Tellabs: Not a Victory for Defendants

The Tellabs opinion is out and the court reversed the Seventh Circuit in a 8-1 decision.  The majority opinion held that the Seventh Circuit had used the wrong standard to assess the pleadings under a motion to dismiss stage.  The majority opted for a "at least as likely" standard for assessing pleadings of scienter (an inference of scienter must be at least as likely as competing plausible inferences); the plaintiffs get the benefit of all reasonable factual inferences and the standard applies to the complaint as a whole, not each factual pleading or each fact pled with "particularity."  Two concurring judges favored a "more likely than not" standard (an inference of scienter must be more likely than any competing plausible inference of no scienter) and a dissenting judge favored a "probable cause" standard (competing inferences could b, but do not necessarily have to be considered).  The majority standard is not what the defense bar wanted; they wanted the standard of the concurring judges, which the court rejected.  This is not a defense bar victory; it is a draw at best.  Reporters will fail to get this correct and rack with up as another victory for corporate American; it is not. The majority held, importantly, that the pleading standard was not higher that the standard of proof required at trial; the defense bar argued that Congress so intended it to be higher.  This is a big difference.  Reporters, do not overstate the true meaning of this case.