Comfort with the Majority: The Eighth Circuit Weighs in on the Proper Pleading Test for a Securities Fraud Claim in Florida State Board of Administration v. Green Tree Financial Corporation, 270 F.3d 645 (8th Cir. 2001)

Authors

Erin M. O'Gara, University of Nebraska College of LawFollow

Abstract

This Note argues that the Private Securities Litigation Reform Act of 1995 neither codified nor rejected the Second Circuit’s motive-and-opportunity pleading test and accompanying case law, instead leaving the matter to the courts. Left with this flexibility, the Eighth Circuit should have adopted the Second Circuit’s motive-and-opportunity test and the accompanying Second Circuit case law. The motive-and-opportunity test, and the accompanying Second Circuit case law, best furthers the policies and considerations underlying the Reform Act, namely the deterrence of meritless strike suits, the protection of investors in the securities market, and the establishment of a uniform pleading system for securities fraud claims. The pleading test adopted by the Eighth Circuit, the case-by-case factual determination test, adds little to the deterrence of strike suits, fails to provide securities plaintiffs with guidance on how to satisfy the increased pleading requirements, and injects judicial flexibility into a situation where Congress clearly wanted it limited. Section II examines (1) the pleading standard for scienter prior to the Reform Act; (2) the Reform Act’s text and legislative history; and (3) the resulting circuit court split that has developed concerning the test for pleading scienter under the Reform Act. Section II also discusses the factual background and procedural history of Florida State Board of Administration v. Green Tree Financial Corporation, the case in which the Eighth Circuit weighed in on the appropriate pleading test under the Reform Act. Section III argues that the legislative history and plain text of the Reform Act indicate that Congress neither codified nor rejected the Second Circuit’s motive-and-opportunity test, and instead, left the matter to judicial determination. Section III also examines the policies and considerations underlying the Reform Act and concludes that to best further these policies and considerations, the Eighth Circuit should have adopted the motive-and-opportunity test and the accompanying Second Circuit case law.

Recommended Citation

Erin M. O'Gara, Comfort with the Majority: The Eighth Circuit Weighs in on the Proper Pleading Test for a Securities Fraud Claim in Florida State Board of Administration v. Green Tree Financial Corporation, 270 F.3d 645 (8th Cir. 2001), 82 Neb. L. Rev. (2003)
Available at: https://digitalcommons.unl.edu/nlr/vol82/iss4/7