Opinion ID: 781005
Heading Depth: 4
Heading Rank: 4

Heading: Motive of America West Officers

Text: 106 One of the District Court's overall concerns with Plaintiffs' allegations was that the America West officers who made the alleged misstatements were not the same persons who engaged in insider trading. Thus, the District Court found it illogical that they would make deliberately misleading statements. We disagree. 107 Scienter can be established even if the officers who made the misleading statements did not sell stock during the class period. Hanon v. Dataprods. Corp., 976 F.2d 497, 507 (9th Cir.1992); cf. Provenz, 102 F.3d at 1491 (finding a genuine issue of material fact regarding the scienter of an individual defendant who made many allegedly false and misleading statements, even though he sold a minimal number of shares). In other words, the lack of stock sales by a defendant is not dispositive as to scienter. 108 Although Franke, Goodmanson, and Parker (the America West officers who made the alleged misstatements) did not engage in insider trading, a strong inference of scienter can be inferred from Plaintiffs' allegations. Plaintiffs assert that Franke, Goodmanson, and Parker were motivated to inflate America West's financial results and stock prices because their eligibility for stock options and executive bonuses were based principally on the company's financial performance. None of the executive officers received options awards in 1997 for the previous year. In contrast, America West awarded Franke 350,000 options in February 1998 and America West awarded 110,000 options to Goodmanson, 35,000 options to Parker, and 20,000 options to Garel in March 1998. 22 In addition, the Compensation Committee (three out of four of whose members were chosen by TPG and Continental) reviewed all aspects of compensation and promotion of the officers who made the alleged misrepresentations. As controlling shareholders, TPG and Continental could easily choose three of its four members. In fact, as aforementioned, TPG Vice President Schifter was a member of the Compensation Committee. Although generalized assertions of motive, without more, are inadequate to meet the heightened pleading requirements of Silicon Graphics [,] Plaintiffs have provided specific, particularized allegations. Lipton, 284 F.3d at 1038. 109 Plaintiffs also offer one other possible motive, which we find insufficient to establish scienter. They argue that Franke, Goodmanson, and Parker all knew that America West would become much less profitable once it complied with the FAA mandated requirements and settlement agreement. Thus, they contend that the officers planned to sell the troubled airline and reap a multimillion dollar windfall under the `change in control' provisions of their employment contracts and incentive compensation plans. The change in control provisions would have allowed Franke, Goodmanson, and Parker to be paid over $5 million. In support of this allegation, Plaintiffs proffer evidence that, in January 1999, America West had been contacted by several airlines, including United Airlines, regarding the possibility of merger or creation of alliances. The District Court summarily rejected this golden parachute argument. We also reject this argument because the allegations are too generalized to establish scienter. 110