Karacand v. Edwards
| Decision Date | 11 June 1999 |
| Docket Number | No. 1:98 CV 18 K.,1:98 CV 18 K. |
| Citation | 53 F.Supp.2d 1236 |
| Parties | Victor KARACAND, et al., On Behalf of Themselves and All Others Similarly Situated, Plaintiffs, v. Kim B. EDWARDS, Leonard C. Purkis, and Iomega Corporation, Defendants. |
| Court | Utah Supreme Court |
Scott A. Call, Thomas R Karrenberg, Anderson & Karrenberg, Salt Lake City, UT, Blake M. Harper, Michael L. Schrag, Spencer A. Burkholz, Milberg Weiss Bershad Hynes & Lerach, San Diego, CA, Jeffrey W. Golan, Mark R. Rosen, Barrack Rodos & Bacine, Philadelphia, PA, Christine M. Comas, Jonathan K. Levine, Adrienne L. Valencia, Kaplan Kilsheimer & Fox, New York City, Mel E. Lifshitz, Bernstein Liebhard & Lifshitz, New York City, for Victor Karacand, Paul Winston, Lorry Wagner.
Scott A. Call, Thomas R. Karrenberg, Anderson & Karrenberg, Salt Lake City, UT, Daniel E. Bacine, Barrack Rodos & Bacine, Philadelphia, PA, for David Darby, Aaron Lotz, plaintiffs.
Scott A. Call, Thomas R Karrenberg, Anderson & Karrenberg, Salt Lake City, UT, for Yaakov Prager, Joshua Chopp, Victor Karter, Phil Smolowitz, Alan Allio, Calvin H. Huber, plaintiffs.
Scott A. Call, Thomas R Karrenberg, Anderson & Karrenberg, Salt Lake City, UT, Andrew L. Barroway, Schiffrin Craig & Barroway, Bala Cynwyd, PA, for Joseph Fortuna, plaintiff.
Scott A. Call, Thomas R Karrenberg, Anderson & Karrenberg, Salt Lake City, UT, Marvin L. Frank, Rabin & Peckel LLP, New York City, for Jay Kaible, plaintiff.
Scott A. Call, Thomas R Karrenberg, Anderson & Karrenberg, Salt Lake City, UT, Blake M. Harper, Milberg, Weiss, Bershad, Hynes & Lerach, San Diego, CA, Ellen Gusikoff Stewart, Diane P. Doherty, Spector & Roseman PC, San Diego, CA, Martin D. Chitwood, Christi C. Mobley, Chitwood & Harley, Atlanta, GA, for Dennis L. Simons, Michele L. Simons, William L. Glosser, plaintiffs.
David W. Scofield, Parsons Davies Kinghorn & Peters, Salt Lake City, UT, for Barton Kessler, plaintiff.
Scott A. Call, Thomas R Karrenberg, Anderson & Karrenberg, Salt Lake City, UT, Joseph C. Kohn, Denis F. Sheils, Kohn Swift & Graf PC, Philadelphia, PA, Brian M. Felgoise, Law Offices of Brian M. Felgoise, Abington, PA, for John V. Abbamondi, plaintiff.
Joel R. Dangerfield, Salt lake City, UT, Harvey Greenfield, New York City, for Billy R. Thedford, plaintiff.
Thomas R Karrenberg, Anderson & Karrenberg, Salt Lake City, UT, Blake M. Harper, William S. Lerach, Spencer A. Burkholz, Milberg Weiss Bershad Hynes & Lerach, San Diego, CA, Daniel E. Bacine, Barrack Rodos & Bacine, Philadelphia, PA, Christine M. Comas, Jonathan K. Levine, Adrienne L. Valencia, Kaplan Kilsheimer & Fox, New York City, Morris J. Levy, Stephen G. Levy, Levy & Levy, Great Neck, NY, for Rodney D. Veitschegger, Sr., plaintiff.
James W. Prendergast, Jeffrey B. Rudman, Michael G. Bongiorno, Christine A. Maglione, Hale & Dorr, Boston, MA, Stephen G. Crockett, Wesley D. Felix, Giauque Crockett Bendinger & Peterson, Salt Lake City, UT, for Kim B. Edwards, Leonard C. Purkis, Iomega, defendants.
Before the Court are Defendants' Motion to Dismiss the Consolidated Class Action Complaint (the "Complaint") and Plaintiffs' Motion to Strike Maglione Declaration as to Stock Holdings and Exhibits 1, 2, 4, & 6 of Declaration of Maglione in Support of Motion to Dismiss. Resolution of the motions requires this Court to: (i) discern the relevant standards of review and legal rules, (ii) determine which materials in addition to the Complaint, if any, are to be considered, and (iii) apply the standards and rules to those materials. After a brief introduction, each matter is addressed in turn.
The plaintiffs in this class action lawsuit purchased the common stock of Utahbased computer storage device maker Iomega Corporation ("Iomega" or the "Company") between September 22, 1997, and January 2, 1998 (the "Class Period"). The plaintiffs allege that the defendants, Iomega and two of its former officers, Kim Edwards and Leonard Purkis, made false and misleading statements in violation of § 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act" or "1934 Act") and that Edwards and Purkis engaged in insider trading in violation of § 20(a) of the Exchange Act. More particularly, the plaintiffs allege that Edwards and Purkis conspired to inflate artificially the price of Iomega stock during the Class Period in order to reduce profitably their own Iomega stock holdings and that they did so by overstating the demand for Iomega products, by misrepresenting the probable release date for an important new Iomega product, by misrepresenting the status of component quality and supply problems, and by concealing the fact that Iomega planned to engage in an expensive advertising campaign.
Defendants move to dismiss pursuant to Rules 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure, and the provisions of the Private Securities Litigation Reform Act of 1995, Pub.L. No. 104-67, 109 Stat. 737 (1995) (the "Reform Act").
The purpose of a Rule 12(b)(6) motion is to test whether the facts alleged entitle the plaintiff to some form of legal remedy. For this purpose, the court generally confines itself to the text of the complaint and accepts all pleaded facts as true. Schwartz v. Celestial Seasonings, Inc., 124 F.3d 1246, 1251 (10th Cir.1997). The court does not accept, however, allegations concerning the legal effect of the events the plaintiffs have set out if these allegations do not reasonably follow from the description of what happened, are contradicted by the description itself, or are contradicted by facts that have been judicially noticed. See 5A Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1357 (2d ed.1990).
"The purpose of Rule 9(b) is to prevent the filing of a complaint as a pretext for the discovery of unknown wrongs." In re Silicon Graphics, Inc. Sec. Litig., 970 F.Supp. 746, 752 (N.D.Cal.1997). Toward this end, Rule 9(b) imposes particularized pleading requirements on plaintiffs alleging fraud or any claim premised on fraud. The rule provides: As interpreted, the rule requires a plaintiff to identify the time, place, and content of each allegedly fraudulent representation or omission, to identify the particular defendant responsible for it, and to identify the consequences thereof. Schwartz, 124 F.3d at 1252-53.
In the securities context, a plaintiff must also allege facts showing that an alleged misstatement is false. Grossman v. Novell, Inc., 120 F.3d 1112, 1124 (10th Cir.1997) ().
Congress passed the Reform Act in December 1995 in an effort to heighten Rule 9(b)'s pleading standards, concluding that the previously existing pleading standards "ha[d] not prevented abuse of the securities laws by private litigants.1 The Reform Act imposes even more rigorous pleading requirements on plaintiffs alleging fraud in the securities context. A complaint under the Reform Act must "specify each statement alleged to have been misleading" as well as "the reason or reasons why the statement is misleading." 15 U.S.C. § 78u-4(b)(1). In addition, the plaintiffs must "state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind" and must do so with respect to each act or omission alleged to be a violation of the securities laws. 15 U.S.C. § 78u-4(b)(2). Furthermore, for allegations made on information and belief, the complaint "shall state with particularity all facts on which that belief is formed." 15 U.S.C. § 78u-4(b)(1) (emphasis supplied). The Reform Act mandates dismissal, upon motion of the defendant, if the complaint fails to meet these requirements. 15 U.S.C. § 78u-4(b)(3)(A).
Plaintiffs allege violations of Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5 thereunder, 17 C.F.R. § 240.10b-5. To state a claim under Rule 10b-5, a plaintiff must allege: (1) a misleading statement or omission of a material fact; (2) made in connection with the purchase or sale of securities; (3) with scienter; (4) reliance; and (5) damages. See Novell, 120 F.3d at 1118. In their motion to dismiss, Defendants question whether Plaintiffs have adequately alleged that Defendants made a misleading statement or omission of material fact and whether any such statement or omission was made with requisite scienter.
"A statement or omission is only material if a reasonable investor would consider it important in determining whether to buy or sell stock." Novell, 120 F.3d at 1119. Whether a misstatement or omission is material is determined by a two-step inquiry. A court must first determine whether the information would be considered important by a reasonable investor; if so, the court must then determine whether the information would still be considered important in light of other information already available to the market.
Courts have identified several types of statements that, by their nature, are not considered important. Such statements include those classified as "corporate optimism" or "mere puffing." They "are typically forward-looking statements, or...
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...at 1117. (317.) Id. at 1119-23. (318.) Grossman v. Novell, Inc., 120 F.3d 1112, 1121 (10th Cir. 1997); see also Karacand v. Edwards, 53 F. Supp. 2d 1236, 1242 (D. Utah 1999) (applying Grossman to find that statements regarding production and sales of new computers, as well as statements say......
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Securities fraud.
...at 1117. (305.) Id. at 1119-23. (306.) Grossman v. Novell, Inc., 120 F.3d 1112, 1121 (10th Cir. 1997); see also Karacand v. Edwards, 53 F. Supp. 2d 1236, 1242 (D. Utah 1999) (applying Grossman to find that statements regarding production and sales of new computers, as well as statements say......
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Securities fraud.
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Securities fraud.
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