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In re Quality Systems, Inc. Securities Litigation

United States District Court, C.D. California, Southern Division

January 5, 2015

In re QUALITY SYSTEMS, INC. SECURITIES LITIGATION

For Deerfield Beach Police Pension Fund, Individually and on Behalf of all Others Similarly Situated, Plaintiff: Blair A Nicholas, LEAD ATTORNEY, Bernstein Litowitz Berger and Grossmann LLP, San Diego, CA.

For City of Miami Fire Fighters' and Police Officers' Retirement Trust, Arkansas Teacher Retirement System, Movants: Avi Josefson, LEAD ATTORNEY, Bernstein Litowitz Berger & Grossman LLP, New York, NY; Blair A Nicholas, LEAD ATTORNEY, Bernstein Litowitz Berger and Grossmann LLP, San Diego, CA; Christopher Dennis Stewart, LEAD ATTORNEY, Robbins Geller Rudman & Dowd LLP, San Diego, CA; Gerald H Silk, LEAD ATTORNEY, PRO HAC VICE, Bernstein Litowitz Berger & Grossmann, New York, NY; Stephen H Cypen, LEAD ATTORNEY, PRO HAC VICE, Cypen and Cypen, Miami Beach, FL; Benjamin Galdston, Bernstein Litowitz Berger and Grossmann LLP, San Diego, CA; Brandon Marsh, Bernstein Litowitz Berger & Grossman, San Diego, CA; Brian Oliver O'Mara, Robbins Geller Rudman and Dowd LLP, San Diego, CA; Lucas E Gilmore, Bernstein Litowitz Berger and Grossmann LLP, San Diego, CA; Robert Russell Henssler, Jr, Robbins Geller Rudman & Dowd LLP, San Diego, CA.

For Quality Systems, Inc., Steven T Plochocki, Paul A Holt, Sheldon Razin, Defendants: Peter Allen Wald, LEAD ATTORNEY, Andrew Gray, Michele D Johnson, Latham and Watkins LLP.

For Fredric Firehammer, Interested Party: Jeff S Westerman, LEAD ATTORNEY, Westerman Law Corp, Los Angeles, CA; Jordanna G Thigpen, LEAD ATTORNEY, Abtahi Thigpen LLP, West Hollywood, CA.

ORDER DENYING PLAINTIFFS' MOTION FOR RECONSIDERATION

CORMAC J. CARNEY, UNITED STATES DISTRICT JUDGE.

I. INTRODUCTION & BACKGROUND

Lead Plaintiffs Arkansas Teacher Retirement System and the City of Miami Fire Fighters' and Police Officers' Retirement Trust brought this securities class action on behalf of all persons or entities who, during May 26, 2011 through July 25, 2012 (the " Class Period"), purchased or otherwise acquired the common stock of Defendant Quality Systems, Inc. (" QSI"), (collectively, " Plaintiffs"). In the Amended Complaint, Plaintiffs allege that QSI and its high-ranking directors and officers, Sheldon Razin, Steven Plochocki, and Paul Holt (collectively, " Defendants") made false and misleadin statements regarding revenue forecasts, sales pipeline figures, and greenfield sales projections. (Dkt. No. 26, Amended Compl. [" AC" ].)

On June 20, 2014, Defendants brought a motion to dismiss, arguing, inter alia, that the alleged statements were forward-looking and protected by the safe harbor provision of the Private Securities Litigation Reform Act of 1995 (" PSLRA"), 15 U.S.C. § 78u-4(b). (Dkt. No. 29 [" Defs.' MTD" ].) Specifically, Defendants argued that Plaintiffs had failed to show that Defendants made the alleged forward-looking statements with knowledge of their falsity and that the statements were accompanied by meaningful cautionary language. (Id.) In support of the latter proposition, Defendants requested judicial notice of numerous exhibits pursuant to the incorporation by reference doctrine and Federal Rule of Evidence 201. (Dkt. Nos. 29-2, 35-1.)

The Court granted the motion to dismiss with prejudice on October 20, 2014 based on the finding that the vast majority of the alleged statements were forward-looking and accompanied by meaningful cautionary language (" Order"). (Dkt. No. 39 [Order] at 8-10.)[1] Additionally, the Court found that Plaintiffs had failed to allege that Defendants made the statements with knowledge of their falsity. (Order at 10-12.) Currently before the Court is Plaintiffs' motion for reconsideration of the Order, or, in the alternative, a motion to amend. (Dkt. No. 40 [" Pls.' Mot." ] at 3.) For the reasons provided below, the Court DENIES Plaintiffs' motion.

II. LEGAL STANDARD

Plaintiffs move for reconsideration pursuant to Federal Rule of Civil Procedure 59 or, in the alternative, request leave to amend under Rule 15. Where, as here, final judgment has been entered, " a motion to amend the complaint can only be entertained if the judgment is first reopened under a motion brought under Rule 59 or 60." Lindauer v. Rogers, 91 F.3d 1355, 1357 (9th Cir. 1996). The Court thus denies Plaintiffs' motion in the alternative and will only consider the Rule 59 motion for reconsideration.

The standard for obtaining reconsideration of a previously entered order is rigorous. The Ninth Circuit has held that reconsideration is appropriate " if the district court (1) is presented with newly discovered evidence, (2) committed clear error or the initial decision was manifestly unjust, or (3) if there is an intervening change in controlling law." Sch. Dist. No. 1J, Multnomah Cnty., Or. v. AC and S, Inc., 5 F.3d 1255, 1263 (9th Cir. 1993). In this district, Local Rule 7-18 provides that " a motion for reconsideration may be made only on the grounds of (a) a material difference in fact or law from that presented to the Court before such decision that in the exercise of reasonable diligence could not have been known to the party moving for reconsideration at the time of such decision, or (b) the emergence of new material facts or a change of law occurring after the time of such decision, or (c) a manifest showing of a failure to consider material facts presented to the Court before such decision." Local Rule 7-18. " No motion for reconsideration shall in any manner repeat any oral or written argument made in support of or in opposition to the original motion." Id.; see also Kona Enters., Inc. v. Estate of Bishop, 229 F.3d 877, 890 (9th Cir. 2000).

III. ANALYSIS

Plaintiffs request reconsideration on the ground that the Court committed clear error when it dismissed the Complaint with prejudice . Plaintiffs do not dispute the dismissal--only that the Court should have granted leave to amend. (Pls.' Mot. at 2.) To that end, Plaintiffs proffer a number of purportedly new facts that they would allege if given the opportunity to bring a second amended complaint. Plaintiffs further contend that the Court erred by taking judicial notice of five PowerPoint slides that were shown at healthcare conferences during which Defendants made allegedly misleading statements.

A. Dismissal with Prejudice

Plaintiffs seek reconsideration of the Court's decision to dismiss the Amended Complaint with prejudice, citing the liberal policy in favor of granting leave to amend and the Ninth Circuit decision in Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048 (9th Cir. 2003). Plaintiffs' arguments are unavailing.

Although the district court should grant the plaintiff leave to amend if the complaint can possibly be cured by additional factual allegations, Doe v. United States, 58 F.3d 494, 497 (9th Cir. 1995), the district court need not grant leave to amend if amendment of the complaint would be futile, Kendall v. Visa U.S.A., Inc., 518 F.3d 1042, 1051-52 (9th Cir. 2008). In granting the motion to dismiss, the Court found that all forward-looking statements fell within the safe harbor for two, independent reasons. ( See Order at 8 [" [T]he alleged statements are forward-looking and, as discussed below, qualify for safe harbor under either ground." (emphasis added)].) The first reason was that the statements were accompanied by meaningful cautionary language; the second reason was that Plaintiffs had failed to show that the statements were made with knowledge of their falsity. (Order at 9-12.) Having made such findings, the Court concluded that the Amended Complaint " suffer[ed] from fatal defects" and denied leave to amend. See Kendall, 518 F.3d at 1051-52.

Relying heavily on Eminence, Plaintiffs contend that granting leave to amend was required, particularly given this " technical and demanding corner of the law" and the need to provide securities litigation plaintiffs with " court guidance" in drafting a sufficient complaint. See Eminence, 316 F.3d at 1052-53. However, Eminence does not stand for such a blanket rule and clearly states that dismissal with prejudice may be appropriate if " it is clear on de novo review that the complaint could not be saved by amendment." Id. at 1052 (citing Chang v. Chen, 80 F.3d 1293, 1296 (9th Cir. 1996)). Indeed, the liberal amendment policy in the PSLRA context is warranted due to the " unprecedented degree of specificity and detail" required to plead scienter. Id. But the present case is not one where Plaintiffs could have fixed their errors after having received the Court's guidance. The rhetorical questions posed by the Ninth Circuit are instructive: " How much detail is enough detail? When is an inference of deliberate recklessness sufficiently strong?" Id. (emphasis in original). Such questions have no applicability here because the basis for the Court's dismissal with prejudice was not about Plaintiffs' failure to plead with requisite " specificity and detail." Rather, it was about a definitive legal bar via the safe harbor to Plaintiffs' claims--the affirmative finding that each of the forward-looking statements was accompanied by meaningful cautionary language. Such an error cannot be remedied.

B. Plaintiffs' Proposed Amendments

Next, Plaintiffs point to a number of new facts that they could bring supporting materiality, falsity, and scienter. Plaintiffs also propose amendments, stylized as " new allegations, " that would demonstrate the insufficiency of the cautionary language. Plaintiffs fail to make the requisite showing for reconsideration under Local Rule 7-18. Plaintiffs do not state that the proposed facts (which arise during the Class Period) were not discoverable with the exercise of reasonable diligence or that such facts emerged after the Order was issued. Furthermore, Plaintiffs proposed amendments regarding the inadequacy of the cautionary language merely recycle the same arguments that were already presented in their opposition to the motion to dismiss. See Kona Enters., 229 F.3d at 890 (" A Rule 59(e) motion may not be used to raise arguments or present evidence for the first time that could reasonably have been raised earlier in the litigation." (emphasis in original)). For instance, Plaintiffs contend that the cautionary language was insufficient because the stated risk factors --specifically, saturation and the ARRA--did not " relate directly" to the risks that actually materialized and that Defendants repeated the same risk disclosures without providing updates. (Pls.' Mot. at 6-11.) Both these arguments were presented in Plaintiffs' opposition, (Dkt. No. 32 [" Pls.' Opp'n" ] at 21-22), and have already been rejected by the Court, ( see Order at 10).

In any event, the " new" facts purportedly demonstrating scienter are insufficient to revive Plaintiffs' complaint because of the preclusive effect of the cautionary language. As explained above, the applicability of the cautionary language prong of the safe harbor applied to all forward-looking statements as an independent ground for immunity. Thus, even if Plaintiffs were to allege new facts to " demonstrate that defendants' statements were made with actual knowledge of their falsity, " (Pls.' Mot. at 14), this would not disturb the holding that the forward-looking statements were accompanied by meaningful cautionary language. For example, Plaintiffs contend they would allege that Defendant Plochocki stated that QSI's " strong pipeline continues to get stronger and build momentum" and is " continuing to build up every quarter . . . ." (Pls.' Mot. at 12.) Not only is this the same type of " anticipatory statements about the future strength of pipeline sales" that was deemed forward-looking, ( see Order at 8), but the statement was made at the same May 26, 2011 earnings call conference that this Court found was accompanied by cautionary language, ( see Order at 9; Dkt. 29-1, Decl. of Katherine A. Rykken ISO Defs.' MTD [" Rykken Decl." ] Exh. 4, [safe harbor provision in Form 8-K for May 26, 2011 earnings call]). The same is true for Plaintiffs' " new" statement by Defendant Plochocki that " all four units remain on target, " made at the July 28, 2011 earnings call. (Pls.' Mot. at 12; see Rykken Decl. Exh. 6 [safe harbor provision in Form 8-K for July 28, 2011 earnings call].)[2]

Plaintiffs' already-presented arguments regarding the sufficiency of the cautionary language are equally unavailing. According to Plaintiffs' own cited case, the Seventh Circuit directly refutes Plaintiffs' contention that the risk factors must " warn of risks that . . . actually materialized." (Pls.' Mot. at 7, 11); see Asher v. Baxter Int'l Inc., 377 F.3d 727, 730 (7th Cir. 2004) (holding that securities law does not " demand prescience" and " [a]s long as the [defendant] reveals the principal risks, the fact that some other event caused problems cannot be dispositive"). Rather, the cautionary statement need only " identify[] important factors that could cause actual results to differ materially from those in the forward-looking statements." 15 U.S.C. § 78u-5(c)(1)(A). Likewise, the cautionary language is not rendered insufficient merely because Defendants utilized similar language in their cautionary disclosures throughout the Class Period.

C. Judicial Notice of PowerPoint Slides

Finally, Plaintiffs seek reconsideration of the Court's decision to take judicial notice of the five PowerPoint slides submitted by Defendants. " On any motion to dismiss based [on the safe harbor], the court shall consider any statement cited in the complaint and any cautionary statement accompanying the forward-looking statement, which are not subject to material dispute, cited by the defendant." 15 U.S.C. § 78u-5(e). The Supreme Court affirmed that " courts must consider the complaint in its entirety, as well as other sources courts ordinarily examine when ruling on Rule 12(b)(6) motions to dismiss, in particular, documents incorporated into the complaint by reference, and matters of which a court may take judicial notice." Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322-23, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007). Under the " incorporation by reference" doctrine, a court may consider evidence on which the complaint necessarily relies if: (1) the complaint refers to the document; (2) the document is central to the plaintiffs' claim; and (3) no party questions the authenticity of the copy attached to the 12(b)(6) motion." Daniels-Hall v. Nat'l Educ. Ass'n, 629 F.3d 992, 998 (9th Cir. 2010).

Citing Daniels-Hall, the Court took judicial notice of the PowerPoint slides. (Order at 4 n.5.) The Amended Complaint alleged that Defendants' misleading statements at the healthcare conferences were actionable and made without accompanying cautionary language. (AC ¶ ¶ 60, 73, 79, 82-84, 92, 173; Pls.' Opp'n at 21.) Disputing this characterization, Defendants sought judicial notice of the PowerPoint slides presented at the conferences and cited the cautionary language contained therein. See 15 U.S.C. § 78u-5(e). Importantly, the Court found that Plaintiffs had waived any objection to the request for judicial notice of the PowerPoint slides. ( See Order at 4 n.5.) Plaintiffs now contend, however, that they had insufficient opportunity to object because the slides were raised in Defendants' reply brief. This argument is simply not true. Although submitted alongside the reply brief, the request for judicial notice of the slides was filed as a separate memorandum, ( see Dkt. No. 35-1), and Plaintiffs were free to submit an objection to the request. Moreover, the request for judicial notice of the slides was submitted on September 11, 2014--nearly six weeks before the October 20 hearing. Plaintiffs had ample opportunity to object but failed to do so.

Indeed, the Court specifically questioned the attorneys at the hearing about the authenticity of the slides to remove any doubt about their admissibility. ( See Dkt. No. 44, Tr. of Oct. 20, 2014 Hearing on MTD [" Tr." ] 2:24-4:1, 16-20.) Defendants' counsel represented that the slides with the safe harbor warnings were projected at the conference and additionally represented that the slides were posted to a website. (Tr. 4:20-21.) In response, Plaintiffs' counsel only disputed the latter point, noting that " whether these slides were in fact widely distributed, posted to the website" was a factually intensive dispute but further reassured the Court " I don't think we need to get into that dispute." (Tr. 10:13-17.) Later in the hearing, Plaintiffs' counsel again reiterated, " We don't oppose the court take judicial notice within the limits of proper judicial notice that these [slides] exist, but we do not accept them for the truth of the matters asserted or for the additional representations that these warnings were widely disseminated." (Tr. 18:15-21.) Plaintiffs' counsel later added, " [W]e did object, by the way, to appendix B as cumulative and exceeding the page limit." (Tr. 19:16-18.)

Nothing in the record amounts to a challenge of the " authenticity of the copy [of the slides] attached to the 12(b)(6) motion." See Daniels--Hall, 629 F.3d at 998. The Order did not rely on Appendix B or on the representation that the slides were widely publicized through a website. Nor did the Order accept the slides for the truth of the matters asserted--that actual results of QSI's performance may be affected by the factors listed. See City of Roseville Employees' Ret. Sys. v. Sterling Fin. Corp., 963 F.Supp.2d 1092, 1108 (E.D. Wash. 2013) (distinguishing judicial notice for the truthfulness of the out-of-court representations of the documents from judicial notice of the fact that such documents exist and thus, that the representations were made). Rather, the Court relied on the slides only for the proposition that the slides, as submitted by Defendants, were presented at the same healthcare conferences where Defendants purportedly made misleading statements. (Order at 9.) Given Plaintiffs' failure to object and this Court's duty to inquire into " whether all of the facts alleged, taken collectively, give rise to a strong inference of scienter, [and] not whether any individual allegation, scrutinized in isolation, meets that standard, " Tellabs, Inc., 551 U.S. at 322-23, it was appropriate to take judicial notice of the slides.

IV. CONCLUSION

For the foregoing reasons, Plaintiffs' motion for reconsideration is DENIED.


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