09 - 35 89 - cv C am p o v . S ears H o l d i n g s UNI TED S TATES CO URT O F AP PEALS F O R T H E S E C O N D C IR C U IT S UM M ARY OR DER RU L I NG S B Y S UMM ARY ORDE R DO N OT HA VE P RE CE DE NT I AL E F F E CT . C I T AT I ON T O A S UM M ARY ORD ER FI LED ON OR AF TER J ANU ARY 1 , 2 0 0 7 , I S P ERM I TTED AND I S GO VERN ED BY FE DERA L RULE OF APP ELLATE P RO CEDU RE 3 2 . 1 AND THI S COUR T’ S LOCAL RULE 3 2 . 1 . 1 . W HEN CI TI NG A S UM M ARY ORD ER I N A D O CUM ENT FI LED W I TH TH I S COU RT, A P ARTY M US T CI TE E I T HE R T HE F E DE RA L AP P E ND I X OR A N E L E CT RO NI C DA T AB AS E ( W I T H T HE N OT AT I ON “ S UM M ARY ORDE R” ) . A P ARTY CI TI NG A S UM M ARY ORDE R M US T S ERVE A COP Y OF I T ON ANY PARTY NO T REPRES ENTED BY CO UNSEL. A ta s t at ed t erm of

the U ni t ed St at es C ourtof A ppeal s forthe Second C i r cui t , hel d at the D ani el Patr i ck M oyni han U ni t ed St at es C ourthous e, 500 Pear l Str eet , i n the C i ty of N ew Y ork, on the 6 day of

A pr i l , tw o thous and t en. th P RE S E NT : RO BE RT D. S AC K,

R E E N A R A G G I, PETE R W . HA LL, C i r cui tJudges .

--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- - F R E D P . C A M P O , In d iv idu a lly a n dO n B e h a lf o f A ll Oth e r s S i mi l a r l y S i tu a t e d , P L UM BE RS AND P I P E F I T T E RS NAT I ONAL P E NS I ON F UND, M I S S I S S I P P I P UB L I C E M P L OYE E S ’ RE T I RE M E NT S Y S T E M , P la in tif fs-Ap p e lla n ts , v. N o. 09- 3589- cv S E A R S H O L D IN G S C O R P O R A T IO N , E D W A R D S . L AM P E RT , J UL I AN DAY , D ef endant s -Appel lees .

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - --- --- A PPE A R I N G FO R A PPE L L A N T S: J A Y W . EI SE N H O FE R ( J ames J . Sabel l a, G r ant & E isen h o fer P . A . , N ew Y o rk, N ew Y o rk, M ark C. G a r dy , J a mes S . N ot i s , G a r dy & N ot i s , LLP, E n g l e wo o dCl i f

f s , Ne w J e r s e y , S a mu e l H. R u d m a n , D a v idA . R o se n fe ld , C o u g h lin S to ia G el l erR udm an & R obbi ns L L P, M el vi l l e, N ew Y o rk , on the br i ef

), G ra n t & E is e n h o fe r P .A ., N ew Y ork, N ew Y ork.2

A P P E A R I N G F O R A P P E L L E E S : P A U L V IZ C A R R O N D O , J R . (E m il A . K le in h a u s , J o n a th a n E . G o ld in , on the br i ef ), W acht el l , L i pt on, R os en & K atz, N ew Y ork, N ew Y ork. A p p ea l f rom the U n it ed S tat es D istri ct C o u rtfor the S o u thern D istri ct of N ew Y o rk (L e w is A . K ap la n , Judge ). UP ON DUE CONS I DE RA T I ON, I T I S HE RE BY OR DE RE D, ADJ UDGE D, AND D E C R E E D thatthe j udgm entof the di s tr i ctcourtent er ed on Jul y 22, 2009, i s AF F I RMED . P lain tiffs , fo rm e r s h a re h o ld e rs o f K m a rtH o ld in g C o rp o ra tio n (“ K m a rt” ), in d iv idu a lly and on beha l f

of al l other s s i m i l ar l y si tuat ed, s ued def endant s Sear s H ol di ngs C orpor at i on (“Sears”) , the l egal s uccessor t o K m art , E dw ard S. Lam pert , the form er chai rm an o f Sears , and Jul i an D ay, the f

orm erchi ef

exec ut i ve of

f i cerof K m art , forvi ol at i ons of the Secur i t i es E x c h a n g e A c t o f 1 9 3 4 (“ E x c h a n g e A c t”) . P lain tiffs n o w ap p e a l th e d ism iss a l o f th e ir c o m p lain t w ith p re

ju d ice . W e rev iew an o rd e r o f d ism iss a l de n o v o , a c c e p tin g a ll w e llp lead ed fac tual a ll eg ati o n s a s true a n dd raw ing a llrea so n ab le i n feren ce s in p lai n ti ffs’ f av o r. See A s hcr of

tv. Iqba l , 129 S. C t . 1937, 1949- 50 ( 2009) ; B ur ch v. Pi oneerC r edi tR ecove ry, Inc . , 5 5 1 F . 3 d12 2 , 12 4 (2d C ir . 20 0 8 ). W e w il l affirm th e d istri ct co u rto n ly w h ere p lai n ti ffs f ai l t o “al l ege apl aus i bl e s etof fa ct s suf f i ci ent‘t o ra i s e a r i ghtt o r el i ef above the s pecul at i ve l evel . ’ ” O per at i ng Local 649 A nnui ty Trus tFund v. Sm i th Barney Fund M gm t . L L C , 595 F . 3 d8 6 , 91 (2d C ir . 20 1 0 ) ( q u o ti n g B ell A tl . C o rp. v. T w o m b ly, 5 5 0 U . S . 54 4 , 55 5 (20 0 7 )); a c c o rd A sh c ro ft v . Iqb a l, 12 9 S . C t. at 1 9 4 9 -5 0 . In ap p ly in g the se p rin c ip les to th is a p p e a l,W e agr ee w i th the di s tr i ctcourt ’ s concl us i on thatdef endant s neverr epr es ent ed the 1 fai r m arketvalue of K m art ’s realest at e t o b e $1 0 m i l l i on . T o survi ve the m oti on t o d i sm i ss, pl ai nt i f f s ther ef or e musthave a l l eged f act s s uff i ci entt o s upportthe cl ai m thatthe value of K m art’s r ea l est ate w as m aterial ly m o re tha n the $ 4 . 6 2 3 b il li o n v a lu e set forth in K m art’s J u n e 1 6 , 2 0 0 3 F o rm 1 0 - Q. Forthe s ame r eas on, w e do notr each def endant s ’ cont ent i on thatpl ai nt i f f s f ai l ed 2 a d e q u a te ly to a lle g e th a t th e y s u ff e re dd a m a g e s .

3 w e as s um e the part i es ’ fa m i l i ar i ty w i th the f act s and the r ecor d of pr i orpr ocee di ngs , w hi ch we r e f e r e n c e o n l y a s n e c e s s a ry t o e x p l a i n o u rd e c i s i o n t o a f f i rm. 1 . S e c t i o n 1 0 ( b ) a n dRu l e 1 0 b - 5 Cl a i ms Pl ai nt i f f s s ubm i tthatdef

endant s vi ol at ed s ect i on 10( b) of the Exchang e A ct , 15 U . S. C . § 78j ( b) , and R ul e 10b- 5 pr om ul gat ed ther eunder , 17 C . F. R . § 240. 10b-5, by un derst at i ng the p ost -r eorgan i zat i on value of K m art ’s r eal est at e asset s i n o rdert o d epress th e c o mp a n y ’ s s t o c kp r i c e a n dp e rmi td e f e n d a n t s t o p u r c h a s e s h a r e s a tr e d u c e dc o s t . On appea l , pl ai nt i f

f s cont end thatthe di s tr i ctcourterr ed i n concludi ng that( 1) pl ai nt i f f s “f ai l [ ed] a d e q u a te ly to a lle g e th a t th e fa irm a rk e t v a lu e o f K m a rt ’s re a l e s ta te [a s o f A p ri l 3 0 , 2 0 0 3 ,] w a s m a ter ially m o re th a n $ 4 .6 2 3 b ill io n ” a n dth u s id e n tified n o a c tio n ab le m iss tate m e n t, 1 C a m p o v . S e a rs H o ld in g s C o rp ., 6 3 5 F . S u p p . 2 d3 2 3 , 3 3 1 (S .D .N .Y . 2 0 0 9 ); a n d(2 ) e v e n if plai nti ff s had adequ at el y al l eged a m at eri al m i sst at em ent, theircom plai nt fai l ed t o g i ve ri se to a stro n g in fe re n c e o f sc ien ter . B e c a u se w e a g re e th a t p lain tiffs h a v e fa iled su ffic ien tly to a lleg e sc ien ter , w e a ffirm w ith o u t re a c h in g th e first p o in t. 2 T o s t at e a cl ai m unders ect i on 10( b) orR ul e 10b- 5, a pl ai nt i f f m us tpl ead, i nt eral i a, thatdef endant“ac t ed w i th s ci ent er , a ment als t at e embr aci ng i nt entt o dece i ve, m ani pul at e,4

ordef r aud. ” Tel l abs , I nc. v. M akorIs s ues & R i ght s , L t d. , 551 U . S. 308, 319 ( 2007) ( i nt ernal quot at i on m arks om i tt ed) . T hi s re qui r ementm ay be sa t i s f i ed by “al l egi ng f

act s ( 1) s how i ng thatthe def

endant [ ] had both m ot i ve and opportuni ty t o comm i tthe f r aud or( 2) cons t i tut i ng strong cir cum st ant i alevi dence of cons ci ous m i sbehav i or or r eckles sness. ” A T S I C om m c’ns, I nc. v. ShaarFund, Lt d. , 493 F. 3d 87, 99 ( 2d C i r . 2007) . B ecaus e pl ai nt i f f s al l ege s ecur i t i es fra u d , the y a re a lso su b

jec t t o th e h e ig h ten e dp lea d in g re q u ire m e n ts im p o se db y th e P riv a te Secur i t i es Li t i gat i on Ref orm A ctof

1995 ( “PSL R A ”) , Pub. L. 104- 67, 109 St at . 737. U nder the PSL R A , a pl ai nt i f

f m us t“s t at e w i th part i cul ar i ty f act s gi vi ng r i s e t o a s tr ong i nf er ence th a t th e d e fe n d a n t a c ted w ith ” s c ien ter . 1 5 U .S .C . § 7 8 u -4 (b )(2 ). A c o m p lain t g iv e s ris e to s uch an i nf

er ence “onl y i f

a r eas onabl e per s on w oul d deem the i nf er ence of s ci ent ercogent a n da t le a s t a s c o m p e llin g a s a n y o p p o s in g in fe re n c e o n e c o u ld d ra w fr o m th e fa c ts a lle g e d .” T el l abs , I nc. v. M akorI s s ues & R i ght s , L t d. , 551 U . S. at324.

a. L ampert ’ s A l l eged A dm i s s i ons In su p p o rto f th eir co n tention that the y h av e a d e q u a tely p lea d e dsc ien ter , p lain tiffs c ite L ampert ’ s al l eged a dm i s s i ons thathe knew thatK m art ’ s re al est at e w as underval ued atthe tim e h e b e c a m e c h a irm a n o f th e c o m p a n y . W e e a s ily c o n c lu d e th a t th e s e “ a d m is s io n s ,” w hi ch appe ari n art i cl es i n Fortune and B us i nes s W eek magazi nes , f ai l t o gi ve r i s e t o a s tr ong i nf er ence of s ci ent er . N ei therof

the art i cl es expl i ci t l y attr i but es t o L ampertany s t at ement re g a rd in g th e fa ir m a rk e t v a lu e o f K m a rt’s r e a l es tate . A s th e d istr ic t co u rt p ro p e rly co n clud ed , the c o n tents o f th e a rt icl es a re the refo re n o t adm issi o n s, b u t i n stead m ere

“ s p e c u la tio n ab o u t . . . L a m p e rt ’s o p in io n s y e a rs e a rl ie r.” C a m p o v . S e a rs H o ld in g s C o rp .,5

6 3 5 F . S u p p . 2 dat 3 3 3 ; see a lso S tern v . L eu ca d ia N at’l C o rp., 8 4 4 F . 2 d9 9 7 , 1 0 0 4 (2d C ir . 198 8) ( “ I ti s n ote no ug h t o qu ot e p r e s s s pe c ul a t i on abo utd e f e nd a nt s ’ mot i ve s . . . . Such al l egat i ons si m pl y do notprovi de . . . s peci f i c, w el l - pl eade d f

act s . . . . ” ( i nt ernal quot at i on m arks om i tt ed) ) . E ven i f the s t at ement s a ti s s ue coul d be deemed admi s s i ons , they pr ovi de no bas i s f

oras cert ai ni ng the s peci f i c value Lam pertattr i but ed t o K m art ’ s r eales t at e and thus c a n n o t su p p o rt a n in fe re n c e th a t L a m p e rt k n e w th a t th e v a lu e o f th e re a l es tate w a s m a ter ially m or e than $ 4. 623 bi l l i on. Forthe f or egoi ng r eas ons , the cont ent s of the Fortune and B u s in e s s W e e ka rt ic le s c a n n o t s u p p o rta s tr o n g in fe re n c e o f s c ie n te r.

b . M o tiv e a n dO p p o rtu n ity Pl ai nt i f f s s ubm i tthatthey hav e p l eade d s ci ent erby al l egi ng thatdef endant s had m ot i ve and opportuni ty t o com m i tthe f r aud al l eged. N ei therparty di s put es thatL ampertand D a y h a do p p o rtu n ity . T h e o n ly iss u e o n a p p e a l is th u s w h e th e r p lain tiffs h a v e su ffic ien tly a lle g e dm o tiv e . W e c o n c lu d e th a t th e y h a v e n o t. “Suf f i ci entm ot i ve al l egat i ons e nt ai l c oncr et e bene f i t s thatcoul d be r eal i zed by one orm or e of

the f al s e s t at ement s and w r ongf ul nondi s cl os ur es al l eged. ” K al ni tv. E i chl er , 264 F . 3d 13 1, 13 9 (2d C i r. 20 01 ) (i nternal qu otat i on m arks om i tt ed). O n ex am i nati on , plai nti ff s’ a lleg a tio n s th a t L a m p e rt a n dD a y c o n c e a led th e tru e v a lu e o f K m a rt’s re a l e sta te in o rd e r to p u rc h a se sto c ka t d e p re ss e dp ric e s m a n ife st n o c o n c re te b e n e fits su ffic ien t to sa tisfy th is s t andar d. B ecaus e the opt i ons L ampertand D ay exer ci s ed dur i ng the cl as s per i od – and thus the pri ces atw hich they acqu i red K m artshares – w ere nego t i at ed m on ths earl i er, L am p ert and D ay’s des i r e t o acqui r e s t ock atart i f i ci al l y l ow pr i ces cannotl ogi cal l y have be en aT o the ext entp l ai nti f f s al s o as s ertthatL ampertand D ay under s t at ed the value of 3 K m a rt’s r e a l es tate to “ p re v e n t [th e ir] e a rlierm a c h in a tio n s f ro m c o m in g to lig h t u n tila re a so n ab le p e rio do f tim e h a dp a ss e d ,” C o m p l. ¶ 1 4 6 , this a lleg a tio n is s im ila rl y d e fic ien t. S e e K a ln it v . E ich ler , 2 6 4 F .3 da t 1 4 0 (c h a ra c ter izin g a n “ a v o id a n c e o f p e rso n a l li ab ili ty m o ti v e” as “ too sp ec u lat ive a n dco n clus o ry to su p p o rtscien ter”). T o as s i s ti ti n re s ol vi ng def endant s ’ m ot i on t o di s m i s s , the di s tr i ctcourtorde r ed that 4 the conf i dent i al w i tnes s es r ef

er ence d i n the compl ai ntbe de pos ed. Pl ai nt i f f s chal l enge the d istric t co u rt’s c o n sid e ra tio n o f th a t d e p o sitio n te stim o n y . B e c a u se th e y d o s o o n ly in th e ir r epl y br i ef

, how ever, the argum enti s w ai ved. See I n r e H arr i s , 464 F. 3d 263, 268 n. 3 ( 2d C i r . 2006) ; J P M or gan C has e B ank v. A l t os H ornos de M exi co, S . A . de C . V . , 412 F. 3d 418, 428 ( 2d C i r . 2005) . E ven as s um i ng the ar gum enti s notw ai ved, w e conc l ude thati tl acks m eri t . T he anonym i ty of the s our ces of

pl ai nt i f f s ’ f actual al l egat i ons conce rni ng s ci ent er fru stra tes th e re q u ire m e n t, an n o u n c e din T e llab s, th a t a c o u rt w e ig h c o m p e tin g in fe re n c e s to 6 mot i v a t i n g f

a c t o ri n th e i ra l l e g e dmi s r e p r e s e n t a t i o n o f th e v a l u e of

K ma rt ’ s r e a l e s t a t e . To the contr ary, havi ng es t abl i s hed and e xer ci s ed thei rr i ght s t o acqui re K m arts t ock atpr i ces r angi ng f r om $10 t o $20 pers har e, L ampertand D ay’ s onl y economi cal l y r at i onal m oti ve w oul d ha ve been t o di s cl os e any i nf orm at i on thatmi ghti ncr eas e the company’ s s t ock pr i ce. Pl ai nt i f f s ’ conclus ory al l egat i ons conce rni ng L ampertand D ay ’ s m ot i ves t o m i s r epr es entthe val ue of K m art ’ s real est at e ther ef or e do nots upporta s tr ong i nf er ence of

s ci ent er . See

3 K a ln it v . E ich ler , 2 6 4 F .3 dat 1 4 0 -4 1 (“W h e re p lain tiff’s v iew o f th e fac ts d e fie s e c o n o m ic r eas on, . . . [ i t ] does notyi el d a r eas onabl e i nf er ence of f r audul enti ntent . ” (om i ss i on and alt era ti o n in o ri g inal; i n terna l qu o tat ion m ark s o m itted)).

c. C on sci ou s M i sbehav i or or R eckles sness P l ai nti ffs’ con t enti on that they hav e al l eged sci enterby dem on strat i ng defend ants ’ cons ci ous m i s behavi ororr eckl es s nes s i s si m i l ar l y unavai l i ng. R el yi ng heavi l y on the per s onal know l edge of

c onf i dent i al w i tnes s es , pl ai nt i f f s c ont end thatthey have al l eged that 4det erm i ne w hethera com plai nt gi ves r i s e t o an i nf er ence of s ci ent erthati s “coge ntand at l eas tas compel l i ng as any oppos i ng i nf er ence of

nonf r audul enti nt ent . ” Tel l abs , I nc. v. M akorI s s ues & R i ght s , L t d. , 551 U . S. at314; see al s o H i ggi nbotham v. B axt erI nt ’ l I nc. , 495 F .3 d7 5 3 , 7 5 7 (7 th C ir. 2 0 0 7 ). B e c a u se F e d . R . C iv . P . 1 1 re q u ire s th a t th e re b e a g o o d fa ith bas i s f orthe f actual a nd l egalc ont ent i ons cont ai ned i n a pl eadi ng, the di s tr i ctcourt ’ s us e of the conf i dent i al w i tnes s es ’ t es t i m ony t o t es tthe good fai th bas i s of pl ai nt i f f s ’ compl i ance w i th T el l abs w as pe rm i s s i bl e. T he courtmade no cr edi bi l i ty det erm i nat i ons , nordi d i tw ei gh compet i ng t es t i m ony. T o the contr ary, i tr el i ed upon the depos i t i on t es t i m ony f orthe l i m i t ed p u rp o se o f d e term in in g w h e th e r th e c o n fid e n tial w itn e ss e s a c k n o w led g e dth e sta tem e n ts a ttr ib u te dto th e m in th e c o m p la in t. U n d e r th e s e c ir c u m s ta n c e s , w e id e n tif y n o e rr o r. 7 L a m p e rt a n dD a y e ith e r k n e w o r sh o u ldh a v e k n o w n th e tru e v a lu e o f K m a rt’s r e a l es tate becaus e they had a cce s s t o R ealE s t at e M arket i ng Str at egy ( “R E M S”) r eport s thatcont ai ned “no n-pub l i c detai l ed i nf orm at i on conce rni ng the value of [ K m art ’s ] l easeho l ds. ” A pp el l ants ’ B r . at33. A ccor di ngl y, pl ai nt i f f s ar gue that“any publ i c st at ement s thatunderval ued the r eal e s ta te w o u ld h a v e b e e n a re s u lt o f c o n s c io u s m is b e h a v io r o r r e c k le s s n e s s .” Id . A l though ci r cumst ant i al ev i dence of cons ci ous m i s behavi ororr eckl es s nes s m ay s upporta str ong i nf

er ence of s ci ent er , “the s tr ength of the ci r cumst ant i al al l egat i ons m us tbe corr espon dingl y g reat er i f there i s no m oti ve. ” E C A , L ocal 13 4 IB E W Joi nt Pensi on T rust of C hi cago v. J P M or gan C has e C o. , 553 F. 3d 187, 198-99 ( 2d C i r . 2009) ( i nt ernal quot at i on m a rk s o m itted). T h at i s n o t th is case . S ee N o v ak v . K asa k s, 2 1 6 F . 3 d3 0 0 , 3 0 8 (2d C ir . 2 0 0 0 ) ( d is c u s s in g w h a t c o n s titu te s re c k le s s n e s s s u ff ic ie n t f o r s e c tio n 1 0 (b ) l ia b ility ). Fi r s t , nei therof

the c on f i de nt i a l w i tne s s e s w ho a r e f ormerK martr eales t at e exe cut i ves of f er ed t es t i m ony s upport i ng pl ai nt i f f s ’ al l egat i ons thatthe R E M S report s cont ai ned i nf orm at i on r egar di ng the val ue of K m art ’ s l eas ehol ds , m uch l es s thatthe i nf orm at i on i n the r eport s i ndi cat ed thatthe value of the l eas ehol ds w as $9 bi l l i on or$18 bi l l i on. C onf i dent i al8

w i tnes s 1 ( “C W 1”) t es t i f i ed thatthe R E M S r eport s , w hi ch di d noti dent i f y l eas ehol d val ues fo r p a rt ic u la r s to re s , w e re n o t u s e dto d e te rm in e th e v a lu e o f K m a rt ’s re a l e s ta te . I ndeed, he not ed thatone “c [ oul d] m ake no a s s um pt i on on val ue bas ed on the dat a cont ai ned i n [ s uch] re p o rt[s]. ” C W 1 D e p . at 1 3 1 . C o n fid e n tial w itn e ss 3 (“ C W 3 ” ) a v e rre dth a t, t o h is k n o w le d g e , n o R E M S re p o rte v e r a s c ri b e da n o v e ra ll v a lu e to K m a rt ’s re a l e s ta te . S e c o n d , alth o u g h C W 1 c o n firm e dth a t a K m a rt o ffic e r o r b o a rd m e m b e r c o u ldo b tain acc es s t o any company i nf orm at i on – i ncl udi ng R E M S r eport s – on r eques t , he admi tt ed that he h ad n o k no w l edg e of w hetherL am pertor D ay actual l y acce ssed or r eview ed the r epo rt s. F u rth e r, C W 1 e x p re ss ly d isc laim e dth e a lleg a tio n , attrib u ted to h im in th e c o m p la in t, th a t, “b ase do n info rm ati o n ob tai n ed fr o m R E M S , repo rt s as to the lea seh o ld v alue o f ea ch store lo c a tio n w e re p re p a re dfo r s e n io r e x e c u tiv e s o f K m a rt .” C o m p l. ¶3 1 . Fi nal l y, C W 1 and C W 3, nei therof w hom had any di r ectcont actw i th L ampertorD ay, t es t i f i ed thatthey had no pe r s onal know l edge of L ampertand D ay’ s opi ni ons r egar di ng the val ue of K m art ’ s r eales t at e, nordi d they have any r eas on t o be l i eve thatL ampertorD ay had acc es s t o i nf

orm at i on aboutthe r eales t at e thatR ockw ood G emi ni , K m art ’ s thi r d- party r eal es t at e appr ai s erdur i ng bankrupt cy, l acke d. E ven assum i ng that Lam pertand D ay h ad acc ess t o, and revi ew ed, the R E M S report s, the conf i dent i al w i tnes s t es t i m ony di s cus s ed pr ecludes us f r om concludi ng thatan i nf er ence o f sci enteri s “coge nt and atl eastas com pell i ng as [ the] op po si ng i nfer ence” that Lam pert and D ay’ s as s es s m ent s of the value of

K m art ’ s real est at e w er e cons i s t entei therw i th the val ue det erm i ned by R ockw ood G emi ni or thatpubl i s hed i n K m art ’ s J une 16, 2003 Form 10-N o di f f er entconclus i on i s compel l ed by pl ai nt i f f s ’ cont ent i on that“[ e] ven w i thout 5

. . . ev id e n tiary s u p p o rt, L a m p e rt a n dD a y , as h ig h -le v e l ex e c u tiv e s a n dd ire c to rs o f K m a rt, c a n b e p re su m e dto h a v e kn o w led g e o f th e m u lti -b ill io n d o llar v a lu e o f K m a rt’s r e a l es tate hol di ngs . ” A ppel l ant s ’ B r . at33. T o s ay thatL ampertand D ay pos s es s ed s uch know l edge har dl y pr oves thatthey knew ors houl d have know n the val ue of K m art ’ s r eales t at e t o be m a te ri a lly m o re th a n $ 4 .6 2 3 b illio n . I n l i g h to f

p l a i n t i f f s ’ f a i l u r e s u f f i c i e n t l y t o a l l e g e s c i e n t e ra s t o L a mp e rta n dDa y , we 6 id e n tify n o e rro r in th e d istric t co u rt’s d ism iss a l o f p lain tiffs’ c laim s a g a in st S e a rs. W h ile ther e ar e some i ns t ance s i n w hi ch a pl ai nt i f f m ay al l ege s ci ent eras t o a corpor at e def endant w i thoutal l egi ng s ci enteras t o an i ndi vi dual named def endant , s ee Teamst er s L ocal445 F re ig h t D iv . P e n sio n F u n dv . D y n e x C ap ital In c ., 5 3 1 F .3 d1 9 0 , 1 9 2 (2 dC ir. 2 0 0 8 ), th is is nots uch a c as e. T he bas i s f orpl ai nt i f

f s ’ al l egati ons of s ci ent eras t o Sear s i s the pr ovi s i on of R E M S r eport s t o seni orm anage m ent . A s w e have obs erved, how ever , pl ai nt i f f s have not al l eged f act s s uf f i ci entt o gi ve r i s e t o a s tr ong i nf er ence that the R E M S r eport s cont ai ned i nf orm at i on demonstr at i ng thatthe true value of K m art ’ s r eales t at e w as m at er i al l y m or e than $ 4 .6 2 3 b illio n . 9 Q . A ccor di ngl y, w e conclude thatpl ai nt i f f s ’ c om pl ai ntf

ai l s t o gi ve r i s e t o a strong 5 i nf er ence of

s ci ent erand thatdi s m i s s al of the s ect i on 10( b) and R ule 10b- 5 cl ai m s w as p rop er. 6 2 . S e c t i o n 2 0 ( a ) Cl a i ms Pl ai nt i f f s al l ege c ontr ol per s on l i abi l i ty unders ect i on 20(a ) of the E xchange A ct . See 15 U . S. C . § 78t ( a). T hei rf ai l ur e t o s t at e a c l ai m unders ect i on 10( b) , how ever , pr ecludes reli ef u n d er s ec ti o n 2 0 (a). S ee S E C v . F ir st Jersey S ec . , Inc . , 1 0 1 F . 3 d1 4 5 0 , 1 4 7 2 (2d C ir . 19 96 ) ( “In order t o est abli sh a pri m a faci e case o f contr oll i ng -per son l i abil i ty, a p l ai nti ff m ust s how a pr i m ary vi ol at i on by the contr ol l ed per s on . . . . ”) . W e ther ef or e af f i rm the di s m i s s al of the sect i on 20 (a) cl ai m s. 3. L eave T o A m end Pl ai nt i f f s chal l enge the di s tr i ctcourt ’ s di s m i s s al of thei r com pl ai ntw i th pr ej udi ce “w ith o u t any furthe r op p o rtu n ity for a rgu m en t con ce rnin g lea v e to a m en d . ” A p p ell an ts’ B r.10

at41 . W e revi ew the d enialof l eave to am end f or abuse of dis cret i on . S ee A T S I C om m c’ns, I nc. v. Shaa rFund, Lt d. , 493 F. 3d at108. W hi l e pl ai nt i f f s s ubj ectt o the hei ght ened pl eadi ng r equi r ement s of

Fed. R . C i v. P . 9(b) ar e gene r al l y al l ow ed “a tl eas tone opportuni ty t o pl ead fra u dw ith g re a tersp e c ificity ,” id ., “ it is w ith in th e so u n dd isc re tio n o f th e d istric t co u rt to gr antordeny l eave t o a m end, ” M cC arthy v. D un & B r ads tr eetC orp. , 482 F. 3d 184, 200 ( 2d C i r . 2007) . N ow her e i n thei ropposi t i on t o the m ot i on t o di s m i s s di d pl ai nt i f f s r eques tl eave t o amend. W hi l e pl ai nt i f f s att empt ed t o m ake s uch an appl i cat i on ator al ar gum ent , the d istric t co u rt d e c lin e dto e n ter tain th e a p p lica tio n a t th a t ti m e , an dp lain tiffs a p p e a r n o t to h av e p u rsue dthe m att er fu rth er. “[W ]e w ill n o t dee m itan ab u se o f th e d istri ct co u rt ’s di s c r e t i on t o or de rac a s e c l os e d w he n l e a ve t o a mendh a s n otb e e n s ou gh t . ” A na t i an v. C outt s B ank ( Sw i t zer l and) L t d. , 193 F. 3d 85, 89 ( 2d C i r . 1999) (i nternal quot at i on m arks om i tt ed) . E ven as s um i ng thatpl ai nt i f f s s oughtl eave t o amend dur i ng or al ar gum enton the m o tio n to d ism iss , h o w e v e r, p lain tiffs p ro v id e n o e x p lan a tio n o f w h a t th e y w o u lda lleg e in an am en d ed co m p lai n t to sa v e the irclaim s. Instea d , they sim p ly as sert, in co n clus o ry f as hi on, thatl eave t o amend i s w arr ant ed bec aus e the conf i dent i al w i tnes s es ’ “depos i t i on test im o n y a n de x h ibit s d em o n str ate that [de fen d an ts] a cted w ith sc ienter.” A p p ell an ts’ B r. at 41 -42 . F o r th e re aso n s d iscu ssed , the c o n fi d en ti a l w itne ss testi m o n y d o es n o t sup p o rt pl ai nt i f fs ’ a l l egat i ons of

s ci ent er . I n any eve nt , i n l i ghtof pl ai nt i f f s ’ f ai l ur e t o pr ovi de a sp e c if ic e x p lan a tio n o f th e m a n n e r in w h ich th e y p ro p o se to c u re th e d e fe c ts in th e ir complai nt , w e r ej ectthe cl ai m thatthe di s tr i ctcourterr ed i n notgr ant i ng l eave t o amend. S ee P o rat v. L inco ln T o w ers C m ty. A ss’n , 4 6 4 F . 3 d2 7 4 , 2 7 6 (2d C ir . 2 0 0 6 ). 4. C oncl us i on11

W e have c ons i der ed pl ai nt i f f s ’ r emai ni ng ar gum ent s on appea l and conc l ude thatthey are w ith o u t m erit . F o r th e fore g o ing rea so n s, the J u ly 2 2 , 2 0 0 9 jud g m en t of th e d istri ct co u rt i s AF F I RMED . FOR TH E CO UR T: C A T H E R IN E O ’H A G AN W O L F E , C lerk o f C o urt