In a securities class action under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, plaintiffs seeking to plead a violation must allege “with particularity facts giving rise to a strong inference” that each defendant made a material misrepresentation or omission with scienter, i.e., a “mental state embracing intent to deceive, manipulate, or defraud.”1 When the defendant is a corporate entity—with no single mind of its own—whose state of mind matters for purposes of the scienter analysis?
As the U.S. Court of Appeals for the Sixth Circuit recently asked in In re Omnicare, Inc. Sec. Litig., “must the person misrepresenting a material fact in the name of the corporation have also done so with scienter, or is it enough that some person in the corporate structure had the requisite state of mind?”2 In response, the Sixth Circuit formulated a “middle ground” approach, combining elements of the restrictive and liberal tests previously adopted by other courts of appeal over the last decade and adding its view to the existing circuit split on the issue.
The Pre-Omnicare Circuit Split
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