In the

United States Court of Appeals

For the Seventh Circuit

No. 08-2429

DAVID FANNON and IRON WORKERS 

OF WESTERN PENNSYLVANIA PENSION 

PLAN,

Plaintiffs-Appellants,

v.

GUIDANT CORPORATION, et al.,

Defendants-Appellees.

Appeal from the United States District Court 

for the Southern District of Indiana, Indianapolis Division.

No. 1:05-cv-1658-SEB-WTL—Sarah Evans Barker, Judge.

ARGUED JANUARY 16, 2009—DECIDED OCTOBER 21, 2009

Before BAUER, FLAUM and WOOD, Circuit Judges.

WOOD, Circuit Judge. This case involves the claims of a

plaintiff class that believes the defendant corporation

defrauded them. The class asserts that the corporation

knew that it had flawed products, but in the face of that

knowledge made false or misleading public statements

about the products and about a pending merger. In addition, the plaintiffs charge, the individual defendants sold
2 No. 08-2429

nearly $89 million in company stock during the period

covered by the class’s allegations. The district court

dismissed the case on the pleadings with prejudice,

concluding that the class complaint failed to raise the

strong inference of scienter required by the Private Securities Litigation Reform Act (“PSLRA”) and Rule 9 of the

Federal Rules of Civil Procedure. The court also rejected

the plaintiffs’ motion under FED. R. CIV. P. 59(e) to reconsider based on newly discovered evidence, and their

related motion under FED. R. CIV. P. 15(a) to amend their

complaint. 

On appeal, the plaintiffs have limited themselves to

three principal arguments: first, that the district court

abused its discretion by immediately dismissing their

first consolidated complaint with prejudice (rather than

without prejudice, so that the plaintiffs could try again

to submit a legally sufficient pleading); second, that the

court abused its discretion when it denied their motion

for leave to amend their complaint; and finally, that

it abused its discretion by denying their motion under

Rule 59(e) to reconsider its dismissal. Notably, the plaintiffs have not urged us directly to review the district

court’s assessment of the legal sufficiency of their complaint, and so we do not have any issue before us that

we review de novo and we need not again consider the

standards for pleading a securities fraud case. Instead,

each of the rulings before us is one that lies within

the district court’s discretion, and our review is deferential. With that in mind, we conclude that the district court

did not abuse its discretion, and we therefore affirm its

judgment.
No. 08-2429 3

I

Because factual detail is so important in PSLRA cases,

we begin with an overview of the underlying events.

We present the alleged facts in the light most favorable

to the putative class, without vouching for them otherwise.

Guidant is a multinational corporation that develops,

manufactures, and markets medical devices. Among those

devices are implantable cardioverter defibrillators (“ICDs”)

and pacemakers that are used to monitor the heart and

to deliver electricity to treat cardiac abnormalities. The

plaintiffs represent a putative class (that was never certified) of investors who purchased Guidant stock between

December 1, 2004, and October 18, 2005. 

Beginning in 1994, Guidant launched the “Ventak” line

of ICDs. In February 2002, Guidant discovered a design

flaw in one model, the Ventak Prizm 2 DR, after it

received some reports of device failures. By April 2002,

it had addressed those flaws and begun producing a

corrected version of the device. But it did not recall the

defective products. Instead, it continued selling its inventory of defective units without disclosing either to physicians or the public the design flaw or malfunctions that

had led to device failures. Guidant was aware of at least

25 reports of device short-circuiting in the older units in

circulation. 

Two years after Guidant redesigned the Prizm 2 DR,

in the spring and summer of 2004, it entered into negotiations with Johnson & Johnson (“J&J”) for a possible merger.

The two companies executed a confidentiality agreement

as part of those early discussions. On December 1, 2004
4 No. 08-2429

(the first day of the class period), Guidant issued a press

release containing “highly positive news” about growth

prospects for its ICD and pacemaker businesses. The

release expressed Guidant’s confidence about the continued worldwide growth of that market and Guidant’s

expected performance in it. This press release, the

plaintiffs assert, was false and misleading, because Guidant

knew at the time that there were unresolved liability

issues related to the defects in its devices, but the release

was silent about this problem. In the week following

the issuance of the December 1 press release, Guidant’s

share price rose more than $5, from about $65 to around

$70. 

An announcement of a merger agreement between

Guidant and J&J followed soon afterwards, on December

15, 2004. The second release stated that J&J was to acquire

Guidant for approximately $25 billion in cash and stock;

this reflected an imputed price of $76 per share for

Guidant’s stock. The December 15 release touted the

strength of the worldwide market for cardiovascular

products. Guidant and J&J filed that release with

the Securities and Exchange Commission (“SEC”), as a

Form 8-K. According to the plaintiffs, Guidant’s share

price had jumped from $65 to $75 in anticipation of

the merger announcement. This second release, however,

was also silent about the liability risks that Guidant

faced from its defective products.

On three occasions—December 21, 2004, January 7, 2005,

and January 19, 2005—Guidant filed Form 425s with the

SEC to provide updated information to investors about
No. 08-2429 5

the J&J merger. Those updates were just as silent as

everything else had been about the problems with

Guidant’s ICDs. Between the end of January 2005 and

March 13, 2005, Guidant issued other statements about the

company’s performance and the merger. These statements

too said nothing about the liability risks it faced.

Sadly, those risks were realized when, on March 13, 2005,

21-year-old Joshua Oukrop died after his Ventak Prizm

2 DR short-circuited. Guidant learned of Oukrop’s death

three days later, on March 16. It acknowledged to Oukrop’s

physician, Dr. Barry Marron, that the ICD had shortcircuited and that it knew of 25 other such cases. It also

told Dr. Marron that approximately 24,000 ICDs similar to

the one implanted in Oukrop had been sold. When Dr.

Marron asked Guidant whether the other recipients

would be told of the defect, Guidant said no, it did not

want to “alarm” anyone. 

True to its word, when Guidant filed a preliminary

proxy statement with the SEC on March 24, 2005, it said

nothing about the fact that one patient had recently died

as a result of the malfunction of its product. The same

omissions occurred in other SEC filings and Guidant

press releases from March to July 2005. On April 27,

2005, Guidant’s shareholders approved the sale to J&J at

a price of $76 per share. Not until May 23, 2005, did

Guidant disclose in a letter to physicians that there were

reported problems with its ICD and pacemaker devices.

That action was prompted by an article that the New York

Times was about to publish, revealing the full story of the

flaws. Guidant’s May 23 letter informed the doctors that
6 No. 08-2429

it had learned of the defects in 2002, had fixed them in

later devices, and did not recommend replacement of the

defective devices because of the low risk of failure and

the risk attendant to additional surgery. On May 25, 2005,

Guidant issued a press release to the same effect. 

The Food and Drug Administration (“FDA”) issued a

national recall for the Guidant devices on June 17, 2005.

Guidant issued a physician communication and a press

release on the same day. That press release disclosed

that there had been 15 reports of failure in the Contak

Renewal and Contak Renewal 2 defibrillators, out of

approximately 16,000 implanted worldwide, and two

memory error incidents among its four models of AVT

defibrillators, out of about 21,000 implanted worldwide.

After the FDA-ordered recall, Guidant’s share price

dropped $3.36 immediately, falling to $70.33. That alone

represented a loss of $1.09 billion to Guidant investors.

Further press statements downplaying the significance

of the defects followed in June and July, while Guidant’s

share price dropped another $2.10. In October 2005,

J&J announced that it was reconsidering the merger;

this announcement also hit Guidant’s share price hard,

dropping it in one day from $72.38 to $64.10. J&J began

renegotiating the terms of the merger, but eventually

another company, Boston Scientific, entered the bidding

as well, and the latter firm ultimately agreed to buy

Guidant for about $80 per share. That deal was finalized

on April 21, 2006. Guidant became and still is a wholly

owned subsidiary of Boston Scientific.
No. 08-2429 7

The individual defendants were various officers and directors, 1

including Ronald W. Dollens, Guido J. Neels, Keith E. Brauer,

Beverly H. Lorell, Roger Marchetti, Ronald N. Spaulding, R.

Frederick McCoy, Jr., James M. Cornelius, John B. King, William

F. McConnell, Jr., and Kathleen Lundberg. Guidant points out

that neither the proposed amended complaint nor the Notice of

Appeal names King, Marchetti, McConnell, or Spaulding. Given

our disposition of the appeal as a whole, their omission is of no

consequence. It is reasonable to assume, however, that plaintiffs

have acquiesced in the district court’s judgment insofar as it

applies to these four people. 

II

In the wake of the fluctuations in Guidant’s share price,

which, over the class period, went from a low of about

$63 up to the high of $80 paid by Boston Scientific, four

class action suits were filed between June and August

2005 in the Southern District of Indiana (where Guidant

is headquartered) against Guidant and eleven of its senior

officers and directors. (We refer to the defendants collec- 1

tively as Guidant.) These suits all alleged that Guidant

had made false statements in the J&J merger documents,

and in other press releases and SEC filings. This group of

complaints was voluntarily dismissed without prejudice

in September and October 2005.

From November 3, 2005, through January 3, 2006, a

second set of securities class actions was filed in the

same district court. On March 16, 2006, the district court

consolidated these cases, and on June 2, 2006, lead

counsel for the plaintiffs filed a consolidated complaint.

The consolidated complaint alleged that during the
8 No. 08-2429

class period, Guidant and the individual defendants had

made materially false and misleading statements and

had omitted material information relating to the safety

of Guidant’s defibrillators and pacemakers and to the

proposed J&J merger. The plaintiffs asserted that when

the true facts were disclosed, Guidant’s stock price plummeted, losing approximately $3 billion in value. Yet, the

plaintiffs continued, the individual officers and directors

of Guidant sold nearly $114 million in Guidant stock

during the class period, and the approval of the J&J merger

caused their stock options to vest. 

Five days after the consolidated complaint was filed,

the district court allowed the plaintiffs to substitute a

corrected version of the complaint. The corrections were

not entirely technical; most importantly, they pushed

back the start of the class period from December 15, 2004,

to December 1, 2004. On June 13, 2006, the plaintiffs filed

supplemental information about Guidant’s defibrillators

that had just become available to them as a result of

a Texas court’s decision to unseal documents in a products

liability case concerning the same issues. This submission

was presented in support of a motion to lift a stay

of discovery; the district court eventually denied that

motion. Then on August 15, 2006, Guidant filed a motion

to dismiss for failure to state a claim. Over the next year,

while the court had that motion under advisement,

the plaintiffs notified the court that additional information

relating to scienter had surfaced in another products

liability case against Guidant that was pending in Minnesota.
No. 08-2429 9

On February 27, 2008, the district court granted

Guidant’s motion to dismiss. After setting forth the history

of the case, the court turned its attention to the plaintiffs’

motion to strike various materials that Guidant had

submitted. The court refused to strike Guidant’s annual

report for fiscal year 2005, which was reported on its

SEC Form 10-K; it also refused to strike seven of Guidant’s

SEC Form 8-Ks; finally, it ruled that six exhibits reflecting

physician communications and press releases were not

admissible for their truth, but were admissible for the

limited purpose of showing what statements were made

by Guidant to the public. The plaintiffs have not complained about any of these rulings on appeal.

Turning to the merits of Guidant’s motion, the court

noted that the complaint raised claims under sections

10(b) and 20(a) of the Securities Exchange Act of 1934,

15 U.S.C. §§ 78j(b) and 78t(a), as well as SEC Rule 10b-5,

17 C.F.R. § 240.10b-5. This meant, the court held, that the

PSLRA’s pleading standards applied to the complaint. See

15 U.S.C. § 78u-4(b). It acknowledged that the PSLRA

imposes a heightened pleading standard for plaintiffs

(like these) who are alleging securities fraud. After a

careful analysis of each statement in the consolidated

complaint, the court concluded that the complaint failed

to plead with the requisite particularity that Guidant’s

statements were misleading, and it failed to plead particularized facts giving rise to the necessary strong inference

of scienter. In addition, the court expressed strong doubt

about the lead plaintiffs’ standing to allege § 10(b) claims

based on alleged misstatements or omissions that

occurred after their final purchases of Guidant stock
10 No. 08-2429

(which took place on December 17, 2004). But the court was

willing to assume that the plaintiffs could amend to join

an additional later-purchasing named representative, and

so it did not rely on this as a ground for its decision.

The court’s judgment, which was docketed on February 27,

2008, dismissed the case with prejudice.

On March 13, 2008, the plaintiffs filed a motion under

FED. R. CIV. P. 59(e), in which they asked the district court

to set aside the judgment and to permit them to file an

amended complaint. (Initially there was some confusion

about the timeliness of this motion, but the district court

ultimately recognized that it was timely.) The proposed

amendment made more specific allegations about the

particular statements that were misleading and about

scienter, and it added allegations based on the new material from the Minnesota litigation. On May 9, 2008,

the district court denied the motion, holding that the

plaintiffs had not been diligent in obtaining and presenting

facts based on the Minnesota materials. The court did not

offer any analysis of the adequacy of the proposed

amended complaint, nor did it address the criteria of

Rule 15(a) for granting leave to amend. 

III

Those rulings set the stage for this appeal. As we

noted earlier, the plaintiffs do not assert that the district

court’s assessment of the consolidated complaint was in

error. We therefore have no need to delve into the niceties

of pleading a securities fraud case. See generally Tellabs,

Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 321 (2007).
No. 08-2429 11

Instead, we must address three more limited questions:

first, whether the district court abused its discretion

by dismissing the consolidated complaint with prejudice;

second, whether the court abused its discretion in denying

the plaintiffs’ motion to vacate the judgment pursuant

to Rule 59(e); and finally, whether it abused its discretion

when it denied the plaintiffs’ motion to file an amended

complaint. 

A

If one were to read the plaintiffs’ brief in isolation,

she would be left with the impression that the district

court looked at only one complaint and peremptorily

dismissed it without any further thought. Superficially,

perhaps that is close to the truth (although even that

overlooks the immediate correction that the plaintiffs

made to the consolidated complaint a few days after it

was filed). But, as Guidant points out, the full story is

more complex. Before the cases were consolidated, nine

individual complaints had been filed based on the

identical underlying events. The district court, from the

time the first complaint was filed, gave the plaintiffs about

a year to review and investigate the case, and then to file

a consolidated complaint. That is what they did. The court

also allowed the corrected filing. Later, while Guidant’s

motion to dismiss was under advisement, the plaintiffs

twice notified the court about additional information they

had acquired (from the Texas and Minnesota cases), but

they did not at the same time proffer an amended complaint. Thus, even disregarding the fact that the individual

suits over these issues began as early as June 2005, we
12 No. 08-2429

know that the consolidated complaint was filed on June 2,

2006, and that the district court’s order of dismissal

was entered on February 27, 2008. 

We see no way in which that sequence could be branded

as an abuse of the district court’s discretion. It is true

that there are some cases in which courts of appeals have

found that it is best to use a dismissal without prejudice

for a PSLRA complaint, given the demanding nature of

PSLRA pleading standards. See, e.g., Belizan v. Hershon, 434

F.3d 579, 583 (D.C. Cir. 2006) (a PSLRA “complaint that

omits certain essential facts and thus fails to state a

claim warrants dismissal pursuant to Rule 12(b)(6) but not

dismissal with prejudice”); Eminence Capital, LLC v. Aspeon,

Inc., 316 F.3d 1048, 1052 (9th Cir. 2002) (dismissal with

prejudice in PSLRA suit is appropriate only where “it is

clear on de novo review that the complaint could not be

saved by amendment”). But by the same token, there are

other cases in which courts of appeals have upheld dismissals with prejudice of securities complaints at a relatively early stage. See, e.g., Pugh v. Tribune Co., 521 F.3d 686,

698 (7th Cir. 2008) (dismissal of second amended complaint); In re PEC Solutions, Inc. Sec. Litig., 418 F.3d 379, 390-

91 (4th Cir. 2005); In re Alpharma, Inc. Sec. Litig., 372 F.3d

137, 153-54 (3d Cir. 2004) (initial individual complaints

folded into one consolidated complaint, which was then

dismissed with prejudice without an opportunity to

amend). 

This tells us that each case must be evaluated on its

own merit, in light of its own procedural history. The

district court was entitled to view this case as one in
No. 08-2429 13

which the plaintiffs had, as a practical matter, a number of

opportunities to craft a complaint that complied with

the standards of the PSLRA. It was therefore entitled to

bring this litigation to a close with a dismissal with prejudice. 

B

We consider next the plaintiffs’ argument that the

district court abused its discretion when it denied their

motion for reconsideration under FED. R. CIV. P. 59(e).

We do so because we have held that, once a final judgment

has been entered, the normal right to amend once as

a matter of course under FED. R. CIV. P. 15(a) is extinguished. See Foster v. DeLuca, 545 F.3d 582, 584 (7th Cir.

2008); Paganis v. Blonstein, 3 F.3d 1067, 1072-73 (7th Cir.

1993). What the aggrieved party must do, instead, is to

file a motion under Rule 59(e) seeking relief from the

judgment, and, if it believes that the deficiencies the court

has identified can be cured through an amended complaint, it must proffer that document to the court in

support of its motion. See Hecker v. Deere & Co., 556 F.3d

575, 590-91 (7th Cir. 2009). Even if the party does this, it

has a hard row to hoe, because normally Rule 59(e) motions may not be used to cure defects that could have

been addressed earlier. The party must instead point either

to an error of law or to newly discovered evidence. See

Sigsworth v. City of Aurora, 487 F.3d 506, 511-12 (7th Cir.

2007). 

The plaintiffs here assert that the information that came

into their hands after the records in Texas and Minnesota

were unsealed qualifies as newly discovered evidence,
14 No. 08-2429

and thus that the district court abused its discretion

when it refused to reopen the judgment. They urge that

they acted diligently to obtain those facts, but that they

were stymied, in part because the district court refused to

lift a stay of discovery that it had imposed pursuant to

the PSLRA. Once the documents were released, it took

the plaintiffs four months to review them and then to

amend their consolidated complaint. In the plaintiffs’

view, “[w]hile perhaps less than perfect, this delay was not

such a want of diligence that it should permanently bar

a billion-dollar securities case.” 

We are not prepared to say that the district court’s

decision on this matter was compelled in one direction or

the other—by which we mean that had the district court

chosen to grant the Rule 59(e) motion, it is likely that such

a ruling would also have fallen within the scope of

the court’s discretion. But by the same token, we cannot

find that the court’s decision to deny the motion was

abusive. In assessing the importance of the new evidence,

the court necessarily took a peek at how the proposed

amended complaint would have addressed the deficiencies

it had identified. And, after taking this look, the court

was still of the opinion that it could not tell “precisely

what facts were allegedly omitted from [Guidant’s]

disclosures that — in Plaintiffs’ assessment — would have

more fully and truthfully informed the investing public

about Guidant product defects.” The court also continued

to believe the plaintiffs had fallen short of their responsibility to plead scienter and that they had not cited “any

internal documents, confidential witnesses, or other

sources to support their allegations . . . .” 
No. 08-2429 15

The plaintiffs argue, however, that the district court’s

approach to the Rule 59(e) motion was inconsistent

with two recent decisions from this court, Chaudhry v.

Nucor Steel-Indiana, 546 F.3d 832 (7th Cir. 2008), and Foster,

545 F.3d 582. We find Chaudhry to be readily distinguishable, because it involved a situation in which the district

court refused to construe a motion under Rule 15(a) as

a motion under Rule 59(e) or Rule 60. This court found that

the district court was being “hyper-technical” with the

label on the top of the page and instructed the court to

evaluate the motion on the merits. Chaudhry, 546 F.3d at

839. This case suffers from no such problem. Foster would

present a more difficult problem if this case, like Foster,

was a simple one in which the first action of the district

court was to grant a motion to dismiss on the pleadings

with prejudice, without any determination about the

sufficiency of a proffered amended complaint. See Foster,

545 F.3d at 584-85. But, as we have explained, this is not

a simple case of a single complaint that is tossed out of

court without explanation. 

The district court was also entitled to take into account

the fact that the plaintiffs here apparently made a strategic

decision not to put their new evidence into the record

before the court ruled on Guidant’s motion to dismiss. As

we noted in Sigsworth, “it is well-settled that a Rule 59(e)

motion is not properly utilized to advance arguments or

theories that could and should have been made before

the district court rendered a judgment . . . .” 487 F.3d at 512

(internal quotation marks omitted). For all these reasons,

we find no abuse of discretion in the district court’s

decision to deny the plaintiffs’ Rule 59(e) motion.
16 No. 08-2429

C

Our discussion of the Rule 59(e) motion resolves, for

the most part, the plaintiffs’ argument with respect to

their motion to amend. Although the plaintiffs urge that

the district court should have evaluated their motion to

reopen the judgment under the standards outlined in Rule

15(a) (that is, the court should have assumed that they

had a right to amend as a matter of course), rather than

under the Rule 59(e) standards, that position does not

reflect the proper relation between those two rules. Interestingly, that position is also inconsistent with what the

plaintiffs themselves said before the district court. As

Guidant points out, there the plaintiffs stressed that their

initial request was to amend the judgment under Rule

59(e) to make it one without prejudice, and they referred to

Rule 15(a) only after asserting that they had met the

requirements of Rule 59(e). Citing Taubenfeld v. Aon Corp.,

415 F.3d 597, 599 (7th Cir. 2005), Guidant takes the position

that the plaintiffs have therefore waived any argument

that Rule 15(a) standards somehow take precedence.

We prefer not to concern ourselves with waiver, as it

makes no difference to the outcome. The entry of a final

judgment under Rule 58 is a watershed point in any

litigation. Rule 15(a) is silent about any period after final

judgment. But there are two rules of civil procedure

that expressly address this phase of the suit: Rule 59 and

Rule 60. Those rules logically affect all the rest of the

rules directed to proceedings in the district courts. The

district court correctly assessed whether the plaintiffs

were entitled under the standards of Rule 59(e) to have
No. 08-2429 17

the judgment altered or amended. As we said in Hecker,

“[o]nce judgment has been entered, there is a presumption

that the case is finished, and the burden is on the party

who wants to upset that judgment to show the court

that there is good reason to set it aside.” 556 F.3d at 591.

The plaintiffs here did not meet that burden.

* * *

We AFFIRM the judgment of the district court.

10-21-09