Brief Fact Summary.
Respondent sued Petitioners for securities fraud. Petitioner moved to dismissthe case for failure to plead with particularity.
Synopsis of Rule of Law.
Under § 21D(b)(2), an inference of scienter must be “cogent and at least as compelling as any opposing inference of nonfraudulent intent.”
The inference that the defendant acted with scienter need not be irrefutable, i. e., of the smoking-gun genre, or even the most plausible of competing inferences.View Full Point of Law
Shareholders (Respondents) of Tellabs sued the company (Petitioner) and its president, Notebaert (Petitioner), for securities fraud. Respondents alleged that Notebaert had purposefully deceived the public regarding the value of the corporation. Petitioners filed a motion to dismiss for failure to meet the requirements of § 21D(b)(2).
Is it enough for a plaintiff to allege facts that would make a reasonable person could find the defendant acted intentionally?
No, the plaintiff must allege facts that would also be “cogent and at least as compelling as any opposing inference.” The case is remanded.
Justice Stevens argued that the rule adopted by the Court was too high of a standard, and that the Court should have adopted a probable-cause standard instead.
Justice Scalia agreed with the Court’s judgment, but argued that the rule should require the inference of fraudulent intent to be more plausible than an inference of nonfraudulent intent, rather than merely as compelling.
Justice Alito agreed with the Court’s judgment, but argued that only those facts argued with particularity should be considered when determining scienter. He also agreed with Justice Scalia that the inference had to be more than just compelling.
The Court relied on Congressional intent to determine that § 21D(b)(2) required a higher pleading standard than was the Seventh Circuit suggested. Under the proper standard, a court must compare all plausible inferences of both fraudulent and nonfraudulent intent.