Ninth Circuit Affirms Dismissal of Securities Class Action Against Align Technology
On May 5, 2017, the U.S. Court of Appeals for the Ninth Circuit affirmed the dismissal of a securities class action filed against Align Technology, maker of the Invisalign teeth aligning system. The significant opinion is the first time the Ninth Circuit has ruled that the U.S. Supreme Court's ruling in Omnicare, Inc. v. Laborers Dist. Council Constr. Ind. Pension Fund, which articulated the standards for pleading falsity of opinions, applies to Section 10(b) fraud claims of the Securities Exchange Act of 1934. It is also the first goodwill accounting case that the Ninth Circuit has decided, holding that judgments about goodwill accounting should be treated as opinion statements. Wilson Sonsini Goodrich & Rosati represented Align Technology and its former CEO and CFO in the matter.
The case arose from an announcement by Align Technology in 2011 concerning its decision to acquire Cadent Holdings. The original complaint was filed in December 2012 in which the plaintiff—the City of Dearborn Heights Act 345 Police & Fire Retirement System, who represented all the investors who purchased stock in Align Technology between January 31, 2012 to October 17, 2012—alleged that Align and the individual defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 in connection with statements regarding Align's goodwill valuation of Cadent Holdings. In August 2014, the U.S. District Court for the Northern District of California dismissed, with prejudice, the plaintiff's second amended complaint for failure to adequately plead both falsity and scienter. Plaintiff appealed.
In October 2016, the plaintiff argued before the Ninth Circuit federal appellate panel, claiming that the lower court erred when it dismissed the plaintiff's second amended complaint and asserting that the district court analyzed fact-based statements as opinion statements. The plaintiff also alleged that the district court imposed a heightened standard for determining the falsity of "goodwill" statements about Cadent's value made by Align.
Writing on behalf of the Ninth Circuit, Judge Milan D. Smith, Jr., affirmed the district court's dismissal, holding that the three standards for pleading falsity of opinion statements articulated in the U.S. Supreme Court's Omnicare decision apply to Section 10(b) and Rule 10b-5 claims. The panel also held that the plaintiff failed to sufficiently plead falsity under any of the three Omnicare standards and also failed to sufficiently plead scienter.
For more information, please refer to the Ninth Circuit's opinion.