January 2011 Vol. 109 No. 4 THE REVIEW

Revitalizing Motive and Opportunity Pleading After Tellabs

Marvin Lowenthal

 

Congress passed the Private Securities Litigation Reform Act of 1995 ("PSLRA") to prevent frivolous lawsuits that had been draining resources from businesses. This legislation included provisions for heightening the pleading requirements for scienter, or state-of-mind, requirement, for securities law violations. Many circuit courts debated whether the motive and opportunity test for scienter, applied initially by the Second and Third Circuits, survived the passage of the PSLRA. This Note argues that while the motive and opportunity test has been discounted by numerous circuits, it not only remains viable for pleading scienter under the PSLRA, but it accomplishes the PSLRA's goals better than any other standard presently available. Despite the concerns voiced by many circuit courts, the PSLRA was not passed to eliminate the motive and opportunity test, nor is the motive and opportunity test, as it is now applied by the Second Circuit, inconsistent with the PSLRA. In addition, while the recent Supreme Court decision in Tellabs, Inc. v. Makor Issues & Rights, Ltd. convinced the Third Circuit to abandon the motive and opportunity test, the language of Tellabs demonstrates that the decision did not eliminate the test. Not only is the motive and opportunity test still viable, but it serves the policy reasons behind enacting the PSLRA better than the holistic approach utilized by other circuit courts.

 

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