In re Amdocs Ltd. Securities Litigation, 04-1100.

• Decision Date: 02 December 2004
• Docket Number: No. 04-1100.,04-1100.
• Citation: 390 F.3d 542
• Parties: In re: AMDOCS LIMITED SECURITIES LITIGATION Kerry Chambers, on behalf of himself and all others similarly situated; Excalibur Management Corporation; Plaintiffs, Jerry Fields, Fields Trust; Epsilon Mutual Funds Management Co., Ltd.; Binmar Investments, Ltd.; Altshuler-Shaham Mutual Fund; Plaintiffs-Appellants, Hindy Taub; Plaintiff, Westgate Alpha Fund, L.P.; Westgate Premier Growth Fund, L.P.; James Nicholson; Plaintiffs-Appellants, Myra Swee; Christopher Carmona, on behalf of himself and all others similarly situated; Andrew Schonzeit, on behalf of himself and all others similarly situated; Glen Hubbard, on behalf of himself and all others similarly situated; Market Street Securities, Inc., on behalf of itself and all others similarly situated; Plaintiffs, v. AMDOCS Limited; Defendants-Appellees, Bruce K. Anderson; Robert A. Minucci; Defendants, Avinoam Naor; Dov Baharav; Defendants-Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

390 F.3d 542

In re: AMDOCS LIMITED SECURITIES LITIGATION

Kerry Chambers, on behalf of himself and all others similarly situated; Excalibur Management Corporation; Plaintiffs,

Jerry Fields, Fields Trust; Epsilon Mutual Funds Management Co., Ltd.; Binmar Investments, Ltd.; Altshuler-Shaham Mutual Fund; Plaintiffs-Appellants, Hindy Taub; Plaintiff, Westgate Alpha Fund, L.P.; Westgate Premier Growth Fund, L.P.; James Nicholson; Plaintiffs-Appellants, Myra Swee; Christopher Carmona, on behalf of himself and all others similarly situated; Andrew Schonzeit, on behalf of himself and all others similarly situated; Glen Hubbard, on behalf of himself and all others similarly situated; Market Street Securities, Inc., on behalf of itself and all others similarly situated; Plaintiffs, v. AMDOCS Limited; Defendants-Appellees, Bruce K. Anderson; Robert A. Minucci; Defendants, Avinoam Naor; Dov Baharav; Defendants-Appellees.

No. 04-1100.

United States Court of Appeals, Eighth Circuit.

Submitted: October 19, 2004.

Filed: December 2, 2004.

COPYRIGHT MATERIAL OMITTED

Robert A. Wallner, argued, New York, NY (Howard K. Coates, Jr., Christopher S. Jones, Boca Raton, FL, Lionel Z. Glancy, Robin Howald, Los Angeles, CA, John T. Walsh, Christopher J. Petri, St. Louis, MO, on the brief), for appellant.

Bruce G. Vanyo, argued, Palo Alto, CA (Jerome F. Birn, Jr., Peri B. Nelson, Palo Alto, CA, Andrew Rothschild, David B. Helms, St. Louis, MO, on the brief), for appellee.

Before WOLLMAN, LAY, and MELLOY, Circuit Judges.

PER CURIAM.

Investors in Amdocs Limited appeal the district court's¹ order dismissing their securities fraud complaint for failure to make a claim upon which relief can be granted. We affirm.

I

The Defendant, Amdocs Limited (Amdocs), is a publicly-traded company specializing in computer systems for telecommunications firms such as Sprint PCS, Verizon, Nextel, Cingular, British Telecom, Bell Canada, Bell South, and SBC Communication. Jerry Fields is the lead plaintiff for a class of investors (together the Plaintiffs) who lost money by investing in Amdocs' stock during the class period of July 18, 2000 through June 20, 2002. The Plaintiffs' amended and consolidated class action complaint alleges that, in violation of the Securities Exchange Act of 1934 (the Securities Act), Amdocs defrauded the Plaintiffs by: 1) misleading Plaintiffs to believe that Amdocs' customer demand was stronger than it actually was; 2) providing false revenue projections for the third fiscal quarter of 2002; 3) misleading Plaintiffs as to increased business with large telecom customers; and 4) making false statements regarding acquisitions of Clarify and Ceretin. Plaintiffs further allege that Amdocs' CEO, Avinoam Noar, and its CFO, Dov Baharav, are individually liable under the Securities Act as controlling persons. See 15 U.S.C. § 78t(a) and 17 C.F.R. § 240.12b-2.

Amdocs made its first public offering of stock in 1998 and thereafter experienced significant growth, reaching annual revenues of roughly $1.5 billion in 2001. During most of the class period, Amdocs published upbeat predictions of its prospects. This is not surprising; Amdocs' revenues grew significantly for the first seven of the eight quarters of the class period. In these predictions, Amdocs touted its "visibility;" a measurement that identifies what percentage of a future period's predicted revenues were attributable to signed contracts, letters of intent, or fixed customer relationships. The percent of sales for a future period that were "visible" were sales that Amdocs had already sold. During the class period, securities analysts and members of the media asked Amdocs' CEO and CFO about how well the company was weathering the high-tech recession. Until approximately April of 2002, Amdocs represented that its sales continued to expand, and that demand for Amdocs' products was not being negatively affected by the high-tech recession.

At various times during the class period, Amdocs and at least one independent securities analyst issued cautionary statements regarding Amdocs' business prospects. On July 11, 2001, an analyst from Morgan Stanley lowered Amdocs' stock rating from "strong buy" to "outperform," and opined that the "rapidly degrading carrier spending environment" would negatively impact Amdocs. On December 27, 2001, Amdocs filed its annual 20-F report with the Securities and Exchange Commission (SEC) detailing Amdocs' historical performance and also providing projections of future results. In this filing, Amdocs identified "business risks" that the company could potentially face. Specifically, Amdocs identified that its sales were closely tied to the "global communications market," that the slow-down in spending has lengthened Amdocs' typical sales cycle, and that this trend could accelerate and "result in slower revenue growth rates" in the future. In a press release on April 23, 2002, Amdocs lowered its 2002 Q3 revenue projections by $60 million, or twelve and one-half percent. Later that day in a telephone conference with security analysts, Amdocs cautioned that the softening of demand reflected "a more prolonged and severe market deterioration than had been previously anticipated."

For the first seven of the eight quarters in the class period, Amdocs' revenues grew steadily. It was not until the last quarter of the class period that revenues actually declined. On June 20, 2002, Amdocs reported its first ever decline in quarterly revenue. This quarterly revenue number of $380 million was ten percent below the already-lowered projection of $420 million. The following day, Amdocs' stock dropped forty percent on heavy trading volume; approximately four times higher than average. This suit followed.

The district court dismissed Plaintiffs' complaint on Amdocs' 12(b)(6) motion, holding that: 1) Amdocs' representations relating to customer demand were immaterial as a matter of law; 2) Amdocs' revenue projections for the third fiscal quarter of 2002 were forward-looking and protected by the "safe harbor" clause of the Private Securities Litigation Reform Act of 1995 (the Reform Act), see 15 U.S.C. § 78u-5(c); 3) representations of business with large telecom customers were immaterial as a matter of law; and 4) statements related to the acquisitions of Clarify and Certen simply were not actionable under the Securities Act. The district court dismissed the Plaintiffs' complaint with prejudice without reaching the issues of heightened pleading requirements of particularity and scienter required under the Reform Act. See 15 U.S.C. § 78u-4(b). Plaintiffs now appeal the district court's dismissal of their complaint related to Amdocs' representations of customer demand and statements of visibility, but abandon the remainder of their complaint.

The following are examples of statements that the Plaintiffs' complaint relies upon to establish its securities fraud claim:²

Management believes that demand for the company's systems remains strong and is growing in all business areas. (November 2, 2000 press release);

Amdocs continues to demonstrate excellence in its growth ... Management believes that the changing needs of communications providers are creating additional demand for Amdocs' market-leading customer care and billing solutions. "This growing demand is manifest in all segments — mobile, wireless and IP — and in all regions." (Naor quoted in January 23, 2001 press release);

We had 13 new business wins during the quarter, an unprecedented number for Amdocs. From our point of view, we don't see any slowdown. I would say a little bit the other way around. (Naor quoted in April 23, 2001 press release).

We continue to see demand for our products and services around the world and across our lines of business. We are optimistic regarding future deal flow as well. In addition, our existing customers are continuing with their system enhancement and expansion plans. We don't feel any pressure from our existing customers to decrease the level of service that we are providing today. We are very proud to have high visibility and we believe that we will continue to have high visibility. (Naor speaking on a July 11, 2001 conference call);

Even in today's environment, we are experiencing strong demand for our offerings. Our ability to achieve stability and growth in the current business environment is based on our long-term relationships with the market leaders, which generate a solid, constantly expanding flow of recurring revenues. (Naor quoted in a November 6, 2001 press release);

Regarding the projections for next year, given the visibility that we have ... remember that the significant part of what we are going to do is out of our carrying revenue and existing customers so actually we built it from the bottom. It's not just a statistical number. It's not only a marketing and sales expectation, it's based on pipeline, on names, on plans that we're working on with our customers. So the numbers are the result of quite a detailed, solid work and we feel comfortable with those numbers. (November 2, 2000 press release);

II

The Reform Act modifies the standard 12(b)(6) analysis in two ways: First, while we assume all factual allegations in the complaint are true, the Reform Act requires us to disregard catch-all or blanket assertions that do not live up to the particularity requirements of the statute. Florida State Bd. of Admin. v. Green Tree Fin. Corp., 270 F.3d 645, 660 (8th Cir.2001). Second, even though the plaintiff is entitled to all reasonable inferences, the Reform Act requires a securities fraud claim to plead allegations that collectively add up to a strong inference of scienter.³ Id. Congress adopted these special pleading standards in the Reform Act to curb abusive securities fraud litigation. In re Navarre Corp. Sec. Litig., 299 F.3d 735, 741 (8th Cir.2002). Dismissal of a securities fraud complaint on a 12(b)(6) motion for failure to satisfy the heightened...