Swanson v. Danimer Scientific, Inc.

The Second Circuit Court of Appeals agreed with a district court that a securities fraud class action alleging misleading or false statements regarding the biodegradability of a biotechnology company’s bioplastic compound failed to adequately plead scienter against any defendants. The plaintiff’s complaint cited a scientific article that found that landfill disposal of polyhydroxyalkanoate-based products like the defendant company’s product harmed the environment due to the release of methane. In a summary order affirming dismissal of the lawsuit, the Second Circuit first found that there was no allegation that the defendant chief executive officer was aware of a statement by the company’s chief technology officer that representations that the product would be consumed by bacteria in a landfill were not “wholly accurate.” Second, the appellate court found that the plaintiff’s assertions that the product was part of the company’s “core operations” and that senior executives’ knowledge should be inferred were insufficient to raise a strong inference of scienter. Third, the Second Circuit rejected the plaintiff’s arguments that the defendants “concrete and personal motivations” were sufficient to demonstrate scienter. Fourth, the Second Circuit agreed with the district court that the plaintiff’s allegations “collectively do not raise a strong enough inference of scienter required to state a claim.” The court further found that the plaintiff failed to plead corporate scienter or control-person liability. The Second Circuit declined to reach the issue of whether the plaintiff sufficiently pleaded that the defendants’ statements were materially misleading.