Fresno County Employees' Retirement Ass'n v. Alphatec Holdings, Inc., 607 F. App'x 694

Fresno County Employees’ Retirement Association sued Alphatec and related individuals alleging securities-law violations tied to Alphatec’s acquisition of Scient’x and problems with Scient’x’s inventory.
The operative pleading is a second amended complaint challenging three statements: (1) Alphatec had “already begun to realize synergies from the Scient’x acquisition,” (2) the prospectus prediction that “revenues throughout the balance of 2010 will continue to grow,” and (3) the CEO’s statement that “Scient’x’s U.S. operations have been consolidated into Alphatec Spine.”
Plaintiff alleged that in March–April 2010 Alphatec discovered quality and documentation problems with an unspecified portion of Scient’x’s domestic inventory.
Fresno argued the statements were false or misleading and that Item 303 required disclosure of a known trend or uncertainty that would materially harm revenues.
District court dismissed for failure to plead a false or misleading statement, failure to allege a material undisclosed Item 303 trend, and failure to plead scienter; Ninth Circuit affirmed.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the three contested statements were false or misleading	Statements misled by failing to disclose inventory defects affecting value and revenue	Statements either addressed distinct topics (synergies/consolidation/revenue guidance) and were not tied to inventory quality, so not misleading	Not false or misleading; dismissal affirmed
Whether Item 303 required disclosure of the inventory problems as a known trend or uncertainty	Inventory defects were a known trend likely to materially reduce revenues and had to be disclosed	Complaint lacks specificity on magnitude or impact on revenues, so Item 303 not triggered	Item 303 not triggered because complaint fails to allege scope or impact on revenues
Whether allegations plead scienter for Section 10(b)/Rule 10b-5 liability	Defendants knew of inventory problems and intended to deceive investors	Inventory problems were not sufficiently definite/severe at statement times to infer intent to defraud	No strong inference of scienter; Section 10(b)/10b-5 claim fails
Whether control-person liability under Sections 20(a) and 15 can stand absent primary violation	Control claims rest on primary securities violations alleged	Primary violations not adequately pleaded, so control claims fail	Control claims dismissed for failure to plead primary liability

In re NVIDIA Corp. Sec. Litig., 768 F.3d 1046 (9th Cir. 2014) (standard for pleading scienter under PSLRA)
In re Rigel Pharm., Inc. Sec. Litig., 697 F.3d 869 (9th Cir. 2012) (statements about business topics not misleading when they concern different discrete matters)
Berson v. Applied Signal Tech., Inc., 527 F.3d 982 (9th Cir. 2008) (no general duty to disclose; statements on a topic must not be misleading)
Ronconi v. Larkin, 253 F.3d 423 (9th Cir. 2001) (requirements for linking alleged misstatements to projections and market expectations)
Brody v. Transitional Hosps. Corp., 280 F.3d 997 (9th Cir. 2002) (distinguishing consolidation statements from operational quality claims)
In re Daou Sys., Inc., 411 F.3d 1006 (9th Cir. 2005) (materiality and pleading standards in securities fraud)
Ernst & Ernst v. Hochfelder, 425 U.S. 185 (U.S. 1976) (scienter requirement for Rule 10b-5 liability)
Paracor Fin. v. Gen. Elec. Capital Corp., 96 F.3d 1151 (9th Cir. 1996) (control-person liability depends on underlying primary violation)