Court Opinion

ID: 3210582
Source: CourtListenerOpinion
Date Created: 2016-06-08 20:00:59.715898+00
Date Added: 2024-06-11T09:18:08.163455
License: Public Domain

FILED
                             NOT FOR PUBLICATION
                                                                             JUN 08 2016
                     UNITED STATES COURT OF APPEALS                      MOLLY C. DWYER, CLERK
                                                                          U.S. COURT OF APPEALS

                             FOR THE NINTH CIRCUIT

NATHANIEL L. ANDERSON,                           No. 14-55882
Individually and on Behalf of All Others
Similarly Situated,                              D.C. No. 8:12-cv-01647-PSG-
                                                 FMO
              Plaintiff,

  And                                            MEMORANDUM*

JAMES T. FAHEY,

              Plaintiff - Appellant,

 v.

PEREGRINE PHARMACEUTICALS,
INC.; et al.,

              Defendants - Appellees.

                    Appeal from the United States District Court
                        for the Central District of California
                    Philip S. Gutierrez, District Judge, Presiding

                           Argued and Submitted May 4, 2016
                                 Pasadena, California

Before: PREGERSON, BYBEE, and N.R. SMITH, Circuit Judges.

        *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
      Plaintiffs appeal the district court’s decision to dismiss their Second

Amended Complaint (SAC) with prejudice and to deny leave to amend. We

review motions to dismiss de novo, In re Verifone Holdings, Inc. Sec. Litig., 704

F.3d 694, 700–01 (9th Cir. 2012), and the denial of leave to amend for an abuse of

discretion, Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981, 1007 (9th Cir.

2009). For the reasons below, we affirm.

      First, contrary to Plaintiffs’ argument, the district court applied the proper

legal standard for scienter. The district court cited our decision in Zucco and noted

that the standard for scienter encompasses both knowledge of falsity and deliberate

recklessness with respect to falsity.

      Second, insofar as Plaintiffs at oral argument abandoned the duty-to-verify

theory of liability espoused in their briefing, they clearly fail to adequately plead

scienter under the heightened pleading standards imposed by Federal Rule of Civil

Procedure 9(b) and the Private Securities Litigation Reform Act (PSLRA), 15

U.S.C. § 78u-4. Defendants’ choice of words in describing the results of the Phase

II clinical testing at the time those results were unblinded was, as far as Defendants

knew, entirely appropriate. Plaintiffs have failed to adequately allege any sort of

red flag in the testing results that would have made it “obvious” that the results

were invalid because of a coding error by an FDA-approved third-party contractor

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running the double-blind study. Zucco, 552 F.3d at 991. The vague allegations by

confidential witnesses do nothing to assist this claim. See id. at 995. Moreover,

we decline, as we have in the past, to find the Defendants’ attempts at securing

capital during the putative Class Period to support an inference of scienter. See,

e.g., In re Rigel Pharm., Inc. Sec. Litig., 697 F.3d 869, 884–85 (9th Cir. 2012).

      Third, despite Plaintiffs’ concession at oral argument, we independently

reject their duty-to-verify theory as unsupported by law. Our case law does

support a duty to verify prior to making public statements. But this is so only

when failure to investigate potentially negative information amounts to “an

egregious refusal to see the obvious.” In re Worlds of Wonder Sec. Litig., 35 F.3d

1407, 1426 (9th Cir. 1994); see also Verifone, 704 F.3d at 708; Zucco, 552 F.3d at

991. We decline to extend this duty to require Defendants here to have run

additional testing on the results they received from an FDA-approved third-party

contractor, whose purpose was to run a procedurally valid double-blind test. It is

easy for Plaintiffs to see what went wrong in hindsight; but that does not make

Defendants’ failure to see that problem prior to announcing test results fraudulent,

at least in the absence of some red flags.

      Finally the district court did not abuse its discretion in denying leave to

amend. We recognize that leave should ordinarily be “freely give[n].” Fed. R.

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Civ. P. 15(a). And we also recognize that when, as here, a district court denies

leave to amend based on futility of amendment, we typically review de novo.

Zucco, 552 F.3d at 1007. But “where,” as here, “the plaintiff has previously been

granted leave to amend and has subsequently failed to add the requisite

particularity to its claims, the district court’s discretion to deny leave to amend is

particularly broad.” Id. (alteration and internal quotation marks omitted). The

district court did not abuse its discretion.

      AFFIRMED.

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