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Last week, the Supreme Court heard oral arguments in NVIDIA Corp. v. E. Ohman J:or Fonder AB. As a reminder, here’s the factual background from the SCOTUS Blog:

NVIDIA, the world’s most valuable company, sells computer graphics processing chips designed primarily for use in video games, which it sells to manufacturers of game devices. As it happens, NVIDIA’s chips also are useful for mining cryptocurrency, and in 2017 many crypto miners started to buy NVIDIA chips for that purpose. As that use increased, NVIDIA’s chip sales increased. But in 2018, when the price of bitcoin went through a period of sharp decline, reducing the incentive for crypto mining, NVIDIA’s sales declined.

Shareholders responded by filing the proposed class action here, alleging that NVIDIA executives (including CEO Jensen Huang) made false and misleading statements about the extent to which use in crypto mining was propping up NVIDIA’s chip sales. The U.S. Court of Appeals for the 9th Circuit allowed the action to proceed, and the Supreme Court agreed to review the matter.

As John previewed months ago when SCOTUS granted cert, the case involves the PSLRA’s pleading requirements for allegations of falsity and scienter.

If the case alleges a false or misleading statement, [under the PSLRA, the complaint] must not only specify the reasons why each statement is believed to be misleading but also “state with particularity all facts on which that belief is formed.” Moreover, the complaint also must “state with particularity facts” that “giv[e] rise to a strong inference that the defendant acted with the required state of mind.” That “strong inference” standard is notably higher than the normal standard for a complaint.

The company argues that when the theory of “scienter” (the securities law standard of intent – a Latin term that means something like “with knowledge”) is that internal company documents contradict public statements, the PSLRA’s requirements of particularity mean that the plaintiff has to allege the contents of those internal documents. … The shareholders do not have any documents or statements that directly show any reason to think Huang knew what share of sales were made to crypto miners … [r]ather, they rely on an expert report.

This follow-up SCOTUS Blog describes the Justices’ reactions during oral argument. Chief Justice Roberts and Justice Kavanaugh seem to be of the view that Congress intended the PSLRA to limit exactly this type of suit and worry that “the lower court’s decision would permit shareholders, ‘any time a stock price falls,’ to ‘get past a motion to dismiss’ by simply providing a vague expert report.” On the other hand, Justice Jackson addressed the substance of the dispute at this stage, noting, “‘plaintiffs … actually have the evidence in order to plead their case,’ while she opined that the standards in fact don’t ‘require that they have the documents,’ and indeed couldn’t ‘understand how they could have the documents when discovery hasn’t occurred yet.’” A number of the other Justices seemed to question why “such a fact-specific dispute warranted the court’s attention.” In fact, NVIDIA’s counsel “got the same line from justices spanning ‘both sides of the aisle,’ if you will: Elena Kagan, Amy Coney Barrett, and Neil Gorsuch.”

Considering the questioning, this Morgan Lewis blog says:

If the Supreme Court decides to rule on the two questions presented in NVIDIA’s petition, the decision could significantly impact future adjudication of motions to dismiss securities fraud claims. But oral argument revealed that the questions NVIDIA presented may, in fact, be more case-specific than observers, and the Court itself, anticipated. The Justices’ questioning suggests that many of them view the questions presented as seeking fact-intensive “error correction” of the Ninth Circuit’s analysis, which the Court is generally reluctant to perform. …

[T]he Court’s ruling in this case is unlikely to be the sea change that some commentators predicted, and that the Court may opt instead for a more limited ruling or an outright dismissal of the petition. If the Court does decide the case, its questioning suggests that the opinion could cast doubt on—or expressly disavow—the bright-line rules advanced by NVIDIA.

– Meredith Ervine