Levi v. Atossa Genetics, Inc., 2017 U.S. App. LEXIS 15658

Background

Atossa Genetics acquired the MASCT breast pump (cleared by FDA in 2003 for sample collection) and marketed it with its ForeCYTE lab test, which Atossa never obtained FDA clearance for. The combination was sold as a breast-cancer screening product.
Atossa completed an IPO in Nov. 2012; offering materials noted MASCT’s 510(k) clearance but did not state that ForeCYTE was FDA-cleared and warned FDA oversight of lab-developed tests might increase.
CEO Steven Quay made public statements (Dec. 2012 8-K, Feb. 2013 interview, Mar. 2013 interview) implying ForeCYTE had gone through or was FDA-cleared; in Feb. 2013 the FDA issued a warning letter stating ForeCYTE lacked clearance and that MASCT modifications required a new 510(k).
Atossa filed an SEC Form 8-K on Feb. 25, 2013 describing the FDA letter in vague terms but (as alleged) omitted the FDA’s explicit concerns about ForeCYTE lacking clearance; later, Atossa withdrew a new 510(k) submission and in Oct. 2013 publicly disclosed the products were not FDA-cleared, triggering a >46% share-price drop.
Plaintiffs sued under Sections 10(b)/20(a) and Rule 10b-5 (they do not appeal the district court’s Section 11 ruling here). The district court dismissed for failure to plead falsity/materiality with particularity; the Ninth Circuit reviews de novo and affirms in part, reverses in part, vacates in part, and remands.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether statements that ForeCYTE was "FDA-cleared" were false/material	Quay and Atossa touted ForeCYTE as FDA-cleared; ForeCYTE had no FDA clearance, so statements were false and material	Statements were true or at least not misleading because offering documents warned of future FDA regulation	Court: False and material — plaintiffs adequately pled falsity/materiality for Quay’s December 2012 8‑K statement and Feb. 2013 News‑Medical interview.
Whether statements that the MASCT System was FDA‑cleared were misleading	Atossa portrayed MASCT as part of a screening system (implying clearance for screening) though MASCT was cleared only for collection	MASCT had 510(k) clearance for collection; statements were literally true and not misleading in context	Court: Not misleading — statements about MASCT’s clearance for collection were not actionable.
Whether Atossa’s Feb. 25, 2013 Form 8‑K omitted material FDA concerns (warning letter)	Form 8‑K described FDA concerns vaguely and omitted the FDA’s explicit concern that ForeCYTE lacked clearance, misleading investors	The letter was publicly available, and the Form 8‑K sufficiently described the warning; any cautionary language cured liability	Court: Omission was misleading and material; PSLRA safe harbor/bespeaks-caution did not protect Atossa. Plaintiffs adequately pled this claim.
Whether the Form 10‑Q statement that Atossa was "reasonably confident" in responses to FDA was misleading	Plaintiffs allege the statement omitted that Atossa had withdrawn a 510(k) submission, so the confidence was false/misleading	The phrase is vague corporate optimism (puffery) and not actionable; no duty to disclose every regulatory step	Court: Not actionable — plaintiffs did not plead that the 10‑Q was false or misleading by omission.
Whether Quay’s March 2013 statement that "FDA clearance risk has been achieved" was misleading	The statement omitted that ForeCYTE lacked clearance and FDA had warned Atossa — conflicting with what a reasonable investor would infer	Statement is forward‑looking or opinion and thus not a factual misstatement	Court: Treated as an opinion; omissions about ForeCYTE’s lack of clearance and FDA warning made the opinion misleading and material. Plaintiffs adequately pled falsity/materiality.

Key Cases Cited

Basic Inc. v. Levinson, 485 U.S. 224 (materiality: omitted facts must significantly alter the total mix of information)
TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438 (definition of materiality)
Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27 (PSLRA/Rule 10b‑5 materiality standard)
Omnicare, Inc. v. Laborers Dist. Council Constr. Indus. Pension Fund, 575 U.S. 175 (falsity of opinion statements and omissions standard)
City of Dearborn Heights Act 345 Police & Fire Ret. Sys. v. Align Tech., Inc., 856 F.3d 605 (9th Cir. standard applying Omnicare to opinion statements)
Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981 (PSLRA and Rule 9(b) pleading requirements)
Reese v. Malone, 747 F.3d 557 (elements of Rule 10b‑5 claim and PSLRA pleading for scienter/falsity)
Brody v. Transitional Hosps. Corp., 280 F.3d 997 (literally true statements can be misleading)
In re VeriFone Sec. Litig., 11 F.3d 865 (dismissal for conclusory materiality allegations)
In re Apple Computer Sec. Lit., 886 F.2d 1109 (fraud‑on‑the‑market and relevance of public disclosures)
Miller v. Thane Int’l, Inc., 519 F.3d 879 (direct reliance vs. market reliance; duty to look beyond documents)
In re Cutera Sec. Litig., 610 F.3d 1103 (corporate puffery is nonactionable)
Police Ret. Sys. of St. Louis v. Intuitive Surgical, Inc., 759 F.3d 1051 (vague optimistic statements are not actionable puffery)