Judge Spells Out Complaint’s Deficiencies

Judge Vaughn R. Walker (N.D. Cal.) has dismissed the Portal Software (Scott Sullivan is their Sr. VP of H.R., it's true, click here) securities class action in its entirety. You know you’re in trouble when the Judge starts out by commenting that Plaintiffs “face the unenviable task of complying with the stringent pleading requirements imposed on such actions,” and then moves quickly to say “all too frequently, and once again here, plaintiffs attempt this endeavor by a complaint replete with evidentiary detail, but only a loose (and the court thinks too loose) connection between the wrongful conduct alleged and its effect on the class.” So, “the court concludes that: (1) the allegations in plaintiffs' complaint are not pled with sufficient particularity under the PSLRA and FRCP 9(b); (2) the allegations are not sufficient to support a strong inference of scienter under the PSLRA; (3) defendants' forward-looking statements are protected by the PSLRA's safe harbor provision; (4) claims under the 33 Act sound in fraud and therefore fail with the 34 Act claims.”

Judge Walker is going to allow Plaintiffs 60 days to amend, and he has some pretty specific advice in that respect, saying “the court emphasizes the need for plaintiff to allege facts that link defendants' alleged wrongdoing to the class injury. A much shorter, but targeted, pleading may well be more effective in making this connection than the rather distended pleading now at bar.” “An amended complaint should specify those misstatements plaintiffs allege were false or misleading, including with regard to each statement: (1) the date made; (2) the speaker; (3) the content; (4) the falsity; (5) the basis for plaintiffs' allegation of falsity; and (6) scienter. The amended complaint should also specify any omissions of fact that defendants were bound to disclose, including with respect to each omission: (1) the date the information became known to the public; (2) the facts omitted; (3) the date the duty to disclose arose; (4) the basis for claiming that omitted information was known to defendants; (5) the basis for claiming that defendants had a duty to disclose; and (6) scienter. Finally, in light of Dura, plaintiffs should endeavor to tether all allegations in the complaint to the price movement of Portal's stock during the class period.”

You can read In re Portal Software, issued August 10, 2005, at 2005 U.S. Dist. LEXIS 20214.

Nugget: “The court will rely only on factual allegations which evince reliability through detail, context and corroboration.”