United States Court of Appeals

FOR THE EIGHTH CIRCUIT

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No. 08-2452

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In re: 2007 Novastar Financial Inc.,

Securities Litigation,

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Robert W. Boyd, III, individually and

on behalf of all others similarly

situated; Bruce Gilmore; Steven J.

Gedy; Norman Pelletier; James E.

Murphy, on behalf of himself and all

others similarly situated,

Plaintiffs,

Dr. Kevin Lester,

Plaintiff - Appellant,

Joshua Brown; Merri-Jo Hillaker;

Charles McComb; Lois McComb;

William Weakley; Alan James Bima,

individually and on behalf of all others

similarly situated; Gary M. Tanner;

Lee M. Edison; Jack F. Dunbar, on

behalf of himself and all others

similarly situated; Durston Winesburg,

on behalf of himself and all others

similarly situated; Michael Owens, on

behalf of himself and all others

similarly situated, 

Plaintiffs,

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Appeal from the United States

District Court for the

Western District of Missouri.
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The Honorable Ortrie D. Smith, United States District Judge for the Western

District of Missouri.

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v.

Novastar Financial, Inc.; Scott F.

Hartman; W. Lance Anderson;

Gregory S. Metz,

Defendants - Appellees.

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Submitted: January 16, 2009

 Filed: September 1, 2009

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Before BYE, COLLOTON and GRUENDER, Circuit Judges.

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GRUENDER, Circuit Judge.

Kevin Lester appeals from the district court’s1

 order dismissing his class-action

securities complaint under the heightened pleading requirements of the Private

Securities Litigation Reform Act of 1995 (“PSLRA”), 15 U.S.C. § 78u-4(b), and

concluding that any attempt to amend the complaint would be futile. For the reasons

discussed below, we affirm.

I. BACKGROUND

We draw the relevant facts from the class’s complaint because this appeal arises

from the district court’s grant of a motion to dismiss. See Fla. State Bd. of Admin. v.

Green Tree Fin. Corp., 270 F.3d 645, 648 (8th Cir. 2001).
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Novastar Financial, Inc. (“Novastar”) is a publicly-traded company that

originates, purchases, invests in, and services residential mortgages. Novastar is a

subprime lender, offering loans to nonconforming borrowers with credit profiles that

cannot satisfy the underwriting standards of conventional mortgage lenders. In

addition to servicing individual loans, Novastar raises additional capital by bundling

groups of loans into mortgage-backed securities and selling the rights to the income

generated by these securities.

On February 20, 2007, Novastar announced its 2006 fourth-quarter and yearend financial results, which were well below analysts’ expectations. In the same

announcement, Novastar stated that it expected to earn far less income for the 2007

to 2011 fiscal years than it had previously anticipated. The announcement drove

Novastar’s stock price down by forty percent the next day. Within days, shares of

Novastar stock were trading at less than thirty percent of their high in May 2006. In

the weeks following the announcement, numerous Novastar investors filed separate

class-action securities fraud lawsuits against Novastar and its officers and directors.

The district court consolidated these various actions into a single class-action lawsuit

and appointed Lester as the class’s lead plaintiff. The class was composed of all

persons who acquired Novastar’s securities between May 4, 2006, and February 20,

2007 (the “class period”).

On October 19, 2007, Lester filed the class’s consolidated complaint. The 104-

page complaint named as defendants Novastar; its Chief Operating Officer, W. Lance

Anderson; its Chief Executive Officer, Scott F. Hartman; and its Chief Financial

Officer, Gregory S. Metz. It alleged that each defendant violated SEC Rule 10b-5, 17

C.F.R. § 240.10b-5, and sections 10(b) and 20(a) of the Securities Exchange Act of

1934, 15 U.S.C. §§ 78j(b), 78t(a), by making false and misleading statements about

Novastar’s operations and financial health during the class period. The complaint

began by describing the alleged deterioration of Novastar’s underwriting standards

and auditing processes and the alleged increasing number of loan defaults during the
2

Lester also alleged in the complaint that Novastar’s financial reports were false

and misleading because they violated generally accepted accounting principles.

Complaint at 70-89. However, the district court held that Lester failed to allege a

single false entry in the company’s financial statements, and Lester “does not appeal

this portion of the dismissal.” Appellant’s Br. at 6 n.4.

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class period, drawing on information from former Novastar employees, including

corporate credit managers, quality control auditors, underwriters, fraud investigators,

and regional operations supervisors. Complaint at 11-34. Next, over the course of

thirty-six pages, the complaint reproduced, either in their entirety or lengthy excerpts

from, nineteen communications—including press releases, SEC filings, and

conference call transcripts—issued by Novastar and the individual defendants during

the class period that were allegedly false or misleading. Complaint at 34-70.2

 The

complaint concluded by alleging loss causation and setting forth the complaint’s two

counts, one for violations of Rule 10b-5 and § 10(b) and one for violations of § 20(a).

Novastar and its executives filed a motion to dismiss the complaint pursuant to

Federal Rule of Civil Procedure 12(b)(6), alleging that the complaint failed to comply

with the PSLRA’s heightened pleading requirements. Among other failings, Novastar

argued that the complaint failed to allege any material misrepresentations or omissions

and failed to plead facts establishing a strong inference of scienter. Novastar also

suggested that the district court should not allow plaintiffs leave to amend their

complaint because any such effort would be futile.

The district court granted Novastar’s motion to dismiss, holding that the

complaint did not satisfy the PSLRA’s pleading requirements. Turning first to the

PSLRA’s requirement that the complaint “specify each statement alleged to have been

misleading [and] the reason or reasons why the statement is misleading,” 15 U.S.C.

§ 78u-4(b)(1), the court held that “Plaintiff has not specified the allegedly misleading

statements, nor has he specified why the statements he has referred to are misleading.”

In re 2007 Novastar Fin., Inc., Sec. Litig., No. 07-0139-CV-W-ODS, 2008 WL
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2354367, at *2 (W.D. Mo. June 4, 2008) (unpublished). Moreover, the court held that

“Plaintiff has not explained how [the information from former Novastar employees]

demonstrate[s] the falsity of any particular public statement.” Id. at *3. Turning next

to the PSLRA’s requirement that the complaint “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), the court held that the “Plaintiff does not compare (1) an

allegedly false or misleading statement with (2) Defendants’ prior receipt of

information demonstrating that the statement would be false or misleading” and that

“whatever minimal inference of fraudulent intent that can be gleaned from the

Complaint is insufficient to allow the case to proceed.” Id. at *4. The court found that

Lester “has not presented facts creating an inference of scienter that is at least as

strong as an inference that Defendants lacked fraudulent intent, and this failing

constitutes an independent reason to dismiss the case.” Id. The court also agreed with

Novastar’s contention that the investors should not be afforded an opportunity to

amend because any such attempt would be futile. Id. at *5. In reaching that

conclusion, the district court noted that “Plaintiff has not addressed this issue.” Id.

Lester appeals.

II. DISCUSSION

A. Dismissal Under the PSLRA

We review de novo the district court’s dismissal of a securities fraud complaint

for failure to comply with the PLSRA’s heightened pleading requirements. In re

Cerner Corp. Sec. Litig., 425 F.3d 1079, 1083 (8th Cir. 2005). In reviewing the

district court’s dismissal, we “accept all factual allegations in the complaint as true[,]

. . . consider the complaint in its entirety[,] . . . [and] take into account plausible

opposing inferences.” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308,

322-23 (2007).
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The PSLRA goes beyond the ordinary pleading requirements described in Rules

8(a)(2) and 9(b) of the Federal Rules of Civil Procedure, requiring that

any private securities complaint alleging that the defendant made a false

or misleading statement must: (1) “specify each statement alleged to

have been misleading [and] the reason or reasons why the statement is

misleading,” 15 U.S.C. § 78u-4(b)(1); and (2) “state with particularity

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

required state of mind,” § 78u-4(b)(2).

Tellabs, 551 U.S. at 321 (alteration in original). “The Reform Act requires the court

to dismiss the complaint if these requirements are not met.” Kushner v. Beverly

Enters., Inc., 317 F.3d 820, 826 (8th Cir. 2003) (citing 15 U.S.C. § 78u-4(b)(3)).

Lester contends that the district court erred in dismissing the complaint because it

contained sufficient allegations of both falsity, § 78u-4(b)(1), and scienter, §

78u-4(b)(2).

We turn first to the question whether Lester’s complaint contained sufficient

allegations of falsity. The PSLRA’s heightened pleading requirements compel the

plaintiff to “plead the ‘who, what, when, where and how’ of the misleading statements

or omissions.” Cornelia I. Crowell GST Trust v. Possis Med., Inc., 519 F.3d 778, 782

(8th Cir. 2008) (quoting In re K-tel Int’l, Inc. Sec. Litig., 300 F.3d 881, 890 (8th Cir.

2002)). Plaintiffs alleging securities fraud must “plead their allegations of fraudulent

misstatements and omissions with particularity.” In re Navarre Corp. Sec. Litig., 299

F.3d 735, 743 (8th Cir. 2002). “[T]he complaint’s facts must necessarily show that the

defendants’ statements were misleading.” Cerner, 425 F.3d at 1083.

Lester argues that the district court erred in concluding that his complaint failed

to specify the allegedly misleading statements. In support of his contention, he directs

our attention to a section of his complaint titled, “Defendants’ False and Misleading

Statements Issued During the Class Period,” and specifically to paragraphs 104, 109,
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For example, in paragraph 116 of Lester’s complaint, Lester reproduces

Novastar’s three-page August 3, 2006 press release in its entirety. The press release

includes a plethora of statements, but the complaint gives no indication of which

statements Lester alleges were false or misleading. Even if we were to focus solely

on the following highlighted and italicized passage in the release, we still could not

say what statements were alleged to be false or misleading:

NovaStar continues to demonstrate strength in a challenging time for

the mortgage industry. We delivered our highest quality loan

production ever, and earnings benefitted from reduced costs of

production and higher coupons. Credit performance in the portfolio

remains strong, and our proactive risk management strategies have

protected the portfolio during a period of tightening interest rate

policy.

Without specific guidance from Lester, a court can only speculate about whether he

alleges falsity with respect to (1) Novastar’s relative strength in the industry; (2) the

quality of Novastar’s loan production; (3) the strength of Novastar’s credit

performance; (4) the protective abilities of Novastar’s risk management strategies; (5)

some combination of the above; or (6) something else entirely found in the remaining

two-and-a-half pages of the press release.

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116, 118, 119, 128, 132, 134, 136, and 137. This thirty-six page section reproduces,

either in their entirety or lengthy excerpts from, press releases, SEC filings, and

transcripts of conference calls made by Novastar and the individual defendants during

the class period. Absent from this section (and from every other section of the

complaint), however, is any indication as to what specific statements within these

communications are alleged to be false or misleading.3

 This practice does not satisfy

the PSLRA’s requirement of pleading with sufficient particularity because it does not

identify “what” statements were allegedly false or misleading. See Cornelia I.

Crowell GST Trust, 519 F.3d at 782. Lester appears to recognize this defect, as his

brief to this Court identifies specific statements within these communications and

alleges that they are false or misleading. See Appellant’s Br. at 29-33. Identifying

specifically the false or misleading statements for the first time on appeal, however,
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The complaint’s paragraph 157 contained the following allegations:

157. The actual, but undisclosed facts, as detailed above, which

were known by the defendants but concealed from the investing public

during the Class Period, were as follows:

(a) The Company lacked requisite internal controls, and, as a

result, the Company’s projections and reported results issued during the

Class Period were based upon defective assumptions about loan

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does not excuse a litigant’s failure to comply with the pleading requirements under the

PSLRA. Thus, we conclude that the district court did not err in dismissing Lester’s

complaint for its failure to “specify each statement alleged to have been misleading.”

See 15 U.S.C. § 78u-4(b)(1).

Lester also argues that the district court erred in concluding that his complaint

failed to specify the reasons why the allegedly misleading statements were false or

misleading. However, absent an indication of precisely what statements Lester alleges

to be misleading, it is difficult, if not impossible, to determine whether the complaint

adequately specified why each statement was misleading. Even if we were able to

identify specific statements that were alleged to be misleading, we would still

conclude that Lester’s complaint failed to specify the reasons why each statement was

false or misleading. The complaint does not provide any link between an alleged

misleading statement and specific factual allegations demonstrating the reasons why

the statement was false or misleading, as the PSLRA requires. See Cerner, 425 F.3d

at 1083; 15 U.S.C. § 78u-4(b)(1). Instead, the complaint merely contains “[a] litany

of alleged false statements, unaccompanied by the pleading of specific facts indicating

why those statements were false.” See Metzler Inv. GMBH v. Corinthian Colls., Inc.,

540 F.3d 1049, 1070 (9th Cir. 2008). The closest that the complaint comes to linking

any statement with specific facts demonstrating the reasons why the statement was

misleading is paragraph 157. There, Lester arguably attempts to boil down the

complaint’s thirty-four pages of background material—including information from

former Novastar employees—into a generalized one-paragraph summary.4

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delinquencies;

(b) The Company’s financial statements were materially misstated

due to its failure to properly account for its allowance for loan losses;

(c) Given the deterioration and the increased volatility in the

subprime market, the Company would be forced to tighten its

underwriting guidelines which would have a direct material negative

impact on its loan production going forward;

(d) Given the increased volatility in the lending market, the

Company had no reasonable basis to make projections about its ability

to maintain its REIT taxable income, which drives dividends, and

potentially even its very status as a REIT. As a result, the Company’s

projections issued during the Class Period about its REIT taxable income

and dividends were at a minimum reckless; and

(e) The Company’s systematic deviation from its underwriting

standards was creating “credit risk” and otherwise heightening the risk

of default far beyond the scope defendants told investors.

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Because we conclude that the district court properly dismissed the complaint

for failing to comply with the PLSRA’s pleading requirements concerning falsity

under § 78u-4(b)(1), we need not address Lester’s additional arguments concerning

his compliance with the PSLRA’s pleading requirements concerning scienter under

§ 78u-4(b)(2).

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more, however, the broad allegations contained in paragraph 157 do not “necessarily

show that the defendants’ statements were misleading,” Cerner, 425 F.3d at 1083, or

provide the level of particularity required by the PSLRA, see Navarre, 299 F.3d at

743. Therefore, we conclude that the district court did not err in alternatively

dismissing Lester’s complaint for its failure to “specify . . . the reason or reasons why

[each] statement is misleading.” See 15 U.S.C. § 78u-4(b)(1).5
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B. Denial of Leave to Amend the Complaint

“We ordinarily review the denial of leave to amend a complaint for abuse of

discretion, but when the district court denies leave on the basis of futility we review

the underlying legal conclusions de novo.” In re NVE Corp. Sec. Litig., 527 F.3d 749,

752 (8th Cir. 2008). Nevertheless, we need not reach the question of futility here

because we can affirm the court’s denial of leave to amend on the alternate basis that

Lester failed to offer a proposed amended complaint to the district court. Cf. K-tel,

300 F.3d at 889 (“[W]e may affirm the district court’s judgment on any basis

supported by the record” (quoting Wisdom v. First Midwest Bank, 167 F.3d 402, 406

(8th Cir. 1999))).

“Although leave to amend ‘shall be freely given when justice so requires,’ see

Fed. R. Civ. P. 15(a), plaintiffs do not have an absolute or automatic right to amend.”

U.S. ex rel. Lee v. Fairview Health Sys., 413 F.3d 748, 749 (8th Cir. 2005). “[I]n

order to preserve the right to amend the complaint, a party must submit the proposed

amendment along with its motion.” Clayton v. White Hall Sch. Dist., 778 F.2d 457,

460 (8th Cir. 1985). Lester never submitted a proposed amended complaint to the

district court, nor did he proffer the substance of such an amended complaint until he

filed his appellate brief. Instead, Lester merely included a footnote at the end of his

response to Novastar’s motion to dismiss stating that “[t]o the extent that the court

finds the Complaint’s allegations insufficient, plaintiffs respectfully request an

opportunity to amend their claims.” These circumstances mirror those present in

Clayton, where we held that a district court properly denied a plaintiff leave to amend

because she “did not submit a motion for leave to amend but merely concluded her

response to [the defendant’s] motion to dismiss with a request for leave to amend” and

“did not offer a proposed amended complaint or even the substance of the proposed

amendment to the district court.” Id.; see also Dudek v. Prudential Sec., Inc., 295

F.3d 875, 880 (8th Cir. 2002) (reaching the same result under nearly identical

circumstances). Moreover, even after the district court dismissed Lester’s complaint
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and denied his request to amend the complaint, Lester failed to file a motion under

Federal Rules of Civil Procedure 15(a)(2), 59(e), or 60(b), seeking leave to file an

amended complaint. Cf. U.S. ex rel. Roop v. Hypoguard USA, Inc., 559 F.3d 818, 823

(8th Cir. 2009) (“[P]ost-judgment leave to amend may be granted if timely

requested.”). As we have noted before, “the district court [i]s not required to engage

in a guessing game” as a result of the plaintiff’s failure to specify proposed new

allegations. Meehan v. United Consumers Club Franchising Corp., 312 F.3d 909, 914

(8th Cir. 2002). Accordingly, we affirm the district court’s denial of leave to amend

the complaint.

III. CONCLUSION

For the foregoing reasons, we affirm the district court.

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