Back to News list

Keker Scores Circuit Win for Intuitive Surgical

The Recorder

Intuitive Surgical Inc., a manufacturer of surgical robots at the center of a litigation firestorm, has one less lawsuit to worry about.

Intuitive executives did not knowingly mislead investors before the 2008 recession and are not liable for securities violations, the U.S. Court of Appeals for the Ninth Circuit ruled Wednesday.

The company's lead lawyer, Keker & Van Nest partner Michael Celio, hopes the decision bodes well for a second securities suit his firm is battling for Intuitive. It could also have broader implications, according to Celio, who said the ruling by Judge M. Margaret McKeown tightens the standard for pleading that executives committed knowing fraud through false statements because they must have known about core operations at their company.

"Proof under this theory is not easy," McKeown wrote for a unanimous panel. "A plaintiff must produce either specific admissions by one or more corporate executives … or witness accounts demonstrating that executives had actual involvement in creating false reports."

The ruling affirmed U.S. District Judge Lucy Koh's 2012 dismissal of Police Retirement System of St. Louis v. Intuitive Surgical, 12-16430.

"Despite the nearly six hundred allegations contained in the over three-hundred-page complaint, the company's statements are, in large part, forward-looking statements or garden variety corporate optimism—neither category is actionable under the securities laws," McKeown stated. Ian Berg, of counsel with Abraham, Frutcher & Twersky, argued on behalf of plaintiffs. He declined to comment on the case Thursday.

A motion to dismiss is pending in a 2013 securities suit against Intuitive. That suit alleges it hid product defects and a dispute with the Food and Drug Administration from shareholders. Surgeons manipulating Intuitive's robotic arms inside patients are supposed to be able to operate through tiny incisions with more dexterity than the human hand. But multiple patients have blamed complications on the robots, and the company's stock price has plummeted since 2012, plaintiffs allege.

"We certainly hope the court will look at this," Celio said. "The reason that's weak is the same reason that the one that was just dismissed was weak."

Plaintiffs are represented in that suit by a New York team of Labaton Sucharow attorneys, as well as Shawn Williams of Robbins Geller Rudman & Dowd's San Francisco office and Susannah Conn of Robbins Geller's San Diego office. Neither Williams nor Conn responded to an email or voice mail Thursday. The 1995 Private Securities Litigation Reform Act requires plaintiffs to prove the executives named as defendants in securities fraud suits acted with scienter, that is they knew they were making false statements to shareholders.

Plaintiffs attorneys often rely on a theory known as the core operations inference of scienter, arguing the information in question was so vital to the company that it must have been known by the company's executives.

Celio said use of that tactic has grown so broad as to border on abuse. "Everything became a core operation," he said. "The core operations of inference was often the thing that kicked the balance between a case that didn't have much going for it, but maybe had enough to survive a motion, and one that got thrown out." McKeown's opinion raises the bar for proving scienter, Celio said.

On Thursday, attorneys defending Zynga Inc. against a securities suit cited the ruling to support their motion to dismiss. Zynga lawyer Jordan Eth, a Morrison & Foerster partner, declined to comment on the case.

Reed Kathrein, a securities plaintiffs lawyer at Hagens Berman Sobol Shapiro, said McKeown's order "doesn't make any new pronouncements." Kathrein said he views the opinion as a routine dismissal of a weak case.

"The allegations in the case are very vague," he said.