“Costanza Defense” Potentially No Longer Applicable in Class Action Securities Claims

Author: Collin L. Ryan, Associate Member, University of Cincinnati Law Review

George Costanza once imparted to Jerry Seinfeld the infamous advice, “It’s not a lie, if you believe it.”[1] Although this advice is entertaining, the Supreme Court granted certiorari last March to resolve a circuit split regarding the extent to which Mr. Costanza’s advice applies in class action securities litigation.[2] The Supreme Court will review the Sixth Circuit’s decision in Indiana State District Council v. Omnicare, Inc. from May 23, 2013.[3] The Court will likely determine the pleading standard for plaintiff-investors filing suit under § 11 of the Securities Act of 1933 (§ 11 or section 11) against a defendant-corporation. In particular, the Court will determine whether the plaintiff’s plea that the defendant’s misstatement or omission was objectively false satisfies federal pleading requirements, or whether the plaintiff must also plead that the defendant subjectively knew that the misstatement or omission was misrepresentative.[4]

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