You're Fired

OK, let’s be honest, how often do you hear a federal judge admit a mistake? Not just begrudgingly, but fully admit it, as in I “mistakenly misconstrued,” I “erred,” no seriously, I “erroneously determined” an issue. What’s the issue you ask? Remember back on April, 2006 when the Nugget reported that the City of Philadelphia Pension Board had been appointed Lead Plaintiff in the Dana securities class action based on LIFO? Well, seems one of the losing movant groups, the Pension Trust Fund Group (PTFG), wasn’t very satisfied with that result. But instead of whining about it, they moved to reconsider, arguing that “the City's calculations separated out the LIFO losses of the PTFG's individual member groups, effectively understating those figures.”

To which Judge James G. Carr (N.D. Ohio) concluded “There is no question that characterization is accurate.” You see, as Judge Carr explained, “the City's chart listed line items for: 1) the Plumber & Pipefitters National Pension Fund; 2) the SEIU Pension Plans Master Trust; and 3) West Virginia Laborers Pension Trust Fund. These entities are all part of the PTFG, not individual applicants for lead plaintiff status. Consequently, I should have considered their losses in the aggregate, and therefore erred in interpreting the City's chart the way I did. Accordingly, the PTFG does have greater LIFO losses than the City,” and “PTFG is appointed lead plaintiff.”

You can read Frank v. Dana, issued May 24, 2006, at 2006 U.S. Dist. LEXIS 33021.

Nugget: “Relying on the City's representation, I erroneously determined that party had the largest LIFO losses.”

Hide the Ball

You hear a lot about false statements in PSLRA cases, right? So much that sometimes it starts to seem like everyone forgets that hiding the truth can be securities fraud too -- otherwise known as a material omission. Well, Plaintiffs in the Hilb Rogal securities class action didn’t forget, but of course a lot of good it did them.

Judge Gerald Bruce Lee (E.D. Va.), in very similar logic to yesterday’s Nugget, said that “where information about a company was made available in an analyst report, or by newspaper articles, any withholding of information by the company is immaterial and cured any omissions by the company.” He then methodically proceeds through each alleged omission, cutting them down like helpless blades of Poa under a liquid-cooled Grasshopper. Of course, he did find that “Defendants did make a misrepresentation of a material fact,” but don’t break out that bubbly just yet. You see, “the Court finds that Plaintiff fails to plead that the Individual Defendants had a motive to defraud investors based on their desire to obtain increased executive compensation and their desire to expand the business by corporate acquisitions.”

Result? Well, “the Court dismisses Plaintiff's First Amended Complaint with prejudice because Plaintiff has already had two full opportunities to state a claim and failed to do so.”

You can read Iron Workers v. Hilb Rogal, issued April 24, 2006, at 2006 U.S. Dist. LEXIS 29460.

Nugget: “Federal securities laws do not require a company to accuse itself of wrongdoing.”

Warn Me

You know you’re in bad shape when “the very problems that Plaintiffs identify as the actual cause of Defendants' eventual need to warn that they would not meet analysts' expectations for the third quarter are the same as the problems that Defendants warn of in their cautionary language.” At least that’s how Judge James A. Beaty, Jr. (M.D. N.C.) sees things in the Laboratory Corporation of America securities class action, which he tossed because, among other things, “Defendants identified the specific risks that caused their forecasts to vary.”

It's not clear from the Opinion if Plaintiffs will get another chance to amend.

You can read In re Laboratory Corporation of America, issued May 18, 2006, at 2006 U.S. Dist. LEXIS 31232.

Nugget: “Moreover, the Court notes that Plaintiffs have failed to show that these statements were actually false.”

Ninth Circuit Wants Reasons For Refusal to Allow Fourth Version of Complaint

Looks like the Ninth Circuit isn’t going to let Judge Napoleon A. Jones’ (S.D. Cal.) dismissal of the third amended complaint in the JNI securities class action stand -- at least not without more explanation. You see, although the Panel said that they “agree with the district court's careful and well-reasoned decision,” Judge Jones, who “issued detailed orders dismissing Plaintiffs' first and second amended complaints with leave to amend,” “then dismissed Plaintiffs' third amended complaint without leave to amend.” However, he “did not discuss any of the Foman factors,” “stating only the following with respect to whether Plaintiffs should be granted leave to amend: ‘In its previous Order, the court cautioned Plaintiffs that they would receive no further opportunities to amend their pleadings. Accordingly, the TACC is DISMISSED WITH PREJUDICE.’”

But, the Panel recognized, “Plaintiffs represent that they could amend their pleading to address at least some of the deficiencies noted by the district court, so “on remand, the district court may permit Plaintiffs once again to amend their complaint or it may state with particularity its reasons for declining to do so.”

Click here to read Hey Mack, an early Nugget article (boy, was the Nugget overly-energetic back then) on another Judge Jones decision -- for Plaintiffs.

You can read Osher v. JNI (which is unpublished), issued May 12, 2006, at 2006 U.S. App. LEXIS 12186.

Nugget: “Leave to amend is to be granted with extreme liberality in securities fraud cases, because the heightened pleading requirements imposed by the PSLRA are so difficult to meet.”

Molex Misdeeds

Judge Ruben Castillo (N.D. Ill.) describes it as “a complex securities case involving numerous allegations of corporate misdeeds amid suspicious factual circumstances, including the resignation of Molex's independent auditor, several undisclosed accounting errors, and multiple short-term changes in accounting methods.” And it seems those alleged suspicious misdeeds were more than enough for Defendants to lose their motions to dismiss.

Judge Castillo touched on lots of issues, but said that “although the magnitude of the accounting errors in the instant case were a relatively small percentage of Molex's total income,” “Plaintiffs have detailed each of Defendants' prior notice of the various errors and manipulative accounting methods, as well as their alleged conscious decision not to reveal the errors to the public or to their independent auditor.” So “although general allegations of GAAP violations are insufficient, ‘[t]he critical facts alleged by the plaintiffs in this case are the identification of the specific transactions alleged to have violated GAAP and the amount of detail provided in explaining those transactions.’”

You can read Takara Trust v. Molex, issued April 28, 2006, at 2006 U.S. Dist. LEXIS 29655.

Nugget: “While SAB No. 99 does not carry the force of law, SEC staff accounting bulletins constitute a body of experience and informed judgment, and SAB No. 99 is thoroughly reasoned and consistent with existing law.”

Judge Keeps Tire Company Action Rolling

Well, now that the Bridgestone securities class action is back from the Sixth Circuit, it has Judge Robert L. Echols (M.D. Tenn.) pondering some loss causation issues. You see, the complaint was drafted back in 2001, long before Dura, so it “alleges similarly to Dura:" Blah, blah, blah. Oh, sorry, it alleges that "class members were damaged in reliance on the integrity of the market" because "they paid artificially inflated prices for Bridgestone's stock and ADRs."

Uh-oh, right? Well, no, because “even so, Plaintiff alleges elsewhere in the Consolidated Complaint that the value of Bridgestone shares dropped significantly in September 2000, shortly after she bought one ADR, as a direct result of additional negative information about Bridgestone and Firestone that made its way into the marketplace.”

So, “this distinguishes Plaintiff's case from Dura” “because Plaintiff does allege that Bridgestone's share price fell in September 2000 as the true severity of problems with ATX tires surfaced and Plaintiff does connect the alleged fraud with the ultimate disclosure and loss.”

You can read In re Bridgestone, issued May 3, 2006, at 2006 U.S. Dist. LEXIS 28745.

Nugget: “Here, Plaintiff has alleged the share price drop and tied it directly to the market's acknowledgment of Bridgestone's and Firestone's prior alleged misrepresentations.”

With Details Like These, Who Needs Enemies?

Looks like Judge Ricardo S. Martinez (W.D. Wash.) wasn’t too crazy about “Plaintiffs’ use of anonymous witnesses,” in the Cell Therapeutics action, tagging their revelations as “generalized and speculative statements.” But before you Defendants run off citing this one in your case, better make sure those witnesses said things as specific as they did here, such as “Bianco knew everything,” and had “people who reported to him,” who told him “every possible detail.” Good luck getting details like that, especially about a CEO, wow.

Of course, to be fair, Plaintiffs complaint may have had more detail from witnesses, but these are the only ones cited in Judge Martinez' Order, so that's as far as the Nugget has the time (or energy) to go.

Result? Plaintiffs get 30 days to amend and try again.

You can read Heywood v. Cell Therapeutics, issued May 4, 2006, at 2006 U.S. Dist. LEXIS 28684.

Nugget: “Plaintiffs' attempt to analogize similar cases is also unavailing. All the cases on which plaintiffs substantially rely are distinguishable; in each case, the defendants either grossly misrepresented some specific material fact, or failed to disclose some concrete indication that they could not expect FDA approval for their product.”

Where’s Kevorkian When You Need Him?

Well, it took eleven years, but it looks like the Jasmine securities class action is finally over. Originally filed in November 1994, it appears Plaintiffs were practically begging the Court to put an end to their seemingly endless suffering. You see, after last June’s partial summary judgment dismissal (Ho, Ho, Ho, Who’s Laughing Now?), Defendants swooped in with five more summary judgment motions to finish off more of the claims. On December 20, 2005, Judge Robert B. Kugler (D.N.J.) noted that “Plaintiffs did not oppose the motions, opting instead to file a brief conceding that loss causation is the rule of the case and that the lack of loss causation entitled Defendants to summary judgment.” Judge Kugler then granted the motions and ordered “the parties to submit a statement advising the Court of any unresolved claims against any Defendants.” Plaintiffs complied, and at the same time “moved to amend/correct the December 20, 2005, Judgment to grant summary judgment on all remaining claims.” Please Your Honor, please.


So you’d think that would be it, but noooooo, Judge Kugler “denied Plaintiffs' Motion to Amend/Correct." Why you ask? Because they failed "to identify any errors in the Court's Order of December 20, 2005.” What do we have to do to get rid of this thing? Anyway, the last group of Defendants then moved for summary judgment again to euthanize Plaintiffs, who then “instead of filing an Opposition” merely adopted and incorporated their earlier response “conceding Andersen's entitlement to summary judgment.”

This time Plaintiffs got their wish, with Judge Kugler throwing out the rest of the case for the same loss causation reasons he did nearly a year ago.

Whew.

You can read McKown v. Jasmine, issued May 5, 2006, at 2006 U.S. Dist. LEXIS 27860.

Nugget: “Where the market never obtains information, it must be the case that factors other than that information are the sole cause of plaintiffs' loss."

Ostrich Defendants

“A defendant whose head is in the sand with respect to corporate earnings likely has his head in the sand with respect to his Sarbanes-Oxley certification as well.” So says Judge James L. Robart (W.D. Wash.) in the Watchguard securities class action. He also said that “although the passage of Sarbanes-Oxley may make it somewhat more reasonable to infer that a certifying Defendant whose head is in the sand is being deliberately reckless, it does not transform the PSLRA's requirement of falsity-plus-scienter into a requirement of falsity-plus-a-Sarbanes-Oxley-certification.”

So “because the PSLRA places the burden on Plaintiffs to plead facts giving rise to a ‘strong inference’ that a defendant's head was above the sand, or was at least deliberately recklessly buried in the sand, its defendant-friendly provisions trump the plaintiff-friendly Sarbanes-Oxley Act, at least in this case.”

Result? Case dismissed with leave to amend.

You can read In re Watchguard, issued April 21, 2006, at 2006 U.S. Dist. LEXIS 27217.

Nugget: “Corporate officers make mistakes. If the market is efficient, it will punish corporations whose mistakes are too frequent or too egregious. Securities fraud, however, requires much more than a mistake -- it requires a misstatement that was either intentional or deliberately reckless.”

Both Sides Win, Both Sides Lose

Many of you surely remember reading in the Nugget last October about how Judge Marilyn Hall Patel (N.D. Cal.) called everyone down to the courthouse and basically advised Defendants to file answers instead of motions to dismiss in the Cornerstone securities class action. Well, now we are at the class certification stage, and Judge Patel has issued her ruling. In it, she finds that “Defendants' assertion that Lead Plaintiff and the named representatives are atypical and inadequate as class representatives because of Lamphere's [he’s a class rep] purported non-reliance on the CornerStone financial statements, the possibility of a statute of limitations defense, and the existence of potential intra-class conflicts is not supported by the relevant caselaw.” However, “pursuant to the Supreme Court's holding in Dura, the Class may not include individuals who purchased and sold CornerStone stock prior to any corrective disclosure by the company.”

Result this time? “Plaintiff's motion for class certification is granted, subject to an amendment of the Class definition to exclude plaintiffs who purchased and sold their stock prior to any corrective disclosure in July 2001.”

So -- not a total loss for Defendants by any means, as Plaintiffs proposed class period reached back to July 1998.

You can read In re Cornerstone Propane Partners, issued May 3, 2006, at 2006 U.S. Dist. LEXIS 25819.

Nugget: “Statute of limitations defenses for named plaintiffs are not a bar to class certification for securities fraud.”

Ouch

Seems like that document preservation Order the Nugget reported on back in January might not matter much now. That’s because Plaintiffs have suffered (yet more) pain from Judge William L. Standish (W.D. Pa.) (pinch hitting for Judge Arthur J. Schwab) in the IT Group securities class action. The nearly one-and-a-half pound decision (literally -- it’s 100 pages), eliminates all of Plaintiffs’ claims with prejudice, and observes that this “third version” of the complaint was “developed over a period of more than four years, and based upon evidence gleaned from an on-going bankruptcy proceeding from which Plaintiffs have received documentary and deposition evidence not usually available to typical securities fraud class plaintiffs.”

But Judge Standish said that in his “previous opinion" he "pointed out precisely the shortcomings in pleading scienter for the individual Defendants, advice which Plaintiffs either failed to follow or are unable to allege with the particularity required by the PSLRA.” In addition, “Plaintiffs have made allegations related to loss causation which are not merely offered in the alterative, but are self-contradictory, a defect which is fatal to their claims.”

Possible appeal? The Nugget thinks so.

Looking back: Loyal Nuggets will likely remember this article, a definite classic, where Judge Standish refused to appoint local counsel.

You can read Payne v. DeLuca, issued May 2, 2006, at 2006 U.S. Dist. LEXIS 25621.

Nugget: “Plaintiffs attempt, it appears, to plead their case by successive approximation, asking Defendants and the Court to point out shortcomings which they then assert they will ‘fix.’ This is not an acceptable method of pleading one's case in federal court.”

Judge Shoots Down Moving Target

You know you’re in bad shape when your judge says your complaint “is defective because” your “theory of fraud, itself, is legally flawed and is premised on either a fundamental misunderstanding of” Defendants’ “business model, at best, or a blatant misrepresentation of the pertinent facts.”

Yep, that’s the situation in the Applied Signal securities class action, with Judge Saundra Brown Armstrong (N.D. Cal.), after dismissing Plaintiffs theory regarding the company’s backlog, holding that “the Court finds it important to point out that this case departs from the usual circumstances where dismissal with leave to amend is appropriate because the plaintiff has merely failed to allege, with sufficient particularity, facts supporting a viable legal theory of securities fraud.”

So “since Plaintiff could only amend his Consolidated Amended Complaint to allege additional facts that are consistent with the facts that have already been plead, the Court finds that granting Plaintiff leave to amend in order to augment the Consolidated Amended Complaint with additional facts would be futile.”

You can read In re Applied Signal Technology Inc., issued February 8, 2006, at 2006 U.S. Dist. LEXIS 24498.

Nugget: “Further, since Plaintiff has already changed his theory of fraud twice, granting further leave to amend would be highly prejudicial to Defendants. The typically liberal standard of allowing leave to amend should not be employed to require Defendants to defend against an amorphous, "moving target" securities fraud case that is not well thought-out or well supported.”

Quality Not Quantity

Plaintiffs citation to a 60 Minutes story was apparently not enough for Judge Joan Humphrey Lefkow (N.D. Ill.) to deny Defendants’ motions to dismiss in the Career Education securities class action. You see, Judge Lefkow commented that “even ignoring the problems inherent in a news report from a television program like 60 Minutes, e.g., the reporter's biases, the editing of the interviews to tell a story, plaintiff cannot rely on a 60 Minutes report to meet his pleading requirements under the PSLRA because he has failed to establish that the story related to incidents occurring during the Class Period or that it is probable that each of the interviewees had access to or knowledge of the allegations about which they spoke.”

This is the second loss for Plaintiffs, but Judge Lefkow will let them try a third (and final) time with the caveat that they “take note… that the quality of the allegations, rather than the quantity, is what is important in pleading a claim of securities fraud.”

You can read In re Career Education, issued March 28, 2006, at 2006 U.S. Dist. LEXIS 25252.

Nugget: “Plaintiff again argues that the court is to consider the totality of the allegations rather than dissecting each allegation as if it were standing alone. This argument puts the cart before the horse. Before the court draws any inferences, plaintiff must first meet the pleading requirements of the PSLRA, which requires that the complaint allege with specificity the statements that were false or misleading, the reasons why these statements were false or misleading, and if pleading on information and belief, what specific facts support that information and belief.”

Merry-Go-Round Stops

If you read yesterday’s article, you already know that getting leave to amend isn’t necessarily going to help you. But today it does. Just look at the Checkpoint securities class action, which Judge Richard M. Berman (S.D.N.Y.) dismissed in March 2005, with leave to amend of course.

Looks like this time Plaintiffs got it right, as Judge Berman said that the new allegations “cure the scienter deficiencies relating to revenue projections” “to the effect that the Individual Defendants knew of material differences between their public statements and Check Point's financial performance. Among other things, Plaintiffs allege that Defendants had access to specific information of sales results, sales projections, and updates with various departments that sales were declining due to increased competition and that problems with NG, Check Point's most important product, were well understood.”

Also, “Plaintiffs adequately alleges loss causation” under Dura because they “allege that competitive pressure and problems with NG caused Check Point's revenue shortfall which caused Check Point's share price to decline when the Company announced its 1Q02 revenue.”

You can read In re Check Point Software Technologies, issued April 26, 2006, at 2006 U.S. Dist. LEXIS 24317.

Nugget: “The Court has previously determined that the timing and the amount of information that Check Point disclosed is a question of fact.”

Merry-Go-Round

Judge David C. Godbey (N.D. Tex.), who tossed the Odyssey Healthcare securities class action last September, noted back then that “the iniquities of group pleading and puzzle pleading and” his “confidence that those issues would be addressed in any amended pleading.” Well, after reviewing the newly minted amended complaint, he now laments that “unfortunately, that confidence has proved to be unfounded.”

Guess it’s not a big surprise, as in the first dismissal Order, Judge Godbey noted his “view that the deficiencies it found were inherent in the facts, rather than reflecting any lack of effort by counsel, and that amendment would likely be unavailing.”

That notwithstanding, since the latest complaint only “adds two substantive paragraphs,” one of which “does not refer to any specific defendant,” and the other “fails to provide any factual basis for how the former general manager would have knowledge,” “the Court therefore grants Defendants' motion to dismiss,” this time “with prejudice.”

You can read In re Odyssey Healthcare, issued March 20, 2006, at 2006 U.S. Dist. LEXIS 23577.

Nugget: “It appears that by amending, Plaintiffs did not intend to cure the deficiencies found by the Court in the Dismissal Order, but rather to persuade the Court it should reconsider the Dismissal Order.”

Too Many Chefs

Judge David A. Baker (M.D. Fla.) didn’t appear to be too excited about the prospect of appointing two law firms as co-lead counsel in the Faro Technologies securities class action, commenting that “with each additional cook working on the same culinary masterpiece, the kitchen becomes less efficient, not more so.” If the Court were to follow counsel’s “logic, a hundred firms could bring a hundred different perspectives and insights to the case. This, of course, begs the question,” “is more necessarily better? Or, put another way, how many law firms does it take to represent a Class? The Court is no more convinced that this task is best accomplished by retaining two law firms than it was upon first review of the issue.”

However, and this is a pretty big however, “counsel fares better by focusing on the fact that a sophisticated, experienced Lead Plaintiff made an educated, informed choice to be represented in this litigation by both firms.” “Thus, despite the Court's hesitation to appoint two firms in this relatively small class action, it is not the Court's choice to make, as there is no evidence that the selection is adverse to the interests of the Class.”

You can read In re Faro Technologies, issued April 26, 2006, at 2006 U.S. Dist. LEXIS 23500.

Nugget: “The Court notes, however, that impressive biographies of each attorney actually work against the motion. If, as argued, 'each attorney . . . has significant experience prosecuting class action and other complex litigation,' then why are so many of them necessary?”