## Facts

- Medtest Corporation was a closely held company whose principal asset was intellectual property relating to a self-administered cervico-vaginal cytology testing process.
- Patrick Manning (inventor) and Donald West (attorney and corporate insider) formed Medtest in 1981 to seek patent protection and commercialize the process.
- In 1982, Robert J. Pommer, Sr. and his wife purchased Medtest stock in two transactions totaling $200,000, obtaining about a 3% interest.
- During the stock sales, Pommer alleged West and/or Manning represented that Medtest already had a U.S. patent on the process, although the patent application was filed in 1982 and the patent issued in 1984.
- Pommer also alleged West represented that a sale to Abbott Laboratories was imminent and nearly complete at a valuation of $50–$100 million, though the company’s contacts with Abbott were preliminary, without agreed terms, and Abbott later declined interest.
- Medtest was not sold and did not go public; Pommer’s shares did not produce the anticipated return.

## Issues

1. Whether statements that Medtest already had a patent, and that an acquisition by Abbott was imminent and nearly complete, could constitute materially false or misleading statements under § 10(b) and Rule 10b-5.
2. Whether later events (including eventual patent issuance) could negate falsity or materiality of statements made earlier.
3. Whether Pommer’s reliance was so unreasonable as to justify overturning the jury’s verdict.

## Decision

- The Seventh Circuit reversed the magistrate judge’s judgment for defendants entered after setting aside the jury verdict and remanded.
- The court held a reasonable jury could find actionable misrepresentations regarding (i) the existing status of a patent and (ii) the asserted imminence and certainty of a lucrative third-party acquisition.
- The court emphasized that falsity and materiality are assessed as of the time the statement is made, not based on later developments.
- The court concluded the magistrate judge improperly displaced the jury’s role in resolving disputed facts and inferences, including reasonable reliance.

## Legal Principles

- Under § 10(b) and Rule 10b-5, a statement’s truth or falsity and its materiality are evaluated at the time it is made; later events do not retroactively cure a statement that was false when made.
- Misrepresenting a concrete, verifiable condition—such as whether a patent has issued—can be a material misstatement of fact.
- Forward-looking statements about transactions (e.g., an “imminent” acquisition) may be actionable when presented as near-certain or based on implied supporting facts that do not exist.
- After a jury verdict for the plaintiff, judgment as a matter of law is improper if the evidence, viewed favorably to the verdict, permits a reasonable finding of material misrepresentation and reasonable reliance.

## Conclusion

The Seventh Circuit reinstated the jury’s role in a securities-fraud claim by reversing a post-verdict judgment for defendants, holding that a jury could find material misstatements about present patent status and the asserted near-certainty of an acquisition, with falsity judged when the statements were made.


Pommer v. Medtest Corp., 961 F.2d 620 (7th Cir. 1992)