253 F.R.D. 531 | C.D. Cal. | 2008
ORDER GRANTING IN PART PLAINTIFFS’ MOTION TO STRIKE; GRANTING DEPENDANTS’ MOTIONS TO DISMISS
This is a securities class action against defendants Andrew H. Parnés and Stephen J. Scarborough, two executives of Standard Pacific Corporation. Lead plaintiffs Pinellas Park Retirement System (General Employees), Plumbers Local No. 98 Defined Benefit Pension Fund, and City of Pontiac General Employees’ Retirement System seek to represent all persons who purchased the publicly traded securities of Standard Pacific between October 27, 2005 and August 2, 2007 (the “class period”). Standard Pacific builds and sells single-family attached and detached homes in the United States and provides mortgage financing and title services to its home buyers through subsidiaries and joint ventures.
Plaintiffs allege that during the class period, defendants misrepresented Standard Pacific’s ability to open new, successful communities at a rate necessary to support its financial projections; misled the public about the demand for Standard Pacific homes; and lied about the company’s ability to continue its historically strong earnings growth beyond the start of the class period.
There are two motions currently before the court. Defendants have moved to dismiss the consolidated class action complaint
In connection with their motion to dismiss, defendants ask the court to take judicial notice of numerous SEC filings, Standard Pacific press releases, news articles, and analyst reports. Plaintiffs have moved to strike various exhibits that are the subject of defendants’ request for judicial notice, or in the alternative, to convert the motion to dismiss into a motion for summary judgment.
I. FACTUAL BACKGROUND
In deciding a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure, the court’s review is limited to the contents of the complaint. Campanelli v. Bockrath, 100 F.3d 1476, 1479 (9th Cir.1996). All allegations of material fact must be accepted as true and must be construed in the light most favorable to the non-moving party. Smith v. Jackson, 84 F.3d 1213, 1217 (9th Cir.1996). Accordingly, the court’s statement of facts recites and accepts as true the allegations contained in the consolidated class action complaint.
A. Background
Standard Pacific builds and sells single-family attached and detached homes in the United States and provides mortgage financing and title services to its home buyers through subsidiaries and joint ventures.
Lead plaintiffs Pinellas Park Retirement System (General Employees) (“Pinellas Park”) and Plumbers Local No. 98 Defined Benefit Pension Fund (“Plumbers Local No. 98 Fund”) purchased the common stock of Standard Pacific during the class period.
B. Defendants’ Activities During the Fourth Quarter of 2005
On October 27, 2005 (the first day of the proposed class period), Standard Pacific issued a press release announcing its financial results for the third quarter of 2005.
On October 28, 2005, defendants held a quarter-end conference call for analysts to discuss 3Q05 results and future prospects.
On November 3, 2005, Standard Pacific filed its 3Q05 Form 10-Q with the SEC.
14). The court has endeavored to summarize the relevant points here. with our recent acquisitions and growing lot positions in our established markets, we are targeting 11,175 new home deliveries, excluding 275 joint venture deliveries, and home-building revenues of approximately $3.9 billion for 2005.”
On November 22, 2005, Scarborough announced that Standard Pacific had purchased 2,675 acres in North Las Vegas and would partner with various developers to build a master planned community that included 12,-000 to 14,000 single family homes, town-homes, and apartments.
Plaintiffs assert that these “positive statements assurances and forecasts” were materially false and misleading because “while Standard Pacific was aggressively expanding into [the] Phoenix, Florida and Las Vegas markets, claiming the healthy housing markets in those areas substantiated the projected increases for the remainder of 2005 and into 2006, those markets had already begun experiencing a slowing trend by August 2005 at the latest.”
Additionally, according to Confidential Witness 1 (“CW1”), a former corporate administrator in the company’s Irvine headquarters, Standard Pacific’s sales projections at the end of 2005 had no reasonable basis.
CW1 states that in December 2005, the company’s sales data revealed that in 4Q05 some of the divisions had sales listed where no deposit had been received or no escrow had been opened.
C. First Quarter 2006
On February 2, 2006, Standard Pacific issued a press release announcing its financial results for fourth quarter and year end 2005.
On February 3, 2006, defendants held a quarter-end conference call with analysts to discuss 4Q05 results and future prospects.
On February 24, 2006, Standard Pacific filed its 2005 Annual Report for the year ending December 31, 2005 with the SEC.
Plaintiffs contend that there was no reasonable basis for these projections. They cite the statements of CW1, who reports that by January 2006, she was communicating with individual divisions regarding their early 2006 results, and discovered that actual sales were not in line with projections and that the housing market was softening in most Standard Pacific locations.
D. Second Quarter 2006
On April 27, 2006, Standard Pacific issued a press release announcing its financial results for the first quarter of 2006.
On April 28, 2006, defendants held a quarter-end conference call for analysts to discuss 1Q06 results and guidance for 2006.
On May 8, 2006, Standard Pacific filed its 1Q06 Form 10-Q with the SEC, which reported that orders were down 9 percent in the Carolinas and that its cancellation rate for the first quarter of 2006 was 24 percent, up from the prior year’s rate of 17 percent.
Plaintiff asserts that defendants’ positive statements, assurances, and forecasts during this period were materially false and misleading, in part, because by the second quarter of 2006, actual sales were “slowing to a trickle” in many Standard Pacific divisions.
In addition, CW1 maintains that, although the downturn in the real estate market was severe and very evident, Standard Pacific’s projections for second quarter 2006 were “over-optimistic.”
On June 2, 2006, Standard Pacific issued a press release announcing its April and May 2006 order trends and lowering its earning guidance for the 2006 year.
E. Third Quarter 2006
On July 27, 2006, Standard Pacific issued another press release announcing its financial results for the second quarter of 2006.
On July 28, 2006, defendants held a quarter-end conference call with analysts.
On August 4, 2006, Standard Pacific filed its 2Q06 Form 10-Q with the SEC.
Plaintiffs assert that defendants’ projections were false and misleading, as some Standard Pacific divisions were reporting negative sales.
Plaintiffs also allege that Standard Pacific had begun to experience a significant increase in cancellation rates in the Florida market.
As further evidence that Standard Pacific’s projections were misleading, plaintiffs state that the company knew that its massive investment in a Las Vegas joint venture was not going to yield the projected results.
On September 8, 2006, Standard Pacific announced its July and August 2006 order trends,
F. Fourth Quarter 2006
On October 26, 2006, Standard Pacific issued a press release announcing its financial results for the third quarter of 2006.
On October 27, 2006, defendants conducted a quarter-end conference call with analysts.
On November 3, 2006, Standard Pacific filed its 3Q06 Form 10-Q with the SEC.
On December 6, 2006, Parnés made a presentation at the New York Society of Security Analysts Homebuilding Conference. He stated that the company was seeing order and cancellation trends improve during the fourth quarter of 2006.
On February 1, 2007, Standard Pacific issued a press release announcing its financial results for fourth quarter and year end 2006.
“Our guidance for 2007 does not reflect additional inventory impairment charges or write-offs of land deposits and preacquisition costs for abandoned projects. If general or local market conditions deteriorate further, or our competitors change their pricing strategies, we may have to further reduce home prices or adjust our discounts and concessions which may, in turn, trigger additional impairments.”128
On February 2, 2007, at a quarter-end conference call for analysts, Parnés stated that Standard Pacific’s annual business plan was based on generating slightly more than 9,000 orders during 2007.
On February 23, 2007, Standard Pacific filed its Form 10-K for the year ending December 31, 2006.
Plaintiffs assert that, despite its more measured projections, Standard Pacific’s forecasts during this period were false and misleading. They emphasize that defendants continued to offer inflated sales forecasts to the investing public because the Cognos sales reports on which they were based were materially misleading.
H. Second Quarter 2007
On April 26, 2007, Standard Pacific issued a press release announcing its financial results for the first quarter of 2007. It reported a loss per share of $0.63, with a net loss of $40.8 million for the quarter.
On April 27, 2007, defendants conducted a conference call with analysts. Although questioned about Standard Pacific’s ability to meet its target of 8,150 deliveries in 2007, Scarborough and Parnés stood by the projection.
On May 9, 2007, Standard Pacific filed its 1Q07 Form 10-Q with the SEC.
On June 11, 2007, Standard Pacific issued a press release announcing April and May 2007 order trends.
On June 14, 2007, Scarborough spoke at the Bank of America 2007 Homebuilders Conference. He stated that Standard Pacific had seen some stabilization in certain California markets, and that it would be able to generate some reasonable sales in those markets.
Plaintiffs contend that the positive projections offered during this period were false and misleading, given that sales in various markets were not stabilizing as defendants represented.
I. Third Quarter 2007
On July 26, 2007, Standard Pacific issued a press release announcing financial results for the second quarter of 2007. The company reported a loss per share of $2.56 and a net loss of $165.9 million.
On August 2, 2007, the company filed its 2Q07 Form 10-Q with the SEC, which reiterated that due to “challenging market conditions and the generally unpredictable nature of the current housing market,” the company would no longer provide guidance regarding earnings and operations; the Form 10-Q also stated that Standard Pacific was withdrawing its prior guidance.
On September 24, 2007, the company issued a press release announcing that it would eliminate its quarterly cash dividend and borrow more money by offering $100 million in convertible senior subordinated notes due in 2012.
J. Parnés’ Alleged Insider Trading
During the class period, defendants and other company insiders sold 145,350 shares of personally-held Standard Pacific stock, grossing more than $4 million.
K. The Litigation
On August 16, 2007, Vinod Patel commenced this action against Parnés. On October 19, 2007, Pinellas Park, Plumbers Local No. 98 Fund, and City of Pontiac filed a motion for appointment as lead plaintiffs and approval of selection of lead counsel. Defendant did not oppose the motion, which the court granted on December 3, 2007. On January 23, 2008, lead plaintiffs filed a con
II. DISCUSSION
A. Legal Standard Governing Motions To Dismiss Under Rule 12(b)(6)
A Rule 12(b)(6) motion tests the legal sufficiency of the claims asserted in the complaint. A Rule 12(b)(6) dismissal is proper only where there is either a “lack of a cognizable legal theory” or “the absence of sufficient facts alleged under a cognizable legal theory.” Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir.1988). In deciding a Rule 12(b)(6), the court generally looks only to the face of the complaint and documents attached thereto. Van Buskirk v. Cable News Network, Inc., 284 F.3d 977, 980 (9th Cir.2002); Hal Roach Studios, Inc. v. Richard Feiner & Co., Inc., 896 F.2d 1542, 1555 n. 19 (9th Cir.1989).
The court must accept all factual allegations pleaded in the complaint as true, and construe them and draw all reasonable inferences from them in favor of the nonmoving party. Cahill v. Liberty Mutual Ins. Co., 80 F.3d 336, 337-38 (9th Cir.1996); Mier v. Owens, 57 F.3d 747, 750 (9th Cir.1995); see also Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 127 S.Ct. 2499, 2509, 168 L.Ed.2d 179 (2007) (“[F]aced with a Rule 12(b)(6) motion to dismiss a § 10(b) action, courts must, as with any motion to dismiss for failure to plead a claim on which relief can be granted, accept all factual allegations in the complaint as true”). It need not, however, accept as true unreasonable inferences or conclusory legal allegations cast in the form of factual allegations. See Bell Atlantic Corp. v. Twombly, 550 U.S. 544, -, 127 S.Ct. 1955, 1965, 167 L.Ed.2d 929 (2007) (“While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiffs obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. Factual allegations must be enough to raise a right to relief above the speculative level, on the assumption that all the allegations in the complaint are true (even if doubtful in fact)” (citations omitted)).
Because Rule 12(b)(6) review is confined to the complaint, the court may not consider material outside the pleading (e.g., facts presented in briefs, affidavits, or discovery materials). In re American Continental Corp./Lincoln Savings & Loan Securities Litigation, 102 F.3d 1524, 1537 (9th Cir. 1996). It may, however, properly consider exhibits submitted with the complaint, documents whose contents are alleged in the complaint when their authenticity is not questioned, and matters that may be judicially noticed pursuant to Federal Rule of Evidence 201. Hal Roach Studios, Inc., 896 F.2d at 1555 n. 19; Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir.1994), cert. denied, 512 U.S. 1219, 114 S.Ct. 2704, 129 L.Ed.2d 832 (1994), overruled on other grounds by Galbraith v. County of Santa Clara, 307 F.3d 1119 (9th Cir.2002); see also Tellabs, 127 S.Ct. at 2509 (“[C]ourts must consider the complaint in its entirety, as well as other sources courts ordinarily examine when ruling on Rule 12(b)(6) motions to dismiss, in particular, documents incorporated into the complaint by reference, and matters of which a court may take judicial notice”).
B. Defendants’ Request For Judicial Notice
Defendants ask that the court take judicial notice of various documents. Under the Federal Rules of Evidence, courts can judicially notice facts that are not subject to
1. Standard Pacific’s SEC Filings
a. Forms 10-K, 10-Q, 8-K
Defendants seek judicial notice of various Standard Pacific SEC filings referenced in plaintiffs’ complaint, such as the Forms 10-K, 10-Q, and 8-K.
As these SEC filings are referenced in the complaint and plaintiffs do not object, the court will consider Standard Pacific’s Forms 10-K, 10-Q, and 8-K.
b. Forms 4
Defendants also ask that the court take judicial notice of various SEC Forms 4, which concern Parnés’ individual trading activity during the class period and the year prior to commencement of the class period.
Plaintiffs oppose this request
It is appropriate for the court to take judicial notice of the content of the SEC Forms 4 and the fact that they were filed with the agency. The truth of the content, and the inferences properly drawn from them, however, is not a proper subject of judicial notice under Rule 201. See Lovelace v. Software Spectrum Inc., 78 F.3d 1015, 1018 (5th Cir.1996) (‘When deciding a motion to dismiss a claim for securities fraud on the pleadings, a court may consider the contents of relevant public disclosure documents which (1) are required to be filed with the SEC, and (2) are actually filed with the SEC. Such documents should be considered only for the purpose of determining what statements the documents contain, not to prove the truth of the documents’ contents,” citing Hennessy v. Pernil Datacomm Networks, Inc., 69 F.3d 1344, 1354-55 (7th Cir.1995) (holding that the district court properly refused to take judicial notice of a corporation’s Form 10-K to determine a fact in dispute— the number of corporate employees)); In re Foundry Networks, Inc., C 00-4823 MMC, 2003 WL 23211577, *10 n. 11 (N.D.Cal. Feb. 14, 2003) (“Defendants have filed a Request for Judicial Notice, wherein they seek judicial notice of (1) two Foundry press releases, (2) SEC Forms 4 filed by Foundry’s officers, and (3) Foundry’s SEC Forms 10-K and 10-Q filings. Plaintiffs ‘object to the request to the extent defendants seek to establish the truth of the contents in the noticed documents,’ but raise no objection to the extent the request asks the Court to take notice of the contents of the documents. Defendants’ request is hereby GRANTED to the extent it requests that the Court take judicial notice of the content of such documents”); see also CPI Advanced, Inc. v. Kong Byung Woo Comm. Ind., Co., Ltd., 135 Fed.Appx. 81, 83 (9th Cir. June 16, 2005) (Unpub.Disp.) (“Though records of litigation are subject to judicial notice for some purposes at the pleading stage, judicial notice is not a proper basis for rejecting factual allegations appearing in the plaintiffs complaint,” citing Sears, Roebuck & Co. v. Metropolitan Engravers, Ltd., 245 F.2d 67, 70 (9th Cir.1956)); Del Puerto Water Dist. v. U.S. Bureau of Reclamation, 271 F.Supp.2d 1224, 1234 (E.D.Cal. 2003) (“Judicial Notice is taken of the existence and authenticity of the public and quasi public documents listed. To the extent their contents are in dispute, such matters of controversy are not appropriate subjects for judicial notice”).
Therefore, the court will take judicial notice of the Standard Pacific Forms 4 filed with the SEC, but only to the extent defendants ask that it judicially notice the content of the documents and the fact of their filing.
2. Press Releases
Defendants next request that the court take judicial notice of Standard Pacific press
As plaintiffs have referenced these particular press releases in their complaint, moreover, they may considered under the “incorporation by reference” doctrine described in Branch, 14 F.3d at 454. Cf., e.g., Morgan, 2005 WL 2347125 at *7 (considering press releases referenced in plaintiffs complaint); Wietschner, 294 F.Supp.2d at 1108-09 (same). Plaintiffs do not object to defendants’ request, and the court will consider the Standard Pacific press releases as a result.
3. Conference Call Transcripts
Because the complaint quotes from various Standard Pacific conference call transcripts, defendants ask the court to take judicial notice of full transcripts of the calls, to provide the full context in which the information was disclosed to the market.
4. Standard Pacific Stock Prices
Defendants also request that the court take judicial notice of Standard Pacific’s historical stock prices.
5. Analyst Reports
Defendants seek to have the court take judicial notice of numerous analyst reports concerning Standard Pacific that were issued between June 14, 2005 and March 22, 2007.
While the court agrees with plaintiffs that the analyst reports may not be judicially noticed for the truth of the matters contained therein, it is appropriate to consider them for the purpose for which defendants offer them—i.e., to show “whether and when information was provided to the market.” As defendants note, in determining whether their alleged misrepresentations and omissions were material, “ ‘there must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the “total mix” of information made available.’ ” Basic Inc. v. Levinson, 485 U.S. 224, 231-32, 108 S.Ct. 978, 99 L.Ed.2d 194 (1988) (quoting TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449, 96 S.Ct. 2126, 48 L.Ed.2d 757 (1976)); see also California Public Employees’ Retirement System v. Chubb Corp., 394 F.3d 126, 169 (3d Cir. 2004) (considering analysts’ reports as part of the “total mix” of information available to a reasonable shareholder deciding how to vote); In re Enron Corp. Securities, Derivative & “ERISA” Litig., 490 F.Supp.2d 784, 808 (S.D.Tex.2007) (“Plaintiffs have also alleged that the analysts’ reports were part of the total mix of information upon which Plaintiffs based their investment decisions”).
Moreover, although plaintiffs do not directly cite a particular analysts’ report, they allege that “Standard Pacific was followed by securities analysts from several major brokerages, including Wachovia, Deutsche Bank and A.G. Edwards, who wrote reports that were redistributed to certain customers of such firms and were available through various automated data retrieval services.”
6. News Articles and FDIC Paper
Defendants next request judicial notice of various news articles regarding the housing market published during the class period.
Consequently, in deciding the motion to dismiss, the court will take judicial notice of Exhibits KKK and OOO—the two news articles referencing Standard Pacific—but not of the remaining articles that concern the general housing market. The court grants plaintiffs’ request to strike these portions of defendants’ request for judicial notice.
C. Defendants’ Motion to Dismiss— Pleading Standards
1. Rule 9(b) of the Federal Rules of Civil Procedure
Rule 9(b) of the Federal Rules of Civil Procedure provides that the “circumstances constituting fraud or mistake shall be stated with particularity.” Fed.R.Civ.Proc. 9(b). A securities fraud claim cannot survive a motion to dismiss under this rule merely by identifying an allegedly fraudulent statement made by defendants. In re GlenFed, Inc. Securities Litigation, 42 F.3d 1541,1548 (9th Cir.1994) (en banc). Rather, the complaint must allege “why the disputed statement was untrue or misleading when made.” Id. at 1549 (emphasis added). This requires that plaintiffs allege inconsistent contemporaneous statements and/or information known to defendants at the time the statement was made that demonstrate its falsity. Id. at 1548 (“[O]ur cases have consistently required that circumstances indicating falseness be set forth”).
2. The Private Securities Litigation Reform Act
In 1995, Congress passed the Private Securities Litigation Reform Act, 15 U.S.C. § 78u-4, which amended the Securities Exchange Act of 1934. The PSLRA modifies Rule 9(b)’s particularity requirement, “providing that a securities fraud complaint shall identify: (1) each statement alleged to have been misleading; (2) the reason or reasons why the statement is misleading; and (3) all facts on which that belief is formed.” Silicon Graphics, 183 F.3d at 996; 15 U.S.C. § 78u-4(b)(1). The statute mandates that in alleging that each allegedly misleading statement or omission was made with scienter, plaintiff “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). If the complaint does not contain such allegations, it must be dismissed. 15 U.S.C. § 78u4(b)(3)(A).
As the Silicon Graphics court stated, in enacting the PSLRA, “Congress intended to elevate the pleading requirements” that previously applied to securities fraud complaints. Silicon Graphics, 183 F.3d at 974; see also Tellabs, 127 S.Ct. at 2508 (describing the new procedures and new pleading standards set forth in PSLRA). Following the PSLRA, it is no longer sufficient to plead “facts showing simple recklessness or a motive to commit fraud and opportunity to do so.” Id. Rather, “a private securities plaintiff proceeding under the PSLRA must plead in great detail, facts that constitute strong circumstantial evidence of deliberately reckless or conscious misconduct.” Id. While the standard used in judging motions under Rule 12(b)(6) has not changed, it is clear that a securities fraud claim must meet the more stringent pleading requirements established by the PSLRA to avoid dismissal.
D. Sufficiency of Count I: Violation of Section 10(b) of the 1934 Act and Rule 10b-5
1. Legal Standards Governing Section 10(b) and Rule 10b-5
Rule 10b-5, promulgated by the Securities and Exchange Commission pursuant to Section 10(b) of the 1934 Act, makes it unlawful for any person to use “manipulative or deeep
The elements of a section 10(b) or Rule 10b-5 violation are (1) the misrepresentation or omission of a material fact, (2) reliance, (3) scienter, and (4) damages. See Paracor Finance, Inc. v. General Electric Capital Corp., 96 F.3d 1151, 1157 (9th Cir.1996) (en banc); McCormick v. Fund American Companies, Inc., 26 F.3d 869, 875 (9th Cir.1994). “Scienter” refers to “a mental state embracing intent to deceive, manipulate, or defraud.” Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193, n. 12, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976). While recklessness has long been held to constitute scienter (see Nelson v. Serwold, 576 F.2d 1332, 1337 (9th Cir.1978)), in Silicon Graphics the Ninth Circuit clarified that recklessness “satisfies scienter under § 10(b)” only to the extent that it “reflects some degree of intentional or conscious misconduct.” Silicon Graphics, 183 F.3d at 977.
2. Whether Plaintiffs’ Complaint Sufficiently Identifies Defendants’ Alleged Material Misrepresentations and/or Omissions
Rule 8(a) provides that any pleading “that states a claim for relief,” such as a complaint, “must contain,” inter alia, “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.Proc. 8(a)(2). Each allegation “must be simple, concise, and direct.” Fed.R.Civ.Proc. 8(d)(1). To state a claim for securities fraud, moreover, a complaint must specify “each statement alleged to have been misleading, [and] the reason or reasons why the statement is misleading.” 15 U.S.C. § 78u-4(b)(1).
Defendants argue that plaintiffs’ complaint fails to satisfy the PSLRA’s pleading requirement because it is a “classic example of prohibited puzzle-pleading.”
The court agrees that the specific alleged false and misleading statements are not readily identified in plaintiffs’ complaint. The pleading is 73 pages long, and has 145 numbered paragraphs. Paragraphs 29 through 103 appear under the heading, “Defendants’ Class Period Misrepresentations.”
Plaintiffs’ complaint is similar to pleadings dismissed by other courts for failure to comply with the requirements of the PSLRA. In Splash, for instance, plaintiffs’ complaint was 124 pages long, and 89 of the 184 paragraphs alleged defendants’ “False and Misleading Statements During the Class Period.” In re Splash Technology Holdings, Inc. Securities Litig., 160 F.Supp.2d at 1073. Plaintiffs separated the class period into six time blocks, and described various occasions on which false statements were made during those periods; following their description of statements made during a particular period, plaintiffs identified “generally th[e] types of statements, from the preceding recitation of specific alleged statements, which they contended] were false and misleading (without identifying specific paragraph(s) ... containing] those statements)....” They then “provide[d] a list of between five and nineteen ‘reasons’ that the statements were false at the time they were made (again, without identifying which alleged false statement(s) [were] belied by the facts stated in each ‘reason’).” Id. (emphasis original). The court noted that, to determine whether a particular statement was allegedly false, a reader had to look at the subsequent explanation paragraph and “wade through the catalogue of statements, or fragments of statements, [set forth in] the preceding four paragraphs (each of which spans an entire page).” Id.
After determining that plaintiffs challenged a particular statement, or portion thereof, the court stated, the reader then had to “sift through” the various reasons provided to find out the basis for plaintiffs’ belief that the statement was false or misleading when made. Id. at 1074. Plaintiffs employed a second approach in pleading the allegedly false statements as well, which was to quote long passages from various written analysts’ reports and press releases, highlight portions of the quoted passages, and summarize in a paragraph several allegedly false and misleading statements, or types of statements, contained therein. Id.
The court found that plaintiffs had “ ‘left it up to defendants and the court to try to figure out exactly what the misleading statements [were], and to match the statements up with the reasons they [were] false or misleading.’ ” Id. (quoting In re Autodesk, Inc. Sec. Litig., 132 F.Supp.2d 833, 841 (N.D.Cal.2000)). It observed that “‘[t]he predictable demands of reviewing such a complaint abuse judicial resources. When attorneys admitted to practice in Federal courts prepare complaints, neither the Court nor opposing counsel should be required to expend time and effort searching through large masses of conelusory, argumentative, evidentiary and other extraneous allegations in order to discover whether the essentials of claims asserted can be found in such a melange.’” Id. at 1074-75 (citing Wenger v. Lumisys, Inc., 2 F.Supp.2d 1231, 1251 (N.D.Cal.1998)). Rather, the court stated, “ ‘[i]t is the duty and responsibility, especially of experienced counsel, to state those essentials in short, plain, and non-redundant allegations.’ ” Id. at 1075 (quoting Wenger, 2 F.Supp.2d at 1244). It noted that “ ‘[i]n the context of securities class action complaints, courts have repeatedly lamented plaintiffs’ counsels’ tendency to place the burden [ ] on the reader to sort out the statements and
As a result, the court found that plaintiffs had “failed to set forth a ‘short and plain’ statement of their claims in violation of Rule 8(a) and [had] failed to make each allegation ‘simple, concise and direct’ in violation of [Rule 8(d) ].” Id. It also held that, “in contravention of the PSLRA, plaintiffs [had] failed to craft a complaint in such a way that a reader can, without undue effort, divine precisely which statements (or portions of statements) are alleged to be false or misleading, and the reason or reasons why each statement is false or misleading.” Id. It therefore granted defendants’ motion to dismiss the complaint in its entirety. Id.
In their opposition, plaintiffs argue that the complaint adequately identifies the allegedly false and misleading statements.
a. Standard for Pleading Scienter
As noted, “ ‘[t]he PSLRA significantly altered pleading requirements in private securities fraud litigation by requiring that a complaint plead with particularity both falsity and scienter.’” Middlesex Retirement System v. Quest Software Inc., 527 F.Supp.2d 1164, 1178-79 (C.D.Cal.2007) (quoting In re Vantive Corp. Sec. Litig., 283 F.3d 1079, 1084 (9th Cir.2002)). “ ‘The purpose of this heightened pleading requirement was generally to eliminate abusive securities litigation and particularly to put an end to the practice of pleading “fraud by hindsight.” ’ ” Id. at 1179 (quoting In re Vantive Corp. Sec. Litig., 283 F.3d at 1084-85).
In addition to pleading falsity adequately, a complaint must “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). “The Ninth Circuit has interpreted th[is] scienter pleading requirement as meaning that plaintiffs ‘must plead, in great detail, facts that constitute strong circumstantial evidence of deliberately reckless or conscious misconduct.’ ” Middlesex Retirement System, 527 F.Supp.2d at 1179 (quoting Silicon Graphics, 183 F.3d at 974). “The Silicon Graphics Court further clarified that ‘recklessness only satisfies scienter under § 10(b) to the extent that it reflects some degree of intentional or conscious misconduct.’ ” Id. (quoting Silicon Graphics, 183 F.3d at 977). “The requisite recklessness must be an ‘extreme departure from the standards of ordinary care, and ... present[ ] a danger of misleading buyers that is either known to the defendant or so obvious that the actor must have been aware of it.’ ” Id. (quoting Silicon Graphics, 183 F.3d at 984). “A plaintiff cannot proceed on pleadings averring scienter based on mere ‘motive and opportunity’ but instead must ‘state specific facts indicating no less than a degree of recklessness that strongly suggests actual intent.’ ” Id. (quoting Silicon Graphics, 183 F.3d at 979).
The Supreme Court recently elaborated on this “strong inference” standard for pleading scienter in Tellabs, 551 U.S. 308, 127 S.Ct. 2499, 168 L.Ed.2d 179. “Agreeing with the standard in the Ninth Circuit, the Court held that ‘courts must consider the complaint in its entirety, as well as other sources courts ordinarily examine when ruling on Rule 12(b)(6) motions to dismiss____The inquiry, as several Courts of Appeals have recognized, is whether all of the facts alleged, taken collectively, give rise to a strong inference of scienter, not whether any individual allegation, scrutinized in isolation, meets that standard.’ ” Middlesex Retirement System,
“Under the PSLRA ‘when determining whether plaintiffs have shown a strong inference of scienter, the court must consider all reasonable inferences to be drawn from the allegations, including inferences unfavorable to the plaintiffs.’ ” Id. (quoting Gompper v. VISX, Inc., 298 F.3d 893, 897 (9th Cir.2002)). “However, the ‘inference that the defendant acted with scienter need not be irrefutable, i.e., of the “smoking-gun” genre, or even the “most plausible of competing inferences.” ... [T]he inference of scienter must be more than merely “reasonable” or “permissible[,]” [however]—it must be cogent and compelling ... in light of other explanations.’ ” Id. (quoting Tellabs, 127 S.Ct. at 2510). “[A] ‘complaint will survive ... only if a reasonable person would deem the inference of scienter cogent and at least as compelling as any opposing inference one could draw from the facts alleged.’ ” Id. (quoting Tellabs, 127 S.Ct. at 2510) (emphasis added in Middlesex).
b. Plaintiffs’ Allegations of Scienter
Defendants contend plaintiffs have not pled scienter with the degree of particularity required under the PSLRA.
Throughout the complaint, plaintiffs allege that defendants’ positive statements, assurances, and forecasts regarding sales and backlog were false and misleading. They contend the following allegations raise a strong inference that defendants’ statements were intentionally false or deliberately reckless: (1) backlog, sales, and earnings projections were based on internal sales reports that contained false data; (2) defendants knew that the geographic markets into which it was expanding were “already overheated” and at risk; (3) defendants certified in Standard Pacific’s Forms 10-Q and 10-K that none of the information presented in those reports was false or misleading; (4) defendants’ public statements concerned Standard Pacific’s core business operations.
As respects the alleged falsity of defendants’ projections and forecasts, plaintiffs contend that defendants had “actual knowledge” of the statements’ falsity because of the faulty data contained in the Cognos reports on which they were based.
CW1 discovered in December 2005 that the company’s 4Q05 sales data for some divisions listed sales for which no deposit had been received or escrow opened; deposits and open escrows ordinarily supported each division’s sales projections.
Plaintiffs argue that defendants’ access to these internal reports creates a strong inference of scienter.
Evaluating the sufficiency of these allegations, the Ninth Circuit observed that, absent hard numbers or other specific information, general references to the existence of sales data and general assertions regarding what the data showed do not satisfy the pleading requirements of the PSLRA. Id. (citing Lipton v. Pathogenesis Corp., 284 F.3d 1027, 1035-36 (9th Cir.2002)). The court noted, however, that plaintiffs had alleged hard numbers and made “specific allegations regarding large portions of Oracle’s sales data,” in that “[t]he Complaint contain[ed] specific statements from former employees and managers in various regions of the United States (and working in a number of different departments) testifying to a major slowdown in sales.” Id. Together with highly suspicious stock sales, these facts led the Ninth Circuit to conclude that plaintiffs had pled defendants acted with the requisite scienter. Id. at 1234.
Here, plaintiffs plead that the Cognos reports contained detailed divisional sales data, and that the contents of those reports contradicted defendants’ optimistic sales forecasts. They identify who produced the reports and how defendants came into possession of them. The specifies plaintiffs provide regarding the reports adequately plead their reliability, and are sufficient to create a strong inference that defendants acted with deliberate or conscious recklessness in basing their public statements regarding sales and backlog on the reports. See id. at 1230-31 (“Past securities fraud litigants have relied on the fact that corporations typically produce internal reports, and have alleged
As the Supreme Court instructs, however, “[t]he strength of an inference cannot be decided in a vacuum. The inquiry is inherently comparative: How likely is it that one conclusion, as compared to others, follows from the underlying facts? To determine whether the plaintiff has alleged facts that give rise to the requisite ‘strong inference’ of scienter, a court must consider plausible non-culpable explanations for the defendant’s conduct, as well as inferences favoring the plaintiff.” Tellabs, 127 S.Ct. at 2510. Defendants argue that numerous facts in the complaint create a compelling inference of non-fraudulent intent.
They note, for example, that the complaint alleges that as sales at Standard Pacific’s various divisions fell short of forecasts, the company repeatedly lowered its delivery and earnings guidance throughout 2006 and into 2007.
The complaint also alleges that Standard Pacific expressly advised investors that these
Defendants also allegedly warned investors that, although they had lowered expectations, actual results might still fall short of projections. In the October 26, 2006 press release, Standard Pacific stated that its guidance did
“not reflect additional inventory impairment charges or write-offs on deposits and capitalized preacquisition costs for abandoned projects. Our regular quarterly project budget update and inventory impairment analysis could lead to additional charges if market conditions change or we are not able to achieve our projected absorption rates with our existing pricing structure. In addition, we continue to evaluate land controlled in our pipeline which could lead to additional deposit and cost write-offs.”218
In a February 1, 2007 press release, Standard Pacific stated: “If general or local market conditions deteriorate further, or our competitors change their pricing strategies, we may have to further reduce home prices or adjust our discounts and concessions which may, in turn, trigger additional impairments.”
Defendants argue that rather than misleading the market as to the true state of the company, Standard Pacific “unambiguously informed investors that it was experiencing declines in sales, and that decreasing demand was likely to negatively impact future earnings.”
Specifically, plaintiffs have failed sufficiently to connect the rate at which defendants reduced their forecasts and projections to their allegation that the Cognos reports contained faulty sales data. Plaintiffs rely on CWl’s assertion that Standard Pacific’s results were consistently 25% under its projections, and her speculative statement that the projections were “likely” 35% to 50% greater than what should have been forecast.
Taken as a whole, however, plaintiffs’ allegations do not give rise to a “strong inference” that, at the time they made the statements, defendants knew or should have
Plaintiffs’ allegations regarding defendants’ SEC filings also fail adequately to plead scienter. Section 302 of the Sarbanes-Oxley Act requires the principal executive and financial officers to certify certain aspects of a company’s Forms 10-Q and 10-K. 15 U.S.C. § 7241. Defendants signed Standard Pacific’s SEC filings pursuant to section 302; plaintiffs contend this “provide[s] strong evidence that defendants were at least deliberately reckless in causing and permitting the fraudulent statements to be published.”
E. Sufficiency of Count II: Violation of Section 20(a) of the 1934 Act
Section 20(a) imposes joint and several liability on persons who directly or indirectly control a violator of the securities laws. The section provides:
“Every person who, directly or indirectly, controls any person liable under any provision of this chapter or of any rule or regulation thereunder shall also be liable jointly and severally with and to the same extent as such controlled person ... is hable, unless the controlling person acted in good faith and did not directly or indirectly induce the act or acts constituting the violation or cause of action.” 15 U.S.C. § 78t(a).
A prima facie case of control person liability requires evidence (a) that a primary violation of the securities laws occurred and (b) that defendant directly or indirectly controlled the person or entity committing the primary violation. See, e.g., Paracor Finance, 96 F.3d at 1161; see also Wool v. Tandem Computers Inc., 818 F.2d 1433,1440 n. 8 (9th Cir.1987) (plaintiffs must “prove that the controlled person ... violated a rule or regulation under the 1934 Act causing injury” to plaintiffs, citing Christoffel v. E.F. Hutton & Co., 588 F.2d 665, 667-68 (9th Cir.1978)). Plaintiffs need not prove the individual defendant’s scienter or “culpable participation” in the alleged wrongdoing. Id. (quoting Arthur Children’s Trust v. Keim, 994 F.2d 1390,1396 (9th Cir.1993)). Because the court has dismissed plaintiffs’ section 10(b) and Rule 10b-5 claims, there is no primary violation on which to predicate section 20(a) liability. Consequently, the court dismisses plaintiffs’ section 20(a) claim as well.
F. Sufficiency of Count III: Violation of Section 20A of the 1934 Act Against Parnés
Plaintiffs assert insider trading claims against Parnes under § 20A of the 1934 Act, 15 U.S.C. § 78t-1(a), based on Parnes’ sales
“Any person who violates any provision of this title ... or the rules or regulations thereunder by purchasing or selling a security while in possession of material, nonpublic information shall be liable in an action in any court of competent jurisdiction to any person who, contemporaneously with the ... sale of securities that is the subject of such violation, has purchased ... securities of the same class.” 15 U.S.C. § 78t-1(a) (emphasis added).
Plaintiffs allege that during the class period, Parnés occupied positions within Standard Pacific that gave him access to confidential information concerning the company, its operations, finances, financial condition, and future prospects.
Defendants argue that the complaint fails to state a § 20A claim against Parnes for the same reason it fails to state a claim under § 10(b).
As plaintiffs have failed to plead falsity and scienter with particularity, they have likewise failed to establish that Parnés has committed an independent violation of the 1934 Act. The court therefore grants defendants’ motion to dismiss with leave to amend.
III. CONCLUSION
For the foregoing reasons, defendants’ motion to dismiss is granted. Plaintiffs may file an amended complaint within forty-five (45) days of the entry date of this order.
. Consolidated Class Action Complaint ("Complaint”), 112.
. Id., 11139.
. Plaintiffs’ complaint comprises 73 pages and 145 numbered paragraphs.
. Complaint, H 1.
. Id.
. Id.
. Id.
. Id., 1124. In spring of 2007, Scarborough became president of the company as well. (Id.).
. Id., H 25.
. Id., 111121-22.
. Id.
. Id.
. Id., 1123.
. Id., 1129. As with several of the other releases they reference, plaintiffs offer lengthy quotations from this press release. (See Complaint at 10-
. Id.
. Id., H29.
. Id., 1130.
. Id.
. Id.
. Id.
. Id., 1131. Scarborough and Parnés signed and certified the Form 10-Q pursuant to § 906 of the Sarbanes-Oxley Act of 2002. (Id.)
. Id., 11 32.
. Id.
. Id., H 36.
. Id.
. Id., 11 37.
. Id., 133.
. Id.
. Id.
. Id., H 4.
. Id.
. Id.
. Id.
. Id., V 5.
. Id., 11 6. Although not expressly stated, it appears that this was contrary to usual practice in which divisional sales projections were supported by deposits and open escrows.
. Id.
. Id., 1139.
. Id.
. Id.
. Id.
. Id., 1140.
. Id.
. Id.
. Id.
. Id., 11 41.
. Id., 1142.
. Id., 116.
. Id.
. Id., 1143.
. Id., 1144.
. Id.
. Id.
. Id.
. Id.
. Id.
. Id.
. Id., IT 45.
. Id.
. Id.
. Id., 1111,47-48.
. Id., IT 49.
. Id., IT 50.
. The court presumes this refers to the Central Valley of California.
. Id.
. Id.
. Id., IT 50.
. Id., IT 9.
. Id., IT 7.
. Id., 1150.
. Id., 1111 9, 50.
. Id., IT 9.
. Id., 1T1T 9, 50.
. Id., H 50.
. Id.
. Id.
. Id., 1151.
. Id.
. Id.
. Id., 11 52.
. Id.
. Id.
. Id.
. Id., 153.
. Id.
. Id., 1154.
. Id.
. Id.
. Id.
. Id., 11 55.
. id., H 58.
. Id.
. Id., 11 59.
. Id., U 60.
. Id., 11 60.
. Id., 11 62.
. Id.
. Id.
. Id.
. Id., 11 63.
. Id.
. Id., 11 64.
. Id.
. Id., 11 65.
. Id.
. Id.
. Id.
. Id., V 66.
. Id.
. Id.
. Id., 11 67.
. Id., 11 68.
. Id.
. Id.
. Id., 1169.
. Id., 1172.
. Id.
. Id., 1173.
. Id.
. Id.
. Id., 174.
. Id., V 75.
. Id., 1176.
. Id.
. Id.
. Id.
. Id.
. Id.
. Id.
. Id., 11 77.
. Id.
. Id., H 79.
. Id.
. Id., 11 80.
. Id., If 81.
. Id.
. Id.
. Id., H 82.
. Id.
. Id.
. Id., U 84.
. Id., 11 85.
. Id., Hit 86-87.
. Id., 11 88.
. Id.
. Id., H 90.
. Id.
. Id.
. Id., 11 91.
. Id., 11 92.
. Id.
. Id., 1189.
. Id.
. Id.
. Id.
. Id.
. Id., 11 94.
. Id.
. Id.
. Id., 111197-98.
. Id., 1199.
. Id., II100.
. Id., H 101.
. Id., H 112.
. Id.
. Taking judicial notice of matters of public record does not convert a motion to dismiss into a motion for summary judgment. MGIC Indemnity Corp. v. Weisman, 803 F.2d 500, 504 (9th Cir. 1986).
. Defendants' Request for Judicial Notice ("Def.’s RJN”) at 5-6.
. Id. at 2-3.
. Defendants' Opposition to Plaintiffs' Motion to Strike or, in the Alternative, to Convert Defendants’ Motion to Dismiss Into a Motion for Summary Judgment ("Def.’s RJN Opp.”) at 9-10.
. Lead Plaintiffs’ Memorandum of Points and Authorities in Support of Motion to Strike or, in the Alternative, to Convert Defendants’ Motion to Dismiss Into a Motion for Summary Judgment ("Pl.’s RJN Mot.’’) at 7.
. Def.’s RJN Opp. at 10.
. Reply Memorandum of Points and Authorities in Support of Lead Plaintiffs’ Motion to Strike or, in the Alternative, to Convert Defendants’ Motion to Dismiss Into a Motion for Summary Judgment ("PL’s RJN Reply”) at 6.
. Def.’s RJN at 7.
. Id.
. Id.
. Id. at 8.
. See id. at 3.
. Id. at 10.
. Def.'s RJN at 9.
. Id.
. PI. 's RJN Reply at 2-3.
. Id. at 4.
. Complaint, ¶ 117(d).
. Def.'s RJN at 10.
. Id., Exhs. KKK, OOO.
. The PSLRA creates a "safe harbor” for "forward-looking” statements that are immaterial, are limited by "meaningful cautionary statements,” or are made without actual knowledge of their falsity. 15 U.S.C. §§ 77z-2(c), 78u-5(c). Such statements include, but are not limited to, statements of future economic performance and management plans and objectives. 15 U.S.C. §§ 77z-2(i), 78u-5(i). This "safe harbor" has much the same effect as the "bespeaks caution” doctrine, which provides that forward-looking representations that contain adequate cautionary language or risk disclosure protect a defendant from securities liability. See, e.g., Plevy v. Haggerty, 38 F.Supp.2d 816, 830 (C.D.Cal.1998).
. Defendants Andrew H. Parnes and Stephen J. Scarborough's Notice of Motion and Motion to Dismiss Consolidated Class Action Complaint ("Def.’s Mot.”) at 9.
. See Complaint, VH 29-34.
. Id., K 35.
. Def.'s Mot. at 9.
. See Complaint, VH 29-103.
. See, e.g., id., U1135, 43, 50, 62.
. There is no indication that plaintiffs allege that only the italicized portions of the statements quoted are false and misleading.
. Wenger cites various cases in which courts handling in securities fraud actions have addressed this issue. See Wenger, 2 F.Supp.2d at 1244 (quoting In re Oak Tech. Sec. Litig., No. 96-20552 SW, 1997 WL 448168, *5 (N.D.Cal. Aug. 1, 1997), and citing In re GlenFed. Inc. Sec. Litig., 42 F.3d at 1544 (stating that such “puzzle-style” complaints are an "unwelcome and wholly unnecessary strain on defendants and the court system"); May v. Borick, CV 95-8407 LGB Ex, 1997 WL 314166, *8 (C.D.Cal. Mar. 3, 1997) ("[The complaint’s] organization obfuscates rather than clarifies. Plaintiff's failure to address defendants’ allegedly misleading statements individually, or even by category, and to state why each statement, or category of statements is misleading, renders this Court's task, and the task of the defendants excessively difficult”); Shuster v. Symmetricom, Inc., C 94-20024 RMW PVT, 1997 WL 820967, *1 (N.D.Cal. June 25, 1997) (“The Complaint as it now stands is a rambling set of allegations which is almost impossible to effectively review.... Plaintiff sets forth lengthy quotes from various releases by defendants’ officers and a securities analyst but does not make clear what portion of each quote constitutes a false presentation”); Kane v. Madge Networks, N.V., 96-20652 RMW (N.D.Cal.1997) ("This maze-like style renders it almost impossible to determine the sufficiency of plaintiffs’ explanations as to why the alleged statements were false or misleading when they were made"); and In re Conner Peripherals, Inc., C 95-2244 MHP, 1996 WL 193811, *1 (N.D.Cal. Jan. 18, 1996) ("The complaint as written requires the court to excavate for actionable claims.... Judicial resources are too scarce and worthy cases too pressing for a case to speiid its time rooting around in bloated complaints by experienced lawyers for a handful of actionable allegations”)).
. Lead Plaintiffs' Opposition to Defendants' Motion to Dismiss ("Pl.’s Opp.”) at 10.
. Id. at 10-17.
. Id.
. By way of example, paragraph 90 of the complaint quotes from a Standard Pacific press release issued on April 11, 2007. (Id., 1190). Plaintiffs highlight certain phrases from the release, including statements that net new home orders for the first two months of the second quarter of 2007 were "nearly 20% below the Company’s business plan for the two-month period”; that "[t]he overall decrease in orders was driven by continued weakness in Florida and Arizona, while order activity was up over 13% year over year in California”; and that “[o]rders were flat in the Carolinas, while down in Texas.” (Id.). In paragraph 92, plaintiffs state that on June 14, 2007, Scarborough spoke at the Bank of America 2007 Homebuilders Conference and remarked, inter alia, that Standard Pacific had seen stabilization in some of its California markets and viewed Las Vegas as a good market going forward. (Id., 11 92).
Plaintiffs assert in paragraph 93 that defendants’ "positive statements, assurances and forecasts made in June 2007 were false or misleading when made because sales in the California market were not stabilizing as defendants represented.” (Id., 11 93). They further state that CW8 reported that incentives had been offered in communities throughout California; that according to CW2, Las Vegas was not a good market for Standard Pacific; and that CW9 and CW10 stated that decreased orders and sales were prevalent in Florida, and layoffs had begun in Tampa. (Id.).
. Cf. also In re Metropolitan Securities Litig., 532 F.Supp.2d 1260, 1277-78 (E.D.Wash.2007) ("While the Court recognizes the hard work Plaintiffs’ counsel no doubt expended in drafting the SCAC, the SCAC nevertheless fails to satisfy the 'short and plain statement’ requirement of Rule 8. Like the complaint dismissed in Wenger, the SCAC repeats many allegations three or four times[,] ... does not indicate which among the [many] pages of statements are alleged to be false, does not follow each allegedly false statement with factors showing it was false [ ... and] merely throws the statements and the alleged 'true facts’ together in an undifferentiated clump and apparently expects the reader to sort out and pair each statement with a supposedly relevant 'true fact.’ ... Moreover, the SCAC's length and organization make it even more cumbersome and time-consuming than the complaints dismissed in Splash and Wenger. While the complaint in Splash was 124 pages, and that in Wenger 86 pages, the SCAC 'tips the scales’ at 317 pages in length. It appears that the Plaintiffs, blessed with the wealth of facts disclosed in the Bankruptcy Examiner’s report, felt the need to incorporate as many facts as possible into the complaint. The purpose of a complaint is not, however, to inform the opposing party of every fact underlying the plaintiff's claims. The proper time for such detailed revelation is discovery. A complaint need only set forth sufficient facts to notify the opposing party of the claims against it and the factual basis of those claims. Factual allegations will, of course, be lengthier and more detailed when a plaintiff's claims must be alleged with particularity. As explained below, however, even complaints alleging fraud must be more 'user-friendly' than the SCAC. The Plaintiffs will be permitted to amend their complaint in order to conform with the requirements of Rule 8. The Court recognizes that this task will be both challenging and burdensome. However, the American legal system places this burden on the party seeking relief, rather than the party responding to a claim. Nor is it appropriate for a trial court to effectively involve itself in the drafting process by puzzling out the details of a plaintiff's claims," citing Wenger, 2 F.Supp.2d at 1243); Kelley v. Rambus, Inc., C 07-1238 JF, 2007 WL 3022544, *2 (N.D.Cal. Oct. 15, 2007) ("In [In re Leapfrog Enters., Inc. Sec. Litig., C 03-05421, 2006 WL 2192116, *1 (N.D.Cal. Aug. 1, 2006)], the court expressed 'concern that the manner which the 147-page consolidated amended complaint is arranged makes it difficult, if not impossible, to evaluate the pleadings and determine whether the requirements of the[PSLRA] are met.' This Court shares the same concern in the instant case. The heightened pleading standard is not an invitation to adopt a ‘kitchen-sink’ approach to a pleading. Indeed, in another context requiring heightened pleading, the Ninth Circuit has noted that ‘[a] heightened pleading standard is not an invitation to disregard [ ] Rule 8's requirement of simplicity, directness, and clarity,’ ” quoting McHenry v. Renne, 84 F.3d 1172, 1178 (9th Cir. 1996)); Central Laborers Pension Fund v. Merix Corp., CV 04-826 MO, 2005 WL 2244072, *4 (D.Or. Sept. 15, 2005) ("Despite a voluminous 110-page complaint, Plaintiff fails to identify with particularity each allegedly misleading statement upon which Plaintiff's claims rest. While the complaint lists countless statements by the Merix Defendants, it does not identify which of these are allegedly false. For example, paragraph 60 of the complaint notes that Merix’s January 6, 2004, Form 10-Q contained several statements. It does not state which of these statements, if any, were allegedly false. Portions of some of the statements cited in the complaint are written in boldface, with the possi
. Def.’s Mot. at 20.
. Plaintiffs' failure to plead specifically which statements were allegedly false or misleading makes it difficult to analyze whether the complaint adequately pleads that the statements were made intentionally or with deliberate recklessness. As a result, the court focuses in this order on the general categories of false statements plaintiffs will likely reassert in their amended complaint—i.e., statements and omissions regarding sales projections, backlog, and company performance.
. Pl.’s Opp. at 25-29.
. Id. at 25.
. Complaint, 114.
. Id.
. Id.
. Id.
. Id., 115.
. Id., V 6.
. Id.
. Id., H 9.
. Id.
. PL’s Opp. at 26.
. Def.'s Mot. at 21.
. Id. at 23.
. Id. at 16-17; Def.’s RJN, Exhs. K, L, M, N, P. The complaint also states that in early second quarter 2006, "defendants directed Standard Pacific’s divisions to revise their 2006 forecasts downward to reflect the declining market.” (Complaint, H 50).
. See Complaint, V 52.
. Id., 1165.
. Id., 1166.
. Id., H 76.
. Def.'s Mot. at 17.
. See, e.g., Complaint, 11115 (“Partial revelations about the Company’s declining health throughout the Class Period allowed some of the artificial inflation to come out of Standard Pacific stock, however, due to defendants’ lack of full and complete disclosure, false assurances and continuing misrepresentations, Standard Pacific stock continued to trade at artificially inflated prices through the balance of the Class Period”).
. At the hearing, plaintiffs asserted that, in addition to alleging that Standard Pacific's projections were overstated, they also alleged that the actual sales data reported was false. Plaintiffs contend that the facts alleged in the complaint support a strong inference of scienter with respect to false sales reports. Because plaintiffs failed to allege precisely which sales reports they contend were false, the court cannot presently determine whether they have adequately pled that false sales reports were made, and that they were made with the requisite scienter. The court's discussion regarding scienter, therefore, is limited to plaintiffs' allegations that forward-looking projections and earnings guidance were false and misleading.
. Pl.'s Opp. at 27.
. The court declines to address plaintiffs' argument that scienter may be inferred because "the falsehoods and concealed information related to Standard Pacific's core business and operations.” (Pl.'s Opp. at 28). Plaintiffs cite South Ferry LP No. 2 v. Killinger, 399 F.Supp.2d 1121 (W.D.Wash.2005), in support of the proposition that " 'it may be inferred that facts critical to a business's core operations or an important transaction are known to a company's key officers.’ " Id. at 1139 (quoting In re Northpoint Communications Group, Inc. Sec. Litig., 184 F.Supp.2d 991, 998 (N.D.Cal.2001)). Despite this fact, "[p]laintiffs must show through sufficiently specific factual allegations that Defendants had knowledge, constructive or actual, of the data alleged to be contradictory to their statements. Thus, the showing is two-fold: (1) that there was information contradictory to the challenged statements, and (2) that Defendants knew or should have known this information by virtue of their roles at the company." Id.
. Because plaintiffs’ complaint must be dismissed for failure to plead falsity and scienter, the court need not address defendants’ arguments that plaintiffs have failed adequately to plead loss causation and that the alleged misstatements are forward-looking and protected by the PSLRA’s "safe harbor" provisions.
. See In re Autodesk, Inc. Securities Litig., 132 F. Supp.2d at 846 (instructing plaintiffs when amending complaint to
"[s]tate particular facts giving rise to a strong inference of a degree of recklessness that strongly suggests actual intent to deceive;
a. If plaintiffs allege that defendants received or possessed documents or information that was at odds with the alleged false or misleading statement, state all the relevant facts supporting this belief;
b. If plaintiffs allege that the information was contained in documents, state the title, date, and contents of such documents (with particularity), the identity of the person or persons who drafted such documents, the identity of the person or persons who reviewed such documents, how plaintiffs learned of the existence of the documents, and how plaintiffs know that defendants received these documents;
c. If plaintiffs allege that the information was in a form other than written, state the source or sources of their information (how they learned of this information allegedly possessed by defendants) and how they know that the defendants possessed this information”).
. Complaint, 11137.
. Id., H 138.
. Id., 1140.
. Def.’s Mot. at 35.