Tuesday, September 19, 2006

Shotgun City

The Eleventh Circuit has ruled in the First Horizon securities class action. But before we get to that, it helps to know that before the case got to the Court of Appeals, the District Judge (after throwing out Plaintiffs’ amended complaint), told Plaintiffs that if they wanted to file a motion to amend, they’d have to pay all of Defendants costs and fees associated with the motion to dismiss. Hmmmm, let’s see. Uh, nope, said the Plaintiffs, instead appealing the ruling.

Well, that appeal has now led to an opinion, authored by Circuit Judge Stanley F. Birch (pictured). In it, the Panel says that “the defendant is a no good defrauder.” Strong language, huh? Actually, the Panel uses that language in a rhetorical sense, ruling for Defendants by accepting the sound-in-fraud argument “when the facts underlying the misrepresentation at stake in the claim are said to be part of a fraud claim, as alleged elsewhere in the complaint.” However, before some of you start to get carried away, the Panel did make clear that they do not intend to “elevate the pleading standard when the claim is not alleged to have been part of another fraud-based claim.” So kind of where we were – don’t allege fraud in your ’33 Act claims.

And here’s another thing not to do if you’re a Plaintiff. The Panel held that “the complaint at issue in this case is a proverbial shotgun pleading,” which to them is a complaint that “incorporate[s] every antecedent allegation by reference into each subsequent claim for relief or affirmative defense.” In other words, how and exactly what you incorporate from the body of the complaint into the Counts is important – especially in the Eleventh Circuit. So if you’re drafting an amended complaint right now, do yourself a favor and read this opinion carefully. Otherwise, you could be responsible for a Nugget article you won’t like.

Oh, and as for the cost and fee thing, the Panel said it chooses to “strike a different path,” concluding that they “disagree that dismissal was the appropriate course of action for the district court to take at this juncture in the litigation,” because things seem “more clearly in Rule 12(e)'s remedy of ordering repleading for a more definite statement of the claim, rather than in Rule 12(b)(6)'s remedy of dismissal for failure to state a claim.” So, “given the district court's proper conclusions that the complaint was a shotgun pleading and that the plaintiffs' failed to connect their causes of action to the facts alleged, the proper remedy was to order repleading sua sponte.”

You can read Wagner v. First Horizon, issued yesterday, here.

Nugget: “Shotgun pleadings wreck havoc on the judicial system. Such pleadings divert already stretched judicial resources into disputes that are not structurally prepared to efficiently use those resources.”

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