Overview
|
 Supreme
Court decision will make it more difficult for plaintiffs to bring class-action
securities lawsuits
- 8-1 decision, with Justice Stevens dissenting
- Separate concurrences were filed by Justices
Scalia and Alito
- Opinion resolves split among the Circuits on
whether a court must consider competing inferences in determining whether a
securities fraud complaint gives rise to a strong inference that
defendants acted with an intent to deceive scienter
- Strong inference standard was added by
the Private Securities Litigation Reform Act of 1995 PSLRA
- "unequivocally raise[d] the bar for
pleading scienter"
- Court must set forth a "workable
construction of the strong inference standard ... geared to the PSLRA's twin
goals: to curb frivolous, lawyer-driven litigation, while preserving investors'
ability to recover on meritorious claims."
- See Circuit Split
below
Opinion
outlines how to address a Rule 12(b)(6) motion to dismiss a 10(b) action
- First, as with any motion to dismiss, the court
must accept all factual allegations in the complaint as true
- Second, the court must consider whether all of
the alleged facts, taken collectively, give rise to a strong inference of
scienter
- Third, in determining whether the pleaded facts
give rise to a strong inference of scienter, the court must take into account
plausible opposing inferences
- The inference of scienter must "be more
than merely 'reasonable' or 'permissible' it must be cogent and compelling,
thus strong in light of other explanations."
- Plaintiff has to demonstrate that the inference
of scienter was at least as compelling as any opposing inference
Concurring
opinions
- Scalia and Alito each wrote concurring opinions
- Say that natural reading of statute is that
"strong inference" should be whether the inference of scienter is more plausible
than the inference of innocence
- Would have raised the bar even higher than the
majority opinion by requiring that the inference of scienter be more plausible
than the contrary inference
Dissenting
opinion
- Stevens argued that the standard should be
analogous to the probable-cause standard used in criminal law so that little or
no weight need be put on contrary inferences
Post-Tellabs
developments 
|
Supreme Court Opinion Hyperlinked
|
Opinion
Hyperlinked opinion
Top
++ Syllabus
++
Main
opinion ++
- Ginsburg (Opinion), joined by Roberts, Kennedy, Souter, Thomas,
and Breyer
Summary
of facts
I
Summary
of law II
- Exchange Act §10(b)
- FRCP §9(b) - Old pleading standard
- Heightened PSLRA standard
Rule
12(b)(6) motion to dismiss a 10(b) action
III.A
- A complaint will survive, we hold, only if
a reasonable person would deem the inference of scienter cogent and at least as
compelling as any opposing inference one could draw from the facts alleged.
Application
to Tellabs
III.B
Constitutional
Seventh Amendment issue IV
Conclusion
++ Other
opinions
- Scalia concurrence ++
- Alito concurrence ++
- Stevens dissent ++
|
Briefs
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Litigants
Amicus
briefs
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Appealed Tellabs Decisions 7th Circuit and Northern District Illinois
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Seventh
Circuit Opinion
- 437 F3d 588
7th Cir 2006
- Held that a securities fraud complaint should
survive "if it alleges facts from which, if true, a reasonable person
could infer that the defendant" acted with scienter
- When making this determination, the court may not
evaluate inferences more consistent with innocence than with fraud
- A more lenient standard for plaintiffs than the
standards applied in other Circuits, which require consideration of all
plausible inferences
- Seventh Circuit reasoned that a district court
could not consider competing inferences without potentially invading the
constitutional role of the jury
- Reversed District Court's decision
District
Court Opinion
- Investors in Tellabs alleged that from 2000 to
2001 Tellabs made misleading statements about the demand for its
networking products
- Relying on the PSLRA, District Court dismissed
the complaint as failing adequately to allege scienter.
- Court also dismissed a second, amended complaint
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Exchange Act §21D(b)(2)
SEC_CODE_REF_0090001192884
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Pertinent
part of statute:
- Required state of mind
In any private action arising under this title in which the plaintiff may
recover money damages only on proof that the defendant acted with a particular
state of mind, the complaint shall, with respect to each act or omission alleged
to violate this title, state with particularity facts giving rise to a
strong inference that the defendant acted with the required state
of mind. (Emphasis added)
- Exchange Act 21D
Complete section
§21D
was added to Exchange Act by the PSLRA
- Private Securities Litigation
Reform Act of 1995,
Pub L No 104-67, 109 Stat 737, 747
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Circuit Split
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Other
circuit court opinions on strong inference
These
cases were cited in Supreme Court's opinion
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Commentary
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After
Supreme Court opinion issued
Before
Supreme Court opinion issued
Other
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Related Topics
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