Opinion ID: 1358737
Heading Depth: 2
Heading Rank: 1

Heading: Dismissal Under the PSLRA

Text: 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, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007). 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, 127 S.Ct. 2499 (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, 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, 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] Without 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]