Friday, April 21, 2006

N.D. Illinois Holds that Plaintiffs Are Not Required to Meet Heightened Pleading Standard of PSLRA when Alleging Negligence

Per Blau v. Harrison, Slip Copy, 2006 WL 850959 (N.D. Ill. Mar. 24, 2006):

Defendants contend that both the Private Securities Litigation Reform Act's [(PLSRA)] heightened pleading standards and the heightened pleading requirements of Federal Rule of Civil Procedure 9(b), apply to Plaintiffs' Section 14(a) claims. Defendants argue that Blau's Section 14(a) claims must plead with particularity facts that give rise to a strong inference of negligence on the part of all defendants. Defendants further argue that Plaintiffs' Complaint fails to meet the heightened standards as it fails to state with particularity facts giving a strong inference of negligence. Further, in its allegations based upon “information and belief,” the Complaint fails to state with particularity all facts on which that belief is formed as required by the PSLRA. 15 U.S.C. § 78u-4(b)(1).

Plaintiffs respond that its Section 14(a) claims are sufficiently pled pursuant to Federal Rule of Civil Procedure 8(a). Plaintiffs argue that because the Complaint purports that Defendants acted with negligence, not fraud, the heightened pleading requirements of the PSLRA are not implicated. Thus, Plaintiff contends that its Complaint is sufficiently pled in accordance with Fed. R. Civ. Pro. 8(a) as the Complaint neither alleges intentional conduct, nor does the Complaint “sound in fraud.”

. . .

. . Plaintiffs' Complaint sets forth a Section 14(a) claim alleging that Defendants acted negligently; thus, they need not plead fraud at all, let alone fraud with particularity. Simply, Plaintiffs' Section 14(a) allegations are not required to meet the PSLRA particularity requirements because these claims are based on averments of negligence. Plaintiffs allege that the Defendants acted negligently in not revealing the “no premium” offer which resulted in shareholders voting on the proxy without benefit of the knowledge of the alternative offer. Plaintiffs charge that this material omission/misrepresentation from this proxy statement caused them injury, and that the proxy solicitation itself was an essential link in the transaction. Specifically, the Complaint alleges that the Proxy Statement was materially misleading because “it failed to disclose material facts about Mr. Dimon's offer on behalf of Bank One to engage in a transaction with no premium for Bank One shareholders.” The Complaint further alleges that Defendants were negligent in disseminating the Proxy Statement containing the materially false and misleading statements. The Complaint also states that each shareholder has been damaged “··· as a direct and proximate result of such violations because they were denied an opportunity to make an informed decision in response to the proposed transaction with respect to the Merger premium ···” Accordingly, the Court finds that Blau's Complaint sufficiently pled violations of Section 14(a).


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