The opinion of the court was delivered by: HANNUM
JOHN B. HANNUM, SENIOR UNITED STATES DISTRICT JUDGE
The defendants have made no special showing of prejudice or undue delay, thus the controlling issue under Fed. R. Civ. P. 15 is whether the proposed amendment would be futile. While Rule 15 embodies a liberal amendment philosophy, case law confirms that leave to amend can properly be denied where the proposed amendment cannot survive a motion to dismiss. See Massarsky v. General Motors Corp., 706 F.2d 111 (3d Cir. 1983) (proposed post-judgment addition of state law claim futile where jury response to interrogatories precluded recovery); Jablonski v. Pan American World Airways, Inc., 863 F.2d 289 (3d Cir. 1988) (request to add time-barred claim denied); Michener v. Lower Providence Township, Nos. 87-5709, 87-6419, and 88-1242, slip op. (E.D.Pa. 1989) (1989 W.L. 51486) (failure to allege a pattern in RICO case warranted denial of leave to amend complaint); Snyder v. Baumecker, 708 F. Supp. 1451 (D.N.J. 1989) (leave to amend denied where no standing for injunctive relief sought). In this determination, the proposed amendment is viewed in a light most favorable to the pleader and "'it should not be rejected unless it appears to a certainty that the pleader would not be entitled to any relief under it.'" Michener, W.L. at 3 (quoting Cooper v. American Employers' Insurance Co., 296 F.2d 303, 307 (6th Cir. 1961)). As defendants note, the Stinsons' request should be denied on either of two grounds: 1) if a fraud-created-the-market presumption is not viable in this Circuit or 2) if at this preliminary stage it is clear that the proposed Amended Complaint cannot show reliance under such a theory.
THE AVAILABILITY OF A FRAUD-CREATED-THE-MARKET-PRESUMPTION
The Third Circuit embraced the fraud-on-the-market theory in Peil v. Speiser, 806 F.2d 1154 (3d Cir. 1986).
In Basic, Inc. v. Levinson, 485 U.S. 224, 108 S. Ct. 978, 99 L. Ed. 2d 194 (1988) the Supreme Court quoted Peil in its approval of application of a rebuttable presumption of reliance where the securities were traded on an open and developed market. Basic, 108 S. Ct. at 990 (quoting Peil, 806 F.2d at 1160-61). Based on Peil and Basic, the threshold requirement for application of this presumption is a showing of an open and developed securities market.
See Stinson v. Van Valley Development, 714 F. Supp. 132, 135 & n.5 (E.D.Pa. 1989) (quoting Cammer v. Bloom, 711 F. Supp. 1264, slip op. at 41, 53 (D.N.J. 1989)). The cases binding this Court reflect this requirement, applying the fraud-on-the-market presumption where common stock has been traded on highly liquid public exchanges. See, e.g., Basic (New York Stock Exchange); Peil (stock "very heavily traded and . . . a leading percentage gainer on the American Stock Exchange"). Cf. Cammer (presumption available only when efficient market shown for specific NASDQ over-the-counter stock).
Although numerous courts have extended the fraud-on-the-market theory to allow a fraud-created-the-market presumption in cases of newly issued securities or securities traded in inefficient markets, see In re Bexar County Health Facility Development Corp. Securities Litigation, 125 F.R.D. 625, slip op. at 14-15 (E.D.Pa. 1989), the viability of the presumption in such cases remains unclear.
Not surprisingly, the defendants urge this court to decline to recognize a fraud-created-the-market presumption of reliance. While courts in the Eastern District have diverged on the availability of this presumption, compare Bexar (class certified where potential availability of fraud-created-the-market presumption satisfied typicality requirement) with Desfor v. National Housing Ministries, No. 84-1562, slip op. (E.D.Pa. Oct. 22, 1986) (1986 WL 12031) (Rule 12(b)(6) dismissal where application of fraud-created-the-market presumption declined), the Third Circuit has not yet determined the vitality of this presumption. See Peil v. Speiser, 806 F.2d 1154, 1161 & n.10 (3d Cir. 1986) ("While this presumption is plausible in developed markets, it may not be in the case of a newly issued stock."). Although Bexar and Desfor are helpful, neither provides persuasive reasoning in determining the case at bar.
In Desfor, Judge James T. Giles analyzed the fraud-created-the-market theory in the context of a motion to dismiss. The Desfor court found strong policy reasons for declining to accept the theory:
The essence of this theory is that, but for the alleged omissions and/or misrepresentations, the bonds would never have been issued and, therefore, would have been unmarketable. This theory is not acceptable under the precedent in this circuit. See Sharp, 649 F.2d at 186. It stretches the fraud-on-the-market theory beyond the contemplation of the securities laws. Here, there would be no direct proof of reliance whatsoever since a third party ultimately made the independent decision to utilize C & L's [Coopers & Lybrand] materials. The chain of causation is not capable of proof. Once the chain of causation becomes so attenuated, the securities laws no longer serve to protect the innocent investor without risk of injury to innocent third persons.
In the recent Bexar case, Judge Louis C. Bechtle considered the development of the fraud-created-the-market theory in the context of a motion for class certification. The Bexar court concluded that the presumption was available
and that the typicality requirement of Fed. R. Civ. P. 23 was met where:
count II of plaintiff's complaint alleges that defendants conspired to bring the Trinity [mortgage revenue] bonds onto the market through a series of fraudulent misrepresentations and material omissions in that the bonds could not have been marketed had the true financial status of the Canyon Creek and Rolling Meadows facilities been disclosed.
Bexar, slip op. at 12. While noting that numerous courts had extended the rationale of Peil and Basic to establish a fraud-created-the-market presumption, the Bexar court also noted adverse case authority, including Abell and Desfor. Id. at 14-15. The Bexar court then explained at least one reason for declining to follow the narrow approach of Abell :
Defendants note that in Abell, supra, 858 F.2d 1104, the Fifth Circuit took a narrow view of its prior decision in Shores v. Sklar and limited the fraud created the market presumption to instances where "the promoters knew the enterprise itself was patently worthless." Id. at 1122. The court in Abell, however, was addressing this issue with the benefit of a complete factual record [partial judgement notwithstanding the verdict after jury trial]. To do so here would certainly violate the admonition that courts should not ...