Tuesday, March 18, 2008

Confidential Sources Still Alive & Kicking

What's that? You thought Tellabs banned confidential witnesses? Well, let's not get carried away here, as there's certainly at least two ways to read that opinion. Of course, after the 7th Circuit decided Higginbotham v. Baxter, it was beginning to look like you might actually be right. But Senior Judge Samuel Conti (Nixon '70) (yes I said 1970) chose to reject the Seventh Circuit and go with the Fifth Circuit's view on the subject, which says that Tellabs does not "presumptively preclude confidential sources."

But wait a minute. The Fifth Circuit (in Central Laborers' Pension Fund v. Integrated Electrical Services Inc., 497 F.3d 546 (5th Cir. 2007)), never mentioned Tellabs in its CW analysis, so how can that be you ask? It's because "although the Fifth Circuit did not discuss Tellabs in its analysis of confidential sources, the court was clearly aware of the Tellabs decision as evidenced by numerous citations to Tellabs in its lengthy discussion of the PSLRA pleading standards. Thus, Central Laborers' Pension Fund suggests that, contrary to the Seventh Circuit's conclusion, Tellabs does not presumptively prohibit confidential sources."

So overall result: Defendants' Motions to dismiss denied in full.

You can read the whole opinion on Acquirelaw™ at ND CA Acquirelaw 242205801 In re Secure Computing II Sec. Litig. (March 4th, 2008) (just type the number in the citation in any Acquirelaw search box to quickly retrieve the Order).

Nugget: "The Ninth Circuit has not yet spoken to the issue of whether confidential sources, if described with the requisite particularity, may give rise to the cogent and compelling inference of scienter required by Tellabs. Without guidance stating otherwise, this Court is unwilling to abandon the binding Ninth Circuit precedent of Daou for the reasoning articulated by the Seventh Circuit in Higginbotham."

1 comment:

plaintiffs' counsel said...

Read the 7th Circuit decision (Posner) on remand in Tellabs. The decision recognizes confidential sources and limits the application of Higginbothan v. Baxter.