This week, the Ninth Circuit considers when an unnamed plaintiff in a putative class action has standing to appeal.
The Court holds that an initial plaintiff in a putative securities-fraud class action, who was replaced by another party as lead plaintiff, did not have standing to appeal the dismissal of that action.
The Panel: Judges Bea, Bennett, and H.A. Thomas, with Judge Thomas writing the opinion and Judge Bennett dissenting.
Key Highlight: “Beyond an individual’s mere inclusion in the caption, the more important indication of whether she is a party to the case are the allegations in the body of the complaint.” (Quotation marks omitted.)
Background: Mark Habelt filed a putative securities fraud class-action complaint, alleging that defendant iRhythm misled investors before a stock price collapse. Pursuant to the procedures of the Private Securities Litigation Reform Act (PSLRA), three putative class members moved to be appointed lead plaintiff, including the Public Employees’ Retirement System of Mississippi (PERSM). Habelt did not move for lead-plaintiff appointment or oppose PERSM’s motion. The district court appointed PERSM as lead plaintiff. PERSM filed an amended complaint, which the district court dismissed for failure to state a claim. PERSM did not appeal—but Habelt did.
Result: The Ninth Circuit dismissed for lack of jurisdiction.
Under Ninth Circuit law, only parties to a suit may appeal an adverse judgment. Habelt argued he was a party because he filed the initial complaint and was listed in the caption of the operative complaint. The Court disagreed. It explained that the caption of an action is not dispositive evidence of party status, because it is merely the handle to identify a case. Rather, the most important indication of whether an entity is a party to the case are the allegations in the body of the complaint. This, the Court concluded, was where Habelt’s argument faltered. While Habelt did file the initial complaint, that complaint was extinguished upon the filing of the amended complaint. And the operative complaint made clear that PERSM was the sole plaintiff: it did not mention Habelt or his individual claims. Nor did Habelt’s status as a putative class member give him standing to appeal, because only unnamed members of a certified class have such standing.
Finally, the Court held that Habelt failed to demonstrate exceptional circumstances that would confer standing to appeal as a non-party. Habelt was not involved in the district court proceedings after filing his initial complaint, and the equities did not weigh in favor of hearing the appeal.
Judge Bennett dissented. He would have held that Habelt was a party given that (1) Habelt filed the initial complaint; (2) Habelt remained a named plaintiff in the caption of later complaints; (3) the operative complaint’s allegations covered Habelt’s claims; and (4) Habelt never evinced intent to withdraw as a plaintiff nor received notice of termination of his party status. Judge Bennett would also have held that, even if Habelt was not a party, exceptional circumstances applied such that he should have nonparty appellate standing. In light of his standing opinion, Judge Bennett would reach the merits and reverse the district court’s dismissal.