(N.D. Cal. March 1, 1991), In re 3Com Securities Litigation, 761 F. Supp. 1411, Slip op. at 14-15 (N.D. Cal. 1990) (claim dismissed on other grounds), In re Convergent Technologies Second Half 1984 Securities Litigation, No. C-85-20130, Slip op. (N.D. Cal. May 23, 1988), and Gaillard v. Young, No. C-85-2373-RFP, Slip op. at 9 (N.D. Cal. July 15, 1985).
Significantly, the opinions in the first group of cases do not discuss whether the complaints involved contained allegations that the misleading statements were intended for the investing public to inflate the market price of stock. The complaints involved in the second group of cases all contained such allegations. District Judges Samuel Conti and William Ingram, who authored opinions in both groups, cited this difference as the reason for the inconsistency in their rulings. In re Adobe Systems, Slip op. at 15; In re 3Com, Slip op. at 15. Combining both groups of cases, the holding to be drawn is thus clear: So-called aftermarket statements cannot support a claim for negligent misrepresentation unless there is also an allegation that the statements were issued for the purpose of inflating the market value of the company's common stock.
This result, derived from the federal cases in this district, falls squarely within California's rule limiting liability for negligent misrepresentation to the intended recipients of the statement. Moreover, the result seems to pass the often-cited six-factor balancing test for determining defendant's duty that is briefly mentioned in Goodman v. Kennedy, 18 Cal. 3d 335, 134 Cal. Rptr. 375, 556 P.2d 737 (1976) (discussed above).
Although the test is too pliable, and thus unreliable, for close cases, the allegation in this case that the misrepresentations were intended for plaintiffs tips the scales sharply in favor of liability. Therefore, California law clearly supports a ruling that liability for negligent misrepresentations in aftermarket statements extends to all of the intended recipients.
As a result of this ruling, an investor who brings a claim for negligent misrepresentation alleging that the defendant intended to artificially inflate the market will survive a Fed. R. Civ. P. 12(b)(6) motion to dismiss. This must be the result because the court cannot inquire beyond the face of the complaint on a motion to dismiss. Nevertheless, corporate officers and directors are not left exposed to boundless liability, because the plaintiff will still have the burden of proving this intent as part of her case. If the allegation of intent is completely baseless, the claim will quickly fall on a motion for summary judgment.
For all of the foregoing reasons, defendants' motion to dismiss plaintiffs' state law claim for negligent misrepresentation must be DENIED.
II. MOTION TO STRIKE PARAGRAPHS 29 AND 38 OF THE COMPLAINT
A. Fed. R. Civ. P. 12(f) Motion to Strike
Under Fed. R. Civ. P. 12(f), a court may strike "any insufficient defense or any redundant, immaterial, impertinent, or scandalous matter." However, motions to strike should not be granted unless it is clear that the matter to be stricken could have no possible bearing on the subject matter of the litigation. Naton v. Bank of California, 72 F.R.D. 550, 551 n. 4 (N.D. Cal. 1976) (citing 2A J. Moore, Federal Practice para. 12.21 at 2429 (2d ed. 1975)).
Because paragraphs 29 and 38 of plaintiffs' First Amended Complaint refer only to statements of past historical fact, defendants argue that they cannot be misleading and thus should be stricken. This court, however, rejects defendants' implied assertion that the paragraphs of a complaint can be viewed in isolation. Instead, as District Judge Jensen held in In re Genentech, Inc. Securities Litigation, [1989 Tr. Binder] Fed. Sec. L. Rep. (CCH) P94,544 (N.D. Cal. 1989), the many statements "must be viewed as part of a 'mosaic' to see if these statements, in the aggregate, created a misleading impression." Id. at 93,479.
When paragraphs 29 and 38 are considered in conjunction with the complaint's other allegations of glowing predictions, misleading statements, and material omissions, this court cannot say that the paragraphs contribute nothing to plaintiffs' claims. Consequently, defendants' motion to strike paragraphs 29 and 38 of plaintiffs' First Amended Complaint must be DENIED.
IT IS SO ORDERED.