Opinion ID: 6498478
Heading Depth: 2
Heading Rank: 1

Heading: unsupported premise

Text: As a threshold matter, Align asks this court to affirm the district court on the narrow ground that Macomb’s complaint is based on an unsupported premise. Macomb’s complaint rests on the premise that Align’s rate of growth had, in fact, “significantly declined” by the time Align’s executives were touting the company’s growth in China in May and June of 2019. But, according to Align, it is possible that the rate of growth only started to decline “significantly” during the Class Period (which lasts until July 24, 2019). Because, Align continues, Macomb has not alleged sufficient facts to make plausible the inference that the rate of growth had begun to decline “significantly” by the time the Align executives made the challenged statements, the statements cannot be considered false at the time they were made, and therefore they are not actionable. See In re Rigel Pharms., Inc. Sec. Litig., 697 F.3d 869, 876 (9th Cir. 2012) (holding that for statements to be actionable under the PSLRA, they must have been “false or misleading at the time they were made”). We reject this argument as unsupported. It is settled precedent that the passage of just a short period of time between executives’ rosy statements about their company’s prospects and a downturn in those prospects is “circumstantial evidence” that the challenged statements “were false when made.” Fecht v. Price Co., 70 F.3d 1078, 1083 (9th Cir. 1995). In Fecht, for instance, the passage of two-and-a-half months was a sufficient “shortness of time” to be considered “circumstantial evidence that the challenged statements were false when made.” Id. Here, just three months passed between the first challenged statement and the revelation of Align’s downturn in China. In addition, Fecht demands that we accord such circumstantial evidence “more weight” where there is no 8 MACOMB CERS V. ALIGN TECHNOLOGY “intervening catastrophic event” that might suggest a later, abrupt downturn, such that the executives’ earlier statements may not, in fact, have been false. Id. at 1083–84. Here, as in Fecht, there was no such catastrophic event. Macomb has provided additional evidence to support the inference that Align’s growth rate was declining substantially at the time of the challenged statements. Multiple reports from former employees support the inference that Align’s growth in China had slowed materially when the challenged statements were made in late April, May, and June 2019. For instance, one analyst’s report described “clear, early indications as of April 1, 2019 that Align’s growth in China had slowed . . . and that data was available to executives to monitor.” Viewed alongside the short period of time between the challenged statements and the downturn in Align’s prospects in China, Macomb has alleged sufficient evidence to support the inference that Align’s growth in China had slowed materially when the challenged statements were made in late April, May, and June 2019. Macomb’s complaint does not rest on an unsupported premise. 1 1 Align contends that Ronconi v. Larkin, 253 F.3d 423 (9th Cir. 2001), supports the opposite conclusion. This case is not like Ronconi. There, the plaintiffs inadequately pleaded falsity because the complaint “fail[ed] to describe, chart or graph what sales actually did” and failed to “identify any documents or facts suggesting that the defendants knew that the growth rate was not accelerating.” Ronconi, 253 F.3d at 431. By contrast, Macomb has explained “what sales actually did” (i.e., sales growth in China fell from close to 70% to 20–30% in one quarter), id., and Macomb pointed to specific systems and reports that executives allegedly reviewed indicating slowing growth. MACOMB CERS V. ALIGN TECHNOLOGY 9