Carney v. Cambridge Technology Partners, Inc., Civ.A 99CV10630-RCL.
| Decision Date | 30 March 2001 |
| Docket Number | No. Civ.A 99CV10630-RCL.,Civ.A 99CV10630-RCL. |
| Citation | 135 F.Supp.2d 235 |
| Parties | W.R. CARNEY, et al., Plaintiffs, v. CAMBRIDGE TECHNOLOGY PARTNERS, INC., Arthur M. Toscanini, and James K. Sims, Defendants. |
| Court | U.S. District Court — District of Massachusetts |
Alvin J. Slater, Boston, MA, for plaintiffs.
Neil L. Zola, Adam R. Gonnelli, Wolf Haldenstein Adler Freeman & Herz, New York City, Thomas G. Shapiro, Shapiro, Haber & Urmy LLP, Boston, MA, Fred Taylor Isquith, Wolf Haldenstein Adler Freeman & Herz LLP, New York City, for W.R. Carney, Lead Plaintiff, plaintiff.
Thomas V. Urmy, Jr., Shapiro Haber & Urmy LLP, Boston, MA, for Barbara Collins.
Edward F. Haber, Shapiro, Grace & Haber, Boston, MA, for Pengzhe Lu.
Jordan D. Hershman, Christopher F. Robertson, Lori A. Mihalich, Testa, Hurwitz & Thibeault, Boston, MA, for Cambridge Technology Partners, Inc., defendant.
MEMORANDUM AND ORDER ON DEFENDANTS' MOTION TO DISMISS
This case has been brought as a class action on behalf of all persons or entities who purchased securities of Cambridge Technology Partners, Inc. ("Cambridge" or "CTP") between November 25, 1998 and March 18, 1999.1 The three lead plaintiffs are W.R. Carney, James R. Thompson, and Ishiug J. Wu. The essence of the plaintiffs' claim is that the defendants, CTP and two of its officers, issued false or misleading statements during the Class Period in order to inflate artificially the market price of CTP's securities; that the plaintiffs purchased CTP securities at the artificially inflated price prevailing during the Class Period; and that the plaintiffs were damaged when the market price of the securities decreased after the Class Period. The plaintiffs also allege insider trading: specifically, they charge that the two individual defendants profited from the alleged fraudulent scheme by selling their own stock in CTP at the artificially inflated price during the Class Period.
The original complaint was filed on March 22, 1999. On June 17, 1999, the court granted the plaintiffs' motion to consolidate a number of related cases, and on August 4, 1999, granted the plaintiffs' motion to appoint the three lead plaintiffs. The plaintiffs thereafter filed a consolidated, amended complaint on October 15, 1999 (the "complaint"), and the defendants followed with a motion to dismiss that complaint.
The following facts are derived from the complaint. On a motion to dismiss, all factual allegations in the complaint are taken as true. Aulson v. Blanchard, 83 F.3d 1, 3 (1st Cir.1996).
CTP is a company that "provides information technology and consulting and software development services for companies seeking to shift to direct/server networks from older mainframe computers." Complaint at ¶ 8. CTP also "provides strategic information solutions and consulting services in the Enterprise Resource Planning ("ERP") services market," which includes "enterprise-wide management applications for human resources, finance, and manufacturing." Id. at ¶ 25. The defendant James K. Sims ("Sims"), at all times relevant to the complaint, was president, chief executive officer and a director of CTP. The defendant Arthur M. Toscanini ("Toscanini"), at all times relevant to the complaint, was chief financial officer, executive vice president of finance and treasurer of CTP.
On August 31, 1998, CTP acquired Excell Data Corporation ("Excell"). Among other consideration for the acquisition, Excell's shareholders received CTP common stock. On September 3, 1998, CTP told securities analysts that its "revenues were under pressure" and its "prospects going forward were uncertain." Id. at ¶ 27. On September 4, 1998, one securities analyst, Mark D'Annolfo, of the firm Adams, Harkness, Inc., downgraded his recommendation for CTP's stock from "buy" to "attractive," and Toscanini confirmed with analysts generally that CTP would be lowering its revenue projections for the second half of 1998 and for 1999. Id. at ¶¶ 28-29. By the end of that day, the value of CTP stock had declined by 22%.
On October 14, 1998, CTP announced that its results for the third quarter of 1998 (the quarter that had ended September 30, 1998) were lower than had been projected on September 4. The value of CTP's stock then declined an additional 22%. On November 16, 1998, another securities analyst, Kani Klinstead of the firm of Lehman Brothers, Inc., downgraded his recommendation for CTP from "buy" to "neutral," stating, "there is a fundamental risk of further earnings costs here." Id. at ¶ 31. On November 19, 1999, the former Excell shareholders brought suit against CTP before another judge in this federal district. See Pacheco v. Cambridge Technology Partners (Massachusetts), Inc., 85 F.Supp.2d 69 (D.Mass.2000)) (the "Pacheco Litigation". The plaintiffs in the Pacheco Litigation asserted violations of the securities laws.
During the Class Period, eight allegedly false or misleading statements were made. These statements include: one newspaper article quoting Sims; one securities analyst report quoting Sims; three securities analysts' reports not quoting Sims or any other CTP officer; two CTP press releases; and representations made at a securities analysts' conference. According to the plaintiffs, these statements were made in reaction to the Pacheco Litigation and as part of a "concerted scheme to stem the slide of [CTP's] common stock and misdirect the market's analysis of [its] problems by misrepresenting that the problems arose from internal `organizational missteps' and were not driven by the `economic environment' or [CTP's] weakening fundamentals." Complaint at ¶ 34. In the plaintiffs' view,
the truth was that [CTP] was unsuccessfully implementing its purported reorganizational program, failing to accrue meaningful benefits from the process, and defendants knew that the putative reorganization was a failure. [CTP], in actuality, was experiencing consistently slower sales growth throughout the Class Period and a decrease in demand for ERP software license, all of which defendants knew reflected the failure of their reorganization effort and would cause Cambridge to fall woefully short of its earnings estimates.
Id. at ¶ 36. Each of the eight statements will be discussed in detail below.
During the Class Period, Sims sold 125,000 of the approximately 2 .3 million shares of CTP common stock he owned and earned profits exceeding $3.8 million; Toscanini also sold "substantial amounts" of the common stock he owned in CTP — approximately 75,000 shares — and realized "substantial profits" — approximately $2.4 million — during the Class Period. Id. at ¶¶ 9-10, 81. Although the lead plaintiffs are alleged to have purchased CTP common stock during the Class Period, the complaint is silent as to the dates and amounts of the stock purchases made either by them or by the remaining plaintiffs.
After the market closed on March 18, 1999, the ending date of the Class Period, CTP issued a press release in Business Wire indicating that the preliminary results for its first quarter (ending March 31, 1999) would be "well below analysts' estimates." The press release stated:
[CTP] reported that the benefits of the North American reorganization initiatives undertaken during the fourth quarter of 1998 did not materialize as quickly as anticipated and, as a result, sales growth for the first quarter was lower than expected. In addition, a decrease in market demand for ERP software licenses negatively affected demand for the Company's ERS package implementation offerings.
Following this release, the price of CTP stock fell by "more than 40%," and the price "has not meaningfully recovered." Id. at ¶ 53. Securities analysts "immediately downgraded" CTP, "citing the Company's misleading information concerning its purported reorganization, highly suspicious pre-release and insider sales, and seemingly unjustified positive statements and earnings guidance during the February analysts' meeting." Id. at ¶ 54.2
The plaintiffs allege violations of sections 10(b), 20(a) and 20(A) of the Securities Exchange Act (the "Exchange Act") and Rule 10b-5 (17 C.F.R. § 240.10b-5) promulgated by the Securities and Exchange Commission. Section 10(b), 15 U.S.C. § 78j(b), makes it unlawful "[t]o use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors." Rule 10b-5 is an implementing regulation under Section 10(b). Section 20(a), 15 U.S.C § 78t(a), concerns liability for "controlling persons." It states: "[e]very person who, directly or indirectly, controls any person liable under any provision of this chapter or of any rule or regulation thereunder shall also be liable jointly and severally with and to the same extent as such controlled person to any person to whom such controlled person is liable, unless the controlling person acted in good faith and did not directly or indirectly induce the act or acts constituting the violation or cause of action." Section 20(A) of the Exchange Act, 15 U.S.C. § 78t-1, is also known as the Insider Trading and Securities Fraud Enforcement Act ("ITSFEA"). It provides, in relevant part: "Any person who violates any provision of this chapter or the rules or regulations thereunder by purchasing or selling a security while in possession of material, nonpublic information shall be liable in an action in any court of competent jurisdiction to any person who, contemporaneously with the purchase of securities that is the subject of such violation ... purchased securities of the same class."
Count I alleges that, during the...
To continue reading
Request your trial
-
In re Access Cardiosystems, Inc.
...to be `material' to investors." Colby v. Hologic, Inc., 817 F.Supp. 204, 211 (D.Mass.1993); see also Carney v. Cambridge Tech. Partners, Inc., 135 F.Supp.2d 235, 245 (D.Mass. 2001) ("[C]ourts in the First Circuit generally have declined to impose liability for so-called `forward looking sta......
-
Quaak v. Dexia, S.A., Civil Action No. 03-11566-PBS.
...32 F.3d 697, 703 (2d Cir. 1994) (noting that the statutory language is "quite plain" on that score); Carney v. Cambridge Technology Partners, Inc., 135 F.Supp.2d 235, 243 (D.Mass.2001) (citing Greebel v. FTP Software, Inc., 194 F.3d 185, 207 (1st Cir.1999)). Defendant argues that the TAC fa......
-
Hoff v. Popular Inc.
...regard such statements as unlikely, as a matter of law, to be material to a reasonable investor." Carney v. Cambridge Technology Partners, Inc., 135 F.Supp.2d 235, 245 (D.Mass.2001). Forward-looking statements are subject to a lighter scrutiny. In re Stone & Webster, 253 F.Supp.2d at 117. T......
-
In re Cabletron Systems, Inc.
...circuit have also employed this test, while recognizing that we have not yet embraced it. See, e.g., Carney v. Cambridge Tech. Partners, Inc., 135 F.Supp.2d 235, 248 & n. 7 (D.Mass.2001); No. Nine, 51 F.Supp.2d at 30-31; Schaffer v. Timberland Co., 924 F.Supp. 1298, 1310 We now hold that th......