The opinion of the court was delivered by: CHARLES BREYER, District Judge
This is a PSLRA securities fraud class action. The Court
previously dismissed the complaint with leave to amend. Now
pending for decision before the Court is defendants' motion to
dismiss the Second Amended Complaint ("SAC"). After carefully
considering the allegations of the SAC and the parties'
arguments, and having had the benefit of oral argument, the Court
GRANTS defendants' motion to dismiss.
Siebel Systems ("Siebel") provides e Business application
software, primarily focused on the "customer relationship
management" industry. Siebel "was in the business of providing
customers with software technology enabling them to possess up to
the minute `real time' knowledge about their business,
particularly including their deal pipeline and customer
relationships." SAC ¶ 2. "From 1995 through 2000, Siebel was the fastest-growing company
in the history of the software business." Id. ¶ 3. During the
first quarter of 2001, however, an industry downturn caused
Siebel's stock price to plummet. Nonetheless, from April 2001 to
July 20101, Siebel's stock price recorded a 60 percent jump.
Id. ¶ 4. The stock then plummeted again, dropping 76 percent
from July 2001 to October 2001. Id.
Following this steep drop in the stock price, Siebel began
making a series of optimistic statements about Siebel's business,
and, in particular, about its new product, Siebel 7. On July 17,
2002, Siebel disclosed that its second quarter revenues fell by
more than 15 percent and that its earnings per share were
materially short of analysts' expectations. Id. ¶ 20. It also
disclosed that Siebel 7 was not doing as well as expected, and
that Siebel was laying off 15 percent of its workforce.
"Following these disclosures, [Siebel'] common stock dropped 21 %
on a huge volume of over 65 million shares." Id. ¶ 23.
This consolidated securities fraud action was filed a year and
a half after the July 2002 stock drop. The class period is
October 1, 2001 through July 2002. Unlike many PSLRA actions,
plaintiffs do not allege that defendants published false
financial results; instead, plaintiffs maintain that during the
post 9/11 period, defendants painted a falsely positive picture
of Siebel by making materially false statements about the
following: (1) customer satisfaction and loyalty with respect to
Siebel's products and services; (2) the new Siebel 7 product; and
(3) Siebel's 2002 business performance.
The Court dismissed the First Amended Complaint with leave to
amend. Now pending is defendants' motion to dismiss the Second
To state a claim under Section 10(b), plaintiffs must allege:
(1) a misstatement or omission (2) of material fact (3) made with
scienter (4) on which plaintiffs relied and (5) which proximately
caused their injury. See DSAM Global Value Fund v. Altris
Software, 288 F.3d 385, 388 (9th Cir. 2002). Plaintiffs' SAC
must also satisfy the pleading requirements of the PSLRA. "The PSLRA significantly altered pleading requirements in
private securities fraud litigation by requiring that a complaint
`plead with particularity both falsity and scienter.'" Gompper
v. Visx, Inc., 298 F.3d 893, 895 (9th Cir. 2002) (citation
omitted). "A securities fraud complaint must now `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 is formed.'" Id. (quoting 15 U.S.C. 78u-4(b)(1)). To
plead scienter with particularity, "the complaint must `state
with particularity facts giving rise to a strong inference that
the defendant acted with the required state of mind.'" Id.
(quoting 15 U.S.C. 78u-4(b)(2)). In determining whether a
plaintiff has sufficiently pled scienter, a court "must consider
`whether the total of plaintiffs' allegations, even though
individually lacking, are sufficient to create a strong inference
that the defendants acted with deliberate or conscious
recklessness." Nursing Home Pension Fund, Local 144 v. Oracle
Corp., 380 F.3d 1226, 1230 (9th Cir. 2004).
"On a motion to dismiss, the reviewing court must accept
plaintiff's allegations as true and construe them in the light
most favorable to the plaintiff." Gompper, 298 F.3d at 896.
Under the PSLRA, however, "the court ultimately reviews the
complaint in its entirety to determine whether the totality of
facts and inferences demonstrate a strong inference of scienter."
Id. "[W]hen determining whether plaintiffs have shown a strong
inference of scienter, the court must consider all reasonable
inferences to be drawn from the allegations, including inferences
unfavorable to the plaintiffs. District courts should consider
all the allegations in their entirety, together with any
reasonable inferences that can be drawn therefrom, in concluding
whether, on balance, the plaintiffs' complaint gives rise to the
requisite inference of scienter." Id. at 897.
The SAC is 295 paragraphs and 110 pages long. As a result of
the complaint's length, the Court has relied on plaintiffs'
Memorandum in Opposition to identify the relevant allegations.
See Keenan v. Allan, 91 F.3d 1275, 1278 (9th Cir. 1996)
(explaining that a district court may rely on parties and is not
required to "scour the record"). DISCUSSION
Defendants move to dismiss on the ground that plaintiffs have
not pleaded false statements with the required particularity and,
in any event, have not sufficiently pled scienter.
A. Statements about Siebel 7
Plaintiffs allege that during the class period plaintiffs made
numerous false statements about its new Internet-based software,
Siebel 7. The product was launched in November 2001. Defendants
represented that Siebel 7: (1) sets the standard, ¶ 158; (2) was
a highly accurate sales forecasting tool, ¶ 204; (3) was
exceptionally deep in functionality, ¶ 113; and (4) offered a "a
clear and easy upgrade path" for customers, ¶ 77.
Plaintiffs also contend that defendants made false
representations as to the number of Siebel customers upgrading to
Siebel 7: defendants (1) falsely projected that 90 percent of its
customers would upgrade to Siebel 7 by December 2002, ¶¶ 77, 120;
(2) that Siebel 7 was showing rapid adoption and that its
adoption was then accelerating, ¶ 165; and (3) that Siebel 7 was
exceeding expectations, id.
Plaintiffs claim all of the above statements were false. Siebel
7 was riddled with defects, was not functional, and was not being
rapidly adopted by Siebel's customers; in fact, in July 2002,
Siebel announced that only 20 percent of its customers had
upgraded to Siebel 7, and that same month it also announced the
release of Siebel 7.5, which replaced Siebel 7 in September 2002.
1. Siebel 7 functionality
General expressions of optimism can be actionable under Rule
10b-5. See In re Apple Computer Sec. Litig., 886 F.2d 1109,
1113 (9th Cir. 1989). "A statement of optimism contains at least
three implicit factual assertions: (1) that the statement was
genuinely believed by the person making it; (2) that there was a
reasonable basis for the statement; or (3) that the speaker was
not aware of any undisclosed facts tending to seriously undermine
the accuracy of the statement. Such statements are actionable
under Rule 10b-5 to the extent that one of these implied factual assertions was inaccurate." In re Caere
Corporate Sec. Litig., 837 F.Supp. 1054, 1057-58 (N.D. Cal.
Nonetheless, "[i]n considering whether the market was misled by
a particular statement of optimism, courts should keep in mind
that [p]rofessional investors, and most amateur investors as
well, know how to devalue the optimism of corporate executives,
who have a personal stake in the future success of the company."
Id. at 1058 (internal quotation marks and citations omitted).
Thus, a statement of optimism may simply be too vague to be
actionable. In Caere Corp., for example, the court held that
statements which touted new products as "technological
advancements," called Caere a market leader in its field, and
quoted Caere's Chief Operating Officer as saying that Caere was
"well-positioned" for growth, were all too vague to be
Many of the challenged statements about Siebel 7 are simply too
vague to be actionable. Plaintiffs have not pled specific facts
that demonstrate that defendants' statement that Siebel 7 "sets
the standard" was false. Siebel 7 was the first web-based
software in this area; to brag that it "set the standard," even
if it was a low standard, is not false. Similarly, plaintiffs
have not alleged facts that show that the statement that Siebel 7
was not a highly accurate forecasting tool was false: highly
accurate compared to what? Similarly, that some customers were
having problems using the program because it was too slow or took
too many steps does not make the program a "highly inaccurate"
forecasting tool. "Exceptionally deep in functionality" is
similarly too vague to be actionable.
Even assuming, however, that plaintiffs have adequately alleged
that the above positive statements were false, plaintiffs have
not alleged facts which create a strong inference that defendants
knew Siebel 7 was a bad product when they were making positive
remarks about the software. See Plaintiffs' Opp. at 26-28.
While plaintiffs allege that Siebel itself (which was the first
company to upgrade to Siebel 7) was experiencing some problems
with the web-based upgrade, they do not allege any specific facts
that give rise to a strong inference that the defendants that
is the upper management knew there were problems of such magnitude that it
would make their positive statements false.
First, in paragraph 229, plaintiffs baldly claim that "Siebel's
development, testing, introduction, product launch and
performance were critical issues respecting which the Company's
executive management and the Individual Defendants in
particular regularly kept themselves informed." This paragraph
does not plead particular facts that suggest, let alone give rise
to a strong inference, that the individual defendants were in
fact aware that Siebel 7 was a disaster.
Second, that one Siebel official, Steve Mankoff, said in April
2003 at least a year after the challenged statements that
Siebel 7 was a "new product with kinks" does not support
scienter. SAC ¶ 161. That a new program has kinks does not make a
positive statement about the program false. If that were the
case, the federal securities laws ...