Levi v. Atossa Genetics, Inc.

FOR PUBLICATION

UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

IN RE ATOSSA GENETICS INC No. 14-35933
SECURITIES LITIGATION,
______________________________ D.C. No.
2:13-cv-01836-
MIKO LEVI; BANDAR ALMOSA; RSM
GREGORY HARRISON; NICHOLAS
COOK, individually and on behalf of
all other persons similarly situated, OPINION
Plaintiffs-Appellants,

v.

ATOSSA GENETICS, INC.; STEVEN C.
QUAY, an individual; CHRISTOPHER
BENJAMIN, an individual; KYLE
GUSE, an individual; SHU-CHIH
CHEN, an individual; JOHN
BARNHART, an individual; STEPHEN
J. GALLI, an individual; ALEXANDER
CROSS, an individual; H. LAWRENCE
REMMEL, an individual,
Defendants-Appellees.
2 IN RE ATOSSA GENETICS INC. SECURITIES LITIGATION

Appeal from the United States District Court
for the Western District of Washington
Ricardo S. Martinez, Chief Judge, Presiding

Argued and Submitted May 18, 2017
Seattle, Washington

Filed August 18, 2017

Before: Ronald M. Gould and Richard A. Paez, Circuit
Judges, and Ivan L.R. Lemelle, * District Judge.

Opinion by Judge Gould

SUMMARY **

Securities Fraud

The panel affirmed in part, reversed in part, and vacated
in part the district court’s dismissal of an amended securities
fraud class action complaint alleging that a company and its
chairman and chief executive officer made a series of public
statements about the company’s breast cancer screening
products that were materially false or misleading.

The panel held that the plaintiffs properly alleged falsity
and materiality as to some, but not all, of defendants’

*
The Honorable Ivan L.R. Lemelle, Senior United States District
Judge for the Eastern District of Louisiana, sitting by designation.
**
This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
 IN RE ATOSSA GENETICS INC. SECURITIES LITIGATION 3

statements, as required to state a claim under §§ 10(b) and
20(a) of the Securities Exchange Act and SEC Rule 10b-5.

The panel held that the plaintiffs sufficiently pled that
alleged statements describing a product as cleared by the
FDA were false. Plaintiffs’ allegations satisfied the Private
Securities Litigation Reform Act by providing the reasons
why the statements were misleading. Plaintiffs also properly
pled materiality because there was a substantial likelihood
that the disclosure of the omitted fact would have been
viewed by a reasonable investor as having significantly
altered the total mix of information made available.

The panel concluded that alleged statements describing
another product as FDA-cleared were neither false nor
misleading in context.

The panel held that the company’s Form 8-K filing with
the SEC, giving notice of an FDA warning letter, was
misleading, and neither the “bespeaks caution” doctrine nor
the PSLRA’s safe harbor, exempting defendants from
liability for forward-looking statements accompanied by
certain cautionary language, applied. The panel also
concluded that the information omitted from the alleged
filing was material.

The panel held that the plaintiffs did not sufficiently
plead that an alleged statement in a quarterly report, that the
company was “reasonably confident” in its responses to the
FDA, was false or misleading.

Finally, the panel held that an opinion statement
regarding FDA clearance risk was misleading by omission,
and the omissions were material.
4 IN RE ATOSSA GENETICS INC. SECURITIES LITIGATION

COUNSEL

Marc Ian Gross (argued), Jeremy Lieberman, and Michael J.
Wernke, Pomerantz LLP, New York, New York; Jeffrey C.
Block, Whitney E. Street, and Mark A. Delaney, Block &
Leviton LLP, Boston, Massachusetts; Dan Drachler,
Zwerling Schachter & Zwerling LLP, Seattle, Washington;
for Plaintiffs-Appellants.

Gregory L. Watts (argued), and Barry M. Kaplan, Wilson
Sonsini Goodrich & Rosati, Seattle, Washington; Cheryl W.
Foung, Wilson Sonsini Goodrich & Rosati, Palo Alto,
California; for Defendants-Appellees.

OPINION

GOULD, Circuit Judge:

We consider how and the extent to which our securities
laws protect the investing public. Miko Levi, Bandar
Almosa, Gregory Harrison, and Nicholas Cook (“Plaintiffs”)
appeal the district court’s dismissal of their amended
securities fraud class action complaint. Plaintiffs allege that
Atossa Genetics, Inc. (“Atossa”) and its Chairman and Chief
Executive Officer, Steven Quay, made a series of public
statements about Atossa’s breast cancer screening products
that were materially false or misleading. The district court
concluded that these statements were not false or misleading,
or were not material. We hold that Plaintiffs have properly
alleged falsity and materiality as to some, but not all, of these
statements. We affirm in part, reverse in part, vacate in part,
and remand.
 IN RE ATOSSA GENETICS INC. SECURITIES LITIGATION 5

I

The following facts are alleged in Plaintiffs’ amended
complaint or are found in documents to which the allegations
refer in the amended complaint. See In re Quality Sys., Inc.
Sec. Lit., —F.3d—, No. 15-55173, 2017 WL 3203558, at *6
(9th Cir. July 28, 2017). For purposes of this appeal, we
assume that these facts are true. See S. Ferry LP, No. 2 v.
Killinger, 542 F.3d 776, 782 (9th Cir. 2008).

Atossa develops and markets products used to detect pre-
cancerous conditions that foreshadow the development of
breast cancer. In 2009, Atossa acquired the patent rights to
a product called the Mammary Aspirate Specimen Cytology
Test System (“MASCT System”). The MASCT System is a
pump designed to extract nipple aspirate fluid (“NAF”) from
women’s breasts, after which the NAF can be used to detect
or predict breast cancer.

Before Atossa purchased the patent rights to the MASCT
system, the product had been cleared by the U.S. Food and
Drug Administration (“FDA”) pursuant to a procedure
called “premarket notification,” or the “510(k) process.”
This procedure allows a manufacturer to introduce a device
to market that is “substantially equivalent” to a device
already legally marketed in the United States, so long as the
FDA provides “clearance” for the device in the form of a
letter. See generally 21 C.F.R. §§ 807.81–807.100. The
FDA cleared the MASCT System for use as a sample
collection device with the provision that the NAF collected
by the device could be used for the detection of cancerous
and pre-cancerous cells. The FDA did not clear the MASCT
System for the screening or diagnosis of breast cancer.

After first marketing the MASCT System as a standalone
product, Atossa began to market it in combination with a
6 IN RE ATOSSA GENETICS INC. SECURITIES LITIGATION

diagnostic tool called the ForeCYTE Test. The combined
products worked in two steps. First, health care
professionals would use the MASCT System to collect NAF
from patients. Second, Atossa would use the ForeCYTE
Test in its Seattle laboratory to inspect the NAF samples for
cancer indications. 1

But, and importantly here, Atossa never obtained FDA
clearance for either the ForeCYTE Test or the combination
of the MASCT System and the ForeCYTE Test.

In November of 2012, Atossa raised capital through an
initial public offering (“IPO”). As part of the IPO, Atossa
filed offering documents with the Securities and Exchange
Commission (“SEC”), which described the MASCT System
as cleared by the FDA. The documents did not state whether
the ForeCYTE Test had been FDA-cleared. However, the
documents said that “[t]o date, the FDA has decided, as a
matter of enforcement discretion, not to exercise its authority
with respect to most ‘home brew’ tests performed by high
complexity laboratories certified under [federal standards],
which is the type of laboratory that we have established.”
Atossa cautioned that “it [was] likely that the FDA w[ould]
impose additional or new regulations affecting [laboratory-
developed tests], including requiring premarket notification
or approval for [such] tests.” In other words, at the time of

1
In the public statements at issue in this case, Atossa and Quay
sometimes use the labels “ForeCYTE Test” and “ForeCYTE Breast
Health Test” as the amended complaint does, to refer to the cancer test
Atossa performed on NAF at its laboratory. But at other times, Atossa
and Quay use those same labels to describe the combination of the lab
test and the breast pump. At still other times, it is unclear whether Atossa
and Quay are referring to both products, or to only the lab test. For
clarity, we follow the lead of the amended complaint and use the name
“ForeCYTE Test” to describe only the lab test.
 IN RE ATOSSA GENETICS INC. SECURITIES LITIGATION 7

the IPO, Atossa thought that it could market the ForeCYTE
Test without seeking FDA clearance, but also thought that
the FDA was likely to require such clearance in the future.
The offering documents also warned that if Atossa modified
a device that had already received clearance for a specific
use, any modification “may require the manufacturer to
cease marketing and recall the modified device until 510(k)
clearance or [other] approval is obtained.”

Following the IPO, Atossa and Quay made the public
statements at issue in this appeal. First, on December 20,
2012, Atossa filed a Form 8–K report with the SEC,
announcing Atossa’s financial results for the third quarter of
2012. That filing quotes Quay as saying that “[t]he proceeds
from the IPO will enable us to accelerate the national roll-
out of our first FDA-cleared and marketed product, the
ForeCYTE Breast Health Test for breast cancer risk
assessment.” In the same filing, Atossa describes itself as
“focused on preventing breast cancer through the
commercialization of patented, FDA-cleared diagnostic
medical devices and patented, laboratory developed tests
(LDT) that can detect precursors to breast cancer up to eight
years before mammography.”

On February 22, 2013, News-Medical.Net published an
interview with Quay wherein he was asked about “the new
test developed by Atossa Genetics.” In his response, Quay
brought up the “ForeCYTE Breast Health test,” calling it
“literally a Pap smear for breast cancer.” The interviewer
then asked Quay, “[w]hat stage of development is this test
currently at?” Quay answered, “[i]t has gone through all of
the FDA clearance process, which is a multi-year, multi-
million dollar process.”

Two days before the interview was published, on
February 20, 2013, the FDA sent a warning letter to Atossa.
8 IN RE ATOSSA GENETICS INC. SECURITIES LITIGATION

The letter stated that during an inspection of Atossa’s
laboratory, the FDA discovered that Atossa had modified the
method by which the MASCT system collected NAF,
without Atossa obtaining a new 510(k) clearance.
According to the FDA, this meant that the MASCT System
was misbranded and adulterated in violation of the Federal
Food, Drug, and Cosmetic Act. See 21 U.S.C. §§ 351, 352.
The FDA explicitly advised that the modified MASCT
System required submission of a new 510(k) premarket
notification, and that the ForeCYTE Test required
independent clearance before marketing. The FDA also
explicitly advised that Atossa’s website and product labels
were displaying false or misleading statements because they
characterized the MASCT System as “FDA-approved” and
the ForeCYTE Test as “FDA Cleared.”

Five days later, on February 25, 2013, Atossa filed a
Form 8–K report with the SEC giving notice that it had
received the warning letter from the FDA. Atossa in that
report explained that the FDA believed that modifications to
the MASCT System required that Atossa receive a new
510(k) clearance. However, Atossa did not at all mention
the FDA’s concerns regarding (a) the ForeCYTE Test’s lack
of FDA approval, or (b) Atossa’s false or misleading
marketing materials. Instead, Atossa stated the following:

The Letter also raises certain issues with
respect to the Company’s marketing of the
[MASCT] System and the Company’s
compliance with FDA Good Manufacturing
Practices (cGMP) regulations, among other
matters. . . . Until these issues are resolved
Atossa may be subject to additional
regulatory action by the FDA, and any such
 IN RE ATOSSA GENETICS INC. SECURITIES LITIGATION 9

actions could disrupt the Company’s ongoing
business and operations.

On the same day that Atossa filed the Form 8–K report
giving notice of the FDA’s letter, one of Atossa’s IPO
underwriters, Dawson James Securities, issued an analyst
report maintaining a “BUY” recommendation for Atossa.
The report stated that if the FDA ultimately required Atossa
to file a new 510(k) notification because of its changes to the
MASCT System, Atossa could still continue to market the
original MASCT System. On this basis, the report
concluded that “Atossa will be able to suitably reply to the
FDA’s concerns as expressed in the Warning Letter.”

On March 15, 2013, Quay gave an interview to the Wall
Street Transcript, published three days later, in which he said
the following about Atossa’s strategy: “I mean, 2013 and
2014 are execution years, where FDA clearance risk has
been achieved, patents have been obtained, clinical trials
have been achieved, manufacturing has been achieved—so
now it’s really a matter of going from less than 100 doctors
doing our test to the expectation of thousands of doctors.”

On the same day that Quay participated in that interview,
Atossa responded to the FDA. Atossa told the FDA that it
intended to submit a new 510(k) premarket notification for
the MASCT System, and asked the FDA to post Atossa’s
response on the FDA’s website. The FDA posted both its
warning letter and Atossa’s response to the letter on its
website. The amended complaint does not allege a particular
date on which the FDA made the warning letter public
online. However, the FDA’s webpage containing the letter
lists March 20, 2013 as the “Page Last Updated” date. The
parties agree that the FDA uploaded the letter at the latest by
March 20, 2013.
10 IN RE ATOSSA GENETICS INC. SECURITIES LITIGATION

On May 22, 2013, a stock market analyst issued a
“BUY” recommendation for Atossa, titled “BUY Marketing
blitz continues for Atossa.” The recommendation was based
on several factors, including Atossa’s “two approved
products.”

Atossa submitted a new 510(k) premarket notification to
the FDA, but in August of 2013 it withdrew the new
notification after Atossa became aware that the FDA was
unlikely to grant a clearance. Atossa did not disclose to
investors that it withdrew the new notification. Meanwhile,
on August 14, 2013, Atossa filed a Form 10–Q quarterly
report with the SEC, which stated that Atossa was
“reasonably confident in its responses” to the FDA’s
warning letter.

On September 19, 2013, the FDA told Atossa that it must
recall both the MASCT System and the ForeCYTE Test
because Atossa was marketing the products without FDA
clearance. Six days later on September 25, 2013, Quay
participated in a public webinar via Moneyshow.com titled
“How to Invest Ahead of Breast Cancer Awareness Month.”
Quay did not during that webinar mention the FDA’s recall
demand.

On October 4, 2013, Atossa publicly disclosed that it was
recalling the MASCT System and ForeCYTE Test from the
market. Atossa stated:

The MASCT device has not been cleared by
the FDA for the screening or diagnosis of
breast cancer. In addition, the ForeCYTE
[Test] has not been cleared or approved by
the FDA for any indication. The ForeCYTE
[Test] and the MASCT device are not a
 IN RE ATOSSA GENETICS INC. SECURITIES LITIGATION 11

replacement for screening mammograms,
diagnostic imaging tests, or biopsies.

Within three days, Atossa’s share price plummeted,
dropping by more than 46%. Because of the recall, all of
Atossa’s product and service revenue came to an abrupt end.

Plaintiff Nicholas Cook filed a putative class action
against Atossa, several of its directors and officers, and three
securities firms that underwrote Atossa’s IPO
(“Defendants”). The district court appointed Miko Levi,
Bandar Almosa, and Gregory Harrison as lead plaintiffs. In
the amended complaint, Plaintiffs allege violations of
Sections 11 and 15 of the Securities Act of 1933, 15 U.S.C.
§§ 77k, 77o; Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934, 15 U.S.C. §§ 78j(b), 78t(a); and SEC
Rule 10b–5, 17 C.F.R. § 240.10b–5.

The district court dismissed the amended complaint
without prejudice. The district court first concluded that
Plaintiffs lacked statutory standing to assert their Section 11
claims. Second, the district court concluded that Plaintiffs
did not plead “materiality” or “falsity” with sufficient
particularity for their Section 10(b) and Rule 10b–5 claims.
And finally, the district court concluded that Plaintiffs’
Section 15 and Section 20(a) claims, concerning control
person liability, failed because such claims require proof of
a primary violation of the securities laws, which in the
district court’s view Plaintiffs did not properly allege. In this
appeal, Plaintiffs challenge the district court’s decision only
as to the Section 10(b), Section 20(a), and Rule 10b–5
claims.
12 IN RE ATOSSA GENETICS INC. SECURITIES LITIGATION

II

We have jurisdiction to decide this appeal under 28
U.S.C. § 1291. “We review de novo a district court’s grant
of a motion to dismiss for failure to state a claim under
Federal Rule of Civil Procedure 12(b)(6) and for failure to
allege fraud with particularity under Federal Rule of Civil
Procedure 9(b).” WPP Luxembourg Gamma Three Sarl v.
Spot Runner, Inc., 655 F.3d 1039, 1047 (9th Cir. 2011). We
“accept the [P]laintiffs’ allegations as true and construe them
in the light most favorable to [P]laintiffs.” City of Dearborn
Heights Act 345 Police & Fire Ret. Sys. v. Align Tech., Inc.,
856 F.3d 605, 612 (9th Cir. 2017) (internal quotation marks
omitted).

III

Under Section 10(b) of the Securities Exchange Act of
1934, it is unlawful “[t]o use or employ, in connection with
the purchase or sale of any security . . . any manipulative or
deceptive device or contrivance in contravention of such
rules and regulations as the Commission may prescribe.”
15 U.S.C. § 78j(b). Pursuant to this provision, the SEC
promulgated Rule 10b–5, which makes it unlawful to “make
any untrue statement of a material fact or to omit to state a
material fact necessary in order to make the statements
made, in the light of the circumstances under which they
were made, not misleading, . . . in connection with the
purchase or sale of any security.” 17 C.F.R. § 240.10b–5.

To state a claim for securities fraud under this rule,
Plaintiffs must plead six elements: “(1) a material
misrepresentation or omission by the defendant; (2) scienter;
(3) a connection between the misrepresentation or omission
and the purchase or sale of a security; (4) reliance upon the
misrepresentation or omission; (5) economic loss; and
 IN RE ATOSSA GENETICS INC. SECURITIES LITIGATION 13

(6) loss causation.” Reese v. Malone, 747 F.3d 557, 567 (9th
Cir. 2014) (internal quotation marks omitted), overruled on
other grounds by City of Dearborn Heights, 856 F.3d 605.

Because Plaintiffs allege violations of Section 10(b) and
Rule 10b–5, their amended complaint must satisfy the dual
pleading requirements of Federal Rule of Civil Procedure
9(b) and the Private Securities Litigation Reform Act
(“PSLRA”), 109 Stat. 737. Zucco Partners, LLC v.
Digimarc Corp., 552 F.3d 981, 990 (9th Cir. 2009), as
amended (Feb. 10, 2009). Rule 9(b) requires that Plaintiffs
“state with particularity the circumstances constituting
fraud.” Fed. R. Civ. P. 9(b). The PSLRA requires that
Plaintiffs plead with particularity both falsity and scienter.
Reese, 747 F.3d at 568.

The district court rejected Plaintiffs’ Section 10(b) and
Rule 10b–5 claims on falsity and materiality grounds. In
reviewing the district court’s falsity rulings, we look to the
PSLRA’s heightened pleading standards. We ask whether
Plaintiffs in the amended complaint “specify each statement
alleged to have been misleading, [and] the reason or reasons
why the statement is misleading.” 15 U.S.C. § 78u-4(b)(1).
“[I]f an allegation regarding the statement or omission is
made on information and belief,” Plaintiffs must “state with
particularity all facts on which that belief is formed.” Id.

For Plaintiffs to satisfy materiality, “there must be a
substantial likelihood that the disclosure of the omitted fact
would have been viewed by the reasonable investor as
having significantly altered the ‘total mix’ of information
made available.” Basic Inc. v. Levinson, 485 U.S. 224, 231–
32 (1988) (quoting TSC Indus., Inc. v. Northway, Inc., 426
U.S. 438, 449 (1976)). Plaintiffs’ allegations must “suffice
to raise a reasonable expectation that discovery will reveal
evidence satisfying the materiality requirement, and to allow
14 IN RE ATOSSA GENETICS INC. SECURITIES LITIGATION

the court to draw the reasonable inference that the defendant
is liable.” Reese, 747 F.3d at 568 (quoting Matrixx
Initiatives, Inc. v. Siracusano, 563 U.S. 27, 46 (2011)).
Where a complaint contains only “[c]onclusory allegations
of law and unwarranted inferences,” dismissal of the
complaint on materiality grounds is appropriate. In re
VeriFone Sec. Litig., 11 F.3d 865, 868 (9th Cir. 1993).

Below, we address whether Plaintiffs sufficiently pled
falsity and materiality for each statement at issue in this
appeal. 2

A

We begin with Quay’s two alleged statements describing
the ForeCYTE Test as cleared by the FDA. In the Form 8–
K report filed on December 20, 2012, Quay is quoted as
saying that “[t]he proceeds from the IPO will enable us to
accelerate the national roll-out of our first FDA-cleared and
marketed product, the ForeCYTE Breast Health Test for
breast cancer risk assessment.” In the interview with News-
Medical.Net, Quay answered a question about the
ForeCYTE test by saying “[i]t has gone through all of the
FDA clearance process.”

Plaintiffs have sufficiently pled that these alleged
statements were false. Plaintiffs allege that Atossa did not
receive FDA clearance for the ForeCYTE test or for the
combination of the ForeCYTE test and the MASCT System.
These allegations directly contradict Quay’s alleged
statements that the ForeCYTE test was FDA-cleared. The
2
Defendants ask that we also rule on whether Plaintiffs properly
pled scienter, but because the district court did not reach scienter in its
order dismissing the amended complaint, we decline to address scienter
in the first instance.
 IN RE ATOSSA GENETICS INC. SECURITIES LITIGATION 15

allegations satisfy the PSLRA by providing the “reasons
why the statement[s are] misleading.” 15 U.S.C. § 78u-
4(b)(1).

Plaintiffs have also properly pled materiality. As
alleged, the MASCT System and ForeCYTE Test were
Atossa’s main sources of revenue. If reasonable investors
had known that the ForeCYTE Test was not FDA-cleared,
and therefore was at risk of government action that could
remove the product from the market, such investors
doubtless would have been less keen to invest in Atossa. The
stock analyst’s “BUY” rating, based in part on Atossa’s “two
approved products,” confirms that FDA clearance for the
ForeCYTE Test was relevant to investing decisions.
Because the ForeCYTE Test was allegedly central to
Atossa’s business strategy, the knowledge that the test was
not FDA-cleared would have, for a reasonable investor,
“significantly altered the ‘total mix’ of information made
available.” Basic, 485 U.S. at 232 (internal quotation marks
omitted).

There is also little reason to think that the market was
aware that Quay’s alleged statements were false. Atossa’s
alleged IPO documents did not contradict Quay’s assertions.
The alleged documents stated that the MASCT System was
FDA-cleared, but were silent regarding clearance for the
ForeCYTE Test. Defendants point to Atossa’s cautionary
language stating that the FDA likely would require
premarket notification for certain lab tests in the future.
Defendants contend that this warning implied that the
ForeCYTE Test was not FDA-cleared. But we reject this
dubious proposition. That the FDA did not require clearance
at the time of the IPO, does not indicate that the ForeCYTE
test was not cleared. Atossa’s warning also shows why
Quay’s alleged false statements were consequential: If the
16 IN RE ATOSSA GENETICS INC. SECURITIES LITIGATION

FDA was likely to start requiring clearance, then surely a
reasonable investor would care whether Atossa’s test was
FDA-cleared.

This conclusion is reinforced by our view of the doctrine
of reliance and its relationship to materiality. As earlier
mentioned, one of the elements Plaintiffs must allege to state
a claim for securities fraud is reliance on the false or
misleading statement. Plaintiffs can satisfy this element in
several ways. Most directly, Plaintiffs can allege that they
were aware of, and specifically relied on, Quay’s false
statements when deciding to purchase or sell Atossa shares.
See, e.g., Paracor Fin., Inc. v. Gen. Elec. Capital Corp.,
96 F.3d 1151, 1159 (9th Cir. 1996). Under this theory of
reliance, it does not matter whether Atossa’s alleged offering
documents previously revealed that the ForeCYTE Test was
not cleared. If Quay’s alleged statements contained false
information about a subject that reasonable investors would
consider important, and Plaintiffs relied on those statements,
then those statements are material. See In re Apple Comput.
Sec. Lit., 886 F.2d 1109, 1114 (9th Cir. 1989) (“Ordinarily,
omissions by corporate insiders are not rendered immaterial
by the fact that the omitted facts are otherwise available to
the public.”); Miller v. Thane Int’l, Inc., 519 F.3d 879, 887
(9th Cir. 2008) (“[I]nvestors are not generally required to
look beyond a given document to discover what is true and
what is not.”).

Certainly the calculus for materiality would change
where Plaintiffs allege reliance less directly, for example
solely through a “fraud on the market” theory. Under a fraud
on the market theory, Plaintiffs would not allege that they
directly relied on Quay’s particular false statement, but
rather that they relied on the integrity of the market price for
Atossa shares, which itself reflected all market data. See
 IN RE ATOSSA GENETICS INC. SECURITIES LITIGATION 17

Apple Computer, 886 F.2d at 1114 (“In a fraud on the market
case, the plaintiff claims that he was induced to trade stock
not by any particular representations made by corporate
insiders, but by the artificial stock price set by the market in
light of statements made by the insiders as well as all other
material public information.”). Unlike direct reliance, under
a fraud on the market theory, it is possible for true
information to enter the market and nullify the effect of the
false statement on the stock price, thereby making the false
statements immaterial.

But here, Plaintiffs pled both that they relied directly on
the statements by Quay and Atossa, as well as the integrity
of Atossa’s stock price. So even if the alleged IPO
documents were assumed to have conveyed the truth about
clearance for the ForeCYTE Test (which we conclude they
did not), and even if such truthful information canceled out
the effect of Quay’s alleged false statements on Atossa’s
stock price, Quay’s alleged statements would still be
material under a theory of direct reliance, which Plaintiffs
here adequately pled.

We hold that Plaintiffs have properly pled falsity and
materiality for Quay’s statements that the ForeCYTE Test
was FDA-cleared.

B

We next address Atossa’s alleged statements describing
the MASCT System as FDA-cleared. The FDA allegedly
cleared the MASCT System only for use in collecting NAF
samples. The IPO documents stated this explicitly in some
places. They explained, for instance, that the MASCT
System had been cleared “for the collection of NAF” with
the provision that “the NAF collected using the MASCT
System can be used in the determination and/or
18 IN RE ATOSSA GENETICS INC. SECURITIES LITIGATION

differentiation of normal versus premalignant versus
malignant cells.”

But in a different place in the offering documents, as well
in the Form 8–K filing of December 20, 2012, Atossa used
less precise language. Atossa stated only that the MASCT
System was FDA-cleared, without specifying the purpose
for which it had been cleared. These alleged statements are:
(1) the IPO documents’ mention of “FDA-cleared Mammary
Aspirate Specimen Cytology Test, or MASCT, System (our
MASCT System received 510(k) clearance from the FDA in
2003)”; and (2) the Form 8–K reference to the MASCT
System as “patented, FDA-cleared diagnostic medical
devices.”

These alleged statements were not false. The MASCT
System had received 510(k) clearance, and the statements
portrayed the MASCT System as having received that
clearance. Nevertheless, Plaintiffs contend that while true,
the alleged statements were misleading in context. See
Brody v. Transitional Hosps. Corp., 280 F.3d 997, 1006 (9th
Cir. 2002) (“[A] statement that is literally true can be
misleading and thus actionable under the securities laws.”).
Plaintiffs assert that Atossa “portrayed the ‘cleared’ MASCT
system as part of its breast cancer screening system,” even
though it had only been cleared for sample collection, not
screening. Plaintiffs contend that based on Atossa’s
statements, a reasonable investor would have believed that
the MASCT System was FDA-cleared for the purpose for
which Atossa was marketing the product—the detection of
breast cancer and the precursors to breast cancer.

But Plaintiffs’ theory in this respect must be rejected. As
allegedly marketed by Atossa, the MASCT System
performed only a collection role. It was used to collect the
NAF, which was sent to Atossa’s lab where the ForeCYTE
 IN RE ATOSSA GENETICS INC. SECURITIES LITIGATION 19

Test screened the NAF for cancerous and precancerous cells.
The result was a cancer screen, but the MASCT System’s
alleged role in the process was precisely that for which it
allegedly had been cleared—collection. Nowhere do
Plaintiffs allege that the MASCT System itself screened for
cancer. Plaintiffs’ amended complaint therefore does not
specify “the reason or reasons why the statement[s are]
misleading.” 15 U.S.C. § 78u-4(b)(1); see Brody, 280 F.3d
at 1006 (defining misleading as “affirmatively creat[ing] an
impression of a state of affairs that differs in a material way
from the one that actually exists.”). We conclude that
Atossa’s alleged general statements that the MASCT System
was FDA-cleared were not misleading.

To be sure, as alleged, the FDA eventually demanded a
recall of the MASCT System, even despite the FDA’s
previous grant of 510(k) clearance for the product. But the
alleged reason for the recall was not that Atossa used the
MASCT System for a non-cleared purpose. Rather, Atossa
allegedly had changed the MASCT System’s collection
method without filing a new 510(k) notification. Plaintiffs
do not contend that Atossa’s statements were misleading
because the MASCT System was modified; they contend
only that Atossa marketed the MASCT System for a non-
cleared purpose.

We hold that Plaintiffs have not sufficiently alleged that
Atossa’s statements concerning FDA clearance for the
MASCT System were false or misleading, and we affirm in
part as to that conclusion. 3

3
We need not, and do not, reach whether Plaintiffs properly pled
that those statements were material.
20 IN RE ATOSSA GENETICS INC. SECURITIES LITIGATION

C

We next address whether Atossa’s Form 8–K filing on
February 25, 2013, giving notice of the FDA’s warning
letter, was materially false or misleading. The filing
explained the FDA’s concerns regarding modifications to
the MASCT System, but left out the FDA’s alleged concerns
about (a) the ForeCYTE Test lacking clearance, and
(b) Atossa’s false and misleading marketing materials.
Instead, Atossa stated the following:

The Letter also raises certain issues with
respect to the Company’s marketing of the
[MASCT] System and the Company’s
compliance with FDA Good Manufacturing
Practices (cGMP) regulations, among other
matters. . . . Until these issues are resolved
Atossa may be subject to additional
regulatory action by the FDA, and any such
actions could disrupt the Company’s ongoing
business and operations.

Atossa’s above-quoted language omitted the balance of
the FDA’s alleged serious concerns. We conclude that,
though not literally false, the alleged omissions in the Form
8–K filing were misleading. In particular, the omissions
gave the reasonable inference that the FDA had raised no
concerns related to clearance for the ForeCYTE Test, when,
as alleged, the FDA had raised precisely that concern. The
amended complaint’s allegations suggest that, regrettably
for the investors who bought Attosa’s stock, Atossa hid the
ball. See, e.g., In re Amylin Pharm., Inc. Sec. Litig., No.
01CV1455 BTM (NLS), 2003 WL 21500525, at *8 (S.D.
Cal. May 1, 2003) (“[T]he concerns raised by the FDA . . .
were much more significant than a ‘bump on the road’ and
 IN RE ATOSSA GENETICS INC. SECURITIES LITIGATION 21

shed serious doubt on the sufficiency of the trials.
Accordingly, Defendants were obligated to disclose the
FDA’s concerns to render their statement not misleading.”).

Atossa’s general disclaimer that it could be subject to
future regulatory action from “other matters” does not cure
the misleading nature of its alleged filing. We measure the
protective function of forward-looking cautionary language
using the “bespeaks caution” doctrine. In re Worlds of
Wonder Sec. Litig., 35 F.3d 1407, 1413 (9th Cir. 1994). The
doctrine “provides a mechanism by which a court can rule as
a matter of law . . . that defendants’ forward-looking
representations contained enough cautionary language or
risk disclosure to protect the defendant against claims of
securities fraud.” Id. (internal quotation marks omitted).
But “[d]ismissal on the pleadings under the bespeaks caution
doctrine . . . requires a stringent showing: There must be
sufficient cautionary language or risk disclosure such that
reasonable minds could not disagree that the challenged
statements were not misleading.” Livid Holdings Ltd. v.
Salomon Smith Barney, Inc., 416 F.3d 940, 947 (9th Cir.
2005) (alteration and internal quotation marks omitted). To
meet this standard, “the language bespeaking caution [must]
relate directly to that to which plaintiffs claim to have been
misled.” Worlds of Wonder, 35 F.3d at 1415 (quoting Kline
v. First W. Gov’t Sec., Inc., 24 F.3d 480, 489 (3d Cir. 1994)).

Here, Atossa referred to the FDA’s ForeCYTE Test
concerns using the broad phrase “among other matters,” and
closed with the similarly broad warning, “[u]ntil these issues
are resolved Atossa may be subject to additional regulatory
action by the FDA.” This language is not “directly” related
to FDA clearance for the ForeCYTE Test, is vague enough
to cover any concern the FDA might have had related to
Atossa, and obscures the issue of concern to reasonable
22 IN RE ATOSSA GENETICS INC. SECURITIES LITIGATION

investors whether the ForeCYTE Test was FDA-cleared.
See Worlds of Wonder, 35 F.3d at 1415. We conclude that
reasonable minds could disagree that Atossa’s alleged
language was not misleading. The bespeaks caution doctrine
does not protect Defendants from liability.

Nor does the PSLRA’s safe harbor, which is
a “statutory version” of the bespeaks caution
doctrine. Emp’rs Teamsters Local Nos. 175
& 505 Pension Tr. Fund v. Clorox Co.,
353 F.3d 1125, 1132 (9th Cir. 2004). The
PSLRA’s safe harbor provision exempts
from liability forward-looking statements
accompanied by certain cautionary language.
See 15 U.S.C. § 77z–2; Quality Systems,
2017 WL 3203558, at *7. But the misleading
part of Atossa’s Form 8–K filing—how it
characterized the FDA’s warning letter—
concerned only past facts, not statements
about the future. The filing therefore falls
outside of the PSLRA’s safe harbor.

We conclude that Plaintiffs have sufficiently alleged that
Atossa’s Form 8–K filing giving notice of the FDA’s
warning letter was misleading. Perhaps most importantly,
the alleged warning letter had expressly said that the
ForeCYTE Test was not FDA-cleared, but the alleged
responsive filing from Atossa studiously avoided disclosing
that fact.

We also conclude that the information omitted from the
alleged filing was material. Just as a reasonable investor
would find it relevant that the ForeCYTE Test was not FDA-
cleared, such an investor would find it relevant that the FDA
raised concerns about the ForeCYTE Test not being cleared.
 IN RE ATOSSA GENETICS INC. SECURITIES LITIGATION 23

Indeed, in the latter case, the prospect of Atossa being forced
by the FDA to pull the ForeCYTE Test from the market is
an even more likely possibility.

Atossa contends that its characterization of the alleged
warning letter was immaterial because the warning letter was
publicly available. But this argument suffers from two
flaws. First, public disclosure of the alleged letter is relevant
to materiality only to the degree that Plaintiffs rely on a fraud
on the market theory of reliance. See Apple Comput.,
886 F.2d at 1114. As explained earlier, Plaintiffs allege both
direct reliance on Atossa’s statements and reliance on the
integrity of the market price. Under Plaintiffs’ direct
reliance theory, disclosure of the alleged letter is irrelevant
to materiality. See Miller, 519 F.3d at 887.

Second, for purposes of this appeal, we presume that the
FDA warning letter was not publicly available at the time
Atossa filed its misleading Form 8–K report. Plaintiffs were
the nonmoving party in the district court, so we must
construe all factual allegations in their favor. See Outdoor
Media Grp., Inc. v. City of Beaumont, 506 F.3d 895, 900 (9th
Cir. 2007). The amended complaint and the documents
mentioned in it do not list the date on which the letter was
made public. But the alleged printout of the warning letter
from the FDA’s website lists March 20, 2013 as the “Page
Last Updated” date. At this stage, we must grant Plaintiffs
the reasonable inference that the “Page Last Updated” date
is the same date on which the FDA initially uploaded the
warning letter. March 20, 2013 is nearly a month after
Atossa filed its Form 8–K report addressing the letter, too
24 IN RE ATOSSA GENETICS INC. SECURITIES LITIGATION

late for the letter’s public disclosure to affect the materiality
of omissions from the filing. 4

Finally, Plaintiffs have moved for us to take judicial
notice of Atossa’s stock price from March 14, 2013 to March
26, 2013, which sharply increased. Plaintiffs contend that
the increase in Atossa’s stock price during that thirteen-day
period shows that even if the FDA letter became public on
March 20, 2013, the information in the letter did not at that
time “enter the market” by becoming known to market
observers. We GRANT the motion for judicial notice
because historical stock prices are “not subject to reasonable
dispute” and “can be accurately and readily determined from
sources whose accuracy cannot reasonably be questioned.”
Fed. R. Evid. 201(b). However, Atossa’s stock price during
that period does not affect our analysis one way or the other.
The price increase from March 14, 2013 to March 26, 2013
might reflect that the letter did not quickly enter the market
when made public on March 20, 2013. But it might also
reflect that the letter was in fact made public long before
March 20, 2013, and any price decrease it caused predated
Plaintiffs’ chosen thirteen-day period. Without a record of
price stretching back to an earlier point, we decline to give
weight to Atossa’s stock price in our analysis of whether
Atossa’s alleged Form 8–K filing was misleading.

4
The analyst report from Dawson James Securities lends support to
the factual inference that the warning letter was not publicly available at
the time of Atossa’s Form 8–K filing. As alleged, the analyst report
mentioned the FDA’s concerns about modification to the MASCT
System, but did not mention any concerns about the ForeCYTE Test
lacking FDA clearance. If the letter had been publicly available, one
would expect a securities firm that analyzed Atossa, and had been
involved in Atossa’s IPO, to be aware of the letter’s contents.
 IN RE ATOSSA GENETICS INC. SECURITIES LITIGATION 25

For the other reasons stated above, we infer at this stage
that the warning letter was not publicly available at the time
of Atossa’s alleged Form 8–K filing giving notice of the
letter. We hold that Plaintiffs have properly pled that the
filing was materially misleading.

D

We next address the statement in Atossa’s Form 10–Q
quarterly report that Atossa was “reasonably confident in its
responses” to the FDA’s warning letter.

Plaintiffs first contend that this alleged statement was
false or misleading because at the time of the filing, Atossa
had already submitted and withdrawn a new 510(k)
notification for the MASCT System. In the Plaintiffs’ view,
a feeling of reasonable confidence was inconsistent with
Atossa withdrawing the notification.

We disagree. “When valuing corporations, [] investors
do not rely on vague statements of optimism like ‘good,’
‘well-regarded,’ or other feel good monikers.” In re Cutera
Sec. Litig., 610 F.3d 1103, 1111 (9th Cir. 2010). Such
corporate “puffing” is not actionable as misleading under the
securities law. See id. (“[A] mildly optimistic, subjective
assessment hardly amounts to a securities violation. Indeed,
professional investors, and most amateur investors as well,
know how to devalue the optimism of corporate executives.”
(internal quotation marks omitted)). Atossa’s alleged
statement that it was “reasonably confident” in its responses
to the FDA’s letter is unspecific, subjective, and only
guardedly optimistic. “In context, any reasonable investor
would have understood [Atossa’s alleged] statement[] as
mere corporate optimism.” Police Ret. Sys. of St. Louis v.
Intuitive Surgical, Inc., 759 F.3d 1051, 1060 (9th Cir. 2014);
see id. at 1060–61 (concluding that statements that company
26 IN RE ATOSSA GENETICS INC. SECURITIES LITIGATION

is “reservedly optimistic” about sales and “in a pretty good
position” despite the economic crisis are “the antithesis of
facts” and “represent the feel good speak that characterizes
non-actionable puffing” (internal quotation marks omitted)).
We conclude that Plaintiffs have not sufficiently alleged that
Atossa’s guarded statement that it was “reasonably
confident” in its responses to the FDA was false or
misleading.

Plaintiffs also contend that Atossa’s Form 10–Q report
was misleading by omission. Plaintiffs assert that by
commenting on the prospects for its responses to the FDA,
without also disclosing the newly filed and withdrawn
510(k) notification, Atossa materially misled reasonable
investors. But Atossa was not obligated to disclose each and
every step it took when interacting with regulators. See
Matrixx Initiatives, 563 U.S. at 44 (“[Section] 10(b) and
Rule 10b–5(b) do not create an affirmative duty to disclose
any and all material information. Disclosure is required
under these provisions only when necessary to make
statements made, in the light of the circumstances under
which they were made, not misleading.” (alteration and
internal quotation marks omitted)); Cutera, 610 F.3d at 1109
(“Often, a statement will not mislead even if it is incomplete
or does not include all relevant facts.” (internal quotation
marks omitted)). Plaintiffs do not point to any particular
statement in the Form 10–Q report (other than the statement
of reasonable confidence, addressed above) that would be
misleading in light of the withdrawn 510(k) notification.
Plaintiffs have not pled “the reason or reasons why” any
particular statement is misleading, as required under the
PSLRA. 15 U.S.C. § 78u-4(b)(1).

We conclude that Plaintiffs have not sufficiently pled
that Atossa’s Form 10–Q filing was misleading, and we
 IN RE ATOSSA GENETICS INC. SECURITIES LITIGATION 27

affirm in part as to the district’s court’s rejection of this
contention. 5

E

Finally, we address the following statement made by
Quay during his March 15, 2013 interview with the Wall
Street Transcript: “I mean, 2013 and 2014 are execution
years, where FDA clearance risk has been achieved, patents
have been obtained, clinical trials have been achieved,
manufacturing has been achieved—so now it’s really a
matter of going from less than 100 doctors doing our test to
the expectation of thousands of doctors.” Plaintiffs contend
that Quay’s suggestion that FDA clearance risk had been
achieved was materially false or misleading because the
FDA had not given clearance for the ForeCYTE Test.
Defendants respond that the alleged statement was not false
or misleading because it was forward-looking. In their view,
Quay’s answer conveyed that 2013 and 2014 were years
when Atossa would achieve full FDA clearance.

The most natural reading of Quay’s interview response
is that he spoke of events that had already happened, i.e., that
FDA clearance risk had already been achieved. In Quay’s
answer, he surrounded the phrase “FDA clearance risk” with
use of the past tense: “achieved”; “obtained”; “achieved”;
and “achieved.” This emphasis on the past tense indicates
that Quay was referring to prior events.

We also reject Defendants’ contention that because in an
earlier question the interviewer asked Quay to summarize his
priorities for the remainder of 2013, Quay’s response

5
We need not, and do not, reach whether Plaintiffs properly pled
that any omission from the filing was material.
28 IN RE ATOSSA GENETICS INC. SECURITIES LITIGATION

regarding FDA clearance risk must have been forward-
looking. The interviewer asked the question about Quay’s
2013 priorities three questions before Quay gave the
response at issue, and nothing in the interview indicates that
Quay’s response was an answer to the earlier question.

Nevertheless, even read as a statement that Atossa had
already achieved FDA clearance risk, Quay’s alleged
response is not plainly false. There is a difference between
saying that the ForeCYTE Test was FDA-cleared, a
statement of fact, and that FDA clearance risk has been
achieved, which sounds more like a statement of opinion.
The former is an easily verifiable past event—either the
FDA has granted clearance or it has not. The latter is less
black and white. What does it mean to say a risk has been
“achieved”? Such a statement could convey that the risk has
been reduced to zero. But it could also convey that the risk
has been reduced to an acceptable level, which could mean
that some degree of risk remains. Whether a risk has been
“achieved” is in our view not a question of fact, but a
question of opinion. See Omnicare, Inc. v. Laborers Dist.
Council Constr. Indus. Pension Fund, 135 S. Ct. 1318, 1325
(2015) (“A fact is ‘a thing done or existing’ or ‘[a]n actual
happening.’ An opinion is ‘a belief[,] a view,’ or a
‘sentiment which the mind forms of persons or things.’”
(quoting Webster’s New International Dictionary 782, 1509
(1927)). Indeed, it is the speaker’s personal definition of
“achieved” that here produces the opinion. Still, we do not
go as far as to classify Quay’s alleged response as corporate
puffery. “FDA clearance risk has been achieved” is too
precise to be considered the sort of vague, optimistic
language of puffery that investors know to disregard or to
take with a grain of salt. See Intuitive Surgical, 759 F.3d at
1060. Instead, we consider Quay’s alleged response to be a
statement of opinion, and we analyze it as such.
 IN RE ATOSSA GENETICS INC. SECURITIES LITIGATION 29

We recently addressed the standards applicable to
pleading falsity of an opinion statement under Section 10(b)
and Rule 10b–5. See City of Dearborn Heights, 856 F.3d
605. We there held that the standards for evaluating such
claims are the same standards the Supreme Court applied to
pleading Section 11 opinion claims in its decision in
Omnicare. We explained:

Omnicare establishes three different
standards for pleading falsity of opinion
statements. First, when a plaintiff relies on a
theory of material misrepresentation, the
plaintiff must allege both that “the speaker
did not hold the belief she professed” and that
the belief is objectively untrue. Second,
when a plaintiff relies on a theory that a
statement of fact contained within an opinion
statement is materially misleading, the
plaintiff must allege that “the supporting fact
[the speaker] supplied [is] untrue.” Third,
when a plaintiff relies on a theory of
omission, the plaintiff must allege “facts
going to the basis for the issuer’s opinion . . .
whose omission makes the opinion statement
at issue misleading to a reasonable person
reading the statement fairly and in context.”

City of Dearborn Heights, 856 F.3d at 615–16 (quoting
Omnicare, 135 S. Ct. at 1327, 1332). Plaintiffs’ allegations
fall into the third category. Plaintiffs allege that Quay’s
response minimizing FDA clearance risk was materially
misleading because it omitted (a) that the ForeCYTE Test
was not FDA-cleared, and (b) that the FDA had recently
warned Atossa regarding its lack of clearance.
30 IN RE ATOSSA GENETICS INC. SECURITIES LITIGATION

We emphasized in City of Dearborn Heights that “a
reasonable investor expects not just that the issuer believes
the opinion (however irrationally), but that it fairly aligns
with the information in the issuer’s possession at the time.”
Id. at 615 (internal quotation marks omitted). Based on this,
we explained that for an opinion to be misleading by
omission, (1) the “statement [must] omit[] material facts
about the [defendant’s] inquiry into or knowledge
concerning a statement of opinion,” and (2) “those facts
[must] conflict with what a reasonable investor would take
from the statement itself.” Id. (internal quotation marks
omitted).

Here, the ForeCYTE Test’s lack of 510(k) clearance, and
the FDA’s concerns about that lack of clearance, relate
directly to the basis for Quay’s opinion that FDA clearance
risk had been achieved. These omitted facts concern Quay’s
“knowledge concerning [his] statement of opinion.” Id.
And they conflict with what a reasonable investor would
take away from the statement, “FDA clearance risk has been
achieved.” See Quality Systems, 2017 WL 3203558, at *9
(“[R]eassuring investors that ‘everything [was] going fine’
with FDA approval when the company knew FDA approval
would never come was materially misleading.” (discussing
and quoting Warshaw v. Xoma Corp., 74 F.3d 955, 959 (9th
Cir. 1996)). Moreover, the omitted facts are strikingly
similar to a hypothetical the Supreme Court offered in
Omnicare. The Supreme Court explained in Omnicare that
if an issuer publicly stated, “[w]e believe our conduct is
lawful,” but did not disclose the issuer’s knowledge that the
Federal Government took the opposite view, reasonable
investors would be misled because the issuer’s opinion
would not “fairly align[] with the information in the issuer’s
possession at the time.” 135 S. Ct. at 1328–29. Here, saying
that FDA clearance risk has been achieved is another way of
 IN RE ATOSSA GENETICS INC. SECURITIES LITIGATION 31

expressing a belief that Atossa’s conduct mostly complies
with FDA rules governing 510(k) clearance. And failing to
disclose that the FDA gave a warning about the ForeCYTE
Test not having 510(k) clearance is an omission concerning
knowledge that the Federal Government has taken the
opposite view concerning the lawfulness of Atossa’s alleged
conduct. As in the Supreme Court’s hypothetical, Quay’s
opinion statement did not “fairly align[] with the information
in [Quay’s] possession at the time.” Id. at 1329. We
conclude that Quay’s opinion statement that FDA clearance
risk has been achieved is misleading by omission.

We also conclude that Quay’s omissions are material. A
reasonable investor would place great value in knowledge
that one of Atossa’s marquee products was not cleared by
the FDA and that the FDA had expressed concern about that
lack of clearance. And, as earlier discussed, by construing
the allegations in Plaintiffs’ favor, we infer that the FDA
warning letter was not made public until March 20, 2013.
This was five days after Quay made the statement regarding
FDA clearance risk during his interview with the Wall Street
Transcript, and two days after that interview was allegedly
published. The FDA warning letter would not have had the
opportunity to cure Quay’s omissions. And even if the
FDA’s letter had been publicly available at the time of the
statement, the letter could not have cured the alleged
omissions under Plaintiffs’ direct-reliance theory of relief.
See Miller, 519 F.3d at 887.

We hold that Plaintiffs have properly pled falsity and
materiality as to Quay’s opinion statement that “FDA
clearance risk has been achieved.”
32 IN RE ATOSSA GENETICS INC. SECURITIES LITIGATION

IV

We hold that Plaintiffs have sufficiently alleged that the
following were materially false or misleading: (1) Quay’s
statement quoted in Atossa’s December 20, 2012 Form 8–K
filing describing the ForeCYTE Test as “FDA-cleared”;
(2) Quay’s statement during his interview with News-
Medical.Net that the ForeCYTE test had “gone through all
of the FDA clearance process”; (3) Atossa’s Form 8–K filing
on February 25, 2013, giving notice of the FDA’s warning
letter; and (4) Quay’s statement during his interview with the
Wall Street Transcript that “FDA clearance risk has been
achieved.” As to these alleged misstatements and omissions,
we reverse in part the district court’s dismissal of Plaintiffs’
Section 10(b) and Rule 10b–5 claims. As to all other alleged
misstatements and omissions, we affirm in part the district
court’s dismissal of Plaintiffs’ Section 10(b) and Rule 10b–
5 claims. Because the district court’s dismissal of Plaintiffs’
Section 20(a) claims was based on its dismissal of Plaintiffs’
Section 10(b) and Rule 10b–5 claims, we vacate the district
court’s dismissal of the Section 20(a) claims. We remand to
the district court for further proceedings consistent with this
opinion.

The parties shall bear their own costs on appeal.

AFFIRMED in part, REVERSED in part,
VACATED in part, and REMANDED.