In re American Funds Securities Litigation, 072012 FED9, 11-55299

Docket Nº:11-55299
Party Name:In re: AMERICAN FUNDS SECURITIES LITIGATION, v. CAPITAL GROUP COMPANIES, INC; CAPITAL RESEARCH AND MANAGEMENT CO; AMERICAN FUNDS DISTRIBUTORS, INC, Defendants-Appellees. ARDEN GEIST; ROLF BASLER; ROLF BASLER REVOCABLE TRUST, Plaintiffs - Appellants,
Judge Panel:Before: GILMAN, TALLMAN, and N.R. SMITH, Circuit Judges.
Case Date:July 20, 2012
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit
 
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In re: AMERICAN FUNDS SECURITIES LITIGATION,

ARDEN GEIST; ROLF BASLER; ROLF BASLER REVOCABLE TRUST, Plaintiffs - Appellants,

v.

CAPITAL GROUP COMPANIES, INC; CAPITAL RESEARCH AND MANAGEMENT CO; AMERICAN FUNDS DISTRIBUTORS, INC, Defendants-Appellees.

No. 11-55299

United States Court of Appeals, Ninth Circuit

July 20, 2012

NOT FOR PUBLICATION

Argued and Submitted July 12, 2012 Pasadena, California

Appeal from the United States District Court for the Central District of California Gary A. Feess, District Judge, Presiding D.C. No. 2:06-cv-07815-GAF-RNB

Before: GILMAN, [**] TALLMAN, and N.R. SMITH, Circuit Judges.

MEMORANDUM [*]

Plaintiffs-appellants, investors in the American Funds mutual funds, appeal the dismissal with prejudice of their claims that defendants-appellees Capital Group Companies, Inc., Capital Research and Management Company, and American Funds Distributors, Inc. (together, "defendants"), committed securities fraud in violation of §§ 10(b) and 20(a) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78j(b) & 78t(a). The district court held that plaintiffs' action was untimely because it was filed more than two years after a reasonably diligent plaintiff could have discovered the facts constituting the violation. See Merck & Co. v. Reynolds, 130 S.Ct. 1784 (2010); 28 U.S.C. § 1658(b). We have jurisdiction pursuant to 28 U.S.C. § 1291, and we review de novo a district court's decision to grant a motion to dismiss, Knievel v. ESPN, 393 F.3d 1068, 1072 (9th Cir. 2005). We hold that the district court erred in dismissing the action as time-barred; however, because plaintiffs' complaint fails to allege scienter with the requisite particularity, we affirm the dismissal but vacate the portion of the order dismissing the complaint with prejudice and remand for the limited purpose of granting plaintiffs leave to amend.

Under Merck & Co. v. Reynolds, a § 10(b) cause of action accrues "(1) when the plaintiff did in fact discover, or (2) when a reasonably diligent plaintiff would have discovered, 'the facts constituting the violation.'" 130 S.Ct. at 1789–90. The district court, in evaluating whether plaintiffs had adequately pled defendants' scienter, identified numerous sources from 2003 and 2004 suggesting the possibility that defendants were acting with the intent to deceive, but none of those sources could have led a reasonably diligent...

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