United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued October 21, 2005 Decided January 17, 2006
No. 04-7187
MONICA BELIZAN,
AND ALL OTHERS SIMILARLY SITUATED, AND
WILLIAM PRATHER, DR., AS TRUSTEE FOR THE AVON
MEDICAL GROUP PC EMPLOYEES PROFIT SHARING PLAN &
TRUST, AND AS TRUSTEE FOR THE JUDITH ANN PRATHER
REVOCABLE TRUST,
APPELLANTS
v.
SIMON HERSHON, ET AL.,
APPELLEES
Consolidated with
04-7188
Appeals from the United States District Court
for the District of Columbia
(No. 02cv01490)
(No. 02cv01886)
Donald J. Enright argued the cause for appellants. With
him on the briefs were Burton H. Finkelstein and Tracy D.
Rezvani. Adam T. Savett and Steven J. Toll entered appearances.
2
Michael L. Martinez argued the cause and filed the brief
for appellee Radin Glass & Co., LLP.
Jeff G. Hammel argued the cause for appellee CIBC
World Markets Corporation. With him on the brief were David
M. Brodsky, Donna C. Goggin, and DeMaurice F. Smith.
Before: GINSBURG, Chief Judge, and ROGERS and
GRIFFITH, Circuit Judges.
Opinion for the Court filed by Chief Judge GINSBURG.
GINSBURG, Chief Judge: Monica Belizan appeals an
order of the district court because it dismissed “with prejudice”
her claims under the Securities Act of 1933 and the Securities
Exchange Act of 1934 against Radin Glass & Co. and CIBC
World Markets Corp. She also contends the district court erred
in determining she failed to move for leave to amend her
complaint.
Because Belizan’s oral request for leave was not a proper
motion under Federal Rule of Civil Procedure 15(a), the district
court did not err in refusing to recognize it. The district court,
however, failed adequately to explain, in light of the standard set
in Firestone v. Firestone, 76 F.3d 1205, 1209 (D.C. Cir. 1996),
why it dismissed Belizan’s complaint with prejudice.
Accordingly, we vacate the order in part and remand the
question of prejudice for clarification.
I. Background
According to Belizan’s complaint, between 1997 and
2002 she and other members of an uncertified class of plaintiffs
purchased debt securities from InterBank Funding Corp. (IBF)
and its subsidiaries. IBF, which was owned by Simon Hershon,
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had formed several investment funds with the purpose of
purchasing and restructuring or rehabilitating underperforming
loans. Belizan claims IBF’s funds were actually part of a “Ponzi
scheme,” wherein proceeds from successive securities offerings
were used to make interest payments to those who had invested
in prior offerings. During the relevant period, Radin Glass &
Co. served as IBF’s independent auditor and CIBC World
Markets Corp. sold IBF’s debt securities to investors.
Investors’ suits against Hershon, Radin, CIBC, and
others were consolidated and Belizan, designated as lead
plaintiff pursuant to the Private Securities Litigation Reform Act
of 1995 (PSLRA), 15 U.S.C. § 78u-4 et seq., filed a consolidated
complaint. (Belizan and the others then settled their claims
against Hershon.) In the complaint, Belizan alleged Radin and
CIBC had disseminated materially false and misleading
information about IBF’s funds and engaged in a scheme to
defraud investors, in violation of § 10(b) of the Securities
Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5
promulgated thereunder, 17 C.F.R. § 240.10b-5. In addition, she
claimed Radin, by attesting that IBF’s financial statements
complied with Generally Accepted Accounting Principles when,
in fact, the statements were materially false or misleading, had
violated § 11 of the Securities Act of 1933, 15 U.S.C. § 77.
Finally, she alleged CIBC had violated the prospectus delivery
requirements of §§ 12(a)(1) and (2) of the ’33 Act, 15 U.S.C. §§
77l(a)(1)-(2), when it sold IBF’s securities to investors.
Radin and CIBC each moved, pursuant to Federal Rule
of Civil Procedure 12(b)(6), to dismiss the complaint for failure
to state a claim upon which relief can be granted. At a hearing
on the motions to dismiss, Belizan’s counsel defended the
complaint but volunteered his “belie[f] that at this point we
probably could, if it was required, file [an] amended complaint,”
and later, referring to an unnamed officer of IBF who was the
4
source of some allegations in the complaint, reiterated that “if
the Court requires us to, we can plead that [source] in an
amended pleading if the Court would like.” Belizan did not,
however, follow up with a written motion for leave, much less
a proposed amended complaint.
Some weeks after the hearing, the district court granted
the defendants’ motions to dismiss Belizan’s claims. See In re
Interbank Funding Corp. Sec. Litig., 329 F. Supp. 2d 84 (D.D.C.
2004). With respect to the alleged violations of § 10 and Rule
10b-5, the court held Belizan had failed adequately to: (1) plead
scienter; (2) allege her claims with the specificity required by
Rule 9(b) and the PSLRA, 15 U.S.C. § 78u-4; and (3) plead
causation. 329 F. Supp. 2d at 89-94. The district court also held
Belizan failed properly to plead a violation of § 11; her claim
under § 12(a)(1) was time-barred; and she and her fellow class
members lacked standing to bring the claim under § 12(a)(2).
Id. at 94-96.
The district court also said Belizan would not be allowed
to amend her complaint, which was dismissed “with prejudice.”
The court explained that counsel’s references to the possibility
of amending the complaint did not “amount to formal motions
for leave to amend” and that even if they did, the PSLRA
“counsel[s] restraint in granting leave to amend.” 329 F. Supp.
2d at 96. As for the dismissal being with prejudice, the court
cited In re Champion Enterprises Inc. Securities Litigation, 145
F. Supp. 2d 871, 873 (E.D. Mich. 2001), for the proposition “the
[PSLRA] ... set[s] a high standard of pleading which if not met
results in a mandatory dismissal.... with prejudice.” 329 F.
Supp. 2d at 96.
Belizan filed a motion under Rule 59(e) seeking
reconsideration insofar as the court had not permitted her leave
to amend the complaint and dismissed her claims with prejudice.
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With her motion, Belizan submitted an amended complaint in
draft form. The district court denied reconsideration and further
stated that Belizan’s draft amended complaint “share[d]
important failings with [her] earlier effort.”
II. Analysis
On appeal Belizan does not take issue with the district
court’s determination that she failed properly to plead her
various claims under the ’33 and ’34 Acts. Rather, Belizan first
argues she made an adequate motion for leave to amend and
then contests the district court’s decision to dismiss her
complaint “with prejudice.” Radin and CIBC defend the district
court on both counts.*
A. Leave to Amend
Belizan argues the district court erred in determining she
never properly moved to amend her complaint because her oral
offer to amend was sufficient in view of the instruction in Rule
15(a) that “leave shall be freely given when justice so requires.”
She also relies upon Taylor v. Beckas, 424 F.2d 905, 908 (D.C.
Cir. 1970), in which we implied the now defunct District of
Columbia Court of General Sessions could grant an oral motion
for leave to amend a complaint under a local rule similar to Rule
15(a). Proceeding from that premise, Belizan goes on to argue
the district court would not have been justified in denying leave
on the substantive grounds raised by the defendants, had it
addressed them.
Radin and CIBC respond that Belizan’s request was
*
Although Belizan noted her appeal of the order denying
her motion for reconsideration, she advances no argument specific
to that order.
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properly refused because oral “motions” are not acceptable
under the local rules of the district court. Specifically, Local
Rule 7(a) requires that every “motion shall include or be
accompanied by a statement of the specific points of law and
authority that support the motion.” Furthermore, Local Rule
15.1 provides each “motion for leave ... shall be accompanied by
an original of the proposed pleading as amended.” The
defendants also note that even if Belizan had requested leave in
her brief in opposition, she would not have satisfied Rule 15(a)
because “a bare request in an opposition to a motion to dismiss
-- without any indication of the particular grounds on which
amendment is sought -- does not constitute a motion within the
contemplation of Rule 15(a).” United States ex rel. Williams v.
Martin-Baker Aircraft Co., 389 F.3d 1251, 1259 (D.C. Cir.
2004) (internal quotation marks and citations omitted). As for
Taylor v. Beckas, Radin and CIBC point out that the
permissibility of an oral motion for leave was not there in issue
and, in any event, the case involved a D.C. rule of procedure, not
Rule 15(a) or Local Rule 15.1.
When the district court denies a motion for leave to
amend under Rule 15(a), we review its decision for abuse of
discretion, see Carribean Broad. Sys., Ltd. v. Cable & Wireless
PLC, 148 F.3d 1080, 1083 (D.C. Cir. 1998), bearing in mind
that the rule is to be construed liberally. For in Foman v. Davis,
371 U.S. 178, 182 (1962), the Supreme Court instructed:
In the absence of any apparent or declared reason -- such
as undue delay, bad faith or dilatory motive on the part
of the movant, repeated failure to cure deficiencies by
amendments previously allowed, [or] undue prejudice to
the opposing party ... the leave sought should ... be
“freely given.”
Nevertheless, Rule 15(a) -- even as liberally construed -- applies
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only when the plaintiff actually has moved for leave to amend
the complaint; absent a motion, there is nothing to “be freely
given.”
Contrary to Belizan’s suggestion, a request for leave
must be submitted in the form of a written motion, as is made
clear by the local rules of the district court and implied by our
decision Ex rel. Williams, 389 F.3d at 1259. The statement of
Belizan’s counsel at oral argument that he “probably could, if it
was required, file another ... complaint” was not a proper motion
for leave to amend under Rule 15(a) or Local Rule 15.1.
Therefore, as the district court correctly determined, Belizan
never moved for leave.
B. Dismissal with Prejudice
Dismissal with prejudice “operates as a rejection of the
plaintiff’s claims on the merits and [ultimately] precludes
further litigation” of them. Jaramillo v. Burkhart, 59 F.3d 78,
79 (8th Cir. 1995). Belizan argues the district court erred as a
matter of law in “premis[ing] its dismissal with prejudice” on
the PSLRA.
That Act requires the plaintiff, in a suit for “securities
fraud,” to “specify each statement alleged to have been
misleading, the reason or reasons why the statement is
misleading, and, if an allegation regarding the statement or
omission is made on information and belief, ... all facts on which
that belief is formed.” 15 U.S.C. § 78u-4(b)(1)(B). In addition,
“with respect to each act or omission,” the plaintiff must “state
with particularity facts giving rise to a strong inference that the
defendant acted with the required state of mind.” 15 U.S.C. §
78u-4(b)(2). Belizan contends that her failure to satisfy these
heightened pleading standards did not necessitate the dismissal
of her complaint with prejudice because the PSLRA does not
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supercede the procedure for moving to amend a complaint under
Rule 15(a). See United States v. Microsoft Corp., 165 F.3d 952,
958 (D.C. Cir. 1999) (under Rules Enabling Act, rules of civil
procedure are deemed to supercede conflicting statute except
insofar as a substantive right is involved).
Relying upon Eminence Capital, LLC v. Aspeon, Inc.,
316 F.3d 1048 (9th Cir. 2003), Belizan also argues the
heightened pleading requirements of the PSLRA lead to a
conclusion far different from that reached by the district court.
In Eminence Capital the court explained that because the
PSLRA “requires a plaintiff to plead a complaint of securities
fraud with an unprecedented degree of specificity and detail,” it
is important that the district court “consider the relevant factors
and articulate why dismissal should be with prejudice instead of
without prejudice.” Id. at 1052.
Radin and CIBC contend the heightened pleading
standards of the PSLRA logically limit the application of Rule
15(a) and concomitantly imply dismissal with prejudice is
indicated in securities fraud cases that do not measure up to
those standards. Cf. Miller v. Champion Enters., Inc., 346 F.3d
660, 690-92 (6th Cir. 2003) (affirming dismissal with prejudice
on ground PSLRA counsels against repeated amendments to
complaint). Therefore, Radin and CIBC urge, “the District
Court’s dismissal ... with prejudice was well within its
discretion.” Furthermore, they argue, although the district court
did consider the PSLRA in making its determination, the court
did not “premise dismissal with prejudice” solely upon that Act,
as Belizan maintains.
We are uncertain why the district court dismissed the
complaint with prejudice, and what role the PSLRA played in its
thinking. The standard for dismissing a complaint with
prejudice is high: “dismissal with prejudice is warranted only
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when a trial court determines that the allegation of other facts
consistent with the challenged pleading could not possibly cure
the deficiency.” Firestone, 76 F.3d at 1209 (internal quotation
marks omitted). Therefore, a complaint that omits certain
essential facts and thus fails to state a claim warrants dismissal
pursuant to Rule 12(b)(6) but not dismissal with prejudice.
Although the PSLRA provides that “[d]ismissal for
failure to meet pleading requirements” is appropriate, 15 U.S.C.
§ 78u-4(b)(3)(A), the Act does not say whether such dismissal
should be with or without prejudice. If it does not imply
dismissal with prejudice, then it does nothing to change the
ordinary consequences of a “failure to meet pleading
requirements.” On the other hand, had the Congress wished to
make dismissal with prejudice the norm, and to that extent
supercede the ordinary application of Rule 15(a), we would
expect the text of the PSLRA so to provide. Cf. 21 U.S.C. §
1605(e) (under Biomaterials Access Assurance Act of 1998,
“[a]n order granting a motion to dismiss” in a suit against a
supplier to a manufacturer of medical devices “shall be entered
with prejudice”). Unable to derive any guidance from the
PSLRA itself, we are governed simply by Rule 15(a), which, as
we have observed, allows “maximum opportunity for each claim
to be decided on its merits rather than on procedural
technicalities.” United States v. Hicks, 283 F.3d 380, 387
(2002) (quoting 6 Charles Alan Wright & Arthur R. Miller,
Federal Practice & Procedure § 1471, 505-06 (2d ed. 1990)).
We note also that the heightened pleading standard of Rule 9(b),
which requires a plaintiff to plead any allegation of fraud with
specificity, does not alter the operation of Rule 15(a). See Bly-
Magee v. California, 236 F.3d 1014, 1019 (9th Cir. 2001)
(holding leave to amend should have been “freely given”
pursuant to Rule 15(a) even though plaintiff failed in first
amended complaint to plead fraud with specificity required by
Rule 9(b)). We therefore hold the PSLRA does not mandate
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dismissal with prejudice.
The next question is whether Belizan could not allege
additional facts that would cure the deficiencies in her complaint
-- the standard under Firestone for dismissal with prejudice, 76
F.3d at 1209. In its order, the district court neither adverted to
Firestone nor undertook the inquiry required by that decision.
Perhaps the district court, because it believed the PSLRA
“counsel[s] restraint in granting leave to amend,” 329 F. Supp.
2d at 76, deemed that inquiry unnecessary. Regardless of the
standard for leave to amend, however, the PSLRA, as we have
seen, does not require dismissal with prejudice. The proper
course for the district court, therefore, is to exercise its
discretion under Firestone and determine whether the allegation
of other facts consistent with the challenged pleading could not
possibly meet the heightened pleading requirements of the
PSLRA.
III. Conclusion
In sum, the district court did not err in determining
Belizan’s oral request to amend her complaint was not a proper
motion for leave. The district court did, however, fail
adequately to explain, with reference to the standard we set in
Firestone, why it dismissed Belizan’s complaint with prejudice.
We therefore vacate the order of dismissal and remand the case
for the district court to enter a new order either dismissing
without prejudice or explaining its dismissal with prejudice in a
manner consistent with this opinion. See Confederate Mem’l
Ass’n v. Hines, 995 F.2d 295, 301 (D.C. Cir. 1993).
So ordered.