P RE CE DE NT I AL UN I TED STATES CO UR T OF A PP EALS F O R T H E T H IR D C IR C U IT

N o. 09- 2970

I N R E : AE T NA, I NC

. S E CU RI T I E S L I T I GAT I ON

VAR M A M UT UAL P E NS I ON I NS UR ANC E CO M P ANY, A ppel l ant

O n A p p ea l from the U n it ed S tat es D istri ct C o u rt f o r th e E a ste rn D istric t o f P e n n sy lv a n ia ( D

. C

. N o. 2- 07- cv- 04451) D istric t Ju d g e : H o n . T h o m a s N . O ’N e ill

A r gued on February11, 2010 B efor e: SL O V I T E R , R O T H , and TA SH I M A *, C i r cui tJ udges

( O pi ni on fi l ed: A ugus t11, 2010)

*H onor abl e A

. W al l ace T as hi m a, Seni orU ni t ed St at es C i r cui tJ udge forthe N i nth C i r cui t , s i t t i ng bydes i gnat i on.2 M i chae l K

. Y arnoff, E s qui r e ( A r gue d) B en jam in J. Sw ee t, E sq u ir e B h ara ti O

. S h arm a, E sq u ir e Ba r r o way , To p a z , Kes s l e r , M e l t z e r& Che c k , LLP 280 K i ng of Prus s i a R oad R adnor , PA 19087 JayW

. E isen h o fe r, E sq u ir e C h arles T

. C ali en d o , E sq u ir e Gr a n t& E i s e n h o f

e r , P

. A. 485 L exi ngt on A venue N ew Y or k, N Y 10017 Jam es R

. B an k o , E sq u ir e G eo ff reyC

. Jarv is, E sq u ir e Gr a n t& E i s e n h o f

e r , P

. A. C h ase M an h att an C en tr e 1201 N or th M arketSt r eet Sui t e 2100 W i l m i ngt on, D E 19801

C ouns el f orAppel lant

M i chae l P. C arr ol l , E s qui r e ( A r gue d) M icha el S

. F lyn n , E sq u ir e Jo n atha n D

. M arti n , E sq u ir e Dav i s , Po l k & W a r d wel l , LLP 450 L exi ngt on A venue N ew Y or k, N Y 100173 Jo h n M

. E ll iott , E sq u ir e F red erick P

. S an tarell i, E sq u ir e E llio tt, G re e n le a f

& S ie d z ik o w s k i, P . C

. 945 H arves tD r i ve, Sui t e 300 B l ue B el l , PA 19422

C ouns el f orAppel l ees

O P I N I O N

RO TH , C i r cui tJ udge: Pl a i n t i f f s h a r e h o l d e r s a p p e a l th e Di s tr i c tCou r t ’ s o r der d ism iss in g th is s e c u rities f ra u d c las s a c tio n u n d e r th e P riv a te S ec u ri ti es L it igation R ef o rm A ct, 1 5 U

. S

. C

. § 7 8 u -5(c )(1), w hich c on t ai ns a safe harbo r forforw ard- l oo king st at em ents

. W e fi nd the al l eged m i s r epr es ent at i ons w hi ch form the bas i s of pl ai nt i ffs ’ cl ai m s ar e pr ot ect ed by the s afe harbor beca us e they a re f o rw a rd -lo o k in g a n d im m a ter ial a s a m a tter o f law . W e w ill th e re f o re a f f irm th e o rd e r o f

th e D istric t C o u rt. I . Fac t ualand Pr oc e dur alBackg r ound L ead pl ai nt i ff V arm a M u tua l Pens i on I ns ur ance C om panys eeks t o r epr es enta cl as s of i nves t or s w ho pur chas ed s ecur i t i es of A etna, I nc. , betw een O ct ober27, 2005, and J ul y27, 2 0 0 6

. Th e Con s o l i d a t e d Cl a s s Act i o n Comp l a i n t n a me s as d e f e n d a n t s Ae tn a a nd fo u ro f i t s o f f i c e r s e mp l o y e d a tth e t i meW ill iam s is C h a irm a n a n d C E O o f A e tn a ; h e p re v io u sly 1 s erved as Pr es i dentfr om M ay2002 t o J ul y2007. R ow e w as C E O fr om February 2000 t o February2006 and C hai r m an fr om A pr i l 2001 t o O ct ober 2006. B ennettw as C FO fr om Sept ember 2001 t o A pr i l 2007. C al l en w as Seni or V i ce Pr es i dentand H ead o f S tra teg ic P lan n in g a n d B u sin e ss D e v e lo p m e n t f ro m A p ril 2 0 0 4 to N o v e m b e r 2 0 0 7

. 4 of the al l eged f

r aud: J ohn R o w e, R onal d W i l l i ams, A l an B ennett , and C r ai g C al l en. A etna, a Penns y l vani a corpor at i on 1 w i th oper at i ons i n m ul t i pl e s t ates, pr ovi des m edi cal i ns ur ance a n d h e a lth c a re b e n e f

its to m o re th a n 1 4 m illio n c u s to m e rs . T h e c o m p lain t alle g e s a f ra u d u len t sc h e m e w h e re in defe ndant s m i s l ed i nves t or s aboutA etna’ s pr i ci ng of i ns ur ance p o l i c i e s a n d th e n s o l d s h a r e s o f Ae tn a ’ s s t o c k b e f o r e th e s c h e me w as r evea l ed t o the p u b li c. I n part i cul ar , pl ai nt i ffs cl ai m that defe ndant s fal s el ychar act er i zed A etna’ s pr i ci ng of m edi cal i ns ur a n c e p r e mi u ms a s “ d i s c i p l i n e d , ” wh i c h , p l a i n t i f f s c l a i m, r efe r s t o a cons ervat i ve underw r i t ing p rac t i ce of s ett i ng prem i um s i n a fi xed propo rt i on t o exp ect ed fu ture m edical cost s. W i thi n the hea l th car e i ndus try , thi s pr opor t i on i s know n as theP l a in tiffs d escr i be the M C R as “a rat i o of the d oll ars a 2 com p an ysp en d s o n m ed ical co sts, p h y sici an reim b u rsem en t and othercl ai m s - r el at ed s ervi ces ( col l ect i vel yr efe rr ed t o as m edi cal cos t s ) expr es s ed as a per cent age of pr emiu m s char ged t o the i ns ur ed fors uch s ervi ces . I n otherw or ds , the rat io i s m edi cal cos t s di vi ded bypr emi um s . ” A ccor di ng t o the compl ai nt , “R ow e, B ennettand C al l en 3 al l had s etup 10 b 5- 1 tr adi ng pl ans fr om ear l yO ct obert o m i dN ovember2005. ” R ow e s ol d 887, 00 0 sh are s ( pr ocee ds of $4 2

. 89 m i l l i on) , B ennetts ol d 280, 000 s har es ( pr ocee ds of $14. 18 m i l l i on) , and C al l en s ol d 6 0 , 0 0 0 s har es ( pr ocee ds of $3

. 04 m i l l i on ). W i l l i am s di d n ot s el l anyshares

. 5 “m ed ical co st r ati o ” (M C R ). A cc o rdin g to p lai n ti ff s, inv esto rs 2 re ly o n M C R a s a n in d ic a to r o f p ro f ita b ility. Pl ai nt i ffs cl ai m the fr aud began i n Se pt ember2005, w hen A e tn a a lleg e d lyre lax e d its u n d e rw riting c riter ia in a n e f f o rt to u n d e rp ric e c o m p e tit o rs a n d g a in m a rk e t s h a re . P lain tiff s c laim th a t d e f e n d a n t s k n e w th i s wo u l d a d v e r s e l y a f f e c tAe tn a ’ s M CR and s t ock pr i ce s o thatdefe ndant s concea l ed the r el axed underw r i t i ng cr i t er i a by publ i cl y t out i ng a “di s ci pl i ned” pr i ci ng p o licy . In F e b r u a ry2 0 0 6 , R o w e , B e n n e tt an d C a llen so ld s ubs t ant i al hol di ngs of A etna s t ock on the open m arketatpr i ces that p lai n ti ff

s claim w er e arti ficiall yinf lat ed b ythe f

rau d

. In 3 A p ril an d Ju ly 2 0 0 6 , A e tn a re p o rte d tw o c o n se c u tiv e q u a rte rly incre ase s in M C R , w h ich p lai n ti ff s attri b u te to A etna ’s s u p p o s e d ly se c re t p o lic yo f u n d e rp ri c in g p re m iu m s .6 D u rin g th e c las s p e rio d , the p ric e o f A e tn a ’s s to c k f

e ll fr om $52. 48 t o $33. 25. T he l os s of s har ehol derequi tyoccurr ed w h e n th e a ll eg ed u n d erp ri cing w as re v ea led b yA etna ’s r eport i ng of quart er l yM C R d ata. Pl ai nt i ffs cl ai m that d e f e n d a n ts’ s tate m e n ts a b o u t “d isc ip lin e d ” p ric in g a rt if icia lly i n f l a t e d Ae tn a ’ s s t o c k b y l e a d i n g i n v e s t o r s t o b e l i e v e th a tM CR w o u ld b e lo w e r a n d th a t p ro f ita b ility w o u ld b e h ig h e r. T o c o rro b o ra te th e ir a lleg a tio n s, P lain tiff s c ite c o n tem p o ra n e o u s re p o rts b yf in a n c ial a n a ly sts a n d jo u rn a lists w ho s pecul at ed tha tA etna w as boos t i ng i t s m arkets har e by underpr i ci ng pr emi um s . Pl ai nt i ffs al s o pr offe rconfi dent i al w i tnes s s t at ement s byA etna em pl oy ees w ho cl ai m t o have i m pl ement ed the r el axed unde rw r i ti n g cr i t er i a. O ther confi dent i al w i tnes s es s t at ed thattheyper s onal l yobs erved the i ndi vi dual defe ndant s ’ hands

- on m anage r i al s ty l e, fr om w hi ch pl ai nt i ffs i m put e actual know l edge thatA etna w as underpr i ci ng p re m iu m s . A . D efe n d a n ts’ S tate m en ts T he compl ai nti dent i fi es num er ous s t at em en ts w hi ch all eg ed lym isled inv esto rs; all stat em en ts pe rt ain to A etna ’s

“ d i s c i p l i n e d ” p r i c i n g o f m e d i c a l i n s u r a n c e p r e m i u m s . We s u mm a r i z e th e r e l e v a n ts t a t e me n t s b e l o w. O n O ct ob er 27, 20 05 , R ow e st at ed o n a n analy st confe r ence cal l , “R egar di ng pr i ci ng, w e cont i nue t o adher e t o a d isci p li n ed p ri cing p o li cy o f ac h ievin g p rem ium y iel d s tha t are in li n e w ith m e d ica l co st tre n d s.” D u rin g th e sa m e c a ll, W i l l i ams s t at ed, “[W ] e ar e pr i ci ng verycl ear l yi n l i ne w i th our7 m edi cal cos ttr end .

. . . [W ] e have a verys tr ong amount of pr i ci ng di s ci pl i ne . . . . W hat w e ar e doi ng i s m aki ng cert ai n that w e ar e pr i ci ng appr opr i at el yas bes tw e ca n, t o be cert ai n that w e’ r e meet i ng ours har ehol derexpec t at i ons . ” O n F e b ru a ry9 , 2 0 0 6 , R o w e a n d W ill iam s p a rticip a ted in a n o th e ra n a l y s tc o n f

e r e n c e c a l l ; p l a i n t i f

f s c l a i m th a t“ Ro we cont i nued t o s tr es s A etna’ s ‘ di s ci pl i ned approac h t o pr i ci ng’ w h ile W ill iam s e m p h a siz e d A e tn a ’s c o m m itm e n t to ‘p ro f itab ly gr ow m arkets har e and e arni ngs ’ thr ough ‘ di s ci pl i ned pr ici ng’ an d n o ted th at ‘[o ]ur p ri cing d isci p li n e is u n ch an g ed

. ’” Pl ai nt i ffs cl ai m that R ow e and W i l l i ams m i s l ed i nves t or s by p u b licly to u ti n g a “ d isc ip lin e d ” p ric in g p o licyw h ile s e c re tly underpr i ci ng pr emi um s t o boos tm arkets har e. Pl ai nt i ffs cl ai m thati n A pr i l 2006, w hen A etna r eport ed fin anci al r es ul t s forthe fi r s tquart er , i tconce al ed the al l eged underpr i ci ng byfal s el y attr i but i ng an i ncr eas e i n M C R t o hi gher m edical exp enses: T his i ncrease i n the m edical costrat i o fo r the fir st q u a r te r o f

2 0 0 6 re f lec ts a p e rc e n tag e in c re a se in perm emberm edi cal cos t s thatoutpaced the per cent age i n c r e a s e i n perm emberpr emi um s , due to h ighe rm edi cal cos ttr ends fori npat i entand outpat i entfac i l i tyand phy s i ci an s ervi ces offs etby a m o d era ti o n in m ed ical co st tren d fo r an cil lary and ph arm acyservices

. A e tn a F o rm 1 0 -Q (A p r. 2 7 , 2 0 0 6 ). P la in ti f f s c laim th a t th is di s cl os ur e w as m isl eadi ng beca us e the i ncr eas e i n M C R w as8 caus ed by the underpr i ci ng of pr emi um s , not byhi gherm edi cal e x p e n s e s . O n A pri l 27 , 20 06 , W i l l i am s di scussed A et na’s fi rs t q u arter resu lt s o n an an aly st co n fe ren ce ca ll an d state d , “[ W ]e c o n tin u e to a d h e re to o u r p ric in g d isc ip lin e .” O n th e sa m e c a ll, B e n n e tt state d , “[ W ]e e x p e c t a q u a rte r ly pa ttern to re f lec t a slig h tlyh ig h e r M C R in th e se c o n d q u a rte r c o m p a re d to th e firstquart erl evel

. ” Pl ai nt i ffs cl ai m thatW i l l i ams’ s t at em en tw as fa lse bec aus e A etna’ s pr i ci ng w as notdi s ci pl i ned and that B ennett ’ s s t at ementw as m i s l eadi n g beca us e he kne w un derpri ci ng w ou l d cau se the seco nd qu art er M C R t o incr ease s ubs t ant i al l y , nots l i ght l y . O n A pr i l 28, 2006, A etna’ s s t ock pri ce fell by m ore than 20 % , causi ng a m arketcapit al i zat i on l oss o f $ 5 .4 b illio n . O n M ay1, 2006, W i l l i ams di s cus s ed A etna’ s fi r s tquart er M C R per form ance on an ana l y s tconfe r ence cal l and s t at ed: I n addi t i on, som e have ques t i oned our m ember s hi p gr ow th and s ai d th at w e mustbe p ri c in g a g g re s s iv e ly . . . . O f t he 82, 000 t ot al ful l y i ns ur ed addi t i ons , 15, 000 ar e M edi cai d A dvant age, 4, 000 w er e i n s tudent h e a lth , 1 4 ,0 0 0 in S R C a n d 2 3 ,0 0 0 in in d iv id u a l. T hatl eave s gr ow th of 26, 000 m ember s fr om our m ai n cus t om erm arket s of nat i onal , m i ddl e and s m a ll g ro u p . T h is i s so li d a n d b a lan ce d g ro w th th a t i s re p re sen tative o f ou r d ed ication to pr i c i ng , as w el l as the br oad di ver s i ficat i on of m arket s w e ar e ac t i vel ypur s ui ng.9 I w i l l end m y com m ent s by reaf f i rm i ng t o y ou m y p er so n a l com m it m en t to c o n ti n u e to m ai nt ai n di s ci pl i ne and ri gor i n everyt hi ng w e do at A et na. (C o m p l. ¶ 8 9 , A 1 0 1 (em p h asis an d alt era ti o n in co m p lai n t)

. ) O n M ay1 6 , 2 0 0 6 , W il li am s sp o k e a t a h ea lth ca re confe r ence and s t at ed: W e a lso c o n tin u e a s a p r io r ity to e x h ib it co m m it m en t to d isci p li n e p ricin g . I th in k it i s i m por t antt o under s t and thatthe man ag em ent i ncent i ves and di s ci pl i ne t hat w e have ar e al i gned to p ro f it i n c re a se s. W e o p e ra te a se t o f f u lly a l l o c a t e d p r o f

i t a n d l o s s P&Ls th r o u g h o ut t he C o m p a n y w h e re g e n e ra l m a n a g e rs a re in c e n ted to a c h iev e a d isc ip lin e lev e l d e sig n e d to h e lp m ax im ize tho se m ar g ins a n d n o t si m p lyto su p p o rt m em b ersh ip g ro w th

. G iv e n a d e c isio n , w e w ill al w ays t ake pr of

i t abi l i t y ove r gr ow t h. (C o m p l. ¶ 9 1 , A 1 0 2 (e m p h a sis in c o m p lain t).) P lain tiff s c laim th e s e s t a t e me n t s w e r e f a l s e a n d mi s l e a d i n g b e c a u s e W i l l i a ms knew A et na w as underpr i ci ng pr emi um s and s acr i fi ci ng pr ofi t abi l i tyforgr ow th. O n J ul y27, 2006, A etna announc ed fi nanci al r es ul t s for th e se c o n d f

isc a l q u a rte r, in c lu d in g a 2 % q u a rte rlyin c re a se in M C R

. Pl ai nt i ffs cl ai m that , contr ary t o B ennett ’ s A pr i l 27, 2006 pr edi ct i on of “a s l i ght l y hi gher M C R i n the sec ond quart er , ” the10 ac tual incre ase o f 2 % w as su b stan ti al. T h at sam e d ay , A etna ’s s t ock pr i ce fel l by 17% , caus i ng a m arketcapi t al i zat i on l os s of $ 3 .5 8 b illio n . B as ed on thes e o ccurr ence s , the pl ai nt i ffs fi l ed a compl ai ntas s ert i ng thr ee c aus es of ac t i on underthe Secu ri t i es E xchange A ct of 1934: C ountI al l eges vi ol at i ons of Exchange A ctSect i on 10( b) , C ountI I al l eges vi ol at i ons of Exchange A ct Sect i on 20( a) , and C ount I I I al l eges vi ol at i ons of Exchange A ct S e c tio n 1 8

. B . D i s t ri ct C ourt ’ s D i s m i s s al D e f e n d a n ts f

iled a m o tio n to d ism is s th e c o m p lain t, w hi ch the D i s tr i ctC our t gr ant ed w i th pr ej udi ce. I n i t s thor ough a n d w e ll-cr a f

te d o p in io n , the D istric t C o u rt h e ld th a t all s t at ement s w hich form the bas i s of C ountI w er e forw ar dl ooki ng and ther efor e pr ot ect ed bythe st atut orys afe harbor , 15 U

. S

. C

. § 78u- 5( c) ( 1)

. T he courtdi s m i s s ed C ountI I as der i vat i ve of C ount I , and hel d that C ount I I I w as barr ed bythe s t atute o f l i m i t at i ons . Pl ai nt i ffs onl yappea l the di s m i s s al of C o u n ts I a n d II

. I I . D i s cus s i on A . St andard of R evi ew and Ju ri s di ct i on W e r evi ew the D i s tr i ctC our t ’ s deci s i on de novo , a c c e p tin g a s tru e a ll a lleg a tio n s in th e c o m p lain t a n d a ll r eas onabl e i nfer ences thatcan be dr aw n ther efr om as vi ew ed m o s t f a v o ra b ly t o t h e n o n -m o v in g p a rt y . D eBenedi ct is v.“Sect i on 10( b) of t he S ecur i t i es E xchange A ctforbi ds 4 ( 1) the ‘ us e orempl oy [m entof]

. . . anym ani pul at i ve or dece pt i ve devi ce or co n tr iva nce, ’ ( 2) ‘ i n connec t i on w i th the pur chas e ors al e of a nys ecur i ty , ’ and ( 3 ) ‘in contr avent i on of [ SEC] ru l e s a n d r e g u l a t i o n s . ’ 1 5 U. S. C. § 7 8j ( b ) ( 2 0 0 6 )

. SEC r egul at i o n s, in turn, m ake i tunl aw ful ‘ [t ] o m ake a nyuntrue s t at ementof a mat er ial fa ctort o om i tt o s t at e a mat er i al fac t nece s s aryi n or dert o m ake t he st at ement s m ade, i n the l i ghtof the ci r cumst ance s under w hi ch t heyw er e made, notm i s l eadi ng’ i n connec t i on w i th the pu rch ase ors al e of a nys ecur i ty . 17 C. F. R. § 2 4 0

. 1 0 b

- 5 ( b )

. ” Mc Cabe v . Er ns t& Y ou ng, LLP , 494 F .3 d 4 1 8 , 4 2 4 (3 d C ir . 2 0 0 7 ). 11 Mer r i l lLynch & C o. , 492 F

. 3d 209, 215 ( 3d C i r . 2007)

. T he D i s tr i c tC o u r th a d j u r i s d i c t i o n u n d e r2 8 U

. S

. C

. § 1 3 3 1

. We have j ur i s di ct i on under28 U

. S. C

. § 1291. B. Se c ur i t i e s Ex c hang e A c t of 19 34 Se c t i on 1 0( b) T he Secur i t i es E xchange A ctof 1934 Sect i on 10( b) , and r egul a t i o n s p r o mul g a t e dth e r e u n d e r , p r o h i b i tf r aud i n connec t i on w i th the sal e orpur chas e of s ecur i t i es . 15 U

. S. C

. § 78j ( b) ; 17 C

. F. R

. § 240. 10b- 5( b)

. Par t i es i nj ur ed by s ecur i t i es fr aud may 4 br i ng a pr i v at e ca us e of a ct i on underSect i on 10( b) , w hi ch r equi r es pr oof of si x el ement s : “( 1) a mat er i al m i s r epr es ent at i on (o r o m is s io n ) ; (2 ) s c ie n te r, i

. e. , a w ron g fu l st ate o f m ind ; ( 3 ) a connec t i on w i th the pur chas e ors al e of a s ecur i ty ; ( 4) r el i ance , o f ten re f e rre d to in c a se s in v o lv in g p u b lic s e c u rities m a rk e ts ( f r a u d

- o n - th e - ma r k e t c a s e s ) a s ‘ tr a n s a c t i o n c a u s a t i o n ’ ; ( 5) ec o n o m ic lo ss; a n d (6) ‘l o ss ca u sati o n , ’ i

. e. , a ca us al connec t i on12 betw een t he m at er i al m i s r epr es ent at i on and t he l os s . ” McC abe v . Er ns t & Y

ou ng, LLP , 494 F. 3d 418, 424 ( 3d C i r . 2007) ( ci t i ng D ur a P har m s . , I

nc. v. B r oudo , 5 4 4 U

. S

. 3 3 6 , 3 4 1 -42 (20 0 5 )). T h is a p p e a l in v o lv e s o n ly th e f irst e lem e n t, w h e th e r d e f e n d a n ts m ade a m at er i al m i s r epr es ent at i on orom i s s i on. Feder al s ecur i t i es fr aud l i t i gati on i s governed bythe Pr i vat e Secur i t i es L i t i gat i on R eform A ctof 1995 ( PSL R A ) , 109 St at

. 737, w hi ch C ongr es s enac t ed “[ a] s a check a gai ns tabus i ve l i t i gat i on bypr i vat e part i es . . . . ” Tel labs , I nc. v. MakorI

s s ues & Right s , Ltd. , 551 U

. S. 308, 313 ( 2007)

. T he PSL R A i m pos es tw o ex ac t i ng and di s t i nctpl eadi ng r equi r ement s fors ecur i t i es fr aud act i ons . Fi r s t , “the com pl ai nt s hal l s peci fyeac h s t at ement al l eged t o have be en m i s l eadi ng, the re as on orr eas ons w hythe s t at ementi s m i s l eadi ng, and, i f an all eg at i on r egar di ng the s t at ementorom i s s i on i s m ade on i nform at i o n an d b el i ef, the compl ai n t sh al l s t at e w i th part i cul ar i tyal l fac t s on w hi ch that bel i ef i s form ed. ” 15 U

. S. C

. § 78u- 4( b )(1). Second, “the c o m p lain t sh a ll, w ith re sp e c t to e a c h a c t o r om iss io n a lleg e d to vi ol at e thi s t i t l e, s t at e w i th part i cul ar i tyfac t s gi vi ng r i s e t o a stro n g in f

e re n c e th a t th e d e f

e n d a n t a c ted w ith th e re q u ire d sta te o f m in d .” 1 5 U .S .C . § 7 8 u -4 (b )( 2 ). U nderthe PSL R A , al l eged mi s r epr es ent at i o n s ar e not act i onabl e i f theyfal l w i thi n the s afe harborforforw ar d- l ooki ng sta tem e n ts. 1 5 U .S .C . § 7 8 u -5 (c ). T h e iss u e o n a p p e a l is w hetherdefe ndant s’ s ta t ement s w er e i m m uni zed bythe s afe h arb o r.13 1. P SL R A Saf

e H arbor f

or For w ar d- Looki ng S tate m en ts T h e P S L R A ’ s s a f

e h a rb o rf o r f o rw a rd -lo o k in g sta tem e n ts p ro v id e s in re lev a n t p a rt: ( 1) [I ] n anypr i vat e ac t i on . . . bas ed on an untrue s t at ement o f a m aterial fa ct or o m issi o n o f a m aterial fa ct ne ce ssary to m a k e th e sta tem e n t n o t m isle a d in g , a p e rso n . . . sh a ll notbe l i abl e w i th r es pectt o anyforw ar d- l ooki ng s t at ement , w hetherw r i t t en oror al , i f and t o the extent th a t– (A ) the fo rw ard- l oo king st at em ent i s– (i) id e n tifie d a s a f

o r w a r d

- lo o k in g sta tem e n t, an d is a c c o m p a n ied b ym e a n in g f u l ca u tio n a rysta tem e n ts i d e n t i f y i n g i mpo r t a n t f

a c t o r s th a t c o u l d c a u s e a c t ua r esu lt s t o di ffe rm at er i al l yfr om thos e i n the forw ar d- l ooki ng s t at ement ; or ( i i ) i m m at er i al ; or ( B ) the pl ai nt i ff f ai l s t o pr ove thatthe for w ard -l o o k i ng sta tem e n t– ( i ) i f m ade bya natur al per s on, w as m ade w i th actual know l edge by that per s on thatthe s t at ementw as fal s e or m i s l eadi ng; or (i i) if m ad e b ya b u sine ss en ti ty ;[, ] w as--14 ( I ) m ad e b y o r w it h the appr oval of an e xecut i ve offi cerof thatent i ty ; and ( I I ) m ade or ap p r oved bys uch off i cerw i th actual know l edge by thatoffi certhatthe s t at ementw as fal s e or m i s l eadi ng. ( 2) O r al forw ar d- l ooki ng s t at ement s . I n the ca s e of a n or al forw ar d- l ooki ng s t at ement

. . . , the r equi r ements et for th i n par agr aph ( 1) ( A ) s hal l be dee m ed t o be s at i s fi ed– ( A ) i f the or al forw ar d- l ooki ng s t at ementi s acc om pani ed b ya c a u tio n a rysta tem e n t– ( i ) thatthe part i cular or al s t at ementi s a forw ar dl ooki ng s t at ement ; and ( i i ) thatthe ac tual r es ul t s m i ghtdi ffe rm at er i al l yfr om t ho s e p r o

j e c t e d i n th e f o rwar d

- l o o ki ng s t at ement ; and ( B ) i f– ( i ) the or al forw ar d- l ooki ng s t at ementi s acc om pani ed byan or al s t at ementthataddi t i onal i n fo rm at i on conce rni ng fac t or s t hatcoul d caus e ac tual r es ul t s t o m at er i al l ydi ffe rfr om th o se in th e f

o rw a rd -lo o k in g sta tem e n t is c o n tain e d in a re a d ily avai l abl e w r i t t en document , orpor t i on ther eof;Th ePSLRAde fine s “ fo rw ard -l oo kingstate ment”a s: 5 (A) a state ment c ontaininga

proje c tio n o f re venue s, inc ome 15 (ii) th e a c c o m p a n y in g o ra l sta tem e n t re f e rre d to in cl aus e ( i ) i dent i fi es the document , orpor t i on thereo f, that cont ai ns the addi t i onal i nform at i on about thos e fa ct or s r el at i ng t o t he forw ar d- l ooki ng s t at ement ; and ( i i i ) the i nform at i on cont ai ned i n thatw r i t t en document i s a ca ut i onarys t at em entthats at i s fi es the s t andar d es t abl i s hed in p ara g rap h (1)(A ). 1 5 U .S .C . § 7 8 u -5 (c )( 1 )- (2 ). T h u s, the s a f

e h arb o r ap p li es to stat em en ts th at are fo rw ard -l o o k ing as d ef

ined b ythe s tatu te pro v ided that theyare ( 1) i dent i fi ed as s uch, and ac com p an i ed bym eani ngful caut i onarys t at ement s ; or (2 ) im m at er i al ; or( 3) m ade w i thout actual know l edge thatthe s t at ementw as fal s e orm i s l eadi ng.

a. St at ut or y D e f

i n i ti on o f

“For w ar dL o o k ing S tate m en t” O u r th re sh o ld in q u iry is w h e th e r de f e n d a n ts’ s tate m e n ts fal l w i thi n the br oad s t atut orydefi ni t i on o f ‘f orw ar d- l ooki ng s ta te m e n t, ’ w h ic h in c lu d e s , in tera lia , p rojec ti o n s o f f u ture per form ance , pl ans and obj ect i ves forfutur e o p era t i ons , and a ss u m p tio n s u n d e rly in g sta tem e n ts a b o u t f u tu r e f in a n c ial, ec o n o m ic or o p era ti o n al p erf o rm an ce . 1 5 U

. S

. C

. § 7 8 u -5(i)( 1 ). 5( i n c luding in c o m el oss) , earni ng s ( i ncludi ng earni ng s l oss) pers har e, capi t al expendi tur es , di vi dends , capi t al structure, or ot her fi nan ci al i t em s; ( B ) a s t at ementof the pl ans and obj ect i ves of m anage m entforfutur e oper at i ons , i ncl udi ng pl ans or obj ect i ves r el at i ng t o the pr oduct s ors ervi ces of the issue r; ( C ) a s t at ementof futur e ec onom i c per form ance , i ncl udi ng anys uch s t at ementcont ai ned i n a di s cus s i on and ana l y s i s of fi nanci al condi t i on bythe management ori n the r es ul t s of oper at i ons i ncl uded pur s uantt o the rul es and r egul at i ons of the C om m i s s i on; ( D ) anys t at ementof the as s um pt i ons under l y i ng or r el at i ng t o anys t at ementdes cr i bed i n s ubpar agr aph (A ), (B ), o r (C ); ( E ) anyr eporti s s ued byan out s i de r evi ew err et ai ned byan is suer, t o the ext ent that the repo rtasses ses a forw ar d- l ooki ng s t at ementm ade bythe i s s uer ; or ( F) a s t at ementcont ai ni ng a pr oj ect i on ores t i m at e of s uch otheri t ems as m aybe s peci fi ed byrul e or r egul at i on of the C om m i s s i on. 1 5 U

. S

. C

. § 7 8 u -5(i)( 1 ). 16 W e r ece nt l ycons trued the s t atut orydefi ni t i on in I ns t i t ut i onal I nves t ors G r oup v. A vaya, I nc. , 564 F. 3d 242 ( 3d C i r . 2009). T h e re , sh a re h o ld e rs a lleg e d a f ra u d u len t sc h e m e w h e re in exec ut i ves of A vay a, a t el e c o mmun i c a t i o n s c o mpa ny , deni ed the c o m p a n y“ w a s o f

f e rin g u n u su a l p ric e d isc o u n ts a n d th a t it sA l though notan i s s ue cons i der ed on t hi s appea l , the s afe 6 h a rb o r d id n o t ap p lyto th o se sta tem e n ts b e c a u se th e yc lea rly r efe r r ed t o hi s t or i cal r atherthan futur e per form ance . 17 pr ofi tm ar gi ns w er e bei ng i m pai r ed, ” and then publ i ci zed fal s el y - opt i m i s t i c fi n anci al pr oj ect i ons thatcoul d notbe achi eved be caus e of the pr i ce disco u n t i ng’ s negat i ve ef fec ton p ro f ita b ility. Id

. at249. T he s har ehol der s fi l ed s ui tunder S ect i on 10 (b) and al l eged tw o types of m i sl eading st at em ents : F irst, th e re a re “ p ri c in g p re ss u re sta tem e n ts,” in w h ich [ d e f

e n d a n ts] a re a lleg e d to h a v e f a lse ly deni ed A vay a w as offe r i ng unus ual di s count s and fac i ng si gni fi cantpr i ci ng pr es s ur e fr om m arket r i val s . Second, ther e ar e “f or eca st- rel at ed s t at ement s , ” i n w hi ch def endant s pr oj ect ed fi nanci al r es ul t s ( s uch as oper at i ng m ar gi n and revenu e grow th ) and m ade p osi t i ve p ortray al s, not abl ythe s t at ementthatA vay a w as “on t r ack” t o ach i eve it s goals or proj ect i on s. A vaya, I nc. , 564 F. 3d at246. T h e “ p ri cing p ressu re” stat em en ts w ere m ad e b yA v ay a’s ch ief fi nanci al offi cer , w ho deni ed thatdet er i or at i ng demand adv ers el yaffected the m arket pri ce for the co m pan y ’s produ ct s. 6 T he “f or ec ast

- r el at ed” s t at ement s cont ai ned forw ar d- l ooki ng proj ect i on s, bu td e scri bed tho se proj ect i on s i n p res ent- t ense l anguage . Forexampl e, defe ndant s s t at ed, “O urfi r s tquart er resu lt s p o sit ion u s to m ee t ou r go als fo r th e y ea r . . . . [W ]e a re18 o n tr ac k to m ee t ou r go als fo r th e y ea r, ev en tho u g h there w ere s om e as pect s t o ourper form ance thatar e bel ow ourexpec t at i ons and thatw e ar e w o rking on t o i m pr ove. ” I d. a t2 5 4

. We concl ud ed thats uch a “ m i xed pr es ent/ futur e s t at ementi s not ent i t led t o the s afe harborw i th r es pectt o the partof the s t at ement that r efe r s t o the pr es ent

. ” Id

. at 255. H ow ever , w hen read i n co ntext , the p res ent- t ense st at em ents ( i

. e. , “w e are on tr ack” and “f

i r s tquart err es ul t s po sit i on us ”) coul d not “meani ngful l ybe di s t i ngui s hed fr om the futur e p rojec t i on of whi c h th e y a r e a par t ” ( i

. e. , A v a y a ’s f u tu re g o a ls ). I

d. T o the ext ent tha tthos e s t at ement s cont ai ned as s ert i ons aboutthe pr es en t, w e found “the as s ert i ons of curr entfac tar e t oo vague t o be ac t i onabl e. ” I

d. A s w e not ed i n A vaya , i tw as di s t i ngui s habl e fr om cas es i n whi c h th e a l l e g e d l ymi s l e a d i n g s t a t e me n t s c o n t ai ned s e p a ra te l yd is c e rn a b le re f e re n c e s to th e p re s e n t. I d. For exampl e, i n MakorI

s s ues & Right

s , Ltd. v. Tel labs I

nc. , the s t at ement that s al es w er e “s t i l l goi ng s tr ong” w as notforw ar dl ooki ng beca us e i t“w oul d be mi s l eadi n g i f [de fenda nt ] knew th a t it s s a les w e re a b o u t to c o llap se .” 5 1 3 F .3 d 7 0 2 , 7 0 5 (7 th C i r . 2008)

. I n I

n r e St one & W

ebs t er , I nc. , Secur i t i es Li t igat i on , th e sta tem e n t th a t th e d e f e n d a n t “h a s o n h a n d a n d h a s a c c e ss to s uffi ci ents our ces of funds t o m eet i t s ant i ci pat ed .

. . needs ” w as notforw ar d- l ooki ng becaus e “[t ] he partof the s t at ementthat s p e a k s o f th e q u a n tity o f c a s h o n h a n d s p e a k s o f a p re s e n t f

a c t.” 4 1 4 F

. 3 d 1 8 7 , 2 0 7 , 2 1 2 (1st C ir

. 2 0 0 5 ). I n the ca s e bef

or e us , the all egedl ym i s l eadi ng re p re se n tatio n s c o n sis t o f v a g u e a n d g e n e ra lize d sta tem e n tsS p e c if ica lly , p lain tiff

s a lleg e th e f

o llo w in g sta tem e n ts 7 ar e mi s leadi ng: ( 1) “W e have , w e bel i eve, verys tr ong pr i ci ng di s ci pl i ne; ” (2) “w e cont i nue t o adher e t o a di s ci pl i ned pr i ci ng pol i cyof ac hi evi ng pr emi um y i el ds that ar e i n l i ne w i th m edi cal cost tr ends; ” ( 3) “thi s pr i ci ng di s ci pl i ne has contr i but ed t o the s t abi l i tyw e have r eali ze d in o ur. . . M C R ; ” ( 4) “[o] urpr i ci ng pol i cyr emai ns cons i s t ent ; ” ( 5) “w e cont i nue t o exer ci s e pr i ci ng di s ci pl i ne; ” ( 6) “ourpr i ci ng di s ci pl i ne i s unchange d ; ” ( 7) m e m b e rsh ip g ro w th “ is s o lid a n d b a lan c e d g ro w th th a t is r e p r e s e n t a t i v e o f

o u rd e d i c a t i o n t o d i s c i p l i n e d p r i c i n g ; ” ( 8 ) “ we a lso c o n tin u e a s a p rio rityto e x h ib it co m m itm e n t to d isc ip lin e [ d ] p ric in g ;” a n d (9 ) A e tn a re m a in s “ c o m m itt e d to pr i ci ng di s ci pl i ne [a s i thas over ] the pas tfi ve y ear s . ” 19 about“di s ci pl i ned” pr i ci ng. T he D i s tr i ct C our tpr oper l ybegan 7 it s an aly s is byasc ertaining w h at fa ctua l asserti o n s w ere convey ed bythos e s t at ement s . A cc o rdin g t o the court , the p arti es h ad ag ree d that “d isci p li n ed ” p ri cing ref erred to A etna ’s e x p e c tatio n o f

“ a c h iev in g p re m iu m y ield s th a t a re in lin e w ith [A etna’ s ] m edi cal cos t tr end. ” B as ed on t hi s under s t andi ng of the t erm “di s ci pl i ned” pr i ci ng, the courtconcl uded thatthe s t at ement s w er e forw ar d- l ooki ng beca us e theyexpr es s ed e x p e c tatio n s a b o u t A e tn a ’s m e d ica l co st tre n d , “ a sp e c if ic m eas ur e of f

utur e per form ance. ” So cons trued the r epr es en ta t i ons w er e w i thi n the s afe harbor ’ s defi ni t i on of “forw ar d- l o o k ing s t at ement

. ” See 1 5 U. S

. C. § 7 8 u - 5 ( i ) ( 1 ) ( B) ( “s t at ement of the pl ans and obj ect i ves of m anagem en t f or f u tu re o p e ra tio n s” ) an d (C ) (“s tate m e n t o f f u tu re e c o n o m ic per form ance ”)

. A ppl y i ng A vaya , the c o u rt f o u n d th a t, w h ile cert ai n el ement s of def

endant s ’ s t at ement s w er e part l yhi s t or i cal20 and part l ypr es ent

- t ens e (i. e., s t at ement s s uch as “r emai ns co n sist e n t,” “is u n ch an g ed , ” a n d “w e c o n ti n u e to a d h ere to”), tho se el em ents cou l d n ot be di st i ng uis hed from the st at em ents ’ a s s e rt io n s a b o u t th e f

u tu re . O n ap p ea l, p lai n ti ff

s arg u e tha t the D istri ct C o u rt m i s under s t ood w hatdefe ndant s m eantbythe t erm “di s ci pl i ned” pr i ci ng . Pl ai nt i ffs cont end that , by“enga gi ng i n ‘ di s ci pl i ned’ pr i ci ng, A etna i s t el l i ng i nves t or s that , bas ed upon w hatthe C o m p any curr entl y est i m at es cost s t o be for the poli ci es i t is w riting , the se p o licie s w ill b e p ro f itab le.” P lain tiff

s ar g u e th a t, alth o u g h the s tat em en ts co n tai n p rojec ti o n s ab o u t fu ture pr ofi t abi l i ty , they al s o convey i nform at i on about curr entpr i ci ng w h ich is n ec essa ri ly b ase d o n h ist o ri c d ata. Plaintiffs a lso a ssert thatt he D i s tr i ctC our tover l ooked the al l egedl ym i s l eadi ng s t at ementi n A etna’ s fi r s tquart er2006 For m 10- Q , w hi ch cont ai ned an a l l egedl yfal s e, pas t

- t ens e expl anat i o n forthe i n c r e a s e i n M CR. D e f e n d a n ts c o n ten d th a t p lain tiff s’ c h a r a c ter iza tio n is w r ong beca us e A etna expl i ci t l y defi ned “di s ci pl i ned” pr i ci ng as a po l i cyof “a chievi ng prem i um y i el ds t hat ar e i n l i ne w i th [it s] m edi cal cos ttr end. ” They arg u e thatthe “di s ci pl i ned” pr i ci ng st at em ents are “cl a ss i c forw ard- l oo king st at em ents ” beca use “w hetherA etna s ucce eds i n ‘ achi evi ng pr emi um y i el ds i n l i ne w ith o u r m ed ical co st tren d ’ c a n n o t be c o n firm ed u n ti l fu ture r es ul t s – i n part i cul ar , actual m edi cal cos t s i ncurr ed on pol i ci es – ar e know n. ” D efen d an ts a s s ertthatthe s t at ement s ar e not ac ti o n ab le be ca u se th eyare v ag u e p rojec ti o n s o f f u ture p rof it ab il ity . R eg ard ing the a ll eg e d lym isl ea d ing F o rm 1 0 -Q di s cl os ur e, defe ndant s ar gue that the 10- Q expl i ci t l ys t at ed theT he rel evan tl ang uag e i n the Fo rm 10 -Q i s as fol l ow s: 8
T hi s i ncr eas e i n the medi cal cos tr at i o forthe fi r s tquart erof 2006 r efl ect s a per cent age i ncr eas e i n perm emberm edi cal cos t s that outpace d the per cent age i ncr eas e i n perm ember pr emi um s , due t o hi gherm edi cal cos ttr ends for i npat i entand outpat i entfac i l i tyand phy s i ci an services off

setbya m od erat i on i n m edical cost trend fo r anci l l aryand ph arm acyservices

. A e tn a F o rm 1 0 -Q (A p r. 2 7 , 2 0 0 6 ). 21 f a c t th a t p la in tif

f s c la im w a s f

ra u d u le n tly c o n c e a le d , i

. e. , that f o rs o me i n s u r a n c e p o l i c i e s , me d i c a l c o s t s “ o u tp a c e d the per cent age i ncr eas e i n per m emberpr emi um s ” – i n otherw or ds that A et na u nd erpr i ced som e of it s poli ci es. 8 O urexami nat i on begi ns w i th a det erm i nat i on of w hi ch a s p e c t o f th e s ta te m e n ts a re f

a ls e . Se e I

n r e Ston e & W

e bst er, I nc. , 4 1 4 F .3 d a t 2 1 3 . P lain tiff s c lai m th a t d e f

e n d a n ts m i sr epresent ed A et na’s und erw ri t i ng pract i ces d uri ng the clas s p eri od byr efe r r i ng t o i t s pr i ci ng as “di s ci pl i ned. ” H ow eve r, w hetherA etna’ s pr i ci ng w as , i n fac t , di s ci pl i ned coul d nothave been determ i ned a t th e t i m e def end ants m ade the st at em ents

. T he t erm “di s ci pl i n ed ” pr i ci ng des cr i bes a pol i cyof s ett i ng pr i ces i n r el at i on t o future m ed ical cos t s . A tthe t i m e the s t at ement s w er e made, the medi cal cos t s had noty etbeen in c u rr e d a n d c o u ld n o t b e a s c e rt a in e d u n til la te r.A etna al s o rep o rt ed fi nanci al dat a abouti t s pr emi um 9 r evenue s , w hi ch pl ai nt i ffs do notal l ege t o be i nacc ur at e. A e tn a ’ s Fo r m 1 0

- Q r e p o r t e d t o t a l q u a r t e r l y r e v e n u e fr om pr emi um s as compar ed t o pr i orper i ods and a “ N ew s R el eas e” dat ed A pr i l 27, 2006, r eport ed the numberof i ns ur eds under 22 T h u s , to th e e x ten t th a t “d isc ip lin e d ” p ric in g sa id anythi ng aboutthe curr ent p ri ce o f pr emi um s , i tdi d s o i n the f o r m o f a p r o j e c t i o n . T h i s i s e v i d e n tf r o m p l a i n t i f

f s ’ o wn under s t andi ng of the t erm . A s not ed above, pl ai nt i ffs cont end thatby“enga ging i n ‘ di s ci pl i ned’ pr i ci ng, A etna i s t el l i ng i nves t or s tha t, b ase d u p o n w h at th e C o m p an ycu rren tl yest i m at es cos t s t o be forthe pol i ci es i ti s w ri ti n g , thes e pol i ci es w i l l be pr ofi t abl e. ” St at ement s aboutfutur e pr ofi tabil i tyand as s um pt i ons under l y i ng m anage m ent ’ s expec t at i on s aboutthe futur e fa l l s quar el yw i thi n the def i ni t i on of forw ar d- l o o k i ng s ta te m e n t. 1 5 U .S .C . § 7 8 u -5 (i )( 1 )( A ) a n d (D ). P lai n ti ff s fu rth er c lai m that A etna ’s A p ri l 2 7 F o rm 1 0 -Q dis cl osure w as m i sl eading becau se it fal sel y at tri bu t ed the fi rs t quarter incr eas e i n M C R t o hi gherm edi cal cos t s w i thout r evea l i ng the underpr i ci ng of pr emi um s . W h il e w e agr ee that th e sa f e h a rb o r d o e s n o t a p p lyto th is s tate m e n t b e c a u se it i s hi s t or i cal r atherthan forw ar d- l ooki ng, w e f ind the s t at ement i t s el f cont ai ns no fal s i ty . E ven acce pt i ng pl ai nt i ffs ’ al l egat i ons aboutunderpr i ci ng as true, the s t at ementas s ert s the veryfac t al l egedl yconce al ed, that the i ncr eas e i n m edi cal cos t s exce eded the i ncreas e i n pr emi um r evenue . A etna nee d notadopt pl ai nt i ffs ’ char act er i zat i o n of “unde rpr i ci ng” i n i t s fi nanci al s t at ement s t o avoi d l i abi l i tyfors ecur i t i es fr aud. 9contr actas compar ed t o pr i or per i ods

. T hes e di s cl os ur es fur ther u n d e rm in e p la in tif

f s ’ th e o ry o f f

a ls ity. See I

n r e Advanta C or

p. Secur i t i es Li t igat i on , 180 F. 3d 525, 538 ( 3d C i r . 1999) ( “Factual r eci t at i ons of pas tearni ngs , s o l ong as theyar e accur at e, do not c re a te lia b ility u n d e r S e c tio n 1 0 (b ).” ). T he w r i t t en f

o rwar d

- l ooki ng s t at ement s w er e i dent i fi ed 10 as s uch i n A etna’ s w r i t t en pre s s r el eas es and F or m 10- K s . T he o ra l f o rw a rd -lo o k in g sta tem e n ts w e re id e n tifie d a s s u c h in c o n tem p o ra n e o u s o ra l sta tem e n ts th a t re f e rre d listen e rs to w ri t t en cau t i on aryl ang uag e i n A et na’s Form 10 -K s. Pl ai nt i ffs , how ever , ar gue thattw o stat ement s w er e not i dent i fi ed as forw ar d- l ooki ng and ar e thus i nel i gi bl e for pr ot ec ti on underthe s afe harbor

. Pl ai nt i ffs conce de thatthe s t at ement s w er e ac compani ed bycaut i onaryl anguage butar gue th a t “n o th in g in th e re c o rd ” sh o w s e x a c tlyh o w th e sta tem e n ts w er e i dent i fi ed as forw ar d- l ooki ng. B eca us e pl ai nt i ffs di d not p re se n t th is a rg u m e n t to th e D istric t C o u rt, th e re c o rd o n th is i s s ue w as notpr oper l yd ev eloped f orappel l at e r evi ew . T he all eg ed insu ff

ici en cy o f st atem en ts n o t co n tai n ed in th e re co rd pr ovi des no bas i s forr emand. 23 Forthes e r eas ons , w e hol d thatthe al l egedl ym i s l eadi ng a ss e rtio n s re g a rd in g A e tn a ’ s “ d isc ip lin e d ” p ric in g p o licyf a ll w i thin t he s afe harbor ’ s defi ni t i on of forw ar d- l ooki ng sta tem e n t. 1024 b . M ea n ing fu l C a u ti o n a ry S tate m en ts T h e sa f e h a rb or provi des that forw ard -lo o k in g sta tem e n ts m u st b e “ a c c o m p a n ied b ym e a n in g f u l ca u tio n a rysta tem e n ts id e n tify in g im p o rta n t f

a c to rs th a t co u ld c a u se a c tu a l re su lts to d if f e r m a te ri a lly f

ro m th o s e in th e f

o rw a rd -l o o k in g s ta te m e n t.” 1 5 U .S .C . § 7 8 u -5 (c )(1 )(A )(i). T h is as p e c t o f th e sa f e h a rb o r is anal ogous t o the “be s peaks caut i on” doct r i ne, w hi ch hol ds that “ca ut i onaryl anguage , i f s uf f i c i e n t , r e n d e r s th e a l l e g e do m i s s i ons orm i s r epr es ent at i ons i m m at er i al as a mat t erof l aw . ” EP Meds ys t em s , I nc. v. E chocath, I

nc. , 2 3 5 F

. 3 d 8 6 5 , 8 7 3 (3d C ir

. 2000)

. C aut i onaryl anguage m us tbe ext ens i ve, s peci fi c, and d ir e c tly r e la te d to th e a lle g e d m is re p re s e n ta tio n . G SCP artners C D O Fund v. W

as hi ngt on , 3 6 8 F

. 3 d 2 2 8 , 2 4 3 n . 3 (3d C ir

. 2 0 0 4 ). C au ti onarys t at ement s di s cl os ed i n SE C fi l i ngs m aybe i n c o rp o r a t e d b yr e f

e r e nc e ; th e y“ d o n o th a v e t o b e i n th e s a me documen t as the forw ar d- l ooki ng s t at ement s . ” I n r e Mer ck & C o. Sec. Li t ig. , 4 3 2 F

. 3 d 2 6 1 , 2 7 3 n . 1 1 (3d C ir

. 2 0 0 5 ). Pl ai nt i ffs ar gue that the caut i onary l anguage , w h i ch A etna pr ovi ded i n fi nanci al r eport s fi l ed w i th the SE C , w as i ns uffi ci entbeca us e i t fai l ed t o di s cl os e the al l eged pr act i ce of u n d e rp ric in g p re m iu m s, a n d o n lya d d re ss e d risk s re late d to m edi cal cos tpr ojecti o ns . T he ca ut i onarys t at ement s i ncl uded the fol l ow i ng l anguage : O u r ab il ityto f

o rec ast an d m an ag e h ea lth ca re costs and i m pl ementi ncr eas es i n pr emi um r at es aff ect s ourpr ofi t abi l i ty . Ourp r o fi t abi l i tydepends in large p art on ac cu rately fo rec asti n g h ea lth ca re cos t s and on ourabi l i tyt o appr opr i at el ym anage25 futur e hea l th car e cos t s thr ough underw r i t i ng c ri te ri a . . .. * * * O u r abi l i tyt o for eca s theal th car e and other benef i tcos t s , det ectchange s i n thes e cos t s , and achi eve a ppr op r i a t e p r i ci ng aff ect s our pr ofi t abi l i ty . W e cont inu e to be vi gi l anti n our pr i ci ng and have i ncr eas ed our pr emi um s fornew a n d r e n e wal b u s i n e s s i n 2 0 0 6

. Pr e mi u ms i n the healt h bus i nes s ar e gene r al l yfi xed forone- y ear p e rio d s. A c c o rd in g ly , fu tu r e c o st in c re a se s in e x c e ss o f

m e d ic a l c o st p rojec tio n s re f lec ted in pr i ci ng cannotbe r ecove r ed i n the contr acty ear thr ough hi gherprem i um s . A s a r es ul t , the C om pany ’ s r es ul t s ar e part i cul ar l y s ens i t i ve t o the p ri ce i ncr eas es i tpr oj ect s i n advanc e of r enew al of the bus i nes s . T her e can be no assura nce r egar di n g th e a c c ur acyof m edi cal cos tpr oj ect i ons as su m ed forpr i ci ng purpos es , and i f the r at e of i ncr eas e i n m edi cal cos t s i n 2006 w er e t o exce ed the l evel s pr oj ecte d forpr i ci ng purpos es , our re s u lts w o u ld b e m a te ri a lly a d v e rs e ly af f e c te d

. T hi s l a n g u a g e p r o v i d e s cl earw arni ng t o i nves t or s thatthe acc ur acyof m edi cal cos t s cannotbe as su red, actual m edi cal cos t s m ayex ce ed proj ect i ons as s um ed forpurpos es of s ett i ng pr emi um s , m edi cal cos t s i n exce s s of pr oj ecti o n s cannotbe recovered thr ou gh hi gh e rpr e mi ums , and i naccu rat e m edical cost p r o j e c t i o n s c a n h a v e a m a t e r i a l l y n e g a t i v e e f f e c to n p ro f

it a b i l i ty. W e f in d t h is la n g u a g e a d e q u a te u n d e r 1 5 U .S .C . §26 7 8 u -5 (c )( 1 )( A )( i) b e c a u s e it p ro v id e d m e a n in g f u l, e x te n s iv e , and sp ec ifi c c au ti o n d ir ec tl yrelated to the stat em en ts c oncerni ng “di s ci pl i ned” pr i ci ng.

c. M a ter iali ty T h e sa f e h a rb o r a p p lies to f

o rw a rd -lo o k in g sta tem e n ts th a t a re n o t m a te ri a l. 1 5 U .S .C . § 7 8 u -5 (c )( 1 )( A )( ii) . A s t at ementorom i s s i on “i s m at er i al i f ther e i s a s ubs t ant i al li k e lih o o d th a t a r e a so n a b le s h a re h o ld e r w o u ld c o n sid e r it i m por t anti n deci di ng how t o [ac t ]

. ” TSCI ndus tr i es , I

nc. v. Nor th way, I

nc. , 4 2 6 U .S . 4 3 8 , 4 4 9 (1 9 7 6 ). See B as i c I nc. v. Levi ns on , 485 U

. S. 224, 232 ( 1988) ( “expr es s l y adopt [i ng] the T SCIndustri es sta n d a rd o f m a ter iality f o r th e § 1 0 (b ) a n d R u le 1 0 b -5 c o n tex t”) . A m a te r ia l m isre p re se n tatio n o r o m iss io n is act i onabl e i f it “s i gni fi cant l yal t er ed the ‘ t ot al m i x’ of i nform at i on m ade a vai l abl e. ’ ” B a sic , at231- 32 ( quot i ng TSC I ndus tr i es , 4 2 6 U

. S

. at 44 9 ).

“ M a ter ial re p re se n tatio n s m u st b e c o n tra ste d w ith s t at ement s of s ubj ect ive anal y s i s orextr apol at i ons , s uch as opi ni ons , m ot i ves and i nt ent ion s, orgener al s t at ement s of op t i m i sm . . . . ” EP Meds ys t em s , I nc. , 2 3 5 F. 3d at872. Such stat em en ts “‘co n sti tute n o m o re tha n ‘pu ff ery ’ a n d are under s t ood byr eas onabl e i nv estor s as s uch. ’ ” In re A dv a n ta C or p. Sec. Li t ig. , 180 F. 3d at 538 ( quot i ng I n r e Burl i ngt on C oat Fa ctory Se c. Li t ig. , 1 1 4 F

. 3 d 1 4 1 0 , 1 4 2 8 n . 1 4 (3d C ir

. 1 9 9 7 )). A r epresen tat i on i s i m m at er i al i f the “s t at ementati s s ue i s t oo vague t o be ac t i onabl e. ” I n r e Burl i ngt on C oatFactor y Sec

. Li t ig. , 114 F. 3d at 1428 ( s t at ement“thatthe company‘ bel i eved [i tcoul d] cont i nu e to g r ow netearni ngs ata fa s t err at e than27 sa le s ’ ” w a s to o v a g u e ). “[ A ]lth o u g h q u e stio n s o f m a ter iality have tr ad it ion all yb ee n v iew ed as p arti cu larl yap p rop ri at e forthe trier o f f a c t, co m p lain ts a lleg in g se c u rities f ra u d o f ten c o n tain cl ai m s of om i ssi on s or m i sst at em ents that ar e ob viousl yso uni m por t ant that court s can rul e them i m m at er i al as a mat t erof l aw atthe pl eadi ng s t age. ” Id

. at1426. I n In re A dva n ta C o rp . Sec u rit ies Li t i gat i on , s har eho lders al l eged a theory of fr aud s i m i l ar t o the one al l ege d h ere r egar di ng A etna’ s “di s ci p li ned” pr i ci ng pol i cy . T her e, s h a r e h o l d e r s c l a i m e d t h a tA d v a n t a , a c r e d i tc a r d c o m p a n y, publ ic l yt out ed i t s s tr ong fi nanci al heal th and “r i s k- adj us t ed p ric in g stra te g y,” w h ich tar g e ted c u sto m e rs w ith g o o d c re d it. 1 8 0 F .3 d 5 2 5 , 5 3 7 . In its a n n u a l r e p o rt, A d v a n ta s tate d , “W h ile w e a d d e d su b sta n ti a ll y to o u r a c c o u n t b a se , o u r c re d it q u a lity r emai ned exc el l ent

. O uremphasi s on gol d car ds – and t ar get i ng o f b e tte r q u a lityc u sto m e rs – h e lp s u s m a in tain a n e n v iab le cr edi tqual i typr ofi l e. ” I d. S h are h o lders a ll eg ed that, c o n tr ary to th o se re p re se n tatio n s, A d v a n ta h a d se c re tly re la x e d its “underw r i t i ng and moni t or i ng pr ocedur es ” byoffe r i ng in tro d u c to ry“ tea se r” ra tes to n e w c u sto m e r s w ith p o o r c re d it. I d. A dvant a’ s pos i t i ve p o rtr ay al s ul t i m at el ypr oved w r ong w hen th e n e w c u sto m e rs d e f

a u lted , ca u sin g a $ 2 0 m ill io n q u a rte rly lo s s . I d. a t 5 2 8 . W e h e ld th a t A d v a n ta’ s p o sitiv e p o rtra y a ls w ere vagu e, and “even i f ar gu ably m i sl eading, do no tgive r i se to a f e d e ra l se c u ri tie s c la im b e c a u s e th e y a re n o t m a te ri a l . . ..” I d. at 53 8

. W e e x p resse d d o u b t tha t “reaso n ab le i n v esto rs w oul d m ake i nves t m entd ec is i ons bas ed on the pos i t i ve por tr ay al s . ” I

d. at539.28 H ere, t he D i s tr i ctC our tappl i ed A dv a n ta and found defe ndant s ’ s t at ement s about“di s ci pl i ned” pr i ci ng “t o be i m m at er i al and n o t a ct i onabl e bec aus e theyar e puff ery , vague a n d n o n - s p e c i f

i c e x p r e s s i o n s o f

c o rp o r a t e o p t i mi s m on w hi ch re a so n a b le in v e sto rs w o u ld n o t h a v e re lied .” O n a p p e a l, p lai n tif f s c o n tend that the “ d isci p li n ed ” p ri cing stat em en ts are notvague be caus e they relat ed s peci fi c i nform at i on about Ae tn a ’ s c u r r e n tp r i c i n g p o l i c ya n d f a l s e l yi mp l i e d th a tM CR w ou l d rem ai n st able. P l ai nti ffs argue t hat defend ants ’ sta tem e n ts a b o u t “d isc ip lin e d ” p ric in g “ a re f a r m o re c o n c r e te than the vague and gene r al adj ect i ves i n A dv a n ta
. ” W e di s agr ee. T he s t at ement s i dent i fi ed bypl ai nt i ffs cont ai n obl i que r efe r ence s t o A etna’ s pr i ci ng pol i cy ; s uch r efe r ence s ar e t oo v ag u e t o as cert ai n anythi ng on w hi ch a re a so n a b le in v e sto r m ig h t re ly . F o r e x a m p le, p lain tiff s c laim W i l l i ams “mi s l ed i nves t or s r egar di ng A etna’ s underpr i ci ng and i t s eff ecton hi gherfi r s tquart erM C R ” by s t at i ng the fol l ow i ng on a M ay1, 20 06 con ference call w i th an al y st s: T h is is s o lid a n d b a lan c e d g ro w th th a t is r epr es ent at i ve of ourdedi cat i on t o di sci pl i ned pr ici n g . . . I w i l l end mycomm ent s by re a f f irm in g to y o u m yp e rso n a l co m m itm e n t to c o n tin u e to m a in tain d is c ip lin e a n d rig o r in everythi ng w e do atA etna. H ow ever , i m m edi at el ybef or e thos e r emar ks , W i l l i ams m ade otherr el evants t at ement s aboutM C R and pr i ci ng w hi ch p lain tiff s o m it fro m th e c o m p lain t:29 T he cus t om er m arket s , both geogr aphi cal and by c u sto m e r typ e , a re v e ry d yn a m ic a n d v a ryg re a tly i n t erm s of cost , pr emi um l evel s , compet i t or s and compl exi ty . W e t al k i n t erm s of aggr egat ed c o n so lid a ted re su lts, b u t th e re a re a lw a y s m a rk e ts ors peci fi c c u s t om er s thatar e func t i oni ng bett eror w or s e than other s orver s us expec t at i on.

* * * [O ] ur. . . book of bus i nes s i s cons t ant l yevol vi ng and changi ng. A s new bus i nes s i s w r i tt en, cas es g e t r e n e w e d a n d o th e r c a s e s la p s e . ( A 303. ) T hes e r emar ks , w hi l e br oad and va gue, ata mi ni m um c o n veythe co m plexi tyof A et na’s busi ness, diver si tyof its cus t om er s , and var i abl e natur e of i t s por t fol i o of i ns ur ance contr act s . T heydes cr i be the di ffi cul ty of ac cur at el ypr edi ct i ng M C R and the h et erogen eou s nature of A e tn a’s produ ct s, s ervi ces , cus t om er s , and pr i ci ng. W hen read i n cont ext , no r eas onabl e i nves t orcould i nferthat“dedi cat i on t o di s ci pl i ned pr i ci n g , ” a v a g u e a n d s u b j e c t i v e s t a t e me n t , me a n tAetn a h ad a p p lied (o r f

a iled to a p p ly ) a sta tic, a c ro ss -th e -b o a rd f o rm u la to det erm i ne the pr i ce of

pr emi um s char ged foral l p rod u ct s and se rv ice s. G e n e ra l sta tem e n ts a b o u t th e c o m p a n y ’s d e d ica tio n to “d isci p li n ed ” p ri cing an d co m m itm en t t o “d isci p li n e an d ri g o r” coul d not have m eani ngful l y al t er ed t he t ot al m i x of i nform at i on avai l abl e t o the i nves t i ng publi c. W e ther efor e fi nd the s t a t e me n t s i mm a t e r i a l a s a ma t t e ro f l a w.See footnot e 7 supra . 11 W e h a v e p re v io u slye x p lain e d th a t: 12 A s a g e n e ra l m a tter, a d istric t c o u rt ru lin g o n a m o tio n to di s m iss m aynotcons i derm att er s extr aneous t o the p lea d in g s. H o w e v e r, a n e x c e p tio n to th e g e n e ra l ru le is that a documenti nt egr al t o orexpl i ci t l yr el i ed upon i n the compl ai ntm aybe cons i der ed w i thoutconv erti ng the m o tio n to d ism iss in to o n e f o r su m m a ryju d g m e n t. T he r ati o n al e under l y i ng thi s exce pt i on i s thatthe pr i m arypr obl em ra i s ed byl ooki ng t o document s out s i de th e c o m p lain t -- la c k o f n o tice to th e p lain tiff -- is di s s i pat ed w her e pl ai nt i ff ha s actual not i ce a nd has r el i ed 30 W e not e thatt he s t at e of the r ecor d r en d ers ourt as k of eval uat i ng m at er i al i tya di ffi cul tone. Pl ai nt i ffs di r ectour att ent i on t o ni ne al l ege d lym i s l eadi ng s t at ement s m ade on anal y s tconfe r ence ca ll s. Q uot at i ons fr om thos e conf er ence 11 cal l s appea r on the fa ce of the compl ai ntand form the bas i s of p lain tiff s’ c laim s. H o w e v e r, p lain tiff s d id n o t su b m it tra n sc rip ts of thos e confe r ence cal l s t o the D i s tr i ctC our t , and the exc erpt ed tr ans cr i pt s s ubm i t t ed bydefe ndant s o m it s even of the ni ne sta tem e n ts w e a re c a lled u p o n to re v iew

. T h e re c o r d o n ly cont ai ns tr ans cr i pt s of R ow e’ s s t at ement on O ct ober27, 2005, and W il li ams’ s t at ementon M ay1, 2006. T hi s om i s s i on pr ecl udes o urful l cons i der at i on of the cont exti n w hi ch the s t at ement s w er e made, an obvi ous i m pedi m ent t o oureval uat i on o f m a t e r i a l i ty. 12upon thes e document s i n fr ami ng the compl ai nt

. W hat the rul e s eeks to p reve nti s the s i tuat i on i n w hi ch a pl ai nt i ff i s abl e t o m ai nt ai n a cl ai m of fr aud byextr act i ng a n iso late d sta tem e n t f

ro m a d o c u m e n t a n d p lac in g it i n the c o m p lai n t, ev en tho u g h if th e statem en t w ere exami ned i n the ful l cont ext of the document , i tw oul d be c lea r th a t th e sta tem e n t w a s n o t f ra u d u len t. I n r e B ur l i ngt on C oat Factor y Sec. L it ig. , 114 F. 3d at1426 (cit ati o n s, q u o tat ion m ark s an d alt era ti o n s o m itted). 31 d. A ct ual K now l edge T he s afe h arborappl i es t o s t at ement s m ade w i thout actual know l edge thatthe s t at ementw as fal s e orm i s l eadi ng. 15 U

. S. C

. § 78u- 5( c) ( 1) ( B )

. T he D i s tr i ctC our tcons i der ed the al l egat i ons conce r ni ng defe ndant s ’ s t at e of m i nd and found the compl ai ntfai l ed t o pl ead actual know l edge of the purpor t ed underpr i ci ng. B eca us e w e fi nd defen d an t s ’ s t at ement s t oo vague t o cont ai n an ac t i onabl e fa l s i ty , w e need n o tcons i der defe ndant s ’ s t at e of mi nd. C. Securi t i es E x change A ct of 1934 Sect i on 20( a) T he S ecur i t i es E xchange A ctof 1934 Sect i on 20( a) i m pos es l i abi l i tyon contr ol l i ng per s ons w ho ai d and abe t v iolati o n s o f th e A c t. 1 5 U

. S

. C

. § 7 8 t. B ec au se w e f ind there w as n o v iolati o n u n d er Se cti o n 1 0 (b), an d n o o ther v iolati o n s are al l eged, ther e i s no contr ol l i ng per s on l i abi l i ty under Sect i on 20. I n r e Mer ck & C o. Sec. Li t ig. , 432 F. 3d at 276. T h e D i s tr i ct32 C o u rt, u p o n f

in d in g n o li a b il ityu n d e r S e c tio n 1 0 (b ), p ro p e rly d ism issed the d eriva ti v e c lai m s u n d er S ec ti o n 2 0 (a). I I I . C oncl usi on W e hol d thatthe PSL R A s afe harborforforw ar d- l ooki ng s t at ement s i m m uni zes defe ndant s fr om li abi l i tyfors ecur i t i es fr aud. T he al l egedl ym i s l eadi ng s tat ement s w er e forw ar dloo k ing , id e n tif

ie d a s s u c h , a c c o m p a n ie d b ya d e q u a te c a u tio n ary stat em en ts, an d im m aterial as a m att er of law

. W e w il l th ere fo re a f f irm th e ju d g m e n t o f

th e D istric t C o u rt.