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IN THE Supreme Court of the United States SALLY FRAME KASAKS, PAUL E. FRANCIS, JOSEPH R. GROMEK, ANNTAYLOR STORES CORPORATION and ANNTAYLOR, INC., Petitioners, v. CAROL NOVAK, ROBERT NEIMAN and JOSEPH DESENA, on behalf of themselves and all others similarly situated, Respondents. ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT PETITION FOR A WRIT OF CERTIORARI ROBERT E. ZIMET Counsel of Record SUSAN L. SALTZSTEIN JOSEPH N. SACCA SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP Attorneys for Petitioners Four Times Square New York, New York 10036 (212) 735-3000
QUESTIONS PRESENTED
In 1995, Congress passed the Private Securities Litigation Reform Act of 1995 (the “PSLRA”) to create a uniform pleading standard for securities fraud class actions more stringent than the varying standards previously applied by the United States Courts of Appeals under Federal Rule of Civil Procedure 9(b) (“Rule 9(b)”). A complaint not meeting the pleading standard must, according to Congress, be dismissed. The courts of appeals, however, have interpreted the pleading requirements of the PSLRA in irreconcilably divergent manners, with the practical consequence that securities class action complaints that i would be dismissed in one jurisdiction will be permitted to stand in others. Review of this case by the Court will resolve this conflict among the courts of appeals (which these courts have acknowledged), and implement the PSLRA’s objective that there be a uniform pleading standard in all future securities fraud actions. The issues presented for review are: 1. Whether the PSLRA’s requirement that a securities fraud plaintiff”state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind,” 15 U.S.C. � 78u-4(b)(2), imposes a uniform standard for pleading intent more stringent than those previously applied by the courts of appeals under Rule 9(b), as the majority of circuit courts to consider this question has held, or demands only that a plaintiff meet the more lenient Rule 9(b) standard applied by the Second Circuit before the PSLRA’s enactment, as held by the court below and by the Third Circuit. 2. Whether a putative securities class action plaintiff alleging, on information and belief, violation of the federal securities laws must “state with particularity allfacts on which that belief is formed,” 15 U.S.C. � 78u-4(b)(1) (emphasis added), as required by the terms of the PSLRA and the Ninth Circuit, or merely certain facts purportedly “sufficient” to comply with the requirements of Rule 9(b) as construed by the United States Courts of Appeals prior to enactment of the PSLRA and as adhered to by the Second Circuit below.
PARTIES TO THE PROCEEDING BELOW
The parties to the proceeding below were petitioners Sally Frame Kasaks, Paul E. Francis, Joseph R. Gromek, AnnTaylor Stores Corporation and AnnTaylor, Inc.; respondents Carol Novak, Robert Neiman and Joseph Desena, purporting to act on behalf of themselves and a class of all others similarly situated; and Merrill Lynch & Company, Merrill Lynch, Pierce Fenner & Smith Inc., Merrill Lynch Capital Partners, Inc., ML IBK Positions, Inc., Merchant Banking L.P. No. III, Kecalp, Inc., Gerald S. Armstrong and James J. Burke, defendants-appellees, who entered into a settlement agreement with respondents and have been dismissed from this action.
STATEMENT PURSUANT TO RULE 29.6
Petitioner AnnTaylor, Inc. is wholly owned by petitioner AnnTaylor Stores Corporation, which has no parent corporation. No publicly held company owns 10 percent or more of the stock of petitioner AnnTaylor Stores Corporation. [TABLE OF CONTENTS OMMITTED FOR WEB REPUBLICATION] [TABLE OF CITED AUTHORITIES OMITTED FOR WEB REPUBLICATION]
TABLE OF APPENDICES
[APPENDICES OMITTED FOR WEB REPUBLICATION] Appendix A — Opinion Of The United States Court Of Appeals For The Second Circuit Dated And Decidcd June 21, 2000 Appendix B — Amended Opinion And Order Of The United States District Court For The Southern District Of New York Dated November 12, 1998 Appendix C — Opinion And Order Of The United States District Court For The Southern District Of New York Dated March 10, 1998 Petitioners Sally Frame Kasaks, Paul E. Francis, Joseph R. Gromek, AnnTaylor Stores Corporation and AnnTaylor, Inc. respectfully request that a writ of certiorari issue to review the judgment of the United States Court of Appeals for the Second Circuit in this action entered on June 21, 2000.
OPINIONS BELOW
Review is sought of a decision of the United States Court of Appeals for the Second Circuit, issued on June 21, 2000. The Second Circuit’s opinion is reported at 216 F. 3d 300 (2d Cir. 2000). The decision of the United States District Court for the Southern District of New York dismissing respondents’ amended complaint, issued November 12, 1998, is reported at 26 F. Supp. 2d 658 (S.D.N.Y. 1998). The decision of the District Court dismissing respondents’ original complaint, issued March 10, 1998, is reported at 997 F. Supp. 425 (S.D.N.Y. 1998). Copies of these opinions are attached as an Appendix to this petition. [APPENDICES OMITTED FOR WEB REPUBLICATION]
STATEMENT OF JURISDICTION
The judgment of the United States Court of Appeals was entered on June 21, 2000. The jurisdiction of this Court is invoked under 28 U.S.C. � 1254(1).
STATUTORY PROVISIONS INVOLVED
This case involves provisions of Section 21D of the Securities Exchange Act of 1934, 15 U.S.C. � 78u-4, which was enacted by the PSLRA. Section 21D provides, in relevant part: (b) Requirements For Securities Fraud Actions. (1) Misleading Statements and Omissions. In any private action arising under this chapter in which the plaintiff alleges that the defendant: (A) Made an untrue statement of material fact; or (B) Omitted to state a material fact necessary in order to make the statements made, in light of the circumstances in which they were made, not misleading; the complaint shall specify each statement alleged to have been misleading, the reason or reasons why the statement is misleading, and, if an allegation regarding the statement or omission is made on information and belief, the complaint shall state with particularity all facts on which that belief is formed. (2) Required state of mind. In any private action arising under this chapter in which the plaintiff may recover money damages only on proof that the defendant acted with a particular state of mind, the complaint shall, with respect to each act or omission alleged to violate this chapter, state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind. (3) Motion to Dismiss; Stay of Discovery. (A) Dismissal For Failure to Meet Pleading Requirements. In any private action arising under this chapter, the court shall, on the motion of any defendant, dismiss the complaint if the requirments of paragraphs (1) and (2) are not met.
STATEMENT OF THE CASE
The amended complaint is brought on behalf of a class of persons who purchased common stock of Ann Taylor, a retailer of women’s apparel, between February 3, 1994 and May 4, 1995. Respondents allege that Ann Taylor and other defendants violated the federal securities laws by making false and misleading statements about the value of Ann Taylor’s inventory. The amended complaint focuses on Ann Taylor’s practice of storing certain unsold inventory for sale at a later time, typically when it was again in season. The amended complaint refers to this practice as “AnnTaylor’s . . . ‘Box & Hold’ scheme,” but alleges only generally that Ann Taylor accumulated “huge” amounts of inventory in Box & Hold and carried this inventory on its books at “full value” even though it was purportedly “worthless,” “unsaleable, excess and obsolete.” Other than offering these conclusions, however, respondents do not allege specifically why — other than their own say so — they believe the inventory was worthless. Respondents claimed to base their allegations on review of Ann Taylor’s public filings with the Securities and Exchange Commission; press releases and other public statements issued by the defendants; published reports and news articles regarding the company; internal Ann Taylor documents; documents produced by various non-parties in the litigation and communications with certain former unidentified Ann Taylor employees and independent but unnamed consultants. Ann Taylor and the other defendants moved to dismiss the amended complaint charging that respondents’ allegations of both the existence of a fraud and the defendants’ fraudulent intent failed to meet the rigorous pleading standards that the PSLRA requires be satisfied before such serious charges may be pursued. The District Court, as it did with the original complaint, dismissed the amended complaint, this time with prejudice, holding that its generalized allegations failed to plead fraudulent intent with particularity, as required by the PSLRA. See Novak v. Kasaks, 26 F. Supp. 2d. 658, 660-63 (S.D.N.Y. 1998) (” Novak II“) (A-32a-43a), [FOOTNOTE 1] vacated, 216 F. 3d 300 (2d Cir. 2000); Novak v. Kasaks, 997 F. Supp. 425, 430-33 (S.D.N.Y. 1998) (” Novak I“) (A-56a-65a). Specifically, the District Court determined that respondents failed to allege with sufficient specificity that, at the time Ann Taylor made statements about its financial condition and inventory levels, the defendants were aware (or recklessly disregarded) that much of Ann Taylor’s inventory was overvalued. Novak II, 26 F. Supp. 2d at 661-62 (A-37a-39a); Novak I, 997 F. Supp. at 431 (A-58a-60a). This failure resulted directly from respondents’ non-compliance with the PSLRA’s requirement that they identify with particularity all facts supporting their belief that a fraud had been committed, including with respect to what documents had been provided by third parties, what documents respondents had reviewed, what information the documents had contained and the sources of the documents relied upon, as well as the identities of the consultants and anonymous former employees on whom respondents claimed to rely. See Novak II, 26 F. Supp. 2d at 661-62 (A-37a-40a); Novak I, 997 F. Supp. at 431-32 (A-59a-63a). The District Court recognized that although respondents’ allegations sought to establish that the Box and Hold inventory “‘was nearly worthless,’” respondents offered no more than conclusory statements that this was true, and had not identified any particularized facts to support their “unsupported and inflammatory” claims of fraud. Novak II, 26 F. Supp. 2d at 661-62 (A-38a). The Second Circuit vacated the dismissal of the amended complaint. [FOOTNOTE 2]It rejected the holdings of the majority of courts of appeals that the PSLRA created a new, stringent standard for pleading fraudulent intent in securities fraud cases, and instead concluded that the PSLRA simply codified the Second Circuit’s pre-existing standard, adding only a requirement that intent be plead with particularity. See Novak v. Kasaks, 216 F. 3d 300, 309-11 (2d Cir. 2000) (A-18a-22a). The court then held that the same allegations the District Court found to be wholly conclusory — i.e., that the defendants knew the Box and Hold inventory to be worthless — satisfied the strictures of the PSLRA that intent be plead with specificity, Id.at 311-12 (A-23a-24a). The Second Circuit declared that it could express no conclusion as to whether the allegations of fraud in the amended complaint were sufficiently particularized to meet the PSLRA’s mandate that a plaintiff plead specifically all facts on which her belief that a fraud has been committed is based. See id. at 314 (A-29a). The Second Circuit did, however, reject the District Court’s interpretation of the PSLRA’s requirement that a plaintiff plead “all facts” on which her belief is based, holding that “all facts” does not actually mean all facts, but rather merely facts sufficient to satisfy the requirements of Rule 9(b) as applied before passage of the PSLRA. See216 F. 3d at 313-14 (A-28a). Accordingly, the Second Circuit stated that the District Court was incorrect in requiring respondents to identify their purported “confidential” sources, see id. at 312-14 (A-26a-29a), and instructed the District Court to permit respondents to file a third complaint and then to assess respondents’ compliance with the PSLRA as interpreted by the Second Circuit. Id.at 314 (A-29a-30a). The court did not seek to — and indeed could not, had it attempted to — harmonize its holding that respondents had pied intent to commit fraud with particularity with its inability to determine whether respondents had pled the underlying fraud with particularity. The result of these contradictory holdings is the adoption by the Second Circuit, in square conflict with the PSLRA, of a less stringent standard for pleading scienter than for pleading the existence ofanunderlying fraud.
REASONS FOR GRANTING THE WRIT
Concerned with its findings of abuse of the federal securities laws by private litigants and the harm caused to the nation’s capital markets by this abuse, and disturbed by the inconsistent pleading standards for securities fraud actions developed by the courts of appeals under Rule 9(b), Congress passed the PSLRA to “establish uniform and more stringent pleading requirements to curtail the filing of meritless lawsuits.” H.R. Conf. Rep. No. 104-369, at 41 (1995) (the “Conference Report”), reprinted in1995 U.S.C.C.A.N. 730, 740. In its opinion below, the Second Circuit became the sixth court of appeals to interpret these new pleading requirements, and did so in clear conflict with the decisions of the majority of the courts of appeals, the plain language of the PSLRA and Congress’s intent in enacting the statute. A writ of certiorari should be granted in this action for the following reasons: First,the decision of the court below is in irreconcilable conflict with the decisions of the First, Sixth, Ninth and Eleventh Circuits as to interpretation of the PSLRA’s requirements for pleading fraudulent intent in securities cases, 15 U.S.C. � 78u-4(b)(2). Whereas the First, Sixth, Ninth and Eleventh Circuits held that the PSLRA created a standard more stringent than that extant in any circuit before passage of the statute, the Second Circuit held, consistent with only the Third Circuit, that the PSLRA did no more than adopt the pre-existing Second Circuit standard for pleading scienter. The decision below is not merely in conflict with the decisions of the majority of the courts of appeals, however; it is also in direct conflict with the plain language of the PSLRA itself. The Second Circuit applied its formulation of the PSLRA in such a manner as to write out of the statute the express requirement that fraudulent intent be plead “with particularity.” SeePoint I, infra. Second, the Second Circuit’s decision rejects the plain language of the PSLRA requiring that any securities fraud complaint pied on information and belief ” shallstate with particularity allfacts on which that belief is formed,” 15 U.S.C. � 78u-4(b)(1) (emphasis added), by holding that a plaintiff need not plead all facts on which her belief that a fraud has been committed is based. This holding not only violates fundamental tenets of statutory construction, but also conflicts directly with decision of the Ninth Circuit, the only other appellate court to interpret the “all facts” language of � 78u-4(b)(l). See In re Silicon Graphics Inc. Sec. Litig., 183 F.3d 970, 983-85 (9th Cir. 1999). SeePoint II, infra. Third, effectuating congressional intent to establish a uniform pleading standard by which all complaints may be measured is a goal that can only be achieved through certiorari review. Securities class action lawsuits occupy a significant portion of the dockets of the federal courts; indeed, they accounted for more than 35 percent of all class actions pending before the federal courts in 1999. SeeLeonidas Ralph Mecham, Judicial Business of the United States Courts: 1999 Annual Report of the Director389-96 (1999) (Tables X-4 and X-5). The filing of class actions alleging securities fraud has risen substantially since Congress enacted the PSLRA. In 1998, 29 percent of total pending class actions and 31 percent of class actions commenced in the federal district courts were securities class actions. SeeLeonidas Ralph Mecham, Judicial Business of the United States Courts: 1998 Annual Report of the Director398-404 (1998) (Tables X-4 and X-5). And in 1997, securities class action lawsuits made up only 21 percent of total pending class actions and 18 percent of class actions commenced in the federal district courts. SeeLeonidas Ralph Mecham, Judicial Business of the United States Courts: 1997Annual Report of the Director383-88 (1997) (Tables X-4 and X-5). Given the increasing importance of securities class action lawsuits in the federal courts, it is vital that Congress’s intent to create a uniform pleading standard through the PSLRA — application of which will obviously be outcome determinative in many cases — be realized. If the courts of appeals continue to apply varying standards, plaintiffs will be encouraged to seek out the most lenient jurisdictions in which to file these cases, and the PSLRA will effectively be rendered a nullity.
I.
THE SECOND CIRCUIT’S INTERPRETATION OF THE REQUIREMENTS FOR PLEADING FRAUDULENT INTENT IRRECONCILABLY CONFLICTS WITH DECISIONS OF THE FIRST, SIXTH, NINTH AND ELEVENTH CIRCUITS, WITH THE INTENT OF CONGRESS IN PASSING THE PSLRA AND WITH THE UNAMBIGUOUS LANGUAGE OF THE PSLRA ITSELF Prior to the Second Circuit’s decision in this case, the courts of appeals for five other circuits addressed the proper interpretation of the PSLRA’s requirement that a securities fraud complaint “state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.” 15 U.S.C. � 78u-4(b)(2). Although Congress had stated that this was intended to create a uniform pleading standard more stringent than that applied by the courts of appeals under Rule 9(b), the decisions of the courts of appeals — which centered principally on whether Congress codified the Rule 9(b) standard extant in the Second Circuit prior to the PSLRA or elevated this standard — have been far from uniform. The Third Circuit held — as did the Second Circuit below — that the PSLRA adopted the Second Circuit’s pre-existing Rule 9(b) standard. See In re Advanta Corp. Sec. Litig., 180 E3d 525, 533-35 (3d Cir. 1999); Novak, 216 E3d at 309-11 (A-18a-23a). These courts thus construe the PSLRA to permit plaintiffs to allege securities fraud either by pleading that a defendant had a motive and opportunity to commit fraud or by pleading strong circumstantial evidence of recklessness or conscious wrongdoing, with the addition only of the requirement that intent be plead with particularity. [FOOTNOTE 3] See Novak, 216 E3d at 309-10 (A-17a-21a); Advanta, 180 F. 3d at 534-35. As the Second Circuit recognized, see216 F. 3d at 310 (A-19a), this holding conflicts with those of the Sixth, Ninth and Eleventh Circuits, each of which held that the PSLRA established a more stringent pleading standard than the pre-existing Second Circuit standard, most particularly by eliminating mere allegations of a motive and opportunity as a basis adequately to plead intent to commit securities fraud. See In re Comshare, Inc. Sec. Litig., 183 F. 3d 542, 549-51 (6th Cir. 1999); In re Silicon Graphics Inc. Sec. Litig., 183 F.3d 970, 974-79 (9th Cir. 1999); Bryant v. Avado Brands, Inc., 187 F. 3d 1271, 1282-87 (11th Cir. 1999). Additionally, although not addressed in the Second Circuit’s decision, the First Circuit interprets � 78u-4(b)(2) in a manner consistent with the Sixth, Ninth and Eleventh Circuits to hold — contrary to the decisions of the Second and Third Circuits — that mere allegations of motive and opportunity do not adequately allege scienter. See Greebel v. FTP Software, Inc., 194 F. 3d 185,194-97 (lst Cir. 1999). In reaching its decision below, the Second Circuit declared that its review of the text and legislative history of the PSLRA led it to take a “middle ground” between the interpretations of the PSLRA by the Third Circuit, on the one hand, and the Sixth, Ninth and Eleventh, on the other. See Novak, 216 F. 3d at 310 (A-19a). Noting that Congress failed to include specific language referencing “motive and opportunity” in the PSLRA, the Second Circuit stated that “litigants and lower courts need and should not employ or rely on magic words such as ‘motive and opportunity.’” Id. at 310-11 (A-19a-22a). Nonetheless, in holding that a securities fraud plaintiff can adequately plead scienter through allegations that a defendant “benefitted in a concrete and personal way from the purported fraud,” id., the court relied entirely on its pre-PSLRA motive and opportunity jurisprudence. See id. at 307-08 (A-13a-18a). In any event, any confusion that may have been engendered by this decision regarding the continued viability of allegations of motive and opportunity in the Second Circuit has been conclusively dispelled by a case decided after issuance of the opinion below, in which the Second Circuit — without citation to Novak– held explicitly that the PSLRA did not eliminate “the option of pleading scienter by alleging that a defendant had motive and opportunity to commit fraud.” Ganino v. Citizens Utils. Co., Docket No. 99-7904, 2000 U.S. App. LEXIS 22493, at *41 (2d Cir. Sept. 6, 2000) (to be published in F.3d). The sharp division among the courts of appeals, which can only be reconciled by this Court on certiorari review, frustrates a key Congressional objective in passing the PSLRA — the creation of ” uniformand more stringent pleading requirements to curtail the filing of meritless lawsuits.” Conference Report at 41, reprinted in1995 U.S.C.C.A.N. at 740 (emphasis added). Congress’s desire to establish a uniform standard for the pleading of scienter in securities fraud class actions was born of its frustration with the fact that “the courts of appeals have interpreted Rule 9(b)’s requirement in conflicting ways, creating distinctly different standards among the circuits.” Id. If the decision of the Second Circuit below is not reviewed by this Court, passage of the PSLRA will have served no purpose other than to engender a new conflict among circuit courts concerning the appropriate pleading standards in securities fraud cases and will encourage forum shopping by counsel looking for hospitable locales in which to assert their claims. Left unaddressed by this Court, the distinctly different standards that these courts are currently applying under the PSLRA will never be reconciled. Moreover, the manner in which the PSLRA was interpreted by the Second and Third Circuits is in direct conflict with Congress’s unambiguously expressed intent to “establish … more stringentpleading requirements” than had been imposed by the courts of appeals under Rule 9(b). Conference Report at 41, reprinted in1995 U.S.C.C.A.N. at 740 (emphasis added). Specifically, Congress declared:
The Conference Committee language is based in parton the pleading standard of the Second Circuit …. Regarded as the most stringent pleading standard, the Second Circuit requirement is that the plaintiff state facts with particularity, and that these facts must, in turn, give rise to a “strong inference” of the defendant’s fraudulent intent. Because the Conference Committee intends to strengthen existing pleading requirements, it does not intend to codify the Second Circuit’s case law interpreting this pleading standard.(23) * * * (23) For this reason, the Conference Report chose not to include in the pleading standard certain language relating to motive, opportunity, or recklessness.

Conference Report at 41 & n.23, reprinted in1995 U.S.C.C.A.N. at 740 & n.23 (emphasis added). By holding that the PSLRA did no more than codify the pre-existing Second Circuit pleading standard, including its reference to motive and opportunity, see Novak, 216 F. 3d at 310-11 (A-22a); Advanta, 180 F. 3d at 533-35, the Second and Third Circuits disregarded this clear statement of Congressional intent. In stark contrast, the decisions of the First, Sixth, Ninth and Eleventh Circuits properly gave effect to Congressional intent by holding that the PSLRA imposes a more rigorous pleading standard than applied by any of the courts of appeals before the statute’s enactment. See Greebel, 194 F.3d at 194-97; Comshare, 183 F. 3d at 549-51; Silicon Graphics, 183 F.3d at 974, 979; Bryant, 187 E3d at 1282-87. Finally — wholly apart from its conflicts with the decisions of other courts of appeals and with Congressional intent — the Second Circuit’s application of � 78u-4(b)(2) below is inconsistent with the language of the PSLRA itself. Section 78u-4(b)(2) requires a securities fraud class action complaint to “state with particularityfacts giving rise to a strong inference that the defendant acted with the required state of mind.” 15 U.S.C. � 78u-4(b)(2) (emphasis added). Although the Second Circuit held that the PSLRA simply adopted its own pre-existing scienter pleading standard virtually wholesale, it did purport to recognize that under � 78u-4(b)(2) allegations of intent must now be plead with particularity. See216 F. 3d at 310-11 (A-22a). The court’s application of this standard below, however, served to write the “with particularity” requirement out of the PSLRA entirely. By adhering to its pre-existing standard, the Second Circuit held that respondents could adequately plead intent by either alleging facts to show that the defendants had a motive and opportunity to commit fraud or by alleging facts constituting strong circumstantial evidence of conscious misbehavior or recklessness. See id.at 307-08 (A-12a-16a). Because respondents did not allege that petitioners had a motive or opportunity to commit fraud, the Second Circuit’s conclusion that the amended complaint below satisfied the requirements of the PSLRA was necessarily based on its allegations purporting to demonstrate “strong circumstantial evidence of conscious misbehavior or recklessness.” See id. at 308-12 (A-14a-26a). These allegations were that petitioners knew Ann Taylor suffered from inventory problems, refused to mark down purportedly “worthless,” “obsolete” and “unsalable” inventory, violated Ann Taylor’s markdown policy and falsely assured the investment community that inventory levels were under control. See id.at 311-12 (A-23a-26a).. By holding these allegations sufficient to plead intent with particularity, however, the Second Circuit applied a lower standard to the pleading of intent than it did to the pleading of an underlying fraud. This conflicts with the plain language of the PSLRA, which requires that bothan underlying fraud and the intent to commit that fraud be plead “with particularity.” See15 U.S.C. � 78u-4(b)(1)-(2). In short, the allegations of circumstantial evidence of recklessness that the Second Circuit deemed sufficient to plead intent with particularity were essentially respondents’ allegations of the existence of the alleged fraud. The Second Circuit was unable, however, to express any view on whether these same allegations were sufficiently particularized to satisfy another provision of the PSLRA, 15 U.S.C. � 78u-4(b)(1), which requires a plaintiff making allegations of fraud on information and belief (as do respondents here) to state with particularity all facts on which the belief is based. See216 F. 3d at 314 (A-29a-30a). Significantly, however, the Second Circuit itself recognizes that where a plaintiff seeks to plead intent through allegations of circumstantial evidence of conscious misbehavior or recklessness, the inquiry into whether intent has adequately been pied collapses into the inquiry into whether the allegations of fraud are sufficiently particularized — in other words, the allegations of fraud and intent are virtually one and the same. See Rothman v. Gregor, 220 F. 3d 81,90-93 (2d Cir. 2000). In its decision below, however, the Second Circuit did not treat the allegations of intent and fraud as co-existent for one important purpose, i.e., the analysis of whether they were adequately particularized to meet the PSLRA’s strictures. Through this failure, it applied a more lenient standard to pleading intent than it did to pleading the underlying fraud, whereas the PSLRA explicitly requires that both be pled with particularity. As the foregoing discussion reveals, the Second Circuit’s interpretation of � 78u-4(b)(2) conflicts with the holdings of the majority of the courts of appeal and with the terms of the statute. These myriad conflicts can only be resolved on certiorari review.

II.
THE SECOND CIRCUIT’S INTERPRETATION OF � 78u-4(b)(1) DIRECTLY CONFLICTS WITH THE PLAIN LANGUAGE OF THE PSLRA AND THE NINTH CIRCUIT’S INTERPRETATION OF THIS PROVISION The PSLRA is unambiguous in its requirement that when the allegations of a securities fraud complaint are made on information and belief — as are respondents’ here — the plaintiff ” shallstate with particularity allfacts on which that belief is formed.” 15 U.S.C. � 78u-4(b)(1) (emphasis added). The Second Circuit, however, rejected this statutory provision by ignoring its plain language to hold that “notwithstanding the use of the word ‘all,’” the PSLRA does not require that a plaintiff plead all facts on which her belief is based. 216 F. 3d at 313-14 (A-26a-29a). The Second Circuit thus contravened a fundamental precept of statutory interpretation established by this Court, i.e., that a statute must be interpreted according to its plain meaning. See, e.g., Miller v. French, 120 S. Ct. 2246, 2253 (2000). Without any reference to the PSLRA’s legislative history, the Second Circuit decreed “that Congress cannot have intended” that a plaintiff be required to plead all facts on which her belief that a defendant committed fraud is based. 216 F.3d at 314 n.1 (A-28a n.1). The Second Circuit had no support for its declaration of Congress’s intent, however, because Congress itself stated in the Conference Report that the intent of this provision was indeed to require that a “plaintiff… state with particularity allfacts in the plaintiff’s possession on which the belief is formed.” Conference Report at 41, reprinted in1995 U.S.C.C.A.N. at 740 (emphasis added). As this Court has noted, a conference report such as the one issued in connection with passage of the PSLRA is a “traditionally… authoritative indicator[] of legislative intent.” Northeast Bancorp, Inc. v. Board of Governors of Fed. Reserve Sys., 472 U.S. 159, 170 (1985). A court may only depart from the literal language of a statute in the rare instance that the unambiguous legislative history of the statute is contrary to its plain language. See Kaiser Aluminum & Chem. Corp. v. Bonjorno, 494 U.S. 827, 835 (1990). By departing from the plain language of � 78u-4(b)(1) in the face of unambiguous legislative history wholly consistentwith the statute’s literal language, the Second Circuit has turned this Court’s jurisprudence on its head and effectively overruled Congress’s determination of the proper degree of particularity required for a securities fraud complaint to stand, replacing that determination with a standard of its own making. This is manifestly improper as a matter of law, and as a practical matter will permit the filing and litigation of securities fraud class actions that Congress has decreed are without adequate basis. To be sure, the Second Circuit sought to justify its departure from the literal language of � 78u-4(b)(1) and Congress’s expressly manifested intent with the explanation that to require a plaintiff to plead all facts on which her belief is based “would produce illogical results.” 216 E3d at 314 n.l (A-28a n.1). The Second Circuit hypothesized that, under the PSLRA’s plain meaning, a plaintiff who pied all facts supporting her belief could meet the statute’s requirements and therefore have her complaint sustained even if the “facts were patently insufficient to support that belief.” Id. This simplistic analysis failed entirely to consider, however, that a plaintiff who pleads facts “patently insufficient” to support a belief that a defendant committed securities fraud has failed to plead a cause of action for securities fraud, thus subjecting her complaint to dismissal under Rule 12(b)(6) of the Federal Rules of Civil Procedure. This result is not at all illogical. Nor is it illogical for the PSLRA to require that a securities fraud plaintiff plead all facts on which her belief is based even where something less might support an inference of fraud in another context. Cf. 216 F.3d at 314 n.1 (A-28a n.1). The Second Circuit concluded that pleading something less than all facts on which a belief that a fraud has been committed is based can comport with the requirements of Rule 9(b), and decided that this must be all that Congress intended to require through the PSLRA. See id. at 313-14 & n.1 (A-26a-28a & n.1). Again, however, the court’s attempt to attribute its own reasoning to Congress is undercut by Congress’s own statement of its intent in enacting the PSLRA, which was to impose a “more stringent” requirement than that found in Rule 9(b) because Rule 9(b) “has not prevented abuse of the securities laws by private litigants.” Conference Report at 41, reprinted in1995 U.S.C.C.A.N. at 740. The Second Circuit’s conclusion that “all” as used in � 78u-4(b)(1) does not actually mean all is in direct conflict with the decision of the Ninth Circuit in Silicon Graphics, which is the only other court of appeals specifically to address this language. [FOOTNOTE 4]In Silicon Graphics, the Ninth Circuit adhered to the plain language of the PSLRA and held that � 78u-4(b)(1) “means that a plaintiff must provide, in great detail, allthe relevant facts forming the basis of her belief.” 183 E3d at 985 (emphasis added). This conflict is not merely academic, and is readily evidenced by the sharply different manner in which the Second and Ninth Circuits addressed the question of whether a plaintiff who seeks to bolster the allegations of a complaint through purported reliance on “confidential sources” must identify these sources in order to comply with � 78u-4(b)(1). In both this case and Silicon Graphics, the plaintiffs claimed to base their belief that a fraud was committed on information obtained from unnamed, unidentified sources, and both complaints were dismissed, in part, for their failure to identify these sources. Novak II, 26 E Supp. 2d at 660-61 (A-35a-37a); In re Silicon Graphics Inc. Sec. Litig., 970 E Supp. 746, 763, 766-68 (N.D. Cal. 1997), aff’d, 183 E3d 970 (9th Cir. 1999). Because it determined that the PSLRA does not actually require a plaintiff to plead all facts on which her belief that a fraud was committed is based, the Second Circuit held that a plaintiff is not required to identify her purported confidential sources and vacated the dismissal of the complaint here. See216 E3d at 314-15 (A-27a-31a). In contrast, based upon its holding that the PSLRA does require that a plaintiff plead all facts supporting her belief — as the plain language of the statute demands — the Ninth Circuit affirmed the dismissal of the Silicon Graphicscomplaint, see 183 F.3d at 991, in part for its failure to “mention … the sources of [the plaintiff's] information.” Id.at 985. In sum, the decision of the Second Circuit as to the meaning of “all facts” in � 78u-4(b)(1) creates a square and irreconcilable conflict with the very language of the statute itself, with Congress’s intent in enacting it, with this Court’s well-established roles of statutory interpretation and with the decision of the only other court of appeals to interpret this language. For these reasons, the decision of the Second Circuit should be reviewed and reversed.
III
PROPER AND UNIFORM INTERPRETATION OF THE PSLRA’S PLEADING STANDARDS IS AN ISSUE OF VITAL IMPORTANCE TO THE EFFICIENT OPERATION AND INTEGRITY OF THE FEDERAL COURTS Congress passed the PSLRA to eliminate what it found to be abuse of the federal securities laws by private litigants, conduct that was fueled by the inconsistent pleading standards imposed by the courts of appeals, some of which permitted only the barest of allegations to sustain a complaint alleging fraud. SeeConference Report at 41, reprinted in1995 U.S.C.C.A.N. at 740. Since the PSLRA’s enactment, the prevalence of securities class actions in the federal courts has only increased, and the circuit courts’ interpretation of the PSLRA’s pleading standards has only created a new conflict among the courts. Not only does this frustrate Congress’s intent in enacting the statute, but it also permits complaints that would be dismissed in those circuits interpreting the PSLRA as elevating the pre-existing Rule 9(b) standard to survive in those circuits that have interpreted the PSLRA to be more lenient, a result that can only encourage forum shopping among plaintiffs. There can be no real doubt that securities fraud class actions are of significant, and growing, importance to the federal courts. The volume of securities class actions filed in the federal courts is substantial, and has been increasing since the passage of the PSLRA. From 1991 through 1995, an average of 177 issuers of securities were named as defendants in securities class actions annually. SeeJoseph A. Grundfest & Michael A. Perino, Securities Litigation Reform: The First Year’s Experience, in Securities Litigation 1997, at 955, 965-66 (PLI Corp. L. & Practice Course Handbook Series No. B-1015, 1997). From 1996 to 1999 — after the PSLRA became effective — this number grew to an average of 189 issuers per year. SeeStanford Securities Class Action Clearinghouse, Federal Litigation Box Score, 22 Dec. 1995 to 14 September 2000 (visited September 15, 2000). http://securities.stanford.edu . The ratio of securities class actions to the total number of class actions pending in the federal courts has also been on the rise since the PSLRA became effective. In 1999, securities class actions comprised 37 percent of pending class actions and 33 percent of class actions commenced in the federal courts. SeeMecham (1999), supra, at 389-96; see alsoMecham (1998), supra, at 398-404 (in 1998, 29 percent of pending class actions and 31 percent of class actions filed in federal court were securities class actions). In contrast, in 1997, securities class action lawsuits made up only 21 percent of total pending class actions and 18 percent of class actions commenced in the federal district courts. SeeMecham (1997), supra, at 383-88. How these lawsuits are adjudicated — consistently or inconsistently, following a heightened pleading standard or a diminished one — may be expected to contribute to the efficiencies (or lack thereof) of our judicial system. SeeJoseph A. Grundfest, et al., Securities Class Action Litigation in Q1 1998: A Report to NASDAQ from the Stanford Law School Securities Class Action Clearinghouse, in Securities Litigation 1998, at 69, 71-72 (PLI Corp. L. & Practice Handbook Series No. B-1070, 1998) (discussing rising volume of securities fraud class actions in federal courts and noting inconsistency in interpretation and application of the PSLRA’s pleading standards by the courts). Litigation of securities class actions demands a disproportionate share of the time and resources available to the federal judiciary. A recent study conducted for the Federal Judicial Center has determined that the median time from filing to disposition of securities class actions exceeds the median time from filing to disposition of all other civil actions (excluding prisoner actions) by more than 15 months. Thomas E. Willging, et al., Empirical Study of Class Actions in Four Federal District Courts117 (1996). Class actions require the expenditure of more judicial time than any other type of civil cases in the federal courts, with the sole exception of habeas corpus proceedings in death penalty cases. Id.at 22. Further, securities class actions command substantially more judicial time than any other type of class action. Id.at 23. In light of their manifest impact on the federal courts, it is vital that securities class actions be litigated uniformly throughout the nation. As discussed above, perhaps Congress’s strongest motivation in passing the PSLRA was to eradicate the disharmony among the circuit courts in their interpretations of the requirements of Rule 9(b) as applied to securities class actions. If the conflicting interpretations of the PSLRA are not resolved by this Court on certiorari review, the predictable result will be that the ever increasing volume of securities class actions will be concentrated in those circuits construing the statute in the most lenient manner, as plaintiffs seize upon the opportunity to file their cases in the jurisdictions perceived to be most amenable to them. This practice of searching for the most hospitable forum is one that Congress has found to exist to a significant degree, and one that Congress has clearly manifested a resolve to eradicate. Thus, alarmed by the use by plaintiffs of securities class actions based on state law to frustrate the objectives of the PSLRA, Congress passed the Securities Litigation Uniform Standards Act of 1998 (the “Uniform Standards Act”), which provides, in pertinent part, that no class action alleging violations of any state statutory or common law analogous to Section 10(b) of the Securities Exchange Act of 1934 may be maintained in any state or federal court. 15 U.S.C. � 78bb(f)(1). Congress enacted the Uniform Standards Act to stem the flow of post-PSLRA securities class actions from the federal courts, where the procedural protections of the PSLRA (including its heightened pleading standard) prevailed, to state courts, where no such protections were available. Congress’s action was based on its finding that “since passage of the [PSLRA], plaintiffs’ lawyers have sought to circumvent the [PSLRA's] provisions by exploiting differences between Federal and State laws by filing frivolous and speculative lawsuits in State court, where essentially none of the procedural or substantive protections against abusive suits are available.” H.R. Conf. Rep. No. 105-803, at 14-15 (1998). Their recourse to state courts, and the more lenient pleading standards in effect there, having been cut off by Congress, plaintiffs will now naturally gravitate to the federal courts applying the most relaxed interpretation of the PSLRA — again frustrating Congress’s objective in enacting that statute — unless and until this Court resolves the differing interpretations of the PSLRA by the circuit courts, thus ensuring uniform application of its pleading standards, as Congress intended, and removing any incentive for securities class action plaintiffs to engage in forum shopping.
CONCLUSION
For the foregoing reasons, the Court should grant a writ of certiorari to review the decision of the Second Circuit Court of Appeals vacating the District Court’s dismissal of respondents’ amended complaint. Respectfully submitted, ROBERT E. ZIMET Counsel of Record SUSAN L. SALTZSTEIN JOSEPH N. SACCA SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP Attorneys for Petitioners Four Times Square New York, New York 10036 (212) 735-3000. ::::FOOTNOTES:::: FN1“A-_” refers to pages of the Appendix annexed hereto. FN2The Securities and Exchange Commission participated in the appeal as amicus curiae, and argued that proper and uniform interpretation of the PSLRA was a highly important question, because it would have a significant impact on the statute’s effectiveness. FN3As discussed below, although the Second Circuit paid lip service to the “with particularity” language of � 78u-4(b)(2), it read this requirement out of the statute through the manner in which it applied its formulation of the PSLRA’s pleading requirement. FN4Although it did not specifically address the meaning of the word “all” in the PSLRA, the First Circuit in Greebelconcluded that � 78u-4(b)(l) codified that circuit’s pre-existing Rule 9(b) jurisprudence. See194 E3d at 193-94. Thus, like the Second Circuit’s decision below, the First Circuit’s interpretation of this provision also conflicts with the plain language of the PSLRA, Congress’ intent in enacting this requirement and the decision of the Ninth Circuit in Silicon Graphics.

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