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IN RE 3COM SECS. LITIG.

May 7, 1990

In re 3COM SECURITIES LITIGATION This Document Relates To: ALL ACTIONS

William A. Ingram, United States District Judge.


The opinion of the court was delivered by: INGRAM

WILLIAM A. INGRAM, UNITED STATES DISTRICT JUDGE

 I. INTRODUCTION

 In this securities fraud class action, defendants move to dismiss the second amended consolidated class action complaint pursuant to Fed. R. Civ. Pro. 9(b) and 12(b)(6).

 Upon consideration of all of the papers, the motion to dismiss is GRANTED IN PART AND DENIED IN PART as set forth below.

 II. DISCUSSION

 Rule 9(b) requires that "in all averments of fraud . . . the circumstances constituting fraud . . . shall be stated with particularity." See, e.g., Sun Savings & Loan Ass'n v. Dierdorff, 825 F.2d 187, 196 (9th Cir. 1987). The purpose of Rule 9(b) is to ensure that the complaint alleges "the circumstances constituting fraud so that the defendant can prepare an adequate answer from the allegations." Lewis v. Sporck, 612 F. Supp. 1316, 1324-25 (N.D. Cal. 1985) (quoting Bosse v. Crowell Collier and MacMillan, 565 F.2d 602, 611 (9th Cir. 1977)). However, at the pleading stage, the court is required to accept as true all material allegations in the complaint, and all doubts are to be resolved in favor of the plaintiff. Blake v. Dierdorff, 856 F.2d 1365, 1368 (9th Cir. 1988).

 A. Group Pleading

 Defendants contend that plaintiffs have failed to allege facts giving rise to an inference of wrongful conduct by each defendant in that numerous statements in the complaint are attributable to only Mr. Krause, and these are insufficient to hold the other defendants liable.

 Although the consolidated complaint does not differentiate the purported fraudulent conduct among the defendants, "pleading group conduct may in some cases meet Rule 9(b) requirements." Lewis v. Sporck, 646 F. Supp. 574, 579(N.D.Cal.1986). As noted by the Ninth Circuit, the requirement of particularity for group pleading may be reduced in the corporate fraud context and may be satisfied where the fraud allegations in the complaint aver "the date of each" of the corporate publications containing misrepresentations, "specific descriptions of the representations made, the reasons for their falsity, and, where possible, the role of the individual defendants in preparation and dissemination." Blake v. Dierdorff, 856 F.2d 1365, 1369 (9th Cir. 1988); Wool v. Tandem Computers, Inc., 818 F.2d 1433, 1440 (9th Cir. 1987). In addition to the group pleading of corporate officers, corporate documents are also susceptible to a presumption that they are the product of the collective actions of the group of officers. In Wool, the presumption was extended to misrepresentations purportedly "conveyed in prospectuses, registration statements, annual reports, [and] press releases." 818 F.2d at 1440.

 The court finds that the complaint satisfies the group pleading standard, and defendants' motion on this basis is DENIED. This presumption may be rebutted by a later showing that defendant Krause's statements did not reflect the collective actions of the other defendants.

 B. Pleading on Information and Belief

 Defendants contend that the complaint is based on information and belief, and for this reason, it does not satisfy rule 9(b).

 Although general allegations based on information and belief do not normally satisfy rule 9(b), the court finds that plaintiffs have alleged sufficient detail to indicate that the complaint is grounded in fraud. See McFarland v. Memorex Corp., 493 F. Supp. 631, 639 (N.D. Cal. 1980). Defendants' motion to dismiss on this ground is DENIED.

 C. Fraud Based Claims

 To state a claim under section 10(b), plaintiffs must allege (1) material misstatements or omissions, (2) with an intent to deceive or defraud, (3) detrimental reliance, (4) resulting in or causing injuries, (5) made in connection with the sale or purchase of any security, and (6) through the use of instruments of interstate commerce or the national securities exchange to facilitate the fraud. Feinman v. Schulman, Berlin & Davis, 677 F. Supp. 168, 170 (S.D.N.Y. 1988). Similar elements are also required to state claims for Rule 10b-5 violations, common law fraud and negligent misrepresentation. Kennedy v. Josephthal & Co., 814 F.2d 798, 804 (1st Cir. 1987).

 1. Misrepresentations

 In order to state a claim grounded in fraud, plaintiffs must prove that defendants either misrepresented or omitted a material statement of fact. Defendants contend that the complaint fails to state how any financial statements were misleading, how 3Com's statements of historical fact were misleading, or how any of the alleged omissions made 3Com's affirmative statements misleading. Defendants allege that, in fact, plaintiffs' selective quotations of ...


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