Given that Plaintiffs' original complaint, filed on November 13, 1992, contains allegations concerning the extended period that are substantively identical to those in the Second Amended Complaint, plaintiffs knew or should have known of the acts constituting the alleged fraud more than a year before the Second Amended Complaint was filed. Thus, the claims of the new class are barred.
Plaintiffs contend that under Rule 15(c) of the Federal Rules of Civil Procedure the claims of the new class relate back to the claims in the original complaint because they arise out of the same conduct, transactions and occurrences. However, an amendment adding a party plaintiff relates back to the date of the original pleading only if (1) the defendant received within the limitations period adequate notice of the claims of the newly proposed plaintiff; (2) the relation back does not unfairly prejudice the defendant; and (3) there is an identity of interests between the original and newly proposed plaintiff. Rembold v. Pacific First Federal Savings Bank, 1989 U.S. Dist. LEXIS 3953, 1989 WL 35914 at *1 (D.Or. Apr. 11, 1989) (analogizing to requirements for adding party defendants); see also Avila v. INS, 731 F.2d 616, 620 (9th Cir. 1984). According to class counsel, Plaintiffs' First Amended Complaint gave Defendants adequate notice of the claims arising during the extended class period such that Defendants will not suffer prejudice. However, their opposition does not address whether the two groups of plaintiffs have an identity of interest and Defendants note that they have a potential conflict of interest given the timing and content of the company's disclosures. See In re Seagate Technology II Sec. Litig., 843 F. Supp. 1341, 1364-1365 (N.D.Cal. 1994) (recognizing possible conflict of interest where there have been a series of partially curative disclosures). Because Plaintiffs have not satisfied their burden of showing that the two groups of plaintiffs have an identity of interest, the new claims are barred.
5. Plaintiffs' Secondary Liability Claims
Plaintiffs also allege that Defendants are liable for aiding and abetting and conspiracy. 2nd Comp. PP 34, 96. Defendants move to dismiss Plaintiffs' claims that are based on these theories.
There is no private right of action under § 10(b) for aiding and abetting. Central Bank of Denver v. First Interstate Bank of Denver, 114 S. Ct. 1439, 1448, 128 L. Ed. 2d 119 (1994). The Court reached this conclusion reasoning that the text of section 10(b) does not expressly impose aiding and abetting liability and none of the express private causes of action in the securities acts imposes such liability. Id. at 1448-1449. Citing statutes in other substantive areas that impose liability for aiding and abetting, the Court further noted that had Congress intended the securities laws to encompass aiding and abetting behavior, it knew how to do so.
The Court's rationale in Central Bank of Denver also forecloses Plaintiffs' conspiracy liability theory. Section 10(b) is silent as to conspiracy liability and there is no provision in the securities statutes authorizing a private cause of action for such conduct. Moreover, that other statutes contain express provisions imposing liability for conspiracy suggests that Congress did not intend § 10(b) to do the same. See id. at 1448; and see e.g., Act of Mar. 4, 1909, § 37, 35 Stat. 1096, as amended, 18 U.S.C. § 371 (criminal conspiracy statute); Packers and Stockyards Act, 1921, ch. 64 § 202, 42 Stat. 161, as am ended, 7 U.S.C. § 192(f),(g) (civil conspiracy provision).
6. Plaintiffs' Claims under § 20(a)
Plaintiffs' Second Amended Complaint also states a cause of action against Defendants under § 20(a). In the absence of cognizable claims under § 10(b), Plaintiffs claims under § 20(a) fail.
B. Plaintiffs' Motion to Strike
In support of their motion to dismiss or, in the alternative, for partial summary judgment, Defendants filed declarations prepared by Joyce Albers, Kent Blair, Steven Scala and Richard R. Vietor in an attempt to establish that the market was aware of Oral Toradol prescription levels and the profit potential for over-the-counter Naprosyn. Plaintiffs moved to strike these declarations on the ground that they contain information and documents neither attached to nor referenced in the Second Complaint and are not proper subjects of judicial notice. Since Defendants' motion to dismiss can be resolved without relying on these declarations, the arguments about them are moot.
C. Defendants Melvin Booth and Thomas Hoffmeister's Motion to Dismiss
The Second Amended Complaint added defendants Melvin Booth, Vice President of Syntex International and Thomas Hoffmeister, Vice President of Syntex. 2nd Comp. PP 21(g), (h). Although Booth and Hoffmeister move to dismiss along with the other defendants on the grounds set forth in section II.A, they also move separately to dismiss on the basis that except for Plaintiffs claims related to FDA approval of over-the-counter Naprosyn, the claims against them are barred by the statute of limitations.
The statute of limitations for claims brought under Rule 10b-5 is triggered "when the plaintiff has actual knowledge of the fraud or knowledge of facts sufficient to put a reasonable person on notice." Davis v. Birr, Wilson & Co., Inc., 839 F.2d 1369, 1370 (9th Cir. 1988); Tregenza v. Great American Communications Co., 12 F.3d 717, 721-722 (7th Cir. 1993), cert. denied, 114 S. Ct. 1837, 128 L. Ed. 2d 465 (1994); Menowitz v. Brown, 991 F.2d 36, 41 (2d Cir. 1993). Plaintiffs' claims against Booth and Hoffmeister are based on their positions with the company and stock sales. 2nd Comp. PP 21(g), (h). Syntex's 1991 annual report, referenced in Plaintiffs' First Amended Complaint, indicates Booth and Hoffmeister's corporate titles. Cartun Decl., Ex. 1 at 36. Thus, Plaintiffs had notice of this information well over a year before they filed the Second Amended Complaint - a conclusion Plaintiffs do not dispute. Plaintiffs' insider trading allegations against Booth and Hoffmeister are based on information contained in SEC Form 4 reports filed on September 2, 1992. 2nd Comp. P 21(i). Such reports are sufficient to put Plaintiffs on inquiry notice of their claims. Menowitz, 991 F.2d at 42. Since this information was available almost a year and three months before the Second Amended Complaint was filed, Plaintiffs' claims against Booth and Hoffmeister are time-barred.
Plaintiffs attempt to avoid this problem by arguing that their allegations relate back to the original complaint under Fed.R.Civ.P. 15(c). However, the relation-back doctrine is inapplicable to a newly added defendant unless the defendant "should have known that, but for a mistake concerning identity, the action would have been brought against it." Louisiana-Pacific Corp. v. ASARCO, Inc., 5 F.3d 431, 434 (9th Cir. 1993). Thus, the relevant inquiry focuses on when the plaintiff first had notice of the defendant's correct identity, not on when the plaintiff first had notice of the defendant's culpability. In re Rexplore, Inc. Sec. Litig., 685 F. Supp. 1132, 1145 (N.D.Cal. 1988); see also Kilkenny v. Arco Marine Inc., 800 F.2d 853, 857 (9th Cir. 1986) ("Rule 15(c) was intended to protect a plaintiff who mistakenly names a party and then discovers, after the relevant statute of limitations has run, the identity of the proper party."), cert. denied, 480 U.S. 934, 107 S. Ct. 1575, 94 L. Ed. 2d 766 (1987). Since Plaintiffs do not contend that they made a mistake concerning Booth and Hoffmeister's identity, they are not entitled to take advantage of Rule 15(c).
Therefore, Plaintiffs' claims against defendants Booth and Hoffmeister, except for those relating to FDA approval of over-the-counter Naprosyn, are barred by the statute of limitations.
D. Defendant Marvyn Carton's Motion to Dismiss
Defendant Marvyn Carton, an outside director of Syntex, moves to dismiss Plaintiffs' claims against him. Carton joins in the other defendants' motion to dismiss. In addition, he argues that Plaintiffs' fraud allegations do not satisfy Rule 9(b) and Plaintiffs' secondary liability allegations against him are inadequate.
Since the Court granted the other defendants' motion to dismiss, Plaintiffs' claims against Carton must also be dismissed. However, even if Plaintiffs' claims against the other defendants survived their motion to dismiss, Plaintiffs' claims against Carton would be dismissed on independent grounds.
1. The Primary Liability Allegations Against Carton
Rule 9(b) requires a plaintiff to attribute particular fraudulent acts or statements to a particular defendant. The Ninth Circuit relaxes this rule where alleged misstatements can be attributed to a group:
In cases of corporate fraud where the false or misleading information is conveyed in prospectuses, registration statement, annual reports, press releases, or other "group published information," it is reasonable to presume that these are the collective actions of the officers. Under such circumstances, a plaintiff fulfills the particularity requirements of Rule 9(b) by pleading the misrepresentations with particularity and where possible the roles of the individual defendants in the representations.
Wool v. Tandem Computers, Inc., 818 F.2d 1433, 1440 (9th Cir. 1987). However, the group pleading doctrine is available only as to those officers and directors who are involved in the day-to-day activities, management, or control of the company. Smith v. Network Equipment Technologies, Inc., [1990-91 Transfer Binder]Fed.Sec.L.Rep. (CCH) P 95,659 at 98,093 (N.D.Cal. Oct. 19, 1990); In re Sunrise Technologies Sec.Litig., [1992 Transfer Binder]Fed.Sec.L.Rep. (CCH) P 97,042 at 94,584 (N.D.Cal. Sept. 22, 1992); see also Wool, 818 F.2d at 1440; Moore v. Kayport Package Express, Inc., 885 F.2d 531, 540 (9th Cir. 1989). By definition, outside directors do not participate in the corporation's day-to-day affairs. Thus, the doctrine may be invoked as to outside directors only if they are "involved in the day-to-day management of those parts of the corporation involved in the [alleged] fraud," Smith, P 95,659 at 98,093, of if they otherwise have a special relationship or status with the corporation. Haltman v. Aura Systems, Inc., 844 F. Supp. 544, 548 (C.D.Cal. 1993); see also In re Marion Merrell Dow, Inc., Sec. Litig., 1993 U.S. Dist. LEXIS 14197, 1993 WL 393810 at *5 (W.D.No. Oct. 4, 1993) (standard of specificity for pleading allegations against outside directors higher than that required for corporate insiders); Klein v. King, [1989-90 Transfer Binder]Fed.Sec.L.Rep. (CCH) P 95,002 at 95,609 (N.D.Cal. Mar. 26, 1990).
Plaintiffs' allegations as to Carton's position are inadequate to warrant application of the group pleading presumption. Plaintiffs' Second Amended Complaint alleges that Carton has been a director of Syntex since 1957, that he chairs its finance and trust revenue committees, and that by virtue of these positions he had access to the company's internal business plans, budgets and forecasts, was privy to the contents of Syntex's quarterly and annual reports, press releases and presentations to securities analysts prior to their issuance, and had the ability to prevent their issuance or cause them to be corrected. 2nd Comp. PP 21(e), 25, 26. However, these facts are not sufficient to establish that Carton enjoyed a special relationship with Syntex or that he participated in its day-to-day affairs. They indicate nothing more than boardroom titles, not operational involvement. In addition, Plaintiffs have alleged no facts to establish that Carton participated in the preparation of the documents and communications containing the alleged misrepresentations. In light of the deficiencies, the primary liability allegations against Carton do not satisfy Rule 9(b).
For the reasons stated in section II.A.5, Plaintiffs' secondary liability claims against Carton must also be dismissed.
The allegations in Plaintiffs' Second Amended Complaint do not give rise to liability under § 10(b), Rule 10b-5, or § 20(a). Because the defects in Plaintiffs' Second Amended Complaint cannot be cured by amendment, Plaintiffs' claims against all Defendants are DISMISSED WITH PREJUDICE.
Accordingly, the Clerk of the Court shall close this case and all related cases.
IT IS SO ORDERED.
U.S. DISTRICT COURT JUDGE
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