ORDER
This matter comes before the Court on the following motions: Defendants’ motion to dismiss (Doc. No. 78), Defendants’ supplemental motion to dismiss (Doc. No. 79); Plaintiffs’ motion to file an amended consolidated class action complaint (Doc. No. 83), Plaintiffs’ motion to strike extraneous documents and references filed in support of Defendants’ motion to dismiss (Doc. No. 90), and Plaintiffs’ motion to file a surreply brief in opposition to Defendants’ motion (Doc. No. 99). For the reasons that follow Defendants’ motion to dismiss and supplemental motion to dismiss are GRANTED IN PART AND DENIED IN PART; Plaintiffs’ motion to file an amended consolidated class action complaint is MOOT; Plaintiffs’ motion to strike is MOOT; Plaintiffs’ motion to file a surreply brief is well-taken and is GRANTED.
I. General Background
Generally speaking, this is a securities fraud class action against Fifth Third Ban-corp. and other individual and institutional defendants arising out of alleged material misrepresentations and omissions by the Defendants during the period from October 19, 2007 to June 17, 2008. The consolidated complaint is comprised of or has under its umbrella essentially four different lawsuits involving four different subclasses of owners or purchasers of securities — First Charter Bank Stock, Fifth Third common stock, Fifth Third Preferred B stock, and Fifth Third Preferred C stock. The Court will address the specifics of the alleged misrepresentations and omissions in the course of its analysis of Defendants’ motion to dismiss. The basic theme of the complaint, however, is that during the class period, Fifth Third represented that it followed conservative lending policies and had adequate capital reserves. The complaint alleges that in reality, however, during the class period Fifth Third abandoned its conservative lending policies and embarked on an aggressive campaign to originate what amounted to sub-prime loans. Moreover, the complaint alleges that despite being a de facto sub-prime lender, Fifth Third failed to set aside adequate loan loss reserves and misleadingly blamed the deteriorating credit quality of its loan portfolio on the downturn in the macro credit market instead of its own poor lending practices. Thus, the complaint alleges, the price of Fifth Third securities was artificially inflated during the class period and abruptly collapsed on June 17, 2008 when Fifth Third announced that it would to have raise capital through new securities offerings, cutting its dividends, and selling off non-core business assets.
II. First Charter Subclass
On August 15, 2007, Fifth Third’s Board of Directors approved the acquisition of *695 First Charter Bank of Charlotte, North Carolina at a price of $31 per share. The total price of the acquisition was $1.1 billion, 70% of which was to be paid by-tendering Fifth Third common stock and 30% of which was to be paid with cash. Consolidated Class Action Complaint ¶¶ 90-91 (hereinafter “Complaint” or “complaint”). On November 7, 2007, Fifth Third filed with the SEC a registration/proxy statement and prospectus for the issuance of 35,000,000 shares of common stock to be issued upon completion of the First Charter acquisition. Fifth Third’s registration statement incorporated by reference its Form 10-Q for the quarter ended September 30, 2007, its Forms 8-K filed on October 29, 2007, October 31, 2007, and November 9, 2007 and “any documents filed with the SEC in the future under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended ... until we exchange all of the securities offered in this Prospectus.” Id. ¶ 93.
The complaint alleges that the registration/proxy statement filed with the SEC contained the following material misrepresentations and omissions:
1. the consideration payable for the First Charter shares was not actually worth $31 per share;
2. Fifth Third used “a system of rigid sales quotas and lavish bonuses” to encourage its employees to originate risky and illiquid commercial and consumer loans;
3. the above risky loans included Alt-A loans that had risks comparable to subprime loans; 1
4. Fifth Third was originating Alt-A loans with “layered risk factors” such as high loan-to-value ratios, borrowers with credit scores below 660, unverified employment, unverified income, unverified assets, and borrowers with high debt-to-income ratios;
5. Defendants 2 aggressively marketed high loan-to-value commercial and land loans;
6. Defendants aggressively marketed Fifth Third real estate loans in Florida to European borrowers whose creditworthiness they were unable to verify;
7. as a result of its deficient underwriting and risk management practices, Fifth Third was increasingly unable to sell its loans in the secondary market and thus was forced to retain these loans in its held-for-investment portfolio;
8. the credit quality of Fifth Third’s loan portfolio rapidly deteriorated from mid-2006 through 2008.
9. Fifth Third failed to timely identify and report non-performing loans;
10. Fifth Third’s income was overstated throughout the class period as a result of its failure to make timely reserves for loan losses;
11. the credit quality of Fifth Third’s Tier 1 capital had severely deteriorated, leaving it undercapitalized and vulnerable to future losses;
12. that as a result of the above policies or business practices, Fifth Third would be required to raise “massive amounts of capital” by cutting its annual dividend, selling billions of dollars of preferred *696 stock, selling assets, and seeking federal bailout money.
Complaint ¶ 106. Fifth Third failed to correct any of these alleged misstatements and omissions prior to the final closing of the First Charter acquisition on June 6, 2008. Id. ¶ 108-110.
On June 18, 2008, Fifth Third issued a press release stating that it needed to strengthen its capital position in light of deteriorating credit trends. Therefore, Fifth Third stated that it was going to raise $1 billion in Tier 1 capital by issuing convertible preferred shares. Fifth Third also announced that it was going to reduce its quarterly dividend from $.44 per share to $.15 per share and that it was going to raise another $1 billion in capital by selling non-core businesses. After Fifth Third made this announcement, the price of its shares dropped from $12.73 to $9.26 on heavy volume. Id. ¶¶ 111-12.
III. The Preferred B Sub-class
The claims of the Preferred B sub-class plow much of the same ground as the First Charter sub-class. The claims of this subclass, however, specifically relate to filings Fifth Third submitted to the SEC in October 2007 in conjunction with its public offering of 34,500,000 shares of 7.25% Fifth Third Preferred B stock. The Preferred B prospectus incorporated by reference its Form S-3 automatic shelf registration statement of March 26, 2007, which in turn was signed by the Director Defendants. The offering itself was underwritten by the Underwriter Defendants. Id. ¶ 158.
The Preferred B prospectus included certain financial data for the six months ended June 30, 2007 and June 30, 2006, including Fifth Third’s provision for loan and lease losses of $205 million and $149 million respectively. The prospectus also reported non-performing assets of $706 million as of September 30, 2007 and a loan loss provision of $139 million for the third quarter of 2007. Id. ¶¶ 159-60. The complaint alleges, however, that despite reporting these numbers, the prospectus was materially misleading because it failed to disclose that Fifth Third’s non-performing assets were rapidly increasing as a result of its deficient lending practices. The complaint also alleges that the prospectus was materially misleading because Fifth Third failed to increase its loan loss provision to cover the losses. Therefore, the complaint alleges, Fifth Third overstated its income. Id. ¶ 161. Additionally, the Preferred B sub-class alleges that the prospectus was misleading because it contained substantially the same materially misleading misrepresentations and omissions listed, supra at 696, for the First Charter sub-class. Id. ¶ 162. The Preferred B sub-class alleges that when Fifth Third made its June 18, 2008 announcement concerning the need to raise additional capital, the price of Preferred B shares dropped from $18.00 per share to $ 16.64 per share. Id. ¶ 163.
IV. The Preferred C Sub-class
On April 28, 2008, Fifth Third filed with the SEC a prospectus for its offering of Preferred C shares, each share of which represented an undivided interest in an underlying trust consisting of $400,000,000 in junior subordinated notes. Complaint ¶¶ 188-89. The Preferred C prospectus incorporated by reference Fifth Third’s Form 10-K for December 31, 2007 and Forms 8-K filed on January 14, 2008, February 25, 2008, February 28, 2008, and April 23, 2008. Id. ¶ 190. The Preferred C prospectus also incorporated by reference Fifth Third’s shelf registration statement of March 26, 2007, which had been signed by the Director Defendants. Id. ¶ 191. The Underwriter Defendants were the underwriters for the Preferred C offering.
Similar to the Preferred B prospectus, the Preferred C prospectus reported pro *697 visions for loan loss reserves. The prospectus reported loan loss reserves for December 31, 2007 and December 31, 2006 of $628 million and $343 million respectively. Id. ¶ 192. Additionally, the prospectus reported non-performing loans of $1.6 billion as of March 31, 2008 and a loan loss provision of $544 million for the first quarter of 2008. Like the Preferred B sub-class, the Preferred C sub-class alleges that the prospectus was misleading, despite reporting these figures, because it failed to disclose that Fifth Third’s non-performing assets were rapidly increasing as a result of its deficient lending practices. Moreover, the complaint alleges, the prospectus was misleading because Fifth Third failed to increase its loan loss provisions. Id. ¶ 194. Finally, the Preferred C sub-class alleges that the prospectus contained the same series of materially misleading statements and omissions recited supra at 695-96 by the First Charter and Preferred B subclasses. Id. ¶ 195. The Preferred C subclass alleges that when Fifth Third made its June 18, 2008 announcement concerning the need to raise additional capital, the price of Preferred C stock dropped from $22.68 per share to $21.20 per share. Id. ¶ 196.
V. Fifth Third Common Stock Sub-class
The Fifth Third common stock subclass presents the most comprehensive set of allegations, taking approximately 150 pages of the complaint to set forth. The gist, however, is that Fifth Third falsely blamed its deteriorating loan portfolio on external factors, presumably beyond its control, such as declining real estate markets in Florida and Michigan and the subprime credit crisis, when in fact the problem was created when it abandoned conservative lending practices in order to generate revenue from new loan originations. Complaint ¶ 223. The specific material misstatements and omissions alleged by this sub-class can be adequately summarized as follows:
1. Defendants falsely represented that its loan loss reserves were sufficient to cover losses;
2. Defendants falsely represented that its methodology for setting aside loan loss reserves, which relied on historical loss rates, was adequate;
3. Defendants falsely represented that Fifth Third was well-capitalized and that its Tier 1 capital was not at risk;
4. Fifth Third’s Third Quarter 2007 Earnings Release was false and misleading because, although it reported increased reserves for loan losses and non-performing assets, it failed to disclose that Defendants had delayed increasing reserves to an amount sufficient to cover its risky loan portfolio.
5. During an October 19, 2007 conference call with industry analysts, Defendant Marshall falsely stated that the increase in non-performing assets was due to market conditions instead of Fifth Third’s deficient lending practices. Complaint ¶ 369.
6. Defendants Rabat and Marshall made the following materially false statements or omissions in Fifth Third’s Form 10-Q for the third quarter of 2007:
a. Fifth Third’s earnings were overstated because Fifth Third had failed to set aside sufficient reserves to cover its risky loan portfolio; id. ¶ 373;
b. the increase in non-performing loans was due to market conditions in Florida, Ohio, and Michigan and not because of Fifth Third’s deficient lending practices; id. ¶374;
c. the reports of increases in loan loss reserves were false and misleading because Fifth Third delayed increasing allowances in an amount sufficient to cover its risky loan portfolio; id. ¶ 377;
*698 d. contractual provisions in certain of its mortgage products increased Fifth Third’s credit exposure in the event of a decline in housing prices when at the time Fifth Third was aggressively marketing Alt-A loans comparable in quality to subprime loans; id. ¶ 379;
e. the report on high an-to-value residential mortgages was false because it failed to disclose that many of these loans were made to borrowers with many other risk factors, such as poor credit scores and unverifiable income and assets; id. ¶ 380;
f. stated that the borrower qualifications for Alt — A. borrowers were comparable to conforming mortgages, and that these loans were issued for resale, when in fact the Alt-A borrower qualifications were not similar and the loans could not be resold on the secondary market, or were sold with recourse; id. ¶ 381.
g. stated that Fifth Third’s credit risk management strategy was based on conservatism, diversification, and monitoring when in fact it had abandoned those principles; id. ¶ 383;
h. stated that Fifth Third was well-capitalized when it was not because of the deterioration in the quality of its loan portfolio; id. ¶ 385.
7.Fifth Third’s Form 8-K filed on November 14, 2007, which reported a presentation to Merrill Lynch’s Banking & Financial Services Conference, was materially false and misleading because its report on its borrowers’ loan-to-value ratios and FICO scores gave the impression that it was using prudent lending standards when it was not. Additionally, Fifth Third failed to disclose whether it required private mortgage insurance, whether it verified key information, such as
employment income and assets, whether it relied on a subjective standard of reasonableness for assessing no-documentation loans, that it had lowered its underwriting standards, that it routinely made exceptions to its underwriting standards, and that its definitions of “prime” and “subprime” were different from industry standards; id. ¶ 387.
8. Fifth Third’s Form 8-K, filed on November 29, 2007, which reported a presentation to the Fox-Pitt, Kelton Cochran Caronia Waller Financial Services Conference, was materially false and misleading for substantially the same reasons as the November 14, 2008 Form 8-K; id. ¶ 389.
9. Fifth Third’s Form 8-K, filed on December 18, 2007, was materially false and misleading because it continued to blame increases in loan loss reserves on general market conditions instead of its deficient underwriting standards. Additionally, Fifth Third’s statements concerning its non-performing assets were materially false and misleading because they did not reflect that the number of loans delinquent for 30 to 89 days was increasing; id. ¶ 392;
10. Fifth Third’s Earnings Release and Form 8-K of January 22, 2008 were materially false and misleading for substantially the same reasons as the December 18, 2007 Form 8-K; id. ¶ 395.
11. During a January 22, 2008 conference call with industry analysts, Defendants Kabat and Marshall made the following material misrepresentations and omissions:
a. stated that Fifth Third did not hold the kind of assets that would subject it to huge losses when in fact its loan quality was poor;
*699 b. attributed the quality of its loan portfolio to the markets in the Midwest and Florida when in fact the problem was its deficient lending practices;
c. stated that Fifth Third was well-positioned for a downturn in the real estate and credit markets when it was not because of its risky lending practices;
d. stated that its Florida loan portfolio was acquired through acquisitions of other banks when instead it was created by its own origination of poor quality loans;
e. stated that Fifth Third was well-capitalized when in fact its Tier 1 capital was deteriorating; id. ¶¶ 396-401.
12. Fifth Third’s Form 8-K, filed on January 30, 2008, which disclosed its presentation at the Citi 2008 Financial Services Conference, did not fully disclose the extent of the deterioration of its loan portfolio because it failed to recognize as impaired loans delinquent for 30 to 89 days; id. ¶ 404;
13. Fifth Third’s Annual Form 10-K, filed on February 22, 2008, was materially false and misleading because:
a. net income was materially overstated due to Fifth Third’s failure to take adequate and timely reserves for loan losses;
b. stated that Fifth Third did not originate subprime loans when it did;
c. stated that Fifth Third was well-capitalized when its Tier 1 capital was deteriorating;
d. stated that Fifth Third’s methodology for setting reserves for loan losses was adequate when Generally Accepted Accounting Principles (“GAAP”) required it to increase its loan loss allowance because of its deficient lending practices;
e. stated that Fifth Third’s qualifications for Alt-A borrowers were comparable to the qualifications for conforming loans when they were not;
f. continued to blame market conditions for the deteriorating quality of its loan portfolio;
g. stated that a majority of its Alt-A portfolio had been sold without recourse when in fact a substantial proportion had been sold with recourse because of its poor quality; id. ¶¶ 405-14.
14. Fifth Third falsely stated during the April 15, 2008 annual shareholders meeting that it used conservative underwriting standards when it did not; id. ¶¶ 415-16;
15. Fifth Third’s first quarter earnings release and Form 8-K, issued on April 22, 2008 was materially false and misleading because:
a. Fifth Third was not well-positioned relative to its competitors because of the poor quality of its loan portfolio;
b. statements concerning increases in loan loss reserves failed to account for loans 30 to 89 days delinquent and failed to reflect that Fifth Third was delaying increases in reserves;
c. statements concerning non-performing assets were materially false and misleading because they did not take into account the rapidly increasing number of loans in the 30 to 89 days delinquent category; id. ¶¶ 417-22.
16. During an April 22, 2008 conference call, Defendants Kabat and Marshall made the following materially false and misleading statements:
a. stated that Fifth Third had substantially increased its loan loss re *700 serves when its reserves had actually decreased as a percentage of non-performing loans;
b. stated that Fifth Third was a “prime” underwriter in when it was originating de facto subprime loans;
c. failed to disclose that the credit quality of Fifth Third’s loan portfolio was rapidly deteriorating; id. ¶¶ 423-30.
17. A May 2, 2008 press release and Form 8-K announced that Defendant Marshall “resigned” as Executive Vice President and Chief Financial Officer of Fifth Third and that Daniel Poston would serve as CFO until a permanent successor was named; 3 id. ¶ 432.
18. Fifth Third’s First Quarter 2008 Form 10-Q was materially false and misleading for substantially the same reasons outlined supra — holding itself out an originator of prime mortgages, failure to take reserves for loans delinquent for 30 to 89 days, falsely stating that it employed conservative lending practices, misrepresenting the qualifications for Ali>-A borrowers, and stating that the bank was well-capitalized; id. ¶ 433-45.
19. Fifth Third’s Form 8-K, filed on May 12, 2008, which reported a presentation to the UBS Global Financial Services Conference, was materially false and misleading for substantially all of the same reasons set forth supra, at 695-96; id. ¶ 448.
On June 18, 2008, when Fifth Third announced the steps it intended to take to raise additional capital, the price of Fifth Third common stock dropped from $12.73 per share to $9.26 per share on unusually heavy volume. Id. ¶ 453.
VI. Procedural History
As stated above, this case is the consolidation of four separate securities class actions into one lawsuit. 4 Here is the array of parties and claims before the Court. 1. First Charter sub-class, represented by lead plaintiff Edwin Shelton:
Count • Defendants
I — violations of Section 11 of the Securities Act of 1933,15 U.S.C. § 77k Fifth Third
Kevin Kabat
Christopher Marshall
Daniel Poston
[collectively “the Individual
Defendants”]
Darryl F. Allen
John F. Barrett
James P. Hackett
Gary R. Heminger
Joan R. Hersehede
Allen M. Hill
Robert L. Koch III
Mitchel D. Livingston III, Ph.d
Hendrik G. Meijer
George A. Schaefer, Jr.
John J. Schiff, Jr.
Dudley S. Taft
Thomas W. Traylor
[collectively “the Director Defendants”]
Ulysses L. Bridgeman, Jr.
James E. Rogers
Count Defendants
II. violations of Section 12(a)(2) of the Securities Act, 15 U.S.C. § 77Í Fifth Third
III. violations of Section 15 of the Securities Act of 1933,15 U.S.C. § 77o The Individual Defendants
IV. violations of Section 14(a) of the Securities Exchange Act of 1934, 15 U.S.C. § 78n(a) and SEC Rule 14a-9,17 C.F.R. § 240.14a-9 Fifth Third The Individual Defendants
V. violations of Section 20(a) of the Securities The Individual Defendants
*701 Exchange Act of 1934,15 U.S.C. § 78t(a)
2. Preferred B sub-class, represented by Plaintiffs Jacqueline Dinwoodie and Jeffery J. Wacksman:
Count Defendants
VI. violations of Section 11 Fifth Third
of the Securities Act of 1933.15 U.S.C. § 77k
Fifth Third Capital Trust VI
The Individual Defendants
The Director Defendants
UBS Securities LLC
Citigroup Global Markets, Inc.
Merrill Lynch, Pierce, Fenner & Smith, Inc.
Morgan Stanley & Co., Inc.
Wachovia Capital Markets LLC
Banc of America Securities LLC
Credit Suisse Securities (USA) LLC
[the latter seven defendants collectively “The Preferred B Underwriters
VII. violations of Section Fifth Third 12(a)(2) of the Securities Act of 1933,15 U.S.C. § 111
Fifth Third Capital Trust VI
The Preferred B Underwriters
VIII. violations of Section Fifth Third 15 of the Securities Act of 1933, 15 U.S.C. § 77o
The Individual Defendants
The Preferred C sub-class, represented by
Plaintiff Leon C. Loewenstine:
Count Defendants
IX. violations of Section 11 Fifth Third of the Securities Act of 1933.15 U.S.C. § 77k
Fifth Third Capital Trust VII Marshall
The Director Defendants The Underwriter Defendants
UBS Securities LLC Citigroup Global Markets, Inc.
Merrill Lynch, Pierce, Fenner & Smith, Inc.
Morgan Stanley & Co., Inc.
Wachovia Capital Markets LLC
Banc of America Securities LLC
Credit Suisse Securities (USA) LLC
Barclays Capital, Inc. Fifth Third Securities [the latter nine defendants collectively “the
Preferred C Underwriters”]
X. violations of Section Fifth Third 12(a)(2) of the Securities Act of 1933,15 U.S.C. § 111
Fifth Third Capital Trust VII
The Preferred C Underwriters
XI. violations of Section 15 The Individual Defendants of the Securities Act of 1933,15U.S.C. § llo
The Fifth Third Common Stock sub-class, represented by co-Lead Plaintiffs Local 295/Local 851 IBT Employer Group Pension Trust and Welfare Funds and District No, 9,1.A. of M & A Pension Trust [collectively “the Pension Trust Funds”]:
Count Defendants
XII. violations of Section Fifth Third 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) and SEC Rule 10b-5,17 C.F.R. § 240.10b-5
The Individual Defendants
XIII. violations of Section The Individual Defendants 20 of the Securities Exchange Act of 1934, 15 U.S.C. § 78t(a).
On July 15, 2009, Defendants filed an omnibus motion and memorandum to dismiss the consolidated class action complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. (Doc. No. 78). The Underwriter Defendants filed a supplemental memorandum in support of the motion to dismiss which asserted additional grounds for dismissal of the claims peculiar to them. In response, Plaintiffs moved to file an amended consolidated complaint to clarify their Section 11 claims against the Underwriter Defendants. Doc. No. 83. Plaintiffs filed a memorandum in opposition to the motion to dismiss on September 25, 2009. Doc. No. 88. Additionally, Plaintiffs simultaneously filed a motion to strike extraneous documents and exhibits attached to Defendants’ motion to dismiss. Doc. No. 90. Generally speaking, the alleged extraneous documents and exhibits are newspaper ar *702 tides reporting the recent credit crisis and additional Fifth Third SEC filings not specifically referenced in the complaint.
Principal briefing on Defendants’ motion to dismiss and Plaintiffs’ motion to strike was completed on November 13, 2009. On November 16, 2009, however, Plaintiffs filed a motion to file a sur-reply brief (Doc. No. 99) on the grounds that Defendants’ reply brief relied heavily on a Sixth Circuit decision,
Indiana State Dist. Council of Laborers & Hod Carriers Pension & Welfare Fund v. Omnicare, Inc.,
Each of the pending motions has been fully briefed and is ready for disposition.
VII. Plaintiffs’ Motion to Strike
The Court first addresses Plaintiffs’ motion to strike since it potentially affects the resolution of Defendants’ motion to dismiss.
Defendants’ motion to dismiss relies on three categories of exhibits (47 exhibits in total) that are extraneous to the complaint: SEC filings, press releases, news reports, and stock quotations. The relevance of SEC filings and stock quotations in a securities fraud case is fairly self-evident. Defendants rely on the press releases and news reports to set forth the global credit crisis that overlapped the class period to establish fully the context in which Plaintiffs’ claims arise. Defendants contend that the Court can consider all of this information in ruling on their motion to dismiss. Plaintiffs do not object to the Court’s consideration of Defendants’ submission of documents referenced in the complaint and historical price data. Doc. No. 90, at 2. These unobjectionable documents are Defendants’ exhibits 20, 25, and 27-47. Id. Plaintiffs, however, object to the Court’s consideration of news articles and SEC filings and a conference call transcript which predates the class period. The objectionable documents are Defendants’ exhibits 1 -24 and 26. Id. at 3-4.
With respect to the news articles, Plaintiffs acknowledge that the Court may properly take judicial notice that there has been an economic downturn. Doc. No. 90, at 8 n. 7. Plaintiffs, however, argue that Defendants are improperly attempting to use these, articles to shift the blame for the decline of Fifth Third’s stock price on the global financial climate rather than their own fraud. Plaintiffs contend that what Defendants are really asking is for the Court to resolve disputed factual questions in their favor on a motion to dismiss. Plaintiffs then argue that the SEC filings and the conference call transcript are not integral to the complaint and must be disregarded. Plaintiffs contend that if the Court does consider these exhibits, Defendants’ motion to dismiss will have been converted to a motion for summary judgment. If that occurs, Plaintiffs argue that they will be entitled to conduct discovery on the matters raised by or related to the exhibits.
In deciding a Rule 12(b)(6) motion, the trial court may consider, in addition to the allegations in the complaint, “other materials that are integral to the complaint, are public records, or are otherwise appropriate for the taking of judicial notice.”
Wyser-Pratte Mgmt. Co., Inc. v. Telxon Corp.,
Defendants argue that the pre-class period SEC filings and the conference call transcript are integral to the complaint because the complaint faults Fifth Third for not recognizing danger signs about subprime lending before the class period. Defendants note that the complaint also cites other SEC filings and conference call transcripts that pre-date the class period. Plaintiffs reply, however, that they are entitled to rely on factual information that pre-dates the class period because the complaint has to establish each element of their claims on the first day of the class period.
As explained further below, infra at 716-27, the Court need not resolve this motion because the complaint fails to establish a strong inference of scienter even in the absence of Defendants’ additional materials describing the extent of the global credit crisis. See Konkol v. Diebold, Inc., 590 F.3d 390, 403 (6th Cir.2009) (defendant does not have burden under PSLRA to provide non-fraudulent explanation for his statements). Accordingly, Plaintiffs’ motion to strike is MOOT.
VIII. Rule 12(b)(6) and the Private Securities Litigation Reform,
Act
The Private Securities Litigation Reform Act (“PSLRA”), 15 U.S.C. § 78u-4, enacted by Congress to curb abuses in securities class action litigation, imposes pleading requirements more stringent than the Federal Rules of Civil Procedure. “[A] short and plain statement of the claim showing that the pleader is entitled to relief,” Fed.R.Civ.P. 8(a)(2), is not sufficient in a private suit to recover damages for violations of the securities laws. Where the claim is based on material misstatements and omissions, as in this case, the complaint must “specify each statement alleged to have been misleading, the reason or reasons why the statement is misleading, and, if an allegation regarding the statement or omission is made on information and belief, the complaint shall state with particularity all facts on which that belief is formed.” 15 U.S.C. § 78u-4(b)(1)(B). Additionally, if the claim requires proof of scienter, i.e., a showing of intent to defraud, the complaint must “with respect to each act or omission alleged ... state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.” 15 U.S.C. § 78u-4(b)(2). Claims sounding in fraud must also comply with Fed.R.Civ.P. 9(b) — that is, the complaint must “(1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent.”
Frank v. Dana Corp.,
In
Tellabs, Inc. v. Makar Issues & Rights, Ltd.,
IX. Analysis
A. Alleged violations of the Securities Act of 19SS
Counts I, VI, and IX of the complaint assert claims for violations of Section 11 of the Securities Act of 1933, 15 U.S.C. § 77k. Counts II, VII, and X of the complaint assert claims for violations of Section 12(a)(2) of the Securities Act of 1933, 15 U.S.C. § III. Counts III, VIII, and XI of the complaint assert claims for violations of Section 15 of the Securities Act of 1933, 15 U.S.C. § 77o. These claims only concern the First Charter, Preferred B and Preferred C subclasses.
Section 11 of the Securities Act imposes liability on persons who sign securities registration statements containing untrue statements of material fact or omissions of material fact.
J & R Marketing, SEP v. General Motors Corp.,
In
Herman & MacLean v. Huddleston,
Th[is] section was designed to assure compliance with the disclosure provisions of the Act by imposing a stringent standard of liability on the parties who play a direct role in a registered offering. If a plaintiff purchased a security issued pursuant to a registration statement, he need only show a material misstatement or omission to establish his prima facie case. Liability against the issuer of a security is virtually absolute, even for innocent misstatements.
Although limited in scope, Section 11 places a relatively minimal burden on a plaintiff.
Id.
at 382-83,
Section 12(a)(2) of the Securities Act of 1933 is similar to Section 11 in that it imposes liability against a seller of securities by means of a prospectus or oral communications containing materially misleading statements or omissions.
Morgan Stanley,
Defendants proffer four reasons why the complaint fails to state claims for violations of the Securities Act. First, Defendants argue that the complaint fails to set forth any materially misleading statements or omissions. Second, Defendants contend that to the extent that these claims sound in fraud, they fail to meet Rule 9(b)’s requirement to plead fraud with particularity. Third, Defendants claim that the complaint fails to adequately plead loss causation. Fourth, Defendants argue that Plaintiffs in the Preferred B and Preferred C subclasses lack standing to assert Section 12 claims.
1. Materiality
Section 11 and Section 12 both require that the misstatement or omission at issue be material. An omission or misrepresentation is material if there is a substantial likelihood that a reasonable investor would have viewed the omitted or misrepresented fact as having significantly altered the total mix of information available.
Basic, Inc. v. Levinson,
The parties agree that the alleged misstatements and omissions at issue for these subclasses concern Fifth Third’s loan loss provisions, charge-offs, non-performing assets, capital ratios, and underwriting standards. And, for the First Charter sub-class, the misstatements and/or omissions also concern the consideration paid for First Charter shares in the acquisition.
*706 a. Loan Loss Provisions, Charge-offs and Nonr-P erf arming Assets
Loan loss provisions, charge-offs and non-performing assets are related concepts in this case in that the complaint alleges that throughout the class period Fifth Third either purposefully delayed recognizing delinquent loans as non-performing assets or that Fifth Third should have recognized delinquent loans as non-performing assets sooner than it actually did, as in the case of loans delinquent for 30 to 89 days. As a result of allegedly not recognizing loans as non-performing assets properly, Fifth Third’s reserves for losses were inadequate with the consequent effect that net income was overstated on its financial statements.
In
Mayer v. Mylod,
Defendants misrepresented and concealed the deteriorated quality of Michigan National’s loan portfolio, intentionally concealed and misrepresented the likelihood of huge increases in non-performing assets, charge-offs and loss reserves, and failed to set appropriate loan loss reserve levels on commercial real estate loans. Michigan National’s net income, assets and net worth were materially overstated as a result, and the market prices of Michigan National’s publicly-traded securities were artificially inflated.
Id. at 637, 639. These allegations are substantially similar to the allegations that the First Charter, Preferred B, and Preferred C sub-classes assert against Fifth Third with respect to its loan portfolio and loan loss reserves. Since these kinds of statements were material in Mayer, the Court must conclude that the similar allegations in this case are material as well.
b. Underwriting Standards
Several courts have held that where a bank touts but then abandons its conservative loan underwriting standards without disclosing the change, statements concerning its lending policies are materially misleading.
See, e.g., In re Countrywide Fin. Corp. Deriv. Lit.,
*707
On the other hand, the Court finds that Defendants’ alleged omissions concerning sales quotas, incentives, and bonuses to increase new loan originations are not material because this is the type of minutia that would inundate the investor with “an avalanche of trivial information.”
TSC Indus.,
c. Consideration for First Charter Shares
The final category of misstatement at issue here is the consideration Fifth Third was to pay for First Charter shares. As stated, the registration statement indicated that Fifth Third would pay $31 for each First Charter share, to be paid by a combination of cash and Fifth Third shares. The First Charter subclass claims that the consideration paid for their shares was not $31 because the price of Fifth Third stock was inflated due to the alleged misstatements and omissions. It would seem to go without saying that any misrepresentation concerning the consideration a shareholder would receive for his shares in a merger or acquisition would be material information which would affect his voting decision. Defendants argue that the registration statement was not misleading as to consideration because it never guaranteed a value of $31 per share. Moreover, Defendants argue, the registration statement explained the conversion ratio to First Charter shareholders and warned them that the price of Fifth Third stock could increase or decrease before the closing date because of a number of factors. In response, Plaintiffs point out that the First Charter board approved the merger specifically on the basis that the consideration paid by Fifth Third would equal $31 per First Charter share. Additionally, to the extent the complaint was unclear or ambiguous, Plaintiffs’ brief clarifies that they are not claiming that the registration statement was misleading as to the conversion ratio or whether there would be a fluctuation in Fifth Third stock prior to the merger. Rather, Plaintiffs claim that because Fifth Third shares allegedly were artificially inflated during the class period, due to the alleged misstatements and omissions, their consideration did not actually equal $31 per share. Another way of stating it would be that Plaintiffs are claiming that had the price of Fifth Third stock not been artificially inflated during the class period, they would have received more Fifth Third shares in exchange for their First Charter shares.
With that understanding of the complaint, the Court concludes that Plaintiffs state a claim that the First Charter registration statement was materially misleading as to consideration. As just stated, it is self-evident that a shareholder would And statements concerning the consideration to be paid for his shares in a merger *708 to be material to his decision-making process.
2.Forward-looking Statements
Defendants argue that even if the alleged misstatements and omissions set forth in the complaint are material, many of them are protected by the PSLRA safe harbor, which excepts forward-looking statements from liability. In particular, Defendants argue that statements concerning Fifth Third’s loss reserves are necessarily forward-looking since the adequacy of reserves is contingent upon future events.
The PSLRA safe harbor:
excuses liability for defendants’ projections, statements of plans and objectives, and estimates of future economic performance. A plaintiff may overcome this protection only if the statement was material; if defendants had actual knowledge that it was false or misleading; and if the statement was not identified as “forward-looking” or lacked meaningful cautionary statements.
Zaluski v. United American Healthcare Corp.,
With that standard in mind, several of the alleged misstatements and omissions set forth in the complaint concerning Fifth Third’s reserves and capitalization are forward-looking and, although not accompanied by meaningful cautionary language, there are no facts pled which demonstrate that the statements were made with actual knowledge of their falsity.
In re Compuware Securities Lit.,
1. Defendant Marshall’s statement during the April 22, 2008 conference call that “I wouldn’t expect us to do anything out of the ordinary and certainly nothing resembling the extreme capital raises you’ve seen from some of our more stressed peers ... We don’t think that’s — -we think of ourselves as being in an entirely different category and don’t need to do any of those things,” Complaint ¶ 284, is by definition a forward-looking statement because it is a projection concerning Fifth Third’s capital structure.
See
15 U.S.C. § 78u-5(i)(1)(A);
see also Harris v. Ivax Corp.,
2. Defendant Marshall’s statements during an October 19, 2007 conference call concerning whether Fifth Third would have a sale of non-performing assets in the fourth quarter and whether restructuring troubled debt would reduce the growth in nonperforming assets are projections or predictions and thus are forward-looking statements. Complaint ¶ 368.
3. Defendant Marshall’s statements in the January 22, 2008 conference call concerning Fifth Third’s targeted and expected level of Tier 1 capital is a projection and is thus forward-looking. Complaint ¶ 400.
4. Defendant Marshall’s statement in the April 22, 2008 conference call that “we expect our capital to be comfortably within our targets” is a projection and is thus forward-looking. Complaint ¶ 427.
These statements are all forward-looking, and, though lacking meaningful cau *709 tionary language, 5 there are no facts pled indicating that they were made with actual knowledge of their falsity. 6 Therefore, they fall within the PSLRA safe harbor and are not actionable. Accordingly, Defendants’ motion to dismiss is well-taken and is GRANTED as to these alleged misstatements.
3. Applicability of Rule 9(b)
Defendants next argue that Plaintiffs’ Section 11 Securities Act claims sound in fraud and that, therefore, they must comply with Rule 9(b) of the Federal Rules of Civil Procedure and plead these claims with particularity. Fraud is not an element of Securities Act claims.
In re Charles Schwab Corp. Sec. Lit.,
Nevertheless, upon review of the motion to dismiss, it appears to the Court that in arguing that the complaint fails to comply with Rule 9(b), Defendants rely on their contention that the allegations concerning the Section 11 claims fail to establish scienter. See Doc. No. 89, at 100 (stating that “for all of the reasons explained ... supra, Plaintiffs failed to plead scienter against any defendant.”). As just stated, however, the requirement to plead fraud with particularity does not require the complaint to plead intent to defraud with particularity. Accordingly, to the extent *710 that the motion to dismiss the Section 11 claims is based on the failure to plead scienter with particularity, it is not well-taken and is DENIED.
Defendants’ Rule 9(b) argument also adverts to the section of its brief which contends that the complaint fails to plead any actionable misstatements or omissions. See id. That section of the brief, however, is not framed in the context of Rule 9(b) and, other than Defendants’ general assertion that the Section 11 claims do not comply with Rule 9(b), they fail to specify how and why the complaint lacks the requisite specificity. Accordingly, the Court concludes that Defendants are not entitled to dismissal of these claims for failure to comply with Rule 9(b).
4. Loss Causation
Defendants also argue that Plaintiffs’ Securities Act claims are subject to dismissal on the grounds that the complaint shows on its face that their losses were not caused by the Defendants’ alleged misstatements and omissions. Defendants contend that the complaint fails to allege facts connecting the revelation of a secret fraud to the decline in the price of Fifth Third stock. Thus, Defendants argue that the complaint only shows that the price of Fifth Third stock declined after the revelation of bad news, which is insufficient to show loss causation.
“Loss causation” refers to the plaintiffs burden to “show that an economic loss occurred after the truth behind the misrepresentation or omission became known to the market.”
Omnicare,
The complaint attributes the decline in Fifth Third stock solely to the June 18, 2008 press release in which Fifth Third announced that in order to strengthen its capital position in light of deteriorating credit trends, it was going to issue $1 billion in new convertible preferred shares, cut its dividend, and sell certain non-core businesses. Complaint ¶ 111. The Court agrees with Defendants that on its face the complaint fails to establish loss causation with respect to many of the misrepresentations and omissions alleged because the press release did not contain any disclosures or corrections addressed to them.
See, e.g., Omnicare,
1. Failure to disclose sales quotas and bonuses to encourage origination of risky loans. There is no loss causation because the press release did not disclose that such programs were in place or that Fifth Third was revising or eliminating such programs in order to strengthen the quality of its loan portfolio.
2. Failure to disclose that Alt-A loan portfolio was the same or similar to sub-prime loans. There is no loss causation because Fifth Third did not announce that it had misstated or mis-evaluated the characteristics of its At-A loan portfolio.
3. Failure to disclose that Alh-A loan portfolio had “layered risk factors. ” Again, there is no loss causation because there was no disclosure amending or modifying Fifth Third’s description of its At-A portfolio.
4. Failure to disclose aggressive marketing of high loan-to-value loans. There is no loss causation because there was no disclosure that Fifth Third was discontinuing marketing high loan-to-value loans or that it was modifying its marketing strategy with respect to such loans.
5. Aggressively marketing real estate loans to European borroioers with unverifiable credit histories. There is no loss causation because Fifth Third did not announce that it was discontinuing marketing such loans or that it was modifying its marketing strategy with respect to such loans.
6. Failure to disclose inability to sell loans on secondary market. There is no loss causation because Fifth Third did not announce that it was unable to sell its loans on the secondary market in the press release.
7. Failure to disclose deteriorating credit quality of loan portfolio. There is loss causation with respect to this alleged misrepresentation or omission because Fifth Third’s need to restructure its capital position was, according to the press release, due to “continued deterioration in credit trends.”
8. Failure to identify non-performing loans. There is no loss causation because Fifth Third did not disclose any accounting changes with respect to non-performing loans.
9. Overstatement of income. There is no loss causation because Fifth Third did not announce that it was restating its earnings.
10. Deterioration in Tier 1 capital/need to raise capital. There is loss causation with respect to these misrepresentations or omissions because the press release specifically states that Fifth Third was issuing preferred securities to bolster its Tier 1 capital.
11. Failure to disclose the need to raise additional capital. There clearly is loss causation for this alleged omission because the topic of the press release was Fifth Third’s need to bolster its capital position.
Accordingly, Defendants’ motion to dismiss Plaintiffs’ Securities Act claims is well-taken and is GRANTED with respect to alleged misstatements or omissions 1-6, and 8-9, as identified above.
5. Interim Summary
In summary, the Section 11 and Section 12(a) claims of the First Charter subclass are dismissed, except for claims relating to omissions and misstatements concerning the consideration to be paid for First Charter shares in the acquisition, failure to disclose deteriorating quality of Fifth Third’s loan portfolio, failure to disclose *712 the deterioration of Tier 1 capital, and failure to disclose the need to raise additional Tier 1 capital. Similarly, the Section 11 and Section 12(a) claims of the Preferred B sub-class and Preferred C subclass are dismissed except for claims relating to omissions and misstatements concerning the failure to disclose the deteriorating quality of Fifth Third’s loan portfolio, failure to disclose the deterioration of Tier 1 capital, and failure to disclose the need to raise additional Tier 1 capital.
6. Section 12(a)(2) claims of the Preferred B and Preferred C Sub-classes
Defendants also proffer additional grounds for dismissal of Plaintiffs’ Section 12(a)(2) claims of the Preferred B and Preferred C sub-classes. Defendants first argue that the claims of the Preferred B Plaintiffs, Dinwoodie and Wacksman, should be dismissed for lack of standing because they purchased their shares on the open market, below the offering price, and not pursuant to the prospectus. Defendants also argue that the claims against the Underwriter Defendants should be dismissed as to both subclasses because the complaint fails to identify from which underwriter Plaintiffs purchased their shares. In response, Plaintiffs argue that the Preferred B Plaintiffs have standing, even though they concede that they purchased their shares on the open market, because the prospectus for that offering was in effect at the time of their purchases. In response to Defendants’ arguments concerning Plaintiffs’ failure to identify a specific underwriter from whom they purchased their shares, the class representatives for these sub-classes have tendered affidavits clarifying that point. In reply, however, Defendants argue that Plaintiffs cannot correct by affidavit deficient factual allegations in the complaint. Moreover, Defendants point out that, according to their affidavits, both Dinwoodie and Wacksman purchased their Preferred B shares from Raymond James & Associates, who is not a defendant in this case. Therefore, Defendants argue that the 12(b)(2) claims of the Preferred B subclass against all of the Underwriter Defendants should be dismissed. Defendants also point out that according to his affidavit, the Preferred C class representative, Loewenstine, purchased his shares only from UBS Securities, Inc. Therefore, Defendants argue, while UBS is a defendant in this case, the 12(a)(2) claims of the Preferred C sub-class should be dismissed as to the remaining Underwriter Defendants.
Initially, the Court agrees with Defendants that since the Preferred B class representatives did not purchase then-shares from an underwriter who is a defendant in this case, their Section 12(a)(2) claims against all of the Underwriter Defendants must be dismissed for failure to state a claim.
See In re WorldCom, Inc. Sec. Lit.,
Similarly, according to his affidavit, the Preferred C class representative, Loewenstine, purchased his shares from UBS only. Accordingly, the claims of the Pre
*713
ferred C sub-class against all of the Underwriter Defendants except UBS must be dismissed. Defendants argue that Plaintiffs cannot amend their complaint through their brief and thus, implicitly if not explicitly ask the Court to ignore Loewenstine’s affidavit. Loewenstine’s affidavit arguably converts Defendants’ Rule 12(b)(6) motion into a Rule 56 motion for summary judgment, at least on this one issue. If it does, then there are no issues of material fact concerning the underwriter from whom Loewenstine bought his shares and his claims against all of the Underwriter Defendants but UBS should be dismissed on the grounds raised by Defendants. To the extent that there are no specific allegations in the complaint concerning Loewenstine purchasing shares from UBS, this case is similar to
E.E.O.C. v. Ohio Edison Co.,
With regard to the overall standing of the Preferred B sub-class, Section 12(a)(2) applies only to purchases made through initial offerings and not to aftermarket trading.
Gustafson v. Alloyd Co., Inc.,
Accordingly, Defendants’ motion to dismiss the Section 12(a)(2) claims of the Preferred B sub-class is well-taken and is GRANTED. Defendants’ motion to dismiss the Section 12(a)(2) claims of the Preferred C sub-class is well-taken and is GRANTED, except as to Underwriter Defendant UBS Securities.
7. Controlling Person Liability
The First Charter subclass, Preferred B sub-class, and the Preferred C subclass asserts claims against Fifth Third and the Individual Defendants (Defendants Rabat, Marshall, and Poston) for controlling person liability for the alleged misstatements and omissions identified in the complaint pursuant to Section 15 of the Securities Act, 15 U.S.C. § 77o. (Counts III, VIII, and XI). Section 15 imposes joint and several liability on “controlling persons” for violations of Section 11 or Section 12 of the Act committed by persons they control.
Sanders Confectionery Prod., Inc. v. Heller Fin., Inc,
Accordingly, to the extent the Court has already dismissed Plaintiffs’ Section 11 and Section 12 claims, the corresponding Section 15 claims are dismissed as well.
Defendants also argue that the Plaintiffs’ Section 15 claims should be dismissed because the complaint fails to specify how each of the Individual Defendants participated in the challenged disclosures. Defendants argue that the complaint’s allegations that they exercised control “by virtue of their executive and/or directorial positions of the Company” and “by virtue of their sponsorship and/or positions as trustees of Fifth Third Capital Trust” are insufficient to establish control person liability-
Defendants are correct that an executive or director is not liable under Section 15 as a controlling person simply because of his position with the company.
Frank v. Dana Corp.,
In their motion, the Individual Defendants essentially highlight allegations which tend to show that Plaintiffs claim controlling person liability simply because they are executives of Fifth Third. The Court notes, however, that the complaint alleges that each of the Individual Defendants reviewed, approved, and signed allegedly false and misleading filings with the SEC, including registration/proxy statements, shelf registration statements, Forms 10-K, 10-Q, and 8-K. Complaint ¶¶ 43-45. These allegations are sufficient to establish that the Individual Defendants are liable as controlling persons.
Knollenherg v. Harmonic, Inc.,
Accordingly, Defendants’ motion to dismiss the surviving Section 15 claims on the grounds that the complaint alleges liability based solely on Defendants’ positions as executives of Fifth Third is not well-taken and is DENIED.
8. Section 11(a) of the Securities Exchange Act
The First Charter sub-class alleges that Fifth Third and the Individual Defendants violated Section 14(a) of the Securities Exchange Act of 1934, 15 U.S.C. § 78n(a), *716 and SEC Rule 14a-9, 17 C.F.R. § 240.14a-9, by making false and misleading statements and omissions in a registration/proxy statement. The same set of alleged misstatements and omissions form the basis of the First Charter sub-class’s Section 11 claims. Complaint ¶ 146. Defendants argue that Plaintiffs’ Section 14(a) claims should be dismissed because they fail to plead facts establishing negligence, because the claims sound in fraud and fail to comply with Rule 9(b), and because they fail to allege any actionable misstatements.
Section 14(a) of the Securities Exchange Act authorizes the Securities and Exchange Commission (“SEC”) to promulgate rules for the solicitation of proxies and prohibits violations of those rules.
Virginia Bankshares, Inc. v. Sandberg,
The Court has already addressed supra at 705-07, whether the complaint alleges any material misstatements or omissions. Those same rulings apply as well to Plaintiffs’ Section 14(a) claims. Similarly, the Court has already addressed whether the alleged misstatements and omissions sound in fraud and must be pled with particularity. Accordingly, Defendants’ motion to dismiss Plaintiffs’ Section 14(a) claim is well-taken and is GRANTED to the extent Plaintiffs’ Section 11 claims have been dismissed.
9. Section 20(a) Claims for Control Person Liability
The First Charter sub-class also asserts claims for control person liability against the Individual Defendants for the alleged Section 14(a) violations. Like Section 15, controlling person liability under Section 20(a) for violations of Section 14(a) is derivative.
In re Affiliated Computer Serv. Deriv. Lit.,
B. Securities Exchange Act Violations
The overwhelming bulk of the complaint is devoted to the claims of the Fifth Third sub-class arising under Section 10(b) of the Securities Exchange Act and SEC Rule 10b-5, although the First Charter subclass also has claims arising under Sections 14 and 20(a) of the Act. The Court starts, however, by analyzing Defendants’ motion to dismiss Plaintiffs Section 10(b) claims.
1. Section 10(b) of the Securities Exchange Act and SEC Rule 10b-5
The complaint alleges that Fifth Third and the Individual Defendants violated
*717
Section 10(b) of the Securities Exchange Act, 15 U.S.C. § 78j(b), and SEC Rule 10b-5. Section 10(b) and Rule 10b-5 both prohibit making fraudulent, material misstatements or omissions in connection with the purchase or sale of a security.
PR Diamonds,
Defendants’ motion raises three grounds for dismissing Plaintiffs’ Section 10(b) and Rule 10b-5 claims. First, Defendants contend that the complaint fails to identify any actionable misstatements or omissions. Second, Defendants argue that the complaint fails to raise a strong inference of scienter. Third, Defendants argue that the complaint fails to show loss causation. The Court has more or less addressed the issues of materiality and loss causation in the preceding sections. 7 See supra, at 705-08, 710-11. Accordingly, the Court will focus here on the issue of scienter. Moreover, as further explained, since the complaint fails to establish a strong inference of scienter, the Court need not address the issues of materiality and loss causation as they pertain to Plaintiffs’ Section 10(b) and Rule 10b-5 claims.
a. Scienter
Scienter, as the Court has already stated, is a state of mind indicating intent to defraud. In
Tellabs, Inc. v. Makor Issues & Rights, Ltd.,
It does not suffice that a reasonable factfinder plausibly could infer from the complaint’s allegations the requisite state of mind. Rather, to determine whether a complaint’s scienter allegations can survive threshold inspection for sufficiency, a court governed by § 21D(b)(2) must engage in a comparative evaluation; it must consider, not only inferences urged by the plaintiff, as the Seventh Circuit did, but also competing inferences rationally drawn from the facts alleged. An inference of fraudulent intent may be plausible, yet less cogent than other, nonculpable explanations for the defendant’s conduct. To qualify as “strong” within the intendment of § 21D(b)(2), we hold, an inference of scienter must be more than *718 merely plausible or reasonable-it must be cogent and at least as compelling as any opposing inference of nonfraudulent intent.
Id.
at 314,
(1) insider trading at a suspicious time or in an unusual amount; (2) divergence between internal reports and external statements on the same subject; (3) closeness in time of an allegedly fraudulent statement or omission and the later disclosure of inconsistent information; (4) evidence of bribery by a top company official; (5) existence of an ancillary lawsuit charging fraud by a company and the company’s quick settlement of that suit; (6) disregard of the most current factual information before making statements; (7) disclosure of accounting information in such a way that its negative implications could only be understood by someone with a high degree of sophistication; (8) the personal interest of certain directors in not informing disinterested directors of an impending sale of stock; and (9) the self-interested motivation of defendants in the form of saving their salaries or jobs.
Id.
at 552
(overruled on other grounds by Tellabs, Inc. v. Makor Issues & Rights, Ltd.,
Before addressing Defendants’ specific arguments concerning scienter, the Court notes that nowhere does the complaint allege insider trading, a divergence between internal reports and external statements, bribery, quick settlement of lawsuits, deceptive disclosures of negative accounting information, or interested directors concealing impending sales of stock. The complete absence of six of the nine
Helwig
factors, particularly the lack insider trading, suggests that the complaint faces an uphill climb to establish that any of the Defendants acted with scienter.
See PR Diamonds, Inc. v. Chandler,
Defendants’ general contention that the complaint fails to sufficiently allege scienter in turns raises a number of sub-arguments or issues. Defendants argue further that: 1) the most compelling inference is that Fifth Third, along with may other financial institutions, was a victim of the global economic crisis; 2) Plaintiffs’ may not rely on “group pleading” to establish scienter; 3) the complaint fails to adequately allege that Defendants had a motive and opportunity to commit securities fraud; 4) the complaint fails to demonstrate conscious or reckless misbehavior by any Defendant; 5) scienter cannot be established by signing a public disclosure; and 6) Plaintiffs’ miscellaneous remaining allegations fail to establish scienter.
i. Global Economic Crisis
Defendants argue that the most plausible inference from the complaint is that they failed to predict the severity of the global economic downturn that began near the end 2007. Defendants attached to their motions a number of news articles and reports which were the subject of Plaintiffs’ motion to strike. As indicated, Plaintiffs’ do not object to the Court taking judicial notice that there was an economic *719 downturn; they do, however, object to the Court taking judicial notice of specifics about the downturn, such as its cause, its magnitude, and its impact. Fifth Third’s degree of exposure to the sub-prime lending market and its subsequent collapse is of course the entire context of Plaintiffs’ complaint. The Court, however, need not conclusively determine whether the global economic crisis is the most plausible inference to be drawn from the complaint. As the Court discusses further below, the complaint considered as a whole otherwise fails to establish the requisite strong inference of scienter. Moreover, the strongest inference to be drawn from the complaint is that Defendants simply mismanaged Fifth Third, which is insufficient to establish scienter.
ii. Group Pleading
Defendants next argue that Plaintiffs may not rely on “group pleading” to establish that they acted with scienter. “Under the group pleading doctrine, the identification of the individual sources of statements is unnecessary when the fraud allegations arise from misstatements or omissions in group-published documents, such as Annual Reports, prospectuses, registration statements, press releases, or other ‘group published information’ that presumably constitute the collective actions of those individuals involved in the day-to-day affairs of the corporation.”
Durgin v. Mon,
The Sixth Circuit has not decided whether group pleading survives the enactment of the PSLRA. There are divergent opinions among the district courts of the Sixth Circuit about the continued viability of group pleading and, moreover, they even appear to disagree as to which position represents the majority opinion within the Circuit.
Compare In re First-Energy Corp. Sec. Lit.,
This Court agrees with Judge Rice that group pleading, if it properly existed in the Sixth Circuit before, does not survive the PSLRA. The PSLRA requires the complaint to state “with particularity facts giving rise to a strong inference that
the defendant
acted with the required state of mind.” 15 U.S.C. § 78u-4(b)(2)(emphasis added). As Judge Rice point out in
Huffy Corp.,
use of the phrase “the defendant” can only be understood to mean each defendant in a multiple-defendant case because “it is inconceivable that Congress intended liability of any defendants to depend on whether they all were sued in a single action or were each sued alone in several separate actions.” 577 F.Supp.2d
*720
at 984 (quoting
Southland Securities Corp. v. INSpire Ins. Solutions, Inc.,
Accordingly, Plaintiffs cannot rely on group pleading to establish that the Individual Defendants acted with scienter,
iii. Motive and Opportunity to Commit Securities Fraud
Defendants next argue that the complaint inadequately pleads a motive and opportunity to commit securities fraud. Defendants argue that in attempting to establish scienter the complaint relies on motives common to all corporations and executives generally, such as a desire to secure lucrative bonuses and stock options, but fails to plead facts demonstrating a motive to commit fraud.
In
PR Diamonds,
the Court held that in order to demonstrate motive, the complaint “must show concrete benefits that could be realized by one or more of the false statements and wrongful nondisclosures alleged.”
Consequently, in light of PR Diamonds, several of the complaint’s allegations fail to establish motive to commit securities fraud as a matter of law. Most obviously, the complaint’s allegations that the Individual Defendants were motivated to commit fraud in order to secure lucrative bonuses, stock and stock options fail because they relate to the general desire of an executive to increase his compensation. Complaint ¶¶ 466-71.
The complaint also alleges that Defendants were motivated to commit securities fraud to lower the cost of borrowing on notes Fifth Third issued during the class period and to inflate the cost of Fifth Third stock to fund future acquisitions, such as the First Charter merger. Complaint ¶¶ 465(a)-465(b). In
PR Diamonds,
the Court held that the allegation that the defendants were motivated to engage in fraud to forestall the company’s default on a loan and to preserve its line of credit was suggestive of scienter, but alone did not establish a strong inference.
Thus, Plaintiffs’ motive and opportunity allegations fail to support an inference of scienter.
iv. Conscious or Reckless Conduct
Defendants next argue that the complaint fails to allege facts showing conscious misbehavior or recklessness on their part. This argument addresses the complaint’s reliance on confidential witnesses, Defendants’ access to reports and information concerning the composition of Fifth Third’s loan portfolio, the imputation of knowledge based on their positions, and participation on internal committees, to establish scienter.
v. Confidential Witnesses
The complaint cites twelve confidential witnesses to support Plaintiffs’ contention that Fifth Third abandoned its conservative lending standards in order to boost revenue through risky loan origination. Complaint ¶¶ 288-341. The allegations of these confidential witnesses occupy twenty pages of the complaint, but in general they recount that Fifth Third became a de facto subprime lender, waived lending standards, enforced sales quotas, and manipulated the loan loss reserves to conform earnings to targets.
Confidential witnesses may assist securities fraud plaintiffs establish scienter so long as they are not vague and conclusory.
Ley,
Assuming without deciding that the complaint sufficiently establishes each confidential witness’s basis of knowledge, there are no facts alleged from which it can be inferred that the confidential witness had sufficient contact with any of the Defendants to impute their knowledge of misconduct to the Defendants.
In re Metawave Comm. Corp. Sec. Lit.,
CW-1 was a vice president for mortgage compliance in Fifth Third’s Cincinnati headquarters from 2004 until November 2007. He says that he attended monthly risk management meetings with “senior officers” from the compliance, quality control, and underwriting departments. CW-1 states that these meetings generated reports detailing the kinds and types of loans generated, the amount of reserves, and delinquencies. These reports were distributed upwards to Fifth Third’s “most senior leadership,” including Defendant Kabat. CW-1 says that these meetings established that Fifth Third was engaged in subprime lending and that the compliance department was concerned about the risky loans Fifth Third was generating. Finally, CW-1 alleges that “when the economy started to turn in early 2007, Fifth Third executives began to increase the pressure on loan officers to close deals.” Complaint ¶¶ 290-91. Although CW-1 reports facts showing that Fifth Third was engaging in subprime lending, that there were reports confirming this fact, and that there was concern in some departments about Fifth Third’s lending practices, he does not connect any of this information to any of the Individual Defendants. CW-1 does not allege that he met with or reported any of these problems to the Defendants. Indeed, CW-1 does not even mention Defendants Marshall and Poston and his only allegation concerning Defendant Kabat is that monthly reports were distributed to him. Scienter, however, cannot be inferred from the mere fact that the defendant had access to information.
PR Diamonds,
CW-2 was an underwriting supervisor for Fifth Third from 2003 to March 2007. CW-2 also reports that Fifth Third disregarded its lending standards and originated subprime loans. CW-2 also recounts that Fifth Third imposed strict sales quotas and that managers often overrode underwriters’ rejections of loans. CW-2 also states that he attended a meeting in Florida in 2006 in which Defendants Kabat and Marshall discussed lending guidelines. After Kabat and Marshall left the room, John McGinty, the head of mortgage operations in Florida, told the attendees that he had authority to override the guidelines. Complaint ¶¶ 292-96. CW-2, however, fails to establish scienter. First, all of CW-2’s information pre-dates the class period and, thus, is irrelevant.
Malin,
CW-3, a retail mortgage underwriter in Florida from 2004 to September 2008 provides the most comprehensive set of allegations concerning Fifth Third’s alleged subprime lending practices, and pressures and incentives to generate those loans, complaint ¶¶ 297-307, and yet he too fails to connect any of his knowledge of this activity to the Individual Defendants. CW-3 attributes all of this activity to John McGinty, who is not a defendant in the case, or to “executive management in Cincinnati.” CW-3’s allegations fail to establish scienter.
*723 CW-4 was a sales executive in Florida from November 2006 to July 2008 and was responsible for jumbo construction loans. CW-4 discusses Fifth Third’s poor underwriting and appraisal processes. CW-4 states that decisions approving builder and developer loans were made “at a very high level in the Company.” Complaint ¶¶ 308-11. None of CW-4’s information relates to the Individual Defendants nor are there any allegations that CW-4 informed the Individual Defendants about this activity. Accordingly, CW-4’s allegations fail to establish scienter.
CW-5 was vice president of operations of Fifth Third’s Ft. Myers office from early 2005 to mid-2007. CW-5 relates the alleged pressure to generate new loans and the loosening or waiving of approval guidelines to meet quotas. Complaint ¶¶ 312-15. Like CW-8, however, CW-5’s information predates the class period. Additionally, like the other confidential witnesses, CW-5 attributes the quotas to unidentified “Fifth Third executives in Cincinnati” but fails to detail the Individual Defendants’ knowledge of or participation in this activity. Therefore, CW-5’s allegations fail to establish scienter.
CW-6 was a wholesale account executive who worked in North Carolina from mid-2006 to February 2007. CW-6 also reports on the pressure to generate sales and the malleability of Fifth Third’s lending guidelines. Complaint ¶¶ 316-18. CW-6’s information, however, pre-dates the class period and does not connect his knowledge to the Individual Defendants. Thus, CW-6’s allegations fail to establish scienter.
CW-7 was a senior compliance specialist who worked in the Cleveland hub from October 2007 to October 2008. CW-7 says that Fifth Third was making documentation and stated income loans until late 2007 and 100% LTV loans until early 2008. Complaint ¶ 319. CW-7’s allegations, however, do not establish scienter because there are no allegations connecting this information to the Individual Defendants.
CW-8 claims that from 2006 to December 2007, his job was to find new customers with low to moderate incomes and that Fifth Third approved stated income and no documentation loans. CW-8 also reports the need to find loopholes to get loans approved for high risk borrowers and the intense sales pressure. Complaint ¶320. CW-8’s allegations, however, do not establish scienter because there are no allegations connecting this information to the Individual Defendants.
CW-9 was a vice president and outside origination manager for Fifth Third in Naples, Florida from 1996 to mid-2007. CW-9 also reports the pressure to generate risky loans. He also states that Fifth Third used a computer program to track mortgages called “ACAPS.” CW-9 alleges that senior management, including the Individual Defendants, could access ACAPS to track sales data and performance. ACAPS also flagged documentation that was missing from mortgage applications to remind the sales persons and underwriters to obtain the missing documentation. Complaint ¶¶ 321-27. Although CW-9 finally is a witness who makes specific allegations concerning the Individual Defendants, the only allegation is that they had access to information concerning loans being generated. As previously stated, however, the fact that the Individual Defendants had access to ACAPS does not establish scienter. CW-9 fails to proffer any other facts connecting his information to the Individual Defendants. Accordingly, CW-9’s allegations fail to establish scienter.
CW-10 also recounts how Fifth Third generated and approved subprime loans in Michigan, but he too fails to connect this information to the Individual Defendants. *724 Complaint ¶¶ 328-33. Accordingly, CW-10’s allegations fail to establish scienter.
CW-11 was a vice president and regional manager for Fifth Third’s retail division in Florida from May 2006 to February 2008. He also discusses sales quotas and pressure from “corporate headquarters” and “senior management” in Cincinnati, and disregard of lending guidelines. CW-11 also claims that by February 2008, defaults had become such a problem that “senior management” decided to book them on the branch balance sheets rather than the mortgage department in order to conceal the full extent of the problem. Complaint ¶¶ 334-39. CW-ll’s allegations fail to establish scienter, however, because he does not connect any of this activity to the Individual Defendants.
Finally, CW-12 states that he was the performance reporting manager for Fifth Third’s mortgage department from 2000 to 2006. CW-12 claims that during this time, “the CEO and CFO of the Company” would discuss whether Fifth Third’s earnings were tracking projections, and, if not, the CFO would direct CW-12 to reduce the loan loss reserves until earnings met the projections. Complaint ¶¶ 340-41. CW-12’s allegations fail, like others before him, because his information pre-dates the class period. Moreover, CW-12 does not identify the CEO or the CFO and, since they are unidentified, presumably they were not Defendants Rabat and Marshall. Therefore, CW-12 fails to connect this alleged misconduct to the Individual Defendants. Accordingly, CW-12’s allegations fail to establish scienter.
In summary, for the foregoing reasons, the confidential witnesses fail to establish scienter.
vi. Accounting Violations
The complaint alleges that Fifth Third violated Generally Accepted Accounting Principles (“GAAP”) and Financial Accounting Standards (“FAS”) concerning setting aside reserves for potential credit losses. Complaint ¶¶ 345-55. Accounting violations, “standing alone, do not create an inference of scienter, much less a strong one.”
PR Diamonds,
In this case, Fifth Third’s alleged GAAP and FAS violations concerning loan loss reserves fail to establish scienter. The complaint gives no indication as to the magnitude of these errors or by how much income was overstated as a result of the errors.
Indiana Elec. Workers’ Pension Trust Fund IBEW v. Shaw Group, Inc.,
Accordingly, the Court concludes that Fifth Third’s alleged accounting errors were not basic, and because Plaintiffs have not alleged any facts concerning the magnitude of the alleged accounting violations, the alleged violations do not create a strong inference of scienter.
vii. Sarbanes-Oxley Certifications
Defendants also argue that scienter is not established because they signed certifications required by the Sarbanes-Oxley Act. Generally speaking, the Sarbanes-Oxley Act requires executives who sign reports with the SEC to certify that they have reviewed the report and that it does not contain any untrue material misstatements or omissions. 15 U.S.C. § 7241(a). “[A] Sarbanes-Oxley certification is only probative of scienter if the person signing the certification was severely reckless in certifying the accuracy of the financial statements.”
Ley,
As the Court’s discussion of the confidential witnesses demonstrates, the complaint fails to connect up the alleged errors in financial statements and reports with the Individual Defendants. Moreover, the fact that Fifth Third was not required to restate in financial statements indicates that their Sarbanes-Oxley certifications are not probative of scienter.
See, e.g., Garfield v. NDC Health Corp.,
viii. Access to Reports/Service on Committees/Executive Positions
The complaint also attempts to establish scienter through Defendants’ access to in *726 formation concerning Fifth Third’s loan portfolio, such as the ACAPS system, as well as their service on internal committees whose function was to review credit quality. The complaint also relies on Defendants’ positions as executives of Fifth Third to establish scienter.
Scienter, however, cannot be inferred merely because of the defendants’ positions in the company or the fact that they had access to the company’s financial information.
PR Diamonds,
In this case, concerning financial information, it is clear that the complaint relies only on the fact of Defendants’ access to such data to establish a strong inference of scienter. See Complaint ¶¶ 465(g)-(k). Most tellingly, the complaint alleges that “[s]inee Defendants Kabat and Marshall had all of the relevant information regarding underwriting and credit quality at their fingertips through ACAPS, they either knew or were reckless in not knowing that the poor credit quality of the loans the Company had been originating and the poor credit quality of the loan portfolio were the sources of non-performing assets and not general economic conditions[.]” Complaint ¶ 465(k). There are no factual allegations, however, that Defendants actually read or reviewed information available on the ACAPS system and that their review of the available information was sufficiently comprehensive to appreciate the alleged precarious quality of Fifth Third’s loan portfolio. Since the complaint relies entirely on Defendants’ mere access to financial data, these allegations fail to support a strong inference of scienter.
Plaintiffs also rely heavily on Defendants’ establishment of and service on the Corporate Credit Committee. The complaint notes that the purpose of the committee was to ensure that senior executives were focused on credit quality.
Id.
¶ 465(c). The complaint also relies on statements made by Kabat and Marshall that credit reviews of Fifth Third’s loan portfolio had recently been performed.
Id.
¶¶ 465(i), (r). However, the complaint fails to allege that the credit review raised red flags from which the Defendants knew or should have know that the credit quality of Fifth Third’s loan portfolio was deteriorating.
See PR Diamonds,
ix. Summary of Scienter Allegations
Viewing the complaint its entirety, as Tellabs requires, the Court is persuaded *727 that Plaintiffs have failed to demonstrate the strong inference of scienter mandated by the PSLRA. As the Court commented at the outset of its scienter analysis, while not dispositive, the complaint really makes no attempt to establish any of the Helwig factors. This somewhat gaping omission, especially the failure to allege that insider trading occurred, goes a long way towards concluding that a strong inference of scienter has not been pled. The complaint has not pled that the Defendants had any special motive or opportunity to commit securities fraud. Plaintiffs’ numerous confidential witnesses fail to connect the Defendants with the alleged misconduct they report in their allegations. The accounting principles concerning loan loss reserves are anything but basic. The Sarbanes-Oxley certifications are not probative of scienter. Plaintiffs’ reliance on group pleading undercuts an inference that the Individual Defendants acted with scienter.
Also cutting strongly against a finding of scienter is the fact that much of the information that Plaintiffs claim was concealed was actually reported. For instance, while the complaint alleges that Fifth Third was originating loans to borrowers with sub-prime-equivalent FICO scores, Fifth Third in fact disclosed in several 8-K filings the FICO and Alb-A composition of its loan portfolio. Fifth Third also reported the LTV ratio of its portfolio in several 8-K filings. The complaint never alleges that the figures reported by Fifth Third were false or inaccurate. Moreover, the fact that Fifth Third was engaged in A1L-A lending at all should have been a red flag to any investor who was concerned about credit quality because by definition documentation supporting the creditworthiness of these borrowers was lacking. Fifth Third continually reported increases in non-performing assets throughout the class period and the complaint admits that Fifth Third actually increased its loan loss reserves during this time. Plaintiffs complain that Fifth Third misled investors because it actually decreased its reserves as a percentage of non-performing assets throughout the class period but this phenomenon was specifically noted by one of the analysts in the April 22, 2008 conference call. Complaint ¶ 429. Thus, the information was actually disclosed and available if percentage of reserves to nonperforming assets was truly important to investors. Plaintiffs complain that Fifth Third should have recognized loans delinquent for 30 to 89 days as non-performing and set aside reserves accordingly, and yet none of the accounting authorities they cite required Fifth Third to account for delinquent loans in this manner.
Tellabs requires the inference of scienter to be “at least as compelling” as any other inference. Defendants contend that the most compelling inference to be drawn from the complaint is that Fifth Third, along with many other financial institutions, was overwhelmed by the magnitude of the collapse of the credit market. While Plaintiffs dispute Defendants’ use of extraneous materials to establish the size and impact of this event, even the complaint admits that as early as 2006, there were “many indicators pointing to significant problems in subprime mortgage performance.” Complaint ¶ 9. Thus, the complaint itself supports the inference that the decline in the macro-credit market, as Defendants Kabat and Marshall stated in several conference calls, and not fraud, is the reason behind the decline in Fifth Third’s share value.
Even if the collapse of the credit market is not the strongest inference to be drawn from the complaint, another equally compelling inference is that Fifth Third simply made a lot of risky loans and failed to estimate loan loss reserves accurately. The worst this establishes, however, is that
*728
Defendants mismanaged Fifth Third. Mismanagement of the company does not establish scienter.
Auslender v. Energy Mmgt. Corp.,
Accordingly, for all of the above reasons, Defendants’ motion to dismiss Plaintiffs’ Section 10(b) and Rule 10b-5 claims is well-taken and is GRANTED.
C. Control Person Liability
Like Section 15 of the Securities Act, Section 20(a) of the Securities Exchange Act
of
1934, 15 U.S.C. § 78t(a), imposes liability for securities violations on “control persons.”
PE Diamonds, Inc. v. Chandler,
Accordingly, Defendants’ motion to dismiss Plaintiffs’ Section 20 claims is well-taken and is GRANTED.
Conclusion!Summary
In conclusion, Defendants’ motion to dismiss is GRANTED IN PART AND DENIED IN PART. The motion is well-taken and is GRANTED as to the following claims:
1. Plaintiffs’ Section 11, Section 12, and Section 14(a) claims to the extent they relate to alleged misstatements and omissions concerning:
a. sales quotas, incentives, and bonuses to increase new loan originations;
b. Fifth Third’s Alh-A loan portfolio being similar to a sub-prime portfolio;
c. Fifth Third’s Alh-A loan portfolio having “layered risk factors”;
d. marketing high loan-to-value loans;
e. marketing real estate loans to European borrowers;
f. Fifth Third’s inability to sell loans on the secondary market;
g. failure to identify non-performing loans;
h. overstatement of income;
i. the forward-looking statements discussed infra, at 708-09.
2. The Section 12(b)(2) claims of the Preferred B sub-class;
3. The Section 12(b)(2) claims of the Preferred C sub-class, except as to Defendant UBS Securities, Inc;
4. The Section 15 and Section 20 claims of the First Charter sub-class, the Preferred B sub-class, and the Preferred C subclass to the extent the Court has dismissed the corresponding Section 11, Section 12, and Section 14(a) claims;
5. The Section 10(b) and Rule 10b-5 claims of the Fifth Third Sub-class;
*729 6. The Section 20 claims of the Fifth Third sub-class.
Defendants’ motions to dismiss are not well-taken and are DENIED as to the remaining claims, which in light of the foregoing, are as follows:
1. The Section 11 claims of the First Charter subclass, Preferred B sub-class, and Preferred C sub-class and the Section 14(a) claims of the First Charter sub-class concerning:
a. the consideration paid for First Charter shares in the merger;
b. the alleged deteriorating quality of Fifth Third’s loan portfolio;
c. deterioration in Tier 1 capital;
d. failure to disclose the need to raise additional capital.
2. The corresponding Section 15 claims of the First Charter sub-class, Preferred B sub-class, and Preferred C sub-class, and the Section 20 claims of the First Charter sub-class.
X. Underwriter Defendants’ Supplemental Motion to Dismiss & Plaintiffs’ Motion for Leave to File Amended Consolidated Class Action Complaint
Defendants’ filed an omnibus motion to dismiss (Doc. No. 78) and in conjunction with that pleading the Underwriter Defendants filed a supplemental motion to dismiss (Doc. No. 79) in which they highlighted that the complaint only asserts claims against them pursuant to Section 12(a)(2) on behalf of the Preferred B and Preferred C sub-classes. Indeed, their memorandum specifically states that “[tjhere are no claims against the Underwriter Defendants under Section 11 of the Securities Act[.j” Doc. No. 79, at 2. Upon reading the supplemental motion to dismiss, Plaintiffs moved to amend the complaint on the grounds that through a scrivener’s error, they omitted to name the Underwriter Defendants in their Section 11 claims. Plaintiffs, however, believe that, fairly read, the existing complaint asserts Section 11 claims against the Underwriter Defendants, and, thus, an amended complaint is not strictly necessary. In that regard, Plaintiffs’ note that paragraphs 5 and 6 of the complaint specifically name the Underwriter Defendants as defendants for the Preferred B and Preferred C sub-classes.
The Underwriter Defendants’ oppose Plaintiffs’ motion for leave to amend. They contend that Plaintiffs’ decision not to assert Section 11 claims against them was strategic and that they only moved for leave to amend when it became apparent that their Section 12(a)(2) claims are subject to dismissal on standing grounds. In any event, the Underwriter Defendants argue that Plaintiffs’ motion for leave to amend is moot because their Section 11 claims were subject to dismissal based on the grounds advanced in the omnibus motion to dismiss.
On review of the complaint, and construing the pleadings so as to do substantial justice, Fed.R.Civ.P. 8(e), the Court agrees with Plaintiffs that, fairly read, the complaint names the Underwriter Defendants as Defendants as to their Section 11 claims. Moreover, the Court finds it difficult to arrive at the conclusion that, having asserted Section 11 claims against the Underwriter Defendants before the various lawsuits were consolidated, they omitted those claims against the Underwriters in the consolidated complaint for strategic reasons. Accordingly, Plaintiffs’ motion for leave, to file an amended consolidated class action complaint is MOOT. Nevertheless, the Court’s previous rulings on Defendants’ omnibus motion to dismiss Plaintiffs Section 11 claims apply equally to the Underwriter Defendants for the reasons stated.
XI. Motion to File Sur-reply Brief
Finally, Plaintiffs have filed a motion to file a sur-reply brief in response to the
*730
Sixth Circuit’s decision in
Indiana State Dist. Council of Laborers & Hod Carriers Pension & Welfare Fund v. Omnicare, Inc.,
Having read the proposed sur-reply brief, the Court generally agrees with Plaintiffs that Omnicare does not set forth any new rules of law. However, whether this case is identical to or distinguishable from Omnicare is somewhat beside the point. The Court has in fact only relied on Omnicare for well-established principles of securities law and none if its rulings have turned on whether this case is on all fours with Omnicare. Thus, the parties’ analyses of the specific applicability of Omnicare to this case are largely inconsequential. Nonetheless, in the interest of granting Plaintiffs a fair opportunity to respond to Omnicare, the Court grants leave to file a sur-reply. However, nothing in Plaintiffs’ sur-reply alters the Court’s rulings on Defendants’ motions to dismiss.
IT IS SO ORDERED.
Notes
. Alt-A loans are loans made to borrowers who are unable to provide documentation to the underwriter to verify their income and assets.
In re Impac Mortg. Holdings, Inc. Sec. Lit.,
. The various categories of defendants are described, infra at 700-01.
. Paragraph 432 does not state why the press release and From 8-K were materially false and misleading. The quotation marks around "resigned” are from the complaint. Perhaps, therefore, the complaint is implying that Marshall was really fired.
. The Court also consolidated with this one a fifth lawsuit, Duderihoefer v. Fifth Third Ban-corp, Case No. l:08-cv-538, which is an ERISA breach of fiduciary duty action based on largely the same facts, for discovery purposes only.
. Each of the conference calls was prefaced by essentially the same cautionary statement:
This call contain[s] certain forward looking statements about Fifth Third Bancorp, pertaining to our financial conditions, results of operations, plans, and objectives.
These statements involve certain risks and uncertainties. There are a number of factors that could cause results to differ materially from historical performance in these statements. Fifth Third undertakes no obligation to update these statements after the date of the call.
E.g. Doc. No. 82-37, at 3-4 (Transcript of January 22, 2008 analysts' conference call). These cautionary statements are not meaningful because they fail to impart any substantive information about factors that could cause results to differ from the forward looking statements. Consequently, the cautionary statements are merely boilerplate.
. In arguing that the complaint pleads facts demonstrating that Defendants had actual knowledge of the falsity of the forward-looking statements, Plaintiffs essentially rely on the same facts and arguments they contend establish scienter. As explained further below, supra at 716-27, the complaint fails to establish scienter. Therefore, for the same reasons, the Court concludes that the complaint fails to allege facts demonstrating that Defendants had actual knowledge of the falsity of these statements.
. The Court notes that, in comparison to the Section 11 and 12 Securities Act claims, loss causation is an element of Section 10(b) and Rule 10b-5 claims that must be adequately pled.
Brown v. Earthboard Sports USA, Inc.,