Supreme Court Vacates 7th Circuit Judgment in Tellabs v. Makor, Orders Remand

Holding:

When confronted with the question of whether the complaint in a securities fraud case sufficiently complies with the requirement of “scienter” as prescribed by the Private Securities Litigation Reform Act (PSLRA), the court must look into competing inferences; and when the court has to determine whether the plaintiff has alleged facts that give rise to the requisite “strong inference” of scienter, the court must consider plausible explanations for nonculpable explanations for defendant’s conduct, as well as inferences that favor plaintiff.

Detailed Summary:

This securities fraud class action was filed against the corporation (petitioner Tellabs, which is the defendant in the class suit before the district court) and its chief executive officer (CEO). It was alleged that, among other things, defendants made false assurances to the public investors, in a series of statements, that Tellabs was continuing to enjoy strong demand for its products and earning record revenues, when, in fact, the defendants knew the opposite was true. The district court dismissed the action.  On appeal, the Court of Appeals for the Seventh District reversed, saying that plaintiffs were able to plead the misleading…

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