Panther Partners Inc. v. Ikanos Communications, Inc.
2012 U.S. App. LEXIS 10726
| 2d Cir. | 2012Background
- Panther sues Ikanos under §§ 11, 12(a)(2), 15 for failing to disclose known defects in VDSL Version Four chips during the March 2006 secondary offering.
- Ikanos learned in January 2006 of defects (Kirkendahl voiding) traced to a third-party assembler; complaints intensified before the offering.
- Sumitomo Electric and NEC, accounting for 72% of 2005 revenues, were major customers affected by the defects.
- Registration Statement contained generic cautionary language about defects; 5.75 million shares were sold, raising over $120 million.
- Recall and write-off followed in June 2006; subsequent quarterly results and leadership turnover worsened the stock price.
- District court dismissed the initial complaint; Panther sought leave to replead with broader allegations; remands occurred after appellate guidance.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does 2PSAC plausibly plead a known trend or uncertainty under Item 303? | Panther asserts defects and customer concentration reveal a known trend likely to hurt revenues. | Ikanos contends the defect rate alone is insufficient to show a known trend before the offering. | Yes; 2PSAC plausibly alleges a known trend/uncertainty harming revenues. |
| Should the court consider the known-uncertainty disclosure duty beyond defect-rate figures? | Allegations show how uncertainty could affect future revenues; broad Item 303 focus is proper. | Disclosures were adequate when viewed only through defect-rate metrics. | Item 303 requires broader context; 2PSAC satisfies duty. |
| Was the district court correct to apply futility standards in denying leave to amend? | Additional facts could render the claim plausible; futility should not bar amendment. | Allegations remained too vague to state a claim. | Abuse of discretion; reversed to permit filing of 2PSAC. |
Key Cases Cited
- Litwin v. Blackstone Grp., L.P., 634 F.3d 706 (2d Cir. 2011) (Item 303 and disclosure duties; not just defect-rate)
- Morgan Stanley Info. Fund Sec. Litig., 592 F.3d 347 (2d Cir. 2010) (non-fraud claims; ordinary notice pleading standard)
- Rombach v. Chang, 355 F.3d 164 (2d Cir. 2004) (defining pleading standards for non-fraud claims)
- Matrixx Initiatives, Inc. v. Siracusano, 131 S. Ct. 1309 (2011) (rejects bright-line materiality rules; significance to investors)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (multiplies plausibility pleading standard)
- Cortec Indus., Inc. v. Sum Holding L.P., 949 F.2d 42 (2d Cir. 1991) (futility standard; amendment denial governs legal conclusions)
- Starr v. Sony BMG Music Entm’t, 592 F.3d 314 (2d Cir. 2010) (abuse-of-discretion standard for leave to amend; de novo for law)
- In re Morgan Stanley Info. Fund Sec. Litig., 592 F.3d 347 (2d Cir. 2010) (non-fraud claims; narrow disclosure duties)