What’s that? You thought
Tellabs banned confidential witnesses? Well, let’s not get carried away here, as there’s certainly at least two ways to read that opinion. Of course, after the 7
th Circuit decided
Higginbotham v. Baxter, it was beginning to look like you might actually be right. But Senior Judge
Samuel Conti (Nixon ’70) (yes I said 1970) chose to reject the Seventh Circuit and go with the Fifth Circuit’s view on the subject, which says that
Tellabsdoes not “presumptively preclude confidential sources.”But wait a minute. The Fifth Circuit (in Central Laborers’ Pension Fund v. Integrated Electrical Services Inc., 497 F.3d 546 (5
th Cir. 2007)), never mentioned
Tellabs in its CW analysis, so how can that be you ask? It’s because “although the Fifth Circuit did not discuss
Tellabs in its analysis of confidential sources, the court was clearly aware of the
Tellabs decision as evidenced by numerous citations to
Tellabs in its lengthy discussion of the
PSLRA pleading standards. Thus, Central Laborers’ Pension Fund suggests that, contrary to the Seventh Circuit’s conclusion,
Tellabs does not presumptively prohibit confidential sources.”
So overall result: Defendants’ Motions to dismiss denied in full.
You can read the whole opinion here.
Nugget: “The Ninth Circuit has not yet spoken to the issue of whether confidential sources, if described with the requisite particularity, may give rise to the cogent and compelling inference of scienter required by Tellabs. Without guidance stating otherwise, this Court is unwilling to abandon the binding Ninth Circuit precedent of Daou for the reasoning articulated by the Seventh Circuit in Higginbotham.”