Eleventh Circuit Sides with Majority of Circuits, Holding Non-Fraud Securities Claims Must be Plead with Particularity

Per Wagner v. First Horizon Pharmaceutical Corp., 2006 WL 2661652 (11th Cir. Sept. 18, 2006):

Section 11 of the Securities Act creates a cause of action against persons preparing and signing materially misleading registration statements. 15 U.S.C. § 77k(a). A registration statement can be misleading either by containing an untrue statement or by omitting facts that are necessary to prevent other statements from being misleading. Id. There is no state of mind element to a § 11 claim, and liability is "virtually absolute, even for innocent misstatements." Herman & MacLean v. Huddleston, 459 U.S. 375, 382 (1983). Likewise, § 12(a)(2) extends similar liability to misrepresentations in prospectuses and oral communications. See 15 U.S.C. § 77l(a)(2). It is clear that neither allegations of fraud nor scienter are necessarily part of either of these claims. For this reason, we refer to these two claims as "nonfraud" claims in this opinion.

The question presented to us, however, regards whether there are circumstances when Federal Rule of Civil Procedure 9(b) would require nonfraud securities claims to be pled with particularity. Our sister circuits split on this matter. Compare Cal. Pub. Employees' Ret. Sys. v. Chubb Corp., 394 F.3d 126, 161 (3d Cir.2004); Rombach v. Chang, 355 F.3d 164, 171 (2d Cir.2004); Lone Star Ladies Inv. Club v. Schlotzsky's, Inc., 238 F.3d 363, 368 (5th Cir.2001); In re Stac Elecs. Sec. Litig., 89 F.3d 1399, 1404-05 (9th Cir.1996), with In re Nationsmart Corp. Sec. Litig., 130 F.3d 309, 314- 15 (8th Cir.1997). In line with the majority of circuits to address the matter, we hold that Rule 9(b) applies when the misrepresentation justifying relief under the Securities Act is also alleged to support a claim for fraud under the Exchange Act and Rule 10(b)-5.