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December 28, 2005.


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 Amended Complaint.


  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.

  I. False Statements

  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

  a. falsity

  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. 1993).

  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 actionable.

  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.

  b. scienter

  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 ...

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