Publications

(Article from Securities Law Alert, September 2017) 

For more information, please visit the Securities Law Alert Resource Center

On August 18, 2017, the Ninth Circuit reversed dismissal of securities fraud claims where defendants allegedly represented that “FDA clearance risk has been achieved” without disclosing that the company had not obtained clearance for one of the key products discussed. In re Atossa Genetics Sec. Litig., 2017 WL 3568088 (9th Cir. 2017) (Gould, J.). The Ninth Circuit found the statement at issue to constitute an opinion, rather than a statement of fact, but found plaintiffs adequately alleged the opinion did not “fairly align[ ] with the information in [the company’s] possession at the time” under the standard set forth in Omnicare v. Laborers District Council Construction Industry Pension Fund, 135 S. Ct. 1318 (2015).[1]

Opining That FDA Clearance Risk Has Been Achieved Is Materially Misleading If the Speaker Fails to Disclose Relevant Conflicting Facts  

At the outset of its analysis, the court explained that “[t]here is a difference between saying that the [a product] was FDA-cleared, a statement of fact, and that FDA clearance risk has been achieved, which sounds more like a statement of opinion.” The court observed that “[t]he former is an easily verifiable past event—either the FDA has granted clearance or it has not” while “[t]he latter is less black and white.” The court noted that a statement that a risk has been “achieved” “could [either] convey that the risk has been reduced to zero” or indicate “that the risk has been reduced to an acceptable level, which could mean that some degree of risk remains.” The Ninth Circuit determined that “it is the speaker’s personal definition of ‘achieved’ that . . . produces the opinion.”

The Ninth Circuit then measured the opinion against the standard set forth in Omnicare. There, the Supreme Court held that when a plaintiff claims an opinion is misleading due to an omission, the plaintiff “must identify particular (and material) facts going to the basis for the issuer’s opinion . . . whose omission makes the opinion statement at issue misleading to a reasonable person reading the statement fairly and in context.” Omnicare, 135 S. Ct. 1318.[2]

The Ninth Circuit found the “lack of [FDA] clearance” for one of the company’s products “and the FDA’s concerns about that lack of clearance[ ] relate[d] directly to the basis for [the] opinion that FDA clearance risk had been achieved.” The court observed that “the omitted facts [were] strikingly similar to [the] hypothetical the Supreme Court offered in Omnicare” of “an issuer [who] publicly stated, ‘we believe our conduct is lawful,’ but did not disclose the issuer’s knowledge that the Federal Government took the opposite view.”

Expressing “Reasonable Confidence” in FDA Responses Is Inactionable Corporate Optimism Even If There Were Facts Weighing Against Such Optimism 

Plaintiffs also challenged as misleading the company’s representation that it was “reasonably confident in its responses” to an FDA warning letter because at the time it made that statement, the company “had already submitted and withdrawn” an FDA submission for the product at issue.

The Ninth Circuit found that “any reasonable investor would have understood [the company’s] alleged statement as mere corporate optimism” because it was “unspecific, subjective, and only guardedly optimistic.” The court also rejected plaintiffs’ contention that “by commenting on the prospects for its responses to the FDA, without also disclosing the newly filed and withdrawn” submission, the company “materially misled reasonable investors.” The Ninth Circuit explained that a company is “not obligated to disclose each and every step it took when interacting with regulators.”