Bank v. Pitt, No. 89-6149
| Court | United States Courts of Appeals. United States Court of Appeals (11th Circuit) |
| Writing for the Court | Before CLARK and COX, Circuit Judges, and HENDERSON; PER CURIAM |
| 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. |
| Docket Number | No. 89-6149 |
| Decision Date | 18 April 1991 |
Page 1108
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.
Eleventh Circuit.
Page 1109
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
Page 1110
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
Page 1111
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...
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