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Tellabs: Securities Lawyers React

Publication Date: 
June 21, 2007
The Wall Street Journal Law Blog
Peter Lattman

Professor Joseph Grundfest is one of six experts The Wall Street Journal Law Blog "canvassed" about the Tellabs decision by the Supreme Court:

Joe Grundfest, Securities Law Professor, Stanford Law School: While the decision is clearly a victory for defendants, it is not as thorough a thrashing of the plaintiffs as some plaintiff lawyers had feared. In ruling that the “inference of scienter must be more than merely plausible or reasonable - it must be cogent and at least as compelling as any opposing inference of nonfraudulent intent” the opinion unfortunately leaves room for lower courts to reason “gee, the story in support of scienter seems as cogent as the story in opposition to scienter, and that’s good enough.” The danger then is that the language devolves into the equivalent of baseball’s rule of “a tie goes to the runner.” This approach would ignore the Court’s admonition that “the inference of scienter must be more than merely “reasonable” or “permissible” - it must be cogent and compelling, thus strong in light of other explanations. It is therefore unfortunately predictable that we will have a new series of lower court splits over the proper interpretation of Tellabs’ pleading standard. Concluded Professor Grundfest: “So, the battle continues ..."