The Ninth Circuit Court of Appeals has amended its decision in In re Silicon Graphics Incorporated Securities Litigation, a case involving interpretation of the heightened scienter pleading requirement established by the Private Securities Litigation Reform Act of 1995 (the "PSLRA"). See Cadwalader Counsellor, Vol. 1, Issue 9, at 5-7 (Sept. 1999). In its prior opinion, the Ninth Circuit ruled that pleading simple recklessness or motive and opportunity to commit fraud was insufficient to satisfy the PSLRA mandate that plaintiffs "state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind." The court further had held that to satisfy the PSLRA pleading standard, the facts pled must "establish a strong inference of intent." In its amended decision, the court revised this language somewhat to require that the facts pled "establish a strong inference of deliberate recklessness," rather than actual intent. Despite the modified language, the outcome of the case was unchanged, and the court affirmed its prior holding that allegations of simple recklessness or motive and opportunity were insufficient to survive a motion to dismiss.
The Eleventh Circuit Court of Appeals also weighed in on the meaning of the PSLRA scienter pleading standard in Bryant v. Avado Brands, Inc. There, the Eleventh Circuit reviewed the conflict that exists among the circuits on the issue and expressed "basic agreement" with what it called the "middle course" taken by the Sixth Circuit Court of Appeals. Thus, the Eleventh Circuit held that "the [PSLRA] does not prohibit the practice of alleging scienter by pleading facts that denote severe recklessness." The court based its conclusion on the PSLRA's plain language and the fact that before the PSLRA's passage, every circuit to address the issue found a showing of recklessness sufficient to allege scienter under Section 10(b) of the Securities Exchange Act of 1934. Because Congress was "certainly aware of this well-established precedent" when drafting the PSLRA, the court found it "very clear" that Congress incorporated the severe recklessness standard into the PSLRA's "required state of mind" language. The Eleventh Circuit further held that the PSLRA "does not codify the 'motive and opportunity' test formulated by the Second Circuit." The court ruled that allegations of motive and opportunity were not sufficient to satisfy the PSLRA because motive and opportunity do not constitute a state of mind, but rather are merely specific types of evidence which might contribute to an inference of a state of mind. For this reason, the court concluded that the PSLRA's "required state of mind" language "plainly" did not refer to motive and opportunity. *
In re Silicon Graphics Inc. Sec. Litig., 183 F.3d 970 (9th Cir. 1999); Bryant v. Avado Brands, Inc., 187 F.3d 1271 (11th Cir. 1999).