This document summarizes the impact of the Private Securities Litigation Reform Act (PSLRA) on amending pleadings after discovery in securities fraud cases. It discusses how the PSLRA requires heightened pleading standards and stays discovery during motions to dismiss. After a claim survives dismissal, courts take different approaches to post-discovery amendment. Some invite amendment if discovery reveals new evidence, while others view amendment as circumventing the PSLRA's pleading requirements. The document analyzes relevant Federal Rules of Civil Procedure and case law on this issue. It concludes by noting an upcoming Ninth Circuit case that could provide guidance on the interaction between the PSLRA and post-discovery amendment.

1. The Impact of the PSLRA on Post-Discovery
Amendment of Pleadings
Wendy Gerwick Couture
University of Idaho College of Law
Annual Institute for Investor Protection
Loyola University Chicago School of Law
October 16, 2015

2. PSLRA
Heightened pleading required,
including “facts giving rise to a strong
inference” of scienter
Stay of discovery “during the
pendency of any motion to dismiss”

3. PSLRA
Heightened pleading required,
including “facts giving rise to a strong
inference” of scienter
Stay of discovery “during the
pendency of any motion to dismiss”
Prevent “fishing
expeditions”
Prevent
extortive
discovery

4. Claim
survives
dismissal
DISCOVERY

5. Claim
survives
dismissal
DISCOVERY
EVIDENCE

6. Claim
survives
dismissal
DISCOVERY
EVIDENCE
Amend
complaint?
Additional
Claim(s)

7. Federal Rules of Civil Procedure
FRCP
15(a)(2)
“The Court should freely give when justice so requires.”

8. Federal Rules of Civil Procedure
FRCP
15(a)(2)
“The Court should freely give when justice so requires.”
FRCP
16(b)(4)
“for good cause”

9. Federal Rules of Civil Procedure
FRCP
15(a)(2)
“The Court should freely give when justice so requires.”
FRCP
16(b)(4)
“for good cause”
FRCP
54(b)
“may be revised at any time before the entry of a
judgment adjudicating all the claims and all the parties’
rights and liabilities” + “law of the case” doctrine

10. Federal Rules of Civil Procedure
FRCP
15(a)(2)
“The Court should freely give when justice so requires.”
FRCP
16(b)(4)
“for good cause”
FRCP
54(b)
FRCP
60(b)
“On motion and just terms, the court may relieve a party
or its legal representative from a final judgment . . .
newly discovered evidence that, with reasonable
diligence, could not have been discovered in time to
move for a new trial”
“may be revised at any time before the entry of a
judgment adjudicating all the claims and all the parties’
rights and liabilities” + “law of the case” doctrine

11. “may be revised at any time before the entry of a
judgment adjudicating all the claims and all the parties’
rights and liabilities” + “law of the case” doctrine
Federal Rules of Civil Procedure
FRCP
15(a)(2)
“The Court should freely give when justice so requires.”
FRCP
16(b)(4)
“for good cause”
FRCP
54(b)
FRCP
60(b)
“On motion and just terms, the court may relieve a party
or its legal representative from a final judgment . . .
newly discovered evidence that, with reasonable
diligence, could not have been discovered in time to
move for a new trial”

12. Courts Inviting Post-Discovery Amendment
When Dismissing Claims
Dow Corning Corp. v. BB&T Corp., No. 09-5637, 2010 WL
4860354, at *9 n.10 (D.N.J. Nov. 23, 2010) (Hochberg, J.):
“Defendants’ motion to dismiss the claims against BB&T is
granted without prejudice. If discovery subsequently reveals a
factual basis to rejoin BB&T as a defendant, plaintiffs may seek
leave to amend their complaint at that time, if they can meet
the PSLRA pleading standards as to BB&T.”

13. McIntire v. China MediaExpress Holdings, Inc., 927 F. Supp. 2d
105, 129 (S.D.N.Y. Feb. 28, 2013) (Marrero, J.):
“Because Plaintiffs have not established a strong inference of
scienter, Green and Bird’s motion to dismiss Plaintiffs’ § 10(b)
and Rule 10b-5 claims is granted. The Court, however,
dismisses these claims without prejudice. In the event that
during the course of discovery Plaintiffs come upon sufficient
evidence that could reasonably support a finding of knowledge
or conscious recklessness on the part of Green or Bird in
connection with the fraudulent conduct Plaintiffs allege,
Plaintiffs may seek leave to replead the claims dismissed.”
Courts Inviting Post-Discovery Amendment
When Dismissing Claims

14. In re Bridgepoint Education, Inc. Securities Litigation, No. 3:12-
CV-1737, 2013 WL 5206216, at *22 (S.D. Cal. Sept. 13, 2013)
(Miller, J.):
“But the court notes that Plaintiffs may eventually be able to
demonstrate that Defendants were aware that WASC would not
accredit Ashford well before the WASC denied accreditation in
July 2012. If discovery reveals that Defendants knew that . . .
accreditation would be denied, then Plaintiff may be permitted
to amend its complaint to reassert this claim based on prior
misleading statements made during conference calls or other
disclosures to investors.”
Courts Inviting Post-Discovery Amendment
When Dismissing Claims

15. WPP Luxembourg Gamma Three Sarl v. Spot Runner, Inc., 655
F.3d 1039, 1059 (9th Cir. 2011):
“Here, where some claims survive a motion to dismiss, the
district court, in its discretion, has power to allow an amended
complaint even with regard to claims it earlier dismissed.
Although not common, this procedure would be appropriate
should discovery reveal evidence indicating that previously
dismissed Defendants were in fact involved in the alleged
fraudulent conduct. . . . To some extent, the ability of a district
court to revive dismissed claims should evidence come to light
tempers the heightened pleading standards of the PSLRA in
securities actions where claims survive against co-defendants.”
Courts Inviting Post-Discovery Amendment
When Dismissing Claims

16. Bolling v. Gold, No. C13-0872, 2015 WL 2406487, at *3-4 (W.D.
Wash. May 19, 2015) (Robart, J.):
“The court also finds that the PSLRA sets up no barrier to
Plaintiffs’ motion [to amend the complaint]. . . . Thus, the court
concludes that it has the authority to revisit its earlier order
dismissing Plaintiffs’ federal securities claims. Because the
court’s deadline for filing amended pleadings has not passed,
the court also concludes that the proper standard for
considering Plaintiffs’ motion to amend is Rule 15(a).”
Courts Analyzing Post-Discovery Amendment
Without PSLRA Overlay

17. In re Constellation Energy Group, Inc. Securities Litigation,
No.08-2854, 2012 WL 1067651, at *4 (D. Md. March 28, 2012)
(Blake, J.):
“The purpose of the PSLRA provision at issue is to limit the
pressure on innocent defendants to settle cases in lieu of
proceeding to expansive discovery, . . . but it is not meant to
shield all defendants from any adverse evidence that may
properly be discovered over the course of litigation. . . . The
court need not read into the PSLRA a limit that Congress did not
create.”
Courts Analyzing Post-Discovery Amendment
Without PSLRA Overlay

18. Transcript, In re Longtop Financial Technologies Limited
Securities Litigation, No. 11-3658, at 21 (S.D.N.Y. Jan. 8, 2013)
(Scheindlin, J.):
“I don’t see why the world stops on the day that the original
complaint was filed. . . As long as they didn’t put you to the
trouble of responding to discovery, which is what the PSLRA
does, it protects you, they didn’t get it from you, they didn’t
bother you, you didn’t spend money responding to the
discovery, I don’t see why they’re estopped from adding
whatever they learned as long as it wasn’t learned improperly,
and it wasn’t.”
Courts Analyzing Post-Discovery Amendment
Without PSLRA Overlay

19. Greebel v. FTP Software Inc., 182 F.R.D. 370, 376 (D. Mass.
1998) (Tauro, J.):
“[T]he court will not allow Plaintiffs leave to amend their
complaint for the third time. Plaintiffs would not have
discovered the additional evidence but for the inclusion of the
white-out claim, which saved Plaintiffs from earlier dismissal,
and has since turned out to be groundless. To allow Plaintiffs to
amend at this point would fly in the face of the PSLRA and the
First Circuit’s pre-PSLRA pleading standard. The new law
requires Plaintiffs to plead particular facts sufficient to show
their case has merit before gaining unfettered access to
Defendants’ files.”
Courts Analyzing Post-Discovery Amendment
With PSLRA Overlay

20. Capital Ventures Int’l v. Network Commerce, Inc., No. 02-682,
2006 WL 681033, at *1 (W.D. Wash. March 16, 2006) (Lasnik,
J.):
“Allowing plaintiff to reopen claims that had been dismissed
with prejudice and without leave to amend based on new
evidence obtained during discovery would be an end run
around the PSLRA’s pleading requirement and this Court’s prior
orders.”
Courts Analyzing Post-Discovery Amendment
With PSLRA Overlay

21. In re Bisys Securities Litigation, 496 F. Supp. 2d 384, 387 (S.D.N.Y.
2007) (Rakoff, J.):
“It would wholly defeat this [PSLRA] policy to allow plaintiffs who
failed as to a given defendant to sustain their pleading burden at the
outset of the case to wait until all discovery in the rest of the case
was completed and then add that defendant back into the case. If
plaintiffs could not allege fraud with specificity as to PwC, they
should not have included PwC as a defendant in the original
complaint. They chose to do so anyway, thereby running the risk
that their claims would be dismissed, which is exactly what
happened. Having precipitously tried to pluck the fruit from the tree
of knowledge when it was not yet ripe, they are in no position to
now demand a second bite at the apple.”
Courts Analyzing Post-Discovery Amendment
With PSLRA Overlay

22. In re Bisys Securities Litigation, 496 F. Supp. 2d 384, 387 (S.D.N.Y.
2007) (Rakoff, J.) (denying motion to amend the complaint).
Courts Analyzing Post-Discovery Amendment
With PSLRA Overlay
Public Employees Retirement Ass’n of N.M. v. PwC, LLP, No. 07-
3756, 305 Fed. Appx. 742, 745 n.3 (2d Cir. 2009) (affirming as within
the court’s discretion).
“Also, we need not decide whether the PSLRA bars a plaintiff from
using evidence obtained in discovery in litigation with one defendant
to re-instate a claim against a defendant which had previously been
dismissed for failure to state a claim.”

23. “may be revised at any time before the entry of a
judgment adjudicating all the claims and all the parties’
rights and liabilities” + “law of the case” doctrine
Federal Rules of Civil Procedure
FRCP
15(a)(2)
“The Court should freely give when justice so requires.”
FRCP
16(b)(4)
“for good cause”
FRCP
54(b)
FRCP
60(b)
“On motion and just terms, the court may relieve a party
or its legal representative from a final judgment . . .
newly discovered evidence that, with reasonable
diligence, could not have been discovered in time to
move for a new trial”

24. PSLRA
Heightened pleading required,
including “facts giving rise to a strong
inference” of scienter
Stay of discovery “during the
pendency of any motion to dismiss”
Prevent “fishing
expeditions”
Prevent
extortive
discovery

25. Claim
survives
dismissal
DISCOVERY
EVIDENCE

26. Current FRCP 26(b)(1): “Parties may obtain discovery regarding
any nonprivileged matter that is relevant to any party’s claim or
defense . . .”
Prevent “fishing
expeditions”

27. Current FRCP 26(b)(1): “Parties may obtain discovery regarding
any nonprivileged matter that is relevant to any party’s claim or
defense . . .”
Commentary to 2000 Amendments: “The rule
change signals to the court that it has the authority
to confine discovery to the claims and defenses
asserted in the pleadings, and signals to the parties
that they have no entitlement to discovery to
develop new claims or defenses that are not already
identified in the pleadings.”
Prevent “fishing
expeditions”

28. Current FRCP 26(b)(2)(C)(iii): “[T]he court must limit the
frequency or extent of discovery otherwise allowed by these
rules . . . if it determines the burden or expense of the proposed
discovery outweighs its likely benefit, considering the needs of
the case, the amount in controversy, the parties’ resources, the
importance of the issues at stake in the action, and the
importance of the discovery in resolving the issues.”
Prevent
extortive
discovery

29. Current FRCP 26(b)(2)(C)(iii): “[T]he court must limit the
frequency or extent of discovery otherwise allowed by these
rules . . . if it determines the burden or expense of the proposed
discovery outweighs its likely benefit, considering the needs of
the case, the amount in controversy, the parties’ resources, the
importance of the issues at stake in the action, and the
importance of the discovery in resolving the issues.”
Commentary to 1983 Amendments: “The court
must apply the standards in an even-handed
manner that will prevent use of discovery to wage a
war of attrition or as a device to coerce a party,
whether financially weak or affluent.”
Prevent
extortive
discovery

30. Effective Dec. 1, 2015, absent contrary Congressional action
FRCP 26(b)(1): “Parties may obtain discovery regarding any
nonprivileged matter that is relevant to any party’s claim or defense
and proportional to the needs of the case, considering the
importance of the issues at stake in the action, the amount in
controversy, the parties’ relative access to relevant information, the
parties’ resources, the importance of the discovery in resolving
issues, and whether the burden or expense of the proposed
discovery outweighs its likely benefit.”
Prevent
extortive
discovery
Prevent “fishing
expeditions”

31. “may be revised at any time before the entry of a
judgment adjudicating all the claims and all the parties’
rights and liabilities” + “law of the case” doctrine
Federal Rules of Civil Procedure
FRCP
15(a)(2)
“The Court should freely give when justice so requires.”
FRCP
16(b)(4)
“for good cause”
FRCP
54(b)
FRCP
60(b)
“On motion and just terms, the court may relieve a party
or its legal representative from a final judgment . . .
newly discovered evidence that, with reasonable
diligence, could not have been discovered in time to
move for a new trial”

32. Claim
survives
dismissal
DISCOVERY

33. Claim
survives
dismissal
DISCOVERY
Commentary to Pending 2015 Amendments: “The present
amendment again reflects the need for continuing and close judicial
involvement in the cases that do not yield readily to the ideal of
effective party management.”

34. Federal Rules of Civil Procedure
FRCP
15(a)(2)
“The Court should freely give when justice so requires.”
FRCP
16(b)(4)
“for good cause”
FRCP
54(b)
“may be revised at any time before the entry of a
judgment adjudicating all the claims and all the parties’
rights and liabilities” + “law of the case” doctrine
FRCP
60(b)
“On motion and just terms, the court may relieve a party
or its legal representative from a final judgment . . .
newly discovered evidence that, with reasonable
diligence, could not have been discovered in time to
move for a new trial”

35. Claim
survives
dismissal
DISCOVERY
EVIDENCE
Amend
complaint?
Additional
Claim(s)

36. Case to watch: The Hemmer Group v.
Southwest Water Co., No. 14-56235, currently
pending before the 9th Circuit

37. Wendy Gerwick Couture, The PSLRA Discovery
Stay Meets Complex Litigation: Five Questions
Answered, 42 SEC. REG. L.J. 243 (2014).

38. The Impact of the PSLRA on Post-Discovery
Amendment of Pleadings
Wendy Gerwick Couture
University of Idaho College of Law
Thank you!