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On August 1, 2022, the United States Court of Appeals for the Eleventh Circuit upheld the dismissal of a putative securities class action lawsuit asserting claims under the Securities Act of 1933 against a medical technology company, certain of its officers and directors, and the underwriters of the offers of shares of the company. Einhorn v Axogen, Inc., —F.4th—, 2022 WL 3022297 (11th Cir. 2022). The appeal related solely to the plaintiffs’ allegation that the company had overestimated the frequency of peripheral nerve damage and repair. The Court ruled that these statements were forward-looking statements that were not actionable under the safe harbor provision of the Securities Act.
The core of the plaintiffs’ allegations concerned the company’s statements in SEC filings that it “believes” that “every year” there are a number of people in the United States with peripheral nerve damage and that she “believes” that a number of such injuries result in nerve repair procedures.
Identifier. to *1–2. Based on a research report published by a short seller, the plaintiffs alleged that the company overestimated the frequency of these injuries and repairs. Identifier. at 2 o’clock.
The Court explained that the safe harbor provision of the securities law applied to statements containing projections of future earnings, earnings, or economic performance, as well as any “statement of underlying or related assumptions to” these projections. Identifier. at 3. The Court further noted that “the main characteristic of a forward-looking statement is that its truth or falsity is not discernible until after it is made”. Identifier.
The court rejected the plaintiffs’ argument that the company’s statements regarding injuries and repair proceedings “every year” were not forward-looking because they related to a “present, existing or historical fact.”
Identifier. Instead, the Court observed that the statements amounted “at least in part, to a prediction of the number of injuries requiring nerve repair procedures likely to occur ‘each year’ in the future.” Identifier. at 4 o’clock. The Court further explained that, while “every year” may, in some contexts, refer only to current or historical facts, the company’s statements were made in the context of supporting forecasts regarding the size of the market that “could be served” by the company’s products and were “inherently forward-looking” in this context.
Identifier. Further, the Court rejected the plaintiffs’ argument that the “prospective aspect” of the impugned statements was “severable from their present or historical implications”. Identifier. The Court held that the only phrase at issue was “every year” and that, although parts of statements could be severable, “we cannot separate the meaning of a single sentence”. Identifier. at 5.
The Court further rejected plaintiffs’ argument that a statutory exception to the safe harbor provision applied because the company allegedly had “actual knowledge that the statements were false or misleading”. Identifier. The Court held that the plaintiffs’ complaint does not allege any facts to support this assertion and rejected any allegation that the company “”intentionally[ly]’ misrepresented anything.” Identifier. While the plaintiffs argued that the Supreme Court’s decision in Omnicare, Inc. c. Workers’ District Council Construction Industry Pension Fund575 US 175 (2015), circumvented the “actual knowledge” requirement under the safe harbor provision, the Court explained that
Omnicare “did not address the safe harbor provision, much less change the plain text of the law”, and instead targeted statements of opinion. Einhorn2022 WL 3022297, at *5.
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