Opinion ID: 778801
Heading Depth: 3
Heading Rank: 2

Heading: October 1998 delisting letter.

Text: 73 The Class alleged K-tel's failure to disclose the October 19, 1998 delisting letter when received, or at least contemporaneous with other public announcements, is evidence of a strong inference of fraudulent intent because the failure created a material omission. 74 We agree with the district court that the Class failed to show a strong inference of scienter. We will assess this claim only with regard to the delisting letter allegations, namely, whether they meet the materiality requirement for securities fraud. See 17 C.F.R. § 240.10b-5; Alpern, 84 F.3d at 1533-34. 7 Generally, the issue of whether a public statement is misleading is a mixed question of law and fact for the jury. Silver v. H & R Block Inc., 105 F.3d 394, 396 (8th Cir.1997). The issue is appropriately decided as a matter of law, however, when reasonable minds could not differ. In other words, if no reasonable investor could conclude public statements, taken together and in context, were misleading, then the issue is appropriately resolved as a matter of law. Id. (citation omitted); see Press, 166 F.3d at 538. Accordingly, a complaint that alleges only immaterial misrepresentations presents an `insuperable bar to relief' ... and dismissal of such a complaint is proper. Parnes, 122 F.3d at 546 (quoting Fusco v. Xerox Corp., 676 F.2d 332, 334 (8th Cir.1982)). 75 A fact is material if it is substantially likely that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the `total mix' of information made available. Basic Inc. v. Levinson, 485 U.S. 224, 231-32, 108 S.Ct. 978, 99 L.Ed.2d 194 (1988) (citation omitted) (adopting the standard of materiality from TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449, 96 S.Ct. 2126, 48 L.Ed.2d 757 (1976), for section 10(b) and Rule 10b-5 claims); see Parnes, 122 F.3d at 546. Material information is that which would have assumed actual significance in the deliberations of the reasonable shareholder. TSC Indus., 426 U.S. at 449, 96 S.Ct. 2126; see Press, 166 F.3d at 538. This determination requires delicate assessments of the inferences a `reasonable shareholder' would draw from a given set of facts and the significance of those inferences to him. TSC Indus., 426 U.S. at 450, 96 S.Ct. 2126. In contrast, a fact is immaterial [w]here a reasonable investor could not have been swayed by the misrepresentation. Parnes, 122 F.3d at 546. Immaterial statements include vague, soft, puffing statements or obvious hyperbole. Id. at 547 (finding a prediction of significant growth is immaterial). 76 K-tel argues its failure to disclose the delisting letter prior to November 16, 1998, cannot be considered as part of a showing of scienter because it did not have a duty to disclose the delisting letter. The parties agree that a duty to disclose the letter arises only when 1) a regulation, statute or rule requires disclosure; 2) disclosure is required to prevent a voluntary statement from being misleading; or 3) the defendants are engaging in insider trading. See Backman v. Polaroid Corp., 910 F.2d 10, 12-13 (1st Cir.1990) (en banc). In this case the parties agree K-tel had no duty to disclose pursuant to regulation, statute or rule. 8 77 Materiality alone is not sufficient to place a company under a duty of disclosure. In re Sofamor Danek Group, Inc., 123 F.3d 394, 400 (6th Cir.1997). In fact, [s]ilence, absent a duty to disclose, is not misleading under Rule 10b-5. Basic Inc., 485 U.S. at 239 n. 17, 108 S.Ct. 978. A duty arises, however, if there have been inaccurate, incomplete or misleading disclosures. Sailors v. Northern States Power Co., 4 F.3d 610, 612 (8th Cir.1993). Therefore, even absent a duty to speak, a party who discloses material facts in connection with securities transactions assume[s] a duty to speak fully and truthfully on those subjects. Helwig, 251 F.3d at 561 (internal quotations and citation omitted). However, the requirement is not to dump all known information with every public announcement, but the law requires an actor to provide complete and non-misleading information with respect to the subjects on which he undertakes to speak. Id. (internal quotations and citation omitted) (emphasis added). In this case, the Class argues four public statements made by K-tel rendered misleading the omission of a public disclosure regarding the delisting letter. 78 The first public statement made by K-tel was on November 3, 1998. K-tel's vice president of corporate development stated, with regard to the new partnership agreement with Playboy Online: We expect the Playboy/K-tel Music Store to compete with leading online music services such as CDNow, Inc., N2K, Inc., and Amazon.com, Inc. 79 The defendant Lawrence Kieves made two statements on November 10, 1998. Kieves announced, with regard to the partnership with Microsoft: Microsoft's extensive online outreach to the consumer is in a league of its own and will further enhance the K-Tel Express brand name across the Internet. Additionally, Kieves appeared on CNBC stating: We're looking at several options now, we're looking at several strategic opportunities for our Company that would be very premature to announce right now, including most traditional financing options: a secondary offering, perhaps partnering up with somebody in a strategic venture with regard to our sales. 80 Finally, on November 12, 1998, after the close of the market, but prior to filing the September 10-Q, K-tel reported its financial results for the quarter ending September 30, 1998, by press release. The Class alleged only that the November 12 press release did not include information about the October 19, 1998 delisting letter, nor did it include enough information to determine whether K-tel was in compliance with the listing requirements. The Class does allege, however, K-tel common stock closed down $8 per share the next day. 81 The first two statements, relating to Playboy Online and Microsoft were not rendered misleading based upon K-tel's failure to disclose the receipt of the delisting letter. While the fact K-tel had received the delisting letter may have been material, no duty to disclose was triggered by the partnering statements. The delisting letter was unrelated to the subject matter of the statements. 82 K-tel's third statement, made by Kieves on CNBC, is so vague, cautionary and such obvious puffing that no reasonable investor would have relied on it. See Parnes, 122 F.3d at 547. Specifically, Kieves stated it would be very premature to announce anything more, a cautionary note rendering the statement immaterial as a matter of law. See id. at 548. Furthermore, Kieves seemed to describe tentatively the strategic partnerships which had already been announced by saying, perhaps partnering up with somebody in a strategic venture with regard to our sales. Such statements are not specific enough to perpetuate fraud on the market. See id. at 550. Furthermore, the statement does not implicate the delisting letter, nor was the immaterial statement made misleading without disclosure of the letter. 83 The financial results publicly disclosed on November 12, 1998, may have been rendered misleading by failure also to include notice of the delisting letter. At the very least, such would be a jury question. See Silver, 105 F.3d at 396. The subject matter is closely linked and underlying assumptions were at least colored by the letter. This determination does not end the discussion, however. 84 The Class argued the individual defendants, by reason of the material omission, were obligated to either disclose the letter or abstain from trading. In fact, the defendants did abstain from trading until the letter had been disclosed with the filing of the September 10-Q on November 16, 1998, just four days after the November 12, 1998, public disclosure of financial results. The complaint alleged no individual defendants sold shares between June 9, 1998, and November 17, 1998, and no other significant event or harm allegedly occurred within the four days between November 12 and 16. 85 Accordingly, we find, as a matter of law, failure to disclose the delisting letter prior to November 16, 1998, does not give rise to a strong inference of scienter. D. Motion to Amend 86 Finally, the Class contends the district court abused its discretion in denying the Class leave to replead its complaint for a third time. We find no merit in this argument. 87 Under Rule 15 of the Federal Rules of Civil Procedure, leave to amend should be granted freely when justice so requires. Fed.R.Civ.P. 15(a). However, futility constitutes a valid reason for denial of a motion to amend. Knapp v. Hanson, 183 F.3d 786, 790 (8th Cir.1999). Generally, we review the denial of a motion to amend for abuse of discretion. Id. However, our review of the denial of leave to amend based upon futility is de novo where such denial is based upon the failure of the amended complaint to state a claim. See United States ex rel. Gaudineer & Comito, L.L.P. v. Iowa, 269 F.3d 932, 936 (8th Cir.2001). 88 In the present case, in denying the Class leave to amend, the district court stated the Class had failed, with nine months elapsing between the filing of the complaint and the amended complaint, to plead facts with sufficient particularity to raise a strong inference of scienter. Further, the district court, after a hearing on the matter, found insufficient evidence that the Class could cure the amended complaint. During the hearing, the Class told the court it had already alleged what it knew and admitted it could not plead certain claims with any greater precision. 89 The Class provides no further support for this court on appeal to explain how it would amend the complaint to add particularity. See Brandt v. Davis, 191 F.3d 887, 893 (8th Cir.1999) (finding no abuse of discretion where party failed to explain how he would amend the complaint to save the claim); Wisdom v. First Midwest Bank, of Poplar Bluff, 167 F.3d 402, 409 (8th Cir.1999) (parties should not be allowed to amend their complaint without showing how the complaint could be amended to save the meritless claim). 90 Under the circumstances presented, we find the abuse of discretion standard is applicable because rather than find a specific allegation futile as a matter of law, the district court found it futile to amend where no actual amendments were possible. Therefore, we find the district court did not abuse its discretion in denying leave to amend the complaint. We would also affirm the denial of the motion to amend under the de novo standard.