On May 16, 2019, the District of Massachusetts denied a lead plaintiff’s motion to amend a complaint that sought to overcome standing deficiencies of the original class representative by adding a new named plaintiff. The Court dismissed the putative class action without prejudice, holding that if a class action has only one representative, and that party does not have standing, the Court lacks jurisdiction over the case and cannot permit the lead plaintiff substitution.
In Yan v. ReWalk Robotics, Ltd., lead plaintiff Wang Yan brought a putative class action for alleged violations of the Securities Act of 1933 and the Exchange Act of 1934 in connection with the company’s 2014 initial public offering. In a class action complaint filed in 2017, Yan claimed that ReWalk concealed material information in its IPO documents concerning a failure to comply with FDA regulations and continued to make materially false statements after the IPO. In August 2018, the Court granted the defendants’ motion to dismiss all Securities Act claims for failure to plead a false or misleading statement and dismissed all Exchange Act claims because Yan lacked standing based on his dates of share purchase, which were limited to the time of the IPO. Dismissal was granted without prejudice so that Yan could make a supplemental pleading on the standing issue or seek a substitute lead plaintiff. Yan moved in September 2018 to amend the complaint to add another representative as named plaintiff.
Relying on First Circuit authority, the Court observed that “standing is a threshold question in every case.” Then, citing Second, Third, and Fifth Circuit decisions, the Court explained that it lacks Article III jurisdiction over a class action if the only named class representative does not have standing to bring the putative class claims. Under such circumstances, there can be no opportunity to substitute a class representative in the absence of a live case or controversy. In drawing a bright line that appears to be previously unmarked by the First Circuit, the Court noted: “no court appears to have held that a plaintiff in a class action who does not have standing can simply move to amend the complaint to add someone who does.”
Yan argued that standing issues could be resolved through the recognized right of the lead plaintiff to amend a complaint to include additional named plaintiffs. The Court distinguished the cited cases, reasoning that those circumstances were limited to Rule 23 typicality and adequacy concerns, and not Article III standing. The Court explained: “Article III standing is not the same as Rule 23 typicality and adequacy.” The difference is critical because “the named plaintiff or class representative in a class action must have Article III standing.” For that reason, the Court held that Yan’s lack of standing in this case was “fatal to the putative class action and cannot be cured by amendment.”