Securities Class Action Complaint Failed to Adequately Articulate Factual Bases for Claims Necessitating Dismissal but with Leave to Amend California Federal Court Holds
Various plaintiffs filed a class action lawsuit against New Century. and various officers and directors aris[ing] from the collapse of New Century Financial Corporation in the wake of the subprime mortgage crisis, and allegations of securities law violations that drastically reduced the value of stocked owned by shareholders. Gold v. Morrice, ___ F.Supp.2d ___ (C.D. Cal. January 31, 2008) [Slip Opn., at 1]. In September 2007, lead plaintiff (New York Teachers Retirement System) filed a consolidated class action complaint; defense attorneys moved to dismiss various class action claims, id. The class action was filed after New Centurys stock dropped 97% following several disclosures regarding errors in its previously reported financial statements, id., at 2. Specifically, the class action complaint alleged violations of Section 11 and Section 12(a) of the Securities Act, as well as securities fraud claims under Section 10(b) and Section 20(a) of the Exchange Act against the individually-named defendants, id. The district court granted the motion to dismiss but with leave to file an amended class action complaint.
In granting the defense Rule 12(b)(6) motion as to the class actions Securities Act claims, the district court concluded that the complaint lacks clarity in articulating the grounds for its claims and attributes this failure to a lack of organization and somewhat unclear presentation of the allegations. Gold, at 6. The court noted, for example, that despite many detailed factual allegations and underlined statements from stock offering documents, press releases, or other communications, the court ha[d] difficulty in determining whether Plaintiffs have stated a claim because the class action complaint either lacks facts to support that the statements are false or misleading or provides those facts in a different paragraph without guidance for cross-reference. Id. For guidance, recommended that the class action complaint be clear and concise in identifying false statements and articulating the factual allegations supporting an inference that the statement is false or misleading and directed plaintiffs to attach a chart to the complaint set[ting] forth for each claim ([i]) the alleged false or misleading statements, including the source of the statement in a registration statement where a required element of the claim; (ii) the supporting factual allegations; and (iii) the ultimate conclusion. Id., at 7.
With respect to the class actions Exchange Act claims for relief, the district court summarized the heightened pleading requirement required by the Private Securities Litigation Reform Act (PSLRA), see Gold, at 7-8, and similarly dismisses those claims with leave to amend, id., at 8.
NOTE: The federal court noted that it should not have to comb through the complaint to identify reasonable inferences from the factual allegations to the legal conclusions. Gold, at 7 n.6.