Top Brass

Plaintiffs can declare victory on the motion to dismiss the St. Paul Travelers securities class action, with Judge John R. Tunheim (D. Minn.) holding that “the facts alleged in the complaint, when taken as a whole, strongly suggest that the company’s senior executives were aware that the financial statements issued during the class period were false or misleading when made.”

That’s because “the complaint alleges that the senior executives were aware that the financial statements neither accurately accounted for nor made sufficient disclosures regarding defendants’ alleged participation in bid-rigging or misuse of finite reinsur-ance, and that “the alleged kickback scheme was so pervasive that the company named it the ‘Top Brass’ program, underwriters made false or ‘B’ bids on a regular basis to rig the insurance market, underwriters violated the company’s underwriting policies to obtain large group insurance policies through the kickback program, senior executives had access to the Minnesota Department of Commerce Report that opined that the company had repeatedly violated its own underwriting policies, and the alleged misconduct accelerated after Jay Fishman became the CEO of the company.”

You can read In re St. Paul Travelers, issued September 25, 2006, at 2006 U.S. Dist. LEXIS 70261.

Nugget: “Investors need the complete picture to ensure that optimistic statements about a company’s financial condition do not mislead investors.”

Cut and Paste Nightmare

You know it’s not going to turn out well for Plaintiffs when the Court says “at this juncture, the Court notes with great concern that Plaintiff includes the following as footnote 46 in its Opposition to Defendants’ Motion to Dismiss.” What was the footnote, you ask? Well, here it is, and it seems fine, right?

“Defendant Warren signed the Form 10-Qs filed during the Class Period. (Complaint PP 149, 151, 153, 167, 169, 172, 184). The form 10-Ks were signed by defendants Hickey and Van Riper in 1999 (Compl. P143), by defendants Hickey, Van Riper and Warren in 2000 (Compl. P159), and by defendants Hickey, Kelsey and Warren in 2001.”

Oh, but I assure you, it’s not fine. Judge Harold A. Ackerman (D. N.J.) continued, lamenting that “this footnote caused the Court considerable confusion because, as noted above, the SAC makes mention only of Defendants Fass, Sternlicht and Bond.” So, “after a not inconsiderable expenditure of judicial resources, the Court discovered that footnote 46 was also, and more properly, included by Plaintiff’s counsel as footnote 26 in its opposition brief to a motion to dismiss filed in Senn v. Hickey, No. 03-4372 (D.N.J. filed April 25, 2005), a case completely unrelated to the present action, with Plaintiff’s counsel as the only common de-nominator.” Uh-oh.

You see, “in Senn v. Hickey, there were in fact defendants named Warren, Hickey, Van Riper and Kelsey; there are no such defendants in the instant action. This Court recognizes that the inherent nature of modern litigation and word processing lends itself to some ‘cut-and-pasting’ of boilerplate from one case to the next; this example of duplication, however, is not easily overlooked. The Court urges counsel to exercise greater diligence in its future filings.”

Result? Nothing to do with the footnote (I hope), dismissed with prejudice.

You can read In re Bio-Technology General, issued October 26, 2006, at 2006 U.S. Dist. LEXIS 81268.

Nugget: “The chasm this Court must traverse to reach Plaintiff’s conclusion is simply too great.”

Dura No Help to Sears

The Sears securities class action was filed in 2003, but we’re still dealing with motions to dismiss.The third round of them actually.This time, it’s all about (our old friend) loss causation, with Judge Rebecca R. Pallmeyer (N.D. Ill.) taking on the Defendants’ Dura arguments — and pretty much shooting them all down.As she put it, “to the extent Defendants suggest that Dura imposed stricter fact-pleading requirements for the economic loss and causation elements of an action under §10(b), Defendants are mistaken.”

Judge Pallmeyer also commented that “Defendants’ arguments are inconsistent,” and “more importantly, however, the kind of specificity the Defendants seek is simply not required at the pleading stage.”

You can read Ong v. Sears, issued October 18, 2006 at U.S. Dist. LEXIS 80294.

Nugget: “Dura has not abrogated Caremark or changed the law in the Seventh Circuit.”

Picture This

Well, there goes the Eastman Kodak securities class action, and yes I mean with prejudice.Why?Because Judge Michael A. Telesca (W.D.N.Y.) says “that Kodak’s warnings not only alerted investors of potential problems with changes in Kodak’s products, but also informed investors that the company was then currently facing the very problems identified in the Complaint.”

So “because the ‘total mix’ of information available to potential investors clearly informed investors that Kodak’s plans were subject to risks, and clearly informed investors of the nature of those risks, the allegedly false and misleading statements made by the defendants during the class period are not material, in that based on a totality of the information, the risks that plaintiffs claim were concealed were disclosed, and no reasonable investor would have been misled.”

You can read In re Eastman Kodak, issued November 1, 2006, at 2006 U.S. Dist. LEXIS 79879.

Nugget: “Therefore, the court, while bound to accept plaintiffs’ factual allegations as true, is not required to accept the plaintiffs’ conclusions or inferences based on those facts.”

Try and Try Again — and You Still Won’t Succeed

You may remember the article I wrote back in March about the Invision Technologies securities class action. That article, entitled Try Try Again, featured Judge Martin J. Jenkins (N.D. Cal.) gleefully (OK, I added the gleefully part) tossing the case. At the time, I commented that “all may not be lost,” as “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.’”

Well, here we are in Round II, and Judge Jenkins sure doesn’t seem satisfied. In throwing the case out for good, he says that “for obvious reasons it would have been impossible for Defendants to have disclosed violations that they were not aware of,” and “as a matter of logic it makes little sense to read Defendants’ statement as affirming the non-existence unknown violations.”

I’d tell you more, but what’s the point really? This goose appears cooked.

You can read In re Invision, issued August 31, 2006 at 2006 U.S. Dist. LEXIS 76458.

Nugget: “Plaintiffs have plead no specific allegations indicating that Defendants knew of facts at the time that this statement was made such that it would render this statement false.”

Trex Chilled

Looks like Plaintiffs didn’t fare too well in the Trex securities class action. Reading the opinion, it seemed as if Judge Glen E. Conrad (W.D. Va.) (who was appointed a U.S. Magistrate Judge in 1976 at age 27, and elevated to Article III status in 2003) rejected their complaint on nearly every point imaginable, as he concluded “that the facts and circumstances alleged in this case are not such as to support a departure from the general rule that puffing and forward looking statements do not constitute misstatements or omissions of material facts for purposes of the PSLRA.”

He continued, “as for plaintiffs’ claims which arguably implicate statements of present fact, the court concludes that, when read in context with other statements and information made available to the investing public, no reasonable investor could have been misled. To hold otherwise, would create unreasonable reporting requirements that would discourage and chill meaningful communication by corporate officers.”

You can read In re Trex, issued October 6, 2006 at 2006 U.S. Dist. LEXIS 73503 or here.

Nugget: “Even assuming that the accused statements and/or omissions could be viewed as false or misleading, the court concludes that the facts and circumstances alleged by plaintiffs do not give rise to a viable inference of scienter.”

Auditor Can’t Escape ANR Action

KPMG Bermuda has lost it’s bid to be dismissed from the ANR securities class action.Senior Judge Ellen Bree Burns (D. Conn.) (pictured left) evaluated the audit firm’s alleged knowledge and intent, holding that “repeated restatements can… raise an inference of scienter.”

The other prong of her opinion addressed materiality, with Judge Burns finding that KPMG Bermuda’s audit opinions, which said that “ANR’s financial statements fairly represented its financial position and were created in accordance with GAAP,” “were relied upon by investors making their investment decisions,” and “thus, plaintiffs have adequately pled the existence of material misrepresentations made by KPMG Bermuda.”

You can read Schnall v. ANR, issued August 30, 2006 at 2006 U.S. Dist. LEXIS 61898

Nugget: “While allegations of GAAP and GAAS violations alone are generally not sufficient to create a strong inference, of reckless behavior, where plaintiffs have alleged facts showing that there were numerous red flags that KPMG must have been aware of, if it were conducting any kind of audit, reckless conduct can be, and has been, inferred.”

Shotgun City

The Eleventh Circuit has ruled in the First Horizon securities class action. But before we get to that, it helps to know that before the case got to the Court of Appeals, the District Judge (after throwing out Plaintiffs’ amended complaint), told Plaintiffs that if they wanted to file a motion to amend, they’d have to pay all of Defendants costs and fees associated with the motion to dismiss. Hmmmm, let’s see. Uh, nope, said the Plaintiffs, instead appealing the ruling.

Well, that appeal has now led to an opinion, authored by Circuit Judge Stanley F. Birch (pictured). In it, the Panel says that “the defendant is a no good defrauder.” Strong language, huh? Actually, the Panel uses that language in a rhetorical sense, ruling for Defendants by accepting the sound-in-fraud argument “when the facts underlying the misrepresentation at stake in the claim are said to be part of a fraud claim, as alleged elsewhere in the complaint.” However, before some of you start to get carried away, the Panel did make clear that they do not intend to “elevate the pleading standard when the claim is not alleged to have been part of another fraud-based claim.” So kind of where we were – don’t allege fraud in your ’33 Act claims.

And here’s another thing not to do if you’re a Plaintiff. The Panel held that “the complaint at issue in this case is a proverbial shotgun pleading,” which to them is a complaint that “incorporate[s] every antecedent allegation by reference into each subsequent claim for relief or affirmative defense.” In other words, how and exactly what you incorporate from the body of the complaint into the Counts is important – especially in the Eleventh Circuit. So if you’re drafting an amended complaint right now, do yourself a favor and read this opinion carefully. Otherwise, you could be responsible for a Nugget article you won’t like.

Oh, and as for the cost and fee thing, the Panel said it chooses to “strike a different path,” concluding that they “disagree that dismissal was the appropriate course of action for the district court to take at this juncture in the litigation,” because things seem “more clearly in Rule 12(e)’s remedy of ordering repleading for a more definite statement of the claim, rather than in Rule 12(b)(6)’s remedy of dismissal for failure to state a claim.” So, “given the district court’s proper conclusions that the complaint was a shotgun pleading and that the plaintiffs’ failed to connect their causes of action to the facts alleged, the proper remedy was to order repleading sua sponte.”

You can read Wagner v. First Horizon, issued yesterday, here.

Nugget: “Shotgun pleadings wreck havoc on the judicial system. Such pleadings divert already stretched judicial resources into disputes that are not structurally prepared to efficiently use those resources.”

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.”

Two Little Birds, One Big Stone

Judge Lance M. Africk (E.D. La.) (George W., Class of ’02) combined his rulings on the motions to dismiss the US Unwired securities class action and the derivative case. You see, after tossing the derivative case on a standing issue, it all came down to safe harbor and loss causation, with Judge Africk first finding that “beyond the blanket assertion by plaintiff that defendants knew that these statements were false when they were made, the Court can find no other suggestions of this alleged fraud.”

As for Dura, chalk this one up for the defense, as Judge Africk held that the Amended Complaint’s “Truth Begins to Emerge,” section “failed to detail the statements made during the class period that would have revealed the truth about defendants’ alleged misrepresentations and shown these misrepresentations to be the proximate cause of plaintiff’s losses.”

So that’s it, right? Well, maybe not, as the dismissal was entered without prejudice. Remains to be seen if Plaintiffs will take another shot and amend.

You can read Romero v. US Unwired, issued August 11, 2006, at 2006 U.S. Dist. LEXIS 60589.

Nugget: “To establish the requisite causation, the truth regarding a defendant’s putative misrepresentations must come to light.”