3. Control person liability
Section 20(b) of the 1934 Act provides that liability may be imposed
on any person who, directly or indirectly, controls any person liable
under any of the provisions of the Act. 15 U.S.C. § 78t(a). To
establish control person liability, however, a plaintiff must show that a
primary violation occurred. Wenger v. Lumisys, Inc., 2 F. Supp.2d 1231,
1252 (N.D.Cal. 1998). Because the claim under § 10(b) and Rule 10b-5
is being dismissed pursuant to Rule 12(b)(6) for failure to meet the
required pleading elements, plaintiffs' claim under § 20 must also be
In accordance with the foregoing, the court hereby GRANTS the motion to
dismiss the consolidated amended complaint. Plaintiffs may file a second
amended complaint, no later than September 19, 2001.
Plaintiffs shall amend the § 10(b) and Rule 10b-5 claims in
conformity with the requirements of the PSLRA, as follows. Separately,
for each alleged false or misleading statement, plaintiffs shall
1. State the false or misleading statement.
2. State whether the statement was written or oral;
a. If the statement was written, identify the document in which it
appeared — that is, provide the title and author of the document,
the date it was prepared, and, if not a publicly-available document, name
of the person or persons who reviewed it;
b. If the statement was oral, state when and under what circumstances
the statement was made, and by whom; if allegation regarding an oral
statement is not made on personal knowledge, state with particularity all
facts upon which plaintiffs formed the belief that one or more of the
defendants made the statement at the time and place at which it is
alleged to have been made.
3. State why the statement was false or misleading at the time it was
made, and state with particularity all facts' upon which plaintiffs
formed the belief that the statement was false or misleading;
a. If plaintiffs allege that the falsity of the statement is shown by
conflicting information in internal reports, identify the report (title,
author, date prepared, recipient(s)) and indicate the portion of the
report that contradicts the false or misleading statement;
b. If plaintiffs allege that the falsity of the statement is shown by
contemporaneous information inconsistent with a particular statement,
state with particularity what the contemporaneous information was, what
the source of the information was, who had the information, and how
plaintiffs learned of the information.
4. State particular facts giving rise to a strong inference of the
required mental state. For § 10(b) and Rule 10b-5 claims, the
required state of mind is a degree of recklessness that strongly suggests
actual intent to deceive;
a. If plaintiffs allege that defendants received or possessed documents
or information that was at odds with the alleged false or misleading
statement, state all the relevant facts supporting this belief;
b. If plaintiffs allege that the information was contained in
documents, state the title, date, and contents of such documents (with
particularity), the identity of the person or persons who drafted such
documents, the identity of the person or persons who reviewed such
documents, how plaintiffs learned of the existence of the documents, and
how plaintiffs know that defendants received these documents;
c. If plaintiffs allege that the information was in a form other than
the source or sources of their information (how they learned of this
information allegedly possessed by defendants) and how their know that
the defendants possessed this information.
5. If plaintiffs allege that forward-looking statements attributed to
defendants were false and misleading, plaintiffs must allege
materiality, lack of meaningful cautionary language, and actual knowledge
of the speaker.
6. If plaintiffs do not intend to allege that any of the statements
attributed to defendants were false, they must state that intention
clearly. If plaintiffs allege that "the statements attributed to
defendants were misleading only by virtue of the fact that they omitted
to state additional present facts, they must state that clearly." They
must also state with particularity the material fact or facts that are
necessary in order to make the statements made, in light of the
circumstances under which they were made, not false or misleading.
Any motion to dismiss the second amended complaint shall be filed and
served no later than "30 days following service of the second amended
complaint. The opposition to the motion shall be filed and served no
later than October 17, 2001; and any reply to the opposition shall be
filed and served no later than November 14, 2001. The date of the hearing
is set for December 5, 2001.
This order fully adjudicates the motion listed at No. 75 on the clerk's
docket for this case. The date for the hearing on defendants' motion,
previously set for Wednesday, August 22, 2001, is hereby VACATED.
IT IS SO ORDERED.