Ross v. A.H. Robins Company

United States Court of Appeals for the Second Circuit · 1979 · Corporations

607 F.2d 545 (2d Cir. 1979)

Updated August 22, 2026

CorporationsSecurities fraudSection 10(b)Rule 10b-5Section 18Pleading fraudSEC filingsreliance

Facts

Plaintiffs alleged they purchased Robins common stock in July 1973 and brought a class action on behalf of purchasers from April 1972 through about July 1974 who still held shares at the end of that period. They claimed Robins and its directors and officers artificially inflated the stock price by making false and misleading statements, and by omitting adverse information, about the safety and effectiveness of the Dalkon Shield in annual reports, SEC filings, a prospectus, and press releases. The complaint alleged defendants knew or recklessly disregarded facts showing higher pregnancy and medical-removal rates and serious health risks, but failed to disclose them. After adverse information began reaching the public in 1974, plaintiffs alleged Robins' reputation and prospects suffered and the stock price fell.

Issue

Whether plaintiffs alleging fraudulent misstatements and omissions in SEC-filed documents may sue under Section 10(b) and Rule 10b-5 rather than being limited to Section 18. Whether the complaint adequately pleaded fraud with particularity under Rule 9(b).

Rule

Section 18 is not the exclusive remedy for materially false or misleading statements contained in documents filed with the SEC; plaintiffs may still pursue a claim under Section 10(b) and Rule 10b-5 if they can satisfy that provision's requirements, including scienter. In securities-fraud cases, Rule 9(b) requires plaintiffs to identify the specific statements or omissions relied on, plead the events giving rise to a strong inference that defendants knew or recklessly disregarded the relevant facts, and specify when those events occurred.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Maple Forge Medical, a Delaware corporation based in Cleveland, filed a Form 10-K stating that a newly launched surgical device had exceptionally low failure rates. Nora Patel bought shares on the New York exchange after seeing the stock price rise with favorable market coverage, but she never read the filing itself. Months later, internal problems became public and the stock fell sharply.

If Nora sues alleging the filed statement fraudulently inflated the market price, which is the best answer?

Explanation. The majority held that Section 18 is not the exclusive remedy for materially false or misleading statements in SEC-filed documents. An open-market purchaser who did not directly read the filing may still pursue Section 10(b) and Rule 10b-5, so long as the plaintiff can meet Section 10(b)'s own requirements, including scienter. The court emphasized that making Section 18 exclusive would irrationally deprive open-market investors of a remedy.