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IN RE WYSE TECH. SECS. LITIG.

February 14, 1990

In re WYSE TECHNOLOGY SECURITIES LITIGATION


The opinion of the court was delivered by: ORRICK

 WILLIAM H. ORRICK, UNITED STATES DISTRICT JUDGE.

 Defendants, Wyse Technology Incorporated, Bernard K. Tse, Phillip W. White, Howard H. Graham, Laurence D. Lummis, Ronald E.F. Codd, Frank J. Caulfield, and James P. Lally (collectively "Wyse Technology") and Arthur Young & Company ("Arthur Young"), filed separate motions to dismiss each of the three counts of plaintiffs' consolidated amended complaint ("amended complaint") for violation of the federal securities laws and pendent state law claims.

 Count I of the complaint charges defendants with conspiracy to violate Section 10(b) of the Securities and Exchange Act and Rule 10b-5 promulgated thereunder. Count II charges conspiracy to commit fraud and deceit with respect to the purchasers of Wyse Technology stock. Count III alleges negligent misrepresentation through misleading statements and omissions of material fact to plaintiffs, who, in reliance on those facts were induced to purchase Wyse Technology common stock.

 Wyse Technology also filed a motion to renew the stay of discovery.

 After consideration of the papers filed in support of and in opposition to the motions, and good cause appearing therefor, the amended complaint is dismissed, and the stay of discovery is renewed.

 I.

 Plaintiffs' amended complaint alleges that Wyse Technology's public announcements from October 1987 through December 1988 were misleading, and that Wyse Technology engaged in a conspiracy to artificially inflate the price of its common stock and induce plaintiffs to purchase the common stock at artificially inflated prices. It is further alleged that Wyse Technology knew of or recklessly disregarded: (1) overstatement of reported sales and net income, (2) improper revenue recognition techniques, (3) overstatement of inventory and accounts receivable, and (4) failure to maintain adequate warranty and return reserves. The complaint also contains numerous allegations that Arthur Young conspired with and aided and abetted Wyse Technology in the alleged fraudulent scheme.

 A.

 In their motions to dismiss, defendants assert that plaintiffs failed to plead the Count I and Count II claims with adequate specificity as required by Rule 9(b) of the Federal Rules of Civil Procedure. The Rule requires that "in all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity."

 Defendants are correct that plaintiffs have failed to satisfy the standard of Rule 9(b) with respect to Counts I and II. Plaintiffs have provided no facts to support their conclusory allegations that defendants engaged in fraudulent practices. While the complaint includes numerous accusations of misstatement, overstatement, and omission, no actual facts that serve as the basis of these accusations are provided. The alleged misstatements are not identified or explained with sufficient detail or specificity. Plaintiffs do no t identify the source of their information and belief that defendants' intent was fraudulent or that their statements were materially incorrect.

 By alleging only neutral facts and conclusory allegations, plaintiffs have failed to disclose any basis for concluding that defendants violated any securities law, committed any fraud, or conspired to commit any fraud. Counts I and II of the complaint are dismissed for failure to comply with Rule 9(b).

 B.

 Defendants argue that the Count III claim of negligent misrepresentation should be dismissed for failure to state a claim upon which relief can be granted under Rule 12 ...


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