of the drug Arasine, a drug intended to improve cardiac function following coronary artery bypass surgery.
The amended complaint alleges the defendants made deceptive positive statements and projections about the effectiveness of Arasine. The complaint alleges the defendants "either lacked information as to the success of the phase 3 trials or they had knowledge that the results of the international trials were not statistically significant" when making the positive projections. The plaintiff alleges the projections implied that the phase three trials were successful and also alleges the projections based on the phase two trials were unreasonable because the phase two trials were "too small."
On September 22, 1992, the defendants disclosed that a preliminary analysis of the data from the European portion of the phase three trials indicated that the results were not statistically significant. The market reacted and the price of the stock dropped significantly. The plaintiff suffered a loss of approximately $ 352,290. Consequently, the plaintiff brought this action against the defendants.
A. STANDARD FOR MOTION TO DISMISS
When ruling on a motion to dismiss, the court must accept all material allegations of fact as true and must construe those allegations in the light most favorable to the nonmovant. North Star Int'l v. Arizona Corp. Comm'n, 720 F.2d 578, 581 (9th Cir. 1983). If the complaint fails to state a claim, the court should grant leave to amend unless it appears beyond a doubt the plaintiff would not be entitled to relief under any set of facts proved. Halet v. Wend Inv. Co., 672 F.2d 1305, 1309 (9th Cir. 1982).
B. APPLICATION OF STANDARD
(1) RULE 9(b) AND SECTION 10(b) CLAIM
The defendants first argue the plaintiff has not alleged the fraud with sufficient particularity, in violation of Federal Rule of Civil Procedure 9(b).
Rule 9(b), as applied to section 10b claims, requires particularity in pleading the circumstances constituting the fraud. Semegen v. Weidner, 780 F.2d 727, 734-35 (9th Cir. 1985). Mere conclusory statements of fraud are insufficient. Wool v. Tandem Computers, 818 F.2d 1433, 1439 (9th Cir. 1987). However, a pleading is sufficient if it identifies the circumstances constituting the fraud so that the defendant can prepare an adequate defense. Semegen, 780 F.2d at 735. Statements of the time, place, and nature of the alleged fraudulent activities are sufficient. Wool, 818 F.2d at 1439.
The Ninth Circuit has held projections and general expressions of optimism are actionable under the federal securities laws. In re Apple Computer Securities Litigation, 886 F.2d 1109, 1113 (9th Cir. 1989). A projection or statement of belief contains at least three implicit factual assertions: (1) the statement is genuinely believed, (2) there is a reasonable basis for that belief, and (3) the speaker is not aware of any undisclosed facts tending to seriously undermine the accuracy of the statement. Apple Computer, 886 F.2d at 1113. A projection or statement of belief may be actionable if one of these implied factual assertions is inaccurate. Apple Computer, 886 F.2d at 1113; Hanon v. Dataproducts Corp., 976 F.2d 497, 501 (9th Cir. 1992).
The plaintiff's first amended complaint does not provide any facts in support of his assertion that the defendants either lacked sufficient information to make the optimistic projections or had information indicating the projections were misleading. The plaintiff merely conclusively makes these assertions.
In relevant part, the plaintiff asserts the following projections were deceptive. First, on December 6, 1991, the Financial Times Biotechnology business news reported that defendant Hale stated:
Arasine is in Phase III multicentre trials for use in patients undergoing coronary artery bypass surgery and these trials are scheduled for completion in the first quarter of 1992.