Thursday, February 16, 2006

Fifth Circuit Tanks Amresco Action

The Fifth Circuit has spoken, and it looks like it could be the end of the line for investors in the Amresco securities class action. You see, despite that fact that Plaintiffs’ contested the district court's order: “(1) implicitly denying application of collateral estoppel; (2) striking part of their expert's affidavit; (3) holding the SAC (second amended complaint) failed to satisfy the PSLRA's pleading requirements; and (4) denying leave to amend the SAC,” the Fifth Circuit didn’t budge.

The Panel first held that “the district court correctly rejected group-pleading allegations.” Next, it noted that “an Individual Defendant is not liable for an Amresco business filing unless he either signed it or was involved in its creation,” and that “Plaintiffs provide no specific facts either tying any of the Individual Defendants to such filings they did not sign or demonstrating scienter for any filings they did sign.” Plus, “Plaintiffs' mere allegation that the Individual Defendants were motivated by a desire to retain their jobs does not satisfy the scienter requirement.,” and “Plaintiffs never pleaded with specificity how, or why, Deloitte was unreasonable in failing to determine Amresco did not have a reasonable turnaround plan.”

Finally, the Panel considered Plaintiffs’ argument that “even if their SAC was properly dismissed, they should have been granted leave to amend (to permit a fourth try).” Rejecting this position, they held that “in seeking to avoid dismissal, Plaintiffs' opposition employed facts claimed unavailable when filing the SAC. Although they had three prior opportunities to produce this information, and although they claimed the facts were previously unavailable and that others might become known, Plaintiffs did not explain why they were unable to obtain the information before filing the SAC. In other words, they never explained this to the district court as a basis for being allowed leave to file a fourth complaint. In short, Plaintiffs never provided the requisite specificity for leave to file a fourth complaint.”

You can read Financial Acquisition Partners v. Blackwell here, issued February 14, 2006, or at 2006 U.S. App. LEXIS 3523.

Nugget: “Even if non-opinion portions of an expert's affidavit constitute an instrument pursuant to Rule 10, opinions cannot substitute for facts under the PSLRA.”

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