b'were misleading because they omitted that eligibilitycorporation that primarily manufactures paper-based requirements were disregarded and numerous ineligi- consumer products. Avanos, first as a subsidiary of ble participants were enrolled in the trial, but concludedKimberly-Clark and later as an independent company, that the complaint failed to plead loss causation. Themanufactured and sold a surgical gown, the MicroCool Second Circuit disagreed as to the latter conclusion.Breathable High Performance Surgical Gown (the The court did reject plaintiffs primary loss causationMicroCool gown). The MicroCool gown is sold for use theorythat the securities analysts reporting aboutby healthcare providers treating patients with highly infectious diseases, such as HIV and Ebola, to pre-vent the transfer of microorganisms, bodily fluids, and particulate matter. Protective apparel like the MicroCool In particular, the court held that thegown is rated according to a barrier classification sys-complaint plausibly pled, including throughtem developed by the Association for the Advancement of Medical Instrumentation (AAMI), which provides confidential witness allegations, that theratings from 1 (least protective) to 4 (most protective). failure of the Phase 3 trial was attributable inDefendants publicly represented on the Avanos and Kimberly-Clarks websites, in publicly disseminated part to improper trial participant enrollmentsmarketing materials, and on product labeling that the that defendants failed to disclose. AcceptingMicroCool gown provided AAMI Level 4 protection. In fact, however, in industry standard testing conducted such facts as true, the improper enrollmentsby an independent third-party laboratory, 50% of the plausibly and foreseeably affected theMicroCool gowns tested failed to meet the standards required for AAMI Level 4. Among other things, the Phase 3 trials outcome and caused antests revealed that the MicroCool gowns allowed ascertainable portion of plaintiffs losses,liquid, bacterial, and viral pathogens to penetrate the gowns, rendering healthcare professionals vulnerable sufficient to plead loss causation. to the transmission of serious diseases. Employees of the companies received the results of this testing in January 2013. However, defendants failed to disclose any defects relating to the MicroCool gowns and con-GCP noncompliance constituted a corrective disclo- tinued to market the gowns as providing AAMI Level 4 surereasoning that the information in the analystsprotection when the Ebola epidemic broke out in 2014. report about noncompliance affected only one clinicalAs the epidemic surged from 2014 to 2016, so did de-site with a small number of subjects and it was unclearmand for the personal protective equipment made by from the report whether participants from that sitedefendants, including the MicroCool gowns. On May 1, would have to be excluded. However, the court held2016, 60 Minutes reported that defendants had know-that plaintiffs sufficiently alleged loss causation underingly provided defective surgical gowns to U.S. work-a materialization of the risk theory. In particular, theers at the height of the Ebola crisis, which prompted court held that the complaint plausibly pled, includingAvanoss (then-Halyard Health, Inc.s) stock to fall 14.4%.through confidential witness allegations, that the failureAn investor filed a putative class action complaint of the Phase 3 trial was attributable in part to improperagainst the company and certain of its officers in the trial participant enrollments that defendants failed toSouthern District of New York for violations of Sections disclose. Accepting such facts as true, the improper en- 10(b) and 20(a) of the 1934 Act, and Rule 10b-5 promul-rollments plausibly and foreseeably affected the Phasegated thereunder, Sections 11 and 15 of the 1933 Act, 3 trials outcome and caused an ascertainable portionand Item 303 of Regulation S-K. Plaintiff alleged that be-of plaintiffs losses, sufficient to plead loss causation. tween August 2014 and April 2016, defendants misled shareholders as to the quality and infection-prevention Jackson v. Abernathy, Case No.capabilities of the MicroCool gown by falsely represent-19-1300-cv, 960 F.3d 94 (2d Cir. 2020)ing that it met AAMI level 4, despite knowing that it had failed several quality-control tests.Product Defects In March 2018, the district court held that plaintiff failed Defendant Avanos Medical, Inc. (Avanos formerlyto plead a strong inference of scienter as to any de-known as Halyard Health, Inc.) is a medical technol- fendant and dismissed the case. Plaintiff moved to set ogy company that specializes in clinical medical de- aside the judgment and to file an amended complaint. vices. Its former parent company prior to an OctoberIn the proposed amended complaint plaintiff submitted 2014 spinoff, Defendant Kimberly-Clark Corporationin support of its motion, plaintiff quoted testimony from (Kimberly-Clark), is a multinational personal carethree Avanos and Kimberly-Clark employees during a 24'