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. e du/thir dc ir c uit_1996/106UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

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No. 95-3156

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In Re: WESTINGHOUSE SECURITIES LITIGATI ON

MARGARET ALESSI, GLORIA BERTINATO, MICHAEL C. CHRISTNER, ANNA MARIE EROSHEVICH, TOBY FEU ER, KANWAL K. GUPTA, M.D., MATTHEW HARLIB, STA NLEY HERSHFANG, ARNOLD M. JACOB, LOUISE JACOB, D AVID JAROSLAWICZ, DAVID KIRSCHNER, NATHAN KLEINHANDLER, GERRY KRIM, PETER LAGORIO, NE LSON LOVINS, DONALD McLENNAN, JACOB JOSEPH MILLER , DR. ALEXANDER MILLER, THOMAS MITCHELL, EDWAR D MURABITO, MICHAEL E. NOGAY, JOSEPH RASCHA K, RICHARD SCHWARTZCHILD, DR. MICHAEL SLAVIN, DR. MICHAEL SOLOMON, SELMA SOLOMON, SPRING CR EEK CARDIOMEDICAL CENTER, RUTH STEPAK, JIM THOM PSON, PATRICIA J. VANARTSDALEN, ALBERT ZUCKER ,

Appellants

____________________

ON APPEAL FROM THE UNITED STATES DISTRICT C OURT

FOR THE WESTERN DISTRICT OF PENNSYLVANI A (D.C. Civil No. 91-00354)

____________________

Argued: November 2, 1995 Before: NYGAARD, ALITO, and SAROKIN, Circuit Judges

(Opinion Filed: July 18, l996)

____________________

ARTHUR N. ABBEY (Ar gued)

JOSHUA N. RUBIN

ABBEY & ELLIS
212 East 39th Stree t New York, NY 1001 6

JULES BRODY

MELISSA R. EMERT STULL, STULL & BROD Y
6 East 45th Street New York, NY 10017HOWARD A. SPECTER

DAVID J. MANOGUE

SPECTER LAW OFFICES , P.C. The Koppers Buildin g, 26th Floor Pittsburgh, PA 1521 9

JEFFREY W. GOLAN

GERALD J. RODOS BARRACK, RODOS & BA CINE
2001 Market Street
3300 Two Commerce S quare Philadelphia, PA 1 9103

RICHARD A. FINBERG BERGER, KAPETAN, ME YERS, ROSEN,

LOUIK & RAIZMAN 200 Frick Building Pittsburgh, PA 152 19

DONALD P. ALEXANDER

GREENFIELD & RIFKIN
344 West Lancaster Avenue
P. O. Box 259 Haverford, PA 19041

Attorneys for Appellants

ROBERT E. ZIMET (A rgued)

JOSEPH GUGLIELMELLI

MAURA B. GRINALDS SKADDEN, ARPS, SLAT E, MEAGHER &

FLOM
919 Third Avenue New York, NY 10022

J. TOMLINSON FORT

REED SMITH SHAW & M cCLAY James H. Reed Bldg.
435 Sixth Avenue Pittsburgh, PA 153 19

Attorneys for Appellees, Shearson Lehman Brothers I nc., Goldman, Sachs & Co., Lazard Freres & Co. Lehman Brothers In ternational, Ltd., Goldman Sachs International, Ltd. and Lazard Brothers & Co., Ltd.

DENNIS J. BLOCK (A rgued)

STEPHEN A. RADIN

ROBERT F. CARANGELO , JR. MARY LOU PETERS, WEIL, GOTSHAL & MAN GES
767 Fifth AvenueNew York, NY 1015 3

JOSEPH A. KATARINCI C

KATARINCIC & SALMON
2600 CNG Tower 625 Liberty Avenue Pittsburgh, PA 1522 2

Of Counsel:

WILLIAM F. STOLL, JR.

HENRY W. EWALT

ROBERT L. KAUFMAN

VANESSA J. BROWN Westinghouse Electric Corporation Law Department Six Gateway Center Pittsburgh, PA 15222

Attorneys for Appellees, Robert E. Faust, Warren H. Hollinshead, Paul E. Lego, William A. Powe, Robert F. Pugliese , Theodore Stern, Westinghouse Electric Corporation, Westingho use Financial Services, Inc. and Westinghouse Credit Corpo ration

ELDON OLSON
General Counsel

RODMAN W. BENEDICT
Associate General C ounsel
Price Waterhouse LL P
1285 Avenue of the Americas New York, New York 10019

FRANK CICERO, JR.

ROBERT J. KOPECKY (Argued)

JEFFREY L. WILLIAN

KIRKLAND & ELLIS 200 East Randolph D rive Chicago, IL 60601

Of Counsel:

ARTHUR J. SCHWAB

JAMES D. MORTON

BUCHANAN INGERSOLL
600 Grant Street Pittsburgh, PA 15219 (Of Counsel)

Attorneys for Appellee, Price Waterhouse LLP

ALITO, Circuit Judge:This is an appeal from three orders dismis sing all of

the plaintiffs' claims in a consolidated class acti on securities fraud complaint. The orders were based on Federal Rules of Civil Procedure 8, 9(b), and 12(b)(6). We affirm in part , reverse in part, and remand for further proceedings.

I. A. Plaintiffs in this case are all purcha sers of publicly traded Westinghouse Electric Corporation ("Westinghouse") securities. Plaintiffs purchased Westinghouse common stock between March 28, 1989, and October 22 , 1991 ("the class period"). Defendants include Westinghouse, Westingho use Financial Services, Inc. ("WFSI") (a wholly owned subsidiary of Westinghouse), Westinghouse Credit Corporation ("WC C") (which is owned by WFSI), and certain directors and senior of ficers of these companies (the "individual defendants"). (We will refer to the above defendants collectively as the "Westingho use defendants.") The other defendants are Price Water house (the independent accountant for the Westinghouse compani es), and a proposed defendant class of underwriters (the "unde rwriter defendants") involved in a May 1991 public offering of Westinghouse common stock. B. The relevant allegations of plaintiffs ' complaint, which were set forth in detail by the district cour t, see In re Westinghouse Securities Litigation, 832 F. Supp. 94 8 (W.D. Pa. 1993), may be summarized as follows. During the 19 80's, WCC grew rapidly by committing substantial funds to the fina ncing of real estate developments and highly leveraged transactio ns. In the late 1980's, however, WCC experienced an increase i n defaults in its real estate loans and in delinquencies in other transactions. As a result, WCC suffered billions of dollars of lo sses, and the Westinghouse defendants feared a drop in WCC's comm ercial paper ratings. To protect those ratings, they concealed the losses, which allegedly totalled between $2.6 and $5.3 bill ion, through improper accounting and reporting techniques. Prior to February 1991, Westinghouse manag ement decided
that WCC needed a cash infusion if it was to mainta in its commercial paper ratings. Westinghouse developed a major restructuring plan, which it announced on February 27, 1991. Under that plan, Westinghouse decided to "downsize" WCC by selling or restructuring nearly one-third of its as sets that had previously been held on a long-term basis. Westing house knew that selling and restructuring so many non-performi ng or underperforming assets in the market that existed a t the time would result in significant losses. Westinghouse t hus took a $975 million pre-tax charge against fourth quarter 1990 earnings to be applied to loan loss reserves and to cover es timated losses. The press release and other documents issu ed by Westinghouse in connection with these actions state d that they decisively addressed WFSI's and WCC's problems. Pl aintiffs allege that these statements were materially false when made in that defendants knew (or recklessly disregarded fac tsdemonstrating) that reserves remained inadequate as of that time.

Plaintiffs point to a statement by James Focareta, WCC's president from early 1990 to early 1991, in which h e acknowledged that the $975 million writeoff was known to be insu fficient. Focareta said: "The number that was used ($975 mill ion) was a number developed for something else . . . . Every Westinghouse credit manager knew that was not sufficient . . . . The Keystone Kops were involved, clearly." App. 1134. Plaintiffs assert that Westinghouse furthe r compounded the harm to investors by raising $500 million throu gh a May 1991 stock offering. Westinghouse offered 19 million sh ares of its common stock for sale to the investing public at $2 6.50 per share on May 9, 1991. Plaintiffs allege that the Prospec tus and Registration Statement filed with the Securities an d Exchange Commission ("SEC") in May 1991, as well as other do cuments (including the Annual Report) that were incorporate d by reference therein, contained material misrepresentations and omissions. In October 1991, Westinghouse determined a nd announced that the restructuring plan had to be accelerated. Additional assets of $3.1 billion were designated as being hel d for sale or restructuring. Westinghouse took a $1.68 billion p re-tax charge in anticipation of further losses it expected to su ffer. Plaintiffs allege that defendants knew as early as October 1990 that a charge of this magnitude was inevitable and that defendants' statements to the contrary over the cou rse of that year and contemporaneous with the October 1991 anno uncement were materially false. Plaintiffs claim that they paid artificially inflated prices of from $21.75 to $39.375 per share in contrast to Westinghouse's closing price of $15.875 after th e announcement of the October 1991 charge. C. The first of the class action complain ts consolidated herein was filed in February 1991, jus t after Westinghouse announced the restructuring plan. In May 1991, the magistrate judge granted plaintiffs limited discove ry to prepare a consolidated complaint. In March 1992, the magis trate judge ordered that Westinghouse make available to plainti ffs documents
related to over 500 active investment files. Plain tiffs filed the Consolidated Amended Class Action Complaint ("t he first amended complaint") in June 1992. The first amended complaint alleged violat ions of the following provisions: sections 10(b) and 20 of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C.  78j(b), 78t, and Rule 10b-5, 17 C.F.R.  240.10b-5, against all defendants (count I); sections 11 and 15 of the Securities Act of 1933 ("Securities Act"), 15 U.S.C.  77k, 77o, against all defendants (count II); section 12(2) of the Securities Act, 15 U.S.C.  77l(2), against all defendants except Price Waterho use (count III); separate violations of sections 11 and 15 aga inst all defendants except for the underwriter defendants (c ount IV); separate violations of section 12(2) against the We stinghouse defendants (count V); and negligent misrepresentati on against all defendants (count VI). In August 1992, defendants moved to dismis s all counts of the first amended complaint under Federal Rules of CivilProcedure 9(b) and 12(b)(6). In an opinion and ord er entered on

July 29, 1993, the district court granted defendant s' motion. See In re Westinghouse Securities Litigation, 832 F . Supp. 948 (W.D. Pa. 1993) (Westinghouse I). Count I and a sm all piece of count VI were dismissed without prejudice to replea ding, while
counts II-V and most of count VI were dismissed wit h prejudice.
Plaintiffs filed the Second Consolidated Amended Class Action Complaint ("the second amended complaint") i n September 1993. Plaintiffs repled all of their claims, inclu ding those that had been dismissed with prejudice (stating tha t such claims were being repled verbatim solely to preserve their appellate rights). In December 1993, defendants moved to dis miss the second amended complaint under Federal Rules of Civ il Procedure 8, 9(b), and 12(b)(6). In March 1994, plaintiffs c ross-moved to supplement the second amended complaint. In January 1995, the district court grante d defendants' motion to dismiss the second amended complaint. Se e In re Westinghouse Securities Litigation, Civ. No. 91-354 , Opinion and Order entered January 23, 1995, App. 310-46 (Westin ghouse II). Counts II-VI were dismissed without discussion, sin ce they had already been dismissed with prejudice in Westinghou se I. Many of the claims in count I were dismissed with prejudice , and the
remainder of the claims in count I were dismissed w ithout prejudice to repleading in accordance with Rule 8. The district court also denied as moot plaintiffs' motion to sup plement the second amended complaint.
Plaintiffs filed a "Notice of Intention to Stand on Second Consolidated Amended Class Action Complaint, " in which they informed the district court that they would no t be amending the complaint; rather, plaintiffs stated that they were going to "stand" on the complaint and seek immediate appella te review. App. 347. The district court then dismissed plaint iffs' remaining claims from count I with prejudice and cl osed the case. See App. 350-51 (Memorandum Order entered March 1, 1995). This appeal followed. On appeal, plaintiffs argue that the distr ict court improperly dismissed various of their section 10(b) claims under Rule 8; misapplied the "bespeaks caution" doctrine; improperly found that plaintiffs failed to plead fraud with pa rticularity; mistakenly found that plaintiffs failed to plead ma teriality; and erroneously dismissed the section 12(2) claims. Pl aintiffs also argue that the district court should have granted t heir motion to supplement the second amended complaint. Finally, plaintiffs argue that this case should be assigned to a new di strict judge.

II. A. We turn first to plaintiffs' challenge to the district court's Rule 8 dismissal. Rule 8(a) provi des that any pleading that includes a claim for relief shall con tain "a short and plain statement of the claim showing that the p leader is entitled to relief." Fed. R. Civ. P. 8(a)(2). Rul e 8(e) further provides that "[e]ach averment of a pleading shall be simple, concise, and direct." Fed. R. Civ. P. 8(e)(1). "T aken together, Rules 8(a) and 8(e)(1) underscore the emphasis plac ed on clarityand brevity by the federal pleading rules." 5 Wrig ht & Miller,

Federal Practice and Procedure  1217 at 169 (2d ed. 1990).
We review the district court's decision to dismiss
claims under Rule 8 for an abuse of discretion. E. g., Kuehl v. F.D.I.C., 8 F.3d 905, 908 (1st Cir. 1993), cert. de nied, 114 S. Ct. 1545 (1994); 5 Wright & Miller,  1217 at 175. "It is well settled that the question on review `is not whether we would have imposed a more lenient penalty had we been sitting in the trial judge's place, but whether the trial judge abused h is discretion in imposing the penalty he did.'" Kuehl v. F.D.I.C ., 8 F.3d at 908-09 (citation omitted). The district court's January 1995 opinion and order provided that "with respect to those aspects of Cou nt One that survive the instant Opinion and Order, plaintiffs a re granted 30 days from this date within which to replead in conf ormity with the requirements of Rule 8." Westinghouse II, Op. at 21, App. 330; Order at 35, App. 344. The district court add ed that "[f]ailure to comply with this Order will result in the dismissal of plaintiffs' claims with prejudice." Id. On February 21, 1995, plaintiffs filed a " Notice of
Intention to Stand on Second Consolidated Amended C lass Action Complaint." Plaintiffs stated as follows: Plaintiffs have carefully weighed the merits of repleading against seeking immediate appellate review. They respectfully give notice of their intentio n to stand on the Complaint. See, Shapiro v

. UJB Financial Corp., 964 F.2d 272 (3d Cir. 1992). App. 348. The district court then dismissed with p rejudice all of plaintiffs' remaining claims, stating as follows : On January 20, 1995, this Court dismissed plaintiffs' Second Amended Class Action Complaint. As that Opinion and Ord er explained, with respect to those aspects o f Count One of plaintiffs' Second Amended Complaint that survived the January 20, 19 95 Opinion and Order, plaintiffs were granted 30 days from that date within which to replea d in conformity with the requirements of Rul e 8
of the Federal Rules of Civil Procedure. The Opinion and Order specifically stated that failure to replead within 30 days would result in the dismissal of plaintiffs' cla ims with prejudice.

Instead of filing an amended complain t, plaintiffs filed a Notice of Intention to
Stand on Second Consolidated Amended Class Action Complaint, indicating that they had "carefully weighed the merits of repleadin g against seeking immediate appellate review ."

Accordingly, . . . it is hereby ORDER EDthat all remaining claims in plaintiffs'

Second Amended Class Action Complaint are dismissed with prejudice. App. 350-51 (Memorandum Order entered 3/1/95). B. Plaintiffs argue first that the Rule 8 dismissal without prejudice in Westinghouse II should be reve rsed because the district court imposed inconsistent pleading st andards on them. Plaintiffs contend that the Westinghouse I o pinion required them to draft the second amended complaint with tremendous specificity. They argue that the distri ct court in effect required that they violate Rule 8 (if they v iolated Rule 8 at all) in order to comply with Rule 9(b). See Plf s' Br. at 44- 46. We disagree. It is well settled that "the particularity demands of pleading fraud under Rule 9(b) in no way negate the commands of Rule 8." Vicom, Inc. v. Harbridge Merchant Service s, Inc., 20 F.3d 771, 776 (7th Cir. 1994) (citations omitted); see generally5 Wright & Miller,  1281 at 520-21 (pleading fraud with particularity under Rule 9(b) should be done consis tently with the general philosophy of Rule 8); 2A Moore's Feder al Practice  8.13, at 8-58 (2d ed. 1995) (the requirements of Ru le 8 apply "even where the Rules command particularity, as in the pleading of fraud under Rule 9(b)") (footnote omitted). Having reviewed plaintiffs' second amended complaint, we cannot say that the district court abused its di scretion in dismissing the viable portion of count I, without p rejudice to repleading, pursuant to Rule 8. The second amended complaint is unnecessarily complicated and verbose. The text of the complaint rambles for more than 600 paragraphs and 240 pages, including a 50-plus page "overview" of the alleged wrongful con duct. The district court, through the two rounds of difficult motions, had narrowed plaintiffs' claims. The court then ordere d plaintiffs to submit a third amended complaint containing only those allegations relevant to what were, in the court's v iew, the remaining viable claims. This does not seem to us to constitute an abuse of discretion; indeed, it makes a tremendo us amount of sense. See generally In re Glenfed, Inc. Securitie s Litigation, 42 F.3d 1541, 1544 (9th Cir. 1994) (en banc) ("We s ee nothing to prevent the district court, on remand, from requiri ng, as a matter of prudent case management, that plaintiffs streamline and reorganize the complaint before allowing it to serv e as the document controlling discovery, or, indeed, before requiring defendants to file an answer.").
C. We further hold that the district cour t did not abuse its discretion when it dismissed with prejudi ce the otherwise viable claims from count I following plai ntiffs' decision not to replead those claims in accordance with Rule 8. The district court expressly warned plaintiffs that failure to replead the remaining claims in compliance with Rul e 8 would
result in the dismissal of those claims. The dismi ssal with prejudice that followed plaintiffs' decision not to amend was not an abuse of discretion. See, e.g., 5 Wright & Mill er,  1217 at 178 (dismissal with prejudice appropriate where par ty refuses to file an amended and simplified pleading). As we re cently statedin a different but analogous context, "it is diffic ult to

conceive of what other course the court could have followed." Spain v. Gallegos, 26 F.3d 439, 455 (3d Cir. 1994) (affirming dismissal with prejudice where plaintiff refused to go forward with remaining claims). D. Defendants attempt to go further. The y argue that all of plaintiffs' claims -- including those that h ad been dismissed with prejudice under Rules 9(b) and 12(b) (6) in Westinghouse I and Westinghouse II -- were also dis missed with prejudice on Rule 8 grounds and that this dismissal was proper. Thus, according to defendants, [e]ven if this Court were to reverse any portion of the District Court's ruling dismissing portions of [the second amended complaint] with prejudice on grounds other than Rule 8, plaintiffs still would be bou nd by their irrevocable election to stand on their Second Amended Complaint, which stil l will constitute "a flagrant violation of t he requirements of Rule 8." West. Br. at 20 (quoting Westinghouse II, Op. at 20 , App. 329). There is slim support for defendants' argument in W estinghouse II, where the court stated that "plaintiffs' Second Amended Complaint shall be dismissed in its entirety for fa ilure to plead in conformity with the requirements of Rule 8." Op . at 21, App. 330. On the whole, however, we do not agree with d efendants'
characterization of what the district court did. A s we understand the record, the district court, having a lready dismissed certain claims with prejudice on non-Rule 8 grounds in Westinghouse I and Westinghouse II, did not later d ismiss those claims again for failure to comply with Rule 8. First, we note that the district court spe cifically ordered plaintiffs not to include in the third amen ded complaint any claims except for those that survived Westingho use II. Westinghouse II, Op. at 21, App. 330; Order at 35, App. 344. Thus, even if plaintiffs had repled and filed a thi rd amended complaint, the claims that had been dismissed on gr ounds other
than Rule 8 could not have been included. Because plaintiffs were permitted to replead only those claims that su rvived Westinghouse II, it seems implausible to suggest th at their decision not to replead could have had any effect o n any claims
other than those that the district court sustained in Westinghouse II. Second, the district court's Memorandum Or der of March 1, 1995, is the only order in the record that dismi sses any claim or claims with prejudice under Rule 8, and that ord er quite clearly applies to only those claims that had survi ved dismissal with prejudice on other grounds in Westinghouse I a nd Westinghouse II. That order explicitly states that "it is hereby ORDERED that all remaining claims in plaintiffs' Se cond Amended Class Action Complaint are dismissed with prejudice ." App. 350- 51 (emphasis added). Thus, we reject defendants' a rgument that either Westinghouse II or the court's March 1, 1995 Memorandum Order dismissed any claims with prejudice under Rul e 8 that hadalready been dismissed on their merits.

E. Defendants next argue that if we do no t hold that all of the plaintiffs' claims were properly dismiss ed under Rule 8, we should nevertheless decline to review the dis missal of claims in Westinghouse I and Westinghouse II on non -Rule 8 grounds. Defendants contend that "interlocutory or ders -- such as the District Court's July 1993 and January 1995 Orders, which
contain all of the District Court's non-Rule 8 ruli ngs appealed by plaintiffs -- do not merge into and are not enco mpassed by final orders where plaintiffs engage in a strategy intended to
create an avenue for this Court to reach issues not subject to interlocutory appeals." West. Br. at 21 (emphasis in original). Defendants rely on Marshall v. Sielaff, 492 F.2d 91 7 (3d Cir. 1974) (affirming dismissal for lack of prosecution and choosing not to reach underlying substantive issue decided i n prior interlocutory order) and Sullivan v. Pacific Indem. Co., 566 F.2d 444 (3d Cir. 1977) (dismissing for lack of an appea lable order where appellant did not challenge dismissal for fai lure to prosecute but attempted to appeal prior interlocuto ry order denying motion for class certification). Plaintiff s counter that they followed the procedure expressly approved by t his court in Shapiro v. UJB Financial Corp., 964 F.2d at 278-79 ("a plaintiff
can convert a dismissal with leave to amend into a final order by electing to stand upon the original complaint") (ci ting Borelli v. City of Reading, 532 F.2d 950, 951-52 (3d Cir. 1 976)). SeePlfs' Rep. Br. at 8. We find the defendants' argument unpersuasive. First, we reject the suggestion (see Westi nghouse Br. at 20) that we lack jurisdiction to review the dist rict court's rulings in Westinghouse I and Westinghouse II. "Th e principle is
well-settled in this circuit that an order dismissi ng a complaint without prejudice is not a final and appealable ord er, unless the plaintiff no longer can amend the complaint because , for example, the statute of limitations has run, or the plaintif f has elected to stand on the complaint." Newark Branch, N.A.A.C .P. v. Harrison, 907 F.2d 1408, 1416-17 (3d Cir. 1990) (ci tations and footnotes omitted) (emphasis added); see also Bethe l v. McAllister Brothers, Inc., 81 F.3d 376, 381 (3d Cir . 1996); Deutsch v. United States, 67 F.3d 1080, 1083 (3d Ci r. 1995); Welch v. Folsom, 925 F.2d 666, 668 (3d Cir. 1991); Trevino-Barton v. Pittsburgh National Bank, 919 F.2d 874, 877-78 ( 3d Cir. 1990). In UJB, the plaintiffs stood on their complaint wit h respect to claims that had been dismissed without prejudice un der Rule 9(b). They argued that their allegations satisfied Rule 9 (b) and that they were not required to make any further amendmen ts. This court concluded that it had jurisdiction to conside r the merits of the Rule 9(b) dismissal and explained: [W]e have held that a plaintiff can conver t a
dismissal with leave to amend into a final order by electing to stand upon the origin al complaint. See, e.g., Borelli v. City of Reading, 532 F.2d 950, 951-52 (3d Cir. 197 6) ("Only if the plaintiff . . . declares his intention to stand on his complaint . . . theorder becomes final and appealable").

Plaintiffs here stood on their complaint, but defendants contend that this was not enoug h. They maintain that we lack jurisdiction because plaintiffs failed to obtain an explicit dismissal with prejudice. We do not

agree. 964 F.2d at 278 (alterations in UJB). The court th us considered whether plaintiffs' allegations that had been dismi ssed without prejudice actually satisfied Rule 9(b). Here, when plaintiffs elected to stand on the second amended complaint rather than replead the remaining claims in compliance with Rule 8, the remaining claims were d ismissed with prejudice, and the case was closed in the district court. Under the authorities discussed above, there is no doubt that the district court's dismissal of the case with prejudi ce was a reviewable, final order. We therefore reject the d efendants' contentions to the extent that they challenge our a ppellate jurisdiction. Furthermore, we see no prudential grounds for declining
to review the merits of the district court's dismis sal of claims on non-Rule 8 grounds in Westinghouse I and Westing house II. Under the "merger rule," prior interlocutory orders merge with the final judgment in a case, and the interlocutory orders (to the extent that they affect the final judgment) may be reviewed on appeal from the final order. See, e.g., Silver v. Mendel, 894 F.2d 598, 601 (3d Cir.), cert. denied, 496 U.S. 926 (1990); Elfman Motors, Inc. v. Chrysler Corp., 567 F.2d 125 2, 1253 (3d Cir. 1977) ("the appeal from a final judgment draws in question all prior non-final orders and rulings which produc ed the judgment") (citation omitted). Under this rule, th e district court's orders in Westinghouse I and Westinghouse I I merged with the final order dismissing the remaining claims wit h prejudice and closing the case and thus would ordinarily be s ubject to review on appeal from the final order. Defendants, however, invoke an exception t o the merger rule pursuant to which courts decline to reach prio r interlocutory rulings where to do so would undermin e the policy against piecemeal appeals. See generally, e.g., Se re v. Board of Trustees of Univ. of Illinois, 852 F.2d 285, 288 (7 th Cir. 1988) ("Although the general rule is that rulings on inte rlocutory orders are encompassed within a subsequent final ju dgment and may be reviewed as part of that judgment, the rule is i napplicable where adherence would reward a party for dilatory a nd bad faith tactics.") (citations omitted). The line of cases relied upon by defendants stands for the proposition that a dismis sal with prejudice for failure to prosecute frequently bars review of previously entered interlocutory orders. Without a ddressing the potential scope of this exception to the merger rul e, see Fassett v. Delta Kappa Epsilon (New York), 807 F.2d 1150, 1 155 n.6 (3d Cir. 1986) (dictum declining to extend Sullivan hol ding beyond class certification context), cert. denied, 481 U.S . 1070 (1987), we conclude that the exception has no application h ere. The failure-to-prosecute cases upon which defendants re ly aredistinguishable from plaintiffs' decision in this c ase to stand

on the second amended complaint -- a decision that we regard as squarely governed by our holding in UJB. We are co nfident that our review of the merits of the orders in Westingho use I and Westinghouse II will not "invite the inundation of appellate dockets with requests for review of interlocutory o rders [or] undermine the ability of trial judges to achieve th e orderly and expeditious disposition of cases." Cf. Marshall v. Sielaff, 492
F.2d at 919. To summarize our holdings thus far, we hav e concluded that the district court did not err in dismissing w ith prejudice
under Rule 8 those claims that were not dismissed w ith prejudice on other grounds in Westinghouse I and Westinghouse II; that the claims that were dismissed with prejudice in Westin ghouse I and Westinghouse II on non-Rule 8 grounds were not late r dismissed with prejudice under Rule 8 as well; and that it is jurisdictionally proper and appropriate for us to c onsider whether the district court erred in dismissing thes e claims pursuant to Federal Rules of Civil Procedure 9(b) a nd 12(b)(6) in Westinghouse I and Westinghouse II. We exercise plenary review over these dism issals. See, e.g., UJB, 964 F.2d at 279. Moreover, we must acce pt as true plaintiffs' factual allegations, and we may affirm the district court's dismissals only if it appears certain that plaintiffs can prove no set of facts entitling them to relief. Id . at 279-80 (citation omitted). In ruling on the two rounds of motions, th e district court considered various undisputedly authentic doc uments attached to plaintiffs' complaint or defendants' mo tions to dismiss. Because plaintiffs' claims are based upon these documents, they were properly considered as part of defendants' motions to dismiss. E.g., In re Donald J. Trump Ca sino Securities Litigation, 7 F.3d 357, 368 n.9 (3d Cir. 1993), cert.denied, 114 S. Ct. 1219 (1994) (citing Pension Benefit Guar

. Corp. v. White Consol. Indus., Inc., 998 F.2d 1192, 1196 (3d Cir. 1993), cert. denied, 114 S. Ct. 687 (1994)).

III. Plaintiffs' claims under section 10(b) of the Exchange Act and under sections 11 and 12(2) of the Securiti es Act all require, among other things, that plaintiffs allege a materialmisstatement or omission. See Trump, 7 F.3d at 368 n.10. Defendants argued in the district court that any mi sstatements they may have made with respect to the adequacy of WCC's loan
loss reserves were not material. Defendants conten ded, under the "bespeaks caution" doctrine, that their cautionary language regarding the adequacy of WCC's loan loss reserves rendered immaterial any alleged misrepresentations. The dis trict court largely accepted this argument. In Westinghouse I, the court dismissed most of the allegations regarding loan lo ss reserves contained in the first amended complaint, see 832 F . Supp. at 973-77, 985-86, and in Westinghouse II, the court c larified that no cautionary language immunized defendants' allege d misstatements occurring prior to February 27, 1991. Thus, underthe two opinions and orders, the allegations regard ing alleged

misstatements about loan loss reserves that were ma de on or after February 27, 1991, were dismissed under the "bespea ks caution" doctrine. We now turn to plaintiffs' challenge to this
dismissal. As we explained in Trump, "`bespeaks cauti on' is essentially shorthand for the well-established prin ciple that a
statement or omission must be considered in context , so that accompanying statements may render it immaterial as a matter of
law." 7 F.3d at 364. We described the doctrine as follows: The application of bespeaks caution depends on the specific text of the offeri ng document or other communication at issue, i.e., courts must assess the communication on a case-by-case basis. Nevertheless, we ca n state as a general matter that, when an offering document's forecasts, opinions or projections are accompanied by meaningful cautionary statements, the forward-looking
statements will not form the basis for a
securities fraud claim if those statements
did not affect the "total mix" of informat ion the document provided investors. In other words, cautionary language, if sufficient, renders the alleged omissions or misrepresentations immaterial as a matter of

law.

. . . Of course, a vague or blanket (boilerplate) disclaimer which merely warn s the reader that the investment has risks w ill ordinarily be inadequate to prevent misinformation. To suffice, the cautionar y statements must be substantive and tailore d to the specific future projections, estima tes or opinions in the prospectus which the plaintiffs challenge.

. . . [T]he prospectus here truly bespeaks caution because, not only does th e prospectus generally convey the riskiness of the investment, but its warnings and cautionary language directly address the substance of the statement the plaintiffs challenge. 7 F.3d at 371-72 (citation omitted); see also Kline v. First Western Government Securities, Inc., 24 F.3d 480, 4 89 (3d Cir.) ("Trump requires that the language bespeaking cauti on relate directly to that by which plaintiffs claim to have been misled.") (citation omitted), cert. denied, 115 S. Ct. 613 (1 994). In Trump, we concluded that given the "extensive yet s pecific cautionary language, a reasonable factfinder could not conclude" that the alleged misrepresentation "would influence a reasonableinvestor's investment decision." Trump, 7 F.3d at 369; see alsoid. at 373

("no reasonable jury could conclude that the subjec t projection materially influenced a reasonable inves tor").
Plaintiffs' loan loss reserves claims unde r sections 11 and 12(2) are based solely on alleged misstatements in Westinghouse's May 1991 Registration Statement and Prospectus and documents incorporated therein. The reserves claim s under section 10(b) are based upon those documents as wel l as other alleged misstatements addressing the adequacy of th e loan loss reserves. The essence of plaintiffs' allegations i s that defendants knowingly or recklessly misrepresented ( i) the adequacy of WCC's loan loss reserves and (ii) compl iance with Generally Accepted Accounting Principles ("GAAP") i n establishing

the reserves. With regard to plaintiffs' section 10(b) c laims, the district court concluded that the warnings, "far fr om being Pollyanish, pointed to still darker clouds on the h orizon if the economy generally, and real estate markets specific ally, did not improve. . . . Accordingly, despite sufficient all egations of scienter and materiality, defendants' alleged misre presentations about the adequacy of Westinghouse and WCC loan los s reserves were so strongly qualified by clear warnings about the future that plaintiffs' causes of action . . . must be dis missed under the `bespeaks caution' doctrine." 832 F. Supp. at 976. The court reached a similar conclusion with regard to p laintiffs' claims under sections 11 and 12(2). See id. at 985 -86 (finding that Westinghouse's prospectus "`virtually bristles with warnings'" and that its statements regarding the ad equacy of its reserves were "remarkably equivocal") (citation omi tted).

Defendants contend that all of the above c laims were properly dismissed because any alleged misstatement s are immaterial when considered in the context of cautio nary language contained in various filings with the SEC. See Wes tinghouse I, 832 F. Supp. at 974-76 (summarizing non-prospectus warnings and quoting from numerous Westinghouse filings). In de fense of the district court's decision, Westinghouse's brief hig hlights the following excerpts from the May 1991 Registration S tatement and Prospectus, which typify the warnings on which the defendants rely: As part of the reclassification of the $3. 4 billion of assets, the Company reclassifie d for sale approximately $654 million of marketable securities. . . . This portfol io will be liquidated as soon as practicable; however, future deterioration in market va lue could result in additional losses prior to

sale . . . .

The $3.4 billion in higher-risk and underperforming assets reclassified as hel d for sale or restructuring included $2.4 billion in receivables. As such, these receivables had and continue to have a hig hprobability of becoming non-earning assets during the expected

period of liquidation . .

. .

Of the $2.4 billion of receivables held fo r sale or restructuring, at March 31, 1991, approximately $700 million were non-earnin g, up from $481 million at December 31, 1990.

. . . Real estate owned in assets held for sale or restructuring was approximately $3 35 million at March 31, 1991, up from $285 million at December 31, 1990.

Of the remaining $8.0 billion in receivabl es in WFSI's ongoing portfolio, non-earning receivables totaled approximately $180 million at March 31, 1991, up from $71 million at December 31, 1990. Reduced earning receivables totaled approximately $725 million at March 31, 1991, up from $6 05 million at December 31, 1990. Real estate owned was approximately $175 million at Ma rch 31, 1991, up from $85 million at December 31,
1990.

At March 31, 1991, WFSI's valuation

allowances related to assets held for sale or restructuring, and the allowances for cred it losses related to the assets in the ongoin g portfolio, amounted to $1.013 million and $306 million, respectively. Management
believes that under current economic conditions such allowances should be adequ ate to cover future losses that may occur. However, a further or more prolonged downt urn in the economy or in the real estate,
securities or certain other markets could have a negative effect on the ability of WFSI's borrowers to repay and on asset val ues generally and could result in additional increases in non-earnings assets, restructured loans and, ultimately, increa ses in allowances for losses in both assets he ld for sale or restructuring and receivables in the balance of WFSI's portfolio.

Westinghouse Br. at 29-30 (quoting App. 748-49) (em phasis and ellipses in Westinghouse brief). Plaintiffs argue that this and other simil ar cautionary language was insufficient because it implied, consi stently with the alleged misstatements by Westinghouse officials , that defendants believed, as of February 1991 and therea fter, that the loan loss reserves were and would remain adequate " under current
economic conditions." Plaintiffs contend that defe ndants'statements regarding the adequacy of the loan loss reserves were

materially false when made because defendants knew that the reserves were and would remain inadequate, even wit hout any future or prolonged economic downturn. Plaintiffs allege that Westinghouse management and other defendants knew t hat the February 1991 charge was inadequate to cover curren t and expected
future losses. Plaintiffs assert that defendants k new that WCC's loan portfolio was overstated by between $2.6 billi on and $5.3 billion immediately prior to the first writedown of $975 million in February 1991. Pointing to internal documents s uggesting that Westinghouse believed that the $975 million charge was "credible" and "affordable," plaintiffs argue that defendants should have been concerned with whether the charge complied wit h GAAP. Plaintiffs also point to the statement by former WC C President James Focareta, in which he allegedly acknowledged that Westinghouse officials knew in February 1991 that t he $975 million charge was insufficient. See App. 1134. Having carefully reviewed the cautionary l anguage on which the defendants and the district court relied, we find that these statements do not sufficiently counter the al leged misrepresentations, i.e., that the defendants knowi ngly or recklessly misrepresented the adequacy of the loan loss reserves and compliance with GAAP. If, as plaintiffs say, d efendants knowingly or recklessly misrepresented the adequacy of the loss reserves to protect against known losses and known risks in light of the then-current economic conditions, it follows that defendants' cautionary statements about the future did not render those misrepresentations immaterial. In our view, a reasonable investor would be very interested in knowing, not m erely that future economic developments might cause further lo sses, but that (as plaintiffs allege) current reserves were known to be
insufficient under current economic conditions. A reasonable investor might well be willing to take some chances with regard to the future of the economy, but might be quite un willing to invest in a company that knew that its reserves wer e insufficient
under current conditions and knew it would be takin g another major write-down in the near future (as plaintiffs allege). Thus, notwithstanding the cautionary language stres sed by defendants, we think that there is a substantial li kelihood that defendants' alleged misrepresentations -- i.e., tha t the loan loss reserves were established in compliance with G AAP and were believed to be adequate to cover expected future lo sses given the then-existing economic conditions -- would have ass umed actual significance to a reasonable investor contemplating the purchase of securities. We therefore cannot say that the ca utionary language rendered the alleged misrepresentations immaterial as a matter of law. See Kline, 24 F.3d at 489 (rejectin g bespeaks caution argument where purported cautionary languag e did not sufficiently counter alleged misstatements and omis sions); seealso Fecht v. The Price Company, 70 F.3d 1078, 1082 (9th Cir. 1995) ("Inclusion of some cautionary language is no t enough to support a determination as a matter of law that def endants' statements were not misleading.") (emphasis in orig inal) (citation omitted), cert. denied, 116 S. Ct. 1422 ( 1996);Rubinstein v. Collins, 20 F.3d 160, 171 (5th Cir. 1 994)

(reiterating view that "`[t]o warn that the untowar d may occur when the event is contingent is prudent; to caution that it is only possible for the unfavorable events to happen when they have already occurred is deceit'") (footnote omitted). In short, we cannot conclude that the alleged misrepresentations would have been "so obviously unimportant to an investor that reasonable minds cannot differ on the question of materiality. " UJB, 964 F.2d at 281 n.11 (citation omitted). Dismissal of the loan loss reserves claims for the period after February 27, 1 991 was thus improper, and we reverse this aspect of the orders entered in Westinghouse I and Westinghouse II.

IV. Plaintiffs next challenge the district cou rt's dismissal of various other portions of their sectio n 10(b)
claims. To state a securities fraud claim under se ction 10(b) and rule 10b-5, a private plaintiff must plead the following elements: (1) that the defendant made a misreprese ntation or omission of (2) a material (3) fact; (4) that the d efendant acted with knowledge or recklessness and (5) that the pla intiff reasonably relied on the misrepresentation or omiss ion and (6) consequently suffered damage. E.g., UJB, 964 F.2d at 280. Also, because section 10(b) claims sound in fraud, the ci rcumstances constituting the fraud must be stated with particul arity. Seeid. at 284; In re Craftmatic Securities Litigation, 890 F.2d 62 8, 645 (3d Cir. 1989); Fed. R. Civ. P. 9(b). "Rule 9( b) requires a plaintiff to plead (1) a specific false representat ion of material fact; (2) knowledge by the person who made it of its falsity; (3) ignorance of its falsity by the person to whom it was made; (4) the intention that it should be acted upon; and (5) that the plaintiff acted upon it to his damage." U JB, 964 F.2d at 284 (citing Christidis v. First Pennsylvania Mor tgage Trust, 717 F.2d 96, 99 (3d Cir. 1983)). Plaintiffs argue first that the district c ourt improperly dismissed the section 10(b) claims again st the Westinghouse defendants relating to Westinghouse's alleged concealment of nonearning receivables and inadequat e internal
controls. Plaintiffs further contend that the dist rict court erred in dismissing the section 10(b) claim against Price Waterhouse. Plaintiffs also challenge the district court's
dismissal of their claim that one of the underwrite r defendants intentionally misled the public in the May 1991 off ering. We will consider each of plaintiffs' arguments. A. Nonearning receivables, also known as nonaccrual loans or nonearning loans, are defined as "[l]oans on which accrual of interest has been suspended because coll ectibility is
doubtful." American Institute of Certified Public Accountants ("AICPA"), Audits of Finance Companies 108 (1994); see alsoAmerican Bankers Association, Banking Terminology 244 (3d ed

. 1989) (defining nonearning asset as "[a]n asset tha t does not produce income, such as . . . required reserves, o r a nonaccrual loan"). Plaintiffs allege that Westinghouse manipu lated its nonearning receivables accounts to overstate the qu ality of itsreceivables portfolio.

The district court essentially found that plaintiffs had not pled facts explaining with particularity ho w Westinghouse's statements concerning nonearning rec eivables were false and misleading or violated GAAP. The distric t court thus dismissed these allegations under Rules 12(b)(6) an d 9(b) as "conclusory rather than factual." 832 F. Supp. at 967-68; seealso Westinghouse II, Op. at 4-6, App. 313-15. The cour t found that plaintiffs, with the benefit of hindsight, wer e merely challenging Westinghouse's judgment as to when coll ectibility on the loans became doubtful. Id. We disagree. Plaintiffs allege that the Westinghouse de fendants arbitrarily moved loans from nonearning to earning status just before mandated public reporting when, in fact, not hing had changed regarding the likelihood of collection. Pl aintiffs contend that they have pled specific facts permitti ng the inference that defendants were intentionally concea ling loan losses. We agree. Plaintiffs are not merely chall enging defendants' judgment regarding when collectibility became doubtful; instead, plaintiffs allege that defendant s changed the classification of the loans when nothing regarding collectibility had occurred. Plaintiffs allege that specific loan s had at least three of the eight AICPA earmarks for nonearning st atus both before and after they were removed from nonearning status. On a motion for summary judgment, defendants may be able to show why the status of these loans consistently changed just prior to the time of reporting, and they may be able to establis h that no reasonable factfinder could find for plaintiffs. A t this stage, however, we cannot say that plaintiffs have failed to state a claim or have failed to plead fraud with sufficient particularity. We therefore reverse this aspect of the district

court's orders. B. Plaintiffs also allege that Westinghou se fraudulently overstated the quality of its internal controls, in violation of section 10(b). Westinghouse indisputa bly made representations throughout the class period regardi ng the adequacy of its internal controls. Plaintiffs esse ntially
contend that those statements were made without a r easonable basis and with knowledge of or in reckless disregar d of facts suggesting their falsity. Plaintiffs' claim is based primarily on an internal report prepared following an anonymous tip alleging inadequate internal accounting controls. After rejecting the assertions of the anonymous tip, the November 1990 report discuss ed recommendations for improving internal controls and addressing
some overall concerns that the auditors had identif ied. See App.

939-53. The district court found that "[t]he fact that the internal auditors also recommended improvements in valuation methods and tighter standards for internal valuatio ns does not support plaintiffs' claim that in its Form 10K's We stinghouse fraudulently or even inaccurately represented its i nternal controls as adequate." 832 F. Supp. at 979; see al soWestinghouse II, at 8-9 ("plaintiffs' assertions amount tonothing more than `fraud by hindsight' allegations, based on the

premise that the internal controls turned out to be inadequate."). We agree that plaintiffs have faile d to plead any facts supporting their conclusory allegation that W estinghouse fraudulently misrepresented the adequacy of its int ernal
controls. We therefore affirm dismissal of this as pect of the section 10(b) claim. C. Plaintiffs argue that the district cou rt, by "compartmentalizing the evidence and wiping the sla te clean after considering each component," failed to give weight to the "totality of the pleadings." Plfs' Br. at 25. We have instructed that the district courts should engage i n precisely the sort of analysis undertaken by the district cou rt in this case, see, e.g., UJB, 964 F.2d at 284; Craftmatic, 890 F.2d at 640, and we therefore find no merit in this argumen t. In addition, plaintiffs' discussion of Rul e 9(b) suggests that the district court improperly require d them to plead defendants' state of mind with particularity. See Plfs' Br. at 18-20 (relying on In re Glenfed, Inc. Securi ties Litigation, 42 F.3d 1541 (9th Cir. 1994) (en banc)) . We do not see any evidence of such a requirement in the distr ict court's opinions, and we therefore find plaintiffs' legal a rgument
irrelevant. D. Plaintiffs also appeal from dismissal of certain aspects of their section 10(b) claim against Price Waterhouse arising out of Price Waterhouse's 1988 and 1989 aud its. The district court granted Price Waterhouse's motion to dismiss in Westinghouse II based on plaintiffs' failure to ple ad any facts suggesting fraud on the part of Price Waterhouse wi th respect to the 1988 and 1989 audits. Westinghouse II, at 21-3 0, App. 330- 39. The district court concluded that plaintiffs f ailed to state a fraud claim both with respect to whether Price Wa terhouse fraudulently violated Generally Accepted Accounting Standards ("GAAS") in its 1988 and 1989 audits and with respe ct to whether Price Waterhouse knew that Westinghouse's 1988 and 1989 financial statements failed to comply with GAAP and fraudulen tly stated otherwise. The district court found that the only factual allegations contained in the second amended complai nt relevant to plaintiffs' section 10(b) claims against Price Wate rhouse related
to the 1990 audit. Although plaintiffs cite various GAAS stan dards, they nowhere explain how Price Waterhouse knowingly or r ecklessly violated those standards in performing its 1988 and 1989 audits. For example, plaintiffs' complaint fails to allege any facts supporting their conclusory allegation that Price W aterhouse failed to follow GAAS in determining whether Westin ghouse's 2.5%
loss reserves were reasonable in 1988 and 1989. Mo reover, as Price Waterhouse properly argues, plaintiffs do not allege that Price Waterhouse failed to consider the adequacy of Westinghouse's internal controls in planning the sc ope of or in executing the 1988 and 1989 audits; nor do plaintif fs allege that Price Waterhouse opined on the adequacy of Westingh ouse's
internal controls in those audits. Plaintiffs' GAAP arguments are similarly u navailing.Under Christidis, plaintiffs must allege facts that give rise to

an inference that Price Waterhouse knew or was reck less in not knowing that Westinghouse's financial statements fa iled to comply with GAAP. 717 F.2d at 100; see also Eisenberg v. Gagnon, 766 F.2d 770, 776-78 (3d Cir.), cert. denied, 474 U.S. 946 (1985). There are no facts cited in plaintiffs' second amen ded complaint supporting an inference that Price Waterhouse knew or was reckless in not knowing that Westinghouse was using speculative, inflated values in valuing receivables. Moreover, although Price Waterhouse concedes that it knew that Westinghouse set its loss reserves at 2.5% of total assets in audit years 198 8 and 1989, this fact provides no support for plaintiffs' alleg ation that Price Waterhouse knew that Westinghouse was violati ng GAAP in those years. Assuming that Westinghouse violated G AAP during 1988 and 1989, plaintiffs nonetheless fail to alleg e facts suggesting that Price Waterhouse intentionally or r ecklessly misrepresented Westinghouse's compliance with GAAP. In short, plaintiffs fail to allege any fa cts supporting an inference that Price Waterhouse made fraudulent misrepresentations in its 1988 and 1989 audit opini ons. Plaintiffs' allegations do not support an inference that Price Waterhouse could not reasonably and in good faith h ave opined that the financial statements as a whole fairly pre sented the financial condition of Westinghouse in accordance w ith GAAP. We
therefore affirm the district court's order dismiss ing the section 10(b) claims against Price Waterhouse arisi ng out of
Price Waterhouse's 1988 and 1989 audits. E. Plaintiffs also challenge the district court's dismissal of their section 10(b) claims against Laz ard Freres ("Lazard"), one of the underwriter defendants. In addition to dismissing these claims under the "bespeaks caution " doctrine, the district court dismissed them on the ground tha t plaintiffs failed to plead any facts supporting section 10(b) liability against Lazard. See Westinghouse I, 832 F. Supp. a t 979-81; Westinghouse II, at 33-34, App. 342-43. In Westing house I, the district court found that the documents upon which plaintiffs relied could not bear the construction placed on th em by plaintiffs. 832 F. Supp. at 979-81; see also Westi nghouse II, at 33, App. 342. We agree. Plaintiffs place primary reliance on Lazar d's December 2, 1990, Progress Report and on a document entitled "Westinghouse Electric -- Board Meeting Q & A," developed for use at the February 27, 1991, Board meeting. See App. 1428-41 (Progress Report); App. 1134-36 (Q & A). Plaintiffs also rel y on a report prepared by Westinghouse in September 1990. See Ap p. 918-36. In the Progress Report, Lazard recommended "serious consideration of a comprehensive restructuring prog ram which could include a one-time charge to earnings." App. 1435. Lazard also explained that "[t]he possible restructuring o utlined earlier implies the ultimate disposition of roughly $3.2 billion or 55% of non-real estate assets and at least $1.5 billion of real estate (problem real estate totalled $1.5 bill ion or 37% of the portfolio at September 30, 1990)." App. 1440 ( emphasis in original). In the proposed question and answer scr ipt, Lazardsuggested the following response to the question, " Are the

reserves adequate?": "Given the results of each of these review processes, the charge taken today is clearly reason able but was at the low end of the range identified by managemen t in conjunction with the strategic review performed by Lazard." App.
1135. Based on the above sources, plaintiffs arg ue that Lazard knew that the February 1991 charge was inade quate to protect against known and likely losses. We agree with the district court, however, that the documents on whic h plaintiffs rely simply do not support their conclusory allegat ions and that plaintiffs fail to allege facts supporting their se ction 10(b) claims against Lazard. These claims were properly dismissed in Westinghouse I and Westinghouse II.

V. Defendants argued in the district court th at plaintiffs' allegations regarding loan loss reserve s and nonearning loans in count I were subject to dismissal as being quantitatively immaterial as a matter of law (separ ate and apart from the "bespeaks caution" doctrine). In Westingh ouse I, the district court rejected defendants' argument, findi ng that the allegations of wrongfully understated reserves were sufficiently substantial when compared to Westinghouse's net inc ome for the relevant time periods. 832 F. Supp. at 971-73. In Westinghouse II, defendants argued that plaintiffs failed to all ege a material misrepresentation or omission during the time perio d of March 28, 1989, through March 28, 1990 (i.e., the first year of the class period) with respect to their allegations regarding the loan loss reserves and nonearning loans. Westinghouse II, Op . at 13-18, App. 322-27. The district court agreed and dismiss ed these claims for the first year of the class period. Id. Plaintiffs challenge this aspect of Westin ghouse II, Plfs' Br. at 34-38, and defendants counter that all of the allegations regarding nonearning assets and loan lo ss reserves (not merely those for the first year of the class p eriod) could and should have been dismissed on quantitative mate riality grounds. West. Br. at 39-45. Assuming without dec iding that defendants' latter argument (which was not raised o n defendants' motion to dismiss the second amended complaint) is properly before us, we find it to be without merit. We thus turn to the dismissal of plaintiffs' claims for the first year of the class period.
As referred to earlier in our discussion o f the "bespeaks caution" doctrine, "[a]n omitted fact is material if there is a `substantial likelihood that, under all the circumstances, the omitted fact would have assumed actual significance in the deliberations of the reasonable shareholder.'" UJB, 964 F.2d at 281 n.11 (quoting T.S.C. Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976)). "In other words, the issue is whether there is a substantial likelihood that the disclosure would have been viewed by the r easonable investor as having `significantly altered the "tota l mix" of
information' available to that investor." Id. Mor eover,"[m]ateriality is a mixed question of law and fact, and the

delicate assessments of the inferences a reasonable shareholder would draw from a given set of facts are peculiarly for the trier of fact." Id. (citing T.S.C., 426 U.S. at 450). T herefore, "[o]nly if the alleged misrepresentations or omissi ons are so obviously unimportant to an investor that reasonabl e minds cannot differ on the question of materiality is it appropr iate for the district court to rule that the allegations are ina ctionable as a

matter of law." Id. The district court recognized that the ade quacy of loan loss reserves is generally the type of information that would significantly influence a reasonable investor. Wes tinghouse I, 832 F. Supp. at 972 (citing UJB, 964 F.2d at 281). However, the court also tested plaintiffs' complaint to determin e whether the allegations regarding loan loss reserves were quant itatively material in this particular case. The district cou rt stated that "[t]he failure to disclose that a loan portfolio is likely to be impaired by some de minimis amount may be `relevant ' in that it is the type of information that investors care abou t, but of such `dubious significance' as to be `trivial,' and `har dly conducive to informed decisionmaking,' so that to reasonable shareholders,
such omission must be immaterial as a matter of law ." Id. at 972 (quoting TSC Industries, 426 U.S. at 448-49). We a gree. Seegenerally Loss & Seligman, Fundamentals of Securities Regulat ion137-41, 479-80 (1995) (quantitative materiality analysis is generally appropriate, though not when "such matter s as a conflict of interest or criminal violations are at issue"); seealso Ferber v. Travelers Corp., 802 F. Supp. 698, 708 (D. Conn. 1992) (omission of extent of second mortgages not m aterial in relation to overall real estate, investment, and as set portfolios); In re First Chicago Corp. Securities L itigation, 769 F. Supp. 1444, 1454 (N.D. Ill. 1991) (total value o f alleged bad
loan immaterial in relation to size of defendant's real estate loan portfolio). Plaintiffs do not dispute that their only allegation challenging the adequacy of loan loss reserves prio r to the fourth quarter of 1989 has to do with one asset tha t allegedly was improperly not written down by $1.278 million d uring the third quarter of that year. See App. 1234. The ch arge that
would have followed the write-down of this asset wo uld have amounted to merely 0.54% of Westinghouse's net inco me of $234 million for that quarter. We agree with the distri ct court that this allegation is not sufficiently material t o be actionable, i.e., there is not a substantial likeli hood that this information would have assumed actual significance in the
deliberations of a reasonable investor. Plaintiffs thus allege no actionable reserves claims for the period prior to the fourth quarter of 1989. The first actionable disclosures alleged in the second amended complaint relating to loan loss rese rves for the fourth quarter of 1989 occurred on March 29, 1990. The district court thus properly dismissed the reserves allegati ons that concern the period prior to the March 29, 1990, dis closures.
The district court also dismissed the none arning loans allegations relating to the first year of the class period. Thecourt found that the assets identified in plaintiff s' complaint

that allegedly should have been classified as nonea rning through the fourth quarter of 1989 were barely 1% of Westin ghouse's current assets for any quarter during that period a nd were thus immaterial. The second amended complaint alleges t hat prior to the fourth quarter of 1989, eight assets were impro perly not classified as nonearning assets. See App. 1169-76. These accounts amount to just 0.51% of Westinghouse's cur rent assets for the first and second quarters of 1989 and only 1.2% of Westinghouse's current assets for the third quarter of 1989. We again agree with the district court that these alle gations are not sufficiently substantial to be material, and pl aintiffs therefore allege no actionable nonearning loans cla ims for the period prior to the fourth quarter of 1989. As wit h the reserves claims, the first actionable disclosures a lleged in the second amended complaint relating to nonearning loa ns for the fourth quarter of 1989 occurred on March 29, 1990. The district court thus properly dismissed the nonearning loans allegations that relate to the period prior to the March 29, 19 90,
disclosures.

VI. A. As discussed above, the district court dismissed the section 12(2) claims under the "bespeaks cautio n" doctrine. The district court also dismissed the section 12(2) claims on the ground that plaintiffs failed to allege that defend ants "offered or sold" Westinghouse securities to plaintiffs with in the meaning of section 12(2). We turn now to plaintiffs' chall enge to this
determination. Section 12(2) provides that a person who " offers or sells" newly issued securities by means of a prospe ctus or oral communication that misrepresents or omits material facts is liable to the person "purchasing such security from him." 15

U.S.C.  77l(2). In Pinter v. Dahl, 486 U.S. 622 (1988), t he Supreme Court stated that although the language of section 12(1) "contemplates a buyer-seller relationship not unlik e traditional contract privity," id. at 642, its scope is not lim ited only to those who pass title. Id. at 642-47. The Court he ld that the term "seller" in the context of section 12(1) inclu des (1) "the owner who passed title, or other interest in the se curity, to the buyer for value" and (2) "the person who successful ly solicits the purchase, motivated at least in part by a desir e to serve his
own financial interests or those of the securities owner." Id.at 642, 647. Under Pinter, both direct sellers and those w ho engage in the active solicitation of an offer to bu y can be "sellers" for purposes of section 12(1). See id. a t 646-47. In In re Craftmatic Securities Litigation, 890 F.2d 628 (3d Cir. 1989), we held that the Supreme Court's de finition of the term "seller" under section 12(1) applies in ac tions brought under section 12(2). Id. at 634-36; see also UJB, 964 F.2d at 286-87. Thus, under Pinter and our cases, a sectio n 12(2) seller may be one who passes title to the buyer for value (a direct seller) or one "who successfully solicits the purch ase, motivated at least in part by a desire to serve his own finan cial interestsor those of the securities owner" (a solicitor sell er). Pinter,

486 U.S. at 643. In Craftmatic, we cautioned that "the lang uage of  12, which makes a participant liable to the `person pur chasing such a security from him . . .,' precludes actions against remote sellers, and focuses the inquiry on the relationshi p between the purchaser and the participant, rather than on the l atter's degree of involvement in the transaction." Craftmatic, 89 0 F.2d at 636 (citation omitted). We added with regard to solici tation liability that "although an issuer is no longer imm unized from  12 liability, neither is an issuer liable solely on the basis of its involvement in preparing the prospectus. The p urchaser must demonstrate direct and active participation in the solicitation
of the immediate sale to hold the issuer liable as a  12(2) seller." Id. (citations omitted). B. Plaintiffs do not claim that any of th e Westinghouse defendants were direct sellers. Rathe r, plaintiffs allege that the underwriter defendants purchased th e shares from Westinghouse and resold them to the public, includi ng plaintiffs. E.g., App. 362-63, 366-67. The Westinghouse defend ants therefore cannot be liable under section 12(2) as direct sell ers. Cf. UJB, 962 F.2d at 287 (plaintiffs not required to allege direct and active solicitation where newly offered shares were purchased directly through defendant UJB). Plaintiffs furthe r allege as

follows:
593. The section 12 Defendants were sellers of Westinghouse securities within the meaning of Section 12(2) of the Securities Act and either sold or promoted the sale o f said securities directly to plaintiffs and other Class members or solicited plaintiff s and other Class members to buy such securities. In so acting, the Section 12 Defendants were motivated by a desire to
serve their own financial interests. App. 506 (count III); see also App. 511-12 (count V ). Plaintiffs allege no facts suggesting how any Westinghouse def endants directly and actively participated in the solicitat ion of plaintiffs' immediate purchases of Westinghouse sto ck.
The district court dismissed the section 1 2(2) claims, explaining as follows: [P]laintiffs have not alleged that the Westinghouse defendants in fact sold or solicited the purchase of Westinghouse securities, but attempt nonetheless to analogize their allegations to the allegations and holding in Craftmatic by pointing to the similarity of language employed. . . . The conclusory allegation
that defendants sold or solicited the purchase of securities will withstand a motion to dismiss only if accompanied by allegations of fact that defendants did se ll or solicit the purchase of securities.Westinghouse I, 832 F. Supp. at 984 (citation and f ootnote

omitted) (emphasis in original). Plaintiffs argue that because the facts alleged in their complaint are so similar to the factual allegations of the complaint sustained in C raftmatic, they stated a section 12(2) claim. See Plfs' Br. a t 40-41. We are constrained to agree. It is certainly true that plaintiffs' sect ion 12(2) allegations are not clearly drafted. Plaintiffs do not, for example, make clear which defendants are alleged to be direct sellers as opposed to solicitor sellers. See UJB, 964 F.2d at 287 n.17. Nor do plaintiffs allege how the Westing house defendants, assuming they are alleged to be solicit or sellers, directly and actively participated in the solicitat ion of the immediate sales. Further, plaintiffs' allegation t hat defendants "promoted the sale of" securities would not, standing alone, give rise to any section 12(2) liability. T he district court could certainly require that plaintiffs clear up these ambiguities on remand. Taken in the light most favorable to plain tiffs, however, the complaint does allege that the Westing house defendants "solicited plaintiffs" to purchase Westi nghouse securities and that in so doing they were motivated by a desire to serve their own financial interests. Contrary t o the district court's statement, these are factual allegations -- allegations plaintiffs will have to prove -- and not bare legal conclusions. Under Craftmatic, plaintiffs' allegations are suffi cient to survive a motion to dismiss under Rule 12(b)(6): " It cannot be said at this juncture that plaintiffs can prove no set of facts that would entitle them to relief." Craftmatic, 89 0 F.2d at 637 (citations omitted). For these reasons, we reverse the district court's order dismissing the section 12(2) claims a gainst the Westinghouse defendants. We note that although fraud is not a neces sary element of a claim under section 12(2), section 12(2) claim s that do sound in fraud must be pled with particularity. UJ B, 964 F.2d at 288-89. The district court did not decide, nor do defendants argue, that plaintiffs' section 12(2) claims sound in fraud. To the extent, if any, that the section 12(2) claim s in fact sound in fraud, plaintiffs could justifiably be req uired to plead the circumstances constituting fraud with the parti cularity required by Rule 9(b). This is not, however, the t heory on which the district court rested its decision; nor h as it been advanced by the parties in this court. C. As to the underwriter defendants, the first amended complaint alleges that "[e]ach member of the Underw riter Class sold Westinghouse stock to members of the Prospectu s Subclass during the Class Period." App. 367. Plaintiffs fu rther allege that the underwriter defendants sold Westinghouse s ecurities "directly to plaintiffs and other Class members." App. 506.
The district court dismissed the section 1 2(2) claims against the underwriter defendants, finding that pl aintiffs failed to allege that the underwriter defendants we re statutory sellers under section 12(2). The district court ex plained as

follows:In Count Three, plaintiffs must alleg e,

to state a viable Section 12(2) cause of action, that the underwriter defendants we re "sellers" within the meaning of Section 12(2). That is, there must be an allegati on that a particular proposed defendant sold or solicited the sale of Westinghouse securit ies to the individual plaintiffs. Pinter v. Dahl, 486 U.S. at 643-47. This element is lacking. Westinghouse I, 832 F. Supp. at 987. We agree with the district court that plai ntiffs must allege that the underwriter defendants were section 12(2) sellers, but we do not find support in Pinter for t he district court's statement that, in order to achieve this, p laintiffs are required to allege which underwriter sold securitie s to each plaintiff. Under Pinter, a plaintiff will not succ eed on a section 12(2) claim unless the plaintiff shows, amo ng other things, that the plaintiff bought from or was solic ited by a specified statutory seller. But Pinter does not ad dress what allegations are necessary to plead that a defendant is a seller within the meaning of the statute. Absent a partic ularity requirement, plaintiffs must provide a short and pl ain statement showing that the underwriter defendants a re statutory sellers and that plaintiffs purchased securities fr om them. We find that plaintiffs satisfied this req uirement and stated a section 12(2) claim against the underwrite r defendants. Taken in the light most favorable to plaintiffs, th e first amended complaint alleges that each of the underwri ter defendants sold Westinghouse securities directly to plaintiffs and that each plaintiff purchased Westinghouse securities directl y from an
underwriter defendant. Cf. Jackson v. First Federa l Savings of Arkansas, 709 F. Supp. 863, 884 (E.D. Ark. 1988) (d ismissing section 12(2) claim where plaintiff did not allege that any
defendant sold him his shares or solicited him to b uy his shares). The defendants and the district court hav e not pointed to any authority requiring anything further. Altho ugh plaintiffs did not submit a model pleading, we cannot say they failed to state a claim under Rule 12(b)(6). Compare Craftma tic, 890 F.2d at 637; see also Moore v. Kayport Package Expr ess, Inc., 885 F.2d 531, 538-39 (9th Cir. 1989) ("While this is no t a model form of pleading a section 12(2) claim, it satisfies the short and plain statement rule of Rule 8(a)(2) which provides that a pleading which sets forth a claim for relief shall contain `a short and plain statement of the claim showing that the pleader is entitled to relief.'") (citation omitted); In re Chambers Development Securities Litigation, 848 F. Supp. 602 , 625 (W.D. Pa. 1994) (sustaining section 12(2) allegations not unlike those in this case); Miller v. New America High Income Fu nd, 755 F. Supp. 1099, 1105 (D. Mass. 1991) ("Applying the app ropriate standard of scrutiny for a Rule 12(b)(6) motion, a set of facts establishing the underwriter defendants as `sellers ' is clearly plausible, although the plaintiffs must later produ ce facts to prove the underwriter defendants' actual participat ion in theactivity.") (citation omitted), aff'd, 36 F.3d 170 (1st Cir.

1994). We therefore reverse the district court's o rder dismissing the section 12(2) claims against the und erwriter

defendants.

VII.
After defendants filed the motions to dism iss that led to Westinghouse II, plaintiffs cross-moved to suppl ement the second amended complaint. See App. 1582-83. Plain tiffs sought to add an additional alleged misrepresentation -- L ego's alleged October 1990 statement that Westinghouse had only a n immaterial
amount of restructured receivables. Plaintiffs' motion is not discussed at any length in Westinghouse II. It is addressed in one sentence o f the opinion and one sentence of the order. See Westinghouse II , Op. at 21, App. 330 (dismissing second amended complaint under rule 8; granting plaintiffs 30 days within which to replead surviving claims in compliance with rule 8; and denying as mo ot the crossmotion to supplement); Westinghouse II, Order at 35 , App. 344 ("Plaintiffs' cross-motion to supplement the Second Amended Complaint (Docket No. 174) is denied as moot."). I n their brief on appeal, plaintiffs state that "[t]he only possib le basis for the finding of mootness was the blanket dismissal o f the Second Complaint under Rule 8." Plaintiffs' Br. at 47. I t seems to us that this is in fact why the district judge dismiss ed the motion as moot -- because plaintiffs were presumably going to be submitting a third amended complaint and would incl ude the newlydiscovered allegation in that complaint.
We find no abuse of discretion in this rul ing. The plaintiffs could have included (and were expected t o include) the allegation at issue in the third amended complaint. They chose not to submit that complaint. The allegation at is sue is
relevant to claims that survived the district court 's orders in Westinghouse I and Westinghouse II, claims that wer e dismissed with prejudice under Rule 8 only after plaintiffs' decision to stand on the second amended complaint. Plaintiffs therefore abandoned this allegation when they chose not to su bmit a third amended complaint.

VIII. Plaintiffs argue that on remand this case should be reassigned to a new district court judge. Plaintif fs rely primarily upon the following statement from Westing house I: In the early 1980's, WCC hit its stride wh en it tapped into the booming commercial and
residential real estate markets.

Such success, however, was short-live d. WCC's fortunes collapsed along with the re al estate market in the late-1980's, and the price of Westinghouse stock tumbled during the class period from a high of $39.75/sha re to a low of $15.875/share. Now, like so m any lending institutions battered by the late-1980's real estate bust, Westinghouse, alo ng

with its outside accountant and investment bankers, is defending against shareholders who allege that the company made false and misleading statements regarding the health of its financial services units, thereby artificially inflating the price of Westinghouse stock and damaging plaintiffs who purchased that stock at what they clai m to have been an artificially high price. Westinghouse I, 832 F. Supp. at 958 (citations omit ted). According to plaintiffs, "[t]his statement suggests that plaintiffs' claims have no merit and that thei r damages were caused not by defendants' fraud, but by an economic environment
visited on defendants." Plfs' Br. at 48. Plaintif fs argue that although it was proper for the judge to take judici al notice of the downturn in the real estate market, "it was imp roper for [the judge] to attribute plaintiffs' extensive damages t o this trend

rather than to defendants' fraudulent scheme as all eged in the Complaints." Plfs' Rep. Br. at 24. Plaintiffs see m to us to read too much into the judge's statement, and we no te that the district judge's comment was not unlike others foun d in other reported decisions. See, e.g., UJB, 964 F.2d at 27 4 ("This case is one of a number of federal securities actions ag ainst financially troubled banking institutions. After a sharp
downturn in the financial condition of defendant UJ B Financial Corporation, its shareholders filed a complaint[.]" ); see alsoSerabian v. Amoskeag Bank Shares, Inc., 24 F.3d 357, 360 (1st Cir. 1994) ("The complaint depicts an increasingly familiar saga
of a bank that boomed with the real estate market o f the early 1980s, but suffered in the recession and deteriorat ing market that followed.") (citations omitted). As in United States v. Bertoli, 40 F.3d 13 84, 1412 (3d Cir. 1994), plaintiffs here make "no allegation tha t [the district judge] derived his bias from an extrajudic ial source." Rather, all the incidents cited involve rulings and statements made in deciding motions. "Thus, these incidents w ill not support recusal unless, looked at objectively, `the y display a deep-seated favoritism or antagonism that would mak e fair judgment impossible.'" Id. (quoting Liteky v. Unit ed States, 114 S. Ct. 1147, 1157 (1994)). Plaintiffs have not ide ntified anything suggesting such a favoritism or antagonism , and our review of the record reveals none. Finally, we not e that, as a practical matter, the judge sustained a number of t he section 10(b) claims asserted in count I in both Westinghou se I and Westinghouse II. For these reasons, we reject all of plaintiffs' contentions raised in support of their reassignment argument. We wish to emphasize that requesting reassignment is a grave step; it should not be taken lightly or for the purpose o f seeking some strategic advantage.

IX. For the foregoing reasons, we affirm in pa rt and reverse in part the district court's orders entered on July 29,1993 (Westinghouse I), January 23, 1995 (Westinghou se II), and

March 1, 1995 (Memorandum Order dated 2/28/95), and we remand for further proceedings consistent with this opinion.