April 7, 2004

Relating Back

As a general matter, allegations in an amended complaint relate back to the date of the original filing if they arise out of the same operative facts. What exactly constitutes the operative facts, of course, can be the subject of debate.

In In re American Express Co. Sec. Litig., 2004 WL 632750 (S.D.N.Y. March 31, 2004), the court found that the plaintiffs were on inquiry notice of their claims concerning Amex's alleged misrepresentations about its investments in high-yield securities as of July 18, 2001. Although the original complaint was filed in a timely manner (i.e., within a year), the amended complaint was not filed until December 10, 2002, and contained new allegations about improper valuation methods, GAAP violations, and a lack of adequate risk controls. The court found that these allegations did not sufficiently relate back to the original complaint, even though they all generally concerned Amex's investments in high-yield securities, and were therefore time-barred.

Holding: Motion to dismiss granted.

Quote of note: "The initial complaint simply avers that defendants did not disclose management's failure to 'fully comprehend' the risks associated with Amex's high-yield holdings. The Amended Complaint, on the other hand, claims that 'the procedures for valuing and evaluating AEFA's holdings made it impossible to monitor and guage risks accurately, and no such risk analysis was taking place.' These allegations are therefore distinct from those in the intitial complaint, as they involve different 'operative facts.'"

Thanks to Adam Savett for sending this case in.

Posted by Lyle Roberts at April 7, 2004 10:20 PM | TrackBack
Email this entry to:


Your email address:


Message (optional):