New York Savings Statute Does Not Apply To Substituted Plaintiff

New York, like many states, has a statute that allows a plaintiff whose case is dismissed other than voluntarily or upon a final judgment on the merits to re-file the case within a certain amount of time, presumably after correcting defects, which in effect extends the statute of limitations. Under CPLR § 205(a), New York allows such a plaintiff a grace period of an additional six months to re-file after the dismissal.

In Reliance Ins. Co. v. Polyvision Corp., No. 117, 2007 N.Y. Slip Op. 07500, 2007 WL 2947396 (N.Y. Oct. 11, 2007), answering a certified question from the Second Circuit, New York’s highest court held that § 205(a) does not apply if the plaintiff seeking to “re-file” is not the same plaintiff. The lower courts found the particular plaintiff who originally filed in Reliance Ins. Co. was not the correct entity, and a corporate affiliate un­suc­cessfully sought to re-file in reliance on § 205(a) to extend the statute of limitations.

U.S. Supreme Court Raises Pleading Bar For Securities Fraud

When Congress enacted the Private Securities Litigation Reform Act of 1995 (“PSLRA”), it appeared to resolve a circuit split regarding the threshold required for pleading a securities fraud cause of action. The courts of appeal agreed that securities fraud required scienter, but disagreed over whether a plaintiff must allege more than the conclusion that scienter existed. Congress adopted the most stringent approach, as expressed by the Second Circuit, that a plaintiff must “state with particularity facts giving rise to a strong inference that the defendant acted with the requisite state of mind,” 15 U.S.C. § 78u-4(b)(1). However, Congress did not codify the Second Circuit’s jurisprudence concerning the meaning of the term “strong inference,” and as a result courts diverged regarding the construction of that term.

In resolving that split in Tellabs, Inc. v. Makor Issues & Rights, Ltd., 127 S. Ct. 2499 (June 21, 2007), the U.S. Supreme Court said its task was “to prescribe a workable construction of the ‘strong inference’ standard, a reading geared to the PSLRA’s twin goals: to curb frivolous, lawyer-driven litigation, while preserving investors’ ability to recover on meritorious claims.” Its solution was to require a three-step process: (1) accept all factual allegations as true; (2) consider the complaint in its entirety plus documents incorporated into the complaint by reference or available through judicial notice; and (3) determine the plausible opposing inferences regarding scienter and dismiss the complaint unless “a reasonable person would deem the inference of scienter cogent and at least as compelling as any opposing inference one could draw from the facts alleged.” The Court rejected the argument that weighing competing inferences impinged upon the jury’s role, finding that Congress had the power to establish any special pleading requirements, as it had done in the PSLRA.

Tellabs does not represent a further application of the new fact-pleading rules emerging under Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955 (May 21, 2007) (see previous post), because it involved interpretation of heightened pleading requirements specifically codified into statute, rather than the federal rules of civil procedure or common law.

New U.S. Supreme Court Pleading Standard In Antitrust Case Has Wide Implications

Under existing precedent, a plaintiff claiming violation of Sherman Act § 1 must prove not only that defendant businesses acted in parallel, but also that such conduct was the product of an agreement, combination or con­spiracy. In Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955 (U.S. May 21, 2007), the Supreme Court analyzed the pleading requirements for such a claim, and concluded that it is insufficient to allege specific parallel anti­competi­tive conduct but describe the underlying agreement merely in conclusory terms.

Finding that Fed. R. Civ. P. 8(a)’s requirement of “a short and plain statement of the claim showing that the pleader is entitled to relief” still must put the defendant on notice of what the claim is “and the grounds upon which it rests,” the Court held that beyond mere legal conclusions enough facts also must be pled “to raise a right to relief above the speculative level” because parallel conduct alone does not imply the existence of illegal conspiracy. In this particular case, the Court concluded that the plaintiff failed to allege the required contract as anything more than a mere conclusion.

Bell Atlantic Corp. v. Twombly carries important implications beyond the antitrust context because of its departure from the traditional notion that, except as provided in Fed. R. Civ. P. 9(b), federal rules require only notice pleading rather than fact pleading. The Court now interprets Fed. R. Civ. P. 8 and Conley v. Gibson, 355 U.S. 41 (1957), as requiring defendants to be put on notice through a certain amount of fact pleading, although the precise degree of fact pleading apparently remains to be explored through further case law.

Substitution Of Correct Defendant After Expiration Of Statute Of Limitations Denied

In Locklear v. Bergman & Beving AB, No. 04-2506, 2006 WL 2244532 (4th Cir. Aug. 7, 2006), a plaintiff sued a company it named “Hassleholms Mekanisk AB” in a products liability complaint filed shortly before the statute of limitations expired. Plaintiff claimed that company was the manufacturer of equipment responsible for his personal injuries.

Subsequently he learned that the manufacturers actually were entities called “Luna AB” and “Bergman & Beving AB.” After allowing him to amend the complaint to substitute those parties as defendants, the court dismissed the complaint as time-barred because the original complaint did not toll the statute of limitations against the new defendants under Fed. R. Civ. P. 15(c)(3).

In affirming, the Fourth Circuit noted that where the Rule speaks in terms of relation-back in the case of a “mistake concerning the identity of the proper party,” courts distinguish between “mistake due to a lack of knowledge and mistake due to a misnomer.” A complaint amended to correct a mere misnomer relates back to the original complaint for limitations purposes, but a correction such as the one in Locklear to add a new party that the plaintiff simply did not know about “drags a new defendant into the case” and does not relate back.