Bank v. Pitt

• Decision Date: 18 April 1991
• Docket Number: No. 89-6149,89-6149
• Citation: 928 F.2d 1108
• Parties: Fed. Sec. L. Rep. P 95,906, 19 Fed.R.Serv.3d 1165 Richard and Jane BANK, individually and on behalf of all those similarly situated, Plaintiffs-Appellants, v. John P. PITT, Edward A. Kramer, Edward L. Savage, Sr., R.C. Mattson, Sr., Telematics International, Inc., Defendants-Appellees.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1108

928 F.2d 1108

Fed. Sec. L. Rep. P 95,906, 19 Fed.R.Serv.3d 1165

Richard and Jane BANK, individually and on behalf of all those similarly situated, Plaintiffs-Appellants, v. John P. PITT, Edward A. Kramer, Edward L. Savage, Sr., R.C Mattson, Sr., Telematics International, Inc. Defendants-Appellees.

No. 89-6149.

United States Court of Appeals Eleventh Circuit.

April 18, 1991.

Marshall Cooper, Fort Lauderdale, Fla., Todd S. Collins, Philadelphia, Pa., for plaintiffs-appellants.

Sergio Alvarez-Mena, III, Morgan, Lewis & Bockius, Miami, Fla., for defendants-appellees.

Appeal from the United States District Court for the Southern District of Florida.

Before CLARK and COX, Circuit Judges, and HENDERSON, Senior Circuit Judge.

PER CURIAM:

Richard and Jane Bank appeal the district court's dismissal of their action for failure to state a claim upon which relief can be granted. We reverse and remand for further proceedings.

I. FACTS AND PROCEDURAL HISTORY

In the context of a motion to dismiss, we accept as true facts alleged in the complaint, and construe them in a light favorable to the plaintiffs. Franklin v. Gwinnett County Pub. Schools, 911 F.2d 617, 619 (11th Cir.1990).

A. The Parties

Plaintiffs Richard and Jane Bank are shareholders in Telematics International, Inc. (Telematics). They allege that they purchased 500 shares of Telematics stock, at $9.25 per share, in November 1988.

Defendant Telematics designs, manufactures and markets high-performance, computer-based communications products. Shares of the corporation are traded on the NASDAQ National Market System. Defendants Pitt, Kramer, Savage and Mattson, during the relevant time period, were officers and directors of Telematics. We will refer to Telematics and the individual defendants collectively as the defendants.

B. The Allegations

The complaint, filed as a class action on behalf of the Banks and all others who purchased Telematics common stock during the class period (September 27, 1988, through December 29, 1988), alleges a claim under section 10(b) of the Securities Exchange Act ¹ and Rule 10b-5, ² promulgated thereunder.

The Banks allege that the defendants engaged in a scheme to issue false and misleading statements to deceive the public, artificially inflate the price of Telematics stock, cause class members to purchase Telematics stock, and permit the individual defendants to sell portions of their common stock holdings at inflated prices.

The statements, issued in the form of press releases, were allegedly false and misleading because they misrepresented or failed to disclose material adverse information such as:

(a) That Telematics faced severe dangers of a decline in revenue and income from systems sales in the United States;

(b) That Telematics faced severe dangers of a decline in revenue and income from the postponement of large contract awards and orders;

(c) That earnings, at least in the short-term, would suffer as a result of Telematics' focus on the British Government Data Network and other long-term projects;

(d) That Spectrum Digital Corporation, acquired on September 2, 1988, would have a significant adverse impact on Telematics' earnings for the fourth quarter and for 1988;

(e) That despite Telematics' upbeat public statements and optimistic public reports regarding future prospects, through at least the fourth quarter of 1988 Telematics faced the likelihood of declining earnings.

Complaint at p 29. The complaint alleges the plaintiff class was damaged when, after Telematics announced disappointing year-end financial results, the price of Telematics stock dropped 25% in two days.

C. The District Court's Order

The defendants responded to the complaint by filing a motion to dismiss. They contended that under Fed.R.Civ.P. 12(b)(6) and 9(b), the Banks failed to state a claim because there was no duty to disclose the information not reported, because the complaint lacked specific allegations of the circumstances of the alleged fraud sufficient to satisfy Rule 9(b), and because the fraud-on-the-market theory was not sufficiently pleaded. ³

The district court granted the motion to dismiss. The court found that the Banks were complaining of the defendants' failure to disclose "soft" information, and because there is no duty to disclose such information, there could be no 10(b) liability. The court also found that the information not disclosed was immaterial, lending further support to the conclusion that there could be no 10(b) liability under these facts. At the end of its memorandum opinion and order dismissing the case, the district court wrote, "The Clerk of the Court is directed to close the file in the above-styled cause." No separate judgment, however, was ever entered.

II. CONTENTIONS

The Banks argue that the district court erred in dismissing the action for failure to state a claim. They contend that under the standard articulated in Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957), the complaint states a claim upon which relief can be granted. They assert that the district court impermissibly drew inferences favorable to the defendants, misread the press releases, and incorrectly concluded that the information not disclosed was soft and immaterial. The Banks further argue that the complaint adequately alleged the fraud-on-the-market theory. Finally, they argue that if the complaint is deficient, the district court had a duty to dismiss the complaint with leave to amend.

The defendants argue that the district court's order should be affirmed because the complaint does not state a claim upon which relief may be granted. They assert that there is no duty to release the type of soft information the Banks wanted released. Any alleged omissions are not material, they assert, and therefore cannot be the basis of a securities fraud claim. They also argue that the fraud-on-the-market theory is inadequately alleged. Alternatively, the defendants reassert the argument that the complaint does not satisfy the requirements of Rule 9(b). Finally, the defendants reject the argument that the district court had a duty to dismiss the complaint with leave to amend.

III. ISSUES

We must decide first whether we may properly exercise our appellate jurisdiction in this case. Because we answer this question in the affirmative, we will proceed to the next issue, whether the district court had a duty to dismiss the complaint with leave to amend. Because we answer this question in the affirmative also, we need not reach the other arguments advanced by the parties.

IV. DISCUSSION

A. Jurisdiction

Whether a court order is final and appealable is a question of law and is subject to independent review in this court. Combs v. Ryan's Coal Co., 785 F.2d 970, 976 (11th Cir.), cert. denied, 479 U.S. 853, 107 S.Ct. 187, 93 L.Ed.2d 120 (1986). Although the parties do not question our appellate jurisdiction, we are obligated to examine it sua sponte. See Finn v. Prudential-Bache Sec., Inc., 821 F.2d 581, 584-85 (11th Cir.1987), cert. denied, 488 U.S. 917, 109 S.Ct. 274, 102 L.Ed.2d 262 (1988). Fed.R.Civ.P. 58 requires that a final judgment be "set forth on a separate document." A search of the record reveals no such separate document. Technically, we do not have a final order, which of course is required before we may assume appellate jurisdiction. See 28 U.S.C. Sec. 1291.

In Bankers Trust Co. v. Mallis, 435 U.S. 381, 98 S.Ct. 1117, 55 L.Ed.2d 357, reh'g denied, 436 U.S. 915, 98 S.Ct. 2259, 56 L.Ed.2d 416 (1978), the Supreme Court faced a similar situation. The Court concluded that the sole purpose of Rule 58's separate document requirement was to clarify when the time for an appeal begins to run. Id. 435 U.S. at 384, 98 S.Ct. at 1120. This purpose would not be furthered by a holding that appellate jurisdiction does not exist without a separate document entering a judgment. Id. Also, just as in our case, the appellee in Mallis never objected to the absence of a separate document; the Court deemed that Rule 58's requirement had been waived. Id. at 387-88, 98 S.Ct. at 1121.

We find Mallis to be directly on point, thus compelling a conclusion that an assertion of appellate jurisdiction in this case is proper, as long as the district court intended the dismissal to represent its final decision in the case. See Mallis, 435 U.S. at 385 n. 6, 98 S.Ct. at 1120 n. 6. Given the district court's direction to the clerk to "close the file" in this case, we have no trouble concluding that the court intended the dismissal to be a final order. Eleventh Circuit case law also supports our conclusion. See Finn v. Prudential-Bache Sec., Inc., 821 F.2d 581, 585 (11th Cir.1987); Diaz v. Schwerman Trucking Co., 709 F.2d 1371, 1372 n. 1 (11th Cir.1983); Stein v. Reynolds Sec., Inc., 667 F.2d 33, 33 n. 1 (11th Cir.1982).

B. Leave to Amend

The Banks argue that the district court erred in dismissing the action with prejudice without allowing them leave to amend. The defendants respond that the district court properly dismissed without leave to amend because the Banks never requested leave and because the Banks could prove no set of facts in support of their claim.

A complaint should not be dismissed under Fed.R.Civ.P. 12(b)(6) "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957). "[A] district court's discretion to dismiss a complaint without leave to amend is 'severely restrict[ed]' by Fed.R.Civ.P. 15(a), which directs that leave to amend 'shall be freely given when justice so requires.' " Thomas v. Town of Davie, 847 F.2d 771, 773 (11th Cir.1988) (quoting Dussouy v. Gulf Coast Inv. Corp., 660 F.2d 594, 597 (Former 5th Cir.1981)). Where it appears a more carefully drafted complaint might state a claim upon which relief can be granted, we have held that a district...