The opinion of the court was delivered by: MARILYN L. HUFF
On July 11, 1994, the court heard the defendants' motion to dismiss. Cletus Lyman and John Fedor appeared on behalf of the plaintiff, and Walter Robinson and Kirke Hasson appeared on behalf of the defendants. Because the plaintiff has not sufficiently pleaded the alleged deception with particularity, the court grants without prejudice the defendants' motion to dismiss. The court has already permitted the plaintiff to amend the complaint to cure this deficiency once. The court, however, will give the plaintiff one final opportunity to amend the complaint and plead the fraud with particularity. The court will give the plaintiff forty-five days to file an amended complaint, until August 29, 1994.
In his first amended complaint, the plaintiff asserts federal securities law claims and state law fraud claims against defendants Gensia, Aramed, and inside directors and officers of Gensia and Aramed. The plaintiff purchased approximately $ 746,750 of Aramed units from January 22, 1992, to February 11, 1992. The first amended complaint alleges the defendants made material misrepresentations and omissions regarding their development 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. ...