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Nathenson v. Zonagen, Inc.

In order to survive a motion to dismiss, a plaintiff alleging a section 10(b)/Rule 10b-5 claim now must plead specific facts giving rise to a "strong inference" of scienter.

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As amended October 15, 2001

Appeal from the United States District Court for the Southern District of Texas, Houston

Plaintiffs-appellants James Nathenson and others (collectively, the plaintiffs) filed this putative class action in the court below against defendants-appellants Zonagen, Inc. (Zonagen), Zonagen chief executive officer and director Joseph Podolski (Podolski) and Zonagen outside directors and major shareholders Steven Blasnik (Blasnik) and Martin Sutter (Sutter) (collectively, the defendants). In their complaint, the plaintiffs sought class certification and alleged violations of sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (1934 Act) and Rule 10b-5 of the Securities Exchange Commission (SEC). The defendants moved to dismiss the complaint under Fed. R. Civ. P. 12(b)(6). The district court granted the motion in a memorandum opinion and in a separate document rendered judgment that “this action is dismissed with prejudice.” The plaintiffs now appeal. Finding sufficient merit in one of plaintiffs’ complaints on appeal, we vacate and remand.

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