Lawsuit motion to dismiss complaint flaws
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It is critical during the time afforded during these early delays to consider the extent to which the interests of individual defendants (typically corporate directors/board members, the CEO, the CFO, etc.) may differ from the interests of the company, or from the interests of other individual defendants. In most cases, there are good reasons for each defendant to obtain individual counsel representing his or her unique perspective and interests. This is especially true when the plaintiffs make specific allegations about certain individuals, and different allegations about others. But it is equally key that each defendant obtain counsel who can work with co-counsel when appropriate to advance arguments that are generally beneficial to all defendants. “Directors-and-Officers” Policies on companies’ liability insurance policies will often cover the cost of individual counsel for key personnel. Even then, the parties will often agree that the defendant will waive service under Rule 4 of the Federal Rules of Civil Procedure, which then provides them with 60 days to respond. Generally, the defendants are not called upon to actually answer the Complaint until after the lead plaintiff and counsel have been approved by the Court, and have then filed a new, “amended and consolidated” Complaint.
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In class action cases, however, there is often a lengthy delay while various plaintiffs’ law firms compete to be named the lead attorneys on the matter. Typically, the deadline for a defendant in federal court to “answer or otherwise move” is 21 days after service of process is accomplished.
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Data sets focused on more recent cases show even higher rates of dismissal, though every year is different. 2013 federal securities class action lawsuits had a 57 percent dismissal rate, and 2016 filings were dismissed at roughly a 49 percent rate. Securities class action lawsuits are regularly dismissed at the pleadings stage, based upon the unique requirements for plaintiffs in such cases. From 1997 through 2018, 43 percent of core federal class action filings were dismissed, 49 percent were settled, 7 percent remain live cases, and less than one percent have reached a trial verdict. Even worse, the process can take years to resolve while the litigants deal with legal uncertainty. A basic understanding of the fundamentals of securities class action litigation is therefore critical not just for General Counsel, but also for other key corporate officers and directors. A good place to start is with the fundamentals of motions to dismiss securities class action claims under Rule 12(b)(6) of the Federal Rules of Civil Procedure. Plaintiffs in these cases seek large sums, sometimes hundreds of millions of dollars, on the theory that misstatements or omissions by a company and its officers caused investors to purchase the company’s stock at an inflated price, causing those investors to then lose money when the stock subsequently reverts to its “true” value.īecause individual corporate directors and officers are often named as defendants along with the public companies they serve, the stakes in these large-dollar cases can be truly significant for both corporations and their leaders. Even many sophisticated companies and corporate officers are unfamiliar with the inner workings of class action securities claims.