Two Birds, One Order.

Defendants must be seeing stars in the Veeco securities class action. Seriously, it’s bad enough losing the motion to dismiss, but losing class certification in the same Order? Say it ain’t so. But it is so, and this time it’s Judge Colleen McMahon (S.D.N.Y.) on the Bench. Her opinion covers a lot of ground, and Defendants aren’t without certain victories (like shaving the class period from 15 to 9 months), but let’s face it, you know you’re in trouble when the Judge says that “Plaintiffs’ extensive allegations of fraud — whether or not sufficient to ultimately establish defendants’ liability — undoubtedly satisfy Rule 9(b)’s and the PSLRA’s heightened pleading requirements.”

And following a trend the Nugget has long reported, Judge McMahon provided what arguably is the best description yet of just how non-complicated the whole Dura loss causation thing really is, holding that “plaintiffs allege that they were harmed when Veeco’s stock plummeted as a result of defendants’ disclosure of prior misrepresentations and material omissions relating to the company’s performance and earnings. The complaint thus contains the very allegations regarding share price decrease and public exposure to the truth the Supreme Court found lacking in the Dura complaint.”

That’s right all you Dura exaggerators (you know who you are), enough to get past motions to dismiss and class certification objections.

You can read In re Veeco, issued March 21, 2006, at 2006 U.S. Dist. LEXIS 13226.

Nugget: “The court has no reason to believe that [the class representative is inadequate based on ignorance], and finds it odd that defendants would set themselves up as champions of the class interests by making such an argument.”

The Softer Side of Scienter

Well, looks like we have a result in the Sears securities class action. In a decision that is quite notable in terms of its brevity, Judge Robert W. Gettleman (N.D. Ill.) (who admits he looks good in black) doesn’t mince too many words. In rejecting Defendants’ arguments on falsity and scienter, he concluded that “in short, the amended complaint contains more than enough factual detail for a reasonable person to conclude that Lacy was aware that the statements being made were misleading and either intentionally chose to ignore them, or intentionally elected to mislead the public. Because Lacy was acting within his scope of his position as CEO of Sears, his alleged knowledge of the falseness of the statements can be imputed to Sears. Accordingly, the court concludes that the amended complaint alleges scienter adequately as to both Lacy and Sears. The motion to dismiss is denied.”

You can read Levie v. Sears Holding Corp, issued March 22, 2006, at 2006 U.S. Dist. LEXIS 12725.

Nugget: “Thus, whether and/or when the Sears-Kmart merger negotiations became material is a fact question not to be decided on a motion to dismiss as a matter of law.”

Try Try Again

Defendants can score a victory for themselves in the Invision Technologies securities class action, with Judge Martin J. Jenkins (N.D. Cal.) granting their motions to dismiss the 1934 Act claims. It seems the case centers around Invision’s March 15, 2004 “press release announcing that it was being acquired by General Electric Company.” You see, it seems a few months after this announcement, “InVision issued another press release, this time saying that the DOJ and the SEC were investigating several transactions involving InVision employees located abroad, in which employees allegedly made payments to foreign officials in violation of the FCPA.”

In rejecting Plaintiffs’ complaint, Judge Jenkins said that “the language cited by Plaintiffs contains broad assertions about Defendants’ duty to disclose that are vague in nature,” “are not specifically directed to the March 15 Announcement,” and “do not explain why that statement in particular was false or misleading.” He also commented that “obviously, Plaintiffs’ factual allegations must be based upon what Defendants actually said, not upon Plaintiffs’ desired interpretation of what Defendants said. Here Plaintiffs’ factual allegations, even viewed in the light most favorable to Plaintiffs, do not in any way illuminate the truth or falsity of Defendants’ actual Certification statements. Therefore, Plaintiffs have failed to meet their PLSRA burden in this respect.”

But all may not be lost. Judge Jenkins is going to allow Plaintiffs to submit another amended complaint, but warned that “vague assertions and allegations, scattered throughout Plaintiffs’ Complaint will not serve to meet their PLSRA burden.”

You can read In re Invision, issued January 24, 2006, at 2006 U.S. Dist. LEXIS 12166.

Nugget: “In order for the Court to construe the allegations, as plead, as actually alleging the falsity of Defendants’ Certification statements, the Court would have to interpret Defendants’ statements well beyond their plain meaning. The Court declines to do so.”

Note: A quick check of the docket reveals that Plaintiffs have already filed an amended complaint, and that Judge Jenkins has set the oral argument on the next round of motions for June 6, 2006 at 9:30 A.M. So don’t change that dial.

Goodyear Plaintiffs Deflated

Looks like Plaintiffs have suffered total loss in the Goodyear Tire & Rubber securities class action. This time, it’s Judge John R. Adams (N.D. Ohio) who punctures Plaintiffs’ amended complaint with comments like “Plaintiffs’ argument is illogical,” and “Plaintiffs’ allegations amount to nothing more than speculation and conjecture.”

What happened? Well, Judge Adams rejected scienter, falsity, and just about every other argument that Plaintiffs made. As for scienter, he said that even though “arguably, the facts are such that there may be some inference of scienter,” “the Court does not find this inference to be strong enough to sustain a securities fraud action.”

Judge Adams also held that “the most plausible of competing inferences, as opposed to Plaintiffs’ theory of divergent and wide ranging fraud, is that Defendants acted diligently in remedying problems as soon as they became aware of their existence. If the Court were to allow Plaintiffs to plead scienter on the fact that Goodyear recognized the need for remedial measures, it would give companies a disincentive to make public disclosures regarding their problems.”

Judge Adams concluded by remarking that “while the Amended Complaint does specify each statement that was allegedly misleading, it falls short of describing the reason or reasons why each statement was misleading. To explain, the Amended Complaint repeatedly refers to a list of alleged improprieties that may or may not have anything to do with the statements. For example, each allegedly false series of statements refers back to section of the Amended Complaint that contains a laundry list of allegations purporting to pertain to each separate statement. It is Plaintiffs’ burden to plead fraud on a statement-by-statement basis, and they may not evade that requirement by requiring the Court to try to match the allegedly fraudulent statements to the allegations of wrongdoing that are scattered throughout the seventy-plus page Amended Complaint.”

Result? Judge Adams granted Defendants’ motions to dismiss, rejected “Plaintiffs’ two-sentence request for leave to amend their Amended Complaint,” and entered a judgment against Plaintiffs. Remains to be seen if we’ll see these parties in Cincinnati.

You can read In re Goodyear Tire & Rubber, issued March 22, 2006, at 2006 U.S. Dist. LEXIS 11914.

Nugget: “There is no disputing that Goodyear issued false statements — the issue this Court is called on to decide is whether the statements were fraudulent.”

Too Much Fraud

“This is a classic fraud case masquerading as a negligence claim.” At least that’s what Judge Charles R. Breyer (N.D. Cal.) says about the 1933 Act claims in the Leadis Technology (NASDAQ LDIS) securities class action. You see, in throwing out the entire action, Judge Breyer held that “while plaintiffs need not prove fraud, the gravamen of the Complaint is nevertheless ‘grounded in fraud.’ Thus, the heightened pleading standard of Rule 9(b) applies.” He also noted that “Plaintiffs have admitted the Complaint fails to meet the particularity requirements of Rule 9(b), and the Court agrees.” Therefore, “since plaintiffs have further represented to the Court that an amendment to the Complaint would be futile, defendants’ motions to dismiss are GRANTED WITH PREJUDICE.”

For the Third Circuit’s and another District Judge’s views on the sound in fraud doctrine, take a look here and here.

You can read In re Leadis, issued March 1, 2006, at 2006 U.S. Dist. LEXIS 11152.

Nugget: “This is a quintessential fraud claim. Despite plaintiffs’ best efforts to mask this reality and merely plead a negligence claim, their allegations necessarily depend on defendants’ knowledge of these on-going occurrences and their decision to mislead investors by making the disclosures in forward-looking-rather than present-tense-statements.”

Uncertain Terrain

It’s not every day you have a Russian company as a Defendant in a U.S. securities class action, is it? But today is the day, and the spotlight is on Open Joint Stock Company Vimpel-Communications, which has nearly 11,000 employees trying to provide “wireless communications services to customers in Russia and Kazakhstan.” And you think your job is hard. Anyway, Defendants moved to dismiss Plaintiffs allegations that Vimpel “failed to disclose the existence of a tax audit,” and that it “owed back taxes,” and it was up to Judge Naomi Reice Buchwald (S.D.N.Y.) to settle things, and she has.

You see, in evaluating the consolidated amended complaint (“CAC” for short), Judge Buchwald concluded that “based on the facts set forth in the CAC, Russian tax laws present an uncertain terrain for individuals and companies doing business there. None of the facts set forth in the CAC support the conclusion that VimpelCom officers knew (or should have known) that the August 2004 tax inspection would result in adverse consequences to VimpelCom or that the company’s interpretation of tax laws related to VAT was ‘highly unreasonable.’”

“Plaintiffs’ allegations also do not demonstrate how VimpelCom’s public statements during the class period were inconsistent with the existence of the August 2004 tax inspection,” and “the fact that VimpelCom promptly disclosed tax authorities’ preliminary conclusions concerning the company’s tax liability further undermines the allegation that defendants acted recklessly.” As a result, “plaintiffs’ allegations completely fail to support a conclusion that defendants acted with an intent to deceive or defraud the public.”

Result? Dismissed with prejudice.

Want more? For a quick viewpoint on the Russian tax system compared to the U.S., go here.

You can read In re Vimpel, issued March 14, 2006, at 2006 U.S. Dist. LEXIS 10256.

Nugget: “This seems a quintessential case of impermissibly pleading ‘fraud by hindsight.’ Plaintiffs’ allegations do not suggest how VimpelCom could have known that it would owe ‘back taxes’ related to VAT offsets before it received the preliminary act from Russian tax officials. Moreover, the allegations do not suggest why the company should have suspected that its method of handling VAT offsets was improper.”

Their Best Shot

After tossing the SPSS Inc. securities class action for the second time, Judge James B. Moran (N.D. Ill.) offered this candid comment/prediction: “The heightened pleading requirements of the PSLRA are not the usual stuff of federal pleading motions, which generally relate to the exceedingly relaxed pleading requirements of Rule 12(b)(6). Where to draw the line in light of PSLRA is a relatively new experience. We have no doubt that this dismissal will be appealed, and it may well be that the Court of Appeals will conclude that we raised the threshold too high. If it so concludes, then the action may proceed upon the present pleadings. If it agrees with this court that the PSLRA standard acts as a bar, we see no prejudice to plaintiffs in not permitting them to amend once again. As this and the earlier opinion in this case illustrate, the issues are very fact-, or more accurately, ‘allegation’ – intensive. We are confident that plaintiffs have given it their best shot in the second amended complaint, and we see no reason to repeat an analysis of yet another complaint.”

You can read Davis v. SPSS, issued March 14, 2006, at 2006 U.S. Dist. LEXIS 10678.

Nugget: “Plaintiffs’ second amended complaint differs very little from plaintiff’s first amended complaint. With the exception of adding a plaintiff to remedy their previous standing problem, plaintiffs have not cured any of the deficiencies we identified in our thorough response to plaintiff’s first amended complaint.”

Mo’ Money, Mo’ Money, Mo’ Money

The securities law blogospheres may have lit up last December after the Nugget reported Judge Kent A. Jordan’s (D. Del.) comment that “it is time to decide which of the plaintiffs’ law firms will win the money race,” but it turns out Judge James L. Robart (W.D. Wash.) had already beat everyone to the punch — by nearly five months (the opinion popped up online yesterday).

You see, in deciding the lead plaintiff issue in the Watchguard Technologies securities class action, Judge Robart (who refers to proposed lead plaintiffs as “contestants”) said that “three contestants” “are vying for the lead plaintiff position,” so “the court now turns to the rules that govern this competition.” “As the leading Ninth Circuit authority observes, ‘this is not a beauty contest.’” Instead, as Judge Robart put it, “it is a contest over money, and which contestant stands to gain more of it.” Well, OK then.

The Nugget HATES generalizations about judges based on their appointments alone, as it is a simplistic, naïve, and downright foolish practice. But some (not the Nugget of course) might point out that both Judges are recent Bush appointees. Whether or not that means anything at all, well, you can decide. After all, Judge Michael M. Baylson (E.D. Pa.) is a Bush appointee too, and look what he’s saying. So is Judge Diane S. Sykes (7th Cir.), and she was hardly hostile in her latest opinion.

You can read In re Watchguard, issued July 13, 2005, at 2005 U.S. Dist. LEXIS 40923.

Nugget: “The PSLRA contemplates a quick selection of a lead plaintiff near the outset of a case, without opportunity for discovery on likely damages or losses.”

Discovery Stay Overstaying Welcome

As reported right here at the Nugget, Plaintiffs won the motions to dismiss in the McDonald’s (NYSE MCD) securities class action last September. So why are Plaintiffs still fighting to lift the PSLRA discovery stay? Actually, it turns out that even though Plaintiffs won, Judge Blanche M. Manning (N.D. Ill.) took the unusual step of ordering Plaintiffs to amend their complaint. Why? Because she “considered certain facts not alleged in the complaint but raised instead by plaintiffs’ response to the motion to dismiss,” so she wanted them to include those facts in a revised complaint.

So here Plaintiffs are, six months later, trying to get Magistrate Judge Sidney I. Schenkier (N.D. Ill.) to lift the discovery stay. Judge Schenkier concluded “at bottom, plaintiffs’ argument is that the stay should not apply because the current motion to dismiss is meritless — a point they press vigorously in seeking to lift the stay. Certainly, plaintiffs’ argument about the strength of the original motion to dismiss would not be a basis to lift the stay before the motion is decided — and plaintiffs do not argue otherwise. Plaintiffs have not cited any authority to support the proposition that we may preview the outcome of a second motion to dismiss in deciding whether to lift the stay. Moreover, it is not our province to rule on the merits of defendants’ second motion to dismiss, which is pending before the district judge; and we therefore express no view as to the outcome of that motion.”

Result? The stay remains in place.

You can read Selbst V. McDonald’s, issued March 1, 2006, at 2006 U.S. Dist. LEXIS 8862.

Nugget: “The gist of plaintiffs’ argument before this Court is that defendants’ current motion to dismiss pending before the district judge is frivolous. However, we note that plaintiffs have not availed themselves of the procedural tools to raise that contention with the district judge: they have not sought sanctions on the ground that the motion to dismiss is being brought for an improper purpose or lacks a basis in law or fact, FED.R.CIV.P. 11(b), or that the motion “multiplies the proceedings in . . . [the] case unnecessarily and vexatiously.”

One Last Chance

Looks like Plaintiffs haven’t fared to well in the REMEC, Inc. securities class action, as Judge Jeffrey T. Miller (S.D. Cal.) has granted Defendants’ motions to dismiss entirely. In focusing in on the scienter allegations, Judge Miller commented that “one distinguishing characteristic of a strong showing of scienter is that it highlights a mental state embracing a strong intent to deceive, manipulate, or defraud, and serves to separate optimistic statements and or negligent acts from fraudulent ones. Plaintiff’s argument in support of scienter is one based primarily on their executive positions within the Company.” “Plaintiff further alleges that Defendant Ragland bullied the sales staff and pressured them into providing sales numbers that met with his sales forecasts.” But these allegations didn’t work, as Judge Miller concluded that “Plaintiff reaches too far,” and “while these allegations move down the scienter path, they fail to distinguish what is non-actionable bullish conduct from fraudulent or reckless conduct.”

But all may not be lost. Judge Miller also held that “in light of the heightened pleading standards, the drafting of a cognizable complaint can be a matter of trial and error.” So, “because the court cannot conclude that there are no circumstances under which Plaintiff can state a claim, the court grants Plaintiff one last opportunity to state a claim that complies with the PSLRA.”

You can read In re Remec, issued February 14, 2006, at 2006 U.S. Dist. LEXIS 8657.

Nugget: “While the allegations set forth in the SAC are more prolix and repetitive than the two earlier attempts to state a claim, they similarly lack actionable substance. This is particularly true where Remec made full disclosure of its declining gross profit margins throughout this period of time in its SEC filings and public statements. Plaintiff must go beyond mere characterization and allege specific facts showing that Defendants possessed the requisite state of mind.”