Cornelia I. Crowell Gst Trust v. Possis Medical
| Decision Date | 21 March 2008 |
| Docket Number | No. 07-1840.,07-1840. |
| Citation | 519 F.3d 778 |
| Parties | CORNELIA I. CROWELL GST TRUST, Plaintiff-Appellants, v. POSSIS MEDICAL, INC., Robert G. Dutcher, and Eapen Chacko, Defendant-Appellees. |
| Court | U.S. Court of Appeals — Eighth Circuit |
Barry A. Weprin, argued, Michael J. Miarmi, on the brief, New York, NY, for Appellant.
James Kevin Langdon, II, argued, Roger J. Magnuson, Michelle S. Grant, and Bryan C. Keane, on the brief, Minneapolis, MN, for Appellee.
Before COLLOTON and SHEPHERD, Circuit Judges, and GOLDBERG,1 Judge.
Appellant Cornelia I. Crowell GST Trust ("Crowell Trust") appeals the district court's2 dismissal of its class action against Possis Medical, Inc., Robert G. Dutcher, and Eapen Chacko (collectively "Possis Medical") for alleged securities fraud. Crowell Trust argues that the district court erred in determining that its pleading failed to meet the heightened pleading standards of the Private Securities Litigation Reform Act ("PSLRA"). 15 U.S.C. § 78u-4 (2000). Alternatively, Crowell Trust argues that the district court erred in not granting leave to amend its complaint. For the following reasons, we affirm the district court's dismissal.
Possis Medical is a corporation largely focused on the production of the AngioJet, a non-surgical catheter system designed to remove blood clots with minimal vascular trauma. In 2001, Possis Medical began a clinical trial (the "AiMI study") to determine whether the AngioJet could be utilized in a wider range of medical procedures. During the AiMI study, Possis Medical made several public statements regarding the study's potentially favorable impact on company revenues. In August of 2004, Possis Medical released the AiMI study results which did not support expanded AngioJet usage. Upon the release of this information, the value of Possis Medical stock dropped considerably. Based on this decline and upon the statements made by Possis Medical, Crowell Trust attempted to bring a class action against Possis Medical for alleged securities fraud. The district court found Crowell Trust's pleading insufficient and dismissed the complaint without granting leave to amend.
We review de novo a district court's dismissal of an amended complaint. See Fla. State Bd. of Admin. v. Green Tree, 270 F.3d 645, 661 (8th Cir.2001). Ordinarily, the decision of whether to allow a plaintiff leave to amend a complaint is within the district court's discretion, however when the court denies leave on the basis of futility, it means the district court has reached the legal conclusion that the amended complaint could not withstand a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure, and appellate review of this legal conclusion is also de novo. See In re Senior Cottages of America, 482 F.3d 997, 1001 (8th Cir.2007).
To survive a Rule 12 motion to dismiss, a securities plaintiff must point to:
(1) misrepresentations or omissions of material fact or acts that operated as a fraud or deceit in violation of the rule;
(2) causation, often analyzed in terms of materiality and reliance;
(3) scienter on the part of the defendants; and
(4) economic harm caused by the fraudulent activity occurring in connection with the purchase and sale of a security.
In re K-tel Int'l, Inc. Sec. Litig., 300 F.3d 881, 888 (8th Cir.2002). The district court found that Crowell Trust's pleading failed to establish that Possis Medical had misrepresented a material fact or acted with the required scienter. We agree.
As for as the misrepresentation prong, Crowell Trust's pleading did not provide the level of detail necessary to support its allegation. "[R]ote allegations that the defendants knowingly made false statements of material fact" alone are insufficient. In re Navarre Corp. Sec. Litig., 299 F.3d 735, 745 (8th Cir.2002). To meet the heightened pleading standards, a securities plaintiff often must plead the "who, what, when, where and how" of the misleading statements or omissions. K-tel, 300 F.3d at 890. Here, Crowell Trust points to the anonymous statements of three former Possis Medical employees alleging that they were aware that the AiMI study was not going as well as anticipated prior to the public disclosure of this information. Crowell Trust does not allege that the executives actually making the allegedly false or misleading statements had heard these rumors. Crowell Trust does not even allege facts which demonstrate how the anonymous Possis Medical employees had gained access to this information. As a result, even if we assume that the statements made by Possis Medical did not contain sufficient cautionary language as to fall under PSLRA's safe harbor, nothing within Crowell Trust's pleading provides the detail necessary to support its allegation.
Crowell Trust also fails to "set forth facts that give a strong reason to believe that there was reckless or intentional wrongdoing," or scienter, on the part of Possis Medical. Navarre, 299 F.3d at 745 (emphasis omitted). Scienter can be established in three ways: (1) from facts demonstrating a mental state embracing an intent to deceive, manipulate, or defraud; (2) from conduct which rises to the level of severe recklessness; or (3) from allegations of motive and opportunity. See K-tel., 300 F.3d at 893-94. The relevant inquiry is "whether all the facts alleged, taken collectively, give rise to a strong inference of scienter, not whether any allegation, scrutinized in isolation meets that standard." Tellabs, Inc. v. Makor Issues & Rights, Ltd., ___ U.S. ___, 127 S.Ct. 2499, 2502, 168 L.Ed.2d 179 (2007). According to Crowell Trust, the anonymous former employee testimony, the importance of the AiMI study to the company, and a series of stock sales made by Possis Medical executives support its scienter allegation. However, even when these factors are considered collectively, we find that they do not establish a clear and cogent inference that Possis Medical acted with the necessary scienter.
First, the anonymous testimony offered by Crowell Trust does not establish intentional or severely reckless conduct by Possis Medical. As noted, all that the Court can infer from the proffered testimony, even accepting the allegations as true, is that several lower level employees had heard rumors that the AiMI study was not going as anticipated. Crowell Trust, however, fails to provide any information regarding how employees at this level of the company would have access to the AiMi study information. This level of detail fails to provide meaningful support to Crowell Trust's scienter allegation. See, e.g., Cal. Pub. Employees' Ret. Sys. v. Chubb, 394 F.3d 126, 155 (3d Cir.2004) ().
Crowell Trust also argues that the overarching importance of the AiMI study to Possis Medical supports an inference of scienter. According to Crowell Trust, the fact that the AiMI study was vital to the company's future supports an inference that Possis Medical executives were...
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