Supreme Court Grants Cert. in PSLRA Scienter Case
On Friday, the U.S. Supreme Court granted cert. in the case of Tellabs Inc. v. Makor Issues & Rights (06-484). The question presented in the case is framed as follows:
Whether, and to what extent, a court must consider or weigh competing inferences in determining whether a complaint asserting a claim of securities fraud has alleged facts sufficient to establish a “strong inference” that the defendant acted with scienter, as required under the Private Securities Litigation Reform Act of 1995.
Tellabs’ petition to the Court (available here on the SCOTUSBlog) argued that the Seventh Circuit held that "in ascertaining whether a ’strong inference’ of scienter has been adequately pleaded, it will not consider competing inferences of an innocent mental state that may also be drawn from the alleged facts." Tellabs cited a four-way split amongst the federal circuits as to how to interpret the “strong inference” standard set forth in the PSLRA, with some circuits requiring a direct comparison of the plausibility of competing inferences followed by dismissal unless a culpable inference is the most plausible; other circuits refusing to consider competing inferences of an innocent mental state altogether and holding 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 the required intent;” and still other circuits falling on the spectrum somewhere in between these extremes.
The Court has ordered expedited briefing of the case, which SCOTUSBlog reports should permit the cases to be heard in the March session, which begins March 19.
