Source: https://case-law.vlex.com/vid/855-f-supp-1086-601796414
Timestamp: 2019-04-20 00:40:07+00:00

Document:
In re SYNTEX CORP. SECURITIES LITIGATION.
This Document Relates to All Actions.
William S. Lerach, Milberg, Weiss, Bershad, Hynes & Lerach, San Diego, CA, Eugene A. Spector, Spector & Roseman, P.C., Philadelphia, PA, Richard S. Schriffrin, Schriffrin & Craig, Bala Cynwyd, PA, for plaintiffs Arthur M. Rosenbaum and Richard Gorosh, on behalf of himself and all others similarly situated.
Jan M. Adler, Milberg, Weiss, Bershad, Hynes & Lerach, San Diego, CA, for plaintiff Judy Wynne.
Joyce M. Cartun, Heller, Ehrman, White & McAuliffe, San Francisco, CA, M. Scott Donahey, David R. Foley, Holtzman, Wise & Shepard, Palo Alto, CA, for defendants Syntex Corp., Paul E. Freiman, James N. Wilson and John Fried.
Patricia H. Lyon, Buchalter, Nemer, Fields & Younger, San Francisco, CA, for defendant Marvyn Carton.
San Francisco, CA, Robert H. Werbel, New York City, for defendant Allen & Co. Inc.
Plaintiffs allege in this class action lawsuit that Syntex Corp. and its directors and officers ("Defendants") defrauded investors in violation of § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Securities and Exchange Commission Rule 10b-5, 17 C.F.R. § 240.10b-5 (1993), promulgated thereunder, by creating and maintaining the image of a successful company through the issuance of positive public statements and projections in press releases and other statements to the financial community, when in fact, the outlook for the company's products was poor. Plaintiffs also seek to hold Defendants liable for these misstatements and omissions under § 20(a) of the Securities Exchange Act of 1934, 15 U.S.C. § 78t. Defendants Syntex, Paul Freiman, James Wilson, John Fried, Thomas Gutshall, Melvin Booth and Thomas Hoffmeister now move to dismiss Plaintiffs' Consolidated Amended Complaint and alternatively, for partial summary judgment. In response, Plaintiffs move to strike declarations Defendants filed in support of their motion for partial summary judgment. Defendants Melvin Booth and Thomas Hoffmeister also move to dismiss on the ground that Plaintiffs' claims against them are barred by the statute of limitations. Finally, Defendant Marvyn Carton moves to dismiss, adopting the arguments of the other defendants and presenting additional arguments that are specific to his position as an outside director of Syntex. For the reasons expressed below, all Defendants' motions to dismiss are GRANTED and Plaintiffs' claims are DISMISSED WITH PREJUDICE; Defendants' motion for partial summary judgment is DENIED; and Plaintiffs' motion to strike is DENIED.
Syntex, a Panamanian corporation headquartered in Palo Alto, California, is an international health care company involved in the research, development, manufacture and marketing of pharmaceuticals. Syntex derives most of its earnings (65% in fiscal 1991) from the sale of Naprosyn, a drug used to treat arthritis pain and inflammation. The company's patent on Naprosyn expired in December 1993, exposing the drug to competition from generic substitutes.
Plaintiffs allege that during the last half of 1991 and throughout 1992, Syntex's top managers were under pressure to boost the price of the company's stock as high as possible and to maintain it at inflated levels. Two factors were apparently responsible for this pressure. First, in recent years, Syntex was frequently mentioned as a potential takeover candidate, and managers feared they would lose their jobs if such a takeover would occur. Second, the managers were allegedly motivated by the financial incentives they had as owners of Syntex stock and options to purchase substantial numbers of shares at favorable prices.
offset any of the profits lost due to the decline in prescription Naprosyn sales, even though the Defendants had information at the time indicating that safer and more effective products already on the market would limit their use and acceptance. Finally, Plaintiffs allege that Syntex misrepresented the effect of a consent decree it entered with the FDA concerning the company's promotion of Naprosyn.
Plaintiffs claim that because of the rosy picture Defendants painted for the company, the price of Syntex's stock increased from $38- 1/4 per share in late November 1991, to a peak of $54- 1/8 per share in mid-January, 1992. On May 26, 1992, the company announced that its earnings for its third quarter fiscal 1992 had declined. Over the next several days, the price of the stock fell from $43- 5/8 per share to $35- 3/5. In an attempt to cushion the effects of this report, Syntex allegedly continued to make false positive representations about the company's future earnings. However, after the company revealed disappointing 1992 fourth quarter sales estimates in August, the stock fell to $29- 3/8.
In addition to the misrepresentation and nondisclosure claims, Plaintiffs allege that several of the Defendants sold shares of their Syntex stock for proceeds in excess of $3 million in violation of federal securities laws.
On September 1, 1993, this Court dismissed Plaintiffs' First Amended Complaint with leave to amend because (1) Plaintiffs' claims that were based on misinformation contained in the analysts' reports were not sufficiently plead; and (2) the documents cited in the complaint accurately disclosed the information Plaintiffs allege that Defendants misrepresented or omitted. Plaintiffs filed a Second Amended Complaint on November 30, 1993.
Under the liberal federal pleading policies, a plaintiff need only give defendant fair notice of the claims against it. Conley v. Gibson, 355 U.S. 41, 47, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957). A claim should not be dismissed unless it is certain that the law would not permit the requested relief even if all of the allegations in the complaint were proven true. Durning v. First Boston Corp., 815 F.2d 1265, 1267 (9th Cir. 1987), cert. denied, 484 U.S. 944, 108 S.Ct. 330, 98 L.Ed.2d 358 (1987). Therefore, for purposes of this motion to dismiss, the Court assumes the truth of all factual allegations in the complaint as well as all reasonable inferences drawn from them.
In deciding a motion to dismiss, the court is not limited by the allegations contained in the complaint if the complaint is accompanied by attached documents. Such documents are deemed part of the complaint and may be considered in determining whether the plaintiff can prove any set of facts in support of the claim. Durning, 815 F.2d at 1267. The court may also consider "documents whose contents are alleged in a complaint and whose authenticity no party questions, but which are not physically attached to the pleading." Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir. 1994), petition for cert. filed, 62 U.S.L.W. 3575 (Feb. 17, 1994) (No. 93-1327).
17 C.F.R. § 240.10b-5 (1993).

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