At first glance, this year’s Supreme Court term might seem like a nonevent for securities litigators. After all, the Supreme Court dismissed the two appeals it agreed to hear in securities class actions without substantive decisions. There is, however, a trio of cases from this year’s term that every securities litigator should know.
The first case is BLOM Bank SAL v. Honickman. The BLOM case addressed a critical procedural issue that frequently arises in securities class actions: whether Rule 15(a)’s liberal amendment policy should apply to a plaintiff’s motion under Rule 60(b)(6) to reopen a final judgment and file an amended complaint. In the underlying litigation, the district court granted the defendant’s motion to dismiss with prejudice, and when the Second Circuit affirmed, it clarified the law on the plaintiffs’ claim. The plaintiffs then moved, under Rule 60(b)(6), to vacate the final judgment and file an amended complaint that they argued would state a claim under the Second Circuit’s clarified legal test. The district court, however, denied the motion, ruling that the Second Circuit’s clarification of the legal test did not constitute the extraordinary circumstances required for Rule 60(b)(6) relief. On appeal of that decision, the Second Circuit reversed, holding that when a party seeks Rule 60(b) relief to file an amended complaint, district courts must balance Rule 60(b)’s finality principles with Rule 15(a)’s liberal amendment policy.
In an 8–1 decision, the Supreme Court rejected the Second Circuit’s balancing approach and held that Rule 60(b)(6)’s extraordinary circumstances standard does not become less demanding because the movant seeks to amend a complaint if relief from the judgment is granted. The Supreme Court emphasized that Rule 60(b)(6)’s extraordinary circumstances standard must be satisfied before Rule 15(a)’s liberal amendment standard can apply, and, importantly, the Supreme Court held that the ability to file an amended complaint that could survive a motion to dismiss is not an extraordinary circumstance warranting Rule 60(b)(6) relief.
The BLOM decision is significant for securities litigators. Especially in the Second Circuit, it was not unusual for securities class action plaintiffs to file post-judgment motions under Rule 60(b)(6) seeking leave to amend after motions to dismiss are granted. BLOM finally shuts the door on this practice and will provide securities class action defendants with greater assurances of finality after motions to dismiss are granted.
The second case is Waetzig v. Halliburton Energy Services Inc., where the Supreme Court addressed whether a lawsuit that is voluntarily dismissed without prejudice can be reopened by a district court under Rule 60(b). In the underlying litigation, the plaintiff brought age discrimination claims against the defendant. After the claims were submitted to arbitration and the plaintiff lost in arbitration, the plaintiff sought to reopen his dismissed case because a newly filed lawsuit would have been time-barred. In a unanimous decision, the Supreme Court held that a voluntarily dismissed lawsuit can be reopened under Rule 60(b). While voluntary dismissals are uncommon in securities class actions, they can occur in shareholder derivative lawsuits, especially if a motion to dismiss is granted in a related securities class action. In those circumstances, defendants may prefer seeking a dismissal with prejudice to ensure finality and prevent plaintiffs from attempting to restart their cases in the future through Rule 60(b) relief to reopen the case.
Finally, the third case is Laboratory Corporation of America Holdings v. Davis, which concerned whether all members of a class action must have an Article III injury. The Supreme Court ultimately dismissed the appeal, but Justice Kavanaugh issued a dissenting opinion, arguing that the predominance requirement is undermined if uninjured persons are included in a class action. His dissenting opinion noted that certifying classes with both injured and uninjured members threatens massive liability to defendant companies and coerces settlements. While Justice Kavanaugh’s dissenting opinion does not, of course, carry precedential weight, it is a strong persuasive authority for defendants, who will continue to press lower courts to remove uninjured persons from proposed classes, including in securities class action lawsuits.
If you have any questions, or would like additional information, please contact one of the attorneys on our Securities Litigation team.
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