Jackson v. Abernathy, 960 F.3d 94

Plaintiff Ronald Jackson alleged Kimberly-Clark and Avanos marketed the MicroCool surgical gown as AAMI Level 4 despite known quality-control and compliance failures.
The MicroCool gown is a protective surgical garment whose AAMI Level 4 rating is material to purchasers and investors.
District court dismissed the original securities complaint for failure to plead scienter and entered judgment for defendants.
Jackson moved to set aside the judgment and to file a second amended complaint, relying on testimony from a related California consumer-action trial where three employees said testing failures were known and a jury found consumer fraud.
The district court denied leave to amend as futile, finding the new allegations did not raise a strong inference of corporate scienter.
The Second Circuit affirmed: employee knowledge could not be imputed to the corporations without particularized allegations linking those employees to the challenged statements, and labeling the gown a “key product” alone was insufficient to infer collective corporate intent.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether proposed amended complaint pleads a strong inference of collective corporate scienter by imputing knowledge of three employees to the corporations	Jackson: employees’ testimony and the California jury verdict show the companies knew of failures and acted with intent	Defs: employees’ conduct (raising alarms) negates scienter; no particularized link to the speakers or senior officers	No — employee knowledge not imputed absent allegations tying them to the misstatements
Whether the MicroCool gown’s alleged status as a “key product” permits an inference that senior management knew statements were false	Jackson: product importance means senior officers must have known	Defs: mere importance is insufficient without more specific facts	No — naked assertion of ‘‘key product’’ status is inadequate to plead scienter
Whether the California consumer-action verdict precludes defendants from contesting scienter in securities suit	Jackson: verdict shows companies intentionally misled consumers, implying scienter here	Defs: issues and relevant actors differ between consumer and securities suits	No — plaintiff failed to show the two proceedings are identical for preclusion purposes

Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007) (pleading standard: inference of scienter must be cogent and at least as compelling as opposing inferences)
Teamsters Local 445 Freight Div. Pension Fund v. Dynex Capital Inc., 531 F.3d 190 (2d Cir. 2008) (corporate scienter may be imputed from individuals closely tied to the misstatement; rare ‘‘dramatic’’ statements exception)
Slayton v. American Express Co., 604 F.3d 758 (2d Cir. 2010) (efforts to investigate problems undermine inference of fraudulent intent)
Loreley Fin. (Jersey) No. 3 Ltd. v. Wells Fargo Sec., LLC, 797 F.3d 160 (2d Cir. 2015) (examination of roles of corporate actors to assess imputed scienter)
Novak v. Kasaks, 216 F.3d 300 (2d Cir. 2000) (allegations of access to contrary facts must identify reports or statements containing that information)
Williams v. Citigroup Inc., 659 F.3d 208 (2d Cir. 2011) (standard of review for denial of leave to amend generally abuse of discretion)
Ind. Pub. Ret. Sys. v. SAIC, Inc., 818 F.3d 85 (2d Cir. 2016) (when denial rests solely on futility, review is de novo)
In re Omnicare, Inc. Sec. Litig., 769 F.3d 455 (6th Cir. 2014) (analysis of corporate scienter by examining which individuals’ states of mind can be imputed)