk junk bond investments and allegedly false statements concerning the profitability of those investments. Plaintiffs’ lawyer filed an amended class action complaint adding two causes of action; defense attorneys moved to dismiss the new claims as time-barred and the original claims on the merits. The district court granted the defense motion, finding that the new claims did not “relate back” to the filing of the original complaint, and that the original claims failed on the merits because plaintiffs had not adequately pleaded the requisite scienter. The Second Circuit reversed and remanded. Slayton v. American Express Co., 460 F.3d 215 (2d Cir. 2006).
The original complaint contained two claims for relief arising out of three alleged material misrepresentations, each concerning Amex’s junk bond investments and statements concerning those investments. Slayton, at 219-20. The amended complaint added two new claims for relief, arising out of four alleged material misrepresentations. Id., at 220-21. The Circuit Court stated that “[t]he amended complaint added details not present in the original complaint,” id., at 221, which the Court outlined in detail, id., at 221-22. The district court held that the new claims did not relate back within the meaning of FRCP Rule 15(c)(2), which provides, “An amendment of a pleading relates back to the date of the original pleading when * * * (2) the claim or defense asserted in the amended pleading arose out of the conduct, transaction, or occurrence set forth or attempted to be set forth in the original pleading.”
Before addressing the district court’s Rule 15(c)(2) ruling, the Second Circuit overruled prior Second Circuit decisional law and held that such rulings are to be reviewed de novo rather than for abuse of discretion. Slayton, at 226-28 and n.13. Based on its de novo review of the complaint and the amended complaint, the Circuit Court held that the new claims for relief did relate back to the date the original action was filed. Id., at 228-29.
Amex alternatively argued that, at the very least, the claims against three individual defendants must be dismissed as time-barred. The Circuit Court rejected this argument finding that the statute of limitations defense had been waived on appeal because it had not be argued in the district court. Slayton, at 229-30.
NOTE: Surprisingly, the Second Circuit vacated the district court’s judgment in its entirety, even though it found no error with the court’s conclusion that the complaint failed to adequately allege scienter. See Slayton, at 230. The Second Circuit addressed also a jurisdictional question arising out of the premature filing of a notice of appeal. Id., at 223-25. We do not discuss that aspect of the court opinion because it is consistent with numerous cases.