Chalk one up for both the Plaintiff and the Defendant bars in the Ninth Circuit, as a Panel there has only partially affirmed Judge Phyllis J. Hamilton’s dismissal of the Harmonic/C-Cube securities class action. Of course, don’t get too excited, as none of you will be able to cite to the decision in that Circuit because it’s been designated unpublished. Basically, the complaint said that “Defendants and several of their executives made a series of misleading statements for the purpose of obtaining shareholder approval of Harmonic's acquisition of C-Cube's DiviCom division while they engaged in insider selling and thereby violated” the 1933 and 1934 Acts. The Ninth Circuit held that “statements that there was ‘strong demand’ just don’t cut the mustard under the PSLRA (click it, it's mildly amusing). Scienter wasn’t there either, as “Plaintiffs fail to allege basic facts (such as author, date prepared, contents) regarding [certain] ‘weekly forecasts’ or Harmonic's internal reports.”
As for the 1933 Act claims, the Panel reversed their dismissal, holding that they “are not ‘grounded in fraud’ because Plaintiffs allege a basis for Section 11 liability other than fraud; i.e., the omission of a material fact from the Registration statement. Notably, plaintiffs do not rely on a unified course of fraudulent conduct or on the ‘wholesale adoption’ of their securities fraud allegations,” and they “also disclaim any allegations of fraud.”
You can read Knollenberg v. Harmonic, issued November 8, 2005, at 2005 U.S. App. LEXIS 24274.
Nugget: “While a disclaimer alone is insufficient to re-characterize a complaint whose gravamen is plainly fraud, here plaintiffs have made an effort to plead a non-fraudulent basis for Section 11 liability.”