JAMES ZIEMBA, PATRICIA MACDOUGLE, еt. al., Plaintiffs-Appellants, versus CASCADE INTERNATIONAL, INC., VICTOR G. INCENDY, et. al., Defendants-Appellees.
No. 99-14681
IN THE UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT
July 11, 2001
[PUBLISH] D. C. Docket No. 91-08652 CV-LCN FILED U.S. COURT OF APPEALS ELEVENTH CIRCUIT JULY 11, 2001 THOMAS K. KAHN CLERK
(July 11, 2001)
Before ANDERSON, Chief Judge, CARNES, Circuit Judge, and NANGLE*, District Judge.
ANDERSON, Chief Judge:
* Honorable John F. Nangle, U.S. District Judge for the Eastern District of Missouri, sitting by designation.
By way of an amended complaint filed in 1992, Plaintiffs, shareholders of Cascade International, Inc., (“Cascade“), brought this securities class action against Cascade officers and directors, including Victor Incendy, Cascade‘s President and CEO; Bernard H. Levy, Cascade‘s independent auditor; Coopers & Lybrand (“C&L“), an accounting firm; Gunster, Yoakley, & Stewart, P.A. (“GY&S“), a law firm; and others, alleging, inter alia, violations of
In an Order dated December 16, 1993, the district court granted several defendants’ motions to dismiss, including such motion filed by GY&S. See In re Cascade Int‘l Sec. Litig., 840 F. Supp. 1558 (S.D. Fla. 1993). The district court denied C&L‘s motion to dismiss, except with respect to Plaintiffs’ claims of negligent misrepresentation and common law fraud. See id. Plaintiffs filed a motion for entry of final judgment pursuant to
In 1994, C&L filed a motion to reconsider the district court‘s ruling on C&L‘s motion to dismiss in light of Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164, 114 S. Ct. 1439 (1994), in which
After further proceedings,1 final judgment was entered by the district court on September 30, 1999. On October 27, 1999, Plaintiffs filed a timely notice of appeal. They appeal only their claims against C&L and GY&S for primary liability under
The finality of the September 30, 1999 Order renders the prior interlocutory orders appealable without Rule 54(b) certification. See Barfield v. Brierton, 883 F.2d 923, 930 (11th Cir. 1989) (noting that “the appeal from a final judgment draws in question all prior non-final orders and rulings which produced the
II. BACKGROUND FACTS
Accepting all well-pleaded facts in the complaint as true,2 we assume the following facts. Cascade became a public company in 1985. At all relevant times, Cascade‘s stock was traded on the National Association of Securities Dealers Autоmated Quotations (“NASDAQ“) market under the symbol “KOSM.” Cascade‘s primary business involved the formulation, manufacture, and retail sale of women‘s apparel, cosmetics, and fragrances. Its activities were operated through numerous subsidiaries, including Jean Cosmetics; Boutiques Allison, Inc.; Fran‘s Fashions, Inc.; and Conston Corp.
By the close of Cascade‘s fiscal year ended June 30, 1987, Cascade was already reporting impressive gains through sales of cosmetics and women‘s apparel. In each of its Form 10-Ks filed in 1989, 1990, and 1991, Cascade reported considerable growth and profits. These 10-Ks contained statements by Cascade‘s independent auditor, Bernard Levy, in which he attested to the fact that he had conducted his audits of Cascade “in accordance with generally accepted
On August 20, 1991, the SEC wrote to Incendy, Cascade‘s President and CEO, stating that it was reviewing transactions by Cascade and/or its subsidiaries and requesting numerous documents, including a list of all stores and cosmetic counters operated by Cascade. In September 1991, rumors began to circulate that Cascade‘s reported profits were questionable. On October 1, 1991, the Overpriced Stock Service (“OSS“) issued a report on Cascade, in which it stated that “the odds of trouble ahead” were “high.” In mid-October, several class action lawsuits were filed. Cascade reported that there were “no negative developments” in its operations and said the suits were “without merit.” It threatened litigation against market analysts who questioned the company‘s financial condition.
Then, on November 20, 1991, Cascade announced that its financial statements for the fiscal year ended June 30, 1991, “may not be accurate” and that it had been unable to locate Incendy for several days. The National Association of Securities Dealers halted trading in Cascade stock until the company could provide the public with accurate financial statements. On December 13, 1991, the newly apрointed interim chair of Cascade, Aaron Karp, announced that the Cascade Board had authorized the filing of a bankruptcy petition under Chapter 11 of the United States Bankruptcy Code. Cascade and its subsidiaries subsequently filed
III. STANDARD OF REVIEW
The only issues on appeal are whether the district court erred in dismissing Plaintiffs’ claims of primary liability under
IV. ALLEGATIONS
In their amended complaint, Plaintiffs allege the following with respect to GY&S and C&L:
- GY&S represented Cascade on a variety of legal matters from the summer of 1989 through Incendy‘s disappearance in November 1991 and was retained to assist Cascade and Incendy in defending against those who raised questions about the truthfulness of Cascade‘s reported financial condition.
- On January 15, 1991, GY&S sent Incendy a letter regarding an option agreement that Cascade had. GY&S told Incendy that all material information about Cascade‘s business and operations must be accurately reflected in Cascade‘s registration statement, and GY&S recommended that Cascade correct any inaccuracies in Cascade‘s recently filed prospectus. No corrections were made.
- In the summer and fall of 1991, Cascade and Conston were considering a deal with Oleg Cassini. GY&S advised Cascade how to issue information to the public regarding the proposed deal. In June 1991, Cascade issued two press releases regarding a purported agreement that it and Conston had reached with Oleg Cassini. In the fall of 1991, GY&S was actively involved in trying to help Cascade and Conston “get out” of the purported agreement. GY&S made no effort to cause Cascade to issue any press releases disclaiming the June 1991 press releases.
- The OSS published an article on October 2, 1991, raising questions about Cascade. On October 7, 1991, GY&S prepared, without “appropriate investigation or inquiry,” a memorandum for Incendy suggesting statements that he could issue to the public in response to the OSS Report and Cascade‘s recent stock price decline. GY&S allegedly did nothing to assure itself of the factual accuracy of its proposed statements. Cascade then issued a document to the public that was based largely on GY&S‘s recommendations.
- On October 2, 1991, in response to a request from Incendy, GY&S sent Incendy an оpinion letter regarding the bankruptcy status of Conston. Despite its knowledge that Conston‘s Plan of Reorganization had been confirmed on April 18, 1991, GY&S
concluded that “there is no doubt that Conston is in bankruptcy.” This letter enabled Incendy to justify the non-consolidation of Conston‘s financial statements with those of Cascade in 1991. - In October 1991, GY&S attorney Michael Platner spoke to stock analysts, who were allegedly spreading rumors about Cascade and advising people to sell Cascade stock short, and urged them to stop raising questions about Cascade.
- On October 30, 1991, Cascade issued a press release in which it stated that it had instructed its attorneys to file suit against the OSS for trade defamation and various other claims. Cascade also stated that it believed there was a connection between the OSS Report and shortselling activity that was orchestrated by brokerage firm analysts. Although GY&S reviewed and approved the press release, it was drafted by a different law firm. GY&S knew from its legal research that a trade defamation suit would have “substantial difficulties,” and it knew that its investigation had revealed no connection between shortsellers and the OSS Report.
- On November 7, 1991, GY&S attorney Michael Platner wrote a letter to The Miami Review regarding an article that Platner heard was being prepared about Cascade. Platner claimed that there was no justification for printing such an incomplete and un-investigated article.
B. Allegations with respect to C&L
- C&L audited Fran‘s Fashions’ consolidated balance sheet and its consolidated statement of operations for the fiscal year ended June 29, 1991.
- C&L issued an unqualified audit opinion in which it stated that its audit of Fran‘s Fashions had been conducted in accordance with
“generally accepted auditing standards” (“GAAS“).3 Plaintiffs allege that this statement was false and misleading because numerous auditing standards adopted by the American Institute of Certified Public Accountants (“AICPA“) were violated. For example, they allege that C&L did not maintain an independence in mental attitude when conducting the audit; did not exercise due professional care in the performance of the examination and preparation of the report; did not obtain sufficient competent evidence to afford a reasonable basis for its audit opinion; and did not make reasonably adequate informative disclosures. - C&L audited Conston for the fiscal year ended March 2, 1991, and the short period ended June 1, 1991. On August 1, 1991, C&L issued an unqualified audit report which was included in Conston‘s Form 10-K filed with the SEC on August 30, 1991. This audit report stated that the audit had been conducted in accordance with GAAS.
- C&L knew that Fran‘s Fashions and Conston were suffering tremendous losses and would require significant and immediate funds from Cascade in order to continue operating as going concerns, yet C&L made no attempt to verify independently Cascade‘s financial data, which had been prepared by Cascade‘s independent auditor, Levy. Plaintiffs allege that numerous “red flags” put C&L on notice that Cascade was incapable of providing Fran‘s Fashions and Conston with the required capital.
- Plaintiffs allege that, had C&L properly conducted its audits of Fran‘s Fashions and Conston, it would have issued “going concern” qualifications in connection with both subsidiaries’ financial
statements. - In the fall of 1990, Cascade asked C&L its opinion on whether Conston‘s financial statements needed to be consolidated with those of Cascade. In concluding that consolidation was not necessary, C&L purportedly relied on Financial Accounting Standard (“FAS“) No. 94. Plaintiffs allege that C&L interpreted FAS No. 94 “too narrowly.” By rendering such an opinion, Plaintiffs allege that C&L substantially furthered the Cascade fraud by allowing Cascade to omit Conston‘s poor financial results from its own.
- C&L received a copy of Cascade‘s 1991 10-K shortly after it was filed with the SEC on September 27, 1991. The 10-K revealed that Conston‘s financial statements still had not been consolidated with those of Cascade. The 10-K also stated that there were 126 Fran‘s Fashions stores. Plaintiffs allege that C&L knew, or was reckless in not knowing, that only 70-80 such stores existed.
- C&L did not withdraw its audit opinion on Conston‘s March 2, 1991, and June 1, 1991, financial statements until November 29, 1991. C&L did nоt withdraw its auditor‘s report for the consolidated financial statements of Fran‘s Fashions for the fiscal year ended June 29, 1991, until December 3, 1991.4
V. STANDARD FOR PLEADING VIOLATIONS OF SECTION 10(b) AND RULE 10b-5
In their amended complaint, Plaintiffs allege that C&L and GY&S violated
A. Section 10(b) and Rule 10b-5
Section 10(b) states:
It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange -
(b) To use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the [SEC] may prescribe as necessary or appropriate in the public interest or for the protection of investors.
One of the rules adopted by the SEC, Rule 10b-5, provides:
It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,
(a) To employ any device, scheme, or artifice to defraud,
(b) To make any untrue statement of а material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.
B. Federal Rule of Civil Procedure 9(b)
In order to survive a motion to dismiss, Plaintiffs’ claims of fraud under
In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent, knowledge, and other condition of mind of a person may be averred generally.
VI. DISCUSSION
In dismissing Plaintiffs’
In dismissing Plaintiffs’
GY&S and C&L argue that they cannot be held primarily liable under
We conclude that the district court‘s orders dismissing Plaintiffs’
A. Central Bank
Most of Plaintiffs’ allegations concerning GY&S and C&L fail in light of the Supreme Court‘s decision in Central Bank. As that case is central to our аnalysis of Plaintiffs’ claims, we recite the facts and holding of that case.
After the default, the plaintiffs sought tо hold Central Bank secondarily liable under
The Supreme Court granted certiorari and considered the question of whether
The Supreme Court rejected the argument that the phrase “directly or indirectly” in
A plaintiff must show reliance on the defendant‘s misstatement or omission to recover under 10b-5. Basic Inc. v. Levinson, 485 U.S. [224], 243, 108 S. Ct. [978], 989-90 [(1988)]. Were we to allow the aiding and abetting action proposed in this case, the defendant could be liable without any showing that the plaintiff relied upon the aider and abettor‘s statements or actions. See also Chiarella [v. United States], 445 U.S. [222], 228, 100 S. Ct. [1108], 1114 [(1980)] (omission actionable only where duty to disclose arises from specific relationship between two parties). Allowing plaintiffs to circumvent the reliance requirement would disregard the careful limits on 10b-5 recovery mandated by our earlier cases.
Id. at 180, 114 S. Ct. at 1449-50. Though it held that a private plaintiff may not maintain an aiding and abetting suit under
B. Post-Central Bank
Following Central Bank, the federal courts have split over the threshold requirement to show that a secondary actor, such as a lawyer or an accountant, is primarily liable under
In order for a secondary actor, such as a law firm or accounting firm, to be primarily liable under
C. Allegations Concerning GY&S
1. Misrepresentations
In this case, with respect to the allegations concerning GY&S, Plaintiffs have not alleged any misstatements by GY&S upon which Plaintiffs relied. Indeed, Plaintiffs admit that no misrepresentations attributable to GY&S were ever made to Plaintiffs. Instead, Plaintiffs base their claim on GY&S‘s “significant role in drafting, creating, reviewing or editing allegedly fraudulent letters or press releases.” Such allegations of substantial assistance in the alleged fraud were the kinds of allegations that were rejected in Central Bank.6 See, e.g., Wright, 152 F.3d at 171 (concluding that, under Central Bank, the plaintiffs who purchased stock in a company that issued a press release containing false and misleading information, with a notation that the information was unaudited and which did not mention the name of its outside auditor, could not recover from the auditor for its private approval of the information contained in the press release).
Plaintiffs argue that primary liability should attach to those who were never identified to investors as having played a role in the misrepresentations. We
2. Omissions
We also conclude that GY&S is not primarily liable for any alleged material omissions. “[A] defendant‘s omission to state a material fact is proscribed only when the defendant has a duty to disclose.” Rudolph v. Arthur Andersen & Co., 800 F.2d 1040, 1043 (11th Cir. 1986). This Court has recognized that a duty to disclose arises not only “[w]here a defendant‘s failure to speak would render the defendant‘s own prior speech misleading or deceptive,” but also “‘where the law imposes special obligations, as for accountants, brokers, or other experts, depending on the circumstances of the case.‘” Id. (quoting Woodward v. Metro Bank of Dallas, 522 F.2d 84, 97 n.28 (5th Cir. 1975)). Some of the factors that we consider in determining whether a duty tо disclose exists include: “the relationship between the plaintiff and defendant, the parties’ relative access to the information to be disclosed, the benefit derived by the defendant from the purchase or sale, defendant‘s awareness of plaintiff‘s reliance on defendant in making its investment decision, and defendant‘s role in initiating the purchase or sale.” Id. (citing First Virginia Bankshares v. Benson, 559 F.2d 1307, 1314 (5th Cir. 1977)). Other factors that we consider include “the extent of the defendant‘s knowledge and the significance of the misstatement, fraud or omission,” as well as “[t]he extent of the defendant‘s participation in the fraud.” Id.
Consideration of these factors leads us to the conclusion that GY&S had no duty to make any disclosures to Plaintiffs concerning its client, Cascade. First, there was no attorney-client relationship between Plaintiffs and GY&S that might have created a fiduciary obligation on the part of GY&S towards Plaintiffs. See Chiarella v. United States, 445 U.S. 222, 230, 100 S. Ct. 1108, 1115 (1980) (noting that “silence in connection with the purchase or sale of securities may operate as a fraud actiоnable under § 10(b) . . . [b]ut such liability is premised upon a duty to disclose arising from a relationship of trust and confidence between parties to a transaction“); Schatz v. Rosenberg, 943 F.2d 485, 492 (4th Cir. 1991) (holding
D. Allegations Concerning C&L
Plaintiffs’ allegations concerning C&L fall into three categories: (1) misadvising Cascade that its financial results did not need to be consolidated with those of Conston; (2) failing to include “going concern” qualifications in its audit reports of Conston and Fran‘s Fashions; and (3) failing to disclose the fraud allegedly suggested by Cascade‘s 1991 10-K.
1. Advice Regarding Consolidation
With respect to C&L‘s advice to Cascade not to consolidate Conston‘s financial statements with those of Cascade, Plaintiffs argue that, by rendering such advice, C&L “substantially participated” in the Cascade fraud by аllowing Cascade to omit Conston‘s poor financial results from its own. This allegation fails to state a claim against C&L under
2. Going Concern Qualifications
With respect to Plaintiffs’ allegations regarding C&L‘s failure to include
According to the amended complaint, C&L audited Fran‘s Fashions for the fiscal year ended June 29, 1991, and issued an unqualified audit opinion stating that its audit had been conducted in accordance with GAAS. C&L also audited Conston for the fiscal year ended March 2, 1991, and the period ended June 1, 1991, and issued an unqualified audit report on August 1, 1991, which was included in Conston‘s 10-K filed with the SEC on August 30, 1991. This audit report also stated that the audit had been conducted in accordance with GAAS.
Plaintiffs allege that C&L‘s audit reports of Fran‘s Fashions and Conston were materially misleading because C&L violated auditing standards adopted by the AICPA and because C&L “knowingly or recklessly” omitted “going concern” qualifications for these Cascade subsidiaries. Plaintiffs allegе that C&L knew that
As part of Plaintiffs’ argument relating to C&L‘s failure to include going concern qualifications, they allege that C&L violated numerous AICPA standards in auditing Fran‘s Fashions. For example, Plaintiffs allege that C&L did not maintain an independence in mental attitude when conducting the audit; did not exercise due professional care in the performance of the examination and preparation of the report; did not obtain sufficient competent evidence to afford a reasonable basis for its audit opinion; and did not make reasonаbly adequate informative disclosures.
“The Financial Accounting Standards of GAAP and the antifraud rules promulgated under
In order to plead fraud with sufficient particularity to satisfy
- During the course of C&L‘s 1989 audit of Allison, another Cascade subsidiary, C&L questioned the paucity of workpapers that Levy provided it regarding an acquisition audit Levy had done.
- C&L‘s 1989 workpapers contained a newspaper article that contained a photograph showing Levy as a member of the Cascade management team, which called into question Levy‘s independence.
- C&L was asked to perform services that otherwise would have been the responsibility of Cascade‘s auditor, Levy.
- A C&L employee sent Levy a checklist on procedures to follow in preparing a 10-Q, indicating that Levy needed assistance in preparing such a filing.
- C&L was originally asked to audit Fran‘s Fashions for the fiscal year ended June 3, 1990, but this request was “mysteriously retracted,” raising “the distinct possibility that the income statement was in fact never audited.”
- In the course of auditing Fran‘s Fashions and Conston in 1991, C&L saw no Jean Cosmetics counters, “calling into question the truth of [Cascade‘s] management‘s representations regarding Jean Cosmetics.”
- Levy was a sole practitioner rather than a large Big Six accounting firm.
- Members of the Cascade Board had little or no retail clothing experience.
- C&L knew Fran‘s Fashions had lost millions of dollars during the
fiscal years ended June 30, 1990, and June 29, 1991, and this made Cascade‘s reports of tremendous growth and profitability “highly suspect since Fran‘s Fashions constituted a material part of Cascade‘s business.” - C&L learned during its audit of Fran‘s Fashions that many of its accounts payable were long overdue.
- C&L knew or recklessly disregarded that the person who signed Cascade‘s 1989 and 1990 10-Ks as CFO did not act in that capacity.
Taking all of these allegations as true, Plaintiffs have failed to satisfy the pleading requirements of
In this case, however, Plaintiffs have not alleged any facts suggesting actual awareness by C&L of any fraud. Plaintiffs have pointed to no “tips,” letters, or conversations raising inferences that C&L knew of any fraud. Furthermore, Plaintiffs have pointed to no facts suggesting that C&L was severely reckless in not knowing about any fraud.
Plaintiffs’ purported “red flags” consist of C&L‘s alleged possession of documents and other information which Plaintiffs allege should have revealed the need for going concern qualifications in C&L‘s audit opinions of Fran‘s Fashions and Conston. At most, these allegations raise an inference of gross negligence, but not fraud.
In order for Plaintiffs to survive a motion to dismiss on their claim regarding C&L‘s failure to include going concern qualifications in its audit reports of the two Cascade subsidiaries, we would have to infer several conclusions: (1) that Frаn‘s Fashions and Conston had a need for capital infusion; (2) that the capital infusion had to come from Cascade; (3) that C&L therefore had a duty to investigate
Although Plaintiffs generally allege a duty on the part of C&L to investigate Cascade, they point to no accounting principle which clearly sets out such a duty. Plaintiffs argue that AU Section 341 (relating to an auditor‘s consideration of an entity‘s ability to continue as a going concern) establishes such a duty. Section 341 provides generally that an auditor has a responsibility to evaluate whether there is substantial doubt about an entity‘s ability to сontinue as a going concern for a reasonable period of time. However, a careful reading of that section reveals that it sets forth no bright-line duties, and it certainly does not even mention any duty of an auditor of a subsidiary to audit or investigate the parent. The language of the general duty to evaluate whether there is “substantial doubt” indicates that there are no bright lines and that discretion is necessarily involved. We doubt that the sparse allegations here rise to the level of stating with particularity a violation of AU Section 341. But we need hold only that Plaintiffs have failed to allege a
In addition to the lack of particularity of Plaintiffs’ allegations, especially as to the circumstances which allegedly gave rise to an omitted duty and the mannеr in which the alleged statements or omissions were misleading, we believe that the disclosures actually made by C&L significantly undermine any hint of fraud. With respect to the challenged financial statements for Fran‘s Fashions for the fiscal year ended June 29, 1991, which were audited by C&L, these statements disclosed a negative net worth and significant losses. With respect to the challenged March 2, 1991, and June 1, 1991 financial statements for Conston, which were audited by C&L, these statements disclosed that Conston had experienced operating losses in prior years and was in bankruptcy until April 18, 1991, and that Conston‘s “continued existence [was] dependent upon its ability to substantially achieve its plan of reorganization.” With respect to Plaintiffs’ alleged “red flags” relating to C&L‘s knowledge of losses and overdue accounts payable of subsidiaries, we thus conclude that C&L did in fact disclose the substance of the alleged “red flags.” With respect to the alleged “red flags” relating to Levy, we readily conclude thаt they suggest negligence at most. Plaintiffs’ few remaining allegations of “red
Therefore, assuming arguendo that there are some circumstances in which a shareholder of a parent company can prove a
3. Omission
Plaintiffs assert a failure to disclose, or a material omission, on the part of C&L with respect to Cascade‘s 1991 10-K. According to Plaintiffs’ allegations, C&L received a copy of Cascade‘s 1991 10-K shortly after it was filed with the SEC on September 27, 1991. Plaintiffs allege that C&L should have noticed the following errors with respect to Cascade‘s 10-K: that Conston‘s financial statements still had not been consolidated with Cascade‘s; and that the 10-K erroneously indicated that there were 126 Fran‘s Fashions stores when C&L should have known that there were only 70-80. With respect to the failure to consolidate Conston‘s financial statements with those of Cascade, Plaintiffs allege that C&L should have known that this was error, because C&L knew that by this time Conston was no longer in bankruptcy. Plaintiffs allege that C&L should have noticed these errors, and Plaintiffs argue that C&L had a duty to disclose these
We readily conclude that Plaintiffs have failed to allege fraud in this regard with the necessary particularity. We note that Plaintiffs do not allege that any affirmative misrepresentations in Cascade‘s 1991 10-K were attributed to C&L. Levy, not C&L, was Cascade‘s independent auditor; it was Levy who prepared the auditor‘s report contained in Cascade‘s 1991 10-K. Therefore, Plaintiffs relied on Levy, not C&L, for the accuracy of Cascade‘s 1991 10-K.
We also do not understand that the alleged errors in Cascade‘s 1991 10-K somehow rendered C&L‘s previous audit reports of Fran‘s Fashions and Conston untrue or misleading. Plaintiffs do not allege that, nor do they explain why that might be the case. Nor did anything in the 10-K render untrue or misleading C&L‘s private advice to Cascade in November 1990 that consolidation of Conston‘s financial statements was not necessary because it was in bankruptcy at that time. Moreover, the fact that C&L gave this private advice to Cascade never made its way into the public domain, and, accordingly, there was no reliance by investors on C&L in this regard.
We also note that Plaintiffs seem to assume some duty on the part of an
Finally, with respect to other factors listed by Rudolph as relevant in the duty to disclose analysis, see 800 F.2d at 1043, we note that there are no allegations that C&L initiated the purchase or sale of Cascade securities, nor that C&L derived any benefit from the purchase or sale of such securities.
Essentially, Plaintiffs argue that C&L should be liable under
E. Leave to Amend
Plaintiffs also argue that the district court erred in denying them leave to amend their complaint in order to make additional allegations regarding C&L‘s conduct. The district court denied Plaintiffs’ motion for leave to amend, concluding that the additional allegations would not state a claim under
We have recognized that, “[w]here it appears a more carefully drafted complaint might state a claim upon which relief can be granted, . . . a district court should give a plaintiff an opportunity to amend his complaint instead of dismissing it.” Bank v. Pitt, 928 F.2d 1108, 1112 (11th Cir. 1991). However, “if a more carefully draftеd complaint could not state a claim . . ., dismissal with prejudice is proper.” Id.
VII. CONCLUSION
We agree with the district court that Plaintiffs’ amended complaint fails to state a claim against GY&S and C&L for primary liability under
Notes
FAS No. 94 (as quoted in ¶ 145 of Amended Complaint).A majority-owned subsidiary shall not be consolidated if control is likely to be temporary [or] if it does not rest with the majority owner (as, for instance, if the subsidiary is in legal reorganization or in bankruptcy or operates under federal exchange restriction, controls, or other governmentally imposed uncertainties so severe that they cast significant doubt on the parent‘s ability to control the subsidiary).