§ 77z-1. — Private securities litigation.
[Laws in effect as of January 24, 2002]
[Document not affected by Public Laws enacted between
January 24, 2002 and December 19, 2002]
[CITE: 15USC77z-1]
TITLE 15--COMMERCE AND TRADE
CHAPTER 2A--SECURITIES AND TRUST INDENTURES
SUBCHAPTER I--DOMESTIC SECURITIES
Sec. 77z-1. Private securities litigation
(a) Private class actions
(1) In general
The provisions of this subsection shall apply to each private
action arising under this subchapter that is brought as a plaintiff
class action pursuant to the Federal Rules of Civil Procedure.
(2) Certification filed with complaint
(A) In general
Each plaintiff seeking to serve as a representative party on
behalf of a class shall provide a sworn certification, which
shall be personally signed by such plaintiff and filed with the
complaint, that--
(i) states that the plaintiff has reviewed the complaint
and authorized its filing;
(ii) states that the plaintiff did not purchase the
security that is the subject of the complaint at the
direction of plaintiff's counsel or in order to participate
in any private action arising under this subchapter;
(iii) states that the plaintiff is willing to serve as a
representative party on behalf of a class, including
providing testimony at deposition and trial, if necessary;
(iv) sets forth all of the transactions of the plaintiff
in the security that is the subject of the complaint during
the class period specified in the complaint;
(v) identifies any other action under this subchapter,
filed during the 3-year period preceding the date on which
the certification is signed by the plaintiff, in which the
plaintiff has sought to serve, or served, as a
representative party on behalf of a class; and
(vi) states that the plaintiff will not accept any
payment for serving as a representative party on behalf of a
class beyond the plaintiff's pro rata share of any recovery,
except as ordered or approved by the court in accordance
with paragraph (4).
(B) Nonwaiver of attorney-client privilege
The certification filed pursuant to subparagraph (A) shall
not be construed to be a waiver of the attorney-client
privilege.
(3) Appointment of lead plaintiff
(A) Early notice to class members
(i) In general
Not later than 20 days after the date on which the
complaint is filed, the plaintiff or plaintiffs shall cause
to be published, in a widely circulated national business-
oriented publication or wire service, a notice advising
members of the purported plaintiff class--
(I) of the pendency of the action, the claims
asserted therein, and the purported class period; and
(II) that, not later than 60 days after the date on
which the notice is published, any member of the
purported class may move the court to serve as lead
plaintiff of the purported class.
(ii) Multiple actions
If more than one action on behalf of a class asserting
substantially the same claim or claims arising under this
subchapter is filed, only the plaintiff or plaintiffs in the
first filed action shall be required to cause notice to be
published in accordance with clause (i).
(iii) Additional notices may be required under
Federal rules
Notice required under clause (i) shall be in addition to
any notice required pursuant to the Federal Rules of Civil
Procedure.
(B) Appointment of lead plaintiff
(i) In general
Not later than 90 days after the date on which a notice
is published under subparagraph (A)(i), the court shall
consider any motion made by a purported class member in
response to the notice, including any motion by a class
member who is not individually named as a plaintiff in the
complaint or complaints, and shall appoint as lead plaintiff
the member or members of the purported plaintiff class that
the court determines to be most capable of adequately
representing the interests of class members (hereafter in
this paragraph referred to as the ``most adequate
plaintiff'') in accordance with this subparagraph.
(ii) Consolidated actions
If more than one action on behalf of a class asserting
substantially the same claim or claims arising under this
subchapter has been filed, and any party has sought to
consolidate those actions for pretrial purposes or for
trial, the court shall not make the determination required
by clause (i) until after the decision on the motion to
consolidate is rendered. As soon as practicable after such
decision is rendered, the court shall appoint the most
adequate plaintiff as lead plaintiff for the consolidated
actions in accordance with this subparagraph.
(iii) Rebuttable presumption
(I) In general
Subject to subclause (II), for purposes of clause
(i), the court shall adopt a presumption that the most
adequate plaintiff in any private action arising under
this subchapter is the person or group of persons that--
(aa) has either filed the complaint or made a
motion in response to a notice under subparagraph
(A)(i);
(bb) in the determination of the court, has the
largest financial interest in the relief sought by
the class; and
(cc) otherwise satisfies the requirements of
Rule 23 of the Federal Rules of Civil Procedure.
(II) Rebuttal evidence
The presumption described in subclause (I) may be
rebutted only upon proof by a member of the purported
plaintiff class that the presumptively most adequate
plaintiff--
(aa) will not fairly and adequately protect the
interests of the class; or
(bb) is subject to unique defenses that render
such plaintiff incapable of adequately representing
the class.
(iv) Discovery
For purposes of this subparagraph, discovery relating to
whether a member or members of the purported plaintiff class
is the most adequate plaintiff may be conducted by a
plaintiff only if the plaintiff first demonstrates a
reasonable basis for a finding that the presumptively most
adequate plaintiff is incapable of adequately representing
the class.
(v) Selection of lead counsel
The most adequate plaintiff shall, subject to the
approval of the court, select and retain counsel to
represent the class.
(vi) Restrictions on professional plaintiffs
Except as the court may otherwise permit, consistent
with the purposes of this section, a person may be a lead
plaintiff, or an officer, director, or fiduciary of a lead
plaintiff, in no more than 5 securities class actions
brought as plaintiff class actions pursuant to the Federal
Rules of Civil Procedure during any 3-year period.
(4) Recovery by plaintiffs
The share of any final judgment or of any settlement that is
awarded to a representative party serving on behalf of a class shall
be equal, on a per share basis, to the portion of the final judgment
or settlement awarded to all other members of the class. Nothing in
this paragraph shall be construed to limit the award of reasonable
costs and expenses (including lost wages) directly relating to the
representation of the class to any representative party serving on
behalf of the class.
(5) Restrictions on settlements under seal
The terms and provisions of any settlement agreement of a class
action shall not be filed under seal, except that on motion of any
party to the settlement, the court may order filing under seal for
those portions of a settlement agreement as to which good cause is
shown for such filing under seal. For purposes of this paragraph,
good cause shall exist only if publication of a term or provision of
a settlement agreement would cause direct and substantial harm to
any party.
(6) Restrictions on payment of attorneys' fees and expenses
Total attorneys' fees and expenses awarded by the court to
counsel for the plaintiff class shall not exceed a reasonable
percentage of the amount of any damages and prejudgment interest
actually paid to the class.
(7) Disclosure of settlement terms to class members
Any proposed or final settlement agreement that is published or
otherwise disseminated to the class shall include each of the
following statements, along with a cover page summarizing the
information contained in such statements:
(A) Statement of plaintiff recovery
The amount of the settlement proposed to be distributed to
the parties to the action, determined in the aggregate and on an
average per share basis.
(B) Statement of potential outcome of case
(i) Agreement on amount of damages
If the settling parties agree on the average amount of
damages per share that would be recoverable if the plaintiff
prevailed on each claim alleged under this subchapter, a
statement concerning the average amount of such potential
damages per share.
(ii) Disagreement on amount of damages
If the parties do not agree on the average amount of
damages per share that would be recoverable if the plaintiff
prevailed on each claim alleged under this subchapter, a
statement from each settling party concerning the issue or
issues on which the parties disagree.
(iii) Inadmissibility for certain purposes
A statement made in accordance with clause (i) or (ii)
concerning the amount of damages shall not be admissible in
any Federal or State judicial action or administrative
proceeding, other than an action or proceeding arising out
of such statement.
(C) Statement of attorneys' fees or costs sought
If any of the settling parties or their counsel intend to
apply to the court for an award of attorneys' fees or costs from
any fund established as part of the settlement, a statement
indicating which parties or counsel intend to make such an
application, the amount of fees and costs that will be sought
(including the amount of such fees and costs determined on an
average per share basis), and a brief explanation supporting the
fees and costs sought.
(D) Identification of lawyers' representatives
The name, telephone number, and address of one or more
representatives of counsel for the plaintiff class who will be
reasonably available to answer questions from class members
concerning any matter contained in any notice of settlement
published or otherwise disseminated to the class.
(E) Reasons for settlement
A brief statement explaining the reasons why the parties are
proposing the settlement.
(F) Other information
Such other information as may be required by the court.
(8) Attorney conflict of interest
If a plaintiff class is represented by an attorney who directly
owns or otherwise has a beneficial interest in the securities that
are the subject of the litigation, the court shall make a
determination of whether such ownership or other interest
constitutes a conflict of interest sufficient to disqualify the
attorney from representing the plaintiff class.
(b) Stay of discovery; preservation of evidence
(1) In general
In any private action arising under this subchapter, all
discovery and other proceedings shall be stayed during the pendency
of any motion to dismiss, unless the court finds, upon the motion of
any party, that particularized discovery is necessary to preserve
evidence or to prevent undue prejudice to that party.
(2) Preservation of evidence
During the pendency of any stay of discovery pursuant to this
subsection, unless otherwise ordered by the court, any party to the
action with actual notice of the allegations contained in the
complaint shall treat all documents, data compilations (including
electronically recorded or stored data), and tangible objects that
are in the custody or control of such person and that are relevant
to the allegations, as if they were the subject of a continuing
request for production of documents from an opposing party under the
Federal Rules of Civil Procedure.
(3) Sanction for willful violation
A party aggrieved by the willful failure of an opposing party to
comply with paragraph (2) may apply to the court for an order
awarding appropriate sanctions.
(4) Circumvention of stay of discovery
Upon a proper showing, a court may stay discovery proceedings in
any private action in a State court as necessary in aid of its
jurisdiction, or to protect or effectuate its judgments, in an
action subject to a stay of discovery pursuant to this subsection.
(c) Sanctions for abusive litigation
(1) Mandatory review by court
In any private action arising under this subchapter, upon final
adjudication of the action, the court shall include in the record
specific findings regarding compliance by each party and each
attorney representing any party with each requirement of Rule 11(b)
of the Federal Rules of Civil Procedure as to any complaint,
responsive pleading, or dispositive motion.
(2) Mandatory sanctions
If the court makes a finding under paragraph (1) that a party or
attorney violated any requirement of Rule 11(b) of the Federal Rules
of Civil Procedure as to any complaint, responsive pleading, or
dispositive motion, the court shall impose sanctions on such party
or attorney in accordance with Rule 11 of the Federal Rules of Civil
Procedure. Prior to making a finding that any party or attorney has
violated Rule 11 of the Federal Rules of Civil Procedure, the court
shall give such party or attorney notice and an opportunity to
respond.
(3) Presumption in favor of attorneys' fees and costs
(A) In general
Subject to subparagraphs (B) and (C), for purposes of
paragraph (2), the court shall adopt a presumption that the
appropriate sanction--
(i) for failure of any responsive pleading or
dispositive motion to comply with any requirement of Rule
11(b) of the Federal Rules of Civil Procedure is an award to
the opposing party of the reasonable attorneys' fees and
other expenses incurred as a direct result of the violation;
and
(ii) for substantial failure of any complaint to comply
with any requirement of Rule 11(b) of the Federal Rules of
Civil Procedure is an award to the opposing party of the
reasonable attorneys' fees and other expenses incurred in
the action.
(B) Rebuttal evidence
The presumption described in subparagraph (A) may be
rebutted only upon proof by the party or attorney against whom
sanctions are to be imposed that--
(i) the award of attorneys' fees and other expenses will
impose an unreasonable burden on that party or attorney and
would be unjust, and the failure to make such an award would
not impose a greater burden on the party in whose favor
sanctions are to be imposed; or
(ii) the violation of Rule 11(b) of the Federal Rules of
Civil Procedure was de minimis.
(C) Sanctions
If the party or attorney against whom sanctions are to be
imposed meets its burden under subparagraph (B), the court shall
award the sanctions that the court deems appropriate pursuant to
Rule 11 of the Federal Rules of Civil Procedure.
(d) Defendant's right to written interrogatories
In any private action arising under this subchapter in which the
plaintiff may recover money damages only on proof that a defendant acted
with a particular state of mind, the court shall, when requested by a
defendant, submit to the jury a written interrogatory on the issue of
each such defendant's state of mind at the time the alleged violation
occurred.
(May 27, 1933, ch. 38, title I, Sec. 27, as added Pub. L. 104-67, title
I, Sec. 101(a), Dec. 22, 1995, 109 Stat. 737; amended Pub. L. 105-353,
title I, Sec. 101(a)(2), title III, Sec. 301(a)(5), Nov. 3, 1998, 112
Stat. 3230, 3235.)
References in Text
The Federal Rules of Civil Procedure, referred to in subsecs.
(a)(1), (3)(A)(iii), (B)(iii)(I)(cc), (vi), (b)(2), and (c), are set out
in the Appendix to Title 28, Judiciary and Judicial Procedure.
Amendments
1998--Pub. L. 105-353, Sec. 301(a)(5), made technical correction
relating to placement of section in subchapter.
Subsec. (b)(4). Pub. L. 105-353, Sec. 101(a)(2), added par. (4).
Effective Date of 1998 Amendment
Amendment by section 101(a)(2) of Pub. L. 105-353 not to affect or
apply to any action commenced before and pending on Nov. 3, 1998, see
section 101(c) of Pub. L. 105-353, set out as a note under section 77p
of this title.
Effective Date
Section not to affect or apply to any private action arising under
this subchapter or title I of the Securities Exchange Act of 1934 (15
U.S.C. 78a et seq.), commenced before and pending on Dec. 22, 1995, see
section 108 of Pub. L. 104-67, set out as an Effective Date of 1995
Amendment note under section 77l of this title.
Construction
Nothing in section to be deemed to create or ratify any implied
right of action, or to prevent Commission, by rule or regulation, from
restricting or otherwise regulating private actions under Securities
Exchange Act of 1934 (15 U.S.C. 78a et seq.), see section 203 of Pub. L.
104-67, set out as a note under section 78j-1 of this title.
