In re Computervision Corp. Securities Litigation, MDL No. 964.

• Citation: 914 F. Supp. 717
• Decision Date: 12 February 1996
• Docket Number: MDL No. 964.
• Parties: In re COMPUTERVISION CORPORATION SECURITIES LITIGATION.
• Court: U.S. District Court — District of Massachusetts

914 F. Supp. 717

In re COMPUTERVISION CORPORATION SECURITIES LITIGATION.

MDL No. 964.

United States District Court, D. Massachusetts.

February 12, 1996.

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

Thomas G. Shapiro, Shapiro, Grace & Haber, Boston, MA, Glen DeValerio, Norman Berman, Berman, DeValerio & Pease, Boston, MA, Roberta D. Liebenberg, Mager, Liebenberg & White, Philadelphia, PA, Edith M. Kallas, Milberg, Weiss, Bershad, Hynes & Lerach, New York City, for Lily Moss, Monica Morheim.

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

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

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

Thomas G. Shapiro, Shapiro, Grace & Haber, Boston, MA, Glen DeValerio, Norman Berman, 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 Perry Gantmen.

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

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

Thomas G. Shapiro, Shapiro, Grace & Haber, Boston, MA, Glen DeValerio, Norman Berman, 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 Richard Kane.

Thomas G. Shapiro, Shapiro, Grace & Haber, Boston, MA, Glen DeValerio, Norman Berman, 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 Nicholas DePace, Marilyn DePace.

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

Thomas G. Shapiro, Shapiro, Grace & Haber, Boston, MA, Glen DeValerio, Norman Berman, Berman, DeValerio & Pease, Boston, MA, John Halebian, Wechsler, Skirnick, Harwood, Halebian & Feffer, New York City, 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 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 Shearson Lehman

Brothers, Inc., Donaldson Lufkin & Jenrette Securities Corporation, First Boston Corporation, Hambrecht & Quist, Inc., Lehman Brothers.

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

MEMORANDUM

YOUNG, District Judge.

Following dismissal of all but a tiny sliver of their case,¹ and withdrawal of that sole surviving claim in the face of a motion for summary judgment, the plaintiff class of disgruntled investors in Computervision Corporation ("Computervision") moved for leave to file a so-called Second Amended Consolidated Class Action Complaint.² Treating the oppositions to that motion as cross motions to dismiss on futility grounds, the Court held a hearing on September 13, 1995, and issued an order dated September 20, 1995, denying the motion to amend and entering judgment on behalf of the defendants. This memorandum explains the reasoning behind the order.

I. Standard for Analysis

The parties disagree over the applicable standard for analysis of the motion to amend. The plaintiffs rely upon the "freely given when justice so requires" language of Rule 15(a) and insist that the Court's discretion does not permit denial of leave to amend without "substantial reason." The defendants argue that it is the plaintiffs, having largely lost a previous motion to dismiss and conceded defeat in a subsequent motion for summary judgment, who now must demonstrate that the proposed amendment is supported by "substantial and convincing evidence." See Resolution Trust Corp. v. Gold, 30 F.3d 251, 253 (1st Cir.1994) (motion to amend filed during pendency of summary judgment motion) (quoting Torres-Matos v. St. Lawrence Garment Co., 901 F.2d 1144, 1146 1st Cir.1990). Although the Court is of the view that the Gold standard applies due to the lengthy prior proceedings in this case, the question is academic, as the plaintiffs cannot maintain this action under either standard.

II. Discussion

A. The Individual Defendants

There are two fundamental and fatal defects with the present incarnation of the plaintiffs' case. First, the complaint mischaracterizes Computervision's statements: the Company simply did not say what the plaintiffs say it said. The supposed actionable "representations" are in fact inferences drawn by the plaintiffs from isolated statements which are unreasonable (if not irrational and illogical) given the surrounding language and the documents in their entirety. Second, the claims, although superficially distinct from their predecessors, are essentially the same as those already held insufficient.

Once again, this version of the complaint attacks the public documents promulgated by Computervision in connection with its stock and note offerings of August 14, 1992. The plaintiffs claim that statements in those documents — prospectuses and registration statements — are actionable in three respects: (1) they were misleading in stating that the stock and the notes were "appropriately priced"; (2) they misrepresented that "backlog" was not material; and (3) the Company's treatment of certain of its products, CADDS 4X and CADDS 5, Release 2.0, was false and misleading. This memorandum will address these allegations seriatim.

1. "Appropriately Priced"

The plaintiffs categorize their initial attack as follows:

The Stock Prospectus was misleading in stating that the Stock had been appropriately priced. The price of the Notes was also too high, causing their yields to be too low. The Stock Prospectus stated that among the factors considered in determining the initial public offering price were "estimates of the business potential and earnings prospects of the Company." By the time of the Offerings, however, those estimates were no longer valid. As of the date of the Offerings, the Company's revenues, bookings, visibility and backlog were substantially below the plan prepared by Computervision and reviewed by the underwriters in connection with their due diligence for the Offerings, as well as the Company's other internal plans.

Plaintiffs' Brief at 8-9. In other words, the projections and estimates employed by the Company and its underwriters in pricing the stock and notes were invalid, and known to be so, rendering the prices — reached only after "considering" the projections — misleading.

There are numerous flaws in the plaintiffs' reasoning. First, the Company never represented that the prices were "appropriate," whatever that means. Rather, the Company stated the following in its prospectus:

The initial public offering price was determined by negotiation among the Company, the Representatives³ and the Lead Managers.⁴ Among the factors considered in determining the initial public offering price, in addition to prevailing market conditions, was the Company's historical performance, estimates of the business potential and earnings prospects of the Company and market prices of and financial and operating data concerning comparable companies with publicly traded equity securities.

Prospectus at 82-83. The defendants correctly point out that if the above constitutes a representation that the initial price was "appropriate," investors would effectively have insurance against any decline in price, rendering their investments risk-free.

Even if the Court were to construe such language as some kind of warranty of the "correctness" or "soundness" of the initial price, the plaintiffs cannot show that the statement is in any sense false or misleading. The best the plaintiffs can muster is various scattered internal, non-public projections and sales indicators within the Company which differed from — and were bleaker than — those "considered" in reaching an initial price. The fact that the projections proved overly rosy, also relied on by the plaintiffs, in no way constitutes proof that parties...