Thursday, November 20, 2008

Sixth Circuit's "Most Plausible" Standard Did Not Survive Tellabs

A 6th Circuit panel recognized that the law in that circuit, that plaintiffs are "only to the most plausible of competing inferences," was no longer valid after the U.S. Supreme Court's Tellabs decision. The 6th Circuit adopted the more stringent standard in its 2001 Helwig v. Vencor, Inc. decision. Because Tellabs required that "where two equally compelling inferences can be drawn, one demonstrating scienter and the other supporting a nonculpable explanation...the complaint should be permitted to move forward," the court concluded that Helwig was no longer good law.

The appeals court did not reach the merits of the question, and remanded the case for the district court to apply the new "at least as compelling" standard. The result in such a fact-based determination of the difference between what is "most plausible" and what is "as least as compelling" is obviously quite subjective and impossible to predict.

Frank v. Dana Corp.