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DEMARCO v. DEPOTECH CORP.

March 2, 2001

VINCENT M. DEMARCO, ET AL., ON BEHALF OF THEMSELVES AND ALL OTHERS SIMILARLY SITUATED, PLAINTIFFS,
V.
DEPOTECH CORPORATION; EDWARD L. ERICKSON; SINIL KIM, ET AL. DEFENDANTS.



The opinion of the court was delivered by: Whelan, District Judge.

ORDER DENYING DEFENDANTS' APPLICATION TO AMEND JUDGMENT

On February 9, 2001 Defendants Depotech Corporation, et al. ("Defendants") moved ex parte to amend this Court's judgment dated January 26, 2001 (hereinafter "judgment"). (Doc. No. 100.) Specifically, Defendants request that this Court amend its judgment to include findings under Rule 11 of the Federal Rules of Civil Procedure. Plaintiffs timely opposed. For the reasons stated below, the Court finds that all parties have complied with Rule 11 such that amendment of the judgment is not warranted.

I. BACKGROUND

On April 9, 1998 Plaintiffs Vincent M. DeMarco et al. ("Plaintiffs") initiated this class action alleging securities fraud. Specifically, Plaintiffs alleged that Defendants fraudulently manipulated the market prices of Depotech shares. On January 26, 2001, after extensive litigation which included three rounds of pleading, this Court dismissed this action with prejudice. At no point in the litigation did the Court make any Rule 11 findings. On February 9, 2001 Plaintiffs filed a Notice of Appeal. On the same date, Defendants requested that this Court amend its judgment to make Rule 11 findings and to impose sanctions against Plaintiffs and their counsel pursuant to 15 U.S.C. § 78u-4(c)(1).

II. LEGAL STANDARD

On a party's motion no more than ten days after entry of judgment, a district court may amend its judgment. FED. R. CIV. P. 59(e). District courts have broad discretion to amend or refuse to amend judgments under Rule 59(e). See McDowell v. Calderon, 197 F.3d 1253, 1256 (9th Cir. 1999) (citing Pasatiempo v. Aizawa, 103 F.3d 796, 801 (9th Cir. 1996)); Safeway Stores v. Fannan, 308 F.2d 94, 98 (9th Cir. 1962) (noting denial of 59(e) motion will only be reversed on "manifest abuse of discretion").

Rule 11 requires a reasonable inquiry prior to signature of any pleading, and that the pleading be based on existing law or a nonfrivolous argument for a change in the law. See FED. R. Civ. P. 11(b); Bus. Guides, Inc. v. Chromatic Communications Enter., Inc., 498 U.S. 533, 548, 111 S.Ct. 922, 112 L.Ed.2d 1140 (1991). District courts have broad discretion to sanction a party or attorney under Rule 11. See Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 385, 110 S.Ct. 2447, 110 L.Ed.2d 359 (1990); Barber v. Miller, 146 F.3d 707, 709 (9th Cir. 1998). Sanctions are appropriate if a claim is not "warranted by existing law or by a nonfrivolous argument for the extension, modification or reversal of existing law." See FED. R. Civ. P. 11(b)(2); Barber, 146 F.3d at 710. The signer's subjective good or bad faith is irrelevant to the Rule 11 analysis, rather an objective reasonableness standard applies. See Bus. Guides, 498 U.S. at 548, 111 S.Ct. 922; In re Keegan Management Co., Securities Litigation, 78 F.3d 431, 434 (9th Cir. 1996).

III. ANALYSIS

A. FINAL ADJUDICATION

Plaintiffs argue that Rule 11 findings are premature because final adjudication does not occur until all appellate remedies are exhausted. 15 U.S.C. § 78u-4(c)(1) does not define "final adjudication of the action." Despite efforts to locate controlling authority on this issue, neither the parties nor this Court have located a decision arising in the Ninth Circuit which has defined "final adjudication" in the context of the PSLRA.

"In the absence of . . . a definition, [courts] construe a statutory term in accordance with its ordinary or natural meaning." Fed. Deposit Ins. Corp. v. Meyer, 510 U.S. 471, 476, 114 S.Ct. 996, 127 L.Ed.2d 308 (1994). "It is, however, a fundamental principle of statutory construction (and, indeed, of language itself) that the meaning of a word cannot be determined in isolation, but must be drawn from the context in which it is used." Smith v. United States, 508 U.S. 223, 241, 113 S.Ct. 2050, 124 L.Ed.2d 138 (1993) (Scalia, J., dissenting).

The specific language of the relevant PSLRA provision reads as follows: "upon final adjudication of the action, the court shall include in the record specific findings regarding . . . Rule 11(b)[.]" 15 U.S.C. § 78u-4(c)(1). The Court concludes that § 78u-4(c)(1)'s plain meaning clearly reveals that "final adjudication" occurs upon a terminating decision, such as a verdict, summary judgment or dismissal with prejudice without leave to amend. Section 78u-4(c)(1) requires the district court to make Rule 11 findings in the record. Section 78u-4(c)(1)'s very use of the term "record" directly suggests that the proposed Rule 11 findings will be included in the appellate record submitted to the Circuit Court of Appeals for appellate review. If Congress actually intended that the district court postpone its Rule 11 determination until after the exhaustion of all appeals, Congress would have stated so explicitly.

The 104th Congress, which enacted the PSLRA, included such explicit guidance in the Antiterrorism and Effective Death Penalty Act's ("AEDPA") modification of 28 U.S.C. § 2244(d)(1)(A). AEDPA's statute of limitations begins to run on "the date on which the judgment became final by the conclusion of direct review or the expiration of the time for seeking such review[.]" 28 U.S.C. § 2244(d)(1)(A). The 104th Congress mandated that "final judgment" under AEDPA follow this special definition: exhaustion of appellate review. Implicitly then, the same Congress did not desire such a special definition for the PSLRA's undefined "final adjudication." Rather, ...


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