In re Nice Systems, Ltd. Securities Litigation, CIV.A. 99-1693 AJL.

• Decision Date: 08 March 2001
• Docket Number: No. CIV.A. 99-1693 AJL.,CIV.A. 99-1693 AJL.
• Parties: In re: NICE SYSTEMS, LTD. SECURITIES LITIGATION
• Court: U.S. District Court — District of New Jersey

135 F.Supp.2d 551

In re: NICE SYSTEMS, LTD. SECURITIES LITIGATION

No. CIV.A. 99-1693 AJL.

United States District Court, D. New Jersey.

March 8, 2001.

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Richard H. Weiss, Bruce D. Bernstein, Milberg Weiss Bershad Hynes & Lerach LLP, New York City, Lead Counsel for Plaintiffs.

Peter S. Pearlman, Cohn Lifland Pearlman, Herrmann & Knopf LLP, Saddle Brook, NJ, Gary D. Ansel, Reinhardt & Anderson, Saint Paul, MN, Jules Brody, Aaron L. Brody, Stull, Stull & Brody, Joseph H. Weiss, Weiss & Yourman, New York City, for Plaintiffs.

Samuel Kadet, James W. Brown, Skadden, Arps, Slate, Meagher & Flom, Newark, NJ, for Defendants.

OPINION

LECHNER, District Judge.

This is an action for securities fraud brought on behalf of purchasers of American Depository Shares ("ADSs")¹ of Nice Systems, Ltd. ("NSL"), seeking damages for violations of Section 10(b) and Section 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act"), as amended, 15 U.S.C. §§ 78j(b) and 78t(a), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5. Damages are sought from NSL, David Arzi ("Arzi"), Benjamin Levin ("Levin") and Mordechai Golan ("Golan") (collectively, the "Defendants"). Jurisdiction is alleged pursuant to 28 U.S.C. §§ 1331 and 1337 and Section 27 of the Exchange Act, 15 U.S.C. § 78aa.

Currently pending is a motion to dismiss (the "Motion to Dismiss") the second amended complaint (the "Second Amended Complaint") pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. Lead plaintiffs Marvin Frank ("Frank"), Brian Glogower ("Glogower"), Pradeep Jain ("Jain"), Daniel Laser ("Laser") and Jeffrey Rubin ("Rubin") (collectively, the "Lead Plaintiffs") brought suit on behalf of purchasers of NSL ADSs between 4 February 1998 and 24 September 1998 (the "Class Period").² For the reasons set forth below, the Motion to Dismiss is granted.

Facts³

A. Procedural History

On 24 May 1999, an order was filed consolidating Marvin Frank v. Nice Systems, Ltd., David Arzi, Benjamin Levin and Mordechai Golan, Civil Action No. 99-1307(AJL) and James Bell v. Nice Systems, Ltd., David Arzi, Benjamin Levin and Mordechai Golan, Civil Action No. 99-1693(AJL) (the "24 May 1999 Order of Consolidation"). 24 May 1999 Order of Consolidation. By order, dated 11 June 1999, (the "11 June 1999 Order") Frank, Glogower, Jain, Laser and Rubin were appointed lead plaintiffs. 11 June 1999 Order. The law firm of Milberg Weiss Bershad Hynes & Lerach was appointed lead counsel. Id.

The Lead Plaintiffs filed a consolidated amended complaint (the "First Amended Complaint"). Thereafter, Defendants submitted a motion to dismiss the First Amended Complaint (the "First Motion to Dismiss"). In their brief in opposition to the First Motion to Dismiss, the Plaintiffs included a footnote requesting an opportunity to file yet another amended complaint.

On 24 January 2000, a telephone conference was conducted with counsel (the "24 January 2000 Conference"). During the 24 January 2000 Conference, Plaintiffs were given an opportunity to amend the First Amended Complaint:

COURT: Mr. Pearlman⁴, do you want an opportunity to amend the complaint?

* * * * * *

PEARLMAN: I suspect yes.

COURT: I'm going to give you the opportunity to amend if you want to.

* * * * * *

KADET⁵: You're giving him his last and best chance to address the points we raised.

COURT: That's right.

PEARLMAN: I understand that, your Honor. I will let you know what our desire is midday. If we do elect to amend the complaint, it will be in by the close of business Wednesday.

24 January 2000 Conference, Tr. at 1:10-2:23.

Counsel for Lead Plaintiffs subsequently informed the court of their desire to amend the First Amended Complaint. As a result, an order was entered on 28 January 2000 (the "28 January 2000 Order") denying without prejudice the First Motion to Dismiss and granting Lead Plaintiffs leave to file a second amended complaint. 28 January 2000 Order.

On 11 February 2000, Lead Plaintiffs filed the Second Amended Complaint. On 27 April 2000, Defendants filed a motion to dismiss the Second Amended Complaint; that motion was denied without prejudice to re-filing same, by an order, dated 4 May 2000 (the "4 May 2000 Order").⁶ 4 May 2000 Order. Thereafter, the Defendants filed the current Motion to Dismiss. Oral argument was conducted on 20 December 2000.

B. Parties

1. The Defendants

NSL is an Israeli corporation with its principal place of business located in Ra'anana, Israel. Second Amended Complaint at ¶ 12. NSL describes itself as a global provider of computer telephony integrated logging ("CTIL"), quality measurement and workflow solutions for voice, data and facsimile transmissions. Id. NSL maintains headquarters in the United States at 200 Plaza Drive, Secaucus, New Jersey. Id.

Arzi is a founder of NSL and served as Chairman of the Board of Directors from the inception of NSL, through August 1998. Id. at ¶ 13(a). Arzi continues to serve as a director of NSL. Id. Arzi is alleged to have signed the 1997 Form 20-F⁷ on behalf of NSL. Id.

Levin is a founder of NSL and has been a director of NSL since its inception. Id. at ¶ 13(b). Levin has served as the Chief Executive Officer of NSL since February 1998. Id. Levin was also the President of NSL from its inception until August 1998. Id. In August 1998, Levin succeeded Arzi as the Chairman of the Board of Directors of NSL. Id.

Golan, a founder of NSL, has been a director of NSL since 1988. Id. at ¶ 13(c). Golan has served as the Chief Operating Officer since 1997. Id. From 1988 to 1996, Golan served as Chief Engineer and Vice President of Research and Development of NSL. Id. In August 1998, Golan succeeded Levin as President of NSL. Id.

As a result of their positions of control and authority, Arzi, Levin and Golan (collectively, the "Individual Defendants") are responsible for the content of various press releases, Securities and Exchange Commission ("SEC") filings, and other public statements issued by NSL. Id. at ¶ 19. The Individual Defendants were provided with copies of said press releases, filings and other statements, before or shortly after their issuance. Id. The Individual Defendants, moreover, had the ability and opportunity to prevent the issuance of said press releases, filings and other statements. Id.

The Individual Defendants had access to adverse, non-public information, as a result of (1) their ability to view internal corporate documents, (2) conversations and other communications and contacts with corporate officers and employees, (3) attendance at meetings of the Board of Directors of NSL, as well as various committees thereof, and (4) periodic reports and other information provided to them. Id. at ¶ 20.

The Individual Defendants, by reason of their "positions of control and authority," as well as their "substantial holdings and voting control of NSL shares," were controlling persons within the meaning of Section 20(a) of the Exchange Act. Id. at ¶¶ 18, 19.

2. The Plaintiffs

As mentioned, the Lead Plaintiffs represent a class consisting of all persons who purchased NSL ADSs between 4 February 1998 and 24 September 1998. Id. at ¶ 1.

C. Background

NSL was founded in 1986, and an initial public offering was completed in Israel in 1991. Second Amended Complaint at ¶ 22. NSL completed a $20 million initial public offering in the United States in 1996. Id. at ¶ 23. In 1997, a follow-up offering of $98 million was completed in the United States. Id. NSL shares were traded on the Tel-Aviv Stock Exchange and NSL ADSs were traded on the NASDAQ. Id.

During the Class Period, NSL derived the majority of its reported revenues from the sale of its CTIL products. Id. at ¶ 24. CTIL products are designed to protect businesses and customers against risks posed by lost or misinterpreted voice, facsimile or data transmissions, and in some instances, to monitor, train and enhance call center agent productivity. Id.

In or about September 1997, NSL acquired Dees Communications, Ltd. ("Dees"), a Canadian corporation. Id. at ¶ 27. The acquisition of Dees was important to the CTIL growth plans of NSL. Id. This acquisition provided NSL with automated call center monitoring, quality measurement training and agent productivity enhancement products. Id. NSL began to market the NiceUniverse version 3.0 and, later, the version 3.1 (the "System"), as an upgraded version of a Dees product. Id. at ¶ 28. The System was designed to serve the low-end and mid-range call center market, i.e., centers which have fewer than 200 to 250 operators receiving calls at a given time. Id.

The 1998 Form 20-F of NSL indicated that NSL generated revenues of $91 million, of which approximately $85.8 million were attributed to sales of the CTIL products. Id. at ¶ 24. The 1998 Form 20-F further indicated that NSL markets, distributes and services its CTIL products worldwide, primarily through independent dealers which specialize in the voice logging market, but also through global distribution arrangements with Siemens AG and Lucent Technologies. Id. at ¶ 25.

D. Factual Allegations

The allegations of the Second Amended Complaint are based upon an "investigation conducted by and under the supervision of plaintiffs' counsel." Second Amended Complaint, Preamble. Lead Plaintiffs assert, "except as alleged herein, the underlying information relating to defendants' misconduct and the particulars thereof are not available to plaintiffs and the public and lie within the possession and control of defendants and other NSL insiders." Id. According to Lead Plaintiffs, they are prevented from further detailing the misconduct of Defendants at this time because Defendants control the documents. Id.

The Second Amended Complaint alleges that NSL raced to the market with upgrades to the NiceUniverse product to enhance its position in the call center market. Id. at ¶ 28....