Blawgletter predicts that yesterday’s decision in Tellabs, Inc. v. Makor Issues & Rights Ltd., No. 06-484 (U.S. June 21, 2007), will enhance the importance, and improve the quality, of story-telling in securities fraud pleadings. 

Tellabs turns on what Congress meant 12 years ago by "strong inference" of scienter in the Private Securities Litigation Reform Act.  The Court holds that the complaint as a whole must give "cogent" reasons for believing that the defendants meant to practice a fraud.  The nub of the decision:  From now on, lower courts have to infer whatever the complaint plausibly implies — including innocent intentions.

The job looks to Blawgletter like what we do when reading a newspaper.  Stories saying that so-and-so "is confident about" or "believes" such-and-such irritates us because they state a conclusion about someone’s state of mind.  Blawgletter wants to know the facts — what did the person do and say, for example?  What did she have to gain or lose?  Had she lied before?  We’ll draw our own inferences, thank you very much.

But we must also confess that a good story eases our irritation.  A good story in fact leads the reader to the conclusion himself, making it more palatable.

Tellabs also recalls to Blawgletter something we learned in the first year of law school.  Arthur Miller gave us the background on adoption in the 1930s of the Federal Rules of Civil Procedure, particularly the new method they created for "notice pleading".  Professor Miller mentioned that many and complex requirements, sub-requirements, and exceptions had sprung up in pleading practice, setting many traps and elevating the form over the substance.  Tellabs strikes us as a tug back to that earlier time.  Also Twombly, which set new rules for pleading antitrust conspiracies.

Barry Barnett

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