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(Article from Securities Law Alert, July/August 2020)

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On August 12, 2020, the Second Circuit determined that the district court “applied the correct legal standard” and “acted well within its discretion” in denying plaintiffs’ motion for leave to file a third amended complaint. Metzler Inv. Gmbh v. Chipotle Mexican Grill, 2020 WL 4644799 (2d Cir. 2020) (Sack, J.). The Second Circuit found it significant that “the district court issued a thorough opinion that identified defects” in the first amended complaint, yet “plaintiffs failed to cure such deficiencies in their [s]econd [a]mended [c]omplaint.” The Second Circuit acknowledged that “a plaintiff afforded attempt after attempt . . . might one day succeed in stating a claim,” but determined that “the federal rules and policies behind them do not permit such limitless possibility.”

The Second Circuit held that the district court “correctly analyzed” plaintiffs’ motion under Federal Rules of Civil Procedure 59(e) and 60(b), and explained that “[i]t is well established that a party seeking to file an amended complaint post-judgment must first have the judgment vacated or set aside pursuant to Fed. R. Civ. P. 59(e) or 60(b).”[1] The Second Circuit found “no authority” for plaintiffs’ contention that the district court should have “consider[ed] only the standard that governs pre-trial motions for leave to amend a pleading pursuant to Federal Rule of Civil Procedure 15(a)(2), which states that before trial, . . . [t]he court should freely give leave when justice so requires.” The Second Circuit acknowledged that “[i]n the post-judgment context,” it has “given due regard to the liberal spirit of Rule 15 by ensuring plaintiffs at least one opportunity to replead.” But the court emphasized that it has not “given sole regard to Rule 15” because “[d]oing so would allow the liberal amendment policy of Rule 15(a) to swallow the philosophy favoring finality of judgments whole.”

The Second Circuit also found no basis for plaintiffs’ argument that the provisions of Rules 59(e) and 60(b) governing newly discovered evidence are “specific to actions in which judgment was entered following trial” and do not apply to “dismissal on a Rule 12(b)(6) motion.” The court explained that “[n]ewly discovered evidence must be of facts that existed at the time of trial or other dispositive proceeding.” The court held that “[t]he newly discovered evidence provisions of Rules 59(e) and 60(b) thus apply to the plaintiffs’ post-judgment motion for leave to amend because it was made following grant of a motion to dismiss which, like a trial, is a ‘dispositive proceeding.’” The court concluded that plaintiffs’ “challenge to the legal standard applied by the district court thus fails.”