Court Opinion

ID: 8409279
Source: CourtListenerOpinion
Date Created: 2022-11-02 16:54:38.482494+00
Date Added: 2024-06-11T16:47:40.117205
License: Public Domain

WOLLMAN, Circuit Judge,
concurring.
I am not convinced that the “bespeaks caution” doctrine renders all of the challenged statements immaterial as a matter of law. It is clear, however, that the plaintiffs’ complaint did not meet the pleading standards for falsity and scienter required by the Private Securities Litigation Reform Act of 1995 (Reform Act). Because we may affirm the district court’s judgment on any basis supported by the record, Migliaccio v. K-Tel Int'l, Inc. (In re K-Tel Int’l, Inc. Sec. Litig.), 300 F.3d 881, 889 (8th Cir.2002), I would affirm based upon the plaintiffs’ failure to satisfy the Reform Act’s pleading standards without reaching the closer question of the materiality of the alleged misstatements.
Congress adopted two heightened pleading standards unique to securities cases when it enacted the Reform Act. The first requires that a plaintiffs complaint show falsity by specifying each allegedly misleading statement and the reasons why each statement is misleading. 15 U.S.C. § 78u-4(b)(l); Kushner v. Beverly Enters., Inc., 317 F.3d 820, 826 (8th Cir.2003). The second requires that the complaint show scienter by “stat[ing] with particularity facts giving rise to a strong inference that the defendants acted with the required state of mind.” 15 U.S.C. § 78u—4(b)(2); Kushner, 317 F.3d at 826. The Reform Act requires that the complaint be dismissed if either of these standards is not met. 15 U.S.C. § 78u — 4(b)(3); Kushner, 317 F.3d at 826.
Mere allegations of fraud are insufficient to satisfy the heightened pleading standard for falsity. Chen v. Navarre Corp. (In re Navarre Corp. Sec. Litig.), 299 F.3d 735, 742 (8th Cir.2002). Instead, a complaint must indicate why the alleged misstatements “would have been false or misleading at the several points in time in which they were made” in order to satisfy the standard. Id. at 743 (quoting Fischer v. Vantive Corp. {In re Vantive Corp. Sec. Litig.), 283 F.3d 1079, 1086 (9th Cir.2002)). The facts contained in the complaint must necessarily show that the defendants’ statements were misleading. In re Vantive Corp., 283 F.3d at 1087.
The complaint in this case fails to show that the defendants’ statements were misleading when made. After detailing each challenged statement by the defendants, the complaint generally alleges that the statements were false and misleading. See Compl. at 27, 35, 40, 47, 52, 64, 75, 82-83. The complaint also describes problems on individual projects staffed by Am-docs and a number of general impressions shared by lower-level employees and contractors. See, e.g., id. at 27-29 (problems at SBC site), 35-36 (“general feeling” that deals weren’t being closed), 41 (decline in European region revenue from one quarter to the next). At no point, however, does the complaint allege facts that are necessarily inconsistent with the defendants’ representations that demand was “strong” or that visibility was “high.” At best, the facts alleged show that one or two projects were not going well, that one geographic sector of Amdocs’ business was underperforming, that some offices were experiencing layoffs, and that some employees were unhappy. Without any allegations regarding the effect that these compartmentalized conditions had on the overall demand and visibility experienced by Amdocs, the plaintiffs’ complaint fails to *550meet the Reform Act’s heightened standard for falsity.
The complaint also fails to satisfy the Reform Act’s heightened standard for scienter. Although Congress did not codify any particular methods of showing the required strong inference, inferences of scienter will usually survive a motion to dismiss only if they are both “reasonable and strong.” Kushner, 317 F.3d at 827. While scienter is normally a question of fact for the jury, the complaint must provide a factual basis for allegations of scienter. In re K-Tel, 300 F.3d at 894.
The plaintiffs allege that a strong inference of scienter has been established in this case for two reasons: (1) defendants Naor and Baharav knew or recklessly disregarded contemporaneous facts indicating that demand was not “strong” and that visibility was not “high”; and (2) insider trading activity during the class period demonstrates the defendants’ motive to make fraudulent statements. Recklessness is a basis for a strong inference of scienter where defendants make statements when they know or have access to information suggesting that the statements were inaccurate. In re Navarre Corp., 299 F.3d at 746. In addition, insider trading activity may give rise to an inference of scienter when the trading pattern during the class period is “unusual.” In re K-Tel, 300 F.3d at 895-96.
Here, neither of the plaintiffs’ allegations provides a basis for a “strong inference” of scienter. The omission of any facts in the complaint to show that the defendants’ statements were necessarily false prevents the plaintiffs from showing that the defendants knew or recklessly disregarded such facts. Furthermore, the investors’ allegations that certain “big bosses” in the company told employees that Amdocs was in dire financial straits, e.g., Compl. at 64, and that “Amdocs management in Israel” pressured certain executives, e.g., Compl. at 35, fall short of an allegation that Naor and Baharav themselves knew of any information that would render their statements false when made. See Kushner, 317 F.3d at 828 (assertions that someone who had knowledge of falsity of certain statements “reported” to defendant were not specific enough to support a strong inference of scienter). Although the plaintiffs allege that Naor had some knowledge of purportedly false sales forecasts prior to his statements in April of 2002, see Compl. at 79, this alleged knowledge is not inconsistent with the content of the April 2002 statement, i.e., that Amdocs’ demand was “still there.”
Finally, the plaintiffs may not rely on the defendants’ insider trading activity to raise a strong inference of scienter. Even assuming arguendo that the stock sales by independent trusts connected to Amdocs resulted in massive personal benefit to Naor and Baharav, the investors have failed to include any allegations relating to the defendants’ prior trading history or to the number of total shares held by each defendant. Without such allegations, we cannot determine whether or how the trading activity was “unusual.” In re K-Tel, 300 F.3d at 895-96. The investors’ conclusory allegations that the insider sales were suspicious thus fail to meet the scienter pleading standard. Id.
Accordingly, I concur in the result reached by the majority.