The U.S. Supreme Court is poised to make a pivotal decision in the Nvidia Corp. v. Ohman securities class action case. The ruling could influence how securities plaintiffs meet heightened pleading standards and affect the directors and officers (D&O) liability insurance market, according to industry experts.
Background of the Case
The case stems from allegations against Nvidia Corp., a technology firm based in Santa Clara, California. Plaintiffs accuse the company and its executives of misrepresenting revenue attribution for a product, alleging it was driven by cryptocurrency miners rather than video gamers.
In August 2023, the 9th U.S. Circuit Court of Appeals partially reversed a lower court’s dismissal, concluding that plaintiffs sufficiently alleged Nvidia CEO Jensen Huang acted with scienter, or intent to deceive, using testimony from confidential former employees and an expert consulting firm’s findings.
Nvidia sought review from the Supreme Court, which agreed to hear the case in June. Oral arguments took place on November 13, 2023, with justices considering whether the case raises broader legal questions or serves as an error correction for the appeals court ruling.
Potential Implications for Pleading Standards
At issue is whether expert testimony can satisfy the Private Securities Litigation Reform Act of 1995’s (PSLRA) heightened pleading requirements. Experts believe the ruling could shape how courts handle motions to dismiss in securities cases.
“Stronger pleading standards could lead to more dismissals at early stages, reducing litigation costs and potentially improving D&O insurance pricing,” said Geoffrey B. Fehling, a partner at Hunton Andrews Kurth LLP. Conversely, less stringent standards may result in more cases proceeding to discovery, raising defense and settlement costs.
Impact on D&O Insurance Market
Insurers are closely watching the case, as its outcome could influence how quickly companies exhaust self-insured retention limits and tap into D&O policies. According to Maurice Pesso of Kennedys Law LLP, “If a case bypasses dismissal, defense costs and settlements can erode or fully deplete a D&O insurance program.”
Walker Newell of Woodruff Sawyer & Co. noted that the ruling’s long-term effects on the D&O market will depend on whether it changes barriers to discovery in securities class actions. “Fewer settlements resulting from higher pleading standards could eventually decrease claims frequency and improve market stability,” he said.
Awaiting the Court’s Decision
While some experts predict minimal immediate impact on the D&O market, any shift in pleading standards could have ripple effects over time. The Court’s ruling, expected in the coming months, is being closely monitored by insurers, policyholders, and legal professionals alike.