On July 24, 2015, in Loreley Financing (Jersey) No. 3 v. Wells Fargo Securities, the US Court of Appeals for the Second Circuit held, among other things, that the district court abused its discretion by denying the plaintiffs' request to replead (No. 13-1476, (July 24, 2015)).

The plaintiffs are special-purpose investment entities who invested millions of dollars in the notes of collateralized debt obligations (CDOs). They filed suit for fraud in New York state court against the entities responsible for structuring and managing the CDOs. The case was then removed to the US District Court for the Southern District of New York under the Edge Act, which gives federal courts original jurisdiction over any civil suit involving a corporate party organized under US laws and arising out of transactions involving international or foreign banking or financial operations.

The SDNY held a pre-motion conference to preview arguments in anticipation of the defendants' motion to dismiss under FRCP 12(b)(6). At the conference, the district court asked the plaintiffs whether they wished to amend the complaint in light of this preview, stating that it was not the court's practice to "give them another opportunity later." The plaintiffs declined the court’s invitation to amend. The defendants then moved to dismiss the complaint for failure to state a claim under FRCP 12(b)(6). In their response, the plaintiffs opposed the motion and requested leave to amend the complaint in the alternative. In its opinion, the SDNY dismissed the complaint under FRCP 12(b)(6) with prejudice and denied the plaintiffs' request to replead. The plaintiffs appealed.

The Second Circuit reversed the dismissal of some claims, vacated the judgment as to the remaining claims and remanded the case to the district court, finding that the district court abused its discretion in denying the plaintiffs leave to amend their complaint. The court noted that FRCP 15 has a liberal standard to allow parties to amend, and the district court erred at the pre-motion conference when it presented the plaintiffs with the choice to either cure deficiencies not yet fully briefed and decided or forfeit the opportunity to replead. Without a definitive ruling on the motion to dismiss, the SDNY treated the plaintiffs' decision to stand by its complaint as a forfeiture of the protections under FRCP 15. The Second Circuit found the district court's decision to be premature and in violation of the spirit of FRCP 15.

The court also rejected the defendants' argument that denial of leave to amend was proper because the request was "informal" and raised in the alternative at the end of the plaintiffs' opposition brief. Form alone is not a basis to deny the request. By contrast, denial of leave to amend may be proper where the request is inconspicuous or not brought to the court's attention. The Second Circuit therefore vacated the judgment and instructed the district court to grant plaintiffs leave to amend their complaint.