Levi v. Atossa Genetics, Inc.

Summary

The Ninth Circuit reviewed the dismissal of a securities-fraud class action alleging that Atossa Genetics and its chief executive officer made materially false or misleading statements about FDA clearance of breast-cancer screening products. The court held that plaintiffs adequately pleaded falsity and materiality as to certain statements concerning the ForeCYTE Test, an SEC Form 8-K disclosure, and FDA-clearance risk, but not as to other statements concerning the MASCT System and the company’s confidence in its responses to the FDA. The court affirmed in part, reversed in part, vacated in part, and remanded.

Holdings

1. Plaintiffs adequately pleaded falsity and materiality as to Quay's statement in the December 20, 2012 Form 8-K that the ForeCYTE Test was FDA-cleared and his statement in the News-Medical.Net interview that the test had gone through the FDA-clearance process.
2. Plaintiffs did not sufficiently plead that Atossa's general statements that the MASCT System was FDA-cleared were false or misleading.
3. Plaintiffs adequately pleaded that Atossa's Form 8-K was materially misleading because it omitted the FDA's concerns that the ForeCYTE Test lacked clearance and that Atossa's marketing materials were false or misleading.
4. Plaintiffs did not sufficiently plead that Atossa's statement in its Form 10-Q that it was reasonably confident in its responses to the FDA was false or misleading.
5. Plaintiffs adequately pleaded that Quay's statement that FDA-clearance risk had been achieved was a materially misleading opinion by omission.
6. The district court's dismissal of the Section 20(a) claims was vacated because it was based on dismissal of the Section 10(b) and Rule 10b-5 claims, some of which were reinstated.

Questions Presented

1. Whether plaintiffs sufficiently pleaded falsity and materiality under Section 10(b) and Rule 10b-5 as to statements describing the ForeCYTE Test as FDA-cleared.
2. Whether plaintiffs sufficiently pleaded that Atossa's February 25, 2013 Form 8-K, which disclosed the FDA warning letter but omitted the FDA's concerns about the ForeCYTE Test, was materially misleading.
3. Whether statements describing the MASCT System as FDA-cleared were false or misleading.
4. Whether Atossa's statement that it was reasonably confident in its responses to the FDA was false or misleading.
5. Whether Quay's statement that FDA-clearance risk had been achieved was a materially misleading opinion by omission, and whether the Section 20(a) claims should be vacated after partial reversal of the primary-violation rulings.

Disposition

reversed_and_remanded