Circuit Split Leads to SCOTUS Review of Falsity Pleading Standard

On June 17, 2024, the U.S. Supreme Court granted Defendants’ writ of certiorari in Nvidia Corp. v. Ohman J, No. 23-970, 2024 WL 3014476, (U.S. June 17, 2024).  In Nvidia, Plaintiffs alleged that Nvidia, a company which makes graphic process units (“GPU”) intended for gaming applications, and its CEO knowingly misled its investors about the extent to which Nvidia’s gaming segment sales and revenue were driven by sales to cryptocurrency miners rather than to gamers. 

To establish falsity, Plaintiffs relied exclusively on an expert’s opinion who used public data put forth by crypto mining companies that assumed the necessary computing power for their disclosed activities.  Then, the expert estimated the amount of GPUs needed for that computing power and what percent of those GPUS would have come from Nvidia. To plead Defendants’ scienter, Plaintiffs relied on confidential witnesses (former employees of Nvidia) who stated that Nvidia created internal reports analyzing GPU sales and usage data.  Critically, however, none of the witnesses could provide a firsthand account of the actual contents of the report.  Rather, Plaintiffs asserted that the internal reports would have reflected the same data put forth by their expert. 

Initially, the District Court[1] granted Defendants’ motion and dismissed Plaintiffs’ Complaint, finding that it failed to adequately plead falsity and scienter.  On appeal, the Ninth Circuit[2] disagreed with the lower court and found that Plaintiffs’ expert analysis coupled with the statements of their confidential witnesses was sufficiently particular to show that Nvidia and its CEO made statements with knowledge and/or reckless disregard for its falsity.  

Defendants, who vehemently disagreed with the Ninth Circuit’s decision, petitioned for certiorari seeking review of its interpretation of the PSLRA’s pleading requirements for falsity and scienter.  Defendants argued that, with the foregoing decision, there is now a large Circuit split on how to treat a plaintiff’s allegations where those allegations fail to plead the specific contents of internal reports. 

The Supreme Court agreed to review the case and will now have the all-important task of deciding (1) whether plaintiffs seeking to allege scienter based on internal company documents must plead the actual content of those documents with particularity; and (2) whether a plaintiff can adequately plead falsity by relying on an expert opinion instead of particularized factual allegations. This outcome of this case, set to be argued next term, will significantly alter the landscape of the PSLRA’s pleading requirements.