Tellabs, Inc. v. Makor Issues & Rights, Ltd.

551 U.S. 308 (2007)


D manufactures specialized equipment for fiber optic networks. Ps purchased D stock between December 11, 2000, and June 19, 2001. They filed a class action, alleging D's chief executive officer and president, Notebaert (D), had engaged in securities fraud in violation of §10(b) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5. They filed an action alleging that Notebaert (D) “falsely reassured public investors, in a series of statements … that D was continuing to enjoy strong demand for its products and earning record revenues,” when, in fact, Notebaert (D) knew the opposite was true. D moved to dismiss the complaint on the ground that P had failed to plead their case with the particularity the Private Securities Litigation Reform Act of 1995 (PSLRA) requires. The PSLRA imposes on private plaintiffs in securities litigation the requirement that a complaint contain particularly stated facts that would give a “strong inference” both that a fraud took place and that the defendant intended to defraud; a legal status referred to as scienter. The court dismissed the complaint without prejudice. Ps amended complaint added references to 27 confidential sources and making further, more specific, allegations. The court again dismissed, this time with prejudice. Ps had insufficiently alleged that the parties acted with scienter. The Seventh Circuit reversed. In evaluating whether the PSLRA’s pleading standard is met, the Circuit said, courts should examine all of the complaint’s allegations to decide whether collectively they establish an inference of scienter; the complaint would survive, the court stated, if a reasonable person could infer from the complaint’s allegations that the defendant acted with the requisite state of mind. The Supreme Court granted certiorari.