Orrick Team Gets Appeals Court to Reverse Course in Important Test of Pleading Standards in Securities Fraud Cases, Wins Dismissal of Class Action


An Orrick team successfully represented the former CFO of Hanger, Inc. (the leading provider of orthotic and prosthetic patient care in the United States) in obtaining the dismissal of a securities class action and defending that ruling on appeal to the Fifth Circuit.  A unanimous Fifth Circuit panel sided with our arguments, but only after we successfully convinced the panel to reconsider its own earlier ruling in plaintiffs’ favor.

Our team initially succeeded in moving to dismiss the complaint in the trial court, prompting the class, led by the Alaska Electrical Pension Fund, to appeal the dismissal to the Fifth Circuit. The complaint claimed Hanger and multiple executives committed securities fraud by lying about the results of an audit, forcing the company to restate its financial results after a report by its audit committee.

In August 2018, a divided three-judge panel of the Fifth Circuit reversed the district court’s decision and reinstated the complaint as to the former CFO, Hanger and others, as well as the plaintiff’s control person liability claims.  

We filed petitions asking for rehearing by the three-judge panel and, in the alternative, reconsideration by the full Fifth Circuit sitting en banc.  We argued, among other things, that the panel majority acted contrary to Circuit precedent by permitting group pleading of intent in a securities fraud case, and absent that error the pleading of intent was inadequate in this case. 

That same panel, which previously split 2-1 in plaintiffs’ favor, withdrew its prior opinion and issued a new 3-0 ruling in favor of defendants. The new decision affirmed the district court’s dismissal of the action as to our client and all defendants.

The Orrick team was led by partners Richard Morvillo, Ellen M. Murphy, Bob Loeb, Daniel Nathan and senior associate Elizabeth Marshall Anderson.