The Sixth Circuit today reversed dismissal of a class action securities fraud complaint because the district court applied a tougher, pre-Tellabs standard for judgment whether plaintiffs adequately alleged the scienter (fraudulent intent) element. Frank v. Dana Corp., No. 07-4235 (6th Cir. Nov. 19, 2008).
The district court erred by failing to see, the court held, that Tellabs, Inc. v. Makor Issues & Rights, Ltd., 127 S. Ct. 2499 (2007), had the effect of overruling Helwig v. Vencor, Inc., 251 F.3d 540 (6th Cir. 2001) (en banc). Tellabs set the standard for a "strong inference" of scienter under the Private Securities Litigation Reform Act as requiring that "a reasonable person would deem the inference of scienter cogent and at least as compelling as any opposing inference one could draw from the facts alleged." Tellabs, 127 S. Ct. at 2510 (emphasis added). Helwig, by contrast, said "the 'strong inference' requirement means that plaintiffs are entitled only to the most plausible of competing inferences." Helwig, 251 F.3d at 553 (emphasis added).
The appeals court remanded the case to allow the district court to assess the complaint under the "at least as compelling" test.
