The Nugget Lives

Hey, remember the Nugget? Yes, I’ve been gone for a while, but I’m back now so let’s try to get back in the swing of things here.

I’ve personally never seen this happen, but the Plaintiffs in In re Eli Lilly & Co. Sec. Litig. filed their “extensive” amended complaint under seal. Seems Judge Jack B. Weinstein (E.D.N.Y.) wasn’t too keen on that idea, as he quickly ordered “the parties to show cause why [it] should not be unsealed.” Plaintiffs said they didn’t mind unsealing it, but Defendants wanted redactions.

Judge Weinstein said that the complaint had to be unsealed, but since certain “documents cited within the complaint may contain trade secrets or confidential commercial information properly protected under subsection (c)(7) of Federal Rule of Civil Procedure 26,” he would allow the complaint to be “redacted” and “Special Master Woodin shall unseal such redacted documents as need no longer be sealed and they shall thereafter be filed with the complaint.”

You can read the Order here.

Note re Judge Weinstein: He took the bench in 1967. In addtion, according to Wikipedia, “Judge Weinstein is also well-known for his personal, informal courtroom style (Weinstein conducts most hearings seated at a table in the middle of the courtroom with counsel, rather than from the bench, and often chooses to wear an ordinary business suit with no judicial robe).” Can any readers confirm whether this is true? Please let us know in the comment area below.

Nugget: “Access to judicial proceedings and documents is necessary for federal courts to have a measure of accountability and for the public to have confidence in the administration of justice.”

How Do You Like Us in Bold?

Having been dismissed once back in February 2006, Judge Marilyn Hall Patel (N.D. Cal.) (pictured) gave Plaintiffs in the iPass securities class action another chance. So what did they do? Well, I’m not sure what might have gone wrong, but Judge Patel says “Plaintiffs have merely changed the typeface in their amended complaint.” Is this really for real? Really? Wow, I couldn’t see the true falsity before, but now that I read it in 14 point Bolded Palatino Linotype, it’s so clear. I’m going to deny the individual defendants’ motions to dismiss in full, and suggest to counsel that if they’d gone all out with the BlackAdder ITC fully-loaded 16 point, I’d have even kept those nasty auditors in this thing. But guess what? It didn’t work. I mean it really didn’t work.

In all fairness, it seems there were other changes to the second amended complaint, but they did about as much good as the ill-fated font switch (or whatever the actual typeface change actually was), with Judge Patel topping it all off by noting that Plaintiffs “failure to meet their pleading burden despite the Court’s Order having laid out a clear blueprint for doing so suggests that amendment would be futile.”

Result? Dismissed with prejudice.

You can read In re iPass, issued September 6, 2006, at 2006 U.S. Dist. LEXIS 63654.

Nugget: “If anything, sale to repay a loan is more probative of good faith than bad, as it provides a reason for the sale wholly independent of future business difficulties.”

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.”

Block Quotes Don’t Cut It

Judge Jeffrey S. White (N.D. Cal.), who upheld Plaintiffs’ 1933 Act claims, but dismissed the 1934 Exchange Act claims, has a few words of advice for Plaintiffs should they choose to amend their complaint again in the Intrabiotics securities class action. You see, because the complaint contains “large block quotes,” and “Plaintiffs engage in a pattern of quoting long excerpts from documents which contain multiple statements,” Judge White said that Plaintiffs, who “are responsible for identifying with particularity what statements are false and misleading,” “have not fulfilled their responsibility in this regard.” So, next time around, they “should clearly identify which specific statements within the documents or block quotes they contend are false or misleading.”

Of possible interest: Intrabiotics, with $15 million in D&O insurance, and about $50 million in cash, has not generated a single penny of revenue since its inception in 1994. Not even one.

You can read In re Intrabiotics, issued January 23, 2006, at 2006 U.S. Dist. LEXIS 15753.

Nugget: “If the DSMB, and then Defendants, were able to determine before the trial was completed that iseganan was not achieving its goals and was unsafe, then it is possible that the DSMB and Defendants had such information even sooner than the decision to terminate the trial was announced. The problem with Plaintiffs’ Complaint is that it provides no basis for determining, or even inferring, when, Defendants may have had such information.”

Hammertime

There’s just no other way to say it. Plaintiffs got hammered by Judge Phyllis J. Hamilton (N.D. Cal.) in the Silicon Storage Technology securities class action. After dismissing them on scienter, falsity, Dura, and just about every other basis imaginable, Judge Hamilton served up this rosy prediction: “Notwithstanding the fact that the dismissal is with leave to amend, the court questions whether plaintiffs will be able to state a claim. The gravamen of plaintiffs’ complaint as presented in the CAC is that SST mismanaged the valuation of its inventory, and then failed to disclose that mismanagement. The allegation that defendants should have written down the inventory earlier than they did, or should have disclosed that SST’s valuation system was ‘arbitrary,’ is essentially a claim that there were material deficiencies in SST’s inventory control procedures. Generally speaking, incidents of fiduciary misconduct and internal mismanagement are not by themselves sufficient to trigger liability under the Exchange Act.”

Of course, the last time we reported on Judge Hamilton, she was being partially reversed up at the Ninth Circuit, so it should be interesting to see what happens next. If anyone knows what Plaintiffs plan to do, please click the Comment below and tell the rest of us.

You can read In re Silicon Storage Technology, issued March 10, 2006, at 2006 U.S. Dist. LEXIS 14790.

Nugget: “The CAC alleges that the overvaluation of inventory and later disclosure of the lack of internal controls that led to the overvaluation caused a 22.5% decline in the price of SST’s stock price. The court finds that the allegations in the CAC do meet the requirements of Dura.”

Scare Tactics

Plaintiffs allegations that management in the Belo Corp securities class action engaged in “scare tactics” against their own employees just didn’t cut it with Judge Sidney A. Fitzwater (N.D. Tex.). Instead, it seems to have prompted Judge Fitzwater to say that “it is clear that plaintiffs are accusing Moroney and Decherd of nothing more than techniques that shareholders — including, presumably, the plaintiff-shareholders — would expect management of a publicly-held company to undertake: stress among employees the importance of increasing circulation to bolster revenues; inform them that revenue positively impacts shareholder value; make each employee understand that person’s individual role in contributing to the company’s success; remind them of the consequences (employee layoffs) of not increasing circulation; and emphasize each employee’s individual, daily obligation to increase circulation.”

Judge Fitzwater noted that it is simply not “wrong for management to direct, persuade, or create incentives for those whose work they manage.” So what is wrong? Why, to “manipulate figures, fabricate numbers, or misrepresent the publication’s actual circulation,” of course. Unfortunately for Plaintiffs, Judge Fitzwater said their complaint did not achieve this standard.

The result on this one is total loss on the motions to dismiss for Plaintiffs, although they were granted 30 days to try again with a new and improved amended complaint if they so desire.

You can read Fener v. Belo, issued March 30, 2006, at 2006 U.S. Dist. LEXIS 14376.

Nugget: “It is essential to gain an understanding from the complaint — unadorned by the embellishment and characterizations that a lawyer’s pen can add through use of intensifiers, adjectives, and adverbs — of what plaintiffs say the scheme actually was and how a given defendant played a part in it.”

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.”

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.”

More Complaints About Complaints

Perhaps it’s a coincidence, and perhaps it’s a trend, but this is the third reported decision in the past month (the others are here and here) that is critical of Plaintiffs’ amended complaint drafting techniques. This time, it’s Judge Susan R. Bolton (D. Ariz.) entering the fray, commenting (in connection with her complete dismissal without prejudice of the White Electronic Designs securities class action) that “Plaintiffs are advised, if they choose to re-file their Complaint, to give considered thought to efficient pleading and meaningful analysis. For example, it is extremely difficult and time consuming for the Court to piece together the alleged misrepresentations and omissions with factual assertions located in other parts of the Complaint. It would save considerable effort if Plaintiffs could somehow group together the alleged misrepresentations and reasons why they are misleading so that the Court is not forced to continually jump around the document.”

Trend or just business as usual? Feel free to add a comment below with your view (as always, no registration required, and you can be anonymous if you like).

You can read In re White Electronic Designs, issued February 14, 2006, at 2006 U.S. Dist. LEXIS 6961.

Nugget: “If Plaintiffs had provided any of the specific information in the alleged analysis, their claim might survive a motion to dismiss. Presumably CI 3, who prepared the analysis, would be able to provide some details, yet Plaintiffs have not given the Court any information contained in the analysis.”

Amend Away

Looks like the Plaintiffs in the long running Adams Golf securities class action will get to file a second amended complaint. Judge Kent A. Jordan (D. Del.) (remember the famous Money Race quote) listened to Defendants position “that they will be unduly prejudiced by the proposed amendments unless the case schedule is amended to allow sufficient time for additional discovery” and “that the proposed amendments are futile.”

Judge Jordan rejected Defendants’ prejudice argument since “discovery would be stayed pending decision on Defendants’ motion to dismiss.” As for futility, he recognized that Defendants themselves “believe that it may be more appropriate to fully address the new claims’ shortcomings on a motion to dismiss rather than in an opposition to Plaintiffs’ motion.” OK then. So, “since Defendants do no more than outline a basic sense for the proposed amendment’s futility” in preparation for such a motion to dismiss, the issue will not be decided here.”

You can read In re Adams Golf, issued January 24, 2006, at 2006 U.S. Dist. LEXIS 2542.

Nugget: “According to the Federal Rules of Civil Procedure, leave to amend shall be freely given by the court when justice so requires. A policy of favoring decisions on the merits, rather than on the technicalities, underlies this Rule.”