(The opinions expressed here are those of the author, a

columnist for Reuters.)

By Alison Frankel

June 18 (Reuters) - Has the California-based 9th U.S.

Circuit Court of Appeals gone rogue when it comes to shareholder

class actions?

The U.S. Supreme Court will address that question in its

next term, agreeing last week to hear Meta Platform's challenge

to a 9th Circuit decision reviving a securities class action

arising from Facebook's Cambridge Analytica scandal and granting

review on Monday to Nvidia ( NVDA ), which told the justices that the 9th

Circuit erred in allowing shareholders to proceed with claims

that the chipmaker misrepresented its dependence on the volatile

crypto mining industry.

In both cases, the companies told the Supreme Court that the

9th Circuit parted ways with several other federal appellate

courts, including the New York-based 2nd Circuit, to create its

own errant, investor-friendly standards for dismissing

shareholder class actions.

Shareholders in both cases, I should note, have disputed the

companies' assertions of a circuit split, arguing that the

defendants mischaracterized the 9th Circuit's holdings. Neither

Kevin Russell of Goldstein, Russell & Woofter, who led briefing

for Meta investors, nor Nvidia ( NVDA ) shareholders' Supreme Court

counsel Gregory Joseph of Joseph Hage Aaronson responded to my

queries.

In the Meta case, the 9th Circuit ruled that

Facebook's parent must face class action allegations that

although the company warned investors of a hypothetical risk of

improper data harvesting in its 2016 risk disclosures, it

fraudulently failed to reveal that Cambridge Analytica had

already accessed Facebook user data. Meta had argued, among

other things, that by 2016, Cambridge Analytica's misuse had

already been publicly reported, with no impact on the share

price, so it was not required to warn of future business

consequences.

Meta and its supporters - including the U.S. Chamber of

Commerce - told the justices that unless the Supreme Court steps

in, the 9th Circuit's ruling will result in a flood of

backward-looking class actions accusing companies of failing to

warn investors about every past incident that could come back to

haunt the business.

Meta's counsel from Gibson, Dunn & Crutcher asked the

justices to craft a clear standard for what companies must tell

investors about the remote risk of future harm from events that

have already occurred. Disclosure requirements vary slightly

among the other appellate courts, Meta said, but the 9th Circuit

is an outlier.

In the Nvidia ( NVDA ) case, the Supreme Court will decide whether

shareholders can establish a company's fraudulent intent by

pointing to internal documents they have not actually seen and

whether investors can rely on their own hired experts to prove

the company's representations were false. The 1995 federal law

governing shareholder class actions, the Private Securities

Litigation Reform Act, requires plaintiffs to show both

fraudulent intent, or scienter, and falsity in order to survive

defense motions to dismiss their cases.

According to Nvidia's ( NVDA ) Supreme Court counsel from Hogan

Lovells, only the 1st and 9th Circuits allow plaintiffs to

"speculate" about the content of internal corporate documents in

order to establish a defendant's intent to deceive investors.

And only the 9th Circuit, they said, permits shareholders to use

their own hired expert, "rather than particularized facts," to

show the company fed false information to investors.

Nvidia ( NVDA ) shareholders told the justices that the 9th Circuit

did not make such categorical findings but instead based its

decision on plaintiffs' detailed allegations. Those allegations,

according to shareholders, were in turn based on evidence they

obtained from a diligent investigation involving confidential

witnesses and analyst reports, among other things.

Nvidia's ( NVDA ) request for Supreme Court review was backed by 10

former high-ranking officials of the U.S. Securities and

Exchange Commission who argued that the 9th Circuit had

improperly lowered the high bar Congress set for shareholder

class actions in the 1995 law.

Another former SEC official, Stanford Law School professor

Joseph Grundfest, filed a friend-of-the-court brief arguing that

it is particularly important for the Supreme Court to resolve

splits between the 2nd and 9th Circuits because those two courts

handle the lion's share of all shareholder class actions.

Grundfest, as I've reported, even came up with a methodology to

measure the quantitative importance of circuit splits on

particular issues, concluding that both issues in the Nvidia ( NVDA )

case deserved the justices' attention.

Nvidia ( NVDA ) and its lead counsel, Neal Katyal, declined to

comment, as did Meta lead counsel Joshua Lipschutz. A Meta

spokesperson referred me to the company's petition for Supreme

Court review.

For defendants, the two new Supreme Court cases are "a

promising opportunity for the Supreme Court to refresh the law,"

said Skadden, Arps, Slate, Meagher & Flom partner Mark Foster,

who co-authored Reuters analyses of the 9th Circuit's rulings in

both the Meta and Nvidia ( NVDA ) cases.

It's significant, Foster said, that both newly granted

Supreme Court cases address standards for the dismissal of

shareholder class actions. As you know, dismissal decisions are

a critical turning point in securities litigation: Cases are far

more likely to settle if shareholders survive those early

defense motions and win the right to obtain discovery from

defendants.

Foster said the Meta case will provide much-needed guidance

for corporate lawyers trying to figure out what risks must be

disclosed in securities filings. Plaintiffs' lawyers have become

increasingly likely, he said, to home in on allegedly inadequate

risk disclosures in so-called event-driven securities cases

filed after bad corporate news sends the share price into a

swoon.

The Nvidia ( NVDA ) case, Foster predicted, will clarify the

parameters of the Private Securities Litigation Reform Act's

requirement that plaintiffs allege falsity and fraudulent intent

with particular facts. It has been nearly 20 years since the

Supreme Court delved into these issues in its 2007 decision in

Tellabs Inc. v. Makor Issues & Rights Ltd.

"This is an opportunity for the Supreme Court to make a

significant mark on securities litigation," Foster said. "These

are bread-and-butter questions."

Read more:

US Supreme Court to hear Nvidia ( NVDA ) bid to scuttle shareholder

lawsuit

US Supreme Court to hear Facebook bid to scuttle shareholder

lawsuit

US Supreme Court case marks debut for Stanford prof's

circuit split test