In Luminent Mortgage Capital Inc. v. Merrill Lynch & Co. Inc. and In re Nutrisystem Inc. Securities Litigation , two district courts recently applied the 3rd U.S. Circuit Court of Appeals’ decision in Institutional Investors Group v. Avaya Inc. to dismiss securities fraud complaints. In doing so, the district courts further clarified that the Private Securities Litigation Reform Act’s scienter pleading requirement is a considerable obstacle to a securities fraud complaint surviving a motion to dismiss.
In Luminent , the court dismissed a 10b-5 action against Merrill Lynch and six of its subsidiaries, citing the “profound” downturn in the mortgage market as the more likely nonculpatory explanation for the plaintiffs’ woes. In Nutrisystem , the district court also dismissed a securities fraud complaint brought against Nutrisystem and four of its officers, holding that competing nonculpable inferences outweighed any alleged fraudulent conduct.
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