Opinion ID: 2807988
Heading Depth: 4
Heading Rank: 1

Heading: Holistic review

Text: Plaintiffs contend that the district court’s scienter analysis was flawed because the district court evaluated the scienter allegations individually rather than collectively. When analyzing a complaint for scienter, a court must “assess all the allegations holistically,” not in isolation. Tellabs, 551 U.S. at 326; see also Lormand, 565 F.3d at 251 (“The inquiry is whether all of the facts alleged, taken collectively, give rise to a strong plausible inference of scienter, not whether any individual allegation, scrutinized in isolation, meets that standard.”). The district court methodically analyzed the allegations, determining whether each did or did not contribute to a strong inference of scienter. Then, for each defendant, the district court concluded that the 7 Case: 13-10928 Document: 00513076785 Page: 8 Date Filed: 06/12/2015 No. 13-10928 various allegations, taken together, did not raise a strong inference of scienter that was at least as compelling as the opposing inference that the defendant did not know of the fraud or was merely negligent. Plaintiffs raise two points in support of their argument. First, plaintiffs contend that the district court’s two-step method of first assessing the allegations individually, before weighing them collectively, violates Tellabs’s prescription. In support, they cite the Sixth Circuit’s decision in Frank v. Dana Corp., 646 F.3d 954, 961 (6th Cir. 2011). Frank criticized the method the district court employed in this case: Our former method of reviewing each allegation individually before reviewing them holistically risks losing the forest for the trees. Furthermore, after Tellabs, conducting an individual review of myriad allegations is an unnecessary inefficiency. Consequently, we will address the Plaintiffs’ claims holistically. Id. Contrary to plaintiffs’ suggestion, Frank does not stand for the proposition that Tellabs forbids the method of first reviewing each allegation individually; rather, Frank advises against such a method because, in the view of that court, it is “an unnecessary inefficiency.” Id. Moreover, this court, after Tellabs, has endorsed the district court’s two-step method. See Central Laborers’ Pension Fund v. Inegrated Elec. Servs. Inc., 497 F.3d 546, 552–55 (5th Cir. 2007) (employing two-step method); see also In re VeriFone Holdings, Inc. Sec. Litig., 704 F.3d 694, 703 (9th Cir. 2012) (“[A] dual analysis remains permissible so long as it does not unduly focus on the weakness of individual allegations to the exclusion of the whole picture.”). A district court may best make sense of scienter allegations by first looking to the contribution of each individual allegation to a strong inference of scienter, especially in a complicated case such as this one. Of course, the court must follow this initial step with a holistic look at all the scienter allegations. 8 Case: 13-10928 Document: 00513076785 Page: 9 Date Filed: 06/12/2015 No. 13-10928 Second, plaintiffs argue that, even if the two-step method is permissible, the district court did not, as it said, view “the [SAC’s] allegations as a whole.” Plaintiffs point to numerous instances where the district court stated that a particular allegation did not “alone” contribute to a strong inference of scienter. The district court did not err in stating, throughout its inquiry, that various allegations, standing alone, did not constitute a strong inference of scienter. As a matter of efficiency, if any single allegation, standing alone, created a strong inference of scienter, the court would not need to consider additional allegations of scienter. After analyzing each allegation alone, the district court properly proceeded to the second step and determined that the allegations, as a whole, did not raise a strong inference of scienter as to each defendant. See Shaw, 537 F.3d at 534–41 (concluding, after analysis of individual allegations, that together, they did not raise a strong inference that defendant was severely reckless); Central Laborers, 497 F.3d at 555 (concluding, without detailed analysis, that the plaintiff’s “allegations read in toto do not permit a strong inference of scienter”). In any event, our de novo review will assess holistically the SAC’s scienter allegations.