(2); while the second alleges false statements and material omissions in
the prospectus, in violation of § 12(a)(2) of the 1933 Act,
15 U.S.C. § 771 (a)(2). Both the first and the second causes of
action also allege controlling person liability in violation of § 15
of the 1933 Act, 15 U.S.C. § 77o.
The third cause of action is alleged by plaintiffs Knollenberg and
Glynn, on behalf of themselves and all subclass members who held Harmonic
or C-Cube common stock on April 24, 2000 (the date the shareholders voted
to approve the merger) and still held those shares on May 3, 2000 (the
date the merger became final). The third cause of action alleges false
and misleading statements and material omissions in the solicitation of
proxies, in violation of § 14(a) of the 1934 Securities Exchange Act,
15 U.S.C. § 78n(a), and Rule 14a-9 promulgated thereunder,
17 C.F.R. § 240.14a-9.
The fourth cause of action, alleging a violation of § 10(b) of the
1934 Act, 15 U.S.C. § 78j(b) and Rule 10b-5 promulgated thereunder,
17 C.F.R. § 240.10b-5, is alleged by all plaintiffs on behalf of
themselves and the entire class, who purchased shares of Harmonic between
January 19, 2000, and June 26, 2000, and alleges false statements and
material omissions throughout the class period. The fourth cause of
action also alleges controlling person liability, in violation of §
20(a) of the 1934 Act, 15 U.S.C. § 78t(a).
A. Legal Standards
1. Motions to dismiss under Federal Rule of Civil Procedure 12(b)(6)
A court should dismiss under Federal Rule of Civil Procedure 12(b)(6)
for failure to state a claim only where it appears beyond doubt that
plaintiff can prove no set of facts in support of the claim which would
entitle the plaintiff to relief. See Conley v. Gibson, 355 U.S. 41,
45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957); Pillsbury, Madison & Sutro
v. Lerner, 31 F.3d 924, 928 (9th Cir. 1994). All allegations of material
fact are taken as true and construed in the light most favorable to the
nonmoving party. Smith v. Jackson, 84 F.3d 1213, 1217 (9th Cir. 1996).
Review is limited to the contents of the complaint. Allarcom Pay
Television, Ltd. v. Gen. Instrument Corp., 69 F.3d 381, 385 (9th Cir.
1995). When matters outside the pleading are presented to and not
excluded by the court, a Rule 12(b)(6) motion is to be treated as one for
summary judgment, and all parties shall be given opportunity to present
all material made pertinent to such a motion by Rule 56. See Fed.
R.Civ.P. 12(b). However, material that is properly presented to the court
as part of the complaint may be considered as part of a motion to
dismiss. See Hal Roach Studios, Inc. v. Richard Feiner & Co.,
896 F.2d 1542, 1555 n. 19 (9th Cir. 1989). If a plaintiff fails to attach
to the complaint the documents on which it is based, defendant may attach
to a 12(b)(6) motion the documents referred to in the complaint to show
that they do not support plaintiffs claim. See Branch v. Tunnell,
14 F.3d 449, 454 (9th Cir. 1994).
2. Federal Rule of Civil Procedure 9(b)
Generally, plaintiffs in federal court are required to give a short,
plain statement of the claim sufficient to put the defendants on notice.
Fed.R.Civ.P. 8. In actions alleging fraud, however, "the circumstances
constituting fraud or mistake shall be stated with particularity."
Fed.R.Civ.P. 9(b). Under Rule 9(b), the complaint must allege specific
facts regarding the fraudulent activity, such as the time, date, place,
and content of the alleged fraudulent representation, how or why the
representation was false or misleading, and in some cases, the
identity of the person engaged in the fraud. See In re GlenFed Sec.
Litig., 42 F.3d 1541, 1547-49 (9th Cir. 1994).
3. Claims under the 1933 Act
Under § 11(a) of the 1933 Securities Act, any purchaser of a
security covered by a registration statement may sue based on material
omissions or misrepresentations in that statement. 15 U.S.C. § 77k(a).
Persons liable under § 11(a) are those who signed the registration
statement, directors of or partners in the issuer, professionals who
participated in the preparation of the registration statement, and
underwriters of the security. Id. In order to plead a § 11(a) claim,
a plaintiff must allege that the registration statement contained an
omission or misrepresentation, and that the omission or misrepresentation
was material — that is, that it would have misled a reasonable
investor about the nature of his or her investment. In re Stac
Electronics Sec. Litig., 89 F.3d 1399, 1403-04 (9th Cir. 1996), cert.
denied, 520 U.S. 1103, 117 S.Ct. 1105, 137 L.Ed.2d 308 (1997).
Section 12(a)(2) of the 1933 Act makes it unlawful for any person to
use any instrumentality of interstate commerce to offer or sell
securities by means of a prospectus or oral communication that includes
"an untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements, in the light of the
circumstances under which they were made, not misleading."
15 U.S.C. § 771 (a)(2). To establish liability under § 12(a)(2),
plaintiffs must allege that the defendants actively solicited purchase of
the securities for "their own financial motives." In re Stratosphere
Corp. Sec. Litig., 1 F. Supp.2d 1096, 1120 (D.Nev. 1998) (citing Pinter
v. Dahl, 486 U.S. 622, 646-48, 108 S.Ct. 2063, 100 L.Ed.2d 658 (1988)).
Section 15(a) imposes joint and several liability upon every person who
controls any person liable under §§ 11 or 12. 15 U.S.C. § 77o.
Thus, violation of § 15 is predicated upon violation of § 11 or
§ 12. To state a claim for control person liability under § 15, a
plaintiff must allege that the individual defendants had the power to
control or influence the company, and that the individual defendants were
culpable participants in the company's alleged illegal activity. Durham
v. Kelly, 810 F.2d 1500, 1503 (9th Cir. 1987).
4. Claims under the 1934 Act
Section 10(b) of the Securities Exchange Act provides, in part, that it
is unlawful "to use or employ in connection with the purchase or sale of
any security registered on a national securities exchange or any security
not so registered, any manipulative or deceptive device or contrivance in
contravention of such rules and regulations as the [SEC] may prescribe."
15 U.S.C. § 78j(b).
Rule 10b-5 makes it unlawful for any person to use interstate commerce
(a) To employ any device, scheme, or artifice to
(b) To make any untrue statement of a material fact
or to omit to state a material fact necessary in
order to make the statements made, in the light of
the circumstances under which they were made, not
(c) To engage in any act, practice, or course of
business which operates or would operate as a fraud
or deceit upon any person, in connection with the
purchase or sale of any security.
17 C.F.R. § 240.10b-5.