On Wednesday, the U.S. Circuit Court of Appeals for the 11th Circuit affirmed the lower court’s dismissal of a securities class action against Home Depot and six corporate executives that alleged financial fraud. The United States District Court for the Northern District of Georgia had previously found that the amended complaint failed to adequately plead scienter.
In its opinion affirming then lower court opinion, the 11th Circuit concluded that
In sum, the amended complaint fails to surmount the pleading hurdles that Congress has imposed on private securities fraud class actions. Fearing that these types of lawsuits were “injur[ing] the entire U.S. economy” by rewarding “nuisance filings, targeting of deep-pocket defendants, vexatious discovery requests, and manipulation by class action lawyers of the clients whom they purportedly represent,” Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Dabit, 547 U.S. 71, 81 (2006) (quotation marks omitted), Congress decided to open the courthouse doors only to those plaintiffs whose complaints raised a “strong inference” that the defendants they sought to hold responsible for their losses acted with the required bad intent. And the Supreme Court has unambiguously explained to us that the “strong inference” requirement, though not insurmountable, is difficult to meet — the inference must be cogent and at least as compelling as any opposing inference. We are constrained to conclude that the allegations in the amended complaint do not pass Congress’s stringent test.