Geffon v. Micron Corp

• Decision Date: 06 December 2000
• Docket Number: No. 00-1199,00-1199
• Parties: (1st Cir. 2001) JOSHUA GEFFON, EDWARD R. JASLOW, IRVING BERGER AND RICHARD ANTHONY PHILLIPON, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, Plaintiffs, Appellants, v. MICRION CORPORATION, NICHOLAS P. ECONOMOU, ROBERT K. MCMENAMIN AND DAVID M. HUNTER, Defendants, Appellees. Heard
• Court: U.S. Court of Appeals — First Circuit

Page 29

249 F.3d 29 (1st Cir. 2001)

JOSHUA GEFFON, EDWARD R. JASLOW, IRVING BERGER AND RICHARD ANTHONY PHILLIPON, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, Plaintiffs, Appellants, v. MICRION CORPORATION, NICHOLAS P. ECONOMOU, ROBERT K. MCMENAMIN AND DAVID M. HUNTER, Defendants, Appellees.

No. 00-1199

United States Court of Appeals For the First Circuit

Heard December 6, 2000

Decided May 10, 2001

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Robert E. Keeton, U.S. District Judge] Thomas G. Shapiro, with whom Thomas V. Urmy, Jr., Michelle Blauner, Shapiro Haber & Urmy, LLP, Kenneth J. Vianale, Milberg Weiss Bershad Hynes & Lerach, LLP and Jay S. Cohen, were on brief, for appellants.

Mitchell H. Kaplan, with whom John R. Baraniak, Jr., Keith A. Custis and Choate, Hall & Stewart, were on brief, for appellees.

Before Torruella, Chief Judge, Cyr, Senior Circuit Judge, and Stahl, Senior Circuit Judge.

TORRUELLA, Chief Judge.

Appellants are class representatives of all persons who purchased stock in Micrion Corporation ("Micrion") between April26 and June 24, 1996. They allege that defendants Micrion, Nicholas Economou, Robert McMenamin and David Hunter¹ were responsible for statements or omissions in violation of §§ 10(b) and 20(a) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78j(b) and 78t(a), and in violation of Securities and Exchange Commission Rule 10b-5, 17 C.F.R. § 240.10b-5. The district court found that there was no genuine dispute of material fact as to whether the statements in question were misleading or fraudulent, and granted summary judgment to defendants. Geffon v. Micrion Corp., 76 F. Supp. 2d 134, 148 (D. Mass. 1999). This appeal followed. For the reasons explained herein, we affirm the grant of summary judgment, albeit based on different reasoning than that used by the district court, namely that appellants adduced insufficient evidence of defendants' scienter.

BACKGROUND

The district court presented the factual background at length in its grant of summary judgment. Id. at 136-140. To the extent necessary, we revisit it here. The relevant facts are undisputed.

A. The Agreement Between Micrion and Read-Rite

Micrion designs and manufacturers focused-ion-beam (FIB) systems. Prior to 1996, Micrion typically sold FIB systems in small batches of one to two machines per customer. In early 1996, Micrion negotiated a large-scale sale of FIB systems to Read-Rite Corporation ("Read-Rite"). Under the terms of an Equipment Purchase Agreement dated February 9, 1996 (the "Agreement"),² Read-Rite ordered twenty-five FIB systems to be delivered between March 31 and September 30, 1996. Micrion also agreed to sell up to fifty additional units upon the issuance of "written releases" from Read-Rite.³ Read-Rite retained the ability to "cancel in whole or part any purchase order" with written notice. Moreover, Read-Rite was in no way obligated to purchase any units for which it had not issued a written release.

B. The Press Releases and the Conference Call

On March 18, 1996, Micrion issued a press release (the "March 18 Release") reporting that it had "completed negotiation of a multiple-system purchase agreement valued at over $50 million," and that when combined with a previous agreement with the same customer, the total order was "valued at over $60 million."⁴ The March 18 Release also warned that the press release "include[d] forward looking statements ...subject to risks and uncertainties that could cause the Company's actual results to vary materially." It referred readers to a Form 8-K (the "8-K") filed with the Securities and Exchange Commission on the same day. The 8-K identified a number of potential risks relevant to the Agreement, including "the exercise of cancellation or termination provisions..., including provisions that entitle the customer to cancel issued purchase orders or to terminate the agreement for convenience."

On April 25, 1996, Micrion issued a press release (the "April 25 Release") announcing "record revenues" for its third quarter ending March 31, 1996. In the April 25 Release, Economou stated that:

[Micrion] booked an order worth over $50 million for Micrion FIB systems to be used in a new production application. This order is an extension of the $10 million order announced by Micrion in October. The total order is now valued at over $60 million, the largest order ever placed for FIB equipment.

A note attached to the release referred investors to the 8-K for information on risks and uncertainties associated with forward looking statements contained therein.

Also on April 25, Economou and Hunter held a conference call with securities brokers and analysts (the "Conference Call"). During the call, Hunter stated that Micrion's "actual backlog" totaled $72.9 million as of the end of March, 1996. Economou then had the following exchange with financial analyst Mark Fitzgerald to explain further what Micrion meant by "backlog":

Fitzgerald: [I]n terms of the timing on [the backlog], this is all within 12 months, that 72 million, is that how you are defining your backlog?

Economou: That's correct.

Fitzgerald: And when you said it was concentrated in the first two quarters, are we talking 50, 60, 90 percent of it in the first two quarters of '97?

Economou: No, I didn't mean to say quite that. I think what I said was that the significant shipments would start in the second half of the calendar year. I wouldn't necessarily say that the rest of the order or whatever is left of the order would be in the first six months of our fiscal year. I think it will be a little more evenly distributed than that. But it will certainly be within the twelve months starting from now.

During the Conference Call, Micrion Director of Corporate Relations Bill Monigle again referred to the 8-K, noting that "there are important factors that might cause [Micrion's] performance to vary from that projected in the [Conference Call and that] current cautionary information identifying these factors [could] be found in the form 8K."

C. Subsequent Events

On April 26, 1996, investment bank Hambrecht and Quist issued a strong-buy recommendation for Micrion stock, resulting in a $5 increase in the share price. A May 2, 1996 press release, while not identifying Read-Rite as Micrion's major customer, noted that the "large order we recently booked makes up a major portion of the current backlog." The May 2 release again warned investors of the risks that the Agreement might be cancelled or terminated. On June 12, 1996, Micrion's stock price fell sharply, apparently in response to a Dow Jones report that weakness in the disk-drive industry might hurt Read-Rite and soften its demand for Micrion products. On June 21, 1996, Read-Rite cancelled some of its firm order (reducing the stock ordered to 21 units) and indicated that it would not be placing orders for any of the 50 units covered by the "non-binding blanket order" section of the Agreement. Micrion announced the cancellation in a press release dated June 24, 1996.

D. The Allegedly Misleading Material Statements and the Alleged Material Omission

Although appellants made numerous claims of false and misleading statements by Micrion in their original complaint, by the time of summary judgment (and for purposes of this appeal), they pinpoint three particular statements and one alleged material omission. First, they claim that Economou's statement in the April 25 Release that Micrion had "booked an order worth over $50 million" was false and misleading because the term "book an order" refers only to orders where the customer was committed to purchasing the product ordered, i.e., "firm" orders. At the time that Micrion issued the press release, Read-Rite had only placed a firm order for 28 machines. The remainder of the machines were covered under a "non-binding blanket order" under which Micrion was obligated to sell up to 75 machines, but Read-Rite was not obligated to buy any for which it had not yet filed a written release. Under appellants' interpretation of "book an order," Micrion had booked an order for under $30 million, not $60 million.

Second, appellants claim that Economou's inclusion of the entire Read-Rite order in "actual backlog" in the Conference Call was false and misleading because "backlog" only includes items for which a firm order had been placed, and not items covered under the "non-binding blanket order." Under this interpretation, Micrion's backlog as of April 25, 1996 would have been approximately $40 million, rather than the $72 million stated in the Conference Call.

Third, appellants claim that Economou's statement that "the rest of the order" would "certainly" be shipped "within twelve months" of the Conference Call was false and misleading given that no specific delivery dates had been set for items under the non-binding blanket order, and that delivery for those items might never occur absent written purchase orders from Read-Rite.

Finally, even if none of these specific statements was false and misleading, appellants claim that Micrion's failure to disclose that Read-Rite had no obligation to purchase a majority of the equipment covered by the Agreement was a material omission actionable under Rule 10b-5. See, e.g., Roeder v. Alpha Indus., 814 F.2d 22, 26 (1st Cir. 1987) (citing SEC v. Tex. Gulf Sulphur Co., 401 F.2d 833, 860-61 (2d Cir.1968)) ("When a corporation does make a disclosure ...there is a duty to make it complete and accurate.").

E. The Two Summary Judgment Opinions

The district court originally denied defendant's motion for summary judgment. Geffon v. Micrion Corp., No. 96-11596-REK (D. Mass. Sept. 24, 1998) (memorandum and order) [hereinafter Geffon, First Summary Judgment Opinion]. The court held that there were multiple plausible interpretations of the statements at issue, and that a reasonable jury could find that any of the three statements...