Thursday, October 06, 2005

Dismissed Cornerstone Action Rises from the Ashes

Back in February of this year, Judge Marilyn Hall Patel (N.D. Cal.) tossed the complaint in the Cornerstone Propane Partners securities class action. In doing so, she gave Plaintiffs some pretty specific instructions on how they should plead their next complaint. Well, it looks like they took the advice. Believe it or not, after they filed their new complaint, Judge Patel called everyone down to the courthouse and advised Defendants against moving to dismiss this version. Five of the seven took the subtle hint, choosing to answer instead.

As for the other two, one actually won his motion, but perhaps the most interesting thing about the opinion is this comment from the Judge: “As this court conveyed in the case management conference, the PSLRA is not an invitation to dizzy the district courts with a revolving door of complaints and motions to dismiss. For this case, at least, the complaint is far from the type of fishing expedition the PSLRA prohibits. As written, there is a "there there" -- allegations of a system of fraud corroborated by identified, substantive sources of knowledge, such as former employees and officers acting as confidential sources, accounting and compensation data, auditors' opinions regarding accounting processes and irregularities, and other concrete sources of information. The second amended complaint is eighty-five pages long, including its incorporated chronology of statements and knowledge, and it now contains little boilerplate repetition. To ask more of plaintiffs would make the PSLRA "fatal in fact" at the pleading stage and pit the statute against the dictates of Federal Rule of Civil Procedure 8."

You can read In re Cornerstone Propane Partners, issued July 5, 2005, at 2005 U.S. Dist. LEXIS 21469.

Nugget: “The [PSLRA] administers the twin requirements of fraud and scienter rigorously and in parallel, but does not require omnipotence as to a defendant's mental state at each moment of alleged misstatement.”

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