Syntex Corp. Securities Litigation, In re
| Citation | 95 F.3d 922 |
| Decision Date | 13 September 1996 |
| Docket Number | No. 94-16156,94-16156 |
| Parties | Fed. Sec. L. Rep. P 99,310, 96 Cal. Daily Op. Serv. 6865, 96 Daily Journal D.A.R. 11,226 In re SYNTEX CORP. SECURITIES LITIGATION. Arthur M. ROSENBAUM; Richard Gorosh, On Behalf of themselves and all others Similarly Situated; Kenneth Wynne; Judy Wynne; Robert Younger; Jerrald Schaffer; Joseph Cocola; Rita Cocola; Robert K. Greenfield; Amy Tresti; Alan R. Tresti; Steven J. Gutter; Carol Morris; Nicholas J. Donohue; G. King Perry; Henry Cole; Bori Berkow and Eric Rose, Plaintiffs-Appellants, v. SYNTEX CORPORATION; Paul E. Freiman; James N. Wilson; John Fried; Marvyn Carton; Allen & Company Incorporated and Thomas Gutshall, Defendants-Appellees. |
| Court | United States Courts of Appeals. United States Court of Appeals (9th Circuit) |
Jan M. Adler, William Lerach, Milberg, Weiss, Bershad, Hynes & Lerach, San Diego, California, for plaintiffs-appellants.
Douglas M. Schwab, Heller, Ehrman, White & McAuliffe, San Francisco, California, for defendants-appellees.
Appeal from the United States District Court for the Northern District of California, Spencer M. Williams, Senior District Judge, Presiding. D.C. No. CV-92-20548-SW.
Before: NORRIS, BEEZER, and TROTT, Circuit Judges.
OVERVIEW
Plaintiffs, purchasers of Syntex Corporation's common stock, appeal from the district court's order dismissing their securities class action suit alleging "fraud on the market." In their Second Amended Complaint, Plaintiffs allege that Syntex and several of its directors and officers violated sections 10(b) and 20(a) of the Securities Exchange Act of 1934 when they issued false statements about the company's financial outlook and, in turn, artificially inflated the value of Syntex's stock. The district court granted Defendants' motion to dismiss finding that: 1) Defendants' alleged statements were not actionable; 2) Defendants were not responsible for analysts' statements; and 3) the statute of limitations barred Plaintiffs from extending the class period stated in the First Amended Complaint. We affirm.
Syntex Corporation (Syntex) is an international pharmaceutical company headquartered in Palo Alto, California. In 1993, Syntex's patent on Naprosyn, its flagship product, was to expire. Plaintiffs allege that although Defendants expected revenues from Naprosyn to decline due to the adverse impact of a consent decree entered into with the FDA in October 1991 and competition from generic substitutes, they concealed the adverse impact of the consent decree and issued a series of statements representing that Syntex would maintain strong profit growth due to the introduction of an over-the-counter version of Naprosyn (OTC Naprosyn) and two new products, Ticlid and Oral Toradol. Plaintiffs allege that Defendants intended their falsely optimistic forecasts to artificially inflate the value of Syntex stock. 1
Plaintiffs filed their First Amended Class Action Complaint on November 13, 1992, on behalf of those persons who purchased Syntex stock at allegedly artificially inflated prices between November 25, 1991 and May 26, 1992. On January 13, 1993, the district court certified the class. On September 1, 1993, the district court dismissed the First Amended Complaint with leave to amend. On November 30, 1993, Plaintiffs filed their Second Consolidated Amended Class Action Complaint on behalf of the class of persons who purchased Syntex stock between November 25, 1991 and August 6, 1992. On May 27, 1994, the district court dismissed the Second Amended Complaint without leave to amend.
513 U.S. 917, 115 S.Ct. 295, 130 L.Ed.2d 209 (1994). All allegations of material fact are taken as true and construed in the light most favorable to Plaintiffs. Id. However, conclusory allegations of law and unwarranted inferences are insufficient to defeat a motion to dismiss for failure to state a claim. In re VeriFone Sec. Litig., 11 F.3d 865, 868 (9th Cir.1993). When deciding a motion to dismiss, a court may consider the complaint and "documents whose contents are alleged in a complaint and whose authenticity no party questions, but which are not physically attached to the pleading." Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir.), cert. denied, 512 U.S. 1219, 114 S.Ct. 2704, 129 L.Ed.2d 832 (1994).
Plaintiffs claim that Defendants misled investors by making optimistic statements about Syntex's future, thus violating section 10(b) of the Securities Exchange Act of 1934. Section 10(b) makes it unlawful "to use or employ, in connection with the purchase or sale of any security ... any manipulative or deceptive device." 15 U.S.C. § 78j(b) (1988). Rule 10b-5 issued thereunder makes it unlawful, in connection with the purchase or sale of any security:
(a) To employ any device, scheme, or artifice to defraud,
(b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.
Optimistic statements may constitute a basis for a claim under section 10(b). Warshaw v. Xoma Corp., 74 F.3d, 955, 959 (9th Cir.1996); In re Apple Computer Sec. Litig., 886 F.2d 1109, 1113-14 (9th Cir.1989), cert. denied, 496 U.S. 943, 110 S.Ct. 3229, 110 L.Ed.2d 676 (1990). However, the fact that the prediction proves to be wrong in hindsight does not render the statement untrue when made. VeriFone, 11 F.3d at 871. Whether a statement is misleading and whether adverse facts were adequately disclosed are generally questions that should be left to the trier of fact. Fecht v. The Price Co., 70 F.3d 1078, 1081 (9th Cir.1995), cert. denied, --- U.S. ----, 116 S.Ct. 1422, 134 L.Ed.2d 547 (1996). "[O]nly if the adequacy of the disclosure or the materiality of the statement is 'so obvious that reasonable minds [could] not differ' are these issues 'appropriately resolved as a matter of law.' " Id. (quoting Durning v. First Boston Corp., 815 F.2d 1265, 1268 (9th Cir.), cert. denied, 484 U.S. 944, 108 S.Ct. 330, 98 L.Ed.2d 358 (1987)).
There are several cases in this circuit addressing 12(b)(6) dismissals of actions involving securities fraud. We will examine several individually before applying the law to the facts of our case.
In In re Lyondell Petrochemical Co. Sec. Litig., 984 F.2d 1050 (9th Cir.1993), the plaintiffs claimed that the company falsely represented that Lyondell would continue to operate profitably, when its internal projections indicated a decrease in revenues. Id. at 1051. The court held that Lyondell did not have a duty to disclose its internal projections. The court explained that "[t]he outcome of the present case would be entirely different had [p]laintiffs alleged Lyondell's internal predictions were based on existing negative factors known only to the company." Id. at 1053.
In VeriFone, this court considered a securities fraud action in which shareholders alleged that the defendant company failed to disclose declines in sales and projected changes in the company's product market. 2
The court held that the allegations merely accused VeriFone of failing to make forecasts on future events and that this failure was not actionable. 11 F.3d at 869. The court reasoned that "[a]bsent allegations that VeriFone withheld financial data or other existing facts from which forecasts are typically derived, the alleged omissions are not of material, actual facts." Id. See also In re Worlds of Wonder Sec. Litig., 35 F.3d 1407, 1420 (9th Cir.1994) (securities laws do not insure against stock downturns and known market risks; "investors took a gamble"), cert. denied, --- U.S. ----, 116 S.Ct. 185, 133 L.Ed.2d 123, and cert. denied, --- U.S. ----, 116 S.Ct. 277, 133 L.Ed.2d 197 (1995)
In two cases decided since the instant case was argued, this court reversed 12(b)(6) dismissals of cases involving fraud on the market. In Fecht, company officials had made statements that the company's expansion of its retail warehouse operations was successful and that the expansion increased the company's prospects for earnings. 70 F.3d at 1080. The plaintiffs alleged that at the time that statement was made, the company knew that specific problems existed and that the expansion program was actually failing. 3
The Fecht defendants argued that their statements were not misleading because they "bespoke caution." Specifically, they argued that the company had included an acknowledgment in a report to shareholders that the company "feel[s] a little more optimistic about our near-term future than [it] did at the end of the last quarter." In another report, the company warned that "[e]arnings may not increase at as high a rate as sales because of the ... operating costs associated with opening new Price Clubs." Id. at 1081. The court rejected defendants' argument, finding that these mildly cautionary statements "not only d[id] not cure, but arguably contribute[d] to the alleged misconception that the new stores were increasing the [c]ompany's profitability because it assume[d] an increase in earnings and focuse[d] only on the rate of that increase." Id. Thus, the court concluded that "the mix of information contained in the public documents issued by the [c]ompany d[id] not clearly preclude 'reasonable minds' from differing on the question of whether they included misleading statements." Id.
The Fecht court also found that the complaint complied with the requirements of Rule 9(b) as clarified by the en banc panel in In re GlenFed, Inc. Sec....
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