In re Computervision Corp. Securities Litigation

• Decision Date: 22 November 1994
• Docket Number: MDL No. 964.
• Citation: 869 F. Supp. 56
• Parties: In re COMPUTERVISION CORPORATION SECURITIES LITIGATION.
• Court: U.S. District Court — District of Massachusetts

869 F. Supp. 56

In re COMPUTERVISION CORPORATION SECURITIES LITIGATION.

MDL No. 964.

United States District Court, D. Massachusetts.

November 22, 1994.

COPYRIGHT MATERIAL OMITTED

Thomas G. Shapiro, Shapiro, Grace & Haber, Glen DeValerio, Norman Berman, Berman, DeValerio & Pease, Boston, MA, Richard D. Greenfield, Greenfield & Chimicles, James R. Malone, Jr., Haverford, PA, Edith M. Kallas, Milberg, Weiss, Bershad, Hynes & Lerach, New York City, for plaintiff Morris I. Glassman.

Glen DeValerio, Berman, DeValerio & Pease, Boston, Roberta D. Liebenberg Mager, Liebenberg & White, Philadelphia, PA, Edith M. Kallas, Milberg, Weiss, Bershad, Hynes & Lerach, New York City, for plaintiffs Lily Moss, Monica Morheim.

Thomas G. Shapiro, Shapiro, Grace & Haber, Glen DeValerio, Berman, DeValerio & Pease, Boston, MA, Edith M. Kallas, Milberg, Weiss, Bershad, Hynes & Lerach, New York City, for plaintiffs Fred Werner, Larry O. Tietz, Anthony R. Caire.

Thomas G. Shapiro, Shapiro, Grace & Haber, Glen DeValerio, Berman, DeValerio & Pease, Boston, MA, Stephen I. Rabin, Edith M. Kallas, Milberg, Weiss, Bershad, Hynes & Lerach, New York City, for plaintiffs Mary Ann Mahoney, Noel Edelson, Leah Edelson, Frank R. Scala, Anna V. Scala, Byron Morach.

Thomas G. Shapiro, Shapiro, Grace & Haber, Glen DeValerio, Berman, DeValerio & Pease, Boston, MA, Lester L. Levy, Wolf, Popper, Ross, Wolf & Jones, Edith M. Kallas, Milberg, Weiss, Bershad, Hynes & Lerach, New York City, for plaintiff Eli Ballan.

Thomas G. Shapiro, Shapiro, Grace & Haber, Glen DeValerio, Berman, DeValerio & Pease, Boston, MA, Steven O. Sidener, Law Offices of David B. Gold, San Francisco, CA, Edith M. Kallas, Milberg, Weiss, Bershad, Hynes & Lerach, New York City, for plaintiff Perry Gantmen.

Thomas G. Shapiro, Shapiro, Grace & Haber, Glen DeValerio, Berman, DeValerio & Pease, Boston, MA, Daniel Krasner, Wolf, Haldenstein, Adler, Freeman & Herz, Edith M. Kallas, Milberg, Weiss, Bershad, Hynes & Lerach, New York City, for plaintiff Leon Sicular.

Thomas G. Shapiro, Shapiro, Grace & Haber, Glen DeValerio, Berman, DeValerio & Pease, Boston, MA, Marquerite R. Goodman, Wynnewood, PA, Edith M. Kallas, Milberg, Weiss, Bershad, Hynes & Lerach, New York City, for plaintiff Robert Bassman.

Thomas G. Shapiro, Shapiro, Grace & Haber, Glen DeValerio, Berman, DeValerio & Pease, Boston, MA, Robert P. Frutkin, Savett, Frutkin, Podell & Ryan, P.C., Philadelphia, PA, Edith M. Kallas, Milberg, Weiss, Bershad, Hynes & Lerach, New York City, for plaintiff Richard Kane.

Thomas G. Shapiro, Shapiro, Grace & Haber, Glen DeValerio, Berman, DeValerio & Pease, Boston, MA, Daniel W. Krasner, Wolf, Haldenstein, Adler, Freeman & Herz, Edith M. Kallas, Milberg, Weiss, Bershad, Hynes & Lerach, New York City, for plaintiff Faramarz Elghanian.

Thomas G. Shapiro, Shapiro, Grace & Haber, Glen DeValerio, Berman, DeValerio & Pease, Boston, MA, Steven E. Angstreich, Levy, Angstreich, Finney, Baldante & Mann, Philadelphia, PA, Edith M. Kallas, Milberg, Weiss, Bershad, Hynes & Lerach, New York City, for plaintiffs Nicholas Depace, Marilyn Depace.

Thomas G. Shapiro, Shapiro, Grace & Haber, Glen DeValerio, Berman, DeValerio & Pease, Boston, MA, Lee Squitieri, Abbey & Ellis, Edith M. Kallas, Milberg, Weiss, Bershad, Hynes & Lerach, New York City, for plaintiffs David Roberts, Leonard Brown, Devon Management, Melvin Klein, Profit Sharing Plan of Eugene J. Bass, P.A., Michael K. Simon, Barnett Stepak.

Thomas G. Shapiro, Shapiro, Grace & Haber, Glen DeValerio, Berman, DeValerio & Pease, Boston, MA, John Halebian, Wechsler, Skirnickarwood, Halebian & Feffer, Edith M. Kallas, Milberg, Weiss, Bershad, Hynes & Lerach, New York City, for Sonem Partners, Ltd.

Peter J. MacDonald, Jeffrey B. Rudman, Hale & Dorr, Boston, MA, for defendants Computervision Corp., Russell E. Planitzer, John J. Shields, Harvey A. Wagner, Anthony N. Fiore, Jr.

James J. Hagen, Simpson, Thacher & Bartlett, New York City, for defendants Shearson Lehman Bros., Inc., Donaldson Lufkin & Jenrette Securities Corp., First Boston Corporation, Hambrecht & Quist, Inc., Lehman Bros.

Dennis M. Kelleher, Thomas J. Dougherty, Skadden, Arps, Slate, Meagher & Flom, Boston, MA, for defendants Norman A. Bolz, John F. Cunningham, Julie T. Katzman, Lawrence L. Landry, Andrew C.G. Sage.

MEMORANDUM AND ORDER

YOUNG, District Judge.

This is a consolidated class action on behalf of persons who purchased Computervision Corporation ("Computervision") securities between August 14, 1992, when notes and stock were first offered, and September 29, 1992, when Computervision announced substantial third quarter losses which were later quantified at $88,100,000.¹ After the announcement, Computervision's stock plummeted 30% in one day to $6.25, or almost half of the initial $12 offering price. The Corrected Supplemental Consolidated Amended Complaint ("Complaint") alleges violations of sections 11 and 12(2) of the Securities Act of 1933, 15 U.S.C.A. §§ 77k-77l (1988) and negligent misrepresentation based on the Prospectus,² which is alleged to have been false and misleading, and from which material facts were allegedly omitted. The defendants — Computervision; its individual officers and directors who signed the registration statements filed with the Securities Exchange Commission in connection with the offering; and a defendant class of over fifty underwriters who sold the Computervision securities — counter that the Complaint should be dismissed pursuant to Rule 12(b)(6) for failure to state a claim where (1) the Prospectus made full disclosure of the allegedly omitted information and particular risk factors, and (2) the strict pleading standards of Rule 9(b) allegedly have not been met. At a hearing on November 23, 1993, the Court granted the Motion to Dismiss the section 12(2) claim as to the defendant outside directors, and took the remaining matters under advisement.

Framework for Analysis

As it must, the Court accepts all the factual allegations of the 39-page Complaint as true and makes all reasonable inferences in favor of the plaintiffs. Williams v. City of Boston, 784 F.2d 430, 433 (1st Cir.1986). "Although the plaintiffs did not attach a copy of the offering materials to their complaint, the defendants submitted the Prospectus with their motion to dismiss. This step was proper and did not convert the motion to dismiss into a motion for summary judgment." Romani v. Shearson Lehman Hutton, 929 F.2d 875, 879 n. 3 (1st Cir.1991). See Fudge v. Penthouse Int'l, Ltd., 840 F.2d 1012, 1015 (1st Cir.) cert. denied, 488 U.S. 821, 109 S.Ct. 65, 102 L.Ed.2d 42 (1988) ("`when a plaintiff fails to introduce a pertinent document as part of his pleading, a defendant may introduce the exhibit as part of his motion attacking the pleading'") (quoting 5 C. Wright & A. Miller, Federal Practice & Procedure § 1327 at 489 1969).

When an action based on federal law is transferred pursuant to an order on multidistrict litigation, the transferee district court follows the law of its own circuit. Menowitz v. Brown, 991 F.2d 36, 40-41 (2d Cir.1993); In re Litig. Involving "Sea Barge 101", 772 F.Supp. 707, 711 (D.Puerto Rico 1991) (Fuste, J.). This Court thus applies the law of the First Circuit.

The Governing Law

Section 11 of the Securities Act of 1933, 15 U.S.C. § 77k, provides that every signer and underwriter may be held liable for a registration statement which "includes untrue statements of material facts or fails to state material facts necessary to make the statements therein not misleading." Ernst & Ernst v. Hochfelder, 425 U.S. 185, 208, 96 S.Ct. 1375, 1388, 47 L.Ed.2d 668 (1976). Section 12(2) provides that any person who offers or sells a security by means of a prospectus can likewise be held liable for material untruths and omissions. 15 U.S.C. § 77l(2).

The Alleged Misstatements

"The central inquiry in determining whether a prospectus is materially misleading under both Section 12(2) and Section 11 is ... `whether defendants' representations, taken together and in context, would have misled a reasonable investor' about the nature of the investment." I. Meyer Pincus & Assoc. v. Oppenheimer & Co., 936 F.2d 759, 761 (2d Cir.1991) (citation omitted) (emphasis added).

Simply put, this Complaint never explicitly alleges that Computervision's prospectus made any specific false statements. "Although the complaint quotes at length from the Prospectus, it ... does not even try to explain how any of the challenged statements were untrue." Loan v. FDIC, 717 F.Supp. 964, 967 (D.Mass.1989) (Tauro, J.) (dismissing section 12(2) claim). See also Haft v. Eastland Fin. Corp., 755 F.Supp. 1123, 1128 (D.R.I.1991) ("plaintiffs have only `chosen to assert vaguely that a false and misleading impression was created'") (citation omitted).

Nor does the Complaint effectively allege any misleadingly optimistic statements. The only allegedly "optimistic" statement the Complaint identifies as specifically misleading is taken from the Prospectus' "Summary Unaudited Pro Forma Consolidated Financial Data"; it shows gains in Computervision's "Operating income" and "Income from continuing operations" for the first six months of 1992 over the 1991 year totals. Prospectus, at 7. The Complaint alleges that "by juxtaposing the positive results for the first two quarters of 1992 with the statements that the Company was refocusing on its higher margin software business, the Prospectuses distorted Computervision's earnings trends, masking the fact that the two quarters of profits did not, in reality, portend an immediate turnaround." Complaint, at ¶ 43. It is the Complaint's portrayal of the Prospectus, however, which distorts reality. It fails to highlight any statements within the Prospectus which represent — or which could lead one reasonably to infer — that Computervision was on "an immediate turnaround," or "was on the verse (sic) of a successful year and was a strong turnaround candidate" as...