November 20, 2008

No Longer Good Law

As discussed in The 10b-5 Daily before, whether the Tellabs decision on pleading scienter (i.e., fraudulent intent) can best be described as a victory for plaintiffs or defendants has to be evaluated on a circuit-by-circuit basis. In the U.S. Court of Appeals for the Sixth Circuit, for example, the pleading standard has been lowered.

In Frank v. Dana Corp., 2008 WL 4923012 (6th Cir. Nov. 19, 2008), the lower court found that it was "required to accept plaintiff's inferences of scienter only if those inference are the most plausible of competing inferences." On appeal, the Sixth Circuit noted that although its earlier decisions applied a "most plausible" standard, that standard was no longer good law. Instead, under Tellabs, the plaintiffs only needed to demonstrate an inference of scienter that was "at least as compelling" as any opposing inference one could draw from the facts alleged.

Holding: Dismissal vacated and case remanded to district court for reconsideration.

Posted by Lyle Roberts at November 20, 2008 10:28 PM | TrackBack
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