La Grasta v. First Union Securities, Inc., No. 02-16215.

CourtUnited States Courts of Appeals. United States Court of Appeals (11th Circuit)
Writing for the CourtJordan
Citation358 F.3d 840
Docket NumberNo. 02-16215.
Decision Date30 January 2004
PartiesNicholas La GRASTA, Domenico La Grasta, and Mauro La Grasta, on behalf of themselves and all others similarly situated, Plaintiffs-Appellants, v. FIRST UNION SECURITIES, INC., Defendant-Appellee.
358 F.3d 840
Nicholas La GRASTA, Domenico La Grasta, and Mauro La Grasta, on behalf of themselves and all others similarly situated, Plaintiffs-Appellants,
v.
FIRST UNION SECURITIES, INC., Defendant-Appellee.
No. 02-16215.
United States Court of Appeals, Eleventh Circuit.
January 30, 2004.

Page 841

Thomas R. Grady, Susan R. Healy, Grady & Associates, L.P.A., Naples, FL, for Plaintiffs-Appellants.

Julissa Rodriguez, Samuel J. Rabin, Jr., P.A., Miami, FL, Bradford D. Kaufman, Susan Fleischner Kornspan, Karen J. Jerome Smith, Greenberg, Traurig, P.A., West Palm Beach, FL, Elliot H. Scherker, Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A., Miami, FL, for Defendant-Appellee.

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

Before BLACK and FAY, Circuit

Page 842

Judges, and JORDAN*, District Judge.

JORDAN, District Judge:


In this securities fraud class action against First Union Securities, Inc., investors who purchased the stock of Ask Jeeves, Inc., an online internet research company, claimed that First Union's analyst, through her "strong buy" recommendations, inflated the price of Ask Jeeves shares while acting under an undisclosed conflict of interest. This conflict, it was alleged, consisted of First Union and its analyst trying to obtain investment banking business from Ask Jeeves at the same time that they were supposed to be providing unbiased analysis on the company and its stock. According to the investors, this undisclosed conflict caused the analyst to tout the stock so that First Union would be looked upon favorably when Ask Jeeves decided who was going to get its investment banking business, and violated § 10(b) of the Securities Exchange Act of 1934 (the "Act"), 15 U.S.C. § 78j(b), and Rule 10b-5, codified at 17 C.F.R. § 240.10b-5.

First Union asked the district court to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(6), arguing in part that the securities fraud claim was time-barred and that the investors failed to sufficiently allege loss causation. The district court dismissed the complaint on statute of limitations grounds, concluding that the investors — who had purchased the stock at prices ranging from $78 to $134 per share — were on inquiry notice of securities fraud when the stock dropped to $24 per share. Given its ruling on the statute of limitations issue, the district court did not address First Union's loss causation argument.

We reverse. We conclude that the complaint was not time-barred on its face, and remand so that the district court can, in the first instance, address the issue of loss causation.

I

Like the district court, we accept the complaint's well-pleaded factual allegations, which are set out below. See, e.g., Papasan v. Allain, 478 U.S. 265, 283, 106 S.Ct. 2932, 92 L.Ed.2d 209 (1986); Marsh v. Butler County, 268 F.3d 1014, 1023 (11th Cir.2001) (en banc). But because the complaint lists the price of Ask Jeeves stock on only certain days during the relevant period, we will take judicial notice, pursuant to Federal Rule of Evidence 201(b), of the price of the stock on other days during this period. Those prices are not subject to reasonable dispute, and are a proper subject for judicial notice. See, e.g., In re NAHC, Inc. Securities Litigation, 306 F.3d 1314, 1331 (3rd Cir.2002) (taking judicial notice of stock prices in securities fraud action); Ganino v. Citizens Utilities Co., 228 F.3d 154, 166 n. 8 (2nd Cir.2000) (same).1

A

Research analysts who study publicly traded companies and make recommendations on the securities of those companies exert considerable influence in the marketplace. The reports and/or recommendations of such analysts can influence the price of a company's stock even when nothing about the company's prospects or fundamentals have changed.

Carolyn Trabuco, who worked for First Union, was one of these research analysts.

Page 843

She covered internet companies, including Ask Jeeves, whose stock was traded on the NASDAQ exchange. From November 18, 1999, until November 21, 2000, Ms. Trabuco prepared and issued research reports on Ask Jeeves.

Ask Jeeves began trading on July 1, 1999, and closed at $64.94 that day. During the next 30 days, the stock fluctuated between a low of $41.56 and a high of $72.00. On August 2, 1999, the closing price dropped to $41.00 per share. For most of August of 1999, the stock hovered at around $30.00, and on September 2, 1999, the price was $31.12. On October 1, 1999, the stock closed at $32.94, but thereafter began making significant gains. By November 1, 1999, the price had shot up to $83.31, an increase of about 150% in one month. The stock kept climbing in November of 1999, breaking the $100 barrier on November 4 at $116.75. On November 17, 1999, the day before Ms. Trabuco issued her first research report on Ask Jeeves, the stock reached a high of $190.50, and closed at $171.00.

On November 18, 1999, in her first report on the company, Ms. Trabuco made a "strong buy" recommendation for Ask Jeeves stock and provided a target price of $230.00 per share. That day the stock closed at $172.75, up $1.75.

Nicolas and Mauro La Grasta — who were First Union customers — bought Ask Jeeves stock based upon Ms. Trabuco's reports. In December of 1999, Nicolas bought 1,000 shares at $134.88 per share, and Mauro bought 1,000 shares at $124.68 per share. At the time of these purchases, the stock price had already dropped about $55-$65 per share from the high of $190.50.

In January of 2000, First Union added Ask Jeeves to its "Analyst Action List" and named the stock as its top pick for internet content providers in 2000. First Union widely disseminated press releases "to ensure that its top stock pick was known to all market participants." Shortly thereafter, Domenico La Grasta — a Merrill Lynch customer — bought 500 shares of Ask Jeeves at $93.00 per share. By the time of Domenico's purchase, the stock had dropped $97 per share — a more than 50% decrease — from its high of $190.50 the day before Ms. Trabuco's first report.

That same month, Ms. Trabuco and First Union learned from the chief financial officer of Ask Jeeves that the company was considering a secondary public offering of its shares and was interested in retaining First Union. Ms. Trabuco and First Union continued to maintain the "strong buy" recommendations and high rating for Ask Jeeves stock in the hope that its investment banking business could be secured. In seeking to generate investment banking profits, First Union encouraged Ms. Trabuco to ignore her obligations as an analyst and promote Ask Jeeves. In other words, Ms. Trabuco's goal was to "identify, and position those companies First Union believed would be capable of generating significant investment banking fees." Whether or not a company like Ask Jeeves "would be a long-term winner in its respective industry" was, at best, a secondary concern. Ms. Trabuco — whose compensation was based in part on her ability to refer investment banking business — and First Union had an incentive to issue "strong buy" recommendations for Ask Jeeves stock; the higher the price of the stock, the higher the fees that could be generated from an Ask Jeeves stock offering.

First Union did not disclose these matters in its reports. First Union also did not disclose any brokerage commissions it was paid (as Ms. Trabuco's employer) for sales and purchases of Ask Jeeves stock,

Page 844

actual or potential compensation to Ms. Trabuco based on investment deals she landed or the profitability of First Union's investment banking division, or any ownership interests in Ask Jeeves held by Ms. Trabuco, First Union, or First Union employees.

In February of 2000, while First Union continued to recommend Ask Jeeves as a "strong buy," Nicolas bought 200 more shares at $89.75 per share, and Mauro bought 1000 more shares at $78.00 per share. That same month, Ask Jeeves filed a $150 million secondary stock offering. Ask Jeeves did not, however, choose First Union as one of its underwriters.2

B

The price of Ask Jeeves shares did not rise as Ms. Trabuco had predicted in early 2000. In fact, the stock continued to decline. By March 1, 2000, the price had fallen to $77.75, and by April 3, 2000, it was down to $55.00. Nevertheless, First Union issued biweekly reports with "strong buy" recommendations and price targets "significantly higher" than the prevailing market price of the shares.

On April 7, 2000, the stock reached what would be a monthly high of $56.25. Over the next 21 days, the price fell:

 Date Price Volume
                 April 10 $50.06 670,400
                 April 11 $44.50 714,900
                 April 12 $39.50 532,800
                 April 13 $35.31 519,700
                 April 14 $27.69 1,500,000
                 April 17 $24.06 1,131,500
                 April 18 $28.00 1,280,600
                 April 19 $30.94 1,706,500
                 April 20 $29.38 466,200
                 April 24 $25.37 468,000
                 April 25 $28.50 413,400
                 April 26 $27.00 358,300
                 April 28 $30.38 912,800
                

Until April 18, 2000, Ms. Trabuco reiterated her "strong buy" recommendation for Ask Jeeves and maintained her target price at $230.00 per share. The low for the stock during April of 2000 was $23.75 on April 23. On May 1, 2000, the stock rebounded, rising more than 50% from the April low to $37.75, but then resumed its slide, dropping to $20.87 on June 1, 2000.

In June of 2000, Smart Money magazine published an article entitled "Wall Street Firms Count on their Stock Analysts for Many Things — But Independent, Incisive Research Isn't Exactly High on the List Right Now." The article featured Ms. Trabuco and her coverage of Ask Jeeves, and disclosed that, since January of 2000, First Union had been "in the running" to be selected as the underwriter for Ask Jeeves' secondary stock offering, with a "potential seven-figure payday." When Ask Jeeves filed a secondary stock offering of $150 million in February of 2000, however, it did not select First Union as an underwriter. The article also explained that analysts like Ms....

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1085 cases
  • Fla. Panthers, (Puma Concolor Coryi) an Endangered Species, Red-Cockaded Woodpeckers, (Picoides Boralis) an Endangered Species, Fla. Wildlife Fed'n, Corp. v. Collier Cnty., Case No: 2:13-cv-612-FtM-29DNF
    • United States
    • U.S. District Court — Middle District of Florida
    • April 8, 2016
    ...opinion), because plaintiffs are not required to negate an affirmative defense in their complaint. La Grasta v. First Union Sec., Inc., 358 F.3d 840, 845 (11th Cir. 2004). A complaint may be dismissed, however, when the existence of an affirmative defense "clearly appears on the face of the......
  • Motley v. Taylor, CASE NO. 2:19-CV-478-WKW [WO]
    • United States
    • United States District Courts. 11th Circuit. Middle District of Alabama
    • March 31, 2020
    ...time-barred." Gonsalvez v. Celebrity Cruises, Inc. , 750 F.3d 1195, 1197 (11th Cir. 2013) (quoting La Grasta v. First Union Sec., Inc. , 358 F.3d 840, 845 (11th Cir. 2004) ). While the date that Plaintiff's license was suspended is not apparent from the face of her complaint, the court take......
  • Davis v. Self, Civil Action No. CV–12–S–2402–NW.
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    • U.S. District Court — Northern District of Alabama
    • February 25, 2013
    ...of judicially noticed matters and documents incorporated into the complaint by reference); La Grasta v. First Union Securities, Inc., 358 F.3d 840, 845 (11th Cir.2004) (noting that, when “analyzing the sufficiency of the complaint, we limit our consideration to the well-pleaded factual alle......
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    • United States District Courts. 11th Circuit. United States District Court of Southern District of Alabama
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