Oklahoma Firefighters Pension & Retirement System v. Finisar Corp.
646 F. App'x 506
9th Cir.2016Background
- Oklahoma Firefighters brought a putative securities class action against Finisar and three officers under §10(b)/Rule 10b-5 and §20(a), alleging defendants misled investors about customer inventory buildups from Sept 8, 2010 to Mar 8, 2011.
- Plaintiff alleged defendants denied knowledge of customer stockpiling and downplayed an inventory bubble, while annual contract negotiations with customers would have revealed inventory increases.
- The district court dismissed the First Amended Complaint under Fed. R. Civ. P. 12(b)(6) for failure to adequately plead falsity, applying the heightened standards of Rule 9(b) and the PSLRA.
- The Ninth Circuit reviewed the dismissal de novo and focused on whether falsity was pleaded with the required particularity and whether specific statements were actionable.
- The panel concluded plaintiff adequately pleaded falsity for a particular CEO statement denying knowledge of an inventory build-up, but found some other statements nonactionable (pre-negotiation statement and puffery about demand).
- The Ninth Circuit reversed and remanded, directing the district court to address the remaining elements (including scienter) in the first instance and to permit leave to amend as to scienter in light of Ninth Circuit precedent on deliberate recklessness.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether plaintiff pleaded falsity with particularity under Rule 9(b) and the PSLRA | Identified specific misleading statements and alleged they were false because annual contract negotiations would have disclosed customer inventory stockpiling | Statements were not false: some predated defendants' ability to know inventory increases; other statements were nonactionable puffery | Reversed: plaintiff adequately pleaded falsity as to a CEO denial of knowing about inventory build-up; some statements (pre-negotiation and puffery) were not actionable |
| Whether particular statements are nonactionable puffery or time-barred/unaware statements | Denials of knowledge and downplaying bubble were specific and actionable | January/February statements were generic puffery; Sept statement preceded possible knowledge so not actionable | Court agreed some statements were puffery or made before defendants could know; but one identified CEO statement survived pleading challenge |
| Whether plaintiff pleaded scienter sufficiently and whether leave to amend should be allowed | Allegations collectively give rise to inference of deliberate recklessness or intent based on contract negotiation disclosures | Defendants contended scienter not adequately alleged | Court remanded for district court to assess scienter; instructed to allow leave to amend on scienter given Ninth Circuit guidance on deliberate recklessness (per Reese) |
Key Cases Cited
- Police Ret. Sys. of St. Louis v. Intuitive Surgical, Inc., 759 F.3d 1051 (9th Cir. 2014) (standard of review for dismissal and pleading requirements)
- Reese v. Malone, 747 F.3d 557 (9th Cir. 2014) (discussing deliberate recklessness and scienter pleading)
- Stoneridge Inv. Partners, LLC v. Sci.-Atlanta, Inc., 552 U.S. 148 (U.S. 2008) (listing elements of a private securities fraud claim)
- Oregon Public Employees Retirement Fund v. Apollo Group Inc., 774 F.3d 598 (9th Cir. 2014) (puffery doctrine in securities claims)
- Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981 (9th Cir. 2009) (framework for pleading scienter collectively)
- Nursing Home Pension Fund, Local 144 v. Oracle Corp., 627 F.3d 376 (9th Cir. 2010) (discussion of deliberate recklessness definition)