Petition for Writ of Certiorari — Mark Habelt, Petitioner v. iRhythm Technologies, Inc., et al.

Supreme Court briefApr 16, 2024

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No. 23-

In the Supreme Court of the United States

MARK HABELT, INDIVIDUALLY AND ON BEHALF OF

OTHERS SIMILARLY SITUATED,

PETITIONER

IRHYTHM TECHNOLOGIES, INC., ET AL.,

RESPONDENTS

ON PETITION FOR A WRIT OF CERTIORARI

TO THE U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT

PETITION FOR A WRIT OF CERTIORARI

JOSHUA B. SILVERMAN

OMAR JAFRI

JENNIFER PAFITI

JEREMY A. LIEBERMAN

CHRISTOPHER P.T. TOUREK

POMERANTZ LLP

10 S. LaSalle Street Ste. 3505

Chicago, IL 60603

XIAO WANG

Counsel of Record

UNIVERSITY OF VIRGINIA

SCHOOL OF LAW SUPREME

COURT LITIGATION CLINIC

580 Massie Road

Charlottesville, VA 22903

(434) 924-8956

x.wang@law.virginia.edu

JEFFREY C. BLOCK

JACOB WALKER

MARK BYRNE

BLOCK & LEVITON, LLP

260 Franklin Street Ste. 1860

Boston, MA 02110

Counsel for Petitioner

QUESTION PRESENTED

Does a named plaintiff who initiated a suit from which

he was never dismissed or removed, who retains a

financial stake in the litigation’s outcome, and who could

be precluded from pursuing further redress have

standing to appeal?

PARTIES TO THE PROCEEDING

Petitioner Mark Habelt was the plaintiff in the district

court proceedings and appellant in the court of appeals

proceedings.

Respondents iRhythm Technologies, Inc., Kevin M.

King, Michael J. Coyle, and Douglas J. Devine were

defendants in the district court proceedings and appellees

in the court of appeals proceedings.

After Petitioner initiated this action, the district court

appointed the Public Employees’ Retirement System of

Mississippi (“PERSM”) as lead plaintiff under the Private

Securities Litigation Reform Act of 1995 (“PSLRA”), but

PERSM declined to appeal from the district court’s

judgment and does not seek relief before this Court.

iii

RELATED PROCEEDINGS

United States District Court (N.D. Cal.):

Habelt v. iRhythm Technologies, Inc., No. 21-cv00776, 2021 WL 2207365 (June 1, 2021). Motion

for appointment as lead plaintiff granted June

1, 2021.

Habelt v. iRhythm Technologies, Inc., No. 21-cv00776, 2022 WL 971580 (Mar. 31, 2022).

Judgment entered Mar. 31, 2022.

United States Court of Appeals (9th Cir.):

Habelt v. iRhythm Technologies, Inc., 83 F.4th

1162 (9th Cir. 2023). Judgment entered Oct. 11,

2023.

Habelt v. iRhythm Technologies, Inc., No. 2215660 (9th Cir. Dec. 6, 2023). Rehearing denied

Dec. 6, 2023.

TABLE OF CONTENTS

Question presented ............................................................... i

Parties to the proceeding .................................................... ii

Related proceedings ...........................................................iii

Table of authorities ............................................................. vi

Petition for writ of certiorari .............................................. 1

Opinions below ...................................................................... 1

Jurisdiction ........................................................................... 1

Statutory provisions involved ............................................. 1

Introduction .......................................................................... 2

Statement of the case........................................................... 5

A. Factual background. ................................................ 5

B. Proceedings below.................................................... 6

Reasons for granting the petition .................................... 11

I. The courts of appeals are divided on when to

look beyond a complaint’s caption to

determine party status. ............................................... 11

A. Most circuits look outside the caption only

to identify defendants. ........................................... 12

B. A minority of circuits look beyond the

caption to identify plaintiffs. ................................. 15

II. The courts of appeals are split on how to show

nonparty appellate standing. ...................................... 17

A. This Court has left unsettled the

parameters of when nonparties may

pursue an appeal..................................................... 18

B. Most courts of appeals have examined

whether a nonparty has an interest or

stake in the litigation. ............................................ 19

III. The Ninth Circuit erred in dismissing

Habelt’s appeal. ............................................................ 23

A. The decision below conflicts with the text

and purpose of Rule 10(a). ..................................... 23

B. The decision below conflicts with other

Federal Rules of Civil Procedure. ........................ 26

C. The decision below’s test for nonparty

appeals is unsound. ................................................ 28

IV. This case is an excellent vehicle to resolve

important questions dividing the federal

courts. ............................................................................ 31

Conclusion ........................................................................... 34

TABLE OF AUTHORITIES

Page(s)

Cases

Abeyta v. City of Albuquerque,

664 F.3d 792 (10th Cir. 2011) ............................198, 28

Abraugh v. Altimus,

26 F.4th 298 (5th Cir. 2022) ...................... 4, 14, 17, 24

Bayer v. U.S. Dep’t of Treasury,

956 F.2d 330 (D.C. Cir. 1992) ................................4, 13

Blanchard v. Terry & Wright, Inc.,

331 F.2d 467 (6th Cir. 1964) ............................ 4, 15, 16

Broidy Cap. Mgmt. LLC v. Muzin,

61 F.4th 984 (D.C. Cir. 2023) ................................... 20

Cameron v. EMW Women’s Surgical Ctr., P.S.C.,

595 U.S. 267 (2022).................................................3, 12

China Agritech v. Resh,

584 U.S. 732 (2018)......................................... 28, 30, 31

Cho v. Blackberry Ltd.,

991 F.3d 155 (2d Cir. 2021) .................................24, 32

City of Cleveland v. Ohio,

508 F.3d 827 (6th Cir. 2007) ..................................... 29

Curtis v. City of Des Moines,

995 F.2d 125 (8th Cir. 1993) .......................... 20, 30, 32

Devlin v. Scardelletti,

536 U.S. 1 (2002) .................................. 8, 12, 18, 19, 28

Doe v. Pub. Citizen,

749 F.3d 246 (4th Cir. 2014) .................... 11, 20, 30, 32

vii

Hernandez-Avila v. Averill,

725 F.2d 25 (2d Cir. 1984) ............. 4, 13, 13, 16, 17, 32

Hevesi v. Citigroup, Inc.,

366 F.3d 70 (2d Cir. 2004) ...................................24, 25

Hilao v. Est. of Marcos,

393 F.3d 987 (9th Cir. 2004) ....................................8, 9

Hispanic Soc. of N.Y.C. Police Dep’t Inc. v. N.Y.C.

Police Dep’t,

806 F.2d 1147 (2d Cir. 1986) .................................... 18

Home Prods. Int’l, Inc. v. United States,

846 F. App’x 890 (Fed. Cir. 2021) ............................ 21

Johnson v. Johnson,

466 F.3d 1213 (10th Cir. 2006) ............................12, 13

Jones v. Griffith,

870 F.2d 1363 (7th Cir. 1989) ................................... 23

Kanuszewski v. Michigan Dep’t of Health & Hum.

Servs.,

927 F.3d 396 (6th Cir. 2019) ................................15, 16

Kimberly Regenesis, LLC v. Lee Cnty.,

64 F.4th 1253 (11th Cir. 2023) ............................17, 32

Marino v. Ortiz,

484 U.S. 301 (1988)................................... 12, 18, 19, 28

McCormick v. Braverman,

451 F.3d 382 (6th Cir. 2006) ................................19, 20

Microsystems Software, Inc. v. Scandinavia Online

AB,

226 F.3d 35 (1st Cir. 2000) ....................................... 32

Mission Prod. Holdings, Inc. v. Tempnology, LLC,

139 S. Ct. 1652 (2019) ..........................................21, 22

viii

Mitchell v. Maynard,

80 F.3d 1433 (10th Cir. 1996) ................................... 23

Mullane v. Cent. Hanover Bank & Tr. Co.,

339 U.S. 306 (1950)...............................................10, 25

Northview Motors, Inc. v. Chrysler Motors Corp.,

186 F.3d 346 (3d Cir. 1999) .................................11, 32

Official Comm. Of Unsecured Creditors of WorldCom,

Inc. v. S.E.C.,

467 F.3d 73 (2d Cir. 2006) ................... 5, 11, 19, 21, 28

Ordower v. Feldman,

826 F.2d 1569 (7th Cir. 1987) ................................... 13

Peralta v. Heights Med. Ctr., Inc.,

485 U.S. 80 (1988)...................................................... 25

Phillips v. Girdich,

408 F.3d 124 (2d Cir. 2005) ...................................... 24

Plain v. Murphy Fam. Farms,

296 F.3d 975 (10th Cir. 2002) ................................... 28

Porter v. S. Nev. Adult Mental Health Servs.,

788 F. App'x 525 (9th Cir. 2019) .............................. 31

Potter v. Comm’r of Soc. Sec.,

9 F.4th 369 (6th Cir. 2021) ....................................... 31

S.E.C. v. Enterprise Tr. Co.,

559 F.3d 649 (7th Cir. 2009) ..................................... 20

S.E.C. v. Forex Asset Mgmt. LLC,

242 F.3d 325 (5th Cir. 2001) ..................................... 11

Sanchez v. R.G.L.,

761 F.3d 495 (5th Cir. 2014) ..................................... 21

Shakman v. Clerk of Cir. Ct.,

969 F.3d 810 (7th Cir. 2020) ..................................... 20

Smith v. Bayer Corp.,

564 U.S. 299 (2011).................................................... 26

Sonner v. Premier Nutrition Corp.,

49 F.4th 1300 (9th Cir. 2022) ................................... 22

Surowitz v. Hilton Hotels Corp.,

383 U.S. 363 (1966).................................................... 26

Trackwell v. U.S. Gov’t,

472 F.3d 1242 (10th Cir. 2007) .............. 3, 4, 12, 16, 24

United States ex rel. Eisenstein v. City of New York,

556 U.S. 928 (2009).................................................9, 26

United States v. I.C.C.,

337 U.S. 426 (1949).................................................... 12

United States v. Osage Wind, LLC,

871 F.3d 1078 (10th Cir. 2017) ............................20, 30

United States v. Stoerr,

695 F.3d 271 (3d Cir. 2012) ...................................... 21

Warth v. Seldin,

422 U.S. 490 (1975).................................................... 25

Whitley v. U.S. Air Force,

932 F.2d 971 (7th Cir. 1991) ..................................... 13

Williams v. Bradshaw,

459 F.3d 846 (8th Cir. 2006) .................... 4, 8, 9, 14, 17

Page(s)

Statutes & Rules

28 U.S.C.

§ 1254............................................................................ 1

§ 1658.......................................................................... 30

Federal Rules of Civil Procedure

Rule 8 ......................................................................... 26

Rule 10 ........... 1-5, 11-13, 15-17, 23, 24, 26, 27, 32, 33

Rule 24 ....................................................................... 26

Rule 25 ....................................................................... 27

Page(s)

Other Authorities

Br. for U.S., Osage Wind, LLC v. Osage Mins.

Council, 139 S. Ct. 784 (2019) (No. 17-1237) .......... 17

Charles Alan Wright & Arthur R. Miller, 5A Federal

Practice and Procedure (4th ed.)...................3, 17, 26

Jared A. Goldstein, Equitable Balancing in the Age of

Statutes, 96 Va. L. Rev. 485 (2013) ....................29, 30

Joseph A. Grundfest, Quantifying the Significance of

Circuit Splits in Petitions for Certiorari: The Case

of Securities Fraud Litigation 1 (Stan. L. Sch. &

Rock Ctr. for Corp. Governance Working Paper,

Paper No. 254, 2024),

https://papers.ssrn.com/sol3/papers.cfm?abstract_i

d=4768231 ................................................................. 32

Steven S. Gensler, 1 Federal Rules of Civil Procedure,

Rules and Commentary, Rule 10 (Feb. 2024

Update) .................................................................23, 24

PETITION FOR WRIT OF CERTIORARI

Petitioner Mark Habelt respectfully petitions for a

writ of certiorari to review the judgment of the United

States Court of Appeals for the Ninth Circuit in this case.

OPINIONS BELOW

The opinion of the Ninth Circuit is published at 83

F.4th 1162 (9th Cir. 2023) and is reproduced in the

appendix to this petition at App. 3a–30a. The order of the

district court granting Respondents’ motion to dismiss is

unpublished and is reproduced at App. 32a–81a. The

order of the district court appointing a lead plaintiff is

unpublished and is reproduced at App. 83a–87a.

JURISDICTION

The Ninth Circuit issued its opinion on October 11,

2023. It denied a petition for rehearing and rehearing en

banc on December 6, 2023. This Court has jurisdiction

under 28 U.S.C. § 1254(1). Justice Kagan granted

Petitioner’s applications for extensions of time to file a

petition for writ of certiorari, from March 5 to April 16,

2024.

STATUTORY PROVISIONS INVOLVED

Federal Rule of Civil Procedure 10 and relevant

provisions of the Private Securities Litigation Reform Act

of 1995 are reproduced at App. 92a–97a.

INTRODUCTION

This petition raises important questions concerning a

named plaintiff’s standing to appeal. The Ninth Circuit’s

decision below deepens two circuit splits: one on the

interpretation of Federal Rule of Civil Procedure 10(a),

and another on nonparty standing to appeal.

To start, Rule 10(a) requires “[t]he title of the

complaint” to “name all the parties” in a suit. Fed. R. Civ.

P. 10(a). That is exactly what Mark Habelt did when, in

February 2021, he “filed a securities fraud complaint on

behalf of himself and a putative class of persons who

purchased iRhythm’s common stock between August 4,

2020, and January 28, 2021,” and suffered losses because

of Respondents’ alleged misrepresentations. App. 5a-6a.

The caption of this initial complaint was clear: it named

Habelt as the plaintiff, and iRhythm Technologies Inc.

(“iRhythm”) and its then-CEO, Kevin King, as the

defendants.

Pursuant to the PSLRA, the district court selected an

institutional investor to be the case’s lead plaintiff. But

that investor, PERSM, did not relegate Habelt to the

sidelines after its appointment. To the contrary, though

PERSM eventually named several additional defendants

to the case, it continued to list Habelt as a party in the

caption of the first and second amended complaints. The

district court and the defendants did the same. Indeed,

“every caption” in every pleading in this case “specifically

list[ed] Habelt as ‘plaintiff.’” App. 16a n.7 (Bennett, J.,

dissenting). All this aligned perfectly with Congressional

intent under the PSLRA: to encourage plaintiffs to pool

resources while still safeguarding an outlet for the private

enforcement of securities law.

But after the district court issued judgment in favor of

Respondents, PERSM declined to seek further review.

Habelt, on the other hand, wanted to continue protecting

the interests of the putative class he always sought to

represent. And so, with PERSM’s consent, he took up the

mantle of appealing on behalf of the putative class.

On the merits, Habelt received some measure of

validation. Judge Bennett reasoned that “three of the

alleged misrepresentations [had been] improperly

dismissed.” App. 26a. But the other judges on the panel

did not address the case’s merits. Instead, the panel

dismissed Habelt’s appeal because the majority reasoned

that Habelt (1) was no longer “a party to the action” and

(2) did not have “standing to appeal as a non-party.” App.

6a.

Such a holding departs from how other courts of

appeals have read Rule 10(a). That rule’s text is clear:

The caption of every complaint “must name all the

parties” in a suit. Fed. R. Civ. P. 10(a). And in a typical

case, “[o]ne need hardly look beyond the case caption” to

identify who those parties are. Cameron v. EMW

Women’s Surgical Ctr., P.S.C., 595 U.S. 267, 284 (2022)

(Thomas, J., concurring). But in a nod to the realities of

litigation—for example, when the caption contains “a

misnomer regarding a party,” Charles Alan Wright &

Arthur R. Miller, 5A Federal Practice and Procedure §

1321 (4th ed.)—many circuits recognize a narrow

exception to Rule 10(a). In these courts, “when the

plaintiff names the wrong defendant in the caption or

when the identity of the defendants is unclear from the

caption, courts may look to the body of the complaint to

determine who the intended and proper defendants are.”

Trackwell v. U.S. Gov’t, 472 F.3d 1242, 1243–44 (10th Cir.

2007). This discretion is usually exercised when the

plaintiff proceeds pro se or with minimal representation.

See, e.g., id.; Bayer v. U.S. Dep’t of Treasury, 956 F.2d

330, 334 (D.C. Cir. 1992).

However, most courts of appeals decline to look

outside the caption to ‘“determin[e] who the plaintiffs to a

suit are since plaintiffs draft complaints.’” Abraugh v.

Altimus, 26 F.4th 298, 303 (5th Cir. 2022) (quoting

Williams v. Bradshaw, 459 F.3d 846, 849 (8th Cir. 2006));

see also, e.g., Hernandez-Avila v. Averill, 725 F.2d 25, 27

n.4 (2d Cir. 1984); App. 13a (Bennett, J., dissenting).

The Sixth and now Ninth Circuits sit on the other end

of this split—going beyond a complaint’s caption to not

only identify defendants, but also to determine plaintiff

party status. Blanchard v. Terry & Wright, Inc., 331 F.2d

467, 469 (6th Cir. 1964); App. 8a–9a. And even then, the

Ninth Circuit’s decision goes further. Courts in the Sixth

Circuit look outside the caption to determine whether an

unnamed party should be added as a proper plaintiff. The

Ninth Circuit, though, is the first court of appeals to strip

party status from a named plaintiff. Such a tack relegates

Rule 10(a) to the dustbin.

The decision below also presents an excellent

opportunity for resolving an entrenched and

acknowledged split over nonparty appellate standing. As

Judge Bennett recognized in his dissent, the Ninth Circuit

breaks rank with other circuits when it comes to this

inquiry. Most circuits, in formulating their test, evaluate

whether the nonparty has an interest affected by the

lower court’s decision. App. 23a–24a (“Other circuits also

examine a nonparty’s stake in the litigation when

assessing standing to appeal.”). The Ninth Circuit is the

only circuit that does not, a point which doomed Habelt

here.

This petition, in sum, presents two significant

questions that divide the federal courts. These issues are

particularly salient for PSLRA cases, where individual

investors who bring complaints often litigate alongside

institutional investors who are appointed as lead

plaintiffs. But they also affect matters beyond the

PSLRA, with questions over Rule 10(a) and nonparty

appellate standing recurring in many other contexts.

Finally, this case is an appropriate vehicle for

addressing these splits. If the Court were to repudiate

the Ninth Circuit’s approach to Rule 10(a), for instance, it

would revive this appeal. Separately, if the Court were to

require lower courts to consider, in seeking appellate

review, whether nonparties have “a plausible affected

interest” impacted by the judgment, Off. Comm. of

Unsecured Creditors of WorldCom, Inc. v. S.E.C., 467

F.3d 73, 78 (2d Cir. 2006) (Sotomayor, J.), that

consideration would have strongly “counsel[ed] in favor of

hearing” Habelt’s appeal, App. 24a (Bennett, J.,

dissenting).

STATEMENT OF THE CASE

A. Factual background.

Respondent iRhythm is a “digital healthcare

company” and Kevin King, Michael Coyle, and Douglas

Devine “each held the position of CEO of iRhythm” at

some point between August 2020 and June 2021. App.

32a, 40a.

In 2020 and 2021, King and Coyle made several public

statements about the expected Medicare reimbursement

rate for the Zio XT, iRhythm’s core product. App. 26a–

28a (Bennett, J., dissenting). In August 2020, King stated

that iRhythm’s submissions to CMS officials on the Zio

XT included “everything they can get from us.” App. 26a

(Bennett, J., dissenting). In December 2020, King stated

that there was not “really a basis” for CMS to “lower”

iRhythm’s proposed reimbursement rate for the Zio XT

absent any “new data.” App. 27a (Bennett, J., dissenting).

And in April 2021, Coyle noted that iRhythm had not

spoken to the regional Medicare contractor “about how

pricing was being established” for the Zio XT. App. 28a

(Bennett, J., dissenting).

Taken together, these statements “expressed

optimism that CMS would adopt a proposed rule setting a

reimbursement rate of about $380” for the Zio XT. App.

24a (Bennett, J., dissenting). But the Zio XT ultimately

received a rate of $115—seen by the market as a

“historically low Medicare reimbursement rate.” App. 5a.

This news “caus[ed] a steep decline in iRhythm’s share

price and the resignations of several executives.” App.

25a (Bennett, J., dissenting).

B. Proceedings below.

Petitioner Mark Habelt purchased iRhythm stock in

December 2020 and January 2021, and suffered

significant losses following the Zio XT rate

announcement. In February 2021, he filed a complaint on

behalf of himself and others similarly situated, alleging

that Respondents had defrauded the putative class by

“expressing confidence that CMS would adopt its

preferred reimbursement rate,” even though they knew

such a prospect to be unlikely. App. 25a (Bennett, J.,

dissenting). Habelt hired counsel, investigated the

relevant facts, pleaded substantive allegations based on

that investigation, and paid applicable filing fees. He also,

consistent with the PSLRA, distributed notice to the

putative class.

In April 2021, three investors moved to be appointed

lead plaintiff. App. 84a. Habelt did not file a motion

because, under the PSLRA, a district court must

consider, when selecting a lead plaintiff, any “person or

group of persons” that “either filed the complaint or made

a motion in response to a notice.” App. 96a. Because

Habelt fell in the former category, no such lead plaintiff

motion was necessary.

After considering the relevant lead plaintiff

candidates, the district court selected PERSM as the lead

plaintiff. App. 83a. As the court explained, the PSLRA

“presum[es] that the most adequate plaintiff” in any

securities action is the person or group who “has the

largest financial interest in the relief sought by the class.”

App. 6a n1.

As an institutional investor, it was

“undisputed” that PERSM held the “largest financial

interest” among lead plaintiff candidates. App. 84a. The

court also selected PERSM’s attorneys, Pomerantz LLP,

“as lead counsel for the Class.” App. 86a. Further, “[t]o

ensure efficiency,” the court stated that “no other law firm

shall work on this action for the putative class without

prior approval.” App. 87a.

PERSM filed two amended complaints. Both mirror

Habelt’s original complaint.

Both the amended

complaints and the original complaint list Habelt as a

named plaintiff in the case caption. All complaints allege

fraudulent misrepresentations by Respondents in the

handling of the Zio XT. All assert violations of the same

securities laws.

In March 2022, the district court dismissed the second

amended complaint for failure to state a claim. App. 81a.

In its order, the district court noted that “Plaintiff”—i.e.,

Habelt—had “filed this action on February 1, 2021.” App.

42a. The court referred separately to PERSM as the

“Lead Plaintiff,” rather than the sole plaintiff. Id.

PERSM declined to appeal the district court’s

judgment. It, however, consented to Habelt doing so, and

Habelt filed a timely notice of appeal. On October 11,

2023, the Ninth Circuit dismissed Habelt’s appeal for lack

of jurisdiction. App. 3a. In reaching this conclusion, the

panel noted that (1) “only parties to a lawsuit” or (2)

certain nonparties in “exceptional circumstances” may

“appeal an adverse judgment.” App. 6a (first quoting

Devlin v. Scardelletti, 536 U.S. 1, 7 (2002); and then

quoting Hilao v. Est. of Marcos, 393 F.3d 987, 992 (9th

Cir. 2004)).

On (1), the panel acknowledged that “Habelt filed the

initial complaint in this matter.” App. 9a. It added that

Habelt remained in the case caption, and that the caption

is typically “probative of the question whether an

individual is a party to the action.” Id. n.2 (citing

Williams, 459 F.3d at 849). But in the panel’s view,

“[b]eyond 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.”

Id. (internal quotation marks omitted). On this front, the

panel argued, Habelt’s party status had been

“extinguished.” Id. That is because “[t]he body of the

operative pleading”—the second amended complaint—

established PERSM as the case’s “sole plaintiff.” Id. The

second amended complaint, the panel noted, made

“mention neither of Habelt nor of his individual claims.”

Id.

On (2), standing to appeal by a nonparty, the court

held that Habelt likewise fell short. As it explained, in the

Ninth Circuit, “[a] non-party may have standing to appeal

when” (i) they “participate[] in the district court

proceedings” and (ii) “the equities of the case weigh in

favor of hearing the appeal.” App. 10a (quoting Hilao, 393

F.3d at 992). Habelt, the panel asserted, had not

sufficiently participated because he did not “apply to be

appointed

lead

plaintiff,”

challenge

PERSM’s

appointment, or “participate in the suit” after PERSM’s

selection as lead plaintiff. Id. On the equities, the

majority argued that Habelt had not been “haled” into

court “against his will,” nor had he moved to intervene.

App. 10a–11a. Moreover, Respondents had “agreed at

oral argument that Habelt [was] not bound by the district

court’s judgment,” and could therefore still seek relief by

filing another suit against iRhythm. App. 10a.

Judge Bennett dissented. As he outlined, four

circumstances established Habelt’s continuing party

status.

First, Habelt “initiated the lawsuit by filing the first

complaint.” App. 12a (citing United States ex rel.

Eisenstein v. City of New York, 556 U.S. 928, 933 (2009)).

There could thus be “no allegation he wasn’t a party at the

start, and there is similarly no allegation that any filing

explicitly removed that status.” App. 15a.

Second, even after PERSM’s appointment, Habelt

“remained in the caption” of every filing, including in the

operative complaint. App. 13a n.5. Drawing on case law

from the Eighth Circuit, Judge Bennett explained that

Habelt’s continued inclusion in the caption, especially in

the operative complaint, was “entitled to considerable

weight when determining who the plaintiffs to a suit are

since plaintiffs draft complaints.” App. 13a (quoting

Williams, 459 F.3d at 849).

Third, Habelt’s claims were “clearly covered by the

substantive allegations in the body of the” operative

complaint. App. 12a (cleaned up). There was no question

that Habelt, like PERSM, invested in iRhythm and lost

money, and that these losses were caused by

Respondents’ alleged misrepresentations. Here, Judge

Bennett faulted the majority for failing to distinguish

between a named plaintiff “who files an original classaction complaint . . . and remains in the caption of later

complaints” from “unnamed members of the putative

class.” App. 14a. That view “ignores that the [second

amended complaint] encompasses all the factual

allegations and legal claims raised in the original

complaint, brought by Habelt.” Id.

Fourth, Habelt “never evinced any intent to remove

himself as a party.” App. 12a (citing Mullane v. Cent.

Hanover Bank & Tr. Co., 339 U.S. 306, 314 (1950)).

Habelt did not withdraw, PERSM continued to treat

Habelt as a named plaintiff, and the district court never

issued a notice of termination. App. 17a.

Judge Bennett also concluded that Habelt had

established nonparty appellate standing. App. 19a. Like

the majority, Judge Bennett acknowledged that Habelt

did not engage in extensive motions practice following

PERSM’s appointment. But that is because “the district

court’s order appointing PERSM specifically provided

that other than PERSM’s counsel, ‘no other law firm shall

work on this action for the putative class.’” App. 21a n.13.

Finding a lack of participation under these conditions

would, in Judge Bennett’s view, turn “the PSLRA [into] a

trap for the unwary.” App. 20a. Along these same lines,

the equities favored Habelt’s appeal because “the most

important” equity was “the lack of actual and clear notice

to Habelt that, at some unknown point, he lost his party

status and thus his right to appeal.” App. 22a. Last,

Judge Bennett recognized that other courts assess

nonparty standing differently from the Ninth Circuit,

citing law from other circuits that examine whether a

nonparty has “a plausible affected interest” or “stake in

the litigation” because of the district court’s judgment.

App. 23a–24a (citing WorldCom, 467 F.3d at 78;

Northview Motors, Inc. v. Chrysler Motors Corp., 186

F.3d 346, 349–50 (3d Cir. 1999); Doe v. Pub. Citizen, 749

F.3d 246, 259–62 (4th Cir. 2014); S.E.C. v. Forex Asset

Mgmt. LLC, 242 F.3d 325, 328–30 (5th Cir. 2001)). That

interest—which is explicitly not part of the Ninth

Circuit’s rubric—would have “counsel[ed] in favor of

hearing [Habelt’s] appeal.” App. 24a. Having tackled

standing, Judge Bennett explained why the district court

erred on the merits—i.e., why the operative complaint

stated a plausible claim for securities fraud. App. 26a.

The Ninth Circuit denied a petition for rehearing on

December 6, 2023. App. 89a.

REASONS FOR GRANTING THE PETITION

I. THE COURTS OF APPEALS ARE DIVIDED ON

WHEN TO LOOK BEYOND A COMPLAINT’S

CAPTION TO DETERMINE PARTY STATUS.

On its face, Rule 10(a)’s language is clear: “The title

of the complaint must name all the parties.” Fed. R. Civ.

P. 10(a). Following that command as written produces a

straightforward—and different—result in this case.

After all, the “title of the [operative] complaint,” id., just

like every other complaint in this case, named Habelt as a

party. And since “parties to a lawsuit, or those that

properly become parties, may appeal an adverse

judgment,” Habelt should have been able to go forward

with his appeal. Devlin, 536 U.S. at 7 (quoting Marino v.

Ortiz, 484 U.S. 301, 304 (1988)).

Still, the longstanding practice of both this Court and

the courts of appeals has been to “look behind [the] names

that symbolize the parties” in a caption, United States v.

I.C.C., 337 U.S. 426, 430 (1949), because—in some cases—

“case captions are not determinative as to the identity of

the parties to the action,” Cameron, 595 U.S. at 284 (2022)

(Thomas, J., concurring) (cleaned up). Where the courts

of appeals disagree, though, is when and under what

circumstances to depart from Rule 10(a)’s text.

A. Most circuits look outside the caption only to

identify defendants.

The majority view, taken by more than half a dozen

circuits, is to look past the caption if necessary to identify

a case’s proper defendants. These courts generally

exercise such discretion in matters brought by a pro se or

otherwise underrepresented plaintiff.

Trackwell v. U.S. Government, 472 F.3d 1242 (10th

Cir. 2007), is instructive. There, the plaintiff, “proceeding

pro se, filed a complaint” alleging “that the Clerk of the

United States Supreme Court had repeatedly withheld

from Justice Stephen Breyer an application [that] he

[had] submitted.” Id. at 1243. “In the captions of his

[original] complaint and his amended complaint,” the

plaintiff named only the “United States Government” as a

defendant. Id. But, as the Tenth Circuit explained, “in a

pro se case when the plaintiff names the wrong defendant

in the caption or when the identity of the defendants is

unclear from the caption, courts may look to the body of

the complaint to determine who the intended and proper

defendants are.” Id. at 1243–44 (citing Johnson v.

Johnson, 466 F.3d 1213, 1215–16 (10th Cir. 2006)).

Invoking that principle, the Trackwell court looked

outside the caption to hold that the Clerk of the U.S.

Supreme Court and the Supreme Court itself were, in

fact, proper defendants. Id.

The Seventh Circuit has, in this same vein, “looked

beyond the caption to determine the defendants in a case.”

Whitley v. U.S. Air Force, 932 F.2d 971, at *1 (7th Cir.

1991) (citations omitted). Thus, in Ordower v. Feldman,

826 F.2d 1569, 1570 (7th Cir. 1987), the court concluded

that there were fourteen defendants after reviewing the

body of the complaint, despite only eight of those fourteen

parties being named in the caption.

Similarly, in Bayer v. U.S. Department of Treasury,

956 F.2d 330, 334 (D.C. Cir. 1992), the court rejected a

subject-matter-jurisdiction challenge because plaintiff

had “named as defendant the Department rather than the

Secretary” of the Treasury. Writing for the D.C. Circuit,

then-Judge Ginsburg characterized such a “plea as

utterly unworthy, for the name change is readily made”

by “[c]hanging the designation of defendant from

‘Department’ to ‘Secretary.’” Id. at 334–35.

Even so, most courts of appeals have put limits on how

far they are willing to part from Rule 10(a)’s text. As the

foregoing cases spotlight, they have looked to the body of

the complaint to add defendants not named in the caption.

See App. 13a n.5 (Bennett, J., dissenting) (“[T]he

substance of a complaint determines who the proper

defendants are.”). But they have rejected requests to look

past the caption to determine plaintiff party status.

The Second Circuit’s decision in Hernandez-Avila v.

Averill, 725 F.2d 25 (2d Cir. 1984), exemplifies this point.

At issue there was whether, in a suit about an unlawful

search, an individual—Cora—was a plaintiff even though

she “did not sign [the original] complaint” and had not, for

the first four years of the case, been part of the caption.

Id. at 28. In rejecting Cora’s belated efforts to enter the

case, the court observed that she “did not in any way seek

to participate in the action, and neither the court, nor [the

named plaintiff], nor the defendants treated her as a

party.” Id.

Similarly, in Abraugh v. Altimus, 26 F.4th 298, 303

(5th Cir. 2022), the Fifth Circuit declined to recognize a

plaintiff who “was not listed in the caption of the original

complaint” even though the purported plaintiff was

referenced in the complaint’s body. As the court

explained, “even if we were to accept that omission as a

named party in the caption of the complaint is not

necessarily determinative as to the identity of the parties

to the action, courts at least give the caption considerable

weight when determining who the plaintiffs to a suit are

since plaintiffs draft complaints.” Id. (cleaned up).

Finally, Williams v. Bradshaw, 459 F.3d 846 (8th Cir.

2006), ties several of these themes together. There, the

Eighth Circuit held that a plaintiff’s heirs were not parties

because they were not named in the complaint’s caption.

Id. at 848–49. As in Hernandez-Avila and Abraugh,

Williams declined to look to the substantive allegations of

the complaint, which discussed plaintiff’s heirs at length.

Instead, as Williams emphasizes, “plaintiffs draft

complaints.” Id. at 849. That drafting must, of course,

include drafting of the case caption. As a result, the

names on the caption are “entitled to considerable weight

when determining who the plaintiffs to a suit are.” Id.

B. A minority of circuits look beyond the caption

to identify plaintiffs.

A subset of cases from the Sixth Circuit have departed

further from Rule 10(a)’s text, to look past the caption to

evaluate plaintiff party status.

Blanchard v. Terry & Wright, Inc., 331 F.2d 467, 468

(6th Cir. 1964), involved a dispute between a laborer and

contractor over materials used to construct a federal dam.

On appeal, the Sixth Circuit deflected a challenge by the

contractor to a lack of diversity jurisdiction. It reasoned

that even if diversity of citizenship were in doubt, “the

contract for the construction of the dam and spillway was

with the United States.” Id. at 469. Such “allegations

were sufficient to invoke [federal question] jurisdiction

under the Miller Act,” since the Act makes the United

States a plaintiff to the suit. Id. Hence, while “true that

the name of the United States does not appear in the

caption of the complaint,” the court needed to “look to the

allegations of the complaint in order to determine the

nature of plaintiffs’ cause of action” and, per the Miller

Act, treat the United States as an additional plaintiff. Id.

(citation omitted).

In a similar vein, in Kanuszewski v. Michigan

Department of Health & Human Services, 927 F.3d 396

(6th Cir. 2019), the Sixth Circuit noted that “errors in

captions are common and need not be viewed as fatal

defects.” Id. at 406 n.4 (cleaned up). It therefore declined

to dismiss a suit where the body of the complaint indicated

that two parents were bringing claims on their own behalf,

though the caption arguably suggested these parents

were only bringing claims on behalf of their children. Id.

Importantly, in both Blanchard and Kanuszewski, the

Sixth Circuit looked outside the caption to recognize and

add unnamed plaintiffs as parties. The Ninth Circuit’s

decision represents a meaningful difference in kind from

those cases. Indeed, like the cases where courts looked

past the caption to identify unnamed defendants,

Blanchard went past the caption to identify an unnamed

plaintiff.

Compare Blanchard, 331 F.2d at 469

(identifying the United States, which was absent from the

caption, as a proper plaintiff), with Trackwell, 472 F.3d at

1243–44 (identifying an unnamed United States employee

as a proper defendant). Similarly, in Kanuszewski, the

court looked outside the caption to identify “each parent”

as an individual plaintiff even though they captioned their

complaint as “[Parents’ names] as parent-guardians and

next friend to their minor children.” See 927 F.3d at 406

n.4 (internal quotation marks omitted) (alteration in

original). Both these cases represent—at most—limited

departures from Rule 10(a), in which the failure to name

persons in the caption was excusable.

Here, on the other hand, the Ninth Circuit offered no

such analogue or limiting principle, instead ignoring the

caption to extinguish a named plaintiff’s party status.

Despite Rule 10(a)’s clear mandate, then, the panel

reasoned that “a person or entity can be named in the

caption of a complaint without necessarily becoming a

party to the action.” App. 8a (citations omitted). The

Ninth Circuit’s holding thus permits courts to strip party

status from named plaintiffs because “the more

important indication” of plaintiff status lies in the body of

the complaint, even if the case caption explicitly says

otherwise. App. 9a (emphasis added) (citation omitted).

This new rule inverts and supersedes Rule 10(a). It goes

well beyond the limited expansion undertaken in

Blanchard and Kanuszewski and, more importantly,

cannot be squared with the reasoning in Hernandez-

Avila, 725 F.2d at 28, Abraugh, 26 F.4th at 303, and

Williams, 459 F.3d at 848–49.

II. THE COURTS OF APPEALS ARE SPLIT ON

HOW TO SHOW NONPARTY APPELLATE

STANDING.

The Ninth Circuit, on top of its expansive spin on Rule

10, also deepened another split, on the requirements

necessary for a nonparty to bring an appeal. That split

has been acknowledged by courts, see Kimberly

Regenesis, LLC v. Lee Cnty., 64 F.4th 1253, 1261 (11th

Cir. 2023) (“Our sister circuits have adopted various tests

for assessing when it is that a nonparty (who hasn’t

intervened) may appeal.”), and recognized by

commentators, see Charles Alan Wright & Arthur R.

Miller, 15A Federal Practice and Procedure § 3902.1 (3d

ed.) (“[C]ourts have not yet worked out entirely clear

standards governing nonparty appeals.”). It was the

subject of a call for the views of the Solicitor General just

six years ago, in which the United States acknowledged

that there was “tension among the circuits.” See U.S. Br.

at 12, Osage Wind, LLC v. Osage Mins. Council (171237).1 As the United States’ brief in that case outlines,

the “varying standards” taken by the lower courts

emerges from questions left unresolved by two of this

Court’s decisions. Id. at 14.

Osage Wind presented a “poor vehicle in which to address any

conflict on [the] standards for nonparty appeals.” U.S. Br. at 15,

Osage Wind (17-1237). But, as discussed in Part IV, this case

presents no such vehicle problems.

A. This Court has left unsettled the parameters of

when nonparties may pursue an appeal.

To start, Marino v. Ortiz, 484 U.S. 301 (1988),

addressed whether petitioners who were not parties in

district court proceedings could appeal a settlement. The

case arose out of the Second Circuit, which dismissed

petitioners’ appeal and held that “[a]s a general rule, only

a party of record in a lawsuit has standing to appeal from

a judgment of the district court.” Hispanic Soc. of N.Y.C.

Police Dep’t Inc. v. N.Y.C. Police Dep’t, 806 F.2d 1147,

1152 (2d Cir. 1986). In so finding, the Second Circuit

acknowledged that there were “exceptions to this general

rule,” including “when the nonparty has an interest that

is affected by the trial court’s judgment.” Id. Yet these

exceptions, the Second Circuit held, were not “relevant to

the present matter.” Id. This Court later affirmed the

Second Circuit’s judgment, emphasizing the general “rule

that only parties to a lawsuit, or those that properly

become parties, may appeal an adverse judgment.”

Marino, 484 U.S. at 304. But this Court did not reject,

nor did it endorse, the Second Circuit’s understanding

that there were exceptions to that general rule. Instead,

the Court advised nonparties to move to intervene to

preserve their rights to appeal. Id.

Devlin v. Scardelletti, 536 U.S. 1 (2002), though, did

recognize an “exception to the Marino rule.” Abeyta v.

City of Albuquerque, 664 F.3d 792, 796 (10th Cir. 2011)

(describing relationship between Marino and Devlin).

There, the Court held that unnamed class members who

are not parties in district court proceedings should be

“considered [parties] for the purposes of appealing the

approval of [a] settlement” because they are bound by any

settlement or judgment against the class. Devlin, 536

U.S. at 7. Accordingly, so long as class members “object[]

in a timely manner to approval of the settlement,” they

may “bring an appeal,” even “without first intervening.”

Id. at 14. “The label ‘party’ does not,” as this Court

explained, “indicate an absolute characteristic, but [is]

rather a conclusion about the applicability of various

procedural rules that may differ based on context.” Id. at

10.

Neither Marino nor Devlin, though, definitively

addresses under what other circumstances a nonparty in

district court proceedings may appeal. Absent any such

guidance, three broad approaches have emerged.

B. Most courts of appeals have examined whether

a nonparty has an interest or stake in the

litigation.

The Second Circuit charts the clearest course, doing

so in a case decided shortly after Devlin, Official

Committee of Unsecured Creditors of WorldCom, Inc. v.

S.E.C., 467 F.3d 73 (2d Cir. 2006). Writing for the court,

then-Judge Sotomayor outlined “two exceptions to the

rule prohibiting nonparty appeals.” Id. at 78. One, “a

nonparty may appeal a judgment by which it is bound”—

i.e., the fact pattern presented in Devlin. Id. (citing

Devlin, 536 U.S. at 10). And two, a nonparty may appeal

when “it has an interest affected by the judgment,”

affirming the earlier position that the Second Circuit had

taken in the Marino proceedings. Id. (cleaned up).

Three other courts of appeals have taken a similar

approach to that of the Second Circuit. The Sixth Circuit,

for instance, has stated that “a nonparty may be

sufficiently interested in a judgment to permit him or her

to take an appeal from it.” McCormick v. Braverman, 451

F.3d 382, 396 n.9 (6th Cir. 2006). Likewise, in S.E.C. v.

Enterprise Trust Co., 559 F.3d 649, 651 (7th Cir. 2009),

the Seventh Circuit held that a nonparty may appeal when

“judicial decision concludes the rights of the affected

person, who cannot litigate the issue in some other

forum.” Accord Shakman v. Clerk of Cir. Ct., 969 F.3d

810, 813 n.2 (7th Cir. 2020) (Barrett, J.) (citing Enterprise

Trust when discussing “circumstances in which a litigant

who is not a party below can be a party for purposes of

appeal”). Finally, in the Tenth Circuit, a nonparty may

appeal when they “have a sufficiently ‘unique interest’ in

the subject matter of the case.” United States v. Osage

Wind, LLC, 871 F.3d 1078, 1084 (10th Cir. 2017) (citation

omitted).

To demonstrate that “unique interest,”

nonparties need not intervene; instead, the nonparty must

only “demonstrate cause for why he did not or could not

intervene in the proceedings below.” Id. at 1086. In Osage

Wind, for instance, the nonparty did not intervene

because another party was already adequately

representing the nonparty’s interests before the district

court. Only after that party “signaled it would not appeal”

did the nonparty “act[] quickly to get involved in the case.”

Id. at 1085.

Another approach—closely related and taken by the

Fourth, Eighth, and D.C. Circuits—permits nonparties to

appeal when they “(1) possess[] ‘an interest in the cause

litigated’ before the district court and (2) ‘participate[] in

the proceedings actively enough to make him privy to the

record.’” Doe v. Pub. Citizen, 749 F.3d 246, 259 (4th Cir.

2014); see also Curtis v. City of Des Moines, 995 F.2d 125,

128 (8th Cir. 1993); Broidy Cap. Mgmt. LLC v. Muzin, 61

F.4th 984, 991 (D.C. Cir. 2023).

Other circuits have muddied the waters further,

tacking on an inquiry into the balance of the equities. See

United States v. Stoerr, 695 F.3d 271, 281 (3d Cir. 2012)

(permitting “non-party appeals when ‘(1) the nonparty

has a stake in the outcome of the proceedings that is

discernible from the record; (2) the nonparty has

participated in the proceedings before the district court;

and (3) the equities favor the appeal.’”); accord Sanchez v.

R.G.L., 761 F.3d 495, 502 (5th Cir. 2014); Home Prods.

Int’l, Inc. v. United States, 846 F. App’x 890, 894 (Fed.

Cir. 2021).

At first glance, the Ninth Circuit’s framework might

read like some of these other approaches. As the panel

outlined, “[a] non-party may have standing to appeal

when” they have “participated in the district court

proceedings” and “the equities of the case weigh in favor

of hearing the appeal.” App. 10a (cleaned up). But in

actual application, this framework bars appeals that

would have gone forward in many other courts.

That is because the common thread running through

every other approach is that nonparties may appeal if they

show an interest affected by the district court’s judgment.

That factor, Judge Bennett noted, would have

“counsel[ed]” in Habelt’s “favor,” App. 24a, because

Habelt does have “an interest affected by the judgment”

here. WorldCom, 467 F.3d at 78 (internal quotation

marks and ellipses omitted). Habelt, after all, seeks to

revive a suit against a company he claims defrauded him.

And there is no question, since iRhythm’s

misrepresentations caused Habelt’s financial loss, that he

has a clear stake in this appeal. Mission Prod. Holdings,

Inc. v. Tempnology, LLC, 139 S. Ct. 1652, 1660 (2019)

(“For better or worse, nothing so shows a continuing

stake in a dispute’s outcome as a demand for dollars and

cents.”). Furthermore, Habelt may be precluded from

pursuing another appeal by res judicata. And even if he

is not literally bound by the district court’s judgment, any

claims brought in a subsequent lawsuit might be

untimely.2

Thus, had Habelt filed his appeal in the Second, Sixth,

Seventh, or Tenth Circuits, which focus on a nonparty’s

interest in the litigation, his case would have been heard

on the merits. He would have also made headway in the

Third, Fourth, Fifth, Eighth, D.C., and Federal Circuits,

all of which consider a nonparty’s interest as part of a

multi-factor test. But the Ninth Circuit, unlike these

other circuits, explicitly does not consider a nonparty’s

interest.

Its overlooking of Habelt’s stake here

underscores exactly why this Court should grant review.

Had Habelt sought review in any another circuit, the

court of appeals would have at the very least carefully

examined the interests affected if no appeal were

available. Doing so favors hearing Habelt’s claims, rather

than—as in this case—leaving him with no practical forum

to litigate.

Respondents asserted at oral argument before the Ninth Circuit

that Habelt was “not bound by the district court’s judgment.” App.

10a. But that is simply not a question that a defendant gets to answer.

“[T]he preclusive effect of a prior judgment is,” as Judge Bennett

emphasized, “a determination generally made by the subsequent

court.” App. 23a (citing Sonner v. Premier Nutrition Corp., 49 F.4th

1300, 1304 (9th Cir. 2022)). And in any event, Respondents also stated

that, if Habelt tried to file another lawsuit, they “would move to

dismiss claims barred by the statute of limitations.” Id.

III. THE NINTH CIRCUIT ERRED IN DISMISSING

HABELT’S APPEAL.

The Ninth Circuit’s decision is incorrect because it (a)

improperly inverts Rule 10, (b) creates administrability

issues with the other Federal Rules, and (c) flouts a

common-sense approach to handling nonparty appeals.

A. The decision below conflicts with the text and

purpose of Rule 10(a).

To begin, Rule 10(a)’s requirement—that “[t]he title

of the complaint must name all the parties”—reflects a

broad and uncontroversial principle: plaintiffs must be

clear about who they are and whom they are bringing suit

against. With that principle in mind, “the pleading’s

caption” serves as a manifestation of the plaintiff’s intent.

Jones v. Griffith, 870 F.2d 1363, 1365–66 (7th Cir. 1989).

Framed thus, the view taken by most circuits—

permitting a limited departure from Rule 10(a) to identify

and add a proper defendant, generally in suits involving

pro se or underrepresented plaintiffs—makes perfect

sense. See, e.g., Mitchell v. Maynard, 80 F.3d 1433, 1441

(10th Cir. 1996) (“[A] party not properly named in the

caption of a complaint may still be properly before the

court if the allegations in the body of the complaint make

it plain the party is intended as a defendant.”); App. 13a–

14a n.5 (Bennett, J., dissenting).

After all, it would be entirely reasonable for courts to

look past a caption of a pro se complaint if an absent party

“is clearly identified as a defendant in the body of the

complaint” because the plaintiff (1) may not know the

defendants’ “true identities,” (2) may sue the wrong

entity, or (3) may otherwise lack the information of a more

sophisticated and well-represented party. See Steven S.

Gensler, 1 Federal Rules of Civil Procedure, Rules and

Commentary, Rule 10 (Feb. 2024 Update). Courts might

in these circumstances “excuse technical pleading

irregularities as long as they neither undermine the

purpose of notice pleading nor prejudice the adverse

party.” Phillips v. Girdich, 408 F.3d 124, 128 (2d Cir.

2005). But while plaintiffs—pro se or otherwise—could

“name[] the wrong defendant in the caption,” see

Trackwell, 472 F.3d at 1243–44, there is little reason to

think they will misname themselves because, put simply,

“plaintiffs draft complaints,” Abraugh, 26 F.4th at 303.

Mapping these fundamental principles to this case

reveals the Ninth Circuit’s error. After its appointment,

PERSM continued to list Habelt as a named plaintiff in

the caption, consistent with Rule 10(a)’s instruction to

“name all the parties.” And after the district court

entered judgment, PERSM consented to Habelt’s appeal,

an assent that would have been pointless to ask for and

pointless to give if Habelt was not a party.

In the face of these facts, the panel here appeared to

characterize Habelt’s continued listing in the caption as a

holdover from earlier pleadings, which PERSM simply

forgot to change. That is, of course, one possible

inference. But it is not the only one. There are several

other legitimate, sensible reasons why counsel for lead

plaintiffs would want to keep the original plaintiffs in an

action. They may, for example, have borne in mind the

Second Circuit’s statement that “if the lead plaintiffs

chose not to appeal and thus to abandon the case,” other

named plaintiffs in a securities action “could have pursued

an appeal on their own behalf.” Cho v. Blackberry Ltd.,

991 F.3d 155, 164 (2d Cir. 2021). Or, for that matter, that

“the PSLRA does not in any way prohibit the addition of

named plaintiffs to aid the lead plaintiff in representing a

class.” Hevesi v. Citigroup, Inc., 366 F.3d 70, 83 (2d Cir.

2004). And since “[f]or purposes of ruling on a motion to

dismiss for want of standing, both the trial and reviewing

courts must . . . construe the complaint in favor of the

complaining party,” the Ninth Circuit’s decision to

characterize the caption here as a scrivener’s error rather

than a deliberate action by counsel is particularly

untenable. Warth v. Seldin, 422 U.S. 490, 501 (1975).

If all this were not enough, the district court’s actions

provide yet more evidence of Habelt’s continuing party

status. As Judge Bennett pointed out, the district court

never gave “any notice that Habelt’s party status was

terminated”—which was likely required to satisfy due

process if Habelt were, in fact, no longer a party to the

case. App. 17a–18a (citing Mullane v. Cent. Hanover

Bank & Tr. Co., 339 U.S. 306, 314 (1950), and Peralta v.

Heights Med. Ctr., Inc., 485 U.S. 80, 84 (1988)). To the

contrary, up to the very end, the district court referred to

Habelt as the “Plaintiff,” and referred separately to

PERSM as the “Lead Plaintiff,” seemingly distinguishing

between a lead plaintiff that is appointed under the

PSLRA and a named plaintiff who remains a party to an

action after a lead plaintiff is selected. See App. 42a.

In short, at every turn, Habelt held himself out as a

party, PERSM treated him as a party, and the district

court regarded him as one. Those circumstances, coupled

with Habelt’s listing in the caption per Rule 10(a), make

his continued party status clear.3

These circumstances also explain why PERSM’s omission from

the caption of the operative complaint does not compel a different

result. There was, after all, no doubt as to the intent of either the

B. The decision below conflicts with other Federal

Rules of Civil Procedure.

Outside the confines of Rule 10, “[t]he basic purpose

of the Federal Rules is to administer justice through fair

trials, not through summary dismissals” and “procedural

booby traps.” Surowitz v. Hilton Hotels Corp., 383 U.S.

363, 373 (1966). Consistent with that purpose, courts are

not to construe any individual rule in a manner that “fails

to view it as part of the total procedural system.” Wright

& Miller, supra, § 1029. The decision below does just that,

undermining the interplay between Rule 10 and three

other Rules.

Start with Rule 8(e).

Tracking Surowitz, that

provision states that “[p]leadings must be construed so as

to do justice.” Fed. R. Civ. P. 8(e). Dismissing a suit by a

named plaintiff on procedural grounds plainly fails to do

justice—especially since Judge Bennett, the only circuit

judge to examine the merits, held that Habelt had pleaded

plausible allegations of securities fraud.

Consider next Rule 24, intervention. See App. 11a. As

this Court has explained, “[i]ntervention is the requisite

method for a nonparty to become a party to a lawsuit.”

Eisenstein, 556 U.S. at 933 (emphasis added). Because “a

party to litigation is [o]ne by or against whom a lawsuit is

brought,” Smith v. Bayer Corp., 564 U.S. 299, 313 (2011),

Habelt was a party when he brought the suit. And he

court or the parties on PERSM’s party status. The court appointed

PERSM the lead plaintiff, and PERSM’s counsel prepared and filed

pleadings on behalf of the putative class after its appointment. At

most, PERSM’s omission from the caption tracks the limited

expansion of Rule 10(a) taken by the Sixth Circuit: including parties

left out of the caption, rather than excluding and stripping party

status from parties named in the caption.

never received “notice that [his] party status was ever

terminated.” App. 17a (Bennett, J., dissenting). “No

party took any action in the district court” to suggest

Habelt relinquished his party status. Id. Under the

Ninth Circuit’s ruling, then, similarly situated plaintiffs

must somehow know to intervene (and in fact intervene)

to preserve their party status—without having any reason

to believe they ever lost it.

The panel’s reference to Rule 25, on party

substitution, is similarly unavailing. To justify its decision

to bypass Rule 10, the Ninth Circuit held up Rule 25 as

“expressly contemplat[ing] that the caption of a complaint

may be disconnected from the substance of the

proceedings.” App. 8a. True: Rule 25 does “expressly”

give a court discretion to substitute one named party for

another. But it “expressly” does so in four specific

circumstances. Part (a) allows for substitution “[i]f a

party dies” and part (b) provides for it “[i]f a party

becomes incompetent”—not relevant here. Part (d)

applies to public officers and officials. Again not relevant.

The only plausible connection to this case is part (c), a

transfer of interest. But even then, that provision favors

Habelt, not the Ninth Circuit: “If an interest is

transferred, the action may be continued by or against the

original party unless the court, on motion, orders the

transferee to be substituted in the action or joined with

the original party.” In other words, if Habelt’s interests

had been transferred to PERSM, then the “action may be

continued by or against the original party”—i.e., Habelt—

“unless the court, on motion, orders the transferee to be

substituted in the action.” Fed. R. Civ. P. 25(c) (emphasis

added). No such motion was filed here.

The Ninth Circuit’s decision, in short, not only makes

a mess of Rule 10, but also invites courts to ignore Rules

8, 24, and 25.

C. The decision below’s test for nonparty appeals

is unsound.

Finally, the Ninth Circuit’s handling of nonparty

appeals contravenes Devlin and proves unworkable,

especially following China Agritech v. Resh, 584 U.S. 732

(2018).

Devlin held that “nonnamed class members [were]

parties for the purposes of bringing an appeal.” 536 U.S.

at 9. The animating principle behind that ruling was that

nonparties to the proceeding below must retain “the

power to preserve their own interests.” Id. at 10. The

Second, Sixth, Seventh, and Tenth Circuits’ test for

nonparty appellate standing is the most faithful

interpretation and application of that animating principle.

That is because, as WorldCom explains, if Devlin allows a

nonparty to appeal “a judgment by which it is bound,”

then allowing a nonparty to appeal “if it has an interest

affected by the judgment” simply represents a second,

parallel exception. WorldCom, 467 F.3d at 78 (cleaned

up); see also Abeyta, 664 F.3d at 796 (“Plain [v. Murphy

Family Farms, 296 F.3d 975 (10th Cir. 2002)] and related

cases thus stand for the principle that the Devlin

exception to the Marino rule will only apply where the

nonparty has a unique interest in the litigation and

becomes involved in the resolution of that interest in a

timely fashion.”).

Prioritizing that requirement makes sense. If the

nonparty has a stake in the outcome of a judgment, there

are many reasons to allow them to appeal that judgment.

For one, allowing appeals from parties who have a

personal stake preserves the adversarial process on which

our system relies. It also serves judicial economy

interests by consolidating actions into one suit, rather

than forcing interested parties to refile duplicative actions

of their own. And it promotes fairness to litigants and, in

the context of private enforcement statutes like the

PSLRA, encourages robust enforcement of the law.

The Ninth Circuit’s attempt to carve out a separate

test, disposing of a nonparty’s interest to focus only on

equities and participation, lacks merit for several reasons.

One, asking whether a nonparty has a “stake in the

outcome,” City of Cleveland v. Ohio, 508 F.3d 827, 837 (6th

Cir. 2007), is both workable and administrable. Courts

can readily determine the nonparty’s affected interest—

here, financial loss—and examine whether the nonparty

has any other realistic forum for redress.

The same cannot be said about equitable balancing or

participation. After all, “no principles have developed to

guide the application of any of the key elements of

equitable balancing.” Jared A. Goldstein, Equitable

Balancing in the Age of Statutes, 96 Va. L. Rev. 485, 524

(2013). The contrasting analyses here, indeed, illustrates

the problems with grounding the test for nonparty

standing on that element. For the majority, the equities

weighed against Habelt because, “[u]nlike matters where

a party has haled the non-party into the proceeding

against his will,” Habelt “willingly filed the initial

complaint.” App. 10a (internal quotation marks omitted)

(internal quotation marks omitted). But Judge Bennett

took an entirely different tack: “[T]he most important

‘equity’ [was] the lack of actual and clear notice to Habelt

that, at some unknown point, he lost his party status and

thus his right to appeal.” App. 22a (Bennett, J.,

dissenting). These approaches talk past one another,

reflecting “[t]he absence of any formal principles for

guiding [a] balance of equities” analysis. Goldstein, supra

at 524.

Similarly, Habelt participated extensively below. He

filed the complaint, hired counsel, investigated the

relevant claims, and distributed notice to the putative

class. He was “privy to the record” both before and, more

importantly, after PERSM’s appointment. Doe, 749 F.3d

at 259; Curtis, 995 F.2d at 128. And though PERSM “was

representing [Habelt’s] interests” before the motion to

dismiss ruling, Habelt “acted quickly to get involved in the

case” after PERSM “signaled it would not appeal.” Osage

Wind, 871 F.3d at 1085. Yet the Ninth Circuit glossed

over these facts, instead cherry-picking Habelt’s

purported lack of participation following the selection of a

lead plaintiff, even though the district court, in making

that selection, explicitly ordered “no other law firm [to]

work on this action.” App. 87a.

A nonparty’s stake in litigation is—as outlined above

and unlike equitable balancing and participation—far

more discernible and easier to identify. That stake,

moreover, is even more pronounced in securities cases

like this one after China Agritech. There, this Court held

that putative class members may not “commence a class

action anew beyond the time allowed by the applicable

statute of limitations” if an initial class action is denied

certification. 584 U.S. at 735–36. Under that rule, class

claims filed by absent members of the putative class may

now be barred by the applicable statute of limitations, 28

U.S.C. § 1658(b), a point Respondents’ counsel explicitly

reinforced at oral argument, App. 23a (Bennett, J.,

dissenting). Indeed, post-China Agritech, several courts

have declined to allow plaintiffs to file subsequent class

actions regardless of whether a party in the initial action

sought certification. See, e.g., Porter v. S. Nev. Adult

Mental Health Servs., 788 F. App’x 525, 526 (9th Cir.

2019) (“American Pipe only tolls individual claims.”);

Potter v. Comm’r of Soc. Sec., 9 F.4th 369, 375–76 n.4 (6th

Cir. 2021).

So, in a world where a class action is the only viable

way for an everyday investor like Habelt to vindicate his

claims, this appeal may be his last real opportunity to have

his day in court. The Ninth Circuit’s aberrant test for

nonparty standing allows it to bypass that practical

reality. This Court should address that lapse and adopt

the sensible approach taken by the Second, Sixth,

Seventh, and Tenth Circuits.

IV. THIS CASE IS AN EXCELLENT VEHICLE TO

RESOLVE IMPORTANT QUESTIONS DIVIDING

THE FEDERAL COURTS.

The question presented here raises significant issues

of federal jurisdiction, touching on two circuit splits. Both

splits turn on purely legal issues: When a court can

depart from Rule 10(a), and whether a court should

consider the nonparty’s stake in the outcome when

evaluating appellate standing. Both have been addressed

by the majority of the circuits, making further percolation

unnecessary. Moreover, these splits carry far-reaching

consequences.

Caption questions, for instance, plainly impact

PSLRA cases. Had Habelt sued in the Second Circuit,

where the court has declined to look past the caption to

determine plaintiff party status, Hernandez-Avila, 725

F.2d at 27–28, and has said that named plaintiffs may

“pursue[] an appeal on their own behalf” when “the lead

plaintiffs cho[o]se not to appeal,” Cho, 991 F.3d at 164, the

result here would have been different. The Second and

Ninth Circuits “dominate class action securities fraud

litigation, together resolving approximately 60% of all

class action securities fraud claims.”

Joseph A.

Grundfest, Quantifying the Significance of Circuit Splits

in Petitions for Certiorari: The Case of Securities Fraud

Litigation 1 (Stan. L. Sch. & Rock Ctr. for Corp.

Governance Working Paper, Paper No. 254, 2024),

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=47

68231. That these courts now diverge is a “particularly

significant” conflict, “more worthy of certiorari than

splits between any other two circuits” when it comes to

enforcement of federal securities laws. See id.

The issues here also implicate matters beyond the

PSLRA. Courts, for instance, apply “various tests” for

nonparty appellate standing in many contexts, including

ADA cases, Kimberly Regenesis, 64 F.4th at 1261–64;

bankruptcy settlements, Northview Motors, 186 F.3d at

349; intellectual property disputes, Microsystems

Software, Inc. v. Scandinavia Online AB, 226 F.3d 35, 41–

43 (1st Cir. 2000); attorney’s fees issues, Curtis, 995 F.2d

at 128; and First Amendment disputes over rights of

access to judicial documents, Pub. Citizen, 749 F.3d at

264.

This petition is an appropriate vehicle to address such

issues. Addressing either split would revive this case. If

the Court were to reject the Ninth Circuit’s

understanding of Rule 10(a), Habelt would be recognized

as a party to the judgment below and have his appeal

heard on the merits. Should the Court instead address

the second split, recognizing that the Second, Sixth,

Seventh, and Tenth Circuits correctly identify interest in

the underlying judgment as the touchstone for appellate

party status, that would likewise pave the way for a merits

review of Habelt’s claims.

This case, in short, offers an excellent opportunity to

give clarity on open questions of federal jurisdiction. It

can restore fidelity to Rule 10, rather than allow courts of

appeals to bypass the Rule to bar potentially meritorious

claims. And it can address questions arising from Marino

and Devlin, bringing clarity to a doctrinal gap that has

vexed the circuits for the last two decades. That guidance

can not only serve as the lynchpin for reopening this suit,

but can also vindicate the interests of many other parties

in other cases.

CONCLUSION

For the foregoing reasons, the petition for a writ of

certiorari should be granted.

Respectfully submitted,

JOSHUA B. SILVERMAN

OMAR JAFRI

JENNIFER PAFITI

JEREMY A. LIEBERMAN

CHRISTOPHER P.T. TOUREK

POMERANTZ LLP

10 S. LaSalle Street Ste. 3505

Chicago, IL 60603

JEFFREY C. BLOCK

JACOB WALKER

MARK BYRNE

BLOCK & LEVITON, LLP

260 Franklin Street Ste. 1860

Boston, MA 02110

XIAO WANG

Counsel of Record

UNIVERSITY OF VIRGINIA

SCHOOL OF LAW SUPREME

COURT LITIGATION CLINIC

580 Massie Road

Charlottesville, VA 22903

(434) 924-8956

x.wang@law.virginia.edu

Counsel for Petitioner

April 16, 2024

APPENDIX

TABLE OF CONTENTS

Page

Appendix A — Court of appeals opinion (Oct. 11,

2023) ................................................... 2a

Appendix B — District court order (Mar. 31,

2022) ................................................. 31a

Appendix C — District court order (June 1,

2021) ................................................. 82a

Appendix D — Court of appeals denial of

rehearing/rehearing en banc (Dec.

6, 2023) ............................................. 88a

Appendix E — Rule 10 of the Federal Rules of

Civil Procedure ............................... 91a

Appendix F — 15 U.S.C. § 78u–4............................. 93a

APPENDIX A

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

MARK HABELT, individually

and on behalf of all others

similarly situated,

Plaintiff-Appellant,

No. 22-15660

and

PUBLIC

EMPLOYEES’

RETIREMENT SYSTEM OF

MISSISSIPPI,

D.C. No. 3:21cv-00776-EMC

OPINION

Plaintiff,

IRHYTHM TECHNOLOGIES,

INC.;

KEVIN

KING;

MICHAEL

COYLE;

DOUGLAS J. DEVINE,

Defendants-Appellees.

Appeal from the United States District Court for the

Northern District of California

Edward M. Chen, District Judge, Presiding

Argued and Submitted July 13, 2023

San Francisco, California

Filed October 11, 2023

The caption’s reference to Mark Habelt as “Plaintiff-Appellant”

reflects the caption as it appears on the documents with which this

appeal was initiated. As explained herein, Habelt is neither a plaintiff

in this action nor a proper appellant of the district court order at issue

on appeal.

Before: Carlos T. Bea, Mark J. Bennett, and

Holly A. Thomas, Circuit Judges.

Opinion by Judge H.A. Thomas;

Dissent by Judge Bennett

SUMMARY**

Securities Fraud / Appellate Jurisdiction

The panel dismissed, for lack of jurisdiction due to

appellant’s lack of standing, an appeal from the district

court’s dismissal of a putative securities fraud class action.

Appellant Mark Habelt filed the action, but, pursuant

to the procedures of the Private Securities Litigation

Reform Act of 1995, the district court appointed Public

Employees’ Retirement System of Mississippi (PERSM)

as lead plaintiff. PERSM filed a first and then second

amended complaint, and the district court dismissed for

failure to state a claim. PERSM did not appeal.

The panel held that Habelt lacked standing to appeal

because he was not a party to the action. Habelt’s filing of

the initial complaint and his listing in the caption of the

second amended complaint were insufficient to confer

party status upon him. The body of the operative

complaint made clear that PERSM was the sole plaintiff,

and Habelt’s status as a putative class member did not give

him standing to appeal. The panel further held that Habelt

failed to demonstrate exceptional circumstances

conferring upon him standing to appeal as a non-party.

Dissenting, Judge Bennett wrote that he would allow

the appeal by Habelt because he was a party, and even if

** This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.

he were not, exceptional circumstances would allow him to

appeal as a non-party. On the merits, Judge Bennett would

reverse the district court’s dismissal as to three alleged

misrepresentations by defendants.

COUNSEL

Omar Jafri (argued), Joshua B. Silverman, and

Christopher Tourek, Pomerantz LLP, Chicago, Illinois;

Jeffrey C. Block, Jacob Walker, and Mark B. Byrne, Block

& Leviton LLP, Boston, Massachusetts; Jeremy A.

Lieberman, Pomerantz LLP, New York, New York;

Jennifer Pafiti, Pomerantz LLP, Los Angeles, California;

for Plaintiffs-Appellant.

Ignacio E. Salceda (argued) and Evan L. Seite, Wilson

Sonsini Goodrich & Rosati, Palo Alto, California; John B.

Kenney, Wilson Sonsini Goodrich & Rosati, Washington,

D.C.; for Defendants-Appellees.

OPINION

H.A. THOMAS, Circuit Judge:

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. Pursuant to the procedures of the Private

Securities Litigation Reform Act of 1995 (PSLRA), the

district court appointed Public Employees’ Retirement

System of Mississippi (PERSM) as the lead plaintiff in the

action. PERSM filed a first and then second amended

complaint (SAC, the operative pleading) alleging

securities fraud claims against iRhythm and additional

corporate officers (together, Defendants). Defendants

filed a motion to dismiss PERSM’s SAC for failure to state

a claim. PERSM did not appeal the district court’s grant

of this motion. Habelt filed a timely notice of appeal.

We now dismiss Habelt’s appeal for lack of jurisdiction.

Generally, only the parties to a lawsuit, “or those that

properly become parties, may appeal an adverse

judgment.” Devlin v. Scardelletti, 536 U.S. 1, 7 (2002)

(quoting Marino v. Ortiz, 484 U.S. 301, 304 (1988) (per

curiam)). Habelt, however, is not a party to the action. And

while a non-party may appeal under exceptional

circumstances, see Hilao v. Est. of Marcos, 393 F.3d 987,

992 (9th Cir. 2004), there are no extraordinary

circumstances here that confer upon Habelt standing to

appeal as a non-party. Dismissal is therefore required.

On February 1, 2021, Habelt filed a securities fraud

complaint on behalf of himself and a putative class of

persons who purchased iRhythm’s common stock between

August 4, 2020, and January 28, 2021. Pursuant to the

PSLRA, three putative class members moved to be

appointed lead plaintiff in the suit, including PERSM.1

Before the passage of the PSLRA, “lead plaintiffs in securities

litigation cases were often selected by a race to the courthouse.” In re

Cavanaugh, 306 F.3d 726, 729 (9th Cir. 2002). With the PSLRA,

Congress took “steps to curb abusive securities-fraud lawsuits,”

Amgen Inc. v. Conn. Ret. Plans & Tr. Funds, 568 U.S. 455, 476 (2013),

including by requiring the district court “to select as lead plaintiff the

[putative class member] ‘most capable of adequately representing the

interests of class members.’” In re Cavanaugh, 306 F.3d at 729

(quoting 15 U.S.C. § 78u- 4(a)(3)(B)(i)). Under this statute, there is a

rebuttable presumption that the most adequate plaintiff (1) “has

either filed the complaint or made a motion” to be appointed lead

plaintiff; (2) “has the largest financial interest in the relief sought by

the class;” and (3) “otherwise satisfies the requirements of Rule 23 of

After one of the lead plaintiff candidates filed a notice of

non-opposition to PERSM’s appointment as lead plaintiff

and the other withdrew his motion for appointment as lead

plaintiff, the district court granted PERSM’s motion.

Habelt did not make a motion for appointment as lead

plaintiff and did not oppose PERSM’s motion. And he did

not participate in the litigation after PERSM’s

appointment as lead plaintiff.

As lead plaintiff, PERSM gained “control over aspects

of litigation such as discovery, choice of counsel, [and]

assertion of legal theories.” In re BankAmerica Corp. Sec.

Litig., 263 F.3d 795, 801 (8th Cir. 2001). On September 24,

2021, PERSM filed the SAC, alleging that Defendants

committed violations of the Securities Exchange Act of

1934, 15 U.S.C. § 78a et seq. The caption of the SAC listed

Habelt as the “Plaintiff.” But the SAC otherwise made no

reference to Habelt, to his alleged losses, or to his

individual claims, including in a subsection titled “Parties.”

In lieu of filing an answer, and before any class was

certified in the case, Defendants filed a Federal Rule of

Civil Procedure 12(b)(6) motion to dismiss for failure to

state a claim. The district court granted Defendants’

motion, dismissed the SAC with prejudice, and, on March

31, 2022, entered judgment in Defendants’ favor. PERSM

did not appeal the district court’s judgment. Habelt,

represented by PERSM’s counsel and his own additional

counsel, filed a timely notice of appeal.

II.

“The rule that only parties to a lawsuit, or those that

properly become parties, may appeal an adverse

judgment, is well settled.” Marino, 484 U.S. at 304; see

the Federal Rules

4(a)(3)(B)(iii)(I).

Civil

Procedure.”

U.S.C.

§ 78u-

Fed. R. App. P. 3(c)(1) (“The notice of appeal must:

(A) specify the party or parties taking the appeal . . . .”).

This “standing to appeal” rule echoes—but “is distinct

from[—]the requirements of constitutional standing.”

United States ex rel. Alexander Volkhoff, LLC v. Janssen

Pharmaceutica N.V., 945 F.3d 1237, 1241 (9th Cir. 2020).

“[E]ven if a person has an interest in the outcome of the

litigation, unless the person intervenes in the suit or has a

statutory right to appeal, the person cannot appeal a suit

to which it has not become a party.” United States v.

Kovall, 857 F.3d 1060, 1068 (9th Cir. 2017).

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. But, as we explain below, these facts do not

suffice to confer party status upon him.

“[T]he caption of an action is only the handle to identify

it.” Hoffman v. Halden, 268 F.2d 280, 303 (9th Cir. 1959),

overruled in part on other grounds by Cohen v. Norris,

300 F.2d 24 (9th Cir. 1962) (en banc). For that reason, “[a]

person or entity can be named in the caption of a complaint

without necessarily becoming a party to the action.”

United States ex rel. Eisenstein v. City of New York, 556

U.S. 928, 935 (2009); see also 5A Charles Alan Wright et

al., Federal Practice and Procedure § 1321, at 242 (4th ed.

2018) (“[T]he caption is not determinative as to the identity

of the parties to the action . . . .”). Indeed, the Federal

Rules of Civil Procedure expressly contemplate that the

caption of a complaint may be disconnected from the

substance of the proceedings. See, e.g., Fed. R. Civ. P. 25(c)

(“If an interest is transferred, the action may be continued

by or against the original party.”); Fed. R. Civ. P. 25(d)

(“[W]hen a public officer who is a party in an official

capacity . . . ceases to hold office while the action is

pending[,] [t]he officer’s successor is automatically

substituted as a party . . . but any misnomer not affecting

the parties’ substantial rights must be disregarded.”).

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.”2

Hoffman, 268 F.2d at 304. It is upon this ground that

Habelt’s argument falters. While it is true that Habelt

filed the initial complaint in this matter, that complaint has

now been extinguished. See Ramirez v. Cnty. of San

Bernardino, 806 F.3d 1002, 1008 (9th Cir. 2015) (“[A]n

amended complaint supersedes the original, the latter

being treated thereafter as non-existent.” (internal

quotation mark and citation omitted)). The body of the

operative pleading—the SAC—makes clear that PERSM

is the sole plaintiff. The SAC makes mention neither of

Habelt nor of his individual claims.

Nor does Habelt’s status as a putative class member

give him standing to appeal. Although “an unnamed

member of a certified class may be considered a party for

the [particular] purpos[e] of appealing an adverse

judgment,” the “definition of the term ‘party’” does not

cover an unnamed class member “before the class is

certified.” Smith v. Bayer Corp., 564 U.S. 299, 313 (2011)

(internal quotation marks omitted and alterations in

original) (quoting Devlin, 536 U.S. at 7, 16 n.1); see also

Emps.-Teamsters Loc. Nos. 175 & 505 Pension Tr. Fund

v. Anchor Cap. Advisors, 498 F.3d 920, 923 (9th Cir. 2007)

(“[B]ecause the class was never certified, Appellants were

not parties to the district court action and lack standing to

bring this appeal.”).

2 That is not to say that the caption of a complaint is not probative of

the question whether an individual is a party to the action. See

Williams v. Bradshaw, 459 F.3d 846, 849 (8th Cir. 2006). But it is not

dispositive of that question.

10a

III.

Habelt also has failed to demonstrate exceptional

circumstances that confer upon him standing to appeal as

a non-party. A non-party may have standing to appeal

when she, “(1) . . . though not a party, participated in the

district court proceedings, and (2) the equities of the case

weigh in favor of hearing the appeal.” Hilao, 393 F.3d at

992 (quoting S. Cal. Edison Co. v. Lynch, 307 F.3d 794, 804

(9th Cir. 2002)). “[W]hether a nonparty has the ability to

appeal is a jurisdictional question.” Volkhoff, 945 F.3d at

1241.

We have allowed non-parties to appeal only “when they

were significantly involved in the district court

proceedings.” Id. at 1241–42. Habelt’s participation in this

case does not meet that high bar. His involvement in the

matter below “all but ceased with the filing of the” initial

complaint. Id. at 1242. 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. Cf. S.E.C. v. Wencke, 783 F.2d

829, 834–35 (9th Cir. 1986) (holding that non-party

appellant had standing to appeal when he made a special

appearance, filed briefs, and was treated by the district

court “as if he were a party”); Keith v. Volpe, 118 F.3d

1386, 1391 (9th Cir. 1997) (considering non-party

appellant’s participation in oral argument).

Nor do the equities favor our hearing Habelt’s appeal.

Unlike matters where “a party has haled the non-party

into the proceeding against his will, and then has

attempted to thwart the nonparty’s right to appeal by

arguing that he lacks standing,” Volkhoff, 945 F.3d at 1242

(quoting Hilao, 393 F.3d at 992), Habelt willingly filed the

initial complaint. And Defendants agreed at oral argument

that Habelt is not bound by the district court’s judgment.

11a

The Supreme Court, moreover, has cautioned against

reliance on exceptions to the rule that only parties can

appeal. Instead, non-parties should follow the “better

practice” of “seek[ing] intervention for purposes of

appeal.” Marino, 484 U.S. at 304; see also United States v.

City of Oakland, 958 F.2d 300, 302 (9th Cir. 1992)

(“[D]enial of intervention as of right is an appealable final

order.”). Habelt filed no motion to intervene.

Habelt lacks standing to appeal. We therefore dismiss

this appeal for lack of jurisdiction.

DISMISSED.

BENNETT, Circuit Judge, dissenting:

As the majority notes, the right to appeal generally

extends only to parties. Op. at 4 (citing Devlin v.

Scardelletti, 536 U.S. 1, 7 (2002)). Habelt was a party, so

he has the right to appeal. Moreover, in “exceptional

circumstances,” we even permit non-parties to appeal. Id.

at 3 (citing Hilao v. Est. of Marcos, 393 F.3d 987, 992 (9th

Cir. 2004)). In my view, even were Habelt not a party, such

exceptional circumstances are present here. Thus, I

respectfully dissent.

Because I would allow the appeal by Habelt, I would

reach the merits. On the merits, I would reverse the

district court’s dismissal as to three alleged

misrepresentations.

First, Habelt was a party. “Party status does not

depend on being present in the district court litigation

from the moment it began or at the moment it ended. All

‘those that properly become parties may appeal an adverse

12a

judgment.’” Campbell v. City of Los Angeles, 903 F.3d

1090, 1105 (9th Cir. 2018) (brackets removed) (quoting

Marino v. Ortiz, 484 U.S. 301, 304 (1988) (per curiam)). “A

‘party’ to litigation is ‘[o]ne by or against whom a lawsuit

is brought.’” United States ex rel. Eisenstein v. City of

New York, 556 U.S. 928, 933 (2009) (brackets in original)

(quoting Black’s Law Dictionary 1154 (8th ed. 2004)).

“[O]rdinarily the determination of whether or not a [party]

is properly in the case hinges upon the allegations in the

body of the complaint . . . .” Hoffman v. Halden, 268 F.2d

280, 304 (9th Cir. 1959), overruled in part on other grounds

by Cohen v. Norris, 300 F.2d 24, 29-30 (9th Cir. 1962) (en

banc).

Here, four factors show that Habelt is a party. First,

Habelt initiated the lawsuit by filing the first complaint.

Eisenstein, 556 U.S. at 933. Second, Habelt remained in

the caption of the operative Second Amended Complaint

(SAC) filed by the Public Employees’ Retirement System

of Mississippi (PERSM). See Williams v. Bradshaw, 459

F.3d 846, 849 (8th Cir. 2006). Third, Habelt’s claims are

clearly covered by the substantive “allegations in the body

of the” SAC. Hoffman, 268 F.2d at 304. 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. Cf. Mullane v. Cent. Hanover Bank & Trust Co., 339

U.S. 306, 314 (1950).

The majority insists that Habelt’s party status was

extinguished when PERSM was appointed lead Plaintiff

and filed a series of amended complaints.3 But nothing in

the Private Securities Litigation Reform Act (PSLRA) or

otherwise provides that the appointment of a lead plaintiff

3 The majority does not aver, however, that any court order expressly

removed Habelt as a party or informed him that he had lost his rights

as a party. Nor did any filing in the district court claim that Habelt’s

status as a party was extinguished.

13a

automatically extinguishes the involvement of other

plaintiffs in the suit. See 15 U.S.C. § 78u-4(a)(3).4

Instead, the majority relies on the assertion that

PERSM’s amended complaints rendered Habelt’s initial

complaint nonexistent. Op. at 7 (citing Ramirez v. County

of San Bernadino, 806 F.3d 1002, 1008 (9th Cir. 2015)). But

this view ignores that Habelt remains a party under the

operative SAC because he is listed in the caption and

covered by its substantive allegations. Though the mere

inclusion of Habelt’s name in the SAC’s caption is not

dispositive, Op. at 7 (citing Hoffman, 268 F.2d at 303), it is

at least probative because, as the Eighth Circuit has

explained, the caption “is entitled to considerable weight

when determining who the plaintiffs to a suit are since

plaintiffs draft complaints.” William, 459 F.3d at 849.5

4 Some courts have held that appointment of a lead plaintiff under the

PSLRA does not even require the filing of a new complaint. See, e.g.,

Billhofer v. Flamel Techs., S.A., No. 07 Civ. 9920, 2010 WL 3703838,

at *2-3 (S.D.N.Y. Sept. 21, 2010) (collecting cases). And as discussed

in more detail below, we have suggested that filing a complaint is an

indicator of party status notwithstanding subsequent events. See

Emps.-Teamsters Loc. Nos. 175 & 505 Pension Tr. Fund v. Anchor

Capital Advisors (“Anchor Capital”), 498 F.3d 920, 922 (9th Cir. 2007)

(finding would-be appellant was not a party below in part because they

“never filed a complaint”).

5 Hoffman is factually distinct from this case. There, we found that

two litigants were properly defendants in a case even though they

were not listed in the caption of the amended complaint. 268 F.2d at

303–04. We relied on the principle that the substance of a complaint

determines who the proper defendants are. Id. This rule—you may be

a defendant even if you’re not in the caption—however, doesn’t inform

the circumstance here, where Habelt initiated the lawsuit by filing the

first complaint, was in the original caption, and always remained in the

caption. Indeed, the first two words in the caption of the majority

opinion are still “Mark Habelt.” My view doesn’t mean that form will

triumph over substance, because here we have the form—Habelt was

14a

The majority discounts that Habelt’s claims remain

covered by substantive allegations in the SAC, suggesting

that Habelt was no different from any unnamed putative

member of the uncertified class because he was not

specifically named in the body of the SAC. Op. at 6, 8. But

this ignores that the SAC encompasses all the factual

allegations and legal claims raised in the original

complaint, brought by Habelt. Indeed, the “Parties”

section of the SAC refers to PERSM as the “Lead

Plaintiff,” but nowhere claims PERSM is the only

Plaintiff, nor gives any indication that Habelt is no longer

a Plaintiff. And the SAC does not tie its substantive

allegations to PERSM’s claims in particular, rather the

alleged injuries apply equally to all Plaintiffs and putative

class members. When paired with Habelt’s inclusion in the

caption, the substance of the SAC clearly incorporates

Habelt’s claims. And nothing states anyone’s intent to

remove Habelt as a Plaintiff.

The majority cites no authority suggesting that a

PSLRA litigant who files an original class-action

complaint as the named plaintiff and remains in the

caption of later complaints is indistinguishable from

unnamed members of the putative class simply because

that litigant/named plaintiff was not designated the lead

plaintiff or named in the body of the operative complaint.

Instead, the majority appears to create a new rule that a

litigant’s name must be specifically listed in the body of the

operative complaint to be considered a party, regardless

of the history of the litigation. We have never elevated

form over substance to such an extent.

always part of the caption, and the substance—every complaint

described putative wrongs that included Habelt among the putative

victims.

15a

In one analogous case, a private company filed a classaction complaint under the PSLRA, alleging that a

defendant pharmaceutical company committed securities

fraud. Empls.-Teamsters Loc. Nos. 175 & 505 Pension Tr.

Fund v. Anchor Capital Advisors (“Anchor Capital”), 498

F.3d 920, 922 (9th Cir. 2007). After the district court

ultimately dismissed the suit, the lead plaintiff declined to

amend its complaint or file an appeal. Id. at 922–23.

Instead, several unnamed members of the putative class

attempted to appeal. Id. But in rejecting this attempt, we

explained that the would-be appellants were not parties to

the lawsuit because “[d]espite ample opportunity to do so,

Appellants never filed a complaint, moved to intervene,

objected to the requested dismissal, or filed an amended

complaint after [lead plaintiff] notified the district court

that it” would not further pursue its claims. Id. at 923

(emphasis added). Although we acknowledged that mere

status as an unnamed putative class member was

insufficient to confer standing to appeal, our holding

implied that even unnamed members of a putative class

can have standing to bring an appeal if they were

sufficiently involved in the district court proceedings,

including by filing a complaint. Id. Because Habelt filed

the original complaint and remained covered by the

substance of the eventual lead Plaintiff’s SAC, our logic in

Anchor Capital suggests that he remained a party below

(there is, of course, no allegation he wasn’t a party at the

start, and there is similarly no allegation that any filing

explicitly removed that status).

In another case, we explained that “a party may be

properly in a case if the allegations in the body of the

complaint make it plain that the party is intended as a

defendant.” Rice v. Hamilton Air Force Base

Commissary, 720 F.2d 1082, 1085 (9th Cir. 1983)

(emphasis added). There, we found that even though a pro

16a

se employment discrimination plaintiff failed to include the

name or title of the proper defendant in his original filing,

it was clear from the context of the filing that he intended

to sue the proper defendant. Id. Although Rice involved a

distinct issue— whether a complaint sufficiently named

the proper defendant—it reveals at least two relevant

principles.6 First, that the substance of a complaint’s

allegations, rather than its form, controls whether a

particular litigant is a party. See id. Here, the SAC’s

failure to specifically name Habelt as plaintiff a second

time7—like plaintiff’s failure to name the proper defendant

in Rice—is not dispositive of party status, particularly

when the substance of the operative complaint clearly

incorporates Habelt’s original claims. Second, the parties’

intent is relevant to the question of whether a particular

litigant is a party to the lawsuit. See id.; see also Barsten

v. Dep’t of Interior, 896 F.2d 422, 423 (9th Cir. 1990).8

6 Rice concerned the same issue as Hoffman, 268 F.2d at 303, which

the majority relies on for the principle that inclusion of a litigant in the

case caption is not dispositive of case status. Op. at 7–8.

As noted, every caption, including in this court, specifically lists

Habelt as “plaintiff.”

Several other courts have expressly adopted an intent-based

approach to determining party status. See, e.g., Jones v. Griffith, 870

F.2d 1363, 1365–66 (7th Cir. 1989) (“The sensible approach, it strikes

us, is to regard the pleading’s caption, service of process, and perhaps

other indications of intention to bring or not to bring a person into a

lawsuit as evidence upon which the district court must decide, in cases

of doubt, whether someone is a party.”); Nationwide Mut. Ins. Co. v.

Kaufman, 896 F.Supp. 104, 109 (E.D.N.Y. 1995) (same); Cooper v. Trs.

of Coll. Of Holy Cross, 2014 WL 2738545, at *6–7 (S.D.N.Y. June 17,

2014) (same); Deaville v. Capital One Bank, 425 F.Supp.2d 744, 750

(W.D. La 2006) (“[A] party may be properly in a case if the allegations

in the body of the complaint make it plain that the party is intended as

a defendant.” (internal quotation marks and citation omitted)). The

Seventh Circuit explained that an intent-based approach is consistent

with Rule 17’s requirement that “federal suits . . . be maintained in the

17a

Here, PERSM’s inclusion of Habelt as a named Plaintiff

in the caption of the SAC indicates that it did not intend to

replace Habelt as the sole named Plaintiff when it sought

appointment as lead Plaintiff. No party took any action in

the district court to suggest a deliberate relinquishment

by Habelt of his status as a Plaintiff in the case. Cf. United

States ex rel. Alexander Volkhoff, LLC v. Janssen

Pharmaceutica N.V., 945 F.3d 1237, 1242 (9th Cir. 2020)

(holding that appellant was a nonparty because it made a

“strategic choice” to be “substituted out of the lawsuit” by

a different plaintiff).9

Adding to Habelt’s lack of intent to withdraw as a party

is the lack of any notice that Habelt’s party status was

terminated. The Supreme Court has explained that

procedural due process requires “notice reasonably

calculated, under all the circumstances, to apprise

interested parties of the pendency of [an] action and afford

them an opportunity to present their objections.”

Mullane, 339 U.S. at 314. Habelt became a party when he

filed the lawsuit, and he never subsequently expressed any

intent to withdraw as a party. Given that he was a named

Plaintiff in the SAC and remained covered by its

substantive allegations, it was reasonable for Habelt to

name of the real party in interest.” Jones, 870 F.2d at 1336 (citing Fed.

R. Civ. P. 17(a)).

9 Even if the district court had found a lack of intent for Habelt to

remain a party at the summary judgment stage, I would have no

trouble reversing: In the light most favorable to Habelt, he initiated

the lawsuit by filing the first complaint, remained a named Plaintiff in

subsequent complaints, and remained covered by the substantive

allegations in the operative SAC. Moreover, he never filed anything

suggesting an intent to withdraw as a party, his counsel never

withdrew their appearance, and the district court never purported to

end his involvement in the case. At the very least, there would be a

triable issue of fact as to whether Habelt intended to remain a party.

18a

assume that he was still a party to the district court

proceeding even after PERSM’s appointment as lead

Plaintiff. Cf. Peralta v. Heights Med. Ctr., Inc., 485 U.S.

80, 84 (1988) (holding that procedural due process

prevents a court from entering judgment against a party

“without notice or service”).

I believe due process likely required pre-termination

notice, not post-termination notice. But even if I am

incorrect, if the district court (or anyone else) had given

Habelt post-termination notice that his party status may

have been or was terminated, Habelt would have had the

opportunity to move to intervene in the district court,

individually oppose Defendants’10 motion to dismiss, or

even file a separate complaint. See SEC v. McCarthy, 322

F.3d 650, 659–60 (9th Cir. 2003) (explaining how proper

notice could have allowed a party to avoid or at least

respond to an application for judicial enforcement of an

SEC order); cf. Memphis Light, Gas & Water Div. v.

Craft, 436 U.S. 1, 14 (1978) (“The purpose of notice under

the Due Process Clause is to apprise the affected

individual of, and permit adequate preparation for, an

impending ‘hearing.’” (footnote omitted)). The majority’s

holding post facto deprives Habelt of the opportunity to

preserve his substantive claims for appellate review, in a

manner I believe is inconsistent with due process.11 See

Feuntes v. Shevin, 407 U.S. 67, 81 (1972) (“If the right to

“Defendants” refers to iRhythm and certain of its executives.

Were we required to formulate a simple rule addressing all future

factual scenarios, I might well adopt a rule that such “express

removal” was the sine qua non of stripping a party of party status.

But here, I would simply hold that lacking express removal, there

must be notice of such nature as to reasonably convey the information

that a party will henceforth no longer be a party. Such notice is lacking

here. See Wright v. Beck, 981 F.3d 719, 728 (9th Cir. 2020) (“[O]utright

failures to even attempt to provide notice violate due process.”).

19a

notice and a hearing is to serve its full purpose, then, it is

clear that it must be granted at a time when the

deprivation [of an opportunity to pursue claims] can still

be prevented.”).

Taken together, the facts that: (1) Habelt filed the

initial complaint; (2) Habelt remained a named Plaintiff in

the caption of later complaints, including the operative

SAC; (3) the substantive allegations of the operative SAC

cover Habelt’s claims; and (4) Habelt never evinced intent

to withdraw as a Plaintiff nor received notice of

termination of his party status, all demonstrate that

Habelt was sufficiently involved in the district court

proceedings to remain a party.

II.

But even if Habelt were not a party, he still qualifies

for nonparty appellate standing under our caselaw.

Generally, nonparties are allowed to appeal “when

(1) [they] participated in the district court proceedings,

and (2) the equities of the case weigh in favor of hearing

the appeal.” Hilao v. Est. of Marcos, 393 F.3d 987, 992 (9th

Cir. 2004) (internal quotation marks and citation omitted).

Although this rule applies “only in exceptional

circumstances,” id., the dearth of caselaw addressing

whether a litigant is properly a plaintiff under the

circumstances of this case illustrates that Habelt’s

situation is exceptional.12

See generally Jones, 870 F.2d at 1365 (“The question whether

serving someone makes him a party, even when the complaint doesn’t

designate him as party . . . is one of those fundamental legal questions

on which there is a curious dearth of authority or discussion.”);

Steinmetz v. Danbury Visiting Nurse Ass’n, No. 3:19-CV-01819

(JCH), 2021 WL 4193070 at *4 (D. Conn. Sept. 15, 2021) (“And in the

anomalous circumstances where a Complaint does not clearly identify

the defendant parties, there is scant legal authority on how courts

20a

The majority first concludes that Habelt was not

sufficiently involved in the proceedings below to satisfy the

first prong of this test. Op. at 9. The majority relies on the

fact that Habelt “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.” Id. But they cite no authority

requiring him to do any of those things to maintain

sufficient involvement for purposes of appellate standing.

And again, we are not dealing with a putative class

member; we are dealing with the named Plaintiff who

initiated the lawsuit and who was never dismissed from the

case. When nothing in the PSLRA provides that

appointment of a lead plaintiff extinguishes the

involvement of other named plaintiffs (indeed the only

one), there is no reason Habelt would think he had to do

anything more than he did to remain in the suit. But even

if that were untrue, and the PSLRA is a trap for the

unwary, Habelt wasn’t unwary—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. Cf.

Mullane, 339 U.S. at 314.

In SEC v. Wencke, 783 F.2d 829 (9th Cir. 1986), we

found that a nonparty had appellate standing in part

because he “made a special appearance and raised all

the . . . claims that he is now raising on appeal” before the

district court. Id. at 834. “Throughout its proceedings, the

district court treated [the appellant] as if he were a party.”

should determine if a particular entity has been made a party to the

action.”).

21a

Id. Here, Habelt’s counsel entered an appearance that was

never withdrawn and raised the claims he now presents on

appeal both in his original complaint and as a named

Plaintiff in the operative SAC.13 And although the district

court may not have solicited input from Habelt when

appointing the lead Plaintiff or at later stages of the

litigation, see id. at 834–35 (district court solicited input of

nonparty), nothing in the record suggests that Habelt was

not adequately represented by PERSM’s advocacy. See

Devlin v. Scardelletti, 536 U.S. 1, 11 (2002) (“Although [the

Supreme] Court has never addressed the issue, nonnamed

parties in privity with a named party are often allowed by

other courts to appeal from the order that affects

them.”).14

The majority faults Habelt for not participating after the

appointment of PERSM as lead Plaintiff. Op. at 8–9. But the district

court’s order appointing PERSM specifically provided that other than

PERSM’s counsel, “no other law firm shall work on this action for the

putative class without prior approval of the Court.” “Motions for

approval of additional Plaintiffs’ counsel shall identify the additional

Plaintiffs’ counsel and their background, the specific proposed tasks,

and why [PERSM’s counsel] cannot perform these tasks.” Notably, no

other Plaintiff or putative class member filed anything in the suit after

PERSM’s appointment as lead Plaintiff. But the district court never

indicated any intent to remove Habelt as a party from the action. Thus,

Habelt’s failure to participate further is more an effort to comply with

the district court’s order to avoid unnecessarily delaying proceedings

rather than a sign of intentionally abandoning his participation in the

suit. But even if both of those alternatives were equally reasonable, it

is not our role as an appellate court to choose between them in the first

instance.

See also United States v. Osage Wind, LLC, 871 F.3d 1078, 1085

(10th Cir. 2017) (finding that a nonparty Native American tribe had

standing to appeal even though it “did not attempt to intervene below

until the eleventh hour” in part “because the United States . . . was

representing [the tribe’s] interests all along.”). Indeed, the district

court is not required to permit intervention by a nonparty whose

22a

By contrast, when we have declined to find nonparty

standing to appeal, we have faulted would-be appellants

for failing to take basic steps that Habelt took here. See,

e.g., Citibank Int’l v. Collier-Traino, Inc., 809 F.2d 1438,

1441 (9th Cir. 1987) (noting nonparty’s “prejudgment

activity . . . was nonexistent”); S. Cal. Edison Co. v. Lynch,

307 F.3d 794, 804 (9th Cir. 2002) (“Apart from their

applications for intervention, the [nonparties] did not

participate in the district court proceedings.”). And

contrary to the majority’s assertion, this case is easily

distinguishable from Volkhoff. Op. at 9. There, a

nonparty’s involvement in the district court “all but ceased

with the filing of [a first amended complaint],” 954 F.3d at

1242, that expressly removed the nonparty from the

litigation in favor of a substituted plaintiff, based on a

“tactical decision aimed at avoiding . . . dismissal,” id. at

1240. Habelt wasn’t expressly removed,15 and Habelt

didn’t act tactically to avoid dismissal.

Second, the majority concludes that the equities weigh

against allowing Habelt to appeal. The majority points out

that unlike some cases in which we have recognized

nonparty standing, Habelt was not “haled . . . into the

proceeding against his will.” Op. at 9 (quoting Volkhoff, 945

F.3d at 1242). Putting aside that in the circumstances here,

the most important “equity” is the lack of actual and clear

notice to Habelt that, at some unknown point, he lost his

party status and thus his right to appeal, we have never

held that a nonparty must be brought into proceedings

involuntarily in order to appeal.

interest is “adequately represent[ed]” by another party. Fed. R. Civ.

P. 24(a)(2). And in any event, Habelt was not required to seek

intervention in order to establish appellate standing. See Wencke, 783

F.2d 829, 834-35 (motion for intervention was not necessary to

establish nonparty appellate standing).

And Habelt’s attorneys never withdrew their appearance.

23a

Next, the majority cites Defendants’ concession at oral

argument that Habelt is not bound by the district court’s

judgment, so he theoretically could pursue a separate

lawsuit against Defendants. Op. at 9. But the preclusive

effect of a prior judgment is a determination generally

made by the subsequent court. Sonner v. Premier

Nutrition Corp., 49 F.4th 1300, 1304 (9th Cir. 2022). Thus,

a future court is not bound by Defendants’ concession and

may conclude that the district court’s judgment bars

Habelt from pursuing a separate suit. Moreover, even if

Habelt is not bound by the district court’s judgment,

Habelt notes that his claims may be time-barred by

applicable statutes of limitation. Oral Arg. at 20:10-20:22

(Defendants suggesting that they would move to dismiss

claims barred by the statute of limitations). So to the

extent that Habelt relied on his belief that he remained a

party in this case, he may have declined to timely file a

second lawsuit because he thought he could continue

asserting his claims here. Because Habelt’s claims are

possibly precluded or time-barred, he could be effectively

bound by the district court’s judgment, resulting in

further equities in his favor. Cf. Buffin v. California, 23

F.4th 951, 958 n.3 (9th Cir. 2022) (“The equities weigh in

favor of hearing an appeal ‘when judgment has been

entered against the nonparty.’” (quoting Volkhoff, 945

F.3d at 1242)); Bank of Am. v. M/V Exec., 797 F.2d 772,

774 (9th Cir. 1986) (“[T]he equities weigh in favor of

hearing [nonparty’s] appeal because this is the only avenue

to obtain appellate review of the issue.”).

Other circuits have reached similar results. For

example, the Second Circuit allows nonparties to appeal

when they have “a plausible affected interest” impacted by

the judgment of the district court. Off. Comm. of

Unsecured Creditors of WorldCom, Inc. v. SEC, 467 F.3d

73, 78 (2d Cir. 2006) (finding nonparty standing even

24a

though nonparty was not “bound by the district court’s

judgment”). The court discussed a previous decision in

which it concluded a nonparty had standing when, as here,

“it was possible, although not certain, that the nonparty’s

[claims] would be barred by” proceedings in the district

court. Id. (discussing SEC v. Certain Unknown

Purchasers of the Common Stock of and Call Options for

the Common Stock of Santa Fe Int’l Corp., 817 F.2d 1018,

1021 n.1 (2d Cir. 1987)). Other circuits also examine a

nonparty’s stake in the litigation when assessing standing

to appeal. See, e.g., Doe v. Pub. Citizen, 749 F.3d 246, 259–

62 (4th Cir. 2014); SEC v. Forex Asset Mgmt. LLC, 242

F.3d 325, 328–30 (5th Cir. 2001); Northview Motors, Inc.

v. Chrysler Motors Corp., 186 F.3d 346, 349–50 (3d Cir.

1999). To the extent Habelt is time-barred or precluded

from bringing a separate suit because he erroneously (but

surely reasonably) believed he was a party, the district

court’s ruling had a similar substantial effect on his

interests, counseling in favor of hearing his appeal.

Thus, whether or not Habelt was a party below, I would

conclude that he has standing to bring this appeal.

III.

Moving to the merits, the crux of the SAC’s allegations

is that Defendants deliberately misled investors about a

rulemaking proceeding by the Centers for Medicare and

Medicaid Services (CMS) to establish a uniform

reimbursement rate for its core product, the Zio XT patch.

On several calls with investors, iRhythm and its executives

expressed optimism that CMS would adopt a proposed

rule setting a reimbursement rate of about $380, with

some variation to account for different specifications in the

product line. During the rulemaking process, external

analysts and iRhythm’s own investors expressed concerns

that the company was not providing CMS with the usual

types of cost data that the agency generally relies on when

25a

setting reimbursement rates. iRhythm attempted to

dispel these concerns by noting that it was advocating for

a novel reimbursement rate calculation methodology

because—unlike the products of its competitors and other

medical device manufacturers—its Zio XT patch

represented a vertically integrated service. However, in

part based on the methodological concerns raised by third

parties, CMS declined to adopt a uniform national

reimbursement rate. Instead, pricing authority reverted

to a regional CMS contractor, Novitas, which slashed

reimbursement rates for the Zio XT to about $115 (from

the then-current rate of $311), causing a steep decline in

iRhythm’s share price and the resignation of several

executives.

The SAC alleges that various statements made by

iRhythm executives expressing confidence that CMS

would adopt its preferred reimbursement rate amounted

to securities fraud. The district court dismissed the SAC,

primarily on two grounds. First, the district court found

that some alleged misrepresentations fell within the

PSLRA’s safe harbor provision, which precludes liability

for certain “forward-looking statement[s].” See 15 U.S.C.

§ 78u- 5(c)(1). Second, relying on our decision in Epstein v.

Washington Energy Co., 83 F.3d 1136 (9th Cir. 1996), the

district court ruled that some alleged misrepresentations

were not actionable because they amounted to predictions

about the outcome of a regulatory proceeding. See id. at

1141 (“[R]eliance on predictive statements in the context

of regulatory proceedings is inherently unreasonable.”).16

The district court appears to read Epstein as shielding all

statements about a regulatory proceeding. But Epstein held only that:

(1) companies generally have no affirmative duty to disclose the

progress of regulatory proceedings; and (2) PSLRA claims can’t be

based on mere predictions about the outcome of regulatory

26a

We review dismissal of a complaint for failure to state a

claim de novo, taking all facts in the light most favorable

to plaintiffs. Wochos v. Tesla, Inc., 985 F.3d 1180, 1188 (9th

Cir. 2021). In my view, three of the alleged

misrepresentations were improperly dismissed because

they were neither forward-looking statements nor

predictions about the outcome of the CMS rate setting

process.

First, Habelt alleges that when answering a question

on an earnings call about whether iRhythm had submitted

traditional types of cost data to CMS to facilitate the

rulemaking process, then Chief Executive Officer (CEO)

King stated that CMS “ha[s] everything they can get from

us.” While it is undisputed that iRhythm provided certain

types of cost data to CMS, Habelt also alleges that

iRhythm, with King’s knowledge, deliberately withheld

certain cost information that it feared might undercut its

proposed rate. If true, this allegation supports Habelt’s

contention that King’s statement that iRhythm had

submitted all available cost data was factually false and a

deliberate attempt to mislead investors about the

company’s cooperation with regulators.

King’s alleged misrepresentation was not forward

looking because it concerned cost data that iRhythm had

previously submitted. Thus, it is not covered by the

PSLRA’s safe harbor. Moreover, King’s statement was

not merely a prediction about the outcome of the rateproceedings. 83 F.3d at 1141–42. Nothing in Epstein suggests that

companies can lie about their cooperation with regulators or about

concerns expressed by regulators. For the reasons discussed below,

even if companies have no obligation to disclose the extent of their

cooperation or known regulatory risks, Epstein does not displace the

general rule that companies must speak truthfully when they choose

to speak on voluntary matters, even on matters as to which they have

no obligation to speak.

27a

setting process. If Habelt’s allegations are true, King may

have intended to project false confidence that iRhythm’s

proposed rate would be adopted. But in so doing, King not

only implied a favorable prediction about the outcome of

the proceeding, he also allegedly lied about a factual

issue—the extent of iRhythm’s cooperation with

regulators and the information that iRhythm provided to

regulators. Even after Epstein, we have held that similar

statements are actionable. In Berson v. Applied Signal

Technology., Inc., 527 F.3d 982 (9th Cir. 2008), we

reversed dismissal of a securities fraud claim related to a

government contractor’s statement that its backlog of

work favorably impacted revenue forecasts, even though

much of the backlog was due to the agencies’ decisions to

stop work on government contracts that would likely never

result in future revenue. Id. at 985–87. Specifically, we

held that “once defendants chose to tout the company’s

backlog, they were bound to do so in a manner that

wouldn’t mislead investors as to what that backlog

consisted of.” Id. at 987. So too here, as alleged. Although

iRhythm may not have had a duty to affirmatively disclose

the extent of its cooperation with CMS, once it chose to

speak on that issue, it had an obligation to tell the truth.

Second, King stated on a separate investor call that

“there [was not] really a basis” for CMS to “lower[ the

proposed rate] if there isn’t any new data that would

suggest that the price of our service would be less.” In

essence, King claimed that in the absence of new data,

there would be no reason for CMS to reject iRhythm’s

proposed rate for the Zio XT. But Habelt alleges that King

knew this was factually untrue because: (1) an independent

market research firm had submitted a comment to the

CMS raising issues with iRhythm’s cost methodology; and

(2) iRhythm deliberately withheld data from CMS

28a

indicating that the true cost of the product was much lower

than the proposed rate.

Taking these allegations in the light most favorable to

Plaintiffs, King’s statement can be read as an attempt to

mislead investors about facts regarding existing evidence

about the true cost of the Zio XT. Again, the alleged false

statement is not forward looking because it concerned the

state of market evidence that existed when King made the

statement. And again, it is not merely a prediction about

the outcome of the ratemaking process because King

allegedly lied about a material component of the

regulatory process. See Berson, 527 F.3d at 985–87.

Finally, then CEO Coyle stated on an investor call that

Novitas had not “spoken to [iRhythm] about how pricing

was being established” following CMS’s decision not to

adopt iRhythm’s proposed rate in a nationwide final rule.17

Habelt alleges this statement was untrue because Novitas

had directly expressed concerns about iRhythm’s pricing

methodology to Coyle personally about two months before

Coyle made this statement. If Habelt’s allegations are

true, then Coyle also may have deliberately attempted to

mislead investors as to facts relevant to the state of the

regulatory process.

This statement was not forward looking because it

concerned conversations that iRhythm may or may not

have had with the CMS contractor. And it is not protected

by Epstein, because it is another alleged lie about facts

relevant to a material component of the regulatory

process. See Berson, 527 F.3d at 985–87. In that respect,

this alleged misrepresentation is almost identical to

another we confronted in Schueneman v. Arena

Pharmaceuticals, Inc., 840 F.3d 698 (9th Cir. 2016). There,

After CMS declined to adopt a national rate, pricing authority

reverted back to Novitas.

29a

we reversed dismissal of a securities fraud claim against a

company that represented that all available studies

supported its application for approval of a new drug to the

Food and Drug Administration (FDA). Id. at 702–03.

Plaintiffs alleged, however, that the FDA had expressed

concerns to the company that some of the underlying

studies weighed in favor of rejecting the drug. Id. We

explained that once the company chose to speak about the

studies, it was “bound to do so in a manner that wouldn’t

mislead investors as to potentially negative information

within their possession.” Id. at 707–08 (brackets omitted)

(quoting Berson, 527 F.3d at 987). The company “did more

than just express its confidence in [the product’s] future.

It affirmatively represented that ‘all the animal studies

that had been completed’ supported [the company’s] case

for approval” even though the company “knew that the

animal studies were the sticking point with the FDA.” Id.

at 708 (brackets omitted). Although iRhythm had no duty

to reference its discussions with Novitas, once it chose to,

it could not misrepresent concerns expressed by Novitas.

I agree with the district court that all other alleged

misrepresentations were properly dismissed as either

forward-looking statements protected by the PSLRA’s

safe harbor or predictions about the outcome of the CMS

rate-making process that are properly shielded by our

decision in Epstein.18

In the alternative, the district court dismissed the complaint for

failure to allege scienter with the required particularity. In relevant

part, this conclusion was based on the premise that “[t]he SAC

contains no . . . allegations that Defendants ‘affirmatively represented’

information about studies, analyses, or other predicate requirements

for regulatory approval that had not, in fact, been completed.” But for

the reasons explained above, I would find that portions of the alleged

misrepresentations did exactly that. Thus, I would remand for the

district court to reevaluate its scienter holding.

30a

IV.

For all these reasons, I would conclude that Habelt has

standing to appeal and reverse the district court’s

dismissal as to the three alleged misrepresentations

discussed above. Thus, I respectfully dissent.

31a

APPENDIX B

32a

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

MARK HABELT, et al.,

Plaintiffs,

IRHYTHM

TECHNOLOGIES,

INC., et al.,

Case No. 21-cv-00776EMC

ORDER GRANTING

DEFENDANTS’

MOTION TO DISMISS

Docket No. 55

Defendants.

Lead Plaintiff Public Employees’ Retirement System

of Mississippi brings this class action on behalf of similarly

situated investors against Defendant iRhythm and

Individual Defendants King, Coyle and Devine (current or

former corporate officers of iRhythm) to recover damages

for Defendants’ alleged violations of federal securities

laws.

Now pending is Defendants’ motion to dismiss

Plaintiffs’ Second Amended Complaint (“SAC”) in its

entirety for failure to state claims, pursuant to Fed. R. Civ.

P. 12(b)(6). Docket No. 55 (“MTD”). For the following

reasons, the Court GRANTS Defendants’ motion.

I. BACKGROUND

A. Relevant Factual Allegations

1. iRhythm’s Business

Defendant iRhythm is a “digital healthcare company

that focuses on providing long-term ambulatory

electrocardiogram (“AECG”) devices” designed to

“diagnose cardiac arrythmias.” Docket No. 54 (“SAC”) ¶ 2.

AECG devices can provide up to 14 days of

electrocardiographic data which is “scanned and analyzed

33a

by [iRhythm’s] cardiac technicians, and then presented in

a report to a doctor for diagnosis.” Id. iRhythm’s core

AECG product is allegedly the Zio XT patch, from which

the company allegedly derives “over 85% of its total

revenue.” Id. iRhythm’s revenue from the Zio XT patch is

allegedly “directly or indirectly tied to Medicare

reimbursement rates.” Id. ¶ 3. “At least 25% of the

Company’s total revenue was tied to servicing Medicare

patients” and the remaining sales to commercial payors

were

allegedly

“indirectly

tied

Medicare

reimbursement rates” because those customers “typically

pay between 1.5 times to 2 times the rate set by the

[Centers for Medicare and Medicaid Services (“CMS”)] in

a Medicare Physician Fee Schedule (“PFS” released

annually.” Id.

CMS requires reimbursed services to be billed

pursuant to “Current Procedural Technology” (“CPT”)

codes, which are assigned corresponding prices. Id. ¶ 4.

Prior to 2021, iRhythm billed for its Zio XT service under

temporary CPT codes—called Category III codes—which

are used for newly-introduced technologies. Id.; MTD at

13. CMS delegates the reimbursement pricing rates for

Category III codes to regional Medicare Administrative

Contractors (“MACs”). Novitas, the MAC that oversees

pricing for iRhythm’s Zio XT services, set the Category

III rates for Zio XT between $311 and $316 for several

years prior to 2021. SAC ¶ 4, 57.

2. Recommendation of Zio XT for Permanent Pricing

and CMS’s Proposed Rule

The American Medical Association (“AMA”), which

has a role in maintaining CPT codes, recommended that

CMS adopt a permanent Category I CPT code for the Zio

XT service in 2021, indicating its view that the service had

become the “standard of care.” Id. ¶ 56. The process by

which a Category III temporary CPT code is adopted into

34a

a Category I permanent code involves the AMA’s

Resource-Based Relative Value Scale Update Committee

(“RUC”) providing a recommendation of pricing to CMS.

Id. While CMS “gives weight to the RUC’s input and

recommendations, it is not obligated to accept the RUC’s

recommendation in the final rule, and it can modify pricing

based on its own analysis or delegate pricing to MACs in

the final rule.” Id.

Based on the RUC’s recommendation, CMS proposed

a rule with reimbursement rates of $375.83 and $386.16 for

Category I CPT codes for External Extended ECF

Monitoring, including the Zio XT, to go into effect in

January 2021. Id. ¶ 62. The proposed rule noted that CMS

“did not receive a traditional invoice to establish a price for

this supply item,” 85 Fed. Reg. 50165 (August 17, 2020),

allegedly because “iRhythm declined to submit actual

invoices, instead providing CMS with insurance claim and

cost data that showed only the total cost charged to thirdparty payors” which includes, among other expenses, the

cost of iRhythm’s service to analyze data collected by the

Zio XT patch, “without any breakdown of the cost of the

different components of the Zio XT,” SAC ¶ 68.

CMS observed that rather than receiving traditional

invoices, it received alternative forms of pricing

information, including a weighted median of historical

billed prices for the service, a top-down calculation of the

cost of the supply per service, and invoices provided from

clinical studies. 85 Fed. Reg. 50165. CMS noted that it

requires “an invoice representative of commercial market

pricing to establish a national price for a new supply or

equipment item,” and, therefore, based on the data that

was made available to the agency, it “cannot establish

supply pricing based on an analysis of claims data and in

absence of a representative invoice.” Id. Instead, CMS

proposed to employ a “crosswalk to an existing supply for

35a

use as a proxy price until [it obtained] and invoice to use.”

Id. CMS explained that although the proxy item it

identified was “not clinically similar to the extended

external ECG patch,” the agency “believe[d] it [was] the

closest match from a pricing perspective to employ as a

proxy until [CMS was] able to arrive at an invoice that is

representative of commercial market pricing.” Id. at

50165-66. The proposed rule was followed a public noticeand-comment period. SAC ¶ 59, 64.

3. MCDA’s October 2020 Comment

On October 5, 2020, MCDA, a healthcare policy and

consulting firm based in Washington, D.C., filed a report

to CMS as a comment on its proposed rulemaking, urging

the agency to adopt a significantly lower CPT Category I

price for extended external ECG’s patches, including the

Zio XT. Id. ¶¶ 63-99. The report argued (1) that the true

cost of Zio XT was less than $100 because iRhythm had

folded indirect, un-reimbursable expenses for research

and development, and sales and advertising into their

costs, id. ¶¶ 65-70; (2) the proxy device CMS relied on for

pricing purposes was more complex, and, therefore, an

inapposite comparator, id. ¶¶ 71-74; (3) an invoice from a

device developed by one of iRhythm’s direct competitors

of an allegedly similar device indicated that the

reimbursement rate should be no more than $85.21, id. ¶¶

88-89; and (4) senior executives in the industry allegedly

were aware that the cost of the monitoring device is a small

fraction of CMS’s proposed rate and the price of the

hardware was trending downwards, id. ¶¶ 94-96. iRhythm

filed a three-page response to the MCDA report which,

allegedly, did not contest MCDA’s analysis. Id. ¶¶ 100-03.

4. CMS Final Rule and Pricing for 2021

On December 1, 2020, CMS released its Final Rule

establishing payment rates for AECG monitoring devices

36a

for the calendar year 2021. The agency, however, declined

to set a national reimbursement rate for the devices

because it lacked “an invoice representative of commercial

market pricing.” 85 Fed. Reg. 84632 (Dec. 28, 2020). The

Final Rule acknowledged its decision not to set a national

rate was based, in part, on “the conflicting information and

assertions provided by commenters” during the noticeand-comment period and declined to establish pricing

based on the proxy device it previously identified. Id. at

84633-34. CMS maintained Category I CPT codes for

AECG devices, allowing those services to be provided and

billed to Medicare patients, but it delegated pricing for

those codes to the regional MACs for 2021. SAC ¶ 105.

Thus, Novitas remained responsible for determining the

reimbursement rates for Zio XT in 2021. Id.

Plaintiffs allege that iRhythm’s stock price declined

after CMS released its final rule from $240.64 on

December 1, 2020 to $180.90 by the end of trading on

December 4, 2020. Id. ¶ 106.

After CMS delegated the rate-setting decision for 2021

to Novitas, MCDA allegedly published another report

arguing that iRhythm’s proposed pricing lacked support.

SAC ¶¶ 108-21. Plaintiffs allege their independent expert,

Dr. Freeman, independently corroborated MCDA’s

analysis. Id. ¶¶ 122-30.

On January 29, 2021, Novitas announced

reimbursement rates for Zio XT that slashed the historical

rate of $311 to a range of average rates of $73.82 to $89.36.

Id. ¶ 135. Plaintiffs allege that this announcement caused

iRhythm’s stock price to drop from $251 on January 28 to

$168.42 on January 29, 2021. Id. ¶ 136.

On April 10, 2021, Novitas revised to rate upward to

$115. Id. ¶ 139. Plaintiffs allege that this news caused

37a

iRhythm’s stock price to drop from $132.76 on April 9 to

$80.36 on April 12, 2021. Id. ¶ 140.

5. Proposed and Final Rule for 2022

On July 13, 2021, CMS released the proposed rule for

CPT pricing effective January 1, 2022, and noted its

concern with regards to External Extended ECG

Monitoring that “supply costs as initially considered in

[its] CY 2021 PFS proposal are much higher than they

should be” and sought public comment regarding “fair and

stable pricing for these services.” SAC ¶ 145. Plaintiffs

allege that iRhythm’s stock price dropped from $59.07 to

$53.90 after the proposed rule was released. Id. ¶ 147.

Defendants cite to CMS’s final rule for 2022, which

declined to set national pricing, but endorsed a rate of

$200.15 for devices, including the Zio XT, for consideration

by MACs in setting rates for 2022. 86 Fed. Reg. 65125

(Nov. 19, 2021). Novitas ultimately adopted a rate in excess

of $210 for 2022. See Docket No. 59-1, Exh. 24.

6. Timeline of Events

For convenience, the relevant factual allegations are

summarized in the timeline below:

Date

Description of Event

Prior to 2020

iRhythm billed for its Zio XT service

under temporary, Category III, CPT

codes

for

newly-introduced

technologies. The rate ranged between

$311 and $316. SAC ¶¶ 4, 57.

Date

Aug. 3, 2020

38a

Description of Event

CMS publicly released a proposed rule

adopting the recommendation of the

American Medical Association to set a

permanent

CPT

code

and

corresponding reimbursement rate for

the Zio XT service between $375.83 and

$383.16, to go into effect in January

2021. SAC ¶¶ 62, 68. CMS noted that the

proposed rate was based on an a

"crosswalk" to a proxy item, because the

agency had not received "traditional

invoices" from which it could generate

pricing under its typical pricing model.

Aug. - Oct. CMS’s proposed rule was subject to a

2020

public notice-and-comment period.

Oct. 5, 2020

MCDA, a healthcare policy and

consulting firm, filed a public comment

on CMS’s proposed rulemaking in which

it argued that the proposed rate for the

Zio XT service was inflated, and that the

rate should not be more than $85.21.

MCDA argued that the proposed rate in

excess of $300 far exceeded the true cost

of the Zio XT service, and reimbursed

iRhythm for impermissible expenses,

such as a marketing and research costs.

SAC ¶¶ 63-99.

Date

39a

Description of Event

Dec. 1, 2020

CMS publicly released its Final Rule

establishing payment rates for AECG

monitoring devices for 2021. The agency

declined to set a national, permanent

rate because it “lacked an invoice

representative of commercial market

pricing.” Rather than set a rate, CMS

delegated the rate-setting for 2021 to

the regional MACs, including Novitas,

which had previously been responsible

for setting the reimbursement rate for

Zio XT. SAC ¶ 105.

Dec. 4, 2020

iRhythm’s share price allegedly

declined from $240.64 on Dec. 1 to

$180.90 on Dec. 4. SAC ¶ 106.

Jan. 29, 2021

Novitas announced reimbursement

rates for Zio XT that slashed the

historical rate of $311 to a range of

average rates between $73.82 to $89.36.

SAC ¶ 135.

Jan. 29, 2021

iRhythm’s share price allegedly declines

from $251 on January 28 to $168.42 on

January 29. SAC ¶ 136.

Apr. 10, 2021

Novitas announced an upward revision

of the reimbursement rate for Zio XT

from an average of $73.82 to $115. SAC

¶ 139.

Apr. 12, 2021

iRhythm’s share price allegedly declines

from $132.76 on April 9 to $80.36 on

April 12. SAC ¶ 140.

Date

40a

Description of Event

Jul. 13, 2021

CMS publicly releases its proposed rule

for reimbursement rates effective

January 1, 2022. In that proposed rule,

it declined to propose a rate for devices

like the Zio XT, noted concerns that

animated the pricing decision from the

previous year, and sought public

comment regarding fair and stable

pricing for such services. SAC ¶ 145.

Jul. 13, 2021

iRhythm’s share prices allegedly

declines from $59.07 to $53.90 upon

release of the CMS proposed rule. SAC

¶ 147.

Nov. 19, 2021 CMS publishes its final rule for rate

setting for 2022. Although CMS declined

to set a national rate, it endorsed a rate

of $200.15 for the Zio XT to be

considered by MACs, including Novitas.

86 Fed. Reg. 65125.

Jan. 2022

Novitas adopts a reimbursement rate of

$210 for Zio XT for the 2022 calendar

year.

7. Allegations of Defendants’ Violations of Securities

Law

Plaintiffs allege Defendant iRhythm and Individual

Defendants Kevin King, Michael Coyle and Douglas

Devine, who each held the position of CEO of iRhythm for

periods of time between August 2020 and June 2021, made

18 false or materially misleading statements in violation of

federal securities law regarding iRhythm’s engagement in

the regulatory price-setting process and Defendants’

knowledge of the risks that the company faced. See SAC

41a

¶¶ 148-182; Appendix A, Challenged Statement Chart

(collecting and numbering Plaintiffs’ allegations of false

statements).

Plaintiffs further allege Defendants’ scienter is

evidenced by (1) CMS’s past practice rejecting pricing

methodologies like the one iRhythm proposed, id. ¶¶ 184196, (2) witness testimony from a contract dispute between

iRhythm’s competitors, Birdy Diagnostics, Inc. v. HillRom, Inc., No. 2021-175-JRS (Del. Ch. 2021), indicating

knowledge among industry participants of the likelihood

of a rate cut, id. 189-97, (3) allegations by Confidential

Witness 1, iRhythm’s former Executive Vice President of

Payer Relations and Market Access, that iRhythm was

unlikely to succeed in maintain its Category III pricing

when its technology was adopted as a Category I service,

id. ¶¶ 198-205, (4) iRhythm’s misrepresentations involved

its core operations, id. ¶¶ 206-08, (5) Defendants held

themselves out as knowledgeable about the regulatory

landscape, id. ¶¶ 209-212, (5) iRhythm’s failure to seriously

contest MCDA’s October 2020 report, id. ¶ 213, and (6)

Defendant King’s alleged insider sales of his shares in the

company at inflated prices, id. ¶¶ 214-16.

8. Class Allegations and Causes of Action

Lead Plaintiff seeks to represent a class under Fed. R.

Civ. P. 23(b)(3) on “behalf of all persons or entities that

purchased or otherwise acquired iRhythm’s common stock

between August 4, 2021 and July 13, 2021 (the ‘Class

Period’).” SAC ¶ 217. Lead Plaintiff alleges an “average

monthly volume of 11.2 million shared” were traded during

the Class period and that there are “several hundreds if

not thousands of members” in the proposed class. Id. ¶ 218.

The SAC alleges two counts. First, as to all

Defendants, the SAC alleges violations of Section 10(b) of

the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5

42a

promulgated by the SEC. SAC ¶¶ 226-35. Plaintiffs allege

that Defendants engaged in a plan to deceive the investing

public, artificially inflate and maintain the market price of

iRhythm common stock, and cause Plaintiffs to purchase

iRhythm stock at artificially inflated prices. Id. Second, as

to Individual Defendants King, Coyle and Devine, the SAC

alleges violations of Section 20(a) of the Exchange Act

based on their status as controlling persons of iRhythm

and their alleged predicate violations of the Exchange Act

in Count 1. SAC ¶¶ 236-42.

B. Procedural Background

Plaintiff filed this action on February 1, 2021. Docket

No. 1. On June 1, 2021, the Court granted Public

Employees’ Retirement System of Mississippi’s motion

for appointment as lead counsel. Docket No. 39. Lead

Plaintiff filed an amended complaint on August 2, 2021.

Docket No. 41. The Court granted the parties’ stipulation

for Lead Plaintiff to file a second amended complaint.

Docket No. 53. Lead Plaintiff filed its second amended

complaint on September 24, 2021. Docket No. 54.

Now pending is Defendants’ motion to dismiss the

second amended complaint. Docket No. 55 (“Motion”).

II. STANDARD OF REVIEW

A. Failure to State a Claim (Rule 12(b)(6)

Federal Rule of Civil Procedure 8(a)(2) requires a

“pleading that states a claim for relief” to include “a short

and plain statement of the claim showing that the pleader

is entitled to relief.” Fed. R. Civ. P. 8(a)(2). A pleading that

fails to meet this standard may be dismissed pursuant to

Rule 12(b)(6). See Fed. R. Civ. P. 12(b)(6). To overcome a

Rule 12(b)(6) motion to dismiss after the Supreme Court’s

decisions in Ashcroft v. Iqbal, 556 U.S. 662 (2009) and Bell

Atlantic Corporation v. Twombly, 550 U.S. 544 (2007), a

43a

plaintiff’s “factual allegations [in the pleading] ‘must . . .

suggest that the claim has at least a plausible chance of

success.’” Levitt v. Yelp! Inc., 765 F.3d 1123, 1135 (9th Cir.

2014). The court “accept[s] factual allegations in the

[pleading] as true and construe[s] the pleadings in the

light most favorable to the nonmoving party.” Manzarek

v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031

(9th Cir. 2008). But “allegations in a [pleading] . . . may not

simply recite the elements of a cause of action [and] must

contain sufficient allegations of underlying facts to give

fair notice and to enable the opposing party to defend itself

effectively.” Levitt, 765 F.3d at 1135 (quoting Eclectic

Props. E., LLC v. Marcus & Millichap Co., 751 F.3d 990,

996 (9th Cir. 2014)). “A claim has facial plausibility when

the Plaintiff pleads factual content that allows the court to

draw the reasonable inference that the Defendant is liable

for the misconduct alleged.” Iqbal, 556 U.S. at 678. “The

plausibility standard is not akin to a ‘probability

requirement,’ but it asks for more than a sheer possibility

that a defendant has acted unlawfully.” Id. (quoting

Twombly, 550 U.S. at 556). As discussed below, heightened

particularity is required under Fed. R. Civ. P. 9(b) and the

Private Securities Litigation Reform Act.

III. DISCUSSION

Defendants raise three arguments in support of

dismissal of the SAC: (1) the challenged statements are

not actionable under federal securities law; (2) Lead

Plaintiff fails to plead facts sufficient to establish a strong

inference of scienter; and (3) there are insufficient

allegations to establish loss causation. In support of their

arguments, Defendants also request judicial notice of

several documents. Docket No. 56 (“RJN”).

44a

A. Request for Judicial Notice (Docket No. 56)

Defendants request that the Court incorporate by

reference or take judicial notice of 25 documents. See

Docket Nos. 55-1 (“Seite Decl.”), 56 (“RJN”), 59-1 (“Suppl.

Seite Decl.”).

When ruling on a Rule 12(b)(6) motion to dismiss, in

addition to the entirety of the complaint, courts may

consider (1) “documents incorporated into the complaint

by reference” and (2) “matters of . . . judicial notice.”

Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308,

322 (2007). Under the doctrine of incorporation by

reference, courts are permitted to consider a document “if

the plaintiff refers extensively to the document or the

document forms the basis of the plaintiff’s claim.” Khoja v.

Orexigen Therapeutics, Inc., 899 F.3d 988, 1002 (9th Cir.

2018) (quoting United States v. Ritchie, 342 F.3d 903, 907

(9th Cir. 2003)). A single reference to a document in a

complaint can be enough for the document to be

incorporated if the reference is “relatively lengthy.” Id. at

1003. Courts may consider the full text of incorporated

documents “including portions which were not mentioned

in the complaints” in a ruling on a motion to dismiss. In re

Stac Elecs. Sec. Litig., 89 F.3d 1399, 1405 n.4 (9th Cir.

1996). Under the doctrine of judicial notice, courts may

consider information “not subject to reasonable dispute

because it: (1) is generally known within the trial court’s

territorial jurisdiction; or (2) can be accurately and readily

determined from sources whose accuracy cannot

reasonably be questioned.” Fed. R. Evid. 201(b). The

Court may consider such facts “at any stage of the

proceeding,” Fed. R. Evid. 201(d), “even if they are not

referenced in the pleading, so long as they meet the

requirements for judicial notice set forth in Federal Rule

of Evidence 201.” Cement Masons & Plasterers Joint

Pension Tr. v. Equinix, Inc., 2012 WL 685344, at *8 n.5

45a

(N.D. Cal. Mar. 2, 2012). Among other things, courts in the

Ninth Circuit routinely take judicial notice of:

(i) documents filed with public authorities, e.g., Metzler

Inv. GMBH v. Corinthian Colls., Inc., 540 F.3d 1049, 1064

n.7 (9th Cir. 2008) (noting it “was proper” for the district

court to judicially notice SEC filings) and (ii) documents

published by the government itself, e.g., Anschutz Corp. v.

Merrill Lynch & Co., 785 F. Supp. 2d 799, 834 (N.D. Cal.

2011) (taking judicial notice of congressional hearing

testimony).

As a threshold matter, Lead Plaintiff does not oppose

Defendants’ request to consider the contents of Exhibits

10-14, which are CMS rules and MCDA’s October 5, 2020

and December 30, 2020 reports commenting on the rules.

Additionally, Lead Plaintiff does not object to the Court’s

consideration of similar exhibits, Exhs. 22 (CMS Final

Rule, Nov. 19, 2021) and 24 (publicly available disclosure

of Novitas’s rate set for relevant CPT codes for 2022

pursuant to CMS’s Final Rule), which were entered in

support of Defendants’ reply brief. Plaintiff neither filed

an evidentiary objection, nor did Plaintiff contest the

Court’s consideration of those documents or the

authenticity of the documents in its Sur-Reply, which the

Court granted leave to file. Docket No. 62-1. Plaintiff

argues that this information does not support Defendants’

arguments on the merits, but do not object to the Court’s

consideration of the documents. Id. These documents

satisfy Fed. R. Evid. 201. The Court takes judicial notice

of Exhibits 10-14, 22, 24.

Next, the Court determines Exhs. 6-9, 21, 23, investor

call transcripts which are extensively quoted by the SAC,

are incorporated by reference. See e.g., SAC ¶¶ 148, 149,

209 (quoting August 4, 2020 call, Exh. 9); id. ¶¶ 154, 155,

209 (quoting August 13, 2020 call, Exh. 8); id. ¶¶ 156, 157

(quoting Nov. 5, 2020 call, Exh. 7); id. ¶¶ 11, 158-61, 163-68

46a

(quoting December 2, 2020 call, Exh. 6); id. ¶ 174 (April 12,

2021 call, Exh. 21); id. ¶ 169 (quoting Feb. 25, 2021 call,

Exh. 23). Courts in this district routinely consider investor

call transcripts under this doctrine. See In re SunPower

Corp. Sec. Litig., 2018 WL 4904904, at *3 n.2 (N.D. Cal.

Oct. 9, 2018) (incorporating investor call transcripts by

reference under Orexigen); Yaron v. Intersect Ent, Inc.,

2020 U.S. Dist. LEXIS 219448, at *8 (N.D. Cal. June 19,

2020) (same); McGovney v. Aerohive Networks, Inc., 367

F. Supp. 3d 1038, 1051 (N.D. Cal. 2019) (considering

earnings call transcripts and SEC filings as incorporated

by reference into the complaint); In re Fusion-io, Inc. Sec.

Litig., 2015 WL 661869, at *9 (N.D. Cal. Feb. 12, 2015)

(treating SEC filings and earnings call transcripts as “part

of the complaint” and assuming their “contents are true

for purposes of a motion to dismiss”) (citation omitted).

The Court takes judicial notice of Exhs. 1-5, 18, 25,

which are SEC filings on Forms 4, 8-K, 10-Q, and 10-K that

show publicly available information about iRhythm. See

Metzler, 540 F.3d at 1064 n.7; Weller v. Scout Analytics,

Inc., 230 F. Supp. 3d 1085, 1094 & n.5 (N.D. Cal. 2017)

(judicial notice of Form 10-K is generally appropriate in

securities fraud case); Yamauchi v. Cotterman, 84 F.

Supp. 3d 993, 1014 n.13 (N.D. Cal. 2015) (granting a

request for judicial notice of a Form 8-K because “[a] filing

with the SEC is the type of public record that comes from

a source whose accuracy cannot reasonably be

questioned”).

Defendants’ remaining requests for judicial notice are

denied as moot because it is unnecessary for the Court to

refer to those documents to decide the pending motion.

B. Legal Framework for Securities Fraud

Rule 10b–5, which implements the anti-fraud

provisions of section 10(b) of the Securities Exchange Act,

47a

makes it “unlawful for any person, directly or indirectly,

by the use of any means or instrumentality of interstate

commerce, or of the mails or of any facility of any national

securities exchange . . . [t]o make any untrue statement of

a material fact or to omit to state a material fact necessary

in order to make the statements made, in the light of the

circumstances under which they were made, not

misleading.” 17 C.F.R. § 240.10b–5. To state a claim for

securities fraud, a complaint must allege:

(1) a material misrepresentation or omission by the

defendant;

(2) scienter;

(3) a connection between the misrepresentation or

omission and the purchase or sale of a security;

(4) reliance

omission;

upon the

misrepresentation or

(5) economic loss; and

(6) loss causation.

Halliburton Co. v. Erica P. John Fund, Inc., 134 S.Ct.

2398, 2407 (2014) (citations omitted). At issue in this

motion are the first, second and sixth elements: material

misrepresentations or omissions, scienter and loss

causation.

To state a claim for securities fraud, a plaintiff must

also satisfy the heightened pleading requirements of Rule

9(b) and the Private Securities Litigation Reform Act

(“PSLRA”). Police Ret. Sys. v. Intuitive Surgical, Inc.,

759 F.3d 1051, 1057–58 (9th Cir. 2014). “Due in large part

to the enactment of the [PSLRA], plaintiffs in private

securities fraud class actions face formidable pleading

requirements to properly state a claim and avoid

dismissal[.]” Metzler Inv. GMBH v. Corinthian Colls.,

Inc., 540 F.3d 1049, 1054–55 (9th Cir. 2008). To satisfy

48a

these requirements, a complaint must: (i) “specify each

statement alleged to have been misleading, the reason or

reasons why the statement is misleading, and, if an

allegation regarding the statement or omission is made on

information and belief . . . state with particularity all facts

on which that belief is formed,” 15 U.S.C. § 78u-4(b)(1)(B);

and (ii) “state with particularity facts giving rise to a

strong inference that the defendant acted with the

required state of mind,” or scienter, id. § 78u-4(b)(2).

With respect to scienter, “[t]he inquiry. . . is whether

all of the facts alleged, taken collectively, give rise to a

strong inference of scienter, not whether any individual

allegation, scrutinized in isolation, meets that standard.”

Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308,

323 (2007). “To determine whether the plaintiff has alleged

facts that give rise to the requisite ‘strong inference’ of

scienter, a court must consider plausible, nonculpable

explanations for the defendant’s conduct, as well as

inferences favoring the plaintiff.” Id. at 323-24. “[T] the

[sic] inference of scienter must be more than merely

‘reasonable’ or ‘permissible’—it must be cogent and

compelling, thus strong in light of other explanations.” Id.

at 324.

C. Material Misrepresentations or Omissions

Lead Plaintiff alleges Defendants made 18 statements

that constituted material misrepresentations or omissions.

See Appendix A. To meet the materiality requirement of

Rule 10b–5, the SAC must allege facts sufficient to support

the inference that there is “a substantial likelihood that the

disclosure of the omitted fact would have been viewed by

the reasonable investor as having significantly altered the

total mix of information made available.” Basic Inc. v.

Levinson, 485 U.S. 224, 231–32 (1988) (internal quotation

marks omitted).

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Defendants argue that the 18 statements are not

actionable for five reasons: (1) the challenged statements

were made in the context of a public regulatory

proceeding, (2) iRhythm’s forward-looking statements are

protected by the PSLRA’s safe harbor, (3) many of the

statements are nonactionable opinions, (4) the challenged

statements of corporate optimism are non-actionable

puffery, and (5) the remaining statements fail to state a

claim because they are neither misrepresentations nor

material.

1. Statements in

Proceedings

the

Context

Regulatory

Defendants observe that the “[t]he crux of the SAC is

the claim that Defendants failed to ‘come clean’ with

investors about the purportedly undisclosed ‘threats’ and

‘risks’ that iRhythm faced in its efforts to increase or

maintain Medicare reimbursement rates for the new

Category I codes.” Motion at 17. Accordingly, Defendants

argue that the allegations in the SAC must be analyzed

through the lens of the Ninth Circuit’s precedent that

corporate statements made in the context of regulatory

proceedings do “not ordinarily invoke a duty to disclose or

provide a basis for a securities fraud claim.” Epstein v.

Washington Energy Co., 83 F.3d 1136, 1141-42 (9th Cir.

1996).

The analysis in Epstein is largely on point and guides

the Court’s analysis of the challenged statements here.

Epstein involved allegations of securities fraud under

Section 10(b) and Rule 10b-5 against a regulated public

utility company with regard to the company’s alleged

failure to disclose certain information that could bear on

the likelihood that the company would obtain a regulatory

rate increase while the company awaited a decision on the

rate request from a state agency. Id. at 1137. Specifically,

Plaintiffs “assert[ed] that Defendants failed to disclose:

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1) that the [state agency] had previously disapproved of

Defendants’ wrongful allocation of costs and attempts to

subsidize unregulated operations, and 2) that the 1992 rate

increase request was predicated on the same condemned

practices.” Id. at 1140. The court rejected Plaintiffs’

arguments.

It reasoned that “[t]he regulatory process by which a

public utility rate is fixed and the effect of that process on

a utility stock’s market value are materially different from

the way an efficient market digests relevant information

and renders decisions regarding the value of other

securities.” Id. at 1141. For example, “[t]he application for

a rate increase is a matter of public record,” “[r]ate making

proceedings are formal, formatted, controlled by unique

rules and considerations, and public,” and, ultimately, the

“administrative proceeding before an independent state

commission” yields a decision by the commission “which is

dispositive of the rate.” Id. Accordingly, the court

observed, “[i]n this unique context, the kind of the

information claimed to be fraudulent, such as misleading

predictions about the final rate decision, awaits a different

kind of arbiter than the unseen hand of the market.” Id.

“As such, anyone. . . attempting to predict the judgment of

the intermediate arbiter engages, by definition, in a

problematic exercise distinguishable from the normal

investment decision.” Id. Therefore, Epstein concluded

that,

[R]eliance on predictive statements in the

context of regulatory proceedings is inherently

unreasonable. Basing an investment decision on

an anticipated and contingent outcome of a

litigated regulatory proceeding, even with full

knowledge of the prior history of the parties, is

tantamount to sheer speculation; and guessing

wrong hardly suggests fraud. Accordingly, an

51a

investor who relies on such information cannot be

said to be misled by an “untrue statement of

material fact.” The context of the regulatory

process does not ordinarily invoke a duty to disclose

or provide a basis for a securities fraud claim. Thus,

a utility that has announced it has submitted an

application for a rate increase normally has no

duty to inform the public of any facts or

circumstances in addition to those set forth in

the application.

Id. at 1141-42 (internal citation omitted) (emphases

added). Applying this framework to the facts in Epstein,

the court explained that “[Defendant] had clearly stated

that the rate increase proposal was pending before the

[state commission], and that any additional future

revenues depended on the [commission’s] approval of the

rate increase,” and, thus, “it is evident that the market was

alerted to the regulatory nature of the proceedings.” Id. at

1142. The court concluded that, “Once the market had

been so alerted, [Defendant] did not have a duty to disclose

further information about the rate making proceedings,”

and held, “[t]herefore, the alleged omissions do not

provide a basis for a Rule 10b–5 claim.” Id.

Although there are some factual differences between

Epstein and the case at bar–iRhythm is not a regulated

utility company, CMS’s notice-and-comment process and

appears to differ from the “litigated regulatory

proceeding” in Epstein—these facts do not undermine the

applicability of Epstein’s analysis in support of its

conclusion that “reliance on predictive statements in the

context of regulatory proceedings is inherently

unreasonable” or the principle that once a defendant has

alerted the market to pending regulatory proceedings that

will determine the relevant rate the company will obtain,

the company does “not have a duty to disclose further

52a

information about the rate making proceedings.” Id. at

1141-42. It is undisputed that Defendants’ challenged

statements were made during the pendency of public

regulatory proceedings before a governmental agency,

CMS, regarding the agency’s decision as to the

reimbursement rates Defendants would receive for its Zio

XT service. The reimbursement rate application was

publicly available through the American Medical

Association’s RUC. SAC ¶ 56. Lead Plaintiff’s central

theory of fraud relates to Defendants’ conduct during the

regulatory process and, at bottom, amounts to a challenge

to the sufficiency of Defendants’ disclosures regarding the

risks that Defendants faced in obtaining a favorable

decision through the regulatory process. Thus, Epstein

applies here. 83 F.3d at 1141.

Indeed, Lead Plaintiff does not dispute the analysis in

Epstein or contend that Epstein, on its face, would not

apply to iRhythm or the regulatory proceedings here.

Lead Plaintiff does not offer any analysis to dispute the

applicability of Epstein other than to attempt to

distinguish it in passing by asserting that “[t]his is not a

case where Plaintiff faults Defendants for making

misleading predictions about the final rate decision.”

Docket No. 57 (“Opp.”) at 20. But, in fact, Lead Plaintiff

alleges many of Defendants’ statements were false or

misrepresentations precisely because Defendants’

predictions about the likelihood the company would obtain

a favorable final pricing decision by CMS or Novitas were

misleading.1

1 See SAC § Appendix, Statements Nos. 1 (“Reason Why False: “King

was already informed but concealed that. . . the company would face

major challenges with its current reimbursement strategy going

forward” and “King knew that the rates set by Novitas were an

outlier”), 3 (same as 1), 4 (same as 1, and “the risk of an adverse ruling

53a

Indeed, Lead Plaintiff’s arguments that iRhythm

wrongfully withheld information that the pricing

methodology the company submitted to CMS and Novitas

was disfavored and unlikely to succeed in obtaining the

reimbursement rate that iRhythm sought are of the same

nature of the arguments that Epstein rejected as beyond

the scope of the company’s duty to disclose and dismissed

for failure to state claims. See Epstein, 83 F.3d at 1140

(rejecting Section 10(b) claims on the basis of “Plaintiffs[‘]

assert[ions] that Defendants failed to disclose: 1) that the

WUTC had previously disapproved of Defendants’

wrongful allocation of costs and attempts to subsidize

unregulated operations, and 2) that the 1992 rate increase

request was predicated on the same condemned

practices.”); see also 83 F.3d at 1142 (“Here, WEC’s

alleged omissions related to the specific accounting

methods on which it predicated its rate increase proposal

from CMS remained very high”), 5 (same as 1, and “King failed to

disclose. . . that the release of MCDA’s Report in the notice-andcomment period had put the excessively high reimbursement rates for

the Zio XT at risk”), 6 (“Reason Why False. . . the local contracting

path was not ‘attractive,’ but was in fact undermined by proof

contained in the October 5, 2020 MCDA Report that the inflated

reimbursement rates previously under consideration for the Zio XT

were grossly inflated”), 7 (“Reason Why False… [CMS’s final 2021

rule was] effectively a rate cut, as CMS indicated it could not

substantiate the inflated rate under consideration”), 8 (“Reason Why

False…there were multiple bases for them lowering reimbursement

rates”), 10 (“See reasons provided above in connection with

Statements #6, 7, 8), 11 (“Reason Why False. . . Coyle knew, but failed

to disclose. . . that the Company could not collect all of its indirect costs

for the Zio XT device.”), 13 (same as 11), 14 (“Reason Why False. . .

[iRhythm] faced an uphill battle that was almost certainly bound to

fail after the revised rates were released in April 2021.”), 15 (same as

11), 16 (“Reason Why False. . . industry experts had already concluded

that Novitas was an outlier amongst the MACs and its past high rats

[sic] for the Zio XT were a huge red flag.”), 17 (same as 11), 18 (same

as 11, and “the Company was, in fact, trying to break new ground with

its attempt to seek impermissibly, indirect costs from CMS”).

54a

and the past failure of similar proposals. . . [T]he alleged

omissions do not provide a basis for a Rule 10b-5 claim.”).

Moreover, just as the Defendant in Epstein “clearly

stated that the rate increase proposal was pending before

the [state commission] and that any additional future

revenues depended on the approval of the rate increase,”

id. at 1142, so too did iRhythm here, see e.g., Docket No.

55-1, Exh. 3 (“Form 10-Q” filed with SEC on August 7,

2020) at 43 (“[W]e are and will continue to be subject to

changes in the level of Medicare coverage for our

produces, and unfavorable coverage determinations at the

national or local level could adversely affect our business

and results of operations”), id. (“We can provide no

assurance that any Category I CPT code secured for the

reimbursement of our Zio service will contain values and

pricing that are the same as or greater than the existing

Category III CPT codes. In addition, to the extent CMS

reduces its reimbursement rates for the Zio service,

regardless of the Category of CPT code, third-party

payors may reduce the rates at which they reimburse the

Zio service, which could adversely affect our revenue.”),

id. (“Reductions in reimbursement rates, if enacted, could

have a material adverse effect on our business. Further, a

reduction in coverage by Medicare could cause some

commercial third-party payors to implement similar

reductions in their coverage or level of reimbursement of

the Zio service.”), id. at 44 (“If third-party commercial

payors do not provide adequate reimbursement, rescind or

modify their reimbursement policies or delay payments

for our products, including out Zio service, or if we are

unable to successfully negotiation reimbursement

contracts,

our

commercial

success

could

compromised.”).

Thus, like in Epstein, Lead Plaintiff cannot state

claims under Section 10(b) to the extent its claims are

55a

based on allegations that Defendants failed to disclose

“information [that] was part of the regulatory process” or

made “misleading predictions about the final rate

decision.” 83 F.3d at 1141, 1142. Thus, because Challenged

Statements 1, 3-8, 10-11 and 13-18 focus on Defendants’

predictions as to the outcome of the regulatory process,

they are not actionable under Epstein.

Lead Plaintiff, however, also advances specific

allegations

false

statements

material

misrepresentations in Challenged Statements 2, 9 and 12

that are not categorically swept away from the application

of Epstein. Additionally, the statements that are

unactionable under Epstein are also unactionable for

independent reasons. Further analysis is required.

2. PSLRA’s Safe Harbor for Forward-Looking

Statements

Defendants argue that they are immunized from

liability for Statement Nos. 1, 3-11, and 13-18 under the

PSLRA’s safe harbor provision.

The PSLRA’s safe harbor provision exempts a

forward-looking statement, which is “any statement

regarding (1) financial projections, (2) plans and objectives

of management for future operations, (3) future economic

performance, or (4) the assumptions underlying or related

to any of these issues.” Police Ret. Sys. of St. Louis v.

Intuitive Surgical, Inc., 759 F.3d 1051, 1058 (9th Cir. 2014)

(citing No. 84 Emp’r–Teamster Joint Council Pension

Trust Fund v. Am. W. Holding Corp., 320 F.3d 920, 936

(9th Cir. 2003)).

The PSLRA immunizes forward-looking statements in

two ways: (1) “if they were identified as forward-looking

statements and accompanied by meaningful cautionary

language”; or (2) if plaintiffs “fail to prove [they] were

made with actual knowledge that they were materially

56a

false or misleading[.]” Park v. GoPro, Inc., 2019 WL

1231175, at *15

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