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The 9th U.S. Circuit Court of Appeals took the unusual step of reinstating a securities fraud case Thursday, signaling in clear terms that it has its eye on the recent torrent of Wall Street swindles. A divided three-judge panel ruled that a trade union represented by Milberg Weiss Bershad Hynes & Lerach should be allowed to argue that officials at America West Airlines deferred routine maintenance on its airplanes to improve the company’s bottom line, all while engaging in insider trading. “In this era of corporate scandal, when insiders manipulate the market with the complicity of lawyers and accountants, we are cautious to raise the bar of the [Private Securities Litigation Reform Act] any higher than that which is required under its mandates,” wrote Senior Judge Warren Ferguson. “The district court’s failure to accept plaintiffs’ allegations as true and construe them in the light most favorable to plaintiffs does just that.” He was joined by 8th Circuit Senior Judge Donald Lay, sitting by designation. Judge Richard Tallman dissented, though his eye, too, was on corporate wrongdoing. “There is no doubt that in this post-Enron era suspicions have been raised regarding corporate malfeasance and insider trading. But the law is the law,” Tallman wrote. “Under the reform act, the burden to plead facts with particularity establishing the required element of materiality remains squarely on plaintiffs.” The court reinstated Milberg Weiss’ complaint, which an Arizona federal judge had dismissed as insufficient to support a case. With In re Silicon Graphics, 183 F.3d 970, the 9th Circuit set a high pleading standard for securities fraud cases — beyond that of any other circuit court in the country. Since then, in case after case, the 9th Circuit has denied appeals from the plaintiffs’ bar. The effect was that Silicon Graphics began to seem an almost impossible hurdle for some investors who lost money in companies whose stock crashed. But two published decisions this year have given a glimmer of hope. In the first case, the 9th Circuit told lower judges to give plaintiffs many chances to meet their pleadings burden, as long as they’re making progress. In Thursday’s decision, the court reminded judges to give plaintiffs the benefit of the doubt when assessing those pleadings. “A complaint should not be dismissed unless it appears beyond a doubt that the plaintiff cannot prove any set of facts in support of the claim,” Ferguson wrote. America West’s lawyer, Wilson Sonsini Goodrich & Rosati partner Bruce Vanyo, said the majority missed the point. He said there was no relationship between the decline in the company’s stock price and the deferred maintenance that Milberg Weiss said caused the eventual decline. The company’s stock tumbled, he said, because of labor unrest. “The dissent got it just right,” Vanyo said. Milberg Weiss partner Patrick Coughlin, though, said the labor issues were a function of maintenance problems, for which the Federal Aviation Administration fined America West $5 million. Coughlin also said this was the first case in nearly 20 cases decided since Silicon Graphics that a lower court’s decision on the merits of the pleading was overturned. He added that the plaintiffs’ bar is generally having an easier time in court these days. “Yes, we are. Basically, the exposure of the scandals of late has really opened the courts’ eyes,” Coughlin said. The case is No. 84 Employer-Teamster Joint Council Pension Trust Fund v. America West Holding Corp., 03 C.D.O.S. 1328.

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