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Pittleman v. Impac Mortgage Holdings

March 9, 2009


The opinion of the court was delivered by: Andrew J. Guilford United States District Judge


Defendants Impac Mortgage Holdings, Inc., Joseph R. Tomkinson, and William S. Ashmore ("Defendants") brought a Motion to Dismiss (the "Motion") the Third Amended Class Action Complaint (the "TAC"). After considering the parties' arguments, the Court GRANTS the Motion.

The Court grants the Motion without leave to amend. Plaintiff has had three chances to submit a valid complaint -- the Consolidated Class Action Complaint, the Second Amended Class Action Complaint (the "SAC"), and the TAC. Plaintiff has failed to do so. At this point, it is clear to the Court that further opportunities will not help.


Plaintiff claims that Impac's stock price was artificially inflated during the class period. (Motion to Dismiss the SAC 4:17-19.) Impac is a publicly-traded mortgage lender. (Id. 4:20-21.) During the class period, Tomkinson was CEO and Chairman of the Board, and Ashmore was Executive Vice President and Chief Operating Officer. (Id. 4:25-28.) Impac specializes in "Alt-A" loans, which are more stable than sub-prime loans but are not eligible for sale to prime lenders. (Id. 5:13-16.) Plaintiff is an investor who lost money investing in Impac. (Id. 2:15-16.)

In the SAC, Plaintiff relied primarily on statements made by five anonymous former employees ("FEs") and a host of Internet bloggers. The Court granted Defendants' motion to dismiss the SAC with leave to amend. (Oct. 6, 2008 Order.) The Court found that Plaintiff failed to sufficiently allege scienter and material misrepresentation. (Id.)

The TAC alleges two claims for relief. The first claim is for violation of Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder, against all defendants. The second claim is for violation of Section 20(a) of the Exchange Act, against the individual defendants. In the TAC, Plaintiff has removed the bloggers' statements. The statements made by FEs 2, 3, and 5 are basically unchanged. The statements made by FE4 are changed slightly. The statements made by FE1 are changed significantly.


Private federal securities fraud actions are based on Section 10(b) of the Securities Exchange Act of 1934 (15 U.S.C. § 78j(b)) and Securities and Exchange Commission Rule 10b-5 (17 C.F.R. § 240.10b-5). Section 10(b) forbids (1) the "use or employ[ment] . . . of any . . . deceptive device," (2) "in connection with the purchase or sale of any security," and (3) "in contravention of" Securities and Exchange Commission "rules and regulations." SEC Rule 10b-5 forbids making any "untrue statement of a material fact" or the omission of any material fact "necessary in order to make the statements made . . . not misleading." 17 C.F.R. § 240.10b-5.

To state a claim under § 10(b), a plaintiff must plead six basic elements: (1) a strong inference of scienter, (2) a material misrepresentation or omission, (3) a connection with the purchase or sale of a security, (4) reliance, (5) economic loss, and (6) loss causation. Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336, 341-42 (2005).

When a plaintiff alleges fraud, a heightened pleading standard is applied and the plaintiff "must aver with particularity the circumstances constituting the fraud." FED. R. CIV. P. 9(b).

The particularity requirement is designed "to give defendants notice of the particular conduct which is alleged to constitute the fraud so they can defend against the charge and not just deny that they have done anything wrong." Glen Holly Entm't, Inc. v. Tektronix, Inc., 100 F. Supp. 2d 1086, 1094 (C.D. Cal. 1999) (quoting Neubronner v. Milken, 6 F.3d 666 (9th Cir. 1993)). To provide this notice, "the complaint must specify such facts as the times, dates, places, and benefits received, and other details of the fraudulent activity." Id.

This is especially true in the context of private federal securities fraud actions. The Private Securities Litigation Reform Act of 1995 ("PSLRA") imposes stringent pleading requirements on securities plaintiffs and evidences a desire to "provide a filter at the earliest stage (the pleading stage) to screen out lawsuits that have no factual basis." In re NAHC, Inc. Sec. Litig., 306 F.3d 1314, 1332-33 (3d Cir. 2002). The PSLRA is designed "generally to eliminate abusive securities litigation and particularly to ...

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