Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_05-cv-00456/USCOURTS-cand-3_05-cv-00456-7/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 15:78m(a) Securities Exchange Act

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United States District Court

For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

In re SILICON IMAGE, INC. SECURITIES

LITIGATION

 /

No. C-05-456 MMC

ORDER GRANTING DEFENDANTS’

MOTION TO DISMISS; DISMISSING

SECOND CONSOLIDATED AMENDED

COMPLAINT WITH LEAVE TO AMEND;

VACATING HEARING

Before the Court is the motion, filed February 9, 2006 by defendants Silicon Image,

Inc. (“Silicon Image”), Steve Tirado (“Tirado”), and David Lee (“Lee”), to dismiss plaintiffs’

Second Consolidated Amended Complaint (“SCAC”), pursuant to Rules 12(b)(6) and 9(b)

of the Federal Rules of Civil Procedure. Plaintiffs William S. Hayman and John Herlihy

have filed opposition, to which defendants have replied. Having considered the papers

filed in support of and in opposition to the motion, the Court VACATES the hearing

scheduled for June 9, 2006, and rules as follows.

BACKGROUND

In the SCAC, plaintiffs allege, inter alia, that Silicon Image “manufactures and sells

multi-gigabit semiconductor solutions for the secure transmission, storage and display of

rich digital media,” (see SCAC ¶ 30); that Tirado has served as a Director of Silicon Image,

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According to plaintiffs, Tirado previously had held a variety of other positions with

Silicon Image. (See SCAC ¶ 21.)

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as well as its President and Chief Executive Office, since January 24, 2005,1 (see SCAC

¶ 21); and that Lee, the founder of Silicon Image, is currently Chairman Emeritus of Silicon

Image and Chairman of PanelLink Cinema, LLC, a wholly-owned subsidiary of Silicon

Image, (see SCAC ¶ 22). According to plaintiffs, between June 25, 2004 and October 13,

2005 (“the Class Period”), defendants violated federal securities laws by making “fraudulent

and material statements, misrepresentations and omissions” concerning Silicon Image. 

(See SCAC ¶¶ 1, 13.) Plaintiffs, who allege they purchased Silicon Image common stock

at “artificially inflated prices” during the Class Period, (see SCAC ¶ 18), assert they incurred

losses “caused by the disclosures of the true facts and the resulting drop in the price of

Silicon Image common stock at various times throughout the Class Period,” (see SCAC

¶ 13).

DISCUSSION

Defendants argue that plaintiffs’ claims, or certain portions thereof, are subject to

dismissal on several grounds.

A. Specification Requirements

Defendants argue that plaintiffs’ claims are subject to dismissal on the ground

plaintiffs have failed to comply with the specification requirements of the Private Securities

Litigation Reform Act of 1995 (“PSLRA”), 15 U.S.C. § 78u-4.

The PSLRA requires a plaintiff to “specify each statement alleged to have been

misleading [and] the reason or reasons why the statement is misleading.” See 15 U.S.C.

§ 78u-4(b)(1). The PSLRA further requires, to the extent an allegation is based on

information and belief, that the plaintiff allege “with particularity all facts on which that belief

is formed.” See id. The plaintiff must also disclose the sources for the complaint’s factual

allegations. See In re Silicon Graphics, Inc. Sec. Litig., 970 F. Supp. 746, 763-64 (N.D.

Cal. 1997) (holding plaintiff must allege “confidential informants, employees, competitors,

government employees, members of the media, and others who have provided information

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leading to the filing of the case”), aff’d, 183 F. 3d 970 (9th Cir. 1999). Lastly, with respect to

the element of scienter, a plaintiff “must plead, in great detail, facts that constitute strong

circumstantial evidence of deliberately reckless or conscious misconduct.” See DSAM

Global Value Fund v. Altris Software, Inc., 288 F. 3d 385, 388-89 (9th Cir. 2002) (internal

quotation and citation omitted).

 Here, the SCAC includes a 104-paragraph section titled “Materially False and

Misleading Statements Issued During the Class Period.” (See SCAC ¶¶ 50-153.) As

noted, a plaintiff must “specify each statement alleged to have been misleading [and] the

reason or reasons why the statement is misleading.” See 15 U.S.C. § 78u-4(b)(1). In large

part, plaintiffs have identified the statements they assert to be false or misleading and set

forth their reason(s) for such assertion. (See, e.g., SCAC ¶ 56 (alleging statement that

Silicon Image was “in the process of implementing a series of internal measures designed

to enhance [Silicon Image’s] overall internal control environment,” made by defendants in

Form 10-Q filed August 9, 2004, was false), ¶ 59 (alleging statement identified in ¶ 56 is

“materially false and misleading for the reasons set forth in paragraphs 54 and 55”).) With

respect to two statements, however, plaintiffs have failed to comply with this basic

requirement: (1) plaintiffs allege a “follow up conference call” was “false and misleading”

for the reasons set forth in ¶ 129, but fail to identify any statement made during the

conference call, the date of the conference call, or the identity of the speaker, (see SCAC

¶ 129); and (2) plaintiffs allege “the conference call following the earnings release” was

“false and misleading” for the reasons set forth in ¶ 134, but fail to identify any statement

made during the conference call, the date of the conference call, or the identity of the

speaker, (see SCAC ¶ 129). Accordingly, plaintiffs’ claims based on statements made at

the two above-referenced conference calls are subject to dismissal for lack of any

specification whatsoever.

With respect to the reasons plaintiffs provide to support their allegations of falsity,

even a cursory review of the SCAC reveals plaintiffs have largely failed to identify any

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In their introductory paragraph, plaintiffs state some allegations are based on

plaintiffs’ “personal knowledge as to themselves and their own acts,” while others are made

on “information and belief.” (See SCAC, introductory ¶.) Plaintiffs fail, however, to identify

any fact as to which they have personal knowledge, suggesting the reference to personal

knowledge pertains only to their own securities transactions. Consequently, the Court

considers all allegations pertaining to defendants’ liability to be on information and belief.

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Specifically, plaintiffs allege CS1 provided certain information regarding Silicon

Image’s former Chief Financial Officer Robert G. Gargus, (see SCAC ¶ 59), and CS2

provided certain information concerning Laub, (see SCAC ¶ 68).

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Plaintiffs fail to identify which statements they assert are false and misleading

based on the information provided by CS1 and/or CS2, thus requiring the Court and

defendants essentially to guess at the connection suggested by plaintiff. A complaint

pleaded in conformity with the PSLRA would not require such guesswork.

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source for their allegations on “information and belief.”2 For example, plaintiffs allege the

reasons for the resignation of Silicon Image’s former Chief Executive Office Steven Laub

(“Laub”), (see SCAC ¶ 66), and the reasons for the resignation of Silicon Images’s auditor

“PwC,” (see SCAC ¶ 100), but fail to identify the source(s) who provided plaintiffs with such

information. As another example, plaintiffs allege Silicon Image “did not maintain effective

controls over the valuation and determination of its deferred tax assets and income tax

provision,” (see SCAC ¶ 111), but fail to identify a source for such information.

The SCAC does include a passing reference to two former Silicon Image employees

identified as, respectively, “CS1,” (see SCAC ¶ 59), and “CS2,” (see SCAC ¶ 67), and

refers to a few facts each such individual provided to plaintiffs.3

 Other than describing them

as “former employees,” however, plaintiffs provide no facts as to either such individual. 

(See SCAC ¶¶ 59, 67.) Even assuming, arguendo, the facts provided by CS1 and CS2 can

be linked to plaintiffs’ assertions of falsity with respect to one or more statements at issue,4

the paucity of information provided by plaintiffs as to the identity of the two former

employees is insufficient to support a finding that such former employees would possess

the information alleged. See In re Daou Systems, Inc. Securities Litigation, 411 F. 3d 1006,

1015 (9th Cir. 2005) (holding confidential sources must “be described with sufficient

particularity to support the probability that a person in the position occupied by the source

would possess the information alleged”). Accordingly, plaintiffs’ claims, in their entirety, are

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In light of these findings, the Court does not address defendants’ argument that

certain of the alleged statements fail, as a substantive matter, to support a claim.

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subject to dismissal for failure to specify the sources for plaintiffs’ falsity allegations, either

because no source is provided at all or the source provided is not described with the

requisite particularity.

With respect to the element of scienter, plaintiffs likewise fail to specify the requisite

sources. As one example, plaintiffs allege that when defendants stated Silicon Images had

hired Laub as Chief Executive Officer and President and that Laub would “be responsible

for driving the company’s business strategy, execution and overall company performance,”

(see SCAC ¶ 60), such statement was knowingly false because defendants in fact “planned

to substantially limit Laub’s role and responsibility as the Chief Executive Officer,” (see

SCAC ¶ 62). Plaintiffs, however, cite no source for their allegation that defendants were, at

the time such statement was made, “planning” something contrary to what they publicly

stated. Accordingly, plaintiffs’ claims are subject to dismissal for this reason as well.5

B. Damages: Causation

As to certain statements, defendants argue that plaintiffs fail to adequately plead the

element of loss causation.

 A plaintiff must allege “a causal connection between the material misrepresentation

and the loss.” See Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336, 342 (2005). 

Although such “loss causation,” see Daou, 411 F. 3d at 1025, need not be pleaded with

specificity, a plaintiff must allege sufficient facts to “provide a defendant with some

indication of the loss and the causal connection that the plaintiff has in mind.” See Dura,

544 U.S. at 347. For example, a plaintiff adequately pleads causation by alleging the

disclosure of the true facts resulted in a decline in the stock price. See Daou, 411 F. 3d at

1026.

As noted, plaintiffs allege they incurred losses “caused by the disclosures of the true

facts and the resulting drop in the price of Silicon Image common stock at various times

throughout the Class Period.” (See SCAC ¶ 13.) Defendants contend causation is

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Indeed, in the primary district court case on which defendants have replied for this

proposition, an allegation equivalent to that made herein was held sufficient under Dura. See In re Omnivision Technologies, Inc., 2005 WL 1867717, * 5 (N.D. Cal. 2005) (holding

allegation that plaintiffs “purchased [defendant’s] securities at artificially inflated prices and

suffered damages when revelation of the true facts caused a decline in the value of their

investments” sufficient to plead causation).

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In granting leave to amend, however, the Court is not granting plaintiffs leave to add

additional defendants or to increase the Class Period. Any such amendment must be

made pursuant to Rule 15(a).

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inadequately pleaded because plaintiffs allege the date on which only some of those

disclosures were made. Defendants cite no authority requiring such particularly in pleading

causation, however.6

 Rather, the above-quoted allegation is sufficient to inform defendants

of the type of loss plaintiffs state they incurred, specifically, a decrease in the value of the

stock, and the “causal connection that the plaintiff has in mind,” see Dura, 544 U.S. at 347,

specifically, that such losses occurred because the true facts associated with each

assertedly false or misleading statement were publicly disclosed.

Accordingly, the SCAC is not subject to dismissal for failure to adequately allege

causation.

C. Leave to Amend

Plaintiffs request leave to amend if the motion to dismiss is granted. Because, at

this stage of the proceedings, the Court cannot say “it appears beyond doubt that the

plaintiff can prove no set of facts in support of his claim which would entitle him to relief,”

see Conley v. Gibson, 355 U.S. 41, 45-46 (1957), the Court will afford plaintiffs the

opportunity to cure the deficiencies noted above.7

In any Third Consolidated Amended Complaint, plaintiffs must (1) clearly identify all

statements alleged to be false and/or misleading and (2) allege with specificity, as to each

such statement: (a) facts to indicate the statement was false or misleading when made,

(b) facts to indicate defendants made the false or misleading statement with the requisite

scienter, and (c) all sources upon which plaintiffs’ allegations are based.

//

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CONCLUSION

For the reasons discussed above, defendants’ motion to dismiss the SCAC is

hereby GRANTED, and the SCAC is hereby DISMISSED with leave to amend. Any Third

Consolidated Amended Complaint shall be filed no later than July 21, 2006.

IT IS SO ORDERED.

Dated: June 21, 2006 

MAXINE M. CHESNEY

United States District Judge

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