United States District Court, N.D. California
March 10, 2004.
In re JUNIPER NETWORKS, INC. SECURITIES LITIGATION
The opinion of the court was delivered by: SUSAN ILLSTON, District Judge
This action is dismissed without leave to amend. Judgment is entered
IT IS SO ORDERED AND ADJUDGED.
ORDER GRANTING DEFENDANTS'
MOTION TO DISMISS
This is a securities class action lawsuit against Juniper Network ("the
Company") and certain of its officers and directors under Sections 10(b)
and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act").
The case is brought on behalf of all persons who purchased Juniper's
publicly traded securities on the open market between April 12, 2001 and
June 7, 2001.
This Court previously granted a motion to dismiss brought by defendants
Juniper Networks, Inc., Scott Kriens, Marcel Gani, Steven Haley and Peter
Wexler. In the prior order, plaintiffs' Corrected Consolidated Complaint
was dismissed, but leave to amend was granted in order for plaintiffs to
comply with the heightened pleading requirements of the Private
Securities Litigation Reform Act of 1995 (the "PSLRA"). Plaintiffs filed
their First Amended Consolidated Complaint ("FAC"), and defendants have
again moved to dismiss, contending that plaintiffs have failed to correct
the original pleading deficiencies. The matter having been fully briefed
and argued, and the Court having carefully considered the arguments of
counsel and the papers submitted, the motion to dismiss is GRANTED
without leave to amend.
Defendants argue that the FAC does not satisfy the pleading
requirements of the PSLRA for
allegations based on information and belief and that plaintiffs
fail to allege facts supporting a strong inference of fraudulent intent.
This Court agrees with these contentions, and the motion will be granted
on that basis.*fn2
The PSLRA was enacted in 1995 as an amendment to the Exchange Act.
See In re Silicon Graphics Inc. Sec. Litig., 183 F.3d 970, 973
n.2 (9th Cir. 1999). Under the PSLRA, a complaint must:
specify each statement alleged to have been
misleading, the reason or reasons why the
statement is misleading, and, if an allegation
regarding the statement or omission is made on
information and belief, the complaint shall state
with particularity all facts on which that belief
15 U.S.C. § 78u-4(b)(1). Thus plaintiffs must provide facts
showing that defendants knew the challenged statements were false when
made. In re Silicon Graphics, 183 F.3d at 985. The complaint
must also "state with particularity facts giving rise to a strong
inference that the defendant acted with the required state of mind."
15 U.S.C. § 78u-4(b)(2). The required state of mind under § 10(b) is
"at a minimum, deliberate recklessness." In re Silicon
Graphics, 183 F.3 at 983. Scienter may be pled and proven by
reference to circumstantial evidence. However, when pleading on
information and belief, a plaintiff must plead with "particularity" by
"provid[ing] all facts forming the basis for [plaintiff's] belief in great
detail." Id. at 983; see also
15 U.S.C. § 78u-4(b)(1).
Where, as here, scienter and falsity are being inferred from the same
set of facts, "these two requirements may be combined into a unitary
inquiry under the PSLRA." Ronconi v. Larkin, 253 F.3d 423, 429
(9th Cir. 2001) ("Because falsity and scienter in private securities
fraud cases are generally strongly inferred from the same set of facts,
we have incorporated the dual pleading requirements of
15 U.S.C. § 78u-4(b)(1) and (b)(2) into a single inquiry."). The Ninth
Circuit has explained that the stricter standard for pleading scienter under
the PSLRA results in a stricter standard for pleading falsity. In re
Vantive Corp. Sec. Litig., 283 F.3d 1079, 1091 (9th Cir. 2002).
"Where pleadings are not sufficiently particularized or where, taken as a
whole, they do not raise a `strong inference' that misleading statements
were knowingly or [with] deliberate recklessness made to investors, a
private securities fraud
complaint is properly dismissed under Rule 12(b)(6)."
Ronconi, 253 F.3d at 429.
Defendants assert that the confidential witness summaries in
plaintiffs' FAC still fail to provide the corroborating details required
by the PSLRA. They argue that the FAC does not identify any negative
internal reports that contradict defendants' public statements, and that
plaintiffs do not meet the scienter requirement for false predictions or
false revenue recognition. See In re Silicon Graphic 183 F.3d
at 984-85; Vantive, 283 F.3d at 1091 (false forecast must be
made "with `actual knowledge . . . that the statements were) false or
misleading' at the time made.").
The FAC relies on the reports of confidential witnesses identified as
former employees of Juniper, representatives of its contract
manufacturers Solectron and Celestica, and representatives of Juniper's
industry competitors. FAC ¶¶ 40-70. Defendants challenge the sources
and sufficiency o the information from these witnesses, and contend that
the witness summaries do not provide the specific information and
corroborating details required. See Vantive 283 F.3d at 1091;
Coble v. Broadvision 2002 WL 31093589, at *6; In re
Northpoint Communications Group, Inc. Sec. Litig., 184 F. Supp.2d 991,
1000. Plaintiffs contend that the multiple allegations as a whole
should overcome any pleading bars under the "totality of the
1. Allegations of false revenue recognition to meet first
quarter 2001 ("1Q01") revenue goals.
Plaintiffs allege several accounting frauds by defendants for the first
quarter 2001: (1) defendants claimed a $20 million transaction with Qwest
which was "bogus"; (2) defendants failed to record reserves of $40
million for known product returns; (3) defendants prematurely recognized
$65 million sales revenue in 1Q01 to meet goals; and (4) defendants
denied carrying inventory and failed to record $20 million in inventory
charges. Plaintiffs allege these transactions failed to comply with
generally accepted accounting practices (GAAP), that they were knowingly
fraudulent and that the fraud was undertaken to prevent Juniper from
failing to meet its accounting goals for 1Q01.
The Court agrees with defendants that the allegations are impermissibly
imprecise and fail to provide the "who, what, when, where and how"
required by the PSLRA. Some allegations are internally contradictory, as
with the origin and nature of the "bogus" swap with Qwest. In the main,
allegations, although lengthy, simply fail to provide the
foundation and specificity required by the Act, and thus fail to plead
either falsity or scienter with the required factual precision. The
deficiencies identified in the original order dismissing the corrected
consolidated complaint have not been corrected in the FAC.
2. Allegations of false predictions to meet second quarter
2001 ("2001") revenue goals.
Nor do plaintiffs' allegations concerning false predictions of second
quarter 2001 revenue meet the strict pleading standards imposed by the
PSLRA. Plaintiffs contend that the 2Q01 projections deliberately avoided
recognizing an economic slowdown resulting in order cancellations and
ignored problems with one of Juniper's main products, the M160 router,
resulting in increased competition from a competitor. Plaintiffs' CW
statements do allude to these matters, but the FAG does not plead
specific facts demonstrating how the problems being experienced
translated into the need for Juniper to alter or reduce its publicly
issued projections. Rather, plaintiffs rely on common knowledge and
speculation to make these links. Plaintiffs are obliged to plead facts
raising a strong inference that the forward-looking guidance was actually
known to be false; this they have not done.*fn3
For the foregoing reasons, the Court GRANTS defendants' motion to
dismiss. Since plaintiffs have already amended their complaint once, and
have not demonstrated any ability to refine or augment the pleadings any
further, this dismissal is without leave to amend. (Docket ## 81, 87)
IT IS SO ORDERED.