Opinion ID: 783853
Heading Depth: 3
Heading Rank: 3

Heading: Scienter was Pleaded with Sufficiently Particular Facts

Text: 29 One factor on which the district court based its dismissal of the CAC was a failure by the plaintiff to plead scienter with sufficient particularity. Specifically, the district court went through the complaint paragraph by paragraph, analyzing each of the factual allegations and attempting to connect these allegations with the allegations of scienter to determine if they were sufficiently well pleaded so as to satisfy the requirements of the heightened pleading requirements of the PSLRA. Ultimately, the district court concluded that the plaintiff `failed to craft a Complaint in such a way that a reader can, without undue effort, divine why each alleged statement was false or misleading.' R.40, Opinion (April 9, 2001) (granting motion to dismiss consolidated amended class action complaint) (quoting Wenger v. Lumisys, Inc., 2 F.Supp.2d 1231, 1243 (N.D.Cal.1998)). 30 The plaintiff takes issue with the district court's finding that he was unable to draft an adequate complaint. He argues that the district court erred in the method it used to analyze the CAC, characterizing the district court's standard of review as requiring that each paragraph contain all the elements necessary to state a securities fraud claim. This standard, plaintiff argues, is unsupported by either the PSLRA or the Federal Rules of Civil Procedure, and therefore the district court's judgment should be reversed. 31 Plaintiff is correct in his contention that nothing in the PSLRA or the Federal Rules of Civil Procedure supports a method of analysis that would require all the elements of a securities fraud claim to be stated in each paragraph of a complaint. However, nowhere in its 39-page opinion did the district court purport to be applying such a standard. We assume, therefore, that the plaintiff must be asserting that such a method, as a practical matter, was the one used by the district court, not that the district court explicitly held that such a method was the one to be applied. 32 There is some merit to this characterization of the district court's opinion. The district court approached the CAC in a highly systematic — and somewhat rigid — manner and overlooked some of plaintiff's attempts to connect its factual allegations and allegations of scienter. Plaintiff alleged some kind of scienter in paragraphs 4, 39-40, 47-48, 64, 66-67, 5 69, 70, 73-75, and 82. 6 Many of these allegations were general and therefore insufficient to meet the particularity requirements of the PSLRA. See ¶¶ 69, 70, 73-75, 82. 7 Moreover, other allegations of scienter were not asserted in relation to a statement or omission of a material fact, but rather with respect to Champion's substantive actions throughout the underlying situation, and thus do not allege scienter sufficient as a basis for a securities fraud action. See ¶ 48. 8 However, some of the allegations of scienter are, albeit loosely, tied to the alleged false or misleading statements or to omissions of material facts listed in the complaint. See ¶¶ 4, 39-40, 47. 9 33 The SASC did not remedy any of the shortcomings of the CAC with respect to pleading scienter with sufficient particularity. The SASC adds more facts, but it does not link these facts with the allegations of scienter any more than the CAC does. In fact, the SASC simply reiterates the scienter allegations of the CAC. 34 Although we understand the district court's frustration with the complaint, as the CAC does not link the factual allegations with defendant's purported scienter in a particularly cogent manner, we nevertheless find that the complaint is not so inadequate in this respect that it merits dismissal. The plaintiff did not simply make conclusory allegations of recklessness, intention, or misconduct. Burns v. Prudential Secs., 116 F.Supp.2d 917, 925 (N.D.Ohio 2000). However, as indicated below, we further conclude that the district court was correct in holding that the CAC did not contain allegations sufficient to state a claim under the heightened pleading requirements of the PSLRA. 35