Pleading Common Law Fraud Under Rule 9(b): Conflicting Circuit Court Interpretations -
Federal Rule of Civil Procedure 9(b) prescribes the standards for pleading a common law fraud claim. The Rule states that “[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake.” But “[m]alice, intent, knowledge, and other conditions of a person’s mind may be alleged generally.” Hence, these two sentences spell out two distinct rules: (i) there is a special requirement for pleading fraud or mistake for at least certain elements; but (ii) scienter needs to only be pled through “general[]” allegations.
Despite its plain language, judicial interpretation of Rule 9(b) has resulted in widely differing camps on what is actually required to plead scienter in common law fraud claims. The complexity increased when the Private Securities Litigation Reform Act (“PSLRA”) added the “strong inference” requirement for pleading scienter, but intended to do so only for claims under federal securities fraud statutes. Finding the “correct” interpretation of Rule 9(b)’s scienter requirement was further complicated when the Supreme Court put teeth into the basic pleading requirements of Rule 8 in Iqbal and Twombly, calling into question what it means to plead “generally” to begin with.
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