Opinion ID: 75506
Heading Depth: 2
Heading Rank: 1

Heading: The allegations against Fong.

Text: subparagraph (A), (B), or (C); (E) any report issued by an outside reviewer retained by an issuer, to the extent that the report assesses a forward-looking statement made by the issuer; or (F) a statement containing a projection or estimate of such other items as may be specified by rule or regulation of the Commission. 15 U.S.C. § 78u-5(i)(1). 6 In addition, the PSLRA shields defendants from liability for forward-looking statements, regardless of defendant’s state of mind, if the statements are either (1) “identified as . . . forwardlooking statement[s], and . . . accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forwardlooking statement[s],” or (2) “immaterial.” 15 U.S.C. § 78u-5(c)(1)(A)(i) & (ii). 8 Paragraph 69 of the complaint alleges that “on January 29, 1996, Fong was quoted as stating falsely that the [sale of one of Roadmaster’s subsidiaries] ‘resulted from [Roadmaster’s] ongoing strategic plan, rather than pressure from creditors.’” (second alteration in original). Because this statement was not forward-looking, the plaintiffs were required only to allege particular facts giving rise to a strong inference that Fong acted with severe recklessness when he made the statement. As the district court correctly concluded, however, because the plaintiffs did not allege the context in which Fong made this statement, it does not appear from the face of the complaint that Fong must have known that the statement presented a danger of misleading buyers or sellers. As such, the plaintiffs failed to plead with particularity Fong’s scienter with respect to this statement, so paragraph 69 does not state a claim under the PSLRA. Paragraph 76 alleges that “[i]n the Annual Report to Shareholders filed with the SEC in April 1996 . . . , Roadmaster heralded the [sale of one of its subsidiaries] as marking the ‘turnaround’ for the company.” This paragraph does not state a claim against Fong because it does not attribute any statement to him. Even if the paragraph had attributed the statement to Fong, it would have failed to state a claim against him because it does not allege with particularity Fong’s scienter with respect to the statement. Because the statement pertained to future 9 economic performance, it was foward-looking, and the plaintiffs therefore would have been required to allege that Fong possessed actual knowledge of the statement’s falsity, which the plaintiffs did not do. Paragraph 95 alleges that “Roadmaster stated in a press release that its ‘restructuring efforts in the fitness division will lead to improved profitability,’ and [that] it was ‘confident [that] these measures will favorably impact the fitness business as the company enters a new program year.” (second alteration in original). Because these statements pertained to future economic performance, they were forward-looking. As such, the plaintiffs were required to allege with particularity facts creating a strong inference that Fong knew the statements to be false. Because the plaintiffs failed to do so, paragraph 95 failed to state a claim against Fong. Paragraph 96 alleges that Fong stated in a press release that “[t]he sale of Roadmaster’s Bicycle Division will focus management on two significant opportunities to build shareholder value,” and that several of Roadmaster’s initiatives “are expected to restore the Fitness Division to positive cash flow contribution.” Again, because these statements were forward-looking, the plaintiffs were required to allege particular facts creating a strong inference that 10 Fong knew that the statements were false. Because the plaintiffs did not satisfy this burden, paragraph 96 failed to state a claim against Fong. Similarly, the statements alleged in paragraphs 1157 and 1178 were forwardlooking because they pertained to future economic performance. Because the plaintiffs failed to allege particular facts indicating that Fong knew that the statements were false, the district court did not err in concluding that paragraphs 115 and 117 failed to state a claim against Fong. Moreover, the district court did not err in finding that the plaintiffs failed to allege with particularity any false or misleading statements in paragraphs 59, 98, and 102. Paragraph 59 alleges that “Roadmaster represented in a press release that a reported increase in its gross margin for the third quarter of 1995 ‘reflects a solid and improving core business.’” Paragraph 98 alleges that Fong stated in a press release that “[t]he results for the second quarter [of 1996] reflect the completion of a difficult season in our fitness equipment business,” and that “the Flexible Flyer and American Playworld brands have great potential and continue to be market leaders in their respective categories and strong profit performers for the 7 E.g., “With the exception of the seasonally weak second quarter, we believe that the DP unit may be profitable in each quarter this year.” 8 E.g., “We now have a totally toy focused management and expect 20% revenue growth in 1997 over 1996.” 11 company.” Paragraph 102 alleges that Fong stated in a press release that “we are much stronger financially as a result of the sale of [certain] businesses to Brunswick.” Because the plaintiffs failed to plead any particular facts indicating whether or how any of these statements were false or misleading, these paragraphs failed to state a claim under the PSLRA9 and failed to comply with Fed. R. Civ. P. 9(b).10 In summary, the plaintiffs failed to state a claim against Fong for violating Section 10(b) of the Exchange Act because they did not allege with particularity statements that Fong made that were false or misleading, or failed to allege particular facts creating a strong inference that Fong made false or misleading statements with the level of scienter that the PSLRA requires. 9 15 U.S.C. § 78u-4(b)(1) states that In any private action arising under this chapter in which the plaintiff alleges that the defendant-- (A) made an untrue statement of a material fact; or (B) omitted to state a material fact necessary in order to make the statements made, in the light of the circumstances in which they were made, not misleading; the complaint shall specify each statement alleged to have been misleading, the reason or reasons why the statement is misleading, and, if an allegation regarding the statement or omission is made on information and belief, the complaint shall state with particularity all facts on which that belief is formed. 10 Rule 9(b) states that “[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity.” 12 The plaintiffs also failed to state a claim against Fong as a “controlling person” of Roadmaster under Section 20(a) of the Exchange Act. Section 20(a) provides that: Every person who, directly or indirectly, controls any person liable under any provision of this chapter or of any rule or regulation thereunder shall also be liable jointly and severally with and to the same extent as such controlled person to any person to whom such controlled person is liable, unless the controlling person acted in good faith and did not directly or indirectly induce the act or acts constituting the violation or cause of action. 15 U.S.C. § 78t(a). In order to state a Section 20(a) claim against Fong, the plaintiffs had to allege (1) that Roadmaster violated Section 10(a) of the Exchange Act, (2) that Fong had the power to control the general business affairs of Roadmaster, and (3) that Fong “had the requisite power to directly or indirectly control or influence the specific corporate policy which resulted in primary liability.” See Brown v. Enstar Group, Inc., 84 F.3d 393, 396 (11th Cir. 1996). For the same reasons that the plaintiffs failed to state a claim under Section 10(a) against Fong, they have failed to state a claim under Section 10(a) against 13 Roadmaster. Fong, therefore, cannot be liable under Section 20(a) as a controlling person of Roadmaster.