36, 37, 38, 39, 40, 42, 43, 44, 45, 47, 48, 50, 51, 53, 54, 56, 57, 58, 62, 63, 64, 67, 68, 71, 73, 74, 75 and 76 are dismissed as to Defendants Vogt, Tamkin, Zoeller, and Minich because the statements alleged to be false and misleading are not found in documents that are covered by the group-published information doctrine. However, the claims in paragraphs 32, 33, 41, 49, 60, 66, 69, 70, 72, and 77 remain valid claims against these four defendants. Except as otherwise discussed below, all claims alleged against Eichen, Olson, Whittler and Proxima state a cause of action and thus are not dismissed.
4. Liability for Statements of Third Parties
Many of the statements that are alleged to be false and misleading were made by third parties, primarily in analysts' reports. These statements are found in paragraphs 36, 37, 38, 44, 47, 51, 54, 57, 62, 63, 64, 67, 68, 71, 73, 74, 75, and 76 of the complaint.
To be held liable for third party representations or forecasts, defendants must have "put their imprimatur, express or implied, on the projections." In re Syntex Corp. Sec. Litig., 95 F.3d 922 (9th Cir. 1996). Thus, a company may be liable for analysts' forecasts which it fostered and reviewed but failed to correct if it expressly or impliedly represented that the information was accurate or coincided with the company's views. In re Syntex Corp. Sec. Litig., 855 F. Supp. 1086 (N.D. Cal. 1994), aff'd., 95 F.3d 922 (9th Cir. 1996). To plead adoption of third party statements with the sufficient degree of specificity required to satisfy Rule 9(b), a plaintiff must allege "that the insider provided misleading information to an analyst, that the analyst relied on this information in preparing a report, and that the insider somehow endorsed or approved the report prior to or after its publication." Stack v. Lobo, 903 F. Supp. 1361, 1372 (N.D. Cal. 1995). This requires the plaintiff to plead "entaglement" with sufficient particularity. In re Syntex, 95 F.3d 922 at 934 (citing In re Caere Cop. Sec. Litig., 837 F. Supp. 1054, 1059 (N.D. Cal. 1993) (adoption occurs when a defendant "sufficiently entangled himself with the analysts' forecasts"; "[there are] sound reasons to construe the entanglement requirement strictly")).
Plaintiff's complaint makes the conclusory allegation that "individual Defendants Olson, Eichen, Parker, Vogt, Tamkin, Whittler, Zoeller, Minich, Seiber, Thomas and Nash were each aware of and approved the false statements issued by or on behalf of Proxima during the Class Period. (Compl. P 23). Additionally, in most of the paragraphs setting out the allegedly false and misleading statements made by and in analysts' reports. Plantiffs generally indicate the date of the meeting or conference where information was relayed to the analysts, the content of the statements made, and the substance of the analysts' reports. These allegations, however, are insufficient to satisfy the requirement that Plaintiffs plead entaglement. Plaintiffs have merely alleged a "one-way flow of information" rather than acts of endorsements or approval. Such allegations are insufficient to establish liability for the third party statements.
The preceding analysis additionally applies to those statements published in newspapers and trade publications as Plaintiffs have failed to allege that the Defendants could have controlled the content of any of the statements are made by these sources.
Therefore, paragraphs 36, 37, 38, 44, 47, 51, 54, 57, 62, 63, 64, 67, 68, 71, 73, 74, 75, and 76 of the complaint are dismissed with leave to amend as to all Defendants.
Given the above analysis, the only potentially actionable 10b-5 claims remaining are those found in paragraphs 32, 33, 34, 35, 40, 41, 42, 43, 45, 48, 49, 50, 53, 56, 58, 60, 66, 69, 70, 72, and 77, and only against Defendants Proxima, Eichen, Olson and Whittler.
1. The Bespeaks Caution Defense
As a defense to all of Plaintiffs' 10b-5 claims, Defendants claim that their statements are not actionable because they fully disclosed the very risks which Plaintiffs claim they omitted. Essentially, Defendants are attempting to invoke the bespeaks caution doctrine to shield them from liability. The bespeaks caution doctrine "'provides a mechanism by which a court can rule as a matter of law...that defendants' forward-looking representations contained enough cautionary language or risk disclosure to protect the defendant against securities fraud.'" Fecht, 70 F.3d 1078 at 1081 (quoting In re Worlds of Wonder Sec. Litig., 35 F.3d 1407, 1413 (9th Cir. 1994), cert. denied, 516 U.S. 868, 133 L. Ed. 2d 123, 116 S. Ct. 185 (1995)). The Ninth Circuit, however, has also recognized that "the 'bespeaks caution' doctrine reflects nothing more than the 'unremarkable proposition that statements must be analyzed in context.'" Id. at 1082. In explaining how the bespeaks caution doctrine is applied to a motion to dismiss, the Fecht court noted:
The 'bespeaks caution' doctrine...is wholly consistent with our analysis that whether a statement in a public document is misleading may be determined as a matter of law only when reasonable minds could not disagree as to whether the mix of information is misleading. Inclusion of some cautionary language is not enough to support a determination as a matter of law that defendants; statements were not misleading....A motion to dismiss for failure to state a claim will succeed only when the documents containing the defendants' challenged statements include 'enough cautionary language or risk discloser,' that 'reasonable minds' could not disagree that the challenged statements were not misleading.
Defendants assert that as the three categories of alleged non-disclosures, Proxima's SEC filings fully disclosed the risks,
and therefore Plaintiffs' claims fail as a matter of law. The Defendants quote the language form the SEC filings that they contend satisfies the bespeaks caution doctrine. Although cautionary language was used in the applicable filings, the mix of information contained in the public documents issued by the company do not clearly preclude reasonable minds from differing on the question of whether the optimistic statements were misleading.
For example, Proxima's 10-K for the fiscal year ending April 3, 1994, includes the following language:
The Company believes that timely development and introduction of new products are essential to maintaining its competitive position. There can be no assurance that the Company will be able to develop and deliver new products in a timely manner, or that new products, once delivered will achieve market acceptance.