NVIDIA Corp. v. E. Ohman J:or Fonder AB (23-970)

argument 23-970

NVIDIA Corp. v. E. Ohman J:or Fonder AB

Supreme Court of the United States 1h 27m 8 speakers 8 chapters transcribed 1 month ago official recording ↗

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How does the Reform Act’s heightened pleading standard affect securities‑fraud cases?

John G. Roberts 0:00

We will hear argument this morning in case twenty three nine seventy Envita versus Eoman.

Mr. Katyal 0:05

J or Funder A B. Mr Catio? Thank you, Mr. Chief Justice, and may it please the court. The Reform Act's pleading standards are unique. Congress looked at private securities litigation and saw big fishing expeditions in discovery and extortion at settlements. They knew that for centuries heightened pleading had been required, but they supercharged it. First, they required plaintiffs to quote state with particularity, facts giving rise to a strong inference the defendant acted. With Center, a dramatic break with common law, and second, they required for allegations outside of a plaintiff's personal knowledge, plaintiffs to, quote, state with particularity all the facts on which their belief is formed. This double heightened pleading requirement exists in virtually no other context.

Mr. Katyal 0:52

Y2K is the lone example, and that is what resolves this case. As our CERT petition and the Amiki explain, the Circuit's decision creates an easy roadmap for plaintiffs to evade the Reform Act. When a stock drops, all they have to do is find an expert with numbers that contradict a company's public statements, then allege the company keeps records that executives look at, and then argue those records would have matched the hired experts' numbers. That's a recipe for Judge Friendly's warning of fraud by hindsight. This complaint, which alleges that Jensen Wong made false statements is a good example. It's a grave accusation against a respected CEO, yet the complaint never shows his Center to be as cogent and compelling as not.

Mr. Katyal 1:36

It merely surmises that Wong reviewed internal reports showing a higher quantum of crypto purchases than what he disclosed, yet it never alleges the contents of those reports. And to meet falsity, the complaint relies on an expert opinion with a series of implausible assumptions and inferences, not particularized allegations of fact. Nothing dispels the more compelling explanation that Wong offered at the time. He knew crypto buys were increasing prices, and so he introduced a crypto-specific chip and increased the supply of gaming chips with the hopes that prices would fall. The fact this process took longer than anticipated is not securities fraud. The Ninth Circuit slighted the Act's heightened pleading requirements, and this court should reverse.

Mr. Katyal 2:21

I welcome the process. The court's questions.

Clarence Thomas 2:24

Uh what would this uh complaint look like if it had complied with the heightened pleading standards?

Mr. Katyal 2:30

Yeah, so I think it would have had to allege this complaint is based on internal documents. And so it would have to allege the contents of those documents, and particularly Justice Thomas, for example, it would have to answer what specific data did the CEO actually see? How clear was it? When did he see that data? Was the data generated after his public statements or before? How much does that data develop? From the public statements? Where does that data cover? Is it one country? Is it the world? And when was that data generated? So, you know, what did the CEO know? When did he know it? I think are the most important questions. And here, when you scratch just below the surface, and this is what Judge Sanchez's dissent, I think, so powerfully did, or the District Court did, by going allegation by allegation, it all dissolves.

Mr. Katyal 3:20

A long complaint. I'll give I'll spot them that. But it's a long complaint like cotton candy that dissolves after it looks like a lot of volume, but it dissolves.

Ketanji Brown Jackson 3:28

Mr. Katyal, I I guess my concern is that you appear to be uh requiring for plaintiffs to actually have the evidence. in order to plead uh their case and I didn't understand the pleading standards even with particularity. to require that they have the documents, nor do I understand how they could have the documents when discovery hasn't occurred yet.

Mr. Katyal 3:53

So so of course they do have documents. In this very case, joint appendix fifty nine to sixty two does provide an internal document. It is a document that entirely backfires on them.