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IN THE UNITED STATES DISTRICT COURT 

 FOR THE NORTHERN DISTRICT OF TEXAS 

 DALLAS DIVISION

PATRICIA A. MAGRUDER, on Behalf of '

Herself and All Others Similarly Situated, '

 '

Plaintiffs, '

 '

 ' Civil Action No. 3:05-CV-1156-M 

 '

HALLIBURTON COMPANY, and '

DAVID J. LESAR, '

 § 

Defendants. '

MEMORANDUM OPINION AND ORDER

Before the Court are the Motions to Dismiss filed by Defendants Lesar and Halliburton 

[Docket Entries #18 and #20]. Having considered the extensive briefing, oral argument, and 

applicable law, the Court hereby GRANTS the Motions, insofar as they request dismissal of the 

Complaint for failure to satisfy the stringent requirements for pleading an action based on 

securities fraud, but grants Plaintiffs leave to file an amended Complaint to comply with these 

requirements. 

PRELIMINARY ISSUES REGARDING CLASS DEFINITION

Because the parties dispute several preliminary matters, including the class period, the 

Court will address those arguments first, and then reach the issues relevant to the Motions to 

Dismiss. 

A. Class Period 

The parties dispute the end date of the class period. Defendants claim that the class 

 

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period should end on May 28, 2002. Plaintiffs seek a class period ending July 22, 2002. The 

original suit, Case No. 3:02-CV-1152-M, filed by Richard Moore on June 3, 2002, alleged a 

class period of July 22, 1999, until May 28, 2002. A Complaint filed by John Kimble on August 

29, 2003, was consolidated into the Moore suit. Kimble’s Complaint alleged a class period of 

September 29, 1998, to July 24, 2002. 

Class counsel in the consolidated case then trimmed the class period to end on December 

7, 2001. On March 24, 2005, Magruder sought to intervene, referencing the later class periods in 

the Moore and Kimble Complaints. On May 3, 2005, the Court allowed “Patricia Magruder or 

any party purporting to be injured by actions of all or some of the Defendants after December 7, 

2001,” to file a Complaint by May 9, 2005. In the event such a Complaint was filed, the Court 

set a deadline for the parties to propose “what type of notice should be given to the putative class 

included within the post December 7, 2001 period.” 

On May 9, 2005, Plaintiff Magruder filed a Class Action Complaint with a class period 

from December 8, 2001, until July 22, 2002. The same day, the consolidated plaintiffs filed a 

Third Amended Complaint, alleging a class period from September 29, 1998, until December 7, 

2001. On June 3, 2005, the Court severed the Magruder Complaint from the consolidated action 

and allowed Magruder to proceed separately.1

 

Magruder’s First Amended Complaint, filed on April 30, 2007, alleged the same class 

period she earlier sought—December 8, 2001, until July 22, 2002. Defendants argue that the 

class period should end on May 28, 2002, because the Moore Complaint and the Third Amended 

Complaint in the consolidated action alleged class periods ending on or before May 28, 2002. 

 

1

 This Court denied class certification of the claims of the consolidated plaintiffs on November 4, 2008. However, 

the Court is not now deciding the issue of class certification in this case. 

 

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Plaintiffs argue that their Complaint relates back to the Kimble Complaint, which alleged 

a class period lasting until July 24, 2002. The Court agrees. As a result, the applicable class 

period is December 8, 2001, until July 22, 2002. 

B. Other Issues Regarding Class Definition 

Defendants argue that any statements or events occurring prior to June 3, 1999, are time 

barred by the three year statute of repose. The Court determined in its March 14, 2006, Order in 

the consolidated action that “all claims asserted by Plaintiffs for actions of any Defendant 

predating June 3, 1999, are dismissed as barred by limitations.” Both parties acknowledge that 

only statements or events within the class period are actionable. However, Defendants further 

argue that statements and events occurring outside the class period should be stricken from the 

Complaint. Because this issue is ultimately a matter of evidence, and the Plaintiffs argue that the 

alleged facts may be relevant to establish whether class period statements were false or 

misleading, the Court will not strike from the Complaint statements or events outside the class 

period which may provide relevant context and background. Their presence, however, will not 

somehow revive claims the Court has already determined are barred by limitations. 

DEFENDANTS’ MOTIONS TO DISMISS

A. Background 

Plaintiffs filed this class action for alleged violations of the Securities Exchange Act of 

1934, 15 U.S.C. § 78 et seq. Defendant Halliburton (“Halliburton”) seeks dismissal of Plaintiffs’ 

Amended Class Action Complaint (the “Complaint”) under Federal Rules of Civil Procedure 

9(b) and 12(b)(6).2

 Halliburton argues that Plaintiffs have “failed to plead fraud, scienter, or loss 

 

2

 FED. R. CIV. P. 9(b) states: “In alleging fraud or mistake, a party must state with particularity the circumstances 

 

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causation with sufficient particularity.” Halliburton further argues that “the statements 

challenged by Plaintiff are protected by the PSLRA’s safe harbor.” Defendant Lesar filed a 

separate Motion to Dismiss, alleging substantially similar grounds for dismissal. 

B. Legal Standard 

In the Complaint, Plaintiffs allege violations of §10(b) of the Securities Exchange Act of 

1934, and of Securities and Exchange Commission Rule 10b-5, which implements §10(b). 

Section 10(b) prohibits, “in connection with the purchase or sale of any security..., any 

manipulative or deceptive device or contrivance in contravention of such rules and regulations as 

the [SEC] may prescribe as necessary or appropriate in the public interest or for the protection of 

investors.”3 Accordingly, Rule 10b-5 makes it unlawful: 

(a) To employ any device, scheme, or artifice to defraud, 

(b) To make any untrue statement of a material fact or to omit to state a material 

fact necessary in order to make the statements made ... not misleading, or 

(c) To engage in any act, practice, or course of business which operates or would 

operate as a fraud or deceit upon any person, in connection with the purchase or 

sale of any security.4 

The basic elements of a securities fraud claim are: 

(1) a material misrepresentation or omission; 

(2) scienter, i.e., a wrongful state of mind; 

(3) a connection with the purchase or sale of a security; 

(4) reliance, often referred to in cases involving public securities markets (fraudon-the-market cases) as “transaction causation;” 

(5) economic loss, 15 U.S.C. § 78u-4(b)(4); and 

(6)“loss causation,” i.e., a causal connection between the material 

misrepresentation and the loss.5

 constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person's mind may be alleged 

generally.” FED R. CIV. P. 12(b)(6) states: “a party may assert the following defenses by motion... (6) failure to 

state a claim upon which relief can be granted...” 

3

 15 U.S.C. § 78j(b). 

4

 17 CFR § 240 Rule 10b-5. 

5 Dura Pharm., Inc. et al., v. Broudo et al., 544 U.S. 336, 341 (2005) (citations omitted) (emphasis in original); see 

also Ind. Elec. Workers’ Pension Trust Fund IBEW, et al., v. Shaw Grouping, et al., 537 F.3d 527, 532 (5th Cir. 

 

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Normally a complaint must satisfy Rule 8 of the Federal Rules of Civil Procedure, which 

merely requires “a short and plain statement of the claim showing that the pleader is entitled to 

relief.”6 However, allegations of fraud, such as those brought under §10(b), must be pled with 

particularity, pursuant to both the Private Securities Litigation Reform Act (PSLRA) and Rule 

9(b) of the Federal Rules of Civil Procedure.7

 

Rule 9(b) states: “In alleging fraud or mistake, a party must state with particularity the 

circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a 

person’s mind may be alleged generally.”8

 In addition, the PSLRA enhances the requirements of 

Rule 9(b) in two ways: 

First, plaintiffs must “specify each statement alleged to have been misleading, 

[and] the reason or reasons why the statement is misleading ....” 15 U.S.C. § 78u4(b)(1)(B). Second, for “each act or omission alleged” to be false or misleading, 

plaintiffs must “state with particularity facts giving rise to a strong inference that 

the defendant acted with the required state of mind.” 15 U.S.C. § 78u-4(b)(2).9

The Fifth Circuit summarized the requirements of both the PSLRA and Rule 9(b) in Goldstein v. 

MCI Worldcom:

[A] plaintiff pleading a false or misleading statement or omission as the basis for 

a section 10(b) and Rule 10b-5 securities fraud claim must, to avoid dismissal 

pursuant to Rule 9(b) and 15 U.S.C. §§ 78u-4(b)(1) & 78u-4(b)(3)(A): 

(1) specify the [sic] each statement alleged to have been misleading, i.e., 

contended to be fraudulent; 

(2) identify the speaker; 

(3) state when and where the statement was made; 

(4) plead with particularity the contents of the false representations; 

(5) plead with particularity what the person making the misrepresentation 

 2008). 

6

 FED. R. CIV. P. 8(a)(2). 7 Tellabs, Inc., et al., v. Makor Issues & Rights, LTD, et al., 127 S. Ct. 2499, 2507 (2007) (“Prior to the enactment of 

the PSLRA, the sufficiency of a complaint for securities fraud was governed not by Rule 8, but by the heightened 

pleading standard set forth in Rule 9(b).”). 

8

 FED. R. CIV. P. 9(b). 9 Ind. Elec. Workers’ Pension Trust Fund IBEW, 537 F.3d at 533. 

 

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obtained thereby; and 

(6) explain the reason or reasons why the statement is misleading, i.e., why the 

statement is fraudulent.10

“This is the ‘who, what, when, where, and how’ required under Rule 9(b) in our securities fraud 

jurisprudence and under the PSLRA.”11 

Additionally, for allegations made on information and belief, the plaintiff must allege 

with particularity “all facts on which that belief is formed, i.e., set forth a factual basis for such 

belief.”12 However, the plaintiff is not required to plead with particularity every single fact upon 

which its beliefs concerning false or misleading statements are based, but is required only to 

plead with particularity sufficient facts to support those beliefs.13 

Plaintiffs may attempt to satisfy these pleading requirements by relying on statements 

made by a third party (typically an analyst), rather than on statements actually made by a 

defendant, and by arguing that such statements should be attributed to a defendant.14 “Generally, 

securities issuers are not liable for statements or forecasts disseminated by securities analysts or 

third parties unless they have ‘sufficiently entangled [themselves] with the analysts’ forecasts [so 

as] to render those predictions ‘attributable to [the issuers].’”15 Entanglement may exist if 

plaintiffs can demonstrate that (1) the defendants adopted the statements, or (2) the defendants 

used the analysts as a conduit, making the statements with the intent that the analysts would 

 

10 Goldstein v. MCI Worldcom, 340 F.3d 238, 245 (5th Cir. 2003) (citing ABC Arbitrage Plaintiffs Group v. 

Tchuruk, 291 F.3d 336, 350 (5th Cir.2002)). 11 Id. 12 ABC Arbitrage Plaintiffs Group, 291 F.3d at 350. 13 Id. at 352. 14 Barrie et al., v. Intervoice-Brite, Inc., et al., 397 F.3d 249, 262 (5th Cir. 2005); Southland Sec. Corp. et al., v. 

Inspire Ins. Solutions Inc., et al., 365 F.3d 353, 373-74 (5th Cir. 2004). 15 Southland Sec. Corp., 365 F.3d at 373. 

 

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communicate them to the market.16 Mere repetition by analysts of statements made by 

defendants will not suffice.17 Entanglement and/or manipulation must be specifically pled. 

The Fifth Circuit explained the special pleading requirements for attributing statements 

made by third parties to defendants in Southland Securities Corp.: 

The plaintiff must plead with particularity...who supplied the information to the 

analyst, how the analyst received the information, and how the defendant was 

entangled with or manipulated the information and the analyst. Since the 

allegation of entanglement is central to the overall allegation of securities fraud, it 

must be pleaded with the required degree of specificity. The pleading should (1) 

identify the specific forecasts and name the insider who adopted them; (2) point to 

specific interactions between the insider and the analyst which allegedly gave rise 

to the entanglement; and (3) state the dates on which the acts which allegedly 

gave rise to the entanglement occurred.

18 

Absent specific allegations of these facts in the complaint, plaintiffs will not be permitted to rely 

on statements made by third parties in a securities fraud action. 

Liability for fraudulent omissions under Rule 10b-5 requires additional analysis. This 

Court, in the case of In re Odyssey Healthcare, Inc. Securities Litigation, observed that the usual 

requirements of the PSLRA and Rule 9(b) do not easily “fit” omissions as they do 

misrepresentations.19 The court held that where fraudulent omissions are alleged, “Rule 9(b) 

typically requires the claimant to plead the type of facts omitted, the place in which the 

omissions should have appeared, and the way in which the omitted facts made the 

representations misleading.”20 The court further required the plaintiffs to “specify the statement 

that is misleading due to the omission in the same manner as a misrepresentation, i.e., the who, 

 

16 Id. 17 In re Odyssey Healthcare, Inc. Sec. Litig., 424 F. Supp. 2d 880, 887 (N.D. Tex. 2005) (Godbey, J.). 18 Southland Sec. Corp., 365 F.3d at 373-74 (citations omitted) (emphasis added) (“However, analysts’ statements 

that reflect their own opinions or forecasts may not be charged to the defendants because the plaintiffs have not 

sufficiently alleged entanglement and the adoption of such statements by the defendants.”). 

19 In re Odyssey Healthcare, Inc. Sec. Litig., 424 F. Supp. 2d at 892. 20 Id. (citing United States ex rel. Riley v. St. Luke's Episcopal Hosp., 355 F.3d 370 (5th Cir. 2004)). 

 

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what, when, and where.”21 Finally, the court held that “if the misleading nature of the statement 

is not apparent from the content of the statement and the substance of the omissions, the factual 

allegations of the complaint must set forth [with particularity] an explanation of why the 

omission rendered the statement misleading.”22

These additional requirements arise because, generally, a corporation is not liable under 

§10(b) merely because it failed to disclose all material information it possessed.23 In fact, 

liability for nondisclosure can only arise if the plaintiff alleges facts that give rise to a duty to 

speak.24 This court in Kunzweiler v. Zero.net, Inc. explained: 

Where a complaint alleges a material omission, “the materiality of the information 

claimed not to have been disclosed... is not enough to make out a sustainable 

claim of securities fraud. Even if the information is material, there is no 

liability under Rule 10b-5 unless there was a duty to disclose it.” (citations 

omitted)...[A]n affirmative duty to disclose does arise when (1) a corporate 

insider trades on confidential information; (2) a corporation has made inaccurate, 

incomplete or misleading prior disclosures; or (3) a statute or regulation requires 

disclosure (citations omitted).25

The Fifth Circuit explained that allegations of incomplete disclosures are sustainable only 

if what was said is actually misleading. “[I]n other words it must affirmatively create an 

impression of a state of affairs that differs in a material way from the one that actually exists.”26

As a result, to survive a motion to dismiss where the plaintiff alleges fraudulent omissions or 

incomplete disclosures, the plaintiff must plead with particularity the facts that give rise to a duty 

 

21 Id. at 893. 22 Id. at 894 (“The Complaint should specify the inference or implication that allegedly arises from the statement and 

explain why that inference or implication arises from the statement. Finally, the Complaint should specify the 

omitted information that is contrary to the implication or inference arising from the allegedly misleading statements, 

and establish that the omitted information was known to the speaker.”). 

23 Ind. Elec. Workers’ Pension Trust Fund IBEW, 537 F.3d at 541. 24 Id. (citing Kaplan v. Utilicorp United, Inc., 9 F.3d 405, 407 (5th Cir.1993)). 25 Kunzweiler v. Zero.net, Inc., No. 3:00-cv-2553-P, 2002 U.S. Dist. LEXIS 12080 at *31-32 (N.D. Tex. July 3, 

2002) (Solis, J.). 

26 Ind. Elec. Workers’ Pension Trust Fund IBEW, 537 F.3d at 541. 

 

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to disclose the material information, or the failure to do so will not be actionable. 

The law mandates dismissal of any securities fraud claim that fails to satisfy either the 

PSLRA’s pleading requirements or those of Rule 9(b).27 In evaluating a motion to dismiss for 

failure to state a claim, this Court looks to each allegedly fraudulent statement and/or omission 

independently to determine whether all elements are alleged with the required particularity, and 

“cannot aggregate insufficient allegations/pleadings in order to arrive at a conclusion of 

sufficiency when [the complaint is] viewed as a whole.”28 Each allegation of fraud must 

individually meet the particularity requirements of the PSLRA.29 This court has the authority to 

dismiss claims even on grounds that the defendants did not themselves raise. “Even if a party 

does not make a formal motion, the court on its own initiative may note the inadequacy of the 

complaint and dismiss it for failure to state a claim as long as the procedure employed is fair.”30 

1. Material Misrepresentation, Incomplete Disclosure, or Omission 

Rule 10b-5 requires a misrepresentation or omission to be material in order to be 

actionable. The United States Supreme Court addressed the issue of materiality in Basic Inc. v. 

Levinson, and explained that the materiality requirement applied not only to the 

misrepresentation or omission, but also to the underlying omitted fact. “[I]n order to prevail on a 

Rule 10b-5 claim, a plaintiff must show that the statements were misleading as to a material fact. 

It is not enough that a statement is false or incomplete, if the misrepresented fact is otherwise 

 

27 In re Dell Inc., Sec. Litig., 591 F. Supp. 2d 877, 892 (W.D. Tex. 2008). 28 In re Alamosa Holdings, Inc. Sec. Litig., 382 F. Supp. 2d 832, 845 n.5 (N.D. Tex. 2005). 

29 Barrie, 397 F.3d at 260. 30 Coates et al., v. Heartland Wireless Commc’ns, Inc. et al., 55 F. Supp. 2d 628, 632 (N.D. Tex. 1999) (Fitzwater, 

J.) (“The court concludes that because defendants move to dismiss on the ground that plaintiffs have failed 

adequately to plead scienter, the court may analyze plaintiffs’ complaint on its own initiative and dismiss for reasons 

defendants did not give.”). 

 

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insignificant.”31 The Court explained that an omitted fact is material if there is a “substantial 

likelihood” that “disclosure of the omitted fact would have been viewed by the reasonable 

investor as having significantly altered the ‘total mix’ of information made available.”32 In other 

words, a misstatement or omission is material “if there is a substantial likelihood that a 

reasonable investor would consider the information important in making a decision to invest.”33 

Importantly, “vague and optimistic” statements that are mere puffery are not actionable 

because they are immaterial as a matter of law.34 Generalized, positive statements about a 

company, i.e., the company’s competitive strengths, experienced management, and future 

prospects, are immaterial.35 This is because the market relies on specific facts in determining the 

price of a security, rather than vague and optimistic statements. No duty exists for a company to 

portray itself in a cautious or “pejorative” light, so long as its statements are “reasonably 

consistent with reasonably available data.”36 

Along the same reasoning, “[a] statement of belief is only open to objection where the 

evidence shows that the speaker did not in fact hold that belief and the statement made asserted 

something false or misleading about the subject matter.”37 And a “predictive statement,” where 

the speaker makes statements regarding the future, may be actionable in three circumstances: (1) 

 

31 Basic Inc., et al., v. Levinson, 485 U.S. 224, 238 (1988). 32 Id. at 231; Rosenzweig et al., v. Azurix Corp., et al., 332 F.3d 854, 865-66 (5th Cir. 2003). 33 ABC Arbitrage Plaintiffs Group, 291 F.3d at 359; see also Southland Sec. Corp., 365 F.3d at 362 (“A 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.’ Materiality ‘depends on the significance the 

reasonable investor would place on the withheld or misrepresented information.’”(citations omitted)). 34 Southland Sec., 365 F.3d at 372; Nathenson et al., v. Zonagen Inc. et al., 267 F.3d 400, 422 (5th Cir. 2001) (“We 

conclude that there is no ‘substantial likelihood’ that a reasonable investor would consider these statements about a 

believed discovery whose value was wholly speculative to have ‘significantly altered the ‘total mix’ of information’ 

about Zonagen, and that these statements respecting Immumax were hence immaterial as a matter of law.” (citation 

omitted)). 

35 Rosenzweig, 332 F.3d at 869. 36 Id. (citing Abrams et al., v. Baker Hughes Inc., et al., 292 F.3d 424, 433 (5th Cir. 2002)). 37 Greenberg et al., v. Crossroads Systems, Inc. et al., 364 F.3d 657, 670 (5th Cir. 2004). 

 

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the speaker does not genuinely believe the statement is accurate; or (2) there is no reasonable 

basis for that belief; or (3) the speaker is aware of undisclosed facts that would tend to seriously 

undermine the accuracy of the statement.38 However, merely alleging that certain predictive 

statements did not have a reasonable basis-“that is, that were negligently made-would hardly 

suffice to state a claim under Rule 10b-5.”39

Also, if the alleged misrepresentations or omissions rest on contingent or speculative 

information or events, “materiality ‘will depend at any given time upon a balancing of both the 

indicated probability that the event will occur and the anticipated magnitude of the event in light 

of the totality of the company activity.’”40

Finally, this Court does not judge the materiality of misrepresented or omitted facts in the 

abstract, but in light of all surrounding circumstances.41 

2. Scienter 

The United States Supreme Court addressed the scienter requirement in Tellabs, Inc. v. 

Makor Issues & Rights, Ltd.

42 “To establish liability under § 10(b) and Rule 10b-5, a private 

plaintiff must prove that the defendant acted with scienter, ‘a mental state embracing intent to 

deceive, manipulate, or defraud.’”43 Additionally, the PSLRA requires a plaintiff to “state with 

particularity facts giving rise to a strong inference that the defendant acted with the required state 

of mind,” i.e., to allege the intent to deceive, manipulate, or defraud, or severe recklessness, with 

 

38 Rosenzweig, 332 F.3d at 868 (5th Cir. 2003) (citing Rubinstein v. Collins, 20 F.3d 160, 166 (5th Cir. 1994)). 

39 Id. at 870 (citing Rubenstein, 20 F.3d at 169). 40 Basic Inc., 485 U.S. at 238. 41 Rosenzweig, 332 F.3d at 866. 42 551 U.S. 308 (2007). 

43 Tellabs, Inc., 127 S. Ct. at *2507. 

 

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particularity.44 

In Tellabs, the Supreme Court provided a three step process for analyzing scienter in the 

context of a Rule 12(b)(6) motion to dismiss: 

First, faced with a Rule 12(b)(6) motion to dismiss a § 10(b) action, courts must, 

as with any motion to dismiss for failure to plead a claim on which relief can be 

granted, accept all factual allegations in the complaint as true (citation omitted). 

Second, courts must consider the complaint in its entirety, as well as other sources 

courts ordinarily examine when ruling on Rule 12(b)(6) motions to dismiss, in 

particular, documents incorporated into the complaint by reference, and matters of 

which a court may take judicial notice (citation omitted). The inquiry, as several 

Courts of Appeals have recognized, is whether all of the facts alleged, taken 

collectively, give rise to a strong inference of scienter, not whether any individual 

allegation, scrutinized in isolation, meets that standard. Third, in determining 

whether the pleaded facts give rise to a “strong” inference of scienter, the court 

must take into account plausible opposing inferences.

45

The Supreme Court emphasized the call for facts supporting a “strong” inference of scienter, 

rather than allowing plaintiffs to provide a mere factual basis for their allegations.46 The Court 

defined “strong” as “a powerful or cogent inference” or “persuasive, effective, and cogent.”47 

The Court further explained: 

To determine whether the plaintiff has alleged facts that give rise to the requisite 

“strong inference” of scienter, a court must consider plausible nonculpable 

explanations for the defendant's conduct, as well as inferences favoring the 

plaintiff. The inference that the defendant acted with scienter need not be 

irrefutable, i.e., of the “smoking-gun” genre, or even the “most plausible of 

competing inferences,” (citation omitted). Yet the inference of scienter must be 

more than merely “reasonable” or “permissible”-it must be cogent and 

compelling, thus strong in light of other explanations.48

The Court held that a complaint will survive only if “a reasonable person would deem the 

 

44 15 U.S.C. §78u-4(b)(2). 

45 Tellabs, Inc., 127 S. Ct. at *2509 (emphasis added); see also Ind. Elec. Workers’ Pension Trust Fund IBEW, 537 

F.3d at 533. 

46 Tellabs, Inc., 127 S. Ct. at *2510. 47 Id. 48 Id.

 

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inference of scienter cogent and at least as compelling as any opposing inference one could draw 

from the facts alleged.”49 

For securities fraud, the required state of mind that must be pled is either an “intent to 

deceive, manipulate, or defraud,” or “severe recklessness.”50 “[A] securities fraud plaintiff must 

prove that the defendant either consciously misbehaved...or was so severely reckless that it 

demonstrates that the defendant must have been aware of the danger of misleading the investing 

public.”51 The Fifth Circuit defines “severe recklessness” as: 

[L]imited to those highly unreasonable omissions or misrepresentations that 

involve not merely simple or even inexcusable negligence, but an extreme 

departure from the standards of ordinary care, and that present a danger of 

misleading buyers or sellers which is either known to the defendant or is so 

obvious that the defendant must have been aware of it.52 

Importantly, in the Fifth Circuit plaintiffs must adequately allege scienter with respect to 

individual defendants, rather than relying on “group pleading,” i.e., alleging that “defendants” or 

“management” acted with the required intent or severe recklessness.53 The group pleading 

doctrine allows plaintiffs to rely on a presumption that statements in “prospectuses, registration 

statements, annual reports, press releases, or other group-published information,” are the 

collective work of those individuals with direct involvement in the everyday business of the 

company.54 The Fifth Circuit rejected this doctrine because it directly contravened the scienter 

requirement of the PSLRA, where particular facts giving rise to a strong inference that a 

 

49 Id. 50 Ind. Elec. Workers’ Pension Trust Fund IBEW, 537 F.3d at 533 (citing Rosenzweig, 332 F.3d at 866). 51 Plotkin et al., v. IP AXESS INC., et al., 407 F.3d 690, 697 (5th Cir. 2005). 52 Ind. Elec. Workers’ Pension Trust Fund IBEW, 537 F.3d at 533 (citing Rosenzweig, 332 F.3d at 866). 53 See Southland Sec. Corp., 365 F.3d at 365. 54 Id. (citations omitted). 

 

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particular defendant acted with the required state of mind must be alleged.55 “Instead of being 

required to plead that a defendant actually made, authored or approved an offending statement in 

a corporate communication, the ‘group pleading’ doctrine in its broadest form allows 

unattributed corporate statements to be charged to one or more individual defendants based 

solely on their corporate titles...[it] would allow the plaintiff to plead the first element of a 

section 10(b) case against an individual defendant without citing particular facts connecting the 

defendant to the alleged fraud.”56 The Fifth Circuit recently explained: 

[T]his court has rejected the group pleading approach to scienter and instead looks 

to the state of mind of the individual corporate official or officials “who make or 

issue the statement (or order or approve it or its making or issuance, or who 

furnish information or language for inclusion therein, or the like) rather than 

generally to the collective knowledge of all the corporation’s officers and 

employees acquired in the course of their employment.” Consequently, “it is only 

necessary for us to address the allegations claimed to adequately show [scienter] 

on the part of the [named officers]” to determine whether the complaint 

sufficiently pleads scienter.

57

 

While a corporate defendant, like Halliburton in this case, may be liable for the false 

statements of its officers, the false statements must still be alleged with particularity to satisfy the 

PSLRA, and must therefore identify the individual corporate officer to whom the statement or 

omission is attributable.58 “Corporate statements can be tied to officers if plaintiffs allege they 

signed the documents on which the statements were made or allege adequately their involvement 

in creating the documents.”59 The complaint must specifically tie individual defendants to the 

 

55 Id. 56 Id. 57 Ind. Elec. Workers’ Pension Trust Fund IBEW, 537 F.3d at 533 (emphasis added) (citing Southland Sec. Corp.,

365 F.3d at 367-68). 

58 Barrie, 397 F.3d at 262. 

59 Fin. Acquisition Partners LP, et al., v. Blackwell et al., 440 F.3d 278, 287 (5th Cir. 2006). 

 

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statements or omissions, or it will fail under the PSLRA’s heightened-pleading standard.60 As 

the Fifth Circuit explained, “[c]onsistent with our rejection of the ‘group pleading’ doctrine, we 

do not construe allegations contained in the Complaint against the ‘defendants’ as a group as 

properly imputable to any particular individual defendant unless the connection between the 

individual defendant and the allegedly fraudulent statement is specifically pleaded.”

61

Consequently, a defendant corporation is deemed to have the required scienter for fraud 

only if the individual corporate officer making the statement has the required level of scienter, 

i.e., knows that the statement is false, or is at least severely reckless as to its falsity, at the time 

the statement or omission was made. 

Conclusory allegations of scienter will not survive.62 The Fifth Circuit has explained that 

“general allegations and conclusory statements, such as stating [defendants] knew ... adverse 

material” cannot support a strong inference of scienter.63 However, direct evidence of intent or 

severe recklessness is not required, and Plaintiffs may rely on circumstantial evidence to 

demonstrate scienter.64 

Finally, scienter must exist at the time the misrepresentation or omission allegedly 

occurred.65 The rule in the Fifth Circuit is that “a ‘Plaintiff cannot charge Defendants with 

intentionally misleading their investors about facts Defendants may have become aware of after 

 

60 Id. 61 Southland Sec. Corp., 365 F.3d at 365 (emphasis added). 62 Plotkin, 407 F.3d at 696 (citing Southland Sec. Corp., 365 F.3d at 361). 63 Ind. Elec. Workers’ Pension Trust Fund IBEW, 537 F.3d at 538-39; but see Plotkin, 407 F.3d at 700 (where the 

Fifth Circuit allowed a general inference of scienter, stating: “Given the reasonableness of the inference that Plotkin 

possessed material facts casting doubt on its contracting partners’ credibility, the district court was incorrect to fault 

Plotkin for failing to allege specific facts conclusively proving that IPaxess knew this information. Cf. Novak v. 

Kasaks, 216 F.3d 300, 308 (2d Cir.2000) (stating that an egregious refusal to see the obvious, or to investigate the 

doubtful, may in some cases give rise to an inference of recklessness).”). 

64 Ind. Elec. Workers’ Pension Trust Fund IBEW, 537 F.3d at 535. 65 Kunzweiler, 2002 U.S. Dist. LEXIS 12080 at *22. 

 

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making allegedly misleading statements to the public.’”66 

a. Motive and Opportunity 

Allegations of motive and opportunity standing alone will not suffice to establish a strong 

inference of scienter.67 But appropriate motive and opportunity allegations may “meaningfully 

enhance the strength of the inference of scienter.”68 Importantly, generalized financial motives 

will not support an inference of scienter. In Abrams v. Baker Hughes Inc. the Fifth Circuit 

explained:

[T]he motives alleged in the complaint are not the types of motive that support a 

strong inference of scienter. The plaintiffs allege that the defendants were 

motivated to commit fraud by the need to raise capital, the desire for enhanced 

incentive compensation and the desire to sell stock at inflated prices. This court 

has held that similar allegations were insufficient to support an inference of 

scienter...Absent an allegation that the defendants profited from the inflated stock 

value or the offerings, such allegations fail.69

 Suspicious sales of stock may support an inference of scienter, but only insider trading in 

suspicious amounts or at suspicious times during the class period is probative of scienter. 

Plaintiffs must allege that stock sales were out of line with prior trading practices, or were made 

at times calculated to maximize personal profit. “[E]ven unusual sales by one insider do not give 

rise to a strong inference of scienter when other defendants do not sell some or all of their shares 

during the Class Period.”70 The fact that other defendants did not sell their shares during the 

relevant class period will also undermine plaintiffs’ allegations of scienter.71

 

66 Plotkin, 407 F.3d at 698 (citing Lain v. Evans, 123 F. Supp. 2d 344, 350 (N.D. Tex. 2000)). 67 Ind. Elec. Workers’ Pension Trust Fund IBEW, 537 F.3d at 533 (citing Rosenzweig, 332 F.3d at 867). 68 Id. (citing Southland Sec. Corp., 365 F.3d at 368). 69 Abrams, 292 F.3d at 434. 70 Id. at 435. 71 Nathenson, 267 F.3d at 421. 

 

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b. Failure to follow Generally Accepted Accounting Principles (GAAP) 

Generally, the mere publication of inaccurate accounting figures, or the mere failure to 

follow GAAP, does not alone establish scienter.72 “To plead scienter adequately, plaintiffs must 

state with particularity facts giving rise to a strong inference that the party knew that it was 

publishing materially false information, or that the party was severely reckless in publishing such 

information.”73 “Plaintiffs cannot transform inherently nuanced conclusions into fraudulent 

misstatements or omissions simply by saying that there were abuses or misuses of the GAAP 

rules.”74 Simply put, accounting violations can easily arise from negligence, oversight, or 

mismanagement, none of which rise to the standard required to support a securities fraud 

action.75

However, even though GAAP violations alone are insufficient to establish scienter, 

“when the number, size, timing, nature, frequency, and context of the misapplication [of 

accounting principles] or restatement are taken into account, the balance of the inferences to be 

drawn from such allegations may shift significantly in favor of scienter.”76 

c. Position with Company, or “Positional Scienter” 

“A pleading of scienter may not rest on the inference that defendants must have been 

 

72 In re Dell Inc., Securities Litigation, 591 F. Supp. 2d at 893 (citing Ind. Elec. Workers’ Pension Trust Fund 

IBEW, 537 F.3d at 534 and Abrams, 292 F.3d at 432). 73 Id. (citing Ind. Elec. Workers’ Pension Trust Fund IBEW, 537 F.3d at 534). 74 Ind. Elec. Workers’ Pension Trust Fund IBEW, 537 F.3d at 536 (citing DiLeo v. Ernst & Young, 901 F.2d 624, 

627 (7th Cir. 1990), where the court observed, “[a]t one time the firm bathes itself in a favorable light. Later the firm 

discloses that things are less rosy. The plaintiff contends that the difference must be attributable to fraud. ‘Must be’ 

is the critical phrase, for the complaint offers no information other than the differences between the two statements 

of the firm's condition.”). 

75 In re Dell Inc., Sec. Litig. 591 F. Supp. 2d at 894 (citing Abrams, 292 F.3d at 433). 76 Id. (citing In re Triton Energy Ltd. Sec. Lit., No. 5:98-CIV-256, 2001 WL 872019 at *11 (E.D. Tex. Mar. 30, 

2001)). 

 

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aware of the misstatement based on their positions within the company.”77 Corporate officers 

may not be held responsible for unattributed corporate statements solely on the basis of their 

titles, even if their general level of day-to-day involvement in the corporation’s affairs is pled.78 

“Without specific allegations the Individual Defendants themselves actually knew about a 

specific accounting violation or internal control problem, the pleadings are simply too vague to 

support a strong inference of scienter.”79 

Corporate documents that have no stated author or statements within documents not 

attributed to any individual may be charged to one or more corporate officers, but only if specific 

factual allegations link the individual corporate officer to the statement at issue.80 But 

unsupported general allegations about the existence of corporate reports that reveal or contain 

information contrary to statements made are insufficient to survive a motion to dismiss.81 “Such 

allegations must have corroborating details regarding the contents of allegedly contrary reports, 

[and] their authors and recipients.”82 If the complaint fails to allege facts demonstrating that 

specific reports with specific information were available to specific individual defendants prior 

to the date the allegedly fraudulent statements were made, then the allegations of fraud must fail, 

unless other evidence of scienter is sufficiently pled. 

d. Magnitude or Duration of Violations 

Bare conclusory allegations that defendants must have known about fraudulent activity 

 

77 Abrams, 292 F.3d at 432. 78 Barrie, 397 F.3d at 261. 79 In re Dell Inc., Sec. Litig., 591 F. Supp. 2d at 894. In Dell, the district court dismissed the complaint for 

insufficiently pled scienter because “the Plaintiffs state generally that the Individual Defendants oversaw accounting 

functions, had unfettered access to information, and approved high-level decisions, but allege nothing specific about 

what the Individual Defendants knew or intended, or even what ‘fraudulent’ decisions they approved.” 

80 Ind. Elec. Workers’ Pension Trust Fund IBEW, 537 F.3d at 533 (citing Abrams, 292 F.3d at 432). 81 Abrams, 292 F.3d at 432. 82 Id.

 

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simply because of the magnitude of the allegedly fraudulent events, especially in the context of 

large companies, will not suffice under the PSLRA.83 In fact, if the magnitude of the alleged 

violations is slight when compared to the overall size of the company, this fact will actually 

weigh against an inference of scienter.84

 In sum, to survive a motion to dismiss under the PSLRA and Rule 9(b), plaintiffs must 

allege specific facts that support a strong inference that individual corporate defendants 

possessed either the intent to defraud or exhibited severe recklessness in making misstatements 

or omissions regarding the defendant corporation at the time the misstatement or omission 

occurred. 

3. Reliance 

The Fifth Circuit analyzed the reliance requirement in Nathenson v. Zonagen Inc., 

explaining: 

The element of reliance is the subjective counterpart to the objective element of 

materiality. Whereas materiality requires the plaintiff to demonstrate how a 

“reasonable” investor would have viewed the defendants’ statements and 

omissions, reliance requires a plaintiff to prove that it actually based its decisions 

upon the defendants’ misstatements or omissions. “Reliance is causa sine qua 

non, a type of ‘but for’ requirement: had the investor known the truth he would 

not have acted.”85

The Nathenson court further explained that while materiality is determined by evaluating 

whether there is a substantial likelihood that the false or misleading statement “would have been 

viewed by the reasonable investor as having altered the ‘total mix’ of information made 

 

83 Goldstein, 340 F.3d at 251. 84 In re Dell Inc., Sec. Litig., 591 F. Supp. 2d at 894-95. In Dell, the company’s net income was restated downward 

by less than 1% of the total net income for the period, in comparison to other cases where the court found sufficient 

evidence of scienter based on the magnitude and extent of the violations. The court concluded that “any weight 

given to an inference of scienter because of the duration of the accounting irregularities must be tempered by their 

relatively small magnitude.” 

85 Nathenson, 267 F.3d at 413 (citations omitted) (emphasis added). 

 

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available,” and thus looks to likely potential, reliance ultimately looks to what actually happened. 

Plaintiffs must adequately allege both materiality and reliance to survive a motion to dismiss. 

The Supreme Court has approved of the use of the “fraud on the market” presumption to 

satisfy the reliance requirement in securities fraud cases.86 To rely on this presumption, plaintiffs 

must “show that the defendant made material misrepresentations, the defendant’s shares were 

traded in an efficient market, and the plaintiffs traded shares between the times the 

misrepresentations were made and the time the truth was revealed.”87 

To utilize the presumption of reliance, the plaintiff must also adequately plead loss 

causation.88 “Essentially, this circuit ‘require[s] plaintiffs to establish loss causation in order to 

trigger the fraud-on-the-market presumption’... ‘to trigger the presumption of reliance, plaintiffs 

must demonstrate that ... the cause of the decline in price is due to the revelation of the truth and 

not the release of the unrelated negative information.’”89 The requirements of loss causation are 

addressed in greater detail below. 

4. Economic loss 

Plaintiffs must adequately allege actual economic loss to survive a motion to dismiss. 

Importantly, an “inflated purchase price will not itself constitute or proximately cause the 

relevant economic loss.”90 Therefore, this Court must dismiss the Complaint unless Plaintiffs 

adequately plead actual economic loss. 

 

86 Luskin et al., v. Intervoice-Brite Inc., et al., No. 06-11251, 2008 WL 104273 at *3 (5th Cir. Jan. 8, 2008) 

(unpublished opinion) (citing Basic, 485 U.S. at 245-46). 87 Id. (citing Basic, 485 U.S. at 245-46). 88 Id.

89 Id. (citing Oscar Private Equity Invs. et al., v. Allegiance Telecom, Inc., et al., 487 F.3d 261, 265 (5th Cir. 2007)). 

90 Dura Pharm., Inc. et al., v. Broudo et al., 544 U.S. 336, 342 (2005). 

 

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5. Loss causation 

Loss causation is the causal connection between the material misrepresentation or 

omission and the economic loss. The PSLRA requires plaintiffs to prove that the defendant’s 

misrepresentations actually caused the loss for which the plaintiffs seek to recover.91 While loss 

causation is a prerequisite to use of the fraud on the market presumption, it need not be 

established by a preponderance of the evidence until the class certification stage.92 However, 

loss causation must be adequately pled by plaintiffs to survive a motion to dismiss.93 “Because a 

plaintiff must prove proximate causation and economic loss in order to establish loss causation, a 

plaintiff must also adequately allege these requirements in the complaint.”94

Essentially, plaintiffs are required to allege a causal relationship between the statement or 

omission and actual movement of the stock price.95 “Loss causation cannot be satisfied simply 

by alleging in the complaint and subsequently establishing the price of the security on the date of 

purchase was inflated because of the misrepresentation.”96 However, it may be shown either by 

alleging an increase in stock price immediately following the release of fraudulently positive 

information, or by alleging actual negative movement in stock price following the release of the 

alleged truth of an earlier misrepresentation.97 

The Supreme Court in Dura indicated that the pleading requirements as they relate to loss 

causation need only comply with Rule 8, as opposed to the strict pleading requirements of Rule 

 

91 15 U.S.C. § 78u-4(b)(4). 

92 Luskin, 2008 WL 104273 at *3 (citing Oscar Private Equity Invs., 487 F.3d at 265). 

93 Dura Pharm., Inc., 544 U.S. at 346. 

94 In re Dell Inc., Sec. Litig., 591 F. Supp. 2d at 905 (citing Dura Pharm., Inc., 544 U.S. at 346). 

95 Greenberg, 364 F.3d at 663. 96 In re Dell Inc., Sec. Litig., 591 F. Supp. 2d at 905 (citing Dura Pharm., Inc., 544 U.S. at 338). 97 Greenberg, 364 F.3d at 663 (citing Nathenson, 267 F.3d at 417-19). 

 

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9(b).98 As a result, plaintiffs are required to allege a short and plain statement that provides the 

defendant with fair notice of what the plaintiffs’ claim is and the grounds upon which it rests.99 

This Court agrees with the district court’s analysis in Dell, and also notes that the Fifth Circuit’s 

opinion in Plotkin v. IP Axess, Inc. stating that loss causation is subject to a heightened pleading 

standard followed the Dura opinion by only two days and made no note of it, and therefore 

Dura, even if somewhat equivocal in its “assumption” that neither the Rules nor the securities 

statutes impose special pleading requirements, controls.100 

To allege loss causation, securities fraud plaintiffs must identify a corrective disclosure. 

“[D]efendants in a securities fraud case may not be held liable for a decline in stock price before 

the fraud is disclosed.”101 Plaintiffs can satisfy this requirement by adequately pleading a 

“corrective disclosure” that reveals a previously concealed truth, which causes a decline in the 

defendant company’s stock price.102 The district court in Dell explained this requirement: 

Dura made clear there must be sufficient allegations the misrepresentations 

caused plaintiffs’ loss; it is insufficient to simply allege the misrepresentation 

“‘touches upon’ a later economic loss.” Plaintiffs must allege, therefore, the 

market reacted negatively to a corrective disclosure, which revealed the falsity of 

 

98 Dura Pharm., Inc., 544 U.S. at 346 (“[W]e assume, at least for argument’s sake, that neither the Rules nor the 

securities statutes impose any special further requirement in respect to the pleading of proximate causation or 

economic loss. But, even so, the ‘short and plain statement’ must provide the defendant with ‘fair notice of what the 

plaintiff's claim is and the grounds upon which it rests.’”). 

99 In re Dell Inc., Sec. Litig., 591 F. Supp. 2d at 905 (citing Dura Pharm., Inc., 544 U.S. at 346). 100 See id. at 906, addressing the Fifth Circuit’s holding in Plotkin, 407 F.3d at 696. 101 See id. 102 Catogas v. Cyberonics, Inc., No. 07-20787, 2008 WL 4158923 at *3 (5th Cir. Sept. 8, 2008) (unpublished 

opinion) (citing Dura Pharm., Inc., 544 U.S. at 347) (“Plaintiffs must allege, therefore, that the market reacted 

negatively to a corrective disclosure, which revealed the falsity of [defendant] Cyberonics’ previous representations 

regarding the accounting for its stock options.”); see also In re Enron Corp. Sec. et al., v. Enron Corp. et al., 465 F. 

Supp. 2d 687, 724 (S.D. Tex. 2006) (“Thus, as noted supra, under Dura Pharmaceuticals, one acceptable, but not 

the only, way to plead proximate cause and economic loss (the difference between the price the purchaser paid and 

the subsequent price to which the stock dropped) in fraud on the market cases is to allege that the price a plaintiff 

paid for a security ‘fell significantly after the truth [of the material misrepresentation or omission] becomes known’ 

and that the disclosure of the misrepresentation or omission had a significant effect on the market price.”). 

 

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Dell’s previous representations.

103 

Under this standard, identifying a “corrective disclosure” requires, at a minimum, that the 

complaint identify the prior representations called into question, along with a disclosure that 

corrects them.104 The corrective disclosure must reveal the fraud or the falsity of the prior 

representation, or it will not qualify as a “corrective” disclosure. Plaintiffs must further allege a 

decline in stock price following the revelation of the fraud.105 Finally, the revelation of 

confirmatory information, or information already known to the market, cannot constitute a 

corrective disclosure.106

This court in Odyssey Healthcare further explained the requirement of alleging a 

corrective disclosure: 

When the causal argument is, as here, that disclosure of information puts the 

market on notice of the falsity of prior representations, then the disclosure must at 

[a] minimum be of a nature that would cause recipients to identify which 

representations were the false prior representations. In other words, loss causation 

would not be established if a defendant simply said “something we told you last 

year isn’t true,” because that is insufficient to show that stock prices were inflated 

due to a specific misrepresentation and the market reacted when the 

misrepresentation became known.107

Accordingly, this Court will require Plaintiffs to plead sufficient facts to give the 

Defendants fair notice of the claims against them—this standard requires Plaintiffs to identify the 

allegedly misleading statements or omissions, and then allege either a correlative increase in 

 

103 In re Dell Inc., Sec. Litig., 591 F. Supp. 2d at 906 (citations omitted) (emphasis added). 104 Id. at 908; In re Odyssey Healthcare, Inc. Sec. Litig., 424 F. Supp. 2d at 888 n.4 (“In order for there to be a causal 

connection as required by Dura, however, the disclosure at [a] minimum must identify which prior representation is 

called into question.”). 

105 In re Dell Inc., Sec. Litig., 591 F. Supp. 2d at 908. 106 Catogas, 2008 WL 4158923 at *3; Greenberg, 364 F.3d at 665-66. 107 In re Odyssey Healthcare, Inc. Sec. Litig., 424 F. Supp. 2d at 888; see also In re Alamosa Holdings, Inc. Sec. 

Litig., 382 F. Supp. 2d at 862-63 (“Because none of the other alleged misrepresentations or omissions beyond the 

May 1, 2002 subscriber number projections were the subject of a corrective disclosure followed by a drop in stock 

price, there can be no finding that such misrepresentations or omissions caused Plaintiffs’ losses.”). 

 

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stock price following a falsely positive statement, or allege a subsequent decline in stock price 

following a corrective disclosure or revelation of the fraudulent omission. 

6. Safe Harbor 

The PSLRA provides a “safe harbor” for forward-looking statements when certain 

conditions are met. The PSLRA defines “forward-looking statements” as (i) projections of 

revenues, income, earnings, or other financial items, (ii) plans and objectives for future 

operations, and (iii) statements of future economic performance.108 The Fifth Circuit provided 

the relevant test for invoking the protections of the safe harbor in Southland Securities Corp.: 

The safe harbor has two independent prongs: one focusing on the defendant’s 

cautionary statements and the other on the defendant’s state of mind. Under the 

first prong, there is no liability if, and to the extent that, the forward-looking 

statement is: (i) “identified as a forward-looking statement, and is accompanied 

by meaningful cautionary statements identifying important factors that could 

cause actual results to differ materially from those in the forward-looking 

statement,” or (ii) “immaterial.” Under the second prong, there is no liability if 

the plaintiff fails to prove that the statement (i) if made by a natural person, was 

made with actual knowledge that the statement was false or misleading, or (ii) if 

made by a business entity, was made by or with the approval of an executive 

officer of that entity with actual knowledge by that officer that the statement was 

false or misleading.109 

In this context, cautionary statements must be “‘substantive’ company-specific warnings based 

on a realistic description of the risks applicable to the particular circumstances, not merely a 

boilerplate litany of generally applicable risk factors.”110 However, the cautionary language need 

not list the specific risk factor alleged to have rendered the forward-looking statement actually 

false.111 

 

108 Plotkin, 407 F.3d at 699 (citing 15 U.S.C. § 78u-5(i)(1)(A)- (C)). 

109 Southland Sec. Corp., 365 F.3d at 371-72 (citations omitted) (emphasis added). 110 Id. at 372. 111 In re Blockbuster Inc. Sec. Litig., No. 3:03-cv-398-M, 2004 WL 884308 at *5 (N.D. Tex. Apr. 26, 2004) (Lynn., 

 

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The requirement of materiality is significant in the context of forward-looking statements, 

as explained by this Court in Blockbuster Inc.: 

“Generalized, positive statements about the company’s competitive strengths, 

experienced management, and future prospects are not actionable because they 

are immaterial.” “Vague, loose optimistic allegations that amount to little more 

than corporate cheerleading are ‘puffery,’ projections of future performance not 

worded as guarantees, and are not actionable under federal securities law because 

no reasonable investor would consider such vague statements material and 

because investors and analysts are too sophisticated to rely on vague expressions 

of optimism rather than specific facts.”112

In short, if a statement is forward-looking, Defendants may invoke the first prong of the 

safe harbor by showing (1) the statement was identified as forward-looking and accompanied by 

meaningful cautionary language, or (2) that the statement was immaterial, or mere “puffery.”113 

Then, to avoid the second prong of the safe harbor, Plaintiffs must plead facts showing the 

statement was made with actual knowledge of its falsity.114 Otherwise, the allegations should be 

dismissed. 

C. Analysis 

Plaintiffs allege misrepresentations or omissions with respect to three categories: (1) 

asbestos litigation, and specifically treatment of the Highlands insurance receivable; (2) the 

Barracuda Project; and (3) accounting practices, specifically alleged violations of GAAP. 

Defendants argue that each of these categories of allegations must be dismissed for failure to 

meet the strict pleading requirements of the PSLRA and Rule 9(b). Additionally, Defendants 

argue that the statements are protected by the safe harbor provision of the PSLRA. This Court 

 J.). 

112 Id. at *7 (citations omitted). 113 In re Dell Inc., Sec. Litig., 591 F. Supp. 2d at 912. 114 Id. 

 

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will look to each of these claims in turn to determine if they meet the pleading requirements set 

forth above. However, the Court first addresses several of the basic pleading requirements for 

securities fraud allegations as they relate to the alleged misrepresentations and omissions in this 

case. 

1. Scienter 

The Complaint fails to meet the standard for pleading scienter with particularity, pursuant 

to the PSLRA and Rule 9(b). While Plaintiffs may rely on circumstantial evidence to allege 

scienter, they must still “state with particularity facts giving rise to a strong inference that the 

defendant acted with the required state of mind”—i.e., intent to defraud or severe recklessness. 

To establish scienter, Plaintiffs allege in ¶8 of the Complaint that: 

Because of Lesar’s position with the Company, he had access to the adverse 

undisclosed information about the Company’s business, operations, operational 

trends, financial statements, markets and present and future business prospects via 

access to internal corporate documents (including the Company’s operating plans, 

budgets and forecasts, and reports of actual operations compared thereto), 

conversations and connections with other corporate officers and employees, 

attendance at management and Board of Directors meetings and committees 

thereof and via reports and other information provided to them in connection 

therewith. 

Plaintiffs allege in ¶9 that: 

[L]arge-scale construction contracts and asbestos-related liabilities represent 

central components of Halliburton’s corporate operations...Lesar, in his capacity 

as a key officer and director of the Company, is deemed to have intimate 

knowledge of those activities... This observation applies with particular emphasis 

here, given that Lesar is a Certified Public Accountant. Undoubtedly, he would 

take special notice of matters such as secret changes in accounting practices and 

the establishment of reserves to cover enormous legal liabilities, exactly the 

subject matter of the misrepresentations and omissions alleged in this Complaint, 

because these are issues that would—and did—directly affect Halliburton’s 

financial statements and performance. 

 

 

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Plaintiffs allege in ¶11 that “[b]ecause of his Board membership and executive and managerial 

positions with Halliburton, Lesar had access to the adverse undisclosed information about 

Halliburton’s financial condition and performance...,” and in ¶155 that the “knowing and/or 

reckless violations of GAA[P] are direct evidence of Defendants’ scienter.” 

 The Fifth Circuit requires this Court to (1) accept all factual allegations in the Complaint 

as true, (2) consider the Complaint in its entirety, and (3) take into account plausible opposing 

inferences.115 However, this Court is not to rely on conclusory allegations or impermissible 

group pleading. This Court looks to the Complaint to determine if the facts alleged, taken 

collectively, give rise to a strong inference of scienter. The Complaint in this case is almost 

entirely devoid of facts supporting an inference of scienter. Plaintiffs make vague and 

conclusory allegations that Lesar had access to or possessed adverse information because he was 

an officer of Halliburton. But the Fifth Circuit has made it abundantly clear that a pleading of 

scienter may not rely on the inference that defendants “must have” been aware of information or 

misstatements based on their positions within the company.116 

Unsupported general allegations about the existence of corporate documents that reveal 

or contain information that is contrary to alleged misrepresentations are insufficient as 

allegations of scienter.117 Plaintiffs are required to specifically plead corroborating information, 

such as the specific contents of the allegedly contrary reports, who authored the reports, who 

received the reports, and when they were received.118 Additionally, the mere publication of 

 

115 Ind. Elec. Workers’ Pension Trust Fund IBEW, 537 F.3d at 533. 116 Id. at 535; Abrams, 292 F.3d at 432; Nathenson, 267 F.3d at 424. 117 Abrams, 292 F.3d at 432. 118 Id. 

 

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inaccurate accounting figures, or the failure to follow GAAP, does not alone establish scienter.119 

And the fact that Plaintiffs fail to allege suspicious sales of stock, i.e., insider trading in 

suspicious amounts and/or at suspicious times during the class period, undermines the Plaintiffs’ 

allegations of scienter.120

 The Court finds that, even accepting all factual allegations as true and viewing the 

Complaint in its entirety, Plaintiffs do not meet the strict pleading requirements for scienter 

under the PSLRA.121 For example, in ¶121 of the Complaint, Plaintiffs provide a list of excerpts 

from a “Responsibility for Financial Reporting” commitment, executed by Lesar, and claim that: 

These statements were materially misleading because they failed to reveal that the 

internal controls at Halliburton were woefully inadequate because, at minimum, 

they (1) failed to cause correction of the 1998 accounting change for the treatment 

of Unapproved Claims which was in violation of GAAP, (2) did not compel 

disclosure of the dismal circumstances and significant losses surrounding the 

Barracuda project, and (3) allowed Defendants to pursue their course of 

deceptively minimizing the extent of Halliburton’s asbestos liability. 

This conclusory allegation does not adequately plead scienter under the PSLRA. Plaintiffs fail to 

identify with particularity which statements in the commitment were misleading, and why. But 

 

119 In re Dell Inc., Sec. Litig., 591 F. Supp. 2d at 893 (citing Ind. Elec. Workers’ Pension Trust Fund IBEW, 537 

F.3d at 534). 

120 See Nathenson, 267 F.3d at 421. In this case, Plaintiffs’ allegation in ¶194 that “the insider trades in 2000 of 

Individual Defendants and other top executives of a multi-million dollar size were made with inside information 

about the change in accounting policies and the potential of the asbestos liability” contribute to “a strong inference 

of scienter with respect to the statements made in the Halliburton 2000 and 2001 10-K’s and other representations 

cited in this Complaint” is wholly unsupported by Fifth Circuit precedent. Insider trading will only support an 

inference of scienter if it occurs in suspicious amounts or at suspicious times, during the class period. Sales of stock 

before the class period began will contribute nothing to the inference of scienter regarding statements made during 

the class period. 

121 The Court notes that Plaintiffs’ allegations that “Halliburton and Lesar” knew a laundry list of facts in ¶¶187-193 

are insufficient to establish scienter, as they fail to allege who knew these facts, when they learned them, or how 

they learned them. See Ind. Elec. Workers Pension Trust Fund IBEW, 537 F.3d at 542 (where the Fifth Circuit 

found the plaintiffs failed to state with particularity facts giving rise to a strong inference of scienter as to the 

defendants because the complaint did not “indicate how or when the officers [defendants] became aware of what the 

confidential source allegedly knew” regarding the fraudulently omitted information). In short, bare and conclusory 

allegations of knowledge and/or information cannot support a strong inference of scienter. 

 

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more importantly, Plaintiffs do not plead any fact that supports an inference that Lesar acted with 

the intent to deceive investors, or with severe recklessness, in issuing the commitment. The 

PSLRA requires plaintiffs to plead specific facts that give rise to a strong inference of scienter, 

and conclusory allegations about the Defendants’ general failure to reveal bad news to the 

market, when the Complaint fails to even allege knowledge of such news, are clearly insufficient 

to survive dismissal.122

2. Reliance and Loss Causation 

In ¶¶196-197, Plaintiffs allege that “the market for Halliburton’s securities was an 

efficient market,” and that “the market for Halliburton’s securities promptly digested current 

information regarding Halliburton from all publicly available sources and reflected such 

information in Halliburton’s stock price.” Plaintiffs thereby seek to establish the fraud-on-themarket presumption of reliance. The Supreme Court in Basic provided the test for the fraud-onthe-market presumption of reliance: 

[A] plaintiff must allege and prove: (1) that the defendant made public 

misrepresentations; (2) that the misrepresentations were material; (3) that the 

shares were traded on an efficient market; (4) that the misrepresentations would 

induce a reasonable, relying investor to misjudge the value of the shares; and (5) 

that the plaintiff traded the shares between the time the misrepresentations were 

made and the time the truth was revealed.123

 

122 Plaintiffs cannot simply rely on the conclusory allegations of scienter found at the beginning of the Complaint to 

support a strong inference of scienter as to all statements identified as misrepresentations throughout the remainder 

of the Complaint, for the reasons stated above. Additionally, Plaintiffs allege in ¶175 that the New York Times 

published an article on May 22, 2002, which reported that the allegedly fraudulent accounting change regarding the 

recognition of claims and change orders was “specifically approved by David Lesar.” However, this allegation 

alone is insufficient to establish scienter as to Lesar. First, Plaintiffs do not plead the factual basis for this report. 

They also fail to allege that because of Lesar’s specific approval of the accounting change, any financial statements 

signed or approved by Lesar were intentionally fraudulent or made with severe recklessness. In short, Plaintiffs 

cannot simply point to a news article reporting that Lesar approved an accounting practice to support an inference of 

scienter as to all accounting statements made during the class period. Allowing such an allegation to substantiate a 

“strong inference” of scienter would essentially read the requirement out of the statute. 123 Basic Inc., 485 U.S. at 248 n.27. 

 

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The Fifth Circuit tightened the requirement for the presumption of reliance in Oscar Private 

Equity Investments v. Allegiance Telecom, Inc., explaining that plaintiffs must prove “that the 

misstatement actually moved the market.”124 Essentially, plaintiffs must adequately allege loss 

causation in order to rely on the presumption of reliance.125

 This Court finds that the Plaintiffs’ failure to properly allege loss causation presents 

another ground upon which the Complaint should be dismissed. While the Supreme Court in 

Dura Pharmaceuticals declined to adopt a heightened pleading standard for loss causation,126 a 

complaint must still provide the defendants with fair notice of what the plaintiffs’ claims are and 

the grounds upon which they rest. Despite the myriad of statements identified in the subject 

Complaint, the Plaintiffs simply fail to connect the alleged misrepresentations with correlative 

corrective disclosures during the Class Period. A corrective disclosure, at a minimum, requires 

that the prior misrepresentation be identified, and that the fraud of the prior representation be 

revealed to the market, which subsequently reacts by adjusting the stock price thereby harming 

the plaintiffs. 

 The only alleged drop in stock price is found in ¶136 of the Complaint. There, Plaintiffs 

allege a 25% decline in stock price following disclosures made on July 22, 2002, regarding 

Halliburton’s likely net asbestos liability and a pretax loss incurred on the Barracuda Project due 

to unapproved claims. However, Plaintiffs fail to allege which prior representations were 

revealed to be fraudulent by these statements. This is especially important given that different 

 

124 Oscar Private Equity Invs., 487 F.3d at 265. 125 Id. 126 There, the Supreme Court applied the “short and plain statement” requirement of Federal Rule of Civil Procedure 

8(a)(2) in evaluating the plaintiffs’ allegations of loss causation. Dura Pharm., 544 U.S. at 346; see also In re Dell 

Inc., Sec. Litig., 591 F. Supp. 2d at 906. 

 

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types of negative news were released the same day, and the market’s reaction could have been to 

either announcement, to both, or to other market forces. The Complaint is simply devoid of facts 

connecting a misrepresentation with a specific corrective disclosure and an accompanying 

market reaction. The Fifth Circuit requires more to establish the presumption of reliance. 

Plaintiffs allege in ¶154 that “[t]he devaluations traceable to the disclosures of the 

accounting change in May 2002, the offshore financing subsidiary in mid-July 2002, and the 

asbestos and Barracuda losses in mid-July 2002 demonstrate loss causation of a substantial 

magnitude—over one billion dollars.” They also allege that “[t]he stock drops, the diminution of 

shareholders’ equity, and the dilution of the stockholders’ ownership are statistically significant, 

company specific losses not due to general stock market movements, changed economic 

conditions, changed investor expectations, or company specific negative events unrelated to the 

alleged misrepresentations, non-disclosures, and cover-ups.” But these conclusory allegations 

regarding loss causation are simply not enough to meet the pleading requirements for a securities 

fraud action. 

Further, the Complaint in ¶181 lists statements from “pre-Class Period and Class Period 

SEC filings” that were allegedly fraudulent, because they certified that the accompanying 

financial statements were prepared in accordance with GAAP, when in fact Plaintiffs allege 

numerous violations of GAAP. However, in addition to the complete dearth of specificity in 

identifying exactly what portion of these statements was fraudulent and why, Plaintiffs also fail 

to allege a corrective disclosure during the Class Period. Plaintiffs do not allege an increase in 

stock price following the publication of these statements, and do not allege a decline in stock 

price following any correction of these statements. 

 

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Plaintiffs’ allegation in ¶153 that “Defendant’s [sic] materially false and misleading 

statements resulted in plaintiff and other members of the Class purchasing Halliburton’s 

securities at artificially inflated prices, thus causing the damages complained of herein,” is 

insufficient to establish loss causation, since the United States Supreme Court made clear in 

Dura Pharmaceuticals that “an inflated purchase price will not itself constitute or proximately 

cause the relevant economic loss” in a securities fraud action.127 Without adequately alleging a 

causal connection between a material misrepresentation and an economic loss, the Plaintiffs’ 

allegations cannot survive at this stage of the litigation. 

3. Economic Loss or Damages 

 Plaintiffs have not adequately pled economic loss.128 The Complaint, in ¶¶ 13, 153, 154, 

and 197, states that the allegedly false and/or misleading statements identified in the Complaint 

resulted in Plaintiffs “purchasing Halliburton’s securities at artificially inflated prices, thus 

causing the damages complained of herein.” Since an inflated purchase price alone is 

insufficient to constitute economic loss, the Complaint fails for failure to adequately plead 

economic loss. Notably, ¶154 states that “the sharp decline in the stock’s price which 

accompanied the gradual disclosure of the truth resulted in enormous damages to the class,” but 

the Complaint never specifically alleges when and in what amounts the stock price declined 

following identified corrective disclosures during the Class Period. Conclusory allegations of a 

decline in stock price without specific facts pled in support are insufficient. The Complaint must 

provide the Defendants with “notice of what the relevant economic loss might be or of what the 

 

127 See Dura Pharm., Inc., 544 U.S. at 342. 128 Id. 

 

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causal connection might be between that loss and the misrepresentation” alleged.129 No such 

notice is given by the Plaintiffs, beyond a vague and conclusory allegation that a “gradual 

disclosure of truth” resulted in “enormous damages to the class.” This is simply not enough to 

provide Defendants with the notice required by the Rules and the applicable securities law. 

Further, and importantly, Plaintiffs do not rely on this alleged “sharp decline” in claiming 

damages, but instead state that “all purchasers of Halliburton’s securities during the Class Period 

suffered similar injury through their purchase of Halliburton’s securities at artificially inflated 

prices.”130 As a result, Plaintiffs have failed to adequately plead economic loss, and their claims 

must be dismissed. 

4. Group Pleading and Third Party Statements 

The Court finds that many of the statements Plaintiffs identify as misleading are pled 

using impermissible group pleading. For example, in ¶97 of the Complaint, Plaintiffs allege that 

“the Company continued to assure the public that clear skies were just ahead, and it repeated its 

stated belief that ‘open asbestos claims will be resolved without a material adverse affect on our 

financial position or the results of operations.’” Plaintiffs allege that this statement was 

“materially misleading” in light of “Defendants’ actual knowledge or reckless disregard” that the 

Company’s actual asbestos exposure exceeded that reported to investors. However, the allegedly 

misleading statement is not attributed to any speaker. The prohibition against group pleading 

applies with equal force to misstatements attributed to “Defendants,” as it does to allegations of 

scienter as to “Defendants.” For example, in ¶109, Plaintiffs allege that a statement attributed to 

Douglas L. Foshee, Halliburton’s Executive Vice President and Chief Financial Officer, was 

 

129 Id. at 347. 130 See Plaintiffs’ Amended Complaint at ¶197. 

 

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materially misleading in light of “Defendants’ actual knowledge or reckless disregard” of 

adverse facts. The PSLRA specifically requires that facts supporting a strong inference of 

scienter as to particular defendants be pled, in addition to pleading the misrepresentation itself 

with particularity, and as a result any allegations using group pleading are insufficient.131 

The Court hereby grants Defendants’ Motions to Dismiss as they pertain to any 

allegations based on group pleading, i.e., statements or scienter attributed to “Defendants,” or 

“Halliburton,” or “Management,” without prejudice to Plaintiffs’ re-pleading these allegations 

with the requisite particularity. Along with group pleading, bare and conclusory allegations of 

knowledge or recklessness will not stand, as the PSLRA requires Plaintiffs to plead specific facts 

giving rise to a strong inference of scienter. Should Plaintiffs choose to re-plead these 

allegations, they must do so with these stringent requirements in mind. 

 Plaintiffs also attempt to attribute certain statements made by third parties to the 

Defendants. For example, ¶98 points to a New York Times article published on December 8, 

2001, where the author, Neela Banerjee, hypothesized that fear generated from Enron’s “rapid 

demise” contributed to the large volume of trading following press releases that revealed several 

recent adverse asbestos verdicts against Halliburton and/or its subsidiaries. Plaintiffs point to 

this article and claim that “Halliburton perpetuated the belief that the December 8, 2001 drop in 

the stock’s price had more ‘to do with Enron’ than with any disclosures made by the 

Company.”132 However, Plaintiffs failed to allege any facts that would connect an individual 

 

131 See Southland Securities Corp., 365 F.3d at 365. 132 Plaintiffs also claim that Lesar’s own statements in response to this theory, that “We couldn’t be any more 

different from Enron,” and “We’re profitable, we have plenty of liquidity. It was a jury verdict of $30 million, and 

we intend to appeal,” were “materially misleading in light of Defendants’ actual knowledge or reckless disregard 

that the Company’s actual exposure to asbestos liability exponentially exceeded that reported to investors.” Not 

 

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Defendant with the opinions expressed by the author of the New York Times piece. Such 

allegations cannot stand. 

The Court adheres to its holding in Archdiocese of Milwaukee Supporting Fund v. 

Halliburton,

133 that Plaintiffs are required to plead with particularity who participated in 

providing information to an analyst or a third party, when and where this information was 

provided, how any Defendant either adopted the opinion and/or how the Defendants were 

entangled with the opinion, or how the analyst or third party was a “conduit” for the Defendant. 

The Fifth Circuit has made clear that plaintiffs are required to allege with specificity any 

exceptions to the general rule that “securities issuers are not liable for statements or forecasts 

disseminated by securities analysts or third parties.”134 As a result, the Court grants the 

Defendants’ Motions to Dismiss, as they relate to any statements made by analysts or other third 

parties, without prejudice to Plaintiffs’ re-pleading these statements with the requisite 

particularity. If Plaintiffs cannot cure this fatal defect, along with the impermissible group 

pleading and the lack of the requisite proof of a strong inference of scienter upon repleading, 

dismissal with prejudice is the likely next step. 

Although the Court has already identified a number of reasons why Defendants’ Motions 

to Dismiss should be granted, it will still address those individual statements it could cull from 

the Complaint where a particular speaker was properly identified, to determine the sufficiency of 

these allegations. 

 only does this allegation fail because it relies on group pleading and conclusory allegations of scienter, but Plaintiffs 

fail to identify with particularity anything actually false within this statement. As such, this allegation also fails. 133 Archdiocese of Milwaukee Supporting Fund, Inc., et al, v. Halliburton Co., et al, Civil Action No. 3:02-CV1152-M, March 14, 2006 Order on Motions to Dismiss, Docket Entry #239. 

134 Southland Securities, 365 F.3d at 373. 

 

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5. Misrepresentations or Omissions 

a. Asbestos Litigation and the Highlands Receivable 

i. December 11 and December 14, 2001 press releases 

The Complaint alleges in ¶105 that, with reference to Standard & Poor’s recent 

downgrading of its debt rating on Halliburton, Lesar stated in a December 11, 2001 press release 

the following: “We are pleased to see that we continue to hold strong investment grade ratings 

with Standard & Poor’s in light of all that has happened in the last few days,” and stressed “the 

strength of our balance sheet.” Plaintiffs allege that the balance sheet statement was “false and 

misleading in light of the Company’s actual asbestos liabilities...” 

This statement is not actionable. First, Plaintiffs must allege facts that give rise to a 

strong inference that Lesar spoke either with the intent to defraud or deceive investors, or with 

severe recklessness such that his statement qualified as a highly unreasonable misrepresentation 

that involved not merely simple or even inexcusable negligence, but an extreme departure from 

the standard of ordinary care, and that it presented a danger of misleading buyers or sellers which 

was either known to Lesar or was so obvious that Lesar must have been aware of it.135 But here, 

Plaintiffs do not allege any facts regarding scienter. Further, “vague, loose optimistic allegations 

that amount to little more than corporate cheerleading are ‘puffery,’ projections of future 

performance not worded as guarantees, and are not actionable under federal securities law 

because no reasonable investor would consider such vague statements material and because 

investors and analysts are too sophisticated to rely on vague expressions of optimism rather than 

 

135 See Ind. Elec. Workers’ Pension Trust Fund IBEW, 537 F.3d at 533. 

 

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specific facts.”136 

And for the same reasons, the statements from a December 14, 2001, press release 

identified in ¶106 of the Complaint are also deficient. There, Lesar repeated positive 

representations about Halliburton’s balance sheet and strong investment rating, and opined that 

Halliburton was a “conservatively financed company with substantial resources.” Lesar’s 

discussion of Halliburton’s strong balance sheet amounts to immaterial puffery, and the 

Complaint again fails to allege any facts that would support any inference of scienter. The same 

defects apply to Lesar’s statement that Halliburton was a “conservatively financed company,” as 

Plaintiffs fail to allege that Lesar made this statement with the intent to deceive or was severely 

reckless in doing so. A company is under no obligation to cast itself in a pejorative light, and 

Lesar’s statements are not actionable merely because he spoke optimistically about Halliburton’s 

future on these occasions.137

ii. January 23, 2002 press releases 

The Complaint alleges in ¶110 that in a press release, referring to Halliburton’s 2001 fourth 

quarter results, Lesar stated: “We were disappointed that excellent operational results were 

overshadowed by the market’s overreaction to asbestos news, but believe that our patient 

investors will be rewarded.” Plaintiffs allege this statement was “false and misleading” because: 

Lesar was aware of Harbison’s precarious financial situation and Dresser’s 

responsibility for the claims against it and Harbison, he knew that Halliburton was 

going to financially support Harbison’s bankruptcy and that Dresser would seek 

to have all asbestos cases stayed by the bankruptcy court, and he knew that an 

expert was being retained to assess Halliburton’s asbestos liability. 

Once more, Plaintiffs fail to plead any specific facts giving rise to a strong inference of scienter, 

 

136 In re Blockbuster Inc. Sec. Litig., 2004 WL 884308 at *7. 137 See id. at *13. 

 

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such as how and when Lesar became aware of specific information that rendered the above 

statement intentionally false or severely reckless. The only allegations pertaining to scienter are 

generalized assertions in the introductory portions of the Complaint that: 

Because of Lesar’s position with the Company, he had access to the adverse 

undisclosed information about the Company’s business, operations, operational 

trends, financial statements, markets and present and future business prospects via 

access to internal corporate documents...conversations and connections with 

other corporate officers and employees, attendance at management and Board of 

Directors meetings and committees thereof via reports and other information 

provided to them in connection therewith. 

But these vague allegations amounts to nothing more than an impermissible assertion of 

positional scienter. It is well settled in the Fifth Circuit that a “pleading of scienter may not rest 

on the inference that defendants must have been aware of the misstatement based on their 

positions within the company.”138 Because the Complaint identifies no contemporaneous and 

specific facts that relate to Lesar and his knowledge of the Harbison bankruptcy proceedings, or 

to his retention of an expert to assess asbestos liability, this Court cannot find that the Complaint 

alleges facts giving rise to a strong inference of scienter. 

Lesar’s statement was also devoid of actual “facts” that are typically digested by the 

market in evaluating a company’s worth, and statements that Halliburton had an “outstanding 

year” and that “our patient investors will be rewarded” are immaterial as a matter of law. 

Further, Plaintiffs have failed to allege anything actually false about Lesar’s statement. As a 

result, the statement is not actionable. 

Plaintiffs also point to a statement by Lesar issued on this date in response to Moody’s 

downgrading of Halliburton’s credit rating, that “Moody’s has taken this step mainly because of 

 

138 See e.g., Abrams, 292 F.3d at 432. 

 

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concerns about asbestos-related litigation following several unusual awards that we believe will 

not be sustained by the appellate courts. Halliburton has successfully managed asbestos-related 

liabilities and settled more than 201,000 claims over a 25 year period at an average cost of 

$200.” Plaintiffs claim that these statements were false and misleading “because they [the 

awards] were not unusual in that one decision confirmed a settlement agreement that Dresser 

disputed and Dresser was responsible for claims against it and Harbison.” Plaintiffs also contend 

that “Lesar misleadingly tried to characterize the value of the current claims outstanding as being 

in a similar range [average cost of $200] when he knew that Halliburton was set to finance 

Harbison’s bankruptcy and an expert was prepared to evaluate Halliburton’s asbestos liability 

and that [] $125 million net liability reserve was materially inadequate.” 

 These allegations likewise fail. Plaintiffs’ conclusory allegations that Lesar “knew” 

certain facts that would render the statements misleading are insufficient under the PSLRA. 

Plaintiffs must allege specific facts that create a strong inference that Lesar made these 

statements with the intent to deceive investors, or was severely reckless in doing so, and 

Plaintiffs fail to do so. Further, Lesar’s statement that he believed the “unusual awards” would 

not be sustained by the appellate courts is a forward-looking statement of opinion. To be 

actionable, Plaintiffs must allege that Lesar knew this statement was false when he made it. No 

such facts are pled. 

 Plaintiffs return to this statement in ¶126, alleging that the 2002 1st Quarter SEC Form 

10-Q, filed by Halliburton and signed by Douglas Foshee and Robert C. Muchmore 

(Halliburton’s Controller), stated that “since 1976 Halliburton had closed 207,000 claims for a 

net (after insurance) cost of $309 per claim,” and that “citation of a $309 per claim figure 

 

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showed that its previously reported $200 per claim figure was false and misleading.” While such 

allegations might otherwise constitute a corrective disclosure, Plaintiffs are still required to meet 

the scienter requirement of the PSLRA. Nothing about the Form 10-Q reveals anything 

fraudulent behind Lesar’s prior statement, and the Plaintiffs do not allege any facts to support an 

inference that Lesar intentionally misstated the average cost of settling asbestos claims, or that he 

acted with severe recklessness in doing so. The small magnitude of the misstatement, relative to 

Halliburton’s overall financial picture, also weighs against any inference of scienter.139 

iii. July 22, 2002 press release 

In ¶133 of the Complaint, Plaintiffs cite statements made by Lesar in a press release where 

Halliburton revealed that it would be taking a substantial charge based on a study of the 

company’s asbestos liability, which had been commissioned by Halliburton earlier that year. 

However, Plaintiffs fail to allege that any of these statements actually correct any prior 

representations about Halliburton’s asbestos liabilities, nor do they allege any fraud in the 

statements themselves. As a result, the Court will not treat these statements as either actionable 

misrepresentations, or corrective disclosures. 

iv. Omission of net asbestos liability 

In ¶143 of the Complaint Plaintiffs allege that “from at least the 3rd Quarter of 2001 

through the end of the Class Period, Halliburton’s executives, including Lesar, had knowingly 

failed to disclose a billion dollar plus net asbestos liability.” While a material omission is 

actionable under §10(b), Plaintiffs must meet the pleading requirements of the PSLRA and Rule 

9(b) to survive a motion to dismiss a claim of fraudulent omissions. Specifically, Plaintiffs must 

 

139 See In re Dell Inc., Sec. Litig., 591 F. Supp. 2d at 895 (“Therefore, any weight given to an inference of scienter 

because of the duration of the accounting irregularities must be tempered by their relatively small magnitude.”). 

 

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assert specific facts including: (1) the type of facts omitted; (2) the place in which the omissions 

should have appeared; (3) the way in which the omitted facts made identified representations 

misleading; (4) specify the statement that is misleading due to the omission in the same manner 

as a misrepresentation, i.e., the who, what, when, and where; and (5) if the misleading nature of 

the statement is not apparent from the content of the statement and the substance of the 

omissions, the factual allegations of the complaint must set forth an explanation of why the 

omission rendered the statement misleading with particularity.140 

While Plaintiffs allege the type of facts omitted—information regarding Halliburton’s 

future asbestos liabilities—they fail to allege any other facts that would sustain a claim of 

fraudulent omission(s). Plaintiffs do not state when or how the information should have been 

revealed. Plaintiffs do not pinpoint any prior representations that were misleading because of the 

omission. At various points in the Complaint, Plaintiffs refer to prior statements in SEC filings 

relating to pending asbestos claims, but none related to future liabilities. Without identifying the 

representations rendered misleading by the alleged omission, Plaintiffs cannot maintain this 

allegation of securities fraud. 

Further, Plaintiffs’ conclusory allegation regarding Lesar’s knowledge of net asbestos 

liability is insufficient to survive dismissal, as the PSLRA requires specific facts that support a 

strong inference that Lesar intentionally omitted the information or did so with severe 

recklessness. Such an inference is belied by the revelation in its 2002 1st quarter 10-Q that 

Halliburton had recently retained “a leading claim evaluation firm to assist us in making an 

estimate of our potential liability for asbestos claims that may be asserted against us in the 

 

140 See In re Odyssey Healthcare, Inc. Sec. Litig., 424 F. Supp. 2d at 892. 

 

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future,” and “it is likely that we will accrue a material liability for future claims that may be 

asserted against us.”141 This revelation suggests that Halliburton was unsure about its potential 

asbestos liability, and was keeping investors apprised of the situation as information became 

available. Because Plaintiffs have failed to sufficiently plead the fraudulent omission with 

particularity, and have failed to adequately allege scienter, this claim also fails. 

v. The Highlands Receivable 

In ¶122 of the Complaint, Plaintiffs point to a misstatement in the form of Halliburton’s 

inclusion of a $35 million receivable from Highlands insurance in its calculation of its asbestos 

reserve, in the March 12, 2002 Form 10-K. According to Plaintiffs, inclusion of the reserve was 

improper because a trial court had ruled against Halliburton with respect to the insurance 

coverage. Then in ¶123, Plaintiffs point to a March 14, 2002, press release following the 

Delaware Supreme Court’s affirmance of the judgment against Halliburton in the dispute over 

the receivable, where Lesar stated that “we are surprised” and announcing that the expected 

insurance from Highlands of $80 million would have to be taken as a write-off. 

 The inclusion of the receivable in the Form 10-K is not actionable for a number of 

reasons. First, Plaintiffs fail to allege that the financial statement was made with the requisite 

scienter. In fact, Halliburton contemporaneously stated that “[w]e believe the Chancery Court is 

wrong and that the Delaware Supreme Court will reverse and return the case to the Chancery 

Court for a trial on the merits. We expect, based on an opinion from outside legal counsel, to 

ultimately prevail in the litigation.” These statements undermine an inference that the 

Defendants included the receivable with the intent to mislead investors, or with severe 

 

141 See Plaintiffs’ Amended Class Action Complaint at ¶126. 

 

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recklessness. Also, Plaintiffs’ allegations in ¶¶183-185 that inclusion of the Highlands 

receivable on its books was a violation of GAAP are insufficient to support a strong inference of 

scienter. Viewing the Complaint in its entirety, this Court cannot hold that Plaintiffs pled facts 

that give rise to a strong inference that the Defendants included the receivable with the intent to 

defraud investors or with severe recklessness. In addition to failing to adequately plead scienter, 

Plaintiffs also fail to allege any stock price decline following the March 14, 2002, press release 

revealing the write off. As such, loss causation has not been pled, and the allegation fails. 

b. The Barracuda Project 

i. 12/31/01 SEC Form 10-K filed March 12, 2002 

In ¶120 Plaintiffs allege that Lesar signed an SEC Form 10-K, but was “aware of cost 

overruns on the Barracuda project,” and “did not disclose these losses or the virtual certainty of 

additional losses (which would ultimately reach over $700 million and lead to the announcement 

that the Company would not again enter such fixed price contracts, or discuss the effect and 

potential effect on liquidity).” Therefore, Plaintiffs argue that “the March 12, 2002 10-K was 

false and misleading.” 

While Plaintiffs properly attribute the Form 10-K to Lesar, they fail to adequately allege 

scienter. Conclusory allegations regarding Lesar’s knowledge of certain things will not suffice. 

Plaintiffs must provide specific facts that give rise to a strong inference that Lesar signed the 

Form 10-K with the intent to deceive investors, or with severe recklessness. There are no such 

facts pled with regard to the SEC form. 

 Additionally, when alleging fraudulent omissions, Plaintiffs must allege the type of facts 

omitted, where these omissions should have appeared, how the omitted facts rendered the 

 

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representations misleading, identify which statements are misleading due to the omission in the 

same manner as a misrepresentation, and explain why the omission rendered the statements 

misleading with sufficient particularity.142

 Plaintiffs in this case fail to allege with specificity how the Form 10-K was misleading 

without the information regarding cost overruns, or specifically which information about the 

overruns should have been included. They do not allege how large the overruns were at the time 

of the filing of the Form 10-K, or how Lesar knew about them. Such vague allegations of 

knowledge and “fraud by hindsight” are insufficient under the PSLRA, and cannot survive here. 

c. Change in Accounting Practices and Violations of GAAP 

i. 12/31/01 SEC Form 10-K filed March 12, 2002 

In ¶120, Plaintiffs allege Lesar signed an SEC Form 10-K, but “Halliburton did not 

reveal that its income had been artificially and improperly increased by virtue of the 1998 

accounting change for Unapproved Claims.” Therefore, Plaintiffs allege that the March 12, 

2002, 10-K was “false and misleading.” As set forth above, when alleging fraudulent omissions, 

Plaintiffs must plead the omission with particularity. That standard is not met here. First, 

Plaintiffs improperly rely on group pleading when alleging that “Halliburton” did not reveal the 

information. Plaintiffs additionally fail to allege with specificity any facts indicating who was 

aware of the cost overruns, or how they were aware of such information. Plaintiffs do not allege 

what specific facts regarding the unapproved claims should have been revealed, or where and 

when they should have been revealed. As a result, this claim cannot survive. 

 

142 In re Odyssey Healthcare, Inc. Sec. Litig., 424 F. Supp. 2d at 892. 

 

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6. Section 20(a) Liability 

Because the Court dismisses the Complaint for failure to meet the strict pleading 

requirements for a securities fraud action, liability cannot be independently maintained for 

control person liability under §20(a), and these claims must likewise be dismissed.143 

D. Conclusion 

The Court finds that Defendants Halliburton and Lesar’s Motions to Dismiss should be 

GRANTED for: (1) failure to adequately plead scienter; (2) failure to plead reliance or loss 

causation; (3) failure to allege economic loss; (4) impermissible use of group pleading; (5) 

impermissible conclusory allegations; and (6) immaterial puffery. All other grounds asserted for 

dismissal of the Complaint are hereby DENIED.144 

This dismissal is without prejudice to the Plaintiffs filing a Second Amended Complaint 

which complies with the strict pleading requirements set forth above. However, the Court warns 

Plaintiffs that should they file a Second Amended Complaint suffering from the same 

deficiencies, the Court will not grant leave to correct the same infirmities identified above. As 

observed by the Fifth Circuit: 

A complaint can be long-winded, even prolix, without pleading with particularity. 

Indeed, such a garrulous style is not an uncommon mask for an absence of detail. 

This court has noted that “although the requirement for particularity in pleading 

fraud does not lend itself to refinement, and it need not in order to make sense, 

nevertheless, directly put, the who, what, when, and where must be laid out before 

access to the discovery process is granted.” “In securities fraud suits, this 

 

143 See Ind. Elec. Workers’ Pension Trust Fund IBEW, 537 F.3d at 545 (“Although the plaintiffs alleged that 

Bernhard and Belk are liable as control persons under Section 20(a) of the Securities Exchange Act of 1934, 

‘[c]ontrol person liability is secondary only and cannot exist in the absence of a primary violation.’ Southland, 365 

F.3d at 383. Because we have found the pleadings of Section 10(b) and Rule 10b-5 liability inadequate, and because 

plaintiffs have furnished no independent briefing on this claim, it must be dismissed.”). 

144 The Court notes that it did not address Defendants’ argument that certain statements are protected by the safe 

harbor provision of the PSLRA. This Order shall in no way prejudice Defendants’ ability to reassert this argument 

in a subsequent Motion to Dismiss should Plaintiffs choose to replead the allegations underlying this argument. 

 

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Page 46 of 46 

heightened pleading standard provides defendants with fair notice of the 

plaintiffs’ claims, protects defendants from harm to their reputation and goodwill, 

reduces the number of strike suits, and prevents plaintiffs from filing baseless 

claims and then attempting to discover unknown wrongs.”145 

It is with these policy considerations in mind that this Court dismisses Plaintiffs claims, but 

allows them another chance to meet the stringent requirements set forth by the Federal Rules and 

the securities law discussed above. 

SO ORDERED this 31st day of March, 2009.

 

145 Southland Sec. Corp., 365 F.3d at 362 (citations omitted). 

 

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