The opinion of the court was delivered by: Samuel Conti, United States District Judge.
ORDER CORRECTING THE
COURT'S ORDER GRANTING
DEFENDANTS' MOTION FOR
PARTIAL SUMMARY JUDGMENT
AND JUDGMENT ON THE
Pursuant to Federal Rule of Civil Procedure 60(a), the Court has
corrected three clerical errors in its previous order. On page two, line
23, and page three, lines 1 and 18, the Court referred to meetings in
March and April of 2000. The meetings were in 1999 and the dates now have
CORRECTED ORDER GRANTING
DEFENDANTS' MOTION FOR
PARTIAL SUMMARY JUDGMENT
AND JUDGMENT ON THE
The above captioned action is a consolidated putative class action
securities law suit. A variety of plaintiffs (collectively "Plaintiff's"
or the "Class") filed actions on behalf of all persons who purchased the
common stock of the Clorox Company ("Clorox") between October 19, 1998
and August 11, 1999 alleging violations of the Securities Exchange Act of
1934 ("Exchange Act"), as amended by the Private Securities Litigation
Reform Act (the "PSLRA"). 15 U.S.C. § 78u-4 (1996). Defendants now
have moved for partial summary judgment and summary judgment on the
pleadings. For the following reasons, Defendants' motion is granted.
This Court's previous orders provide a thorough discussion of the facts
and issues in this case, and here a briefer summary will suffice. This
case arises out of Clorox's purchase of First Brands Company. Following
the acquisition, Clorox experienced difficulty integrating First Brands.
The difficulty resulted in large part from several of First Brands'
business practices. In particular, First Brands often would accompany
sales with promises of future rebates or other promotions, recording the
earnings but deferring acknowledgment of costs. Honoring First Brands'
commitments and dealing with the aftereffects of these practices caused a
decline in Clorox's earnings, and in 1999, when Clorox announced the
decline, its stock plummeted.
Plaintiffs allege that Clorox made a series of misrepresentations
regarding the merger, optimistically projecting short term success even
as it realized it was facing difficulty, and understating the extent of
problems resulting from First Brands' practices. These alleged statements
formed the basis for each of Plaintiffs' complaints.
On November 7, 2000, the Court granted Defendants' motion to dismiss
Plaintiffs' First Amended Complaint ("FAC") without prejudice. On
December 20, 2000, Plaintiffs filed a Second Amended Complaint ("SAC"),
which was dismissed without prejudice by the Court's order of June 13,
2001 ("Second Dismissal") Plaintiffs filed the present Third Amended
Complaint ("TAC") on August 31, 2001.
Although it concluded that the vast majority of the TAC suffered from
the same infirmities as its predecessors, the Court denied Defendants'
motion to dismiss this third complaint. The Court found that Plaintiffs
had stated a claim based on two allegations. First, Plaintiffs alleged
that, at a March 4, 1999, meeting with representatives from Merrill
Lynch, Defendants misrepresented the amount of time they believed they
would need to clear out First Brands' excess inventory and reported that
First Brands' business was on track for growth "going forward." Second,
Plaintiffs alleged that on an April 22, 1999, conference call Defendants
again made similar misrepresentations regarding the temporary nature of
the inventory problem and First Brands' overall health. The Court found
that these alleged statements, in combination with allegations elsewhere
in the complaint that Clorox was well aware that at least some of First
promotional obligations would take eighteen to twenty-four months
to work through and that Clorox was in a "near panic" about this
inventory problem, created a sufficient inference of fraud to meet the
Exchange Act's heightened pleading standard.*fn1 The Court declined, in
the context of a 12(b)(6) motion, to dismiss the complaint in part and
retain it in part, and instead denied the motion to dismiss in its
Following this denial, Plaintiffs served extensive discovery requests
upon Defendants. According to Plaintiffs, Defendants have been
recalcitrant in complying with those requests, insisting that the only
proper subjects of discovery are the materials surrounding the March 4 and
April 22, 1999 statements, and producing only limited documents regarding
those meetings. Defendants, however, assert that they have provided all
relevant materials pertaining to those meetings, that materials
pertaining to other statements are not properly subject to discovery, and
that the materials they have produced clearly establish that the alleged
statements never were made. Accordingly, Defendants argue that no
evidence exists to support an essential element of Plaintiffs' fraud
charges and that those charges must be dismissed.
In the alternative, Defendants argue that such statements, if they were
made, were forward-looking and accompanied by meaningful cautions of
uncertainty. Accordingly, Defendants urge that both the PSLRA's Safe
Harbor Provision and the judicially-created "bespeaks caution" doctrine
prevent either alleged statement from being the basis of a successful
securities fraud claim.
In addition to moving for summary judgment on the claims based on the
statements at the conference and conference call, Defendants have moved
for judgment on the pleadings on all of Plaintiffs' other allegations.
A. Summary Judgment and Judgment on the Pleadings
Summary judgment is proper only when there is no genuine issue of
material fact and, when viewing the evidence in the light most favorable
to the nonmoving party, the movant is clearly entitled to prevail as a
matter of law. Fed.R.Civ.Proc. 56(c); Cleary v. News Corp., 30 F.3d 1255,
1259 (9th Cir. 1994). Once a summary judgment motion is made and properly
supported, the nonmoving party may not rest on mere allegations, but must
set forth specific facts showing that there is a genuine issue for
trial. Fed R. Civ. P. 56(e); Celotex Corp. v. Catrett, 477 U.S. 317, 324
(1986). In other words, the nonmoving party must show that there are
"genuine factual issues that properly can be resolved only by a finder of
fact because they may reasonably be resolved in favor of either party."
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986).
If the party lacks evidence sufficient to oppose this motion, it may
request, pursuant to Rule 56(f), that the court stay the motion pending
further discovery. The party must submit "(a) a timely application which
(b) specifically identifies (c) relevant information (d) where there is
some basis for believing that the information sought actually exists."
Visa Int'l Serv. Assoc. v. Bankcard Holders of America, 784 F.2d 1472,
1475; Terrell v. Brewer, 935 F.2d 1015, 1018 (9th Cir. 1991); Fed. Rule
Civ. Proc. 56(f). Thus, to successfully obtain a summary judgment motion
in the face of a request for a Rule 56(f) continuance, the moving party
must demonstrate that no current factual dispute exists and the
non-moving party must fail to demonstrate the possible existence of
relevant undiscovered material.
Judgment on the pleadings under Rule 12(c) is appropriate "when, taking
all the allegations in the pleading as true, the moving party is entitled
to judgment as a matter of law." Heliotrope General, Inc. v. Ford Motor
Co., 189 F.3d 971, 979 (9th Cir. 1999). In Heliotrope, the 9th Circuit
held that judgment on the pleadings was appropriate when a ...