United States Court of Appeals For the First Circuit
No. 24-1705
STATE TEACHERS RETIREMENT SYSTEM OF OHIO, individually and on behalf of all others similarly situated,
Plaintiff, Appellant,
SHARAN COLEMAN, individually and on behalf of all others similarly situated,
Plaintiff,
v.
CHARLES RIVER LABORATORIES INTERNATIONAL, INC.; JAMES C. FOSTER; DAVID R. SMITH,
Defendants, Appellees,
FLAVIA PEASE,
Defendant.
APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Denise J. Casper, U.S. District Judge]
Before
Montecalvo, Lynch, and Kayatta, Circuit Judges.
Matthew W.H. Wessler, with whom Thomas Scott-Railton, Gabriel E. Chess, Alisa C. Philo, Gupta Wessler LLP, Frederic S. Fox, Donald R. Hall, Jeffrey P. Campisi, Pamela A. Mayer, Brandon Fox, Carihanna Morrison, Kaplan Fox & Kilsheimer LLP, Edward F. Haber, Patrick J. Vallely, and Shapiro Haber & Urmy LLP were on brief, for appellant. Charles S. Duggan, with whom David B. Toscano, Luca Marzorati, Oliver Kaufman, Davis Polk & Wardwell LLP, Mara Theophila, and McDermott Will & Emery LLP were on brief, for appellees.
August 15, 2025 KAYATTA, Circuit Judge. Lead plaintiff State Teachers
Retirement System of Ohio ("State Teachers") and other investors
of defendant Charles River Laboratories International, Inc.
("Charles River") brought this securities-fraud class action
alleging that Charles River and two of its officers misled
investors as to the integrity of the overseas supply chain
undergirding its supply of long-tailed macaques -- a central part
of the company's business. Charles River moved to dismiss the
complaint for failure to state a claim. The district court agreed
that State Teachers had failed to allege false or misleading
statements as well as scienter; thus, without reaching any further
issues, the district court dismissed the action. State Teachers
timely appealed.
For the following reasons, we agree with State Teachers
that it plausibly alleged that Charles River knowingly or
recklessly misled investors as to problems lurking in its supply
chain. We therefore reverse the district court's dismissal of the
complaint as to one set of misleading statements. And we remand
for the district court to consider in the first instance whether
State Teachers plausibly alleged that any of its losses were caused
by Charles River's misdirection.
- 3 - I.
A.
"As this case comes to us on a motion to dismiss, we
accept the factual allegations set forth in the amended complaint,"
Constr. Indus. & Laborers Joint Pension Tr. v. Carbonite, Inc., 22
F.4th 1, 4 (1st Cir. 2021), and "disregard any conclusory
allegations," Ponsa-Rabell v. Santander Sec. LLC, 35 F.4th 26, 30
n.2 (1st Cir. 2022). We also consider "documents incorporated
into the complaint by reference." Tellabs, Inc. v. Makor Issues
& Rts., Ltd., 551 U.S. 308, 322 (2007).
Charles River is a global drug-development company that
is "the largest provider of outsourced drug discovery, non-
clinical development, and regulated safety testing services
worldwide." The company derives over 80% of its revenue from two
business segments: providing animals for drug-development research
and safety testing, and conducting that research itself. Per U.S.
Food and Drug Administration (FDA) regulations, biologic drug
development typically requires safety testing on live monkeys
("non-human primates," as they are known in the industry). Charles
River is "the largest commercial user of [non-human primates] in
the [United States]."
One of the most commonly used monkeys for these purposes
is the long-tailed macaque, the international trade of which was
valued at nearly $1.26 billion between 2010 and 2019. Before
- 4 - spring 2020, Charles River relied on Chinese exports for over 60%
of its long-tailed macaque supply. But when the COVID-19 pandemic
hit, China halted exports of many species of wildlife, and its
"exports of long-tailed macaques to the U.S. declined to zero."
At the same time, also as a result of the pandemic, demand for
Charles River's safety-testing services increased. To maintain
its profitability, therefore, Charles River needed to overhaul its
supply chain.
Toward that end, Charles River rapidly increased exports
from Cambodia. Charles River obtained at least 2,262 long-tailed
macaques from Envigo Global Services, Inc. ("Envigo") and Orient
BioResource Center, Inc. ("Orient BioResource"), which were
acquired by Inotiv, Inc. ("Inotiv"), a publicly traded U.S.
company, on November 5, 2021, and January 27, 2022, respectively.
Envigo and Orient BioResource "obtained approximately 60% of
[their] Cambodia[n] long-tailed macaques from the Vanny Group," a
Hong Kong-based network led by CEO James Lau which bred macaques
in Cambodia and Vietnam for export. Inotiv's "principal supplier"
of long-tailed macaques was the Vanny Group.
Charles River also directly obtained at least 512
macaques from a Vietnam-based company that was also part of the
Vanny Group, Nafovanny, a joint venture between another Vanny Group
- 5 - subsidiary and the government of Vietnam;1 over 1,000 live macaques
or macaque-based extracts from another Vanny Group subsidiary, KHI
Bioservices Ltd. ("KHI"); at least 956 long-tailed macaques in
2022 from Florida-based broker WorldWide Primates, Inc. ("WW
Primates"); and over 10,000 macaques between 2020 and 2022 from
K.F. (Cambodia) Ltd. ("KF Cambodia"), a Cambodian company that
managed a macaque breeding farm.
Between May 7, 2020 and November 2, 2022, Charles River
repeatedly disclosed in filings with the U.S. Securities and
Exchange Commission (SEC) that "limited global supply or regional
restrictions on transportation for certain products may require us
to source products from non-preferred vendors." Nevertheless,
Charles River's safety-testing business "boomed," with stock
prices increasing from $156.56 per share in May 2020 to a high of
$460.21 per share in September 2021.
Meanwhile, Cambodia's macaque export boom -- up to an
86% increase in exports to the United States from 2019 to
2020 -- was beginning to ring alarm bells at the U.S. Department
of Justice (DOJ) and the U.S. Fish and Wildlife Service (the
"Service"). This is because, put simply, breeding long-tailed
macaques in captivity takes time, thus raising doubts that any
short-term increase in supply was entirely of captive-bred
1 Lau, the Vanny Group CEO, founded Nafovanny.
- 6 - macaques. Their gestation period is a full six months; successful
pregnancies typically produce only one baby. And infant macaques
must stay with their mothers until they are at least two years old
before they are deemed sufficiently mature by medical researchers.
Supplementing the captive-bred population with wild-
caught macaques, however, is ill-advised: Wild populations
frequently have pathogens that make them unsuitable for medical
research. And, most importantly for federal investigators,
Cambodia outlaws the capture and export of wild macaques due to
the species' vulnerability to extinction. Accordingly, it is
illegal under international and U.S. law to attempt to import
Cambodian long-tailed macaques caught in the wild. See Convention
on International Trade in Endangered Species of Wild Fauna and
Flora (CITES) art. IV(2)(b), opened for signature Mar. 3, 1973, 87
Stat. 893, 993 U.N.T.S. 244 (requiring that an exported
"specimen . . . not [be] obtained in contravention of the laws of
th[e] [country of export] for the protection of fauna and flora");
16 U.S.C. § 1538(c) (making it "unlawful for any person . . . to
engage in any trade in any specimens [of wildlife] contrary to the
provisions of the [CITES], or to possess any specimens traded
contrary to the provisions of the [CITES]"); 16 U.S.C.
§ 3372(a), (a)(1) (making it "unlawful for any person . . . to
import, export, transport, sell, receive, acquire, or purchase any
fish or wildlife or plant taken, possessed, transported, or sold
- 7 - in violation of any law, treaty, or regulation of the United
States").
In 2021 and early 2022, signs of an ongoing federal
investigation became public. On August 4, 2021, the DOJ issued a
press release disclosing that an Orient BioResource executive had
pled guilty for lying to the Service about "whether he . . .
prepared or submitted . . . any audits or reports concerning
visits to supplier sites in Cambodia," during what the press
release called an ongoing "criminal investigation into
international trafficking of primates into the United States."
Next, in early 2022, Inotiv disclosed in separate filings with the
SEC that its subsidiaries, Envigo and Orient BioResource, had both
received grand jury subpoenas from the DOJ related to the
importation of non-human primates. At the time, "investors were
unaware that Inotiv was a material supplier . . . to Charles
River."
By the fall of 2022, unbeknownst to investors, Charles
River began experiencing supply interruptions. On September 21,
2022, the Service seized a KF Cambodia shipment of 360 long-tailed
macaques headed to Charles River. See 50 C.F.R. § 14.53(b), (b)(1)
(2025) (authorizing any Service officer to "refuse clearance of
imported or exported wildlife . . . when there are responsible
grounds to believe that," among other things, "[a] [f]ederal law
or regulation has been violated"). The shipment had a reported
- 8 - value of $3.24 million. It was the first such seizure of a KF
Cambodia shipment of macaques by the Service.2 Unaware of the
seizure, analysts still understood Charles River to be in a strong
position; the prevailing understanding was that, as a
September 29, 2022 report from investment services company
Jefferies put it, increased demand for macaques had put Charles
River in a "positive" scenario.
On November 16, 2022, the DOJ unsealed an indictment
alleging the existence of a conspiracy to smuggle long-tailed
macaques into the United States for financial gain, including by
capturing wild macaques, falsifying their export permits, and
exporting them to the United States. The indictment named Lau as
a defendant, identifying him as the CEO and owner of Vanny HK. It
also named five other executives and employees of Vanny HK and
what the indictment identified as Vanny HK's subsidiary, Vanny
Cambodia. The indictment also charged several Cambodian
government officials and two unnamed U.S.-based companies as co-
conspirators, which State Teachers alleges to be Inotiv (or its
subsidiaries) and WW Primates. The unsealed indictment was
accompanied by a DOJ press release stating that "[m]embers of an
international primate smuggling ring have been charged with
multiple felonies for their role in bringing wild long-tailed
2 The shipment has since cleared customs, and the related investigations have been closed.
- 9 - macaques into the United States." The press release also
identified at least two of the defendants as employees of the Vanny
Group, rather than by the specific subsidiaries that were their
employers. Several analyst reports discussing the indicted
suppliers also referred broadly to "Vanny" rather than specific
subsidiaries.
The day after the indictment was unsealed, Inotiv
disclosed in an SEC filing that its "principal supplier" of
macaques was a target of the indictment. But at the time,
"investors were [still] unaware that Inotiv was a material
supplier . . . of Charles River." Nor were investors otherwise
aware that Charles River was possibly buying macaques that came
from the suppliers targeted by the DOJ indictment.
On November 30, 2022, Charles River filed a disclosure
with the SEC, stating that
Charles River was not named or referenced in the DOJ proceedings, and the Company does not have any direct supply contracts with the indicted Cambodian supplier. . . . However, in light of the indictment, and subsequent statements made by the Cambodia[n] government, Charles River is operating under the expectation that for some time period supply of Cambodia-sourced [macaques] will be difficult to obtain in the United States.
On the same day, an analyst interviewed Charles River
CEO James C. Foster at an investor conference. During the
interview, Foster emphasized that Charles River procured most of
- 10 - its macaques from Cambodia and noted the potential for the
indictment to impact supply:
[W]e have a little bit of a dialogue from government officials who were displeased with the action taken by the DOJ with regard to one of the Cambodian suppliers. They were, I think, defensive . . . about the U.S. government saying that things aren't being done well [so] we're concerned about some pushback by the government. . . . [I]n light of this indictment and subsequent statements made by the Cambodian government, we anticipate that for some period of time, there's going to be some disruption and difficulty in getting [macaques] into the [United States].
However, Foster went on to assure investors that the
supply challenges Charles River faced did not include one of its
suppliers being indicted, repeating the assurance from Charles
River's SEC disclosure that "we don't have any direct contacts
with th[e] [indicted] supplier." He also elaborated:
[W]e work really hard with our supplier due diligence in terms of their management practices, veterinary practices, shipping practices, husbandry practices to ensure the quality of the supplier relationships and to ensure that what we do is fully compliant with U.S. and international regulations. . . . [The f]acility that we work with in Cambodia is [an] extremely high quality one, all the ones that we work with are high quality ones. . . . So if we don't have undue government -- Cambodian government intrusion and preventing that from happening, it's possible we'll be fine. . . . [The indicted supplier is] not a supplier of ours. It's not directed to us. . . . So [it] has no real short-term impact.
- 11 - Foster emphasized that although "some folks" would be "hurt" by
"the fact that one of the big suppliers from Cambodia . . . is
unable to ship," that supplier was "not a supplier of [Charles
River's]."
Despite these assurances, the problems with Charles
River's supply chain continued to accelerate. In December 2022
and January 2023, four additional KF Cambodia shipments headed to
Charles River were seized at the border; in total, and together
with the September 2022 shipment, the Service refused entry to the
United States of over $17.4 million of macaques headed to Charles
River -- nearly 8% of Charles River's total 2022 supply of non-
human primates.
On January 12, 2023, Jefferies published a research
report that drew on a combination of "public data sources,"
"channel checks," "industry conversations," and a tweet from a
Cambodian official. The report stated, in relevant part,
Our previous [macaque] supply chain work concluded [Charles River]'s [macaque] business was in a privileged position and controlled its own destiny. The indictment of Vanny and other Cambodian officials alters that viewpoint as we estimate ~24% of [Charles River's macaque] usage relies on Vanny supply (likely through an indirect relationship), a perspective underappreciated by investors. . . . After further investigation we believe [Charles River] received 20%+ of its [macaque] supply from Vanny in '21 and '22, through an indirect relationship.
- 12 - At the close of trading that day, after unusually heavy trading
volume, Charles River's stock declined from $246.94 to $232.25 per
share, a decline of approximately 6%.
On February 22, 2023, Charles River issued a press
release disclosing that it had received a grand jury subpoena in
an "investigation relat[ing] specifically to several shipments of
[macaques] received by Charles River from its Cambodia supplier"
and that it was "voluntarily suspend[ing] [macaque] shipments from
Cambodia at this time." On the same day, Charles River filed a
disclosure form with the SEC, stating that it had been "informed
by the [DOJ] that . . . it had commenced an investigation into
[Charles River's] conduct regarding several shipments of
[macaques] from Cambodia." At the close of trading that day, after
unusually heavy trading volume, Charles River's stock price
declined from $243.60 to $219.09 per share: a decline of over 10%.
On March 15, 2023, Foster told investors on a conference
call that Charles River had "historically" used suppliers "that
get animals from wherever," though they "prefer[red] not to use
them." At the close of trading that day, after unusually heavy
trading volume, Charles River's stock price declined from $205.02
per share to $194.90 per share: a decline of approximately 5%.
B.
On May 19, 2023, an individual investor filed a class
action against Charles River, Foster, and David. R. Smith, CFO of
- 13 - Charles River from August 2015 to May 2022. On November 14 of
that year, State Teachers, as lead plaintiff, filed an amended
complaint, seeking relief on behalf of a class of all "persons and
entities that purchased or otherwise acquired Charles River
securities during the period May 7, 2020 and March 15, 2023,
inclusive" (the "class period").3 The complaint seeks recovery
under the Securities Exchange Act of 1934 (the "Act"), codified at
15 U.S.C. § 78j(b), as implemented by SEC Rule 10b-5, codified at
17 C.F.R. § 10b-5 (2025) (together, the "§ 10b claim"). Plaintiffs
also sought to hold Foster and Smith derivatively liable under
§ 20(a) of the Act, codified at 15 U.S.C. § 78t(a) (the "§ 20(a)
claim").
Defendants moved to dismiss the action under Federal
Rule of Civil Procedure 12(b)(6). On July 1, 2024, the district
court granted their motion. It first found that, in context, none
of Charles River's statements or disclosures alleged in the
complaint were false or misleading. It next found that the
complaint did not adequately allege scienter on the part of Charles
River. The district court did not reach the question of loss
causation. And because it found that the complaint did not
3 On May 7, 2020, Charles River disclosed its financial results for the quarter ending March 28, 2020, and issued a press release stating that it "implemented measures that are focused on maintaining . . . the continuity of our operations [and] sustaining our solid financial position" in the face of the COVID- 19 pandemic.
- 14 - adequately plead a § 10(b) violation, it therefore found that the
complaint also did not adequately state a claim for derivative
liability under § 20(a). State Teachers timely appealed.
II.
Section 10(b) of the Act makes it "unlawful for any
person . . . [t]o use or employ . . . any manipulative or
deceptive device" in, among other things, the sale of registered
securities. 15 U.S.C. § 78j(b). Accompanying regulations
"implement[] that prohibition," Carbonite, 22 F.4th at 7, making
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," 17 C.F.R. § 240.10b-5(b) (2025).
A § 10(b) claim must allege "(1) a material misrepresentation or
omission by the defendant[s]; (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 (6) loss causation." Karth v.
Keryx Biopharmaceuticals, Inc., 6 F.4th 123, 135 (1st Cir. 2021)
(alteration in original) (quoting Amgen Inc. v. Conn. Ret. Plans
& Tr. Funds, 568 U.S. 455, 460–61 (2013)).
To survive a Rule 12(b)(6) motion to dismiss, a § 10(b)
complaint must not only "state a claim to relief that is plausible
on its face," Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007),
- 15 - but also "state with particularity the circumstances constituting
fraud," Fed. R. Civ. P. 9(b). In addition, the Private Securities
Litigation Reform Act (PSLRA) mandates that the complaint must
"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). The PSLRA further requires that a securities-fraud
complaint "state with particularity facts giving rise to a strong
inference that the defendant acted with the required state of
mind." Id. § 78u-4(b)(2)(A).
"We review de novo the district court's dismissal of a
securities fraud complaint for failure to state a claim under
Rule 12(b)(6)." Mehta v. Ocular Therapeutix, Inc., 955 F.3d 194,
205 (1st Cir. 2020). "In so doing, we accept well-pleaded factual
allegations in the complaint as true and, while cognizant of the
requirements for pleading scienter, we view all reasonable
inferences in the plaintiff's favor." Carbonite, 22 F.4th at 6.
III.
On appeal, State Teachers contends that its complaint
adequately alleges that Charles River's statements to investors
were false and misleading and that those statements were made
knowingly or recklessly as to their misleading nature. We address
each of these arguments in turn.
- 16 - A.
To successfully plead that defendants made false or
misleading statements, plaintiffs must allege statements that
"were false or misleading at the time they were made." City of
Mia. Fire Fighters' and Police Officers' Ret. Tr. v. CVS Health
Corp., 46 F.4th 22, 35 (1st Cir. 2022) (citation omitted).
"[W]hether a statement is misleading depends on the perspective of
a reasonable investor." Karth, 6 F.4th at 135 (alteration in
original) (quoting Omnicare, Inc. v. Laborers Dist. Council
Constr. Indus. Pension Fund, 575 U.S. 175, 186 (2015)). And "[w]e
consider the entirety of the relevant facts available at the time
of the allegedly misleading statement," focusing on the "total mix
of information" available to investors at the time. Id. at 135–
36.
State Teachers first argues that Charles River's
disclosures and Foster's statements to investors on November 30,
2022, were false and misleading because they conveyed that Charles
River was in a privileged position, with its supply chain not
impacted by the federal indictment of a raft of Vanny Group
officials -- when in fact key sources of Charles River's macaques
were targeted by the indictment. Second, State Teachers argues
that Charles River's repeated statements in SEC disclosures over
the class period that it "may" be required to source macaques from
"non-preferred vendors" were false and misleading because Charles
- 17 - River was already relying on suppliers subject to law-enforcement
scrutiny. As explained further below, we agree with State Teachers
on the first theory but not the second.
1.
To start, we think Foster's November 2022 comments to
investors clearly conveyed to any reasonable investor that Charles
River's supply chain was untouched by the federal investigation
and indictment. Foster point-blank told investors the indictment
would "ha[ve] no real short-term impact." He repeatedly assured
them that the "[indicted] supplier" was "not a supplier of" Charles
River's. True, Foster averred, the fact that employees of a major
supplier were indicted was "going to hurt some folks." But,
according to Foster, "all" the "facilit[ies]" Charles River worked
with in Cambodia were "extremely high quality one[s],"4 clearly
messaging that Charles River was not "some folks."
These statements, taken together and in context as part
of an interview with an analyst, would leave a reasonable investor
with the impression that Charles River's supply chain did not
include suppliers mentioned in or implicated by the DOJ indictment.
4 Contrary to Charles River's suggestion, we view this statement, in context, as clearly comparative and therefore specific enough to be actionable. See Clorox Co. P.R. v. Proctor & Gamble Com. Co., 228 F.3d 24, 39 (1st Cir. 2009) (holding that a company's statement that "Whiter is not possible" was specific enough to be actionable, because, in context, it "invite[d] consumers to compare" the company's product with products containing bleach).
- 18 - See Zhou v. Desktop Metal, Inc., 120 F.4th 278, 293 (1st Cir. 2024)
("We evaluate the immediate context of each statement -- namely,
the balance of what was said on the particular occasion, and the
immediate circumstances in which the particular statement was
made." (cleaned up)).
Contrary to what Foster conveyed to investors, though,
one of Charles River's suppliers Inotiv had already publicly
declared that its own "principal supplier" was a target of the
indictment, meaning Charles River was almost certainly importing
macaques from that supplier, albeit through an intermediary,
despite assuring investors it was not. This single, well-pled
allegation directly undermines Foster's representations about
Charles River's supply chain. Adding fuel to the fire, a shipment
of macaques headed to Charles River from a different supplier had
been seized two months prior.5 And finally, Charles River had
direct supply relationships with two Vanny Group
5 In its briefing, Charles River argues that the complaint lacks allegations linking this seizure to the indictment that became public in November 2022. And in a Rule 28(j) letter, Charles River brings to our attention that, as it later turned out, its seized shipments were ultimately cleared, and any related investigations were closed. But Foster's comments were misleading regardless: Reasonable investors would understand Charles River's supply to be much more at risk than Foster's comments indicated if they knew that, in the context of a federal indictment of companies from which Charles River was likely obtaining macaques, a shipment from another one of Charles River's suppliers had been seized at the border.
- 19 - subsidiaries -- companies in the same network of suppliers as those
named in the indictment.
As Charles River notes, "the mere possession of
material, nonpublic information does not create a duty to disclose
it." Hill v. Gozani, 638 F.3d 40, 57 (1st Cir. 2011) (cleaned
up). But we have held that a defendant will be liable for "half-
truths [that] paint[] a materially false picture in what they say
because of what they omit." SEC v. Johnston, 986 F.3d 63, 72 (1st
Cir. 2021). Thus, where Foster chose to address the impact of the
indictment head-on, he could not do so in a manner that omitted
key information about Charles River's supply chain that would have
cast its risk of disruption from the federal investigation in an
entirely different light. See Meyer v. Jinkosolar Holdings Co.,
761 F.3d 245, 250 (2d Cir. 2014) ("Even when there is no existing
independent duty to disclose information, once a company speaks on
an issue or topic, there is a duty to tell the whole truth.").
Charles River suggests that its assurances concerning
its "supplier" should be read as referring only to its "direct"
suppliers because of its reference elsewhere to its "direct" supply
contracts. For several reasons, we doubt that a reasonable
investor would infer such a qualification of Charles River's
assurances. First, referring specifically to direct supply
contracts in one part of a statement, while referring to suppliers
without limitation in another, implies that the latter use of the
- 20 - term "supplier" is unlimited. Additionally, context and relevance
are important here. The issue that Foster's comments addressed
and that was relevant to investors was Charles River's supply
chain, including both direct and indirect suppliers. And as to
that obvious subject of the day, Foster's remarks read less like
a truthful disclosure and much more like a way to convey a false
message with partial disclosures and too-clever wordsmithing.6
Charles River's final rejoinder is that any misleading
omissions were cured by Foster's statement that he "anticipate[d]
that for some period of time, there[ was] going to be some
disruption and difficulty in getting [macaques] into the [United
States]," and a similar warning in Charles River's disclosures
that same day, that "for some time period supply . . . [would] be
difficult to obtain in the United States." But these statements
simply acknowledged that the industry -- including Charles
River -- faced challenges such as "pushback" by the Cambodian
government as well as general supply disruption. Excluded from
these disclosures was any suggestion that Charles River faced an
6 We are not, however, convinced by plaintiffs' argument that the indictment of employees of two Vanny Group subsidiaries with which Charles River did not have direct supply contracts would be understood by any reasonable investor to also indict Vanny Group subsidiaries with which Charles River did have direct contracts. As a result, we leave intact the district court's finding that Foster and Charles River's statements about its "direct" suppliers were, by themselves, literally true, as far as they went.
- 21 - additional and more direct challenge: the federal government
indicting a source of its macaques.
In sum, we conclude that State Teachers adequately
alleged that Charles River's and Foster's November 2022 statements
misled investors into thinking Charles River's supply chain was
not implicated in the federal scrutiny of the Vanny Group. State
Teachers has therefore plausibly alleged specific misleading
statements on the part of defendants and "the reason or reasons
why the[y] [were] misleading," as required to sustain its § 10(b)
claim. 15 U.S.C. § 78u-4(b)(1)(B).
2.
State Teachers also argues that Charles River's repeated
disclosures from 2020 to 2022 that it "may" have to rely on "non-
preferred vendors" were misleading because, when Charles River
made those statements, it was already reliant on vendors that faced
"law enforcement scrutiny." However, we find insufficient
allegations in the complaint to establish that the term "non-
preferred vendors" meant, and would have been understood to mean,
vendors that faced "law enforcement scrutiny," as State Teachers
claims. As a result, we leave intact the district court's
rejection of this theory as an independent and sufficient basis
for a claim. Whether and to what extent evidence of such
statements may be independently relevant to the adjudication of
the remaining claim, we leave to the district court.
- 22 - B.
State Teachers also challenges the district court's
determination that Charles River lacked scienter, "a mental state
embracing intent to deceive, manipulate, or defraud." Tellabs,
551 U.S. at 319 (citation omitted). To establish scienter,
plaintiffs must "show either that the defendants consciously
intended to defraud, or that they acted with a high degree of
recklessness." Mehta, 955 F.3d at 206 (citation omitted). And to
meet the requirements of the PSLRA, the pleaded facts must give
rise to a "strong" inference of scienter. 15 U.S.C. § 78u-4(b)(2).
"Strong" need not be "irrefutable," the Supreme Court has
emphasized, but must be "cogent and at least as compelling as any
opposing inference one could draw from the facts alleged."
Tellabs, 551 U.S. at 324. "The inquiry . . . is whether all of
the facts alleged, taken collectively, give rise to a strong
inference of scienter, not whether any individual allegation,
scrutinized in isolation, meets that standard." Id. at 322–23.
As this case now stands, and assuming the allegations of
the complaint are true, scienter flows inexorably from our
conclusions that Charles River told its investors that its
suppliers were not implicated in the federal proceeding when it
- 23 - knew that its supply was coming from the entities subject to
investigation, seizure, and indictment.7
None of Charles River's arguments to the contrary are
convincing. First, Charles River argues that it reasonably thought
that the September 2022 seizure of one of its macaque shipments
did not mean that future shipments were at risk of seizure. But
such a view -- even apart from its implausibility -- does not
excuse sending the message to investors that the suppliers affected
by the indictment were "not . . . supplier[s] of [Charles
River's]." Second, Charles River prefers to focus on its and
Foster's statements that "we don't have any direct contacts with
that supplier." But we think the addition of the word "direct" in
some statements only strengthens the inference of scienter: Such
careful phrasing smacks of a "cleverly crafted" way of leading
investors astray. Johnston, 986 F.3d at 74. Finally, as for
Foster's and Charles River's statements warning investors that
Charles River expected supply to "be difficult to
obtain" -- referring in context to possible pushback from the
Cambodian government -- we do not think telling investors of a
possible risk faced by the industry gave Charles River a free pass
7 We need not address State Teachers' scienter arguments as to Charles River's disclosures about potential use of "non- preferred vendors," since we do not find merit in State Teacher's arguments that those statements were themselves false or misleading.
- 24 - to deceive investors about a specific risk faced by Charles River
itself.
For the foregoing reasons, we agree with State Teachers
that its complaint "state[s] with particularity facts giving rise
to a strong inference that [Charles River] acted with the required
state of mind." 15 U.S.C. § 78u-4(b)(2)(A).8
C.
On appeal, Charles River asks us to reach the issue of
loss causation and affirm the district court on that ground, which
the district court did not reach despite briefing on the issue
below. However, the issue of whether plaintiffs in this case have
adequately alleged "a corrective disclosure . . . associated with
a drop in share price" is complex. Mass. Ret. Sys. v. CVS Caremark
Corp., 716 F.3d 229, 238 (1st Cir. 2013). We therefore decline to
exercise our discretion to reach this issue, see Downing v. Globe
Direct LLC, 682 F.3d 18, 22 (1st Cir. 2012) (noting that "because
the parties fully briefed the issue before the district court, we
have discretion to" decide it), and instead leave it to the
district court to consider in the first instance.
8 We leave it to the district court to consider in the first instance whether -- given this opinion -- it should revive plaintiffs' derivative § 20(a) claim.
- 25 - IV.
We conclude that State Teachers plausibly alleged that
Charles River knowingly misled investors based on its November
2022 statements. We therefore reverse the district court's
decision in that regard. And we otherwise vacate and remand for
further proceedings consistent with this opinion. Each party shall
bear its own costs on appeal.
- 26 -