Levi v. Atossa Genetics, Inc., No. 14-35933 (9th Cir. 2017)
Annotate this CasePlaintiffs appealed the district court's dismissal of their amended securities fraud class action complaint, alleging that Atossa and its Chairman and CEO, Steven Quay, made a series of public statements about Atossa's breast cancer screening products that were materially false or misleading. The district court dismissed the complaint. The Ninth Circuit held that plaintiffs have properly alleged falsity and materiality as to some, but not all, of these statements. In this case, plaintiffs have sufficiently alleged that the following were materially false or misleading: (1) Quay's statement quoted in Atossa's December 20, 2012 Form 8–K filing describing the ForeCYTE Test as "FDA-cleared"; (2) Quay's statement during his interview with NewsMedical.Net that the ForeCYTE test had "gone through all of the FDA clearance process"; (3) Atossa's Form 8–K filing on February 25, 2013, giving notice of the FDA's warning letter; and (4) Quay's statement during his interview with the Wall Street Transcript that "FDA clearance risk has been achieved." Accordingly, the court affirmed in part, reversed in part, vacated in part, and remanded.
Court Description: Securities Fraud The panel affirmed in part, reversed in part, and vacated in part the district court’s dismissal of an amended securities fraud class action complaint alleging that a company and its chairman and chief executive officer made a series of public statements about the company’s breast cancer screening products that were materially false or misleading. The panel held that the plaintiffs properly alleged falsity and materiality as to some, but not all, of defendants’ IN RE ATOSSA GENETICS INC. SECURITIES LITIGATION 3 statements, as required to state a claim under §§ 10(b) and 20(a) of the Securities Exchange Act and SEC Rule 10b-5. The panel held that the plaintiffs sufficiently pled that alleged statements describing a product as cleared by the FDA were false. Plaintiffs’ allegations satisfied the Private Securities Litigation Reform Act by providing the reasons why the statements were misleading. Plaintiffs also properly pled materiality because there was a substantial likelihood that the disclosure of the omitted fact would have been viewed by a reasonable investor as having significantly altered the total mix of information made available. The panel concluded that alleged statements describing another product as FDA-cleared were neither false nor misleading in context. The panel held that the company’s Form 8-K filing with the SEC, giving notice of an FDA warning letter, was misleading, and neither the “bespeaks caution” doctrine nor the PSLRA’s safe harbor, exempting defendants from liability for forward-looking statements accompanied by certain cautionary language, applied. The panel also concluded that the information omitted from the alleged filing was material. The panel held that the plaintiffs did not sufficiently plead that an alleged statement in a quarterly report, that the company was “reasonably confident” in its responses to the FDA, was false or misleading. Finally, the panel held that an opinion statement regarding FDA clearance risk was misleading by omission, and the omissions were material.
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