Defense Motion for Summary Judgment in Securities Fraud Class Action Warranted as to 28 Statements Challenged by Class Action Complaint but Triable Issues Existed as to Remaining Class Action Claims California Federal Court Holds
Plaintiffs filed a securities fraud class action in California federal court against JDS Uniphase and certain officers alleging violations of Sections 11 and 15 of the federal Securities Act of 1933, and Sections 10(b), 14, 20(a) and 20A of the Securities Exchange Act of 1934 and Rules 10b-5 and 14a-9 promulgated under the Exchange Act. In re JDS Uniphase Corp. Sec. Litig., Slip Opn., at 1-2 and 6-7 (N.D. Cal. August 24, 2007). JDS Uniphase manufactures and supplies components of fiber-optic networks. Id., at 2. The class action alleges that the company and its officers falsely represented the company’s financial condition in order to artificially inflate the stock price, in part so JDS could purchase other companies “for less than their worth.” Id., at 3. After the court certified the litigation as a class action, defense and plaintiff attorneys filed cross-motions for summary judgment, id., at 1-2. The district court granted the defense motions in part and deferred ruling on plaintiffs’ motion; in so ruling, the federal court held that certain disputes could be resolved only at trial.
At the time the defense filed its summary judgment motion, plaintiffs were challenging 56 separate statements. JDS, at 10. The defense argued that it was entitled to judgment as to 24 of these statements either because plaintiffs failed to include them in the class action complaint or because plaintiffs abandoned them, id., at 9-10. The district court concluded: (1) plaintiffs did not abandon any claims raised in the class action complaint, id., at 10; (2) despite the holding in Kaplan v. Rose, 49 F.3d 1363 (9th Cir. 1994), plaintiffs were entitled to leave to amend to add 16 of the challenged statements to the class action complaint, id., at 10-12; and (3) plaintiffs failed to properly place at issue three of the statements challenged by the defense, and so the motion for summary judgment was granted as to those statements, id., at 13.
The federal court then examined each of the remaining statements. With respect to statements about demand, the court held that plaintiffs had failed to meet their burden of establishing that ten (10) historical demand statements or twelve (12) of the future demand statements were false or misleading, JDS, at 13-18, thereby entitling the defense to summary judgment as to those 22 statements, id., at 18. However, the district court denied the motion as to six (6) other statements, id., at 18-20. With respect to statements concerning revenue predictions, the court held that (a) the defense was entitled to summary judgment as to the 2 statements made in 2000, id., at 20-21; (b) triable issues existed as to the 5 statements made in 2001, id., at 21-22.
The defense next argued that all forward-looking statements were protected by the safe harbor provided by the Private Securities Litigation Reform Act (PSLRA) or by the “bespeaks caution” doctrine. JDS, at 22-23. The federal court disagreed, concluding that 3 of the 4 challenged statements were not protected by the “bespeaks caution” doctrine, id., at 24-28, and that the challenged press release also was not so protected, id., at 29. The district court additional denied the defense motion for summary judgment with respect to each of the accounting claims, see id., at 29-35, and as to the defense argument that plaintiffs failed to establish the requisite scienter, id., at 35-39. Finally, the court rejected the defense argument that the class action complaint failed to demonstrate loss causation, id., at 39-40.
NOTE: The court granted in part the summary judgment motion of one of the individual officers, see JDS, at 39-41, and deferred ruling on plaintiffs’ cross-motion for summary judgment, id., at 41-42. The court’s analysis of the various issues is well worth reading.