In re Novatel Wireless Sec. Litig.
| Decision Date | 23 November 2011 |
| Docket Number | Civil No. 08cv1689 AJB RBB. |
| Citation | 830 F.Supp.2d 996 |
| Parties | In re NOVATEL WIRELESS SECURITIES LITIGATION. |
| Court | U.S. District Court — Southern District of California |
OPINION TEXT STARTS HERE
ORDER GRANTING MOTION FOR JUDGMENT ON THE PLEADINGS AND GRANTING IN PART AND DENYING IN PART MOTION FOR SUMMARY JUDGMENT
Currently before the Court are two motions: (1) Defendant Peter Leparulo's Motion for Judgment on the Pleadings, Doc. No. 289; and (2) a Motion for Summary Judgment, Doc. No. 290, by Defendants Robert Hadley, Peter Leparulo, Novatel Wireless, Inc., Catherine Ratcliffe, Slim Souissi, and George Weinert. The Plaintiffs filed oppositions, Doc. Nos. 327 and 328 respectively, to these motions and Defendants filed replies, Doc. Nos. 325 and 338 respectively.1 Based upon the parties arguments and moving papers, and for the reasons set forth herein, Defendant Leparulo's Motion for Judgment on the Pleadings, Doc. No. 289, is hereby GRANTED and Defendants' Motion for Summary Judgment, Doc. No. 290, is hereby GRANTED IN PART AND DENIED IN PART as set forth below.
I. Factual BackgroundA. Parties
Lead Plaintiffs, Pension Fund Group is comprised of: (1) Plumbers & Pipefitters' Local # 562 Pension Fund; and (2) Western Pennsylvania Electrical Employees Pension Fund. Plaintiffs brought this securities class action against Defendants Novatel, Peter V. Leparulo, George B. Weinert, Robert M. Hadley, Slim S. Souissi, and Catherine F. Ratcliffe claiming that they purchased securities during the Class Period 2 and were allegedly damaged as a result of these purchases. (Compl. ¶ 42–48.)
Plaintiffs alleges that during the Class Period, Novatel employed 300 people company-wide, with only 44 employees, including all five individually named Defendants, in “operations.” ( Id. at ¶ 34.) Plaintiffs allege that the individual Defendants essentially controlled Novatel, including its accounting practices, earning announcements, and SEC filings. ( Id. at ¶ 34.)
Novatel is headquartered in San Diego, California and trades stock under the symbol NVTL on the Nasdaq. Novatel is a provider of wireless broadband access solutions for the worldwide mobile communications market and produces about 25 different products for the wireless communications industry. (Consolidated Complaint (“CC”) Doc. No. 23, filed Jan. 9, 2009), ¶ 43.) In 2007, Novatel sold the “Ovation” product line, including the first-generation U720 and the next-generation U727 wireless modems. (Ex. 4, at 39–40.)
Leparulo was, at relevant times, Chairman and Chief Executive Officer (“CEO”) of Novatel. (Compl. ¶ 44.) During the Class Period, Leparulo prepared and signed Novatel's Form 10–K, attesting that he had reviewed the contents of the filings to confirm that they did not contain untrue statements of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances, not misleading. ( Id.) Leparulo issued statements in press releases and led the Company's conference calls with analysts and investors, representing himself as the primary person, along with Weinert, with knowledge about Novatel's business, outlook, financial reports, and business practices. ( Id.) Plaintiffs allege that while in possession of non-public material information, Leparulo sold 473,357 shares of his Novatel stock for insider trading proceeds of $11,530,258 during the Class Period. ( Id.)
Weinert was, at relevant times, President of Novatel. (CC, Doc. No. 23, at ¶ 45.) During the Class Period, Weinert prepared and signed the Company's Form 10–K and 10Q, and Sarbanes–Oxley Act of 2002 (“SOX”) certifications filed with the SEC, attesting that he had reviewed the contents of the filings to confirm that they did not contain untrue statements of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances, not misleading. ( Id.) Weinert also issued statements in press releases and led the Company's conference calls with analysts and investors, representing himself as the primary person, along with Leparulo, with knowledge about Novatel's business, outlook, financial reports, and business practices. ( Id.) Plaintiffs allege that while in possession of non-public material information, Weinert sold 121,985 shares of his Novatel stock for insider trading proceeds of $3,305,560 during the Class Period. ( Id.)
Hadley was, at all relevant times, Senior Vice President of Worldwide Sales and Marketing of Novatel. (CC, Doc. No. 23, at ¶ 46.) Plaintiffs allege that while in possession of non-public material information, Hadley sold 247,198 shares of his Novatel stock for insider trading proceeds of $4,681,696 during the Class Period. ( Id.)
Souissi was, at all relevant times, Senior Vice President and Chief Technology Officer of Novatel. (CC, Doc. No. 23, at ¶ 47.) Plaintiffs allege that while in possession of non-public material information, Souissi sold 272,560 shares of his Novatel stock for insider trading proceeds of $5,488,870 during the Class Period. ( Id.)
Ratcliffe was, at all relevant times, Senior Vice President of Business Affairs and General Counsel of Novatel. (CC, Doc. No. 23, at ¶ 48.) Plaintiffs allege that while in possession of nonpublic material information, Ratcliffe sold 143,366 shares of her Novatel stock for insider trading proceeds of $3,646,804 during the Class Period. ( Id.)
B. Plaintiffs Allegations
Plaintiffs allege that between February 27, 2007 and November 10, 2008 (the “Class Period”), Defendants engaged in a fraudulent scheme to inflate Novatel's stock value so that Defendants could sell their stock in the company for a profit. ( Id. at ¶¶ 1, 12.) Plaintiffs contend that Novatel's success was largely dependent on its ability to supply wireless modems to its two largest customers, Sprint and Verizon, which in 2006 accounted for 38.2% and 19.7% of Novatel's revenue respectively. ( Id. at ¶ 14.) According to Plaintiffs, “defendants knew that the market was particularly sensitive to information about these customers” and “[s]trong financial results would surely spur an increase in Novatel's stock price whereas any negative information regarding these customers would reduce it.” ( Id. at ¶ 14.)
Plaintiffs allege that throughout the Class Period, Defendants Weinert and Leparulo misrepresented the financial condition of the Company because they told investors that the Company was seeing strong demand for its products, and did not disclose to investors that Novatel did not have an adequate “product mix” to meet the needs of its customers. (CC, Doc. No. 23, at ¶¶ 57(a)(iii)), 62(a)(ii), 66(a)(ii), 73(a)(ii). Plaintiffs also allege that Novatel covered up the slowdown in its business by shipping product “early,” which purportedly violated accounting rules governing revenue recognition. ( Id., ¶¶ 6.) Plaintiffs claim that four specific stock price declines—on July 20, 2007; February 21, 2008; April 15, 2008; and August 20, 2008—purportedly resulted from the market learning of these allegedly concealed facts. ( Id., ¶¶ 125–28.) Plaintiffs further allege that Defendants sold Novatel stock because they learned that Sprint would stop placing additional orders for Novatel's U720 modem. ( Id., ¶ 4.)
On January 8, 2007, Tamara Juenger of Sprint forwarded an email to three low-level Novatel employees stating that Sprint planned to replace the U720 modem. (Ex. 14, at 267.) Ms. Juenger informed the Novatel employees that the last purchase order for U720s would probably be for the week of April 1, 2007. ( Id.) Within Novatel, word that a customer would no longer be ordering a certain product was not unusual. (Ex. 16 [Weinert Dep., 79:16:80:6].) In Novatel's industry it was and is quite common, and is most often a prelude to pricing negotiations, particularly when competitive product is available and next generation product is expected in the near term. ( Id.; Exs. 6 [Souissi Expert Dep., 51:25–10]; 17 [Leparulo Dep., 220:17–222:14].) In this case, Novatel was the first to market, and when Sierra Wireless (Novatel's competitor) readied its competing wireless USB modem for sale, Sprint leveraged the opportunity to negotiate. Mot. at 4. Novatel's Acting CEO, Mr. Weinert, was upset by Sprint's decision, but immediately set out to convince Sprint to continue placing orders for the U720 to ensure a smooth transition to the successor U727, which was anticipated to be faster and smaller than Sierra's Wireless' product. Id. Just two weeks after Ms. Juenger's email, representatives of Sprint and Novatel met, and Tim Hipsher of Sprint said that contrary to Ms. Juenger's email, the U727 would be removed from only one channel. (Ex. 18, at 298–99.) Mr. Hipsher also said the end of life plan for the U720 might drag out for some time. ( Id.) On March 1, 2007, Ms. Juenger emailed four lower-level Novatel employees that the discontinuation of the U720 would be pushed back to the middle or end of May. (Ex. 19, at 301.) All the while, Sprint kept ordering the U720. As late as May 18, 2007, Sprint was sending forecasts to Novatel showing product being anticipated for delivery through the third quarter of 2007. (Ex. 20, at 303.) On May 24, 2007, a Sprint representative finally told Novatel employees in a conference call that Sprint would not order any more U720s; however, delivery of open orders for the U720 would continue through June 2007. (Ex. 21, at 309.) Sprint placed its first orders for the next generation U727 shortly thereafter, in late July 2007. (Ex. 99.)
In early 2007, Novatel reported strong financial results. It told investors that its USB modem was extremely successful in the market, and that Novatel was seeing...
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