Eisenstadt v. Allen

• Decision Date: 28 April 1997
• Docket Number: No. 95-16255,95-16255
• Citation: 113 F.3d 1240,1997 WL 211313
• Parties: NOTICE: Ninth Circuit Rule 36-3 provides that dispositions other than opinions or orders designated for publication are not precedential and should not be cited except when relevant under the doctrines of law of the case, res judicata, or collateral estoppel. Herbert EISENSTADT, Joel Gerber, Frederick Rand and Richard Wainer, Plaintiffs-Appellants, v. Mark ALLEN, Ken Goldman, T.J. Rodgers, Cypress Semiconductor, Marcel Gani, Thomas North and Lowell Turriff, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1240

113 F.3d 1240

NOTICE: Ninth Circuit Rule 36-3 provides that dispositions other than opinions or orders designated for publication are not precedential and should not be cited except when relevant under the doctrines of law of the case, res judicata, or collateral estoppel.

Herbert EISENSTADT, Joel Gerber, Frederick Rand and Richard

Wainer, Plaintiffs-Appellants, v. Mark ALLEN, Ken Goldman, T.J. Rodgers, Cypress

Semiconductor, Marcel Gani, Thomas North and

Lowell Turriff, Defendants-Appellees.

No. 95-16255.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Oct. 7, 1996.

Decided April 28, 1997.

Before: SNEED, WOOD, JR., ^* and SCHROEDER, Circuit Judges.

MEMORANDUM ^**

Appellee Cypress Semiconductor Corporation's revenues and earnings per share for the fourth quarter of 1991 and its earnings per share for the first quarter of 1992 fell short of internal and external projections. After Cypress reported these results, its stock price dropped. Appellants, a class of investors who purchased Cypress stock between August 1991 and April 1992, filed the instant action contending that Cypress and several of its officers issued materially misleading statements and adopted materially misleading analysts' reports in violation of Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934 and SEC Rule 10b-5. Appellants point to more than twenty allegedly misleading statements, including allegedly false statements attributed to the Appellees appearing in newspaper articles and analysts' reports; allegedly false statements which the Appellees made during teleconferences with securities analysts; and allegedly fraudulent forecasts appearing in various securities analysts' reports. ¹ Initially, the district court certified a class, but dismissed Appellants' Section 20(a) claims because none of the named plaintiffs had standing to assert a claim under Section 20(a). Appellees moved for summary judgment on the remaining Section 10 and 10b-5 claims with respect to all of the statements. While their motion was pending, Appellants sought leave to add several new statements, but the district court denied them leave. Finally, finding that Appellants failed to put forth evidence showing a genuine issue of fact with regard to a particular statement by any of the Appellees, the district court granted summary judgment. We affirm all orders.

I. Standard of Review

We review a district court order granting summary judgment de novo and may affirm on any basis supported by the record. In re World of Wonder Sec. Litig., 35 F.3d 1407, 1412 (9th Cir.1994), cert. denied sub. nom., Miller v. Pezzani, --- U.S. ----, 116 S.Ct. 185 (1995) and Deloitte & Touche v. Miller, 116 S.Ct. 277 (1995). The standard for summary judgment is well established; summary judgment is appropriate if "no genuine issue as to any material fact" exists. Fed.R.Civ.P. 56(c); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986); Hanon v. Dataproducts Corp., 976 F.2d 497, 500 (9th Cir.1992). "The mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson, 477 U.S. at 247-48. Moreover, plaintiffs in a securities fraud action may survive a motion for summary judgment "only by showing a genuine issue of material fact with regard to a particular statement by [the corporation] or its insiders." Hanon, 976 F.2d at 500.

II. Liability for Direct Statements

A. Direct Statements Reported by the Media

Appellants challenge several statements attributed to Cypress officers that appeared in newspaper articles and analysts' reports. E.g., Statement B (Barron's August 19, 1991 article quoting Cypress's Chief Executive Officer T.J. Rodgers as saying that "revenues will exceed $300 million in 1991"); Statement K (Defense News Nov. 14, 1991 article quoting Rodgers as saying that 1991 revenues will be "approximately $300 million"). The district court properly granted the Appellees summary judgment with respect to these statements, (Statements B, K and T), because the Appellants have offered no admissible evidence tending to prove that a Cypress insider actually made the alleged misrepresentations.

Appellants point to the newspaper articles and reports themselves and several pages of unauthenticated handwritten notes as evidence that a Cypress insider made each of the alleged misrepresentations. However, Appellants' arguments to the contrary, the newspaper articles clearly fall within the definition of hearsay contained in Federal Rule of Evidence 801(d), Larez v. City of Los Angeles, 946 F.2d 630, 642 (9th Cir.1991), and, thus, are inadmissible. As such, the district court properly refused to consider them in opposition to a motion for summary judgment. See Blair Foods, Inc. v. Ranchers Cotton Oil, 610 F.2d 665, 667 (9th Cir.1980).

Appellants argue that even if these articles are hearsay, they are admissible under the residual exception contained in Federal Rule 803(24). Under Rule 803(24), otherwise inadmissible hearsay may be admitted if the statement has "circumstantial guarantees of trustworthiness," is probative of a material fact and is the most probative evidence the proponent can secure using reasonable efforts and if admitting the statement will serve the ends of justice. Fed.R.Evid. 803(24); Larez, 946 F.2d at 642. Appellants' evidence fails to meet two of these requirements.

First, the articles lack circumstantial guarantees of trustworthiness. To establish circumstantial guarantees of trustworthiness, proponents must demonstrate that the hearsay declarant's perception, memory, narration or sincerity are reliable. May v. Cooperman, 780 F.2d 240, 263 (3d Cir.1985) (Becker, J., dissenting on other grounds); see United States v. Friedman, 593 F.2d 109, 119 (9th Cir.1979). Unsupported newspaper articles usually provide no evidence of the reporter's perception, memory or sincerity and, therefore, lack circumstantial guarantees of trustworthiness. Larez, 946 F.2d at 643. In Larez, we recognized an exception to this rule where the "extraordinary circumstances" surrounding the proffered articles provide sufficient guarantees of trustworthiness. Id. However, in Larez articles from three independent newspapers attributed the same statement to the defendant and the defendant was a "known declarant" who had testified at trial. Id. Also, the defendant did not deny making the statements. Id. at 644.

Here, the Appellants offer several articles containing similar statements. However, the statements did not arise from the same interview nor are they as close in content as the three statements in Larez. Additionally, the Appellees testified that they did not recall making the disputed statements. (See e.g., SR 350: Rodgers Dep. at 670-72.) To counter these difficulties, Appellants offer several pages of unauthenticated handwritten notes. However, without the author's testimony, these ambiguous notes do not corroborate the statements in the articles. Cf. In re Colombia Sec. Litig., 155 F.R.D. 466, 477 (S.D.N.Y.1994) (the reporter's testimony, a newspaper article and the reporter's notes together possessed circumstantial guarantees of trustworthiness).

Likewise, we cannot say that the proffered newspaper articles and reports are the best evidence available. A newspaper article alone, generally, will not be the best evidence available. Rather, as we recognized in Larez, a reporter's testimony, most likely, will be the best evidence available because it, unlike a newspaper article, is subject to cross-examination. Larez, 946 F.2d at 644. Appellants correctly note that the Colombia Securities court admitted proffered newspaper articles without the reporter's testimony. 155 F.R.D. at 478-79. However, in Colombia Securities the proponents offered testimony from a third party who was present at the interview during which the defendant allegedly made the contested statements. Colombia Sec., 155 F.R.D. at 479. That third-party's testimony, like the reporter's testimony in Larez, would have been subject to cross-examination. Id. Additionally, the third party prepared a contemporaneous memorandum of the interview and testified as to the memorandum's accuracy. Id. Therefore, the court reasoned that the reporter's testimony was not necessary to fulfill the best evidence requirement. Id.

Here, on the other hand, Appellants have offered no form of evidence that would be subject to cross-examination at an eventual trial and have not demonstrated that they could not obtain such evidence using reasonable efforts. Appellants maintain that they were unable to depose the journalists because the district court limited each side to twenty depositions. However, Appellants' tactical decision to commit their discovery resources to other avenues does not demonstrate that they could not obtain the testimony using reasonable efforts. Cf. Colombia Sec., 155 F.R.D. at 479 (plaintiffs argued that the reporters' testimony was unavailable because the reporters could not be compelled to testify under the Second Circuit's test for compelling journalists' testimony). Furthermore, although Appellants had no remaining depositions by the time they learned that the Appellees would not admit to making the challenged statements, Appellants could have submitted affidavits from the reporters testifying to the source of the statements and authenticating their notes. Appellants offer no evidence that they could not obtain affidavits using reasonable efforts. Therefore, the district court properly ruled that the proffered articles were inadmissible hearsay. See Cooperman, 780 F.2d at 263 (Becker J., dissenting on other grounds) (newspaper articles inadmissible to show legislative intent where the plaintiffs made no showing of inability to locate observers who attended the legislative debates about the challenged statute).

B. Optimistic...