Federal Rule of Civil Procedure 9 provides:
(b) Fraud or Mistake; Conditions of Mind. In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person’s mind may be alleged generally.
That said, there are certain causes of action under the securities laws, like claims under Section 11 and 12 of the Securities Act, that do not require plaintiffs to prove that the defendant had any particular state of mind. These claims do not, therefore, sound in fraud by their nature. And, because the PSLRA did not alter the pleading standards for claims under the Securities Act, that means Section 11 and 12 claims are ordinarily subject to the more limited demands of Rule 8 pleading.
Nonetheless, federal courts have generally agreed that if a particular plaintiff’s allegations in a particular case come across as rather fraudy, the higher pleading standard will apply. Plaintiffs have therefore gone to great lengths to avoid alleging fraud in connection with Securities Act claims, which can be particularly challenging when Section 10(b) claims arise out of the same facts – plaintiffs usually try to completely separate the two sets of allegations in their complaints, which is part of the reason why securities fraud complaints can be hundreds of pages long and exceedingly complex (which can be, naturally, another basis for dismissal, see, e.g., United Assoc. Nat’l Pension Fund v. Carvana Co., 2024 WL 863709 (D. Ariz. Feb. 29, 2024)).
Anyway, this all becomes particularly awkward when the statement alleged to be false concerns a matter of opinion. That’s because opinion statements can be misleading if they are uttered under circumstances that obscure the basis for the opinion, but can only be false if they are subjectively disbelieved by the speaker – i.e., if the speaker misportrays his or her own actual opinion. It’s very difficult to imagine that someone could accidentally or negligently misstate what they actually, you know, believe, which means opinion statements might almost always require Rule 9(b) pleading.
Or so I assumed.
In Pino v. Cardone Capital (which is a case I blogged about two years ago, after its first trip to the Ninth Circuit), the Ninth Circuit held that a Section 12 claim would not necessarily sound in fraud and require Rule 9(b) pleading, even for subjectively disbelieved opinion statements. In that case, the plaintiff’s complaint contained a commonplace disclaimer that none of the claims sounded in fraud; on that basis, the district court dismissed the complaint, treating the disclaimer as an admission that certain opinion statements were not subjectively disbelieved. The Ninth Circuit reversed, finding that the disclaimer did not bar allegations of subjective disbelief, and also, that the complaint sufficiently alleged subjective disbelief, noting that, in the usual course, claims under Section 11 and 12 do not sound in fraud and do not require Rule 9(b) pleading. The court made no attempt to offer a theory of mind or probe the mysteries of the human soul; it simply held what it held.
So. There you go.
And another thing. On this week’s Shareholder Primacy podcast, Mike Levin and I talk to Professor Joseph Grundfest, and then to Delaware litigator Joel Fleming, about Prof. Grundfest’s papers on Delaware attorney fee awards. Here on Apple, here on Spotify, and here on YouTube.