In Re Boston Scientific Corp. Securities Litigation
2012 U.S. App. LEXIS 14326
1st Cir.2012Background
- CRM sales force comprised ~1,100 employees; 2009–2010 disclosures tied to CRM performance and personnel actions.
- Audit commenced Aug 2009 of CRM expense reports; HHS subpoena issued Sep 2009; disclosures delayed.
- Public announcements in Oct 2009 framed CRM growth as positive but mixed; January 2010 statements touted a large, stable CRM force.
- Firing of CRM personnel began Nov–Dec 2009; a senior VP left for a competitor; subsequent disclosures tied to firings and a product advisory.
- Plaintiffs filed April 2010 alleging §10(b) and §20(a) misrepresentation/omission; district court dismissed, leading to appellate review.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether October 20, 2009 statements were misleading due to imminent firings. | Plaintiffs contend omissions made the outlook incomplete. | Boston Scientific argues firings were not imminent or material. | Not actionable; not materially misleading. |
| Whether November 6, 2009 statements about government inquiry were misleading. | Omission of ongoing internal audit rendered statements misleading. | Disclosure of subpoena and audit not incomplete or half-truth. | Not material; not actionable. |
| Whether December 1 and December 10/14, 2009 statements omitted material risks. | Omission of ten firings and context made risk material. | Omissions not material given small proportion and uncertainties. | Not material; no liability for these omissions. |
| Whether January 2010 statements about CRM were made with the requisite scienter. | Defendants knew of defections and hid them; scienter shown. | No direct evidence of knowledge; materiality marginal; reckless disregard not shown. | Insufficient scienter under PSLRA; claims fail. |
Key Cases Cited
- Basic Inc. v. Levinson, 485 U.S. 224 (U.S. 1988) (materiality requires a substantial likelihood that omission would alter total mix of information)
- Matrixx Initiatives, Inc. v. Siracusano, 131 S. Ct. 1309 (S. Ct. 2011) (materiality limited to information that would alter the total mix)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (U.S. 2007) (requires a strong inference of scienter under PSLRA)
- Hill v. Gozani, 638 F.3d 40 (1st Cir. 2011) (omissions require materiality and context, not mere speculation)
- In re Cabletron Sys., Inc., 311 F.3d 11 (1st Cir. 2002) (pleading falsity and materiality with specificity)