The 7th Circuit allowed the dismissal of claims against Guidant Corp to stand. The plaintiffs claimed that Guidant knew that some of its pacemaker devices were defective but failed to disclose that information in periodic reports and in connection with a merger (Fannon v. Guidant Corp.).
The district court dismissed the claim with prejudice on scienter grounds. The court rejected a "core operations" assertion, and found that insider stock sales were not suspicious. In addition, the trial judge found that the plaintiffs did not cite “any internal documents, confidential witnesses, or other sources to support their allegations."
On appeal, the investors limited their arguments to the "with prejudice" element of the dismissal order. As described by Circuit Judge Diane Wood,
Notably, the plaintiffs have not urged us directly to review the district court’s assessment of the legal sufficiency of their complaint,and so we do not have any issue before us that we review de novo and we need not again consider the standards for pleading a securities fraud case. Instead, each of the rulings before us is one that lies within the district court’s discretion, and our review is deferential.Judge Wood recognized that while many courts freely allow amendments in securities cases due to the demanding PSLRA pleading standards, she observed that "each case must be evaluated on its own merit, in light of its own procedural history." She concluded that the "district court was entitled to view this case as one in which the plaintiffs had, as a practical matter, a number of opportunities to craft a complaint that complied with the standards of the PSLRA...and was therefore entitled to bring this litigation to a close with a dismissal with prejudice."
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