instructs the district court that, upon final adjudication, it
should make Rule 11 findings. From the district court's
perspective, an action is finally adjudicated when the district
court case file is closed. At that point, the district court
ceases all active involvement in the action unless and until the
case file is reopened after subsequent appeal. Although the
parties may practically consider adjudication of this matter to
be ongoing pending appeal, the express language of the statute
addresses its mandate not to the parties, but rather, to the
The Court concludes that the plain meaning of § 78u-4(c)(1)
requires this Court to now make Rule 11 findings insofar as a
"final adjudication" has already been reached. This statutory
interpretation is consistent with that of other district courts
outside the Ninth Circuit. See Polar Intern. Brokerage Corp. v.
Reeve, 120 F. Supp.2d 267, 268 n. 1 (S.D.N.Y. 2000) (holding
that dismissal with prejudice of action governed by the PSLRA
was properly considered a final adjudication); Inter-County
Resources, Inc. v. Medical Resources, Inc., 49 F. Supp.2d 682,
684 (S.D.N.Y. 1999) (noting that dismissal on the merits is a
final adjudication under the PSLRA). By order dated January 26,
2001 this Court unequivocally granted Defendants' motion to
dismiss with prejudice and without leave to amend. This Court,
having dismissed Plaintiffs' action with prejudice, has further
ordered the Clerk of Court to close the district court case
file. Giving § 78u-4(c)(1)'s phrase "final adjudication of the
action" its plain, ordinary and natural meaning, the Court
concludes that "final adjudication" occurs upon the district
court's termination and final disposition of the underlying
action and does not require any additional exhaustion of
appellate remedies to render Rule 11 findings. It is therefore
appropriate for this Court to make Rule 11 findings at this
B. RULE 11 FINDINGS
Defendants contend that Plaintiffs have violated Rule 11 and
offer to provide additional briefing should this Court be
inclined to impose sanctions. Both parties and this Court are
very familiar with the pleadings filed in this action. The Court
does not require additional briefing, as the record clearly
establishes that Plaintiffs' prosecution of this action was
reasonable and made in good faith.
Rule 11 sanctions should be granted where a filing is
frivolous. A frivolous filing is both (1) baseless and (2) made
without a reasonable and competent inquiry. See Keegan, 78
F.3d at 434. Alternatively, sanctions should be granted where a
filing has an improper purpose. See Townsend v. Holman
Consulting Corp., 929 F.2d 1358, 1362 (9th Cir. 1990).
Rule 11 sanctions should not be granted lightly, however. Even
manipulative pleadings which are neither frivolous nor improper
are not always subject to Rule 11 sanctions. See Baddie v.
Berkeley Farms, Inc., 64 F.3d 487, 491 (9th Cir. 1995).
Plaintiffs' pleadings in this case were neither frivolous nor
motivated by an improper purpose. The Court finds that all of
Plaintiffs's pleadings (1) had bases in fact and nonfrivolous
legal argument, (2) were the product of extensive and well
developed inquiry which far surpassed Rule 11's reasonable and
competent standard and (3) were supported by proper motives.
Specifically, Plaintiffs conducted significant factual research
and presented reasonable, if not always persuasive legal
arguments. Plaintiffs' three Complaints (the original and two
amended) all alleged detailed facts supported by a wide variety
of well pled allegations. Even though Plaintiffs' pleadings
ultimately failed to survive the PSLRA's heightened pleading
requirements, they nonetheless established a nonfrivolous
suspicion of fraud.
Additionally, the Court finds that Plaintiffs initiated this
action for the purpose of correcting what they reasonably,
though erroneously, perceived to be a legally redressable harm
under federal securities law. All subsequent pleadings were
properly motivated endeavors to advance this
action through the pleading stage and were supported by
reasonable inquiry and fact. Accordingly, the Court finds that
Plaintiffs have complied with all requirements promulgated by
Rule 11.*fn1 Sanctions are therefore inappropriate and will
not be imposed upon either party.
IV. CONCLUSION AND ORDER
In light of the foregoing, the Court DENIES Defendants' ex
parte application to amend the judgment. The Court's judgment
dated January 26, 2001 shall remain undisturbed.
IT IS SO ORDERED.