In Habelt v. iRhythm Technologies, Inc., No. 22-15660 (9th Cir. Oct. 11, 2023), a 2-1 panel holds that the original putative lead plaintiff in a securities fraud case was no longer a “party” with standing to appeal when a different lead plaintiff was appointed by the district court under the Private Securities Litigation Reform Act of 1995 (PSLRA).
“In early 2021, iRhythm Technologies, Inc.’s (iRhythm) stock price fell after it received a historically low Medicare reimbursement rate for one of its products. Mark Habelt, an investor in iRhythm, filed a putative securities fraud class action against iRhythm and one of its former Chief Executive Officers, alleging that investors were misled during the regulatory process preceding this stock price collapse.”
Under the procedures of the PSLRA, the district court appointed Public Employees’ Retirement System of Mississippi (PERSM) as lead plaintiff. PERSM filed an amended complaint that made no reference to Habelt’s personal claims or losses, although his name remained in the caption, nominally as plaintiff. Thereafter, the district court granted the defendant’s motion to dismiss. PERSM elected not to appeal, so Habelt assumed the mantle of plaintiff and filed his own notice of appeal.
The Ninth Circuit dismisses on appellate standing grounds. The panel majority notes the ordinary rule that only parties to an action have standing to appeal an adverse outcome. “Habelt argues that he is a party to this lawsuit because he filed the initial complaint and is listed in the caption of the SAC.” Yet the panel majority holds this is not enough to establish appellate standing.
First, the amended complaint made no mention of Habelt’s claims or losses.
Second, “Habelt’s status as a putative class member [does not] give him standing to appeal,” because only an unnamed member of a certified class may be considered a party under Smith v. Bayer Corp., 564 U.S. 299 (2011).
Finally, Habelt cannot benefit from the “exceptional circumstances” case law permitting appeals by non-parties because he was not actually engaged enough in the district court proceedings. “He did not apply to be appointed lead plaintiff, challenge PERSM’s motion for appointment as lead plaintiff, or otherwise participate in the suit after PERSM’s appointment.”
But Judge Bennett, in dissent, would find that Habely was and remained the original plaintiff. “Here, four factors show that Habelt is a party. First, Habelt initiated the lawsuit by filing the first complaint . . . . Second, Habelt remained in the caption of the operative Second Amended Complaint (SAC) filed by the Public Employees’ Retirement System of Mississippi (PERSM) . . . . Third, Habelt’s claims are clearly covered by the substantive ‘“allegations in the body of the’ SAC . . . . And fourth, Habelt never evinced any intent to remove himself as a party, and the district court never provided notice that it was doing so.”
Judge Bennett would also have held, alternatively, that “exceptional circumstances” warranted standing: “he wasn’t a silent voice who should have assumed his silence equaled non-party status. He was the Plaintiff, who had the right to assume that a plaintiff (i.e., a party) who is never dismissed, remains a party absent something (like a statute, a court order, or a very clear binding case) telling him that some event or series of events stripped that status from him.”
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