On August 1, 2022, the United States Court of Appeals for the Eleventh Circuit affirmed the dismissal of a putative securities class action asserting claims under the Securities Act of 1933 against a medical technology company, certain of its officers and directors, and the underwriters of the company's stock offerings. Einhorn v. Axogen, Inc., —F.4th—, 2022 WL 3022297 (11th Cir. 2022). The appeal solely concerned plaintiffs' claim that the company had overstated the frequency of peripheral nerve injuries and repairs. The Court held that these statements were forward-looking statements that were not actionable under the safe-harbor provision of the Securities Act.
The crux of plaintiffs' allegations concerned the company's statements in SEC filings that it "believes" that "each year" there are a certain number of people in the United States suffering from peripheral nerve injuries and that it "estimates" that a certain number of such injuries result in nerve repair procedures. Id. at *1–2. Based on a research report published by a short seller, plaintiffs alleged that the company had overstated the frequency of such injuries and repairs. Id. at 2.
The Court explained that the safe-harbor provision in the Securities Act applied to statements containing projections of revenue, income, or future economic performance, as well as any "statement of the assumptions underlying or relating to" such projections. Id. at *3. The Court further emphasized that "the key characteristic of a forward-looking statement is that its truth or falsity is discernible only after it is made." Id.
The Court rejected plaintiffs' argument that the company's statements regarding injuries and repair procedures "each year" were not forward-looking because they related to a "present, existing, or historical fact." Id. Rather, the Court observed that the statements amounted to "at least in part, a prediction about the number of injuries requiring nerve repair procedures that are likely to occur 'each year' in the future." Id. at *4. The Court further explained that, while "each year" might in certain contexts relate solely to present or historical facts, the company's statements were made in the context of supporting predictions about the market size that "could be serviced" by the company's products and were "inherently forward-looking" in that context. Id. In addition, the Court rejected plaintiffs' argument that the "forward-looking aspect" of the challenged statements was "severable from their present-tense or historical implications." Id. The Court held that the only phrase at issue was "each year," and that, while portions of statements might be severable, "we cannot sever the meanings of a single phrase." Id. at *5.
The Court further rejected plaintiffs' argument that a statutory exception to the safe-harbor provision applied because the company purportedly had "actual knowledge that the statements were false or misleading." Id. The Court held that plaintiffs' complaint failed to allege any facts supporting that assertion and disclaimed any allegation that the company "'intentional[ly]' misrepresented anything." Id. While plaintiffs argued that the Supreme Court's decision in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, 575 U.S. 175 (2015), obviated the "actual knowledge" requirement under the safe-harbor provision, the Court explained that Omnicare "did not address the safe-harbor provision, let alone alter the plain text of the statute," and rather was directed to statements of opinion. Einhorn, 2022 WL 3022297, at *5.
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