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Ninth Circuit Publishes Rare Securities Opinion

Press Release

Opinion Clarifies Critical Law,
Protects Future Defendants from Unfounded Litigation

Keker & Van Nest attorneys Michael Celio and Cody Harris have secured a complete vindication for Intuitive Surgical Inc., a leading manufacturer of cutting-edge robotic surgery devices, from an aggressive securities class action. The plaintiffs alleged Intuitive Surgical issued false and misleading statements regarding the company's financial results and prospects, when during the economic crisis of 2008, its financial results did not meet previously announced predictions. Plaintiffs' lawyers filed a securities class action, which U.S. District Judge Lucy H. Koh dismissed twice.

In addition to affirming Judge Koh's decision exonerating Intuitive Surgical, Judge M. Margaret McKeown's opinion clarifies the limits of a significant plaintiff's weapon - the core operations inference of scienter. Prior to this opinion, plaintiffs had been using the core operations inference to allege fraud, claiming company leadership must have known certain information even though no such evidence had been presented in court. However, the limits of this theory were not always clear, and therefore led to baseless litigation.

"We are thrilled Judge McKeown not only agreed with Judge Koh's well-reasoned opinion dismissing the complaint and exonerating Intuitive Surgical, but also that she restored the core operations theory to its original intention. Armed with this opinion, future defendants can dedicate their valuable resources to developing their business instead of battling groundless allegations," said Intuitive Surgical's lead attorney, Keker & Van Nest partner Michael Celio.

After today's opinion, prospective plaintiff's claims must pass a more rigorous test. Judge McKeown held that a plaintiff can succeed under the core operations inference in only two ways: "A plaintiff must produce either specific admissions by one or more corporate executives of detailed involvement in the minutia of a company's operations, such as data monitoring; or witness accounts demonstrating that executives had actual involvement in creating false reports."

Moreover, the thorough and reasoned opinion demonstrates the Court's willingness to carefully examine the pleadings, and to consider each statement's overall context, as opposed to using snippets of statements to support a fraud claim.

The case is Police Retirement System of St. Louis v. Intuitive Surgical, Inc. et al. No. 12-16430 D.C. No. 5:10-cv-03451-LHK. Appeal from the United States District Court for the Northern District of California, Lucy H. Koh, District Judge, Presiding. Filed July 16, 2014 Before: Jerome Farris, A. Wallace Tashima, and M. Margaret McKeown, Circuit Judges. Opinion by Judge McKeown.