In this recent decision (Southland Sec. Corp. v. INSpire Ins. Solutions, Inc., No. 02-1055 (5th Cir. March 31, 2004)), the 5th Circuit held that the group pleading doctrine for pleading a company’s public statements (such as press releases or regulatory filing statements) as a basis for fraud against corporate officers does not withstand the Private Securities Litigation Reform Act of 1995 (PSLRA)’s specificity requirements. The Court observed that the PSLRA requires that untrue statements be set forth with particularity as to each individual defendant and that scienter be pleaded with regard to ‘each act or omission sufficient to give rise to a strong inference that the defendant acted with the required state of mind.'” In short, based on the PSLRA’s repeated references to “the defendant,” the 5th Cirtcuit concluded that Congress intended for plaintiffs to inform each defendant of the specific factual allegations attributable to his particular alleged fraud. In so holding, the 5th Circuit noted as follows:

Significantly, this court has never adopted the ?group pleading? doctrine, even before the PSLRA. While the PSLRA does not explicitly abolish the doctrine, it was not necessary to do so because Congress never made this judicial creation law to begin with. Even prior to the PSLRA, section 10(b) and Rule 10b-5 required plaintiffs to identify the roles of the individual defendants, and describe their involvement, if any, in preparing the misleading statements. [citation deleted] Even if this court were to conclude that the ?group pleading? doctrine existed in the absence of the PSLRA, it cannot withstand the PSLRA’s specific requirement that the untrue statements or omissions be set forth with
particularity as to “the defendant” and that scienter be pleaded with regard to “each act or omission” sufficient to give “rise to a strong inference that the defendant acted with the required state of mind.”

* * *

[C]orporate officers may not be held responsible for unattributed corporate statements solely on the basis of their titles, even if their general day-to-day involvement in the corporation’s affairs is pleaded. However, corporate documents that have no stated author or statements within documents not attributed to any individual may be charged to one or more corporate officers provided specific factual allegations link the individual to the statement at issue.

In sum, this is another in a long line of 5th Circuit decisions that require specific factual allegations to sustain a fraud claim against a defendant. Hat tip to The 10b-5 Daily for the link to this decision.