United States District Court, District of Columbia
PLUMBERS LOCAL #200 PENSION FUND, individually and on behalf of all others similarly situated, Plaintiff,
WASHINGTON POST COMPANY, DONALD E. GRAHAM, and HAL. S. JONES, Defendants
For PLUMBERS LOCAL #200 PENSION FUND, Individually and on Behalf of All Others Similarly Situated, Plaintiff: Roger M. Adelman, LEAD ATTORNEY, LAW OFFICE OF ROGER M. ADELMAN, Washington, DC; David J. George, Robert J. Robbins, PRO HAC VICE, ROBBINS GELLER RUDMAN & DOWD LLP, Boca Raton, FL.
For WASHINGTON POST COMPANY, HAL S. JONES, DONALD E. GRAHAM, Defendants: Kevin Taylor Baine, LEAD ATTORNEY, WILLIAMS & CONNOLLY LLP, Washington, DC; Steven M. Farina, LEAD ATTORNEY, WILLIAMS & CONNOLLY, LLP, Washington, DC.
For IRON WORKERS LOCAL NO. 25 PENSION FUND, Movant: David J. George, Robert J. Robbins, LEAD ATTORNEYS, ROBBINS GELLER RUDMAN & DOWD LLP, Boca Raton, FL; Roger M. Adelman, LEAD ATTORNEY, LAW OFFICE OF ROGER M. ADELMAN, Washington, DC; Brian O. O'Mara, ROBBINS GELLER RUDMAN & DOWD LLP, San Diego, CA.
BARBARA J. ROTHSTEIN, UNITED STATES DISTRICT JUDGE.
MEMORANDUM OPINION GRANTING DEFENDANTS' MOTION TO DISMISS
This matter is before the court on Defendants' Motion to Dismiss the Amended Consolidated Class Action Complaint [Docket No. 37; Filed May 11, 2012] (" Motion to Dismiss" ). Plaintiff filed an Opposition to the Motion to Dismiss on June 25, 2012 [Docket No. 39], and Defendants filed a Reply on August 9, 2012 [Docket No. 41]. Having considered the parties' arguments, case pleadings, and relevant case law, the court finds that oral argument is unnecessary. Accordingly, for the reasons set forth below,
IT IS HEREBY ORDERED that the Motion to Dismiss [#37] is GRANTED.
This matter involves allegations that Defendants committed securities fraud. On December 23, 2011, the court granted Defendants' first motion to dismiss on the grounds that the amended complaint pending at that time failed to plead a strong inference of scienter, a crucial element in securities fraud jurisprudence. Order [#29] at 22. However, the court agreed to permit Plaintiff to amend its complaint to attempt to cure the deficiency. Order [#34] at 3. The Amended Complaint [Docket No. 35], which is the operative pleading for resolving the Motion to Dismiss, was filed on March 13, 2012.
As set forth in the court's prior Order, Plaintiff is the lead plaintiff in a class action lawsuit against Defendants Washington Post (" WPO" ), Donald E. Graham, the Chairman of the Board and CEO of WPO, and Hal S. Jones, the Senior Vice President and CFO of WPO. Plaintiff claims that defendants violated § § 10(b) and 20(a) of the Securities Exchange Act and Securities Exchange Commission Rule 10b-5. WPO is the parent company of Kaplan, Inc. (" Kaplan" ). Among Kaplan's holdings is Kaplan Higher Education Corp. (" KHE" ), a private, for-profit college with approximately seventy campuses nationwide. The lawsuit addresses dramatic decreases in the value of WPO stock in temporal proximity to revelations that the Department of Education (" DOE" ) and elected officials were investigating admissions and financial aid fraud throughout the for-profit college industry. Order [#29] at 2.
During the Class Period, which is pled as July 31, 2009 through August 13, 2010, Plaintiff alleges that Defendants " oversaw a for-profit education company built and dependent upon defrauding students and the federal government." Plaintiff's Opposition [#39] at 3. More specifically, Plaintiff contends that the individually named Defendants misled the market by " failing to disclose that WPO's 'strong enrollment growth' was driven not by affirmative efforts to operate within the law, but almost exclusively by predatory enrollment practices, illegal compensation policies, and [other] violations . . . ." Id.
As noted above, the court's prior dismissal Order focused on the lack of allegations that gave rise to the strong inference
that Defendants knowingly misled the market about the value of KHE and the business practices that contributed to that value. The court's analysis centered on the conduct of and information attributable to Defendants Graham and Jones, who were the WPO designees to communicate with the market. See United States v. Philip Morris USA Inc., 566 F.3d 1095, 1118-23, 386 U.S. App. D.C. 49 (D.C. Cir. 2009) (noting that " to determine whether a corporation made a false or misleading statement with specific intent to defraud, [the court looks] to the state of mind of the individual corporate officers and employees who made, ordered, or approved the [market] statement[s]" at issue). Specifically, the court focused on seven allegations and omissions from the prior complaint that spoke to the issue of scienter of the individual Defendants. Order [#29] at 5-6. Because the inference that gives rise to a strong showing of scienter may be shown by a combination of information, the court considers the prior information alongside the new allegations contained in the Amended Complaint.
II. STANDARD OF REVIEW
To state a private securities fraud claim, a complaint must sufficiently plead that: (1) there was a material misstatement or omission; (2) made with scienter, i.e., an intent to defraud; (3) in connection with the sale or purchase of security; (4) that was relied upon by plaintiffs; (5) which resulted in economic loss; and (6) that loss was caused by the material misstatement or omission. Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 341-42, 125 S.Ct. 1627, 161 L.Ed.2d 577 (2005). To curb potentially abusive lawsuits, motions to dismiss claims related to securities fraud are reviewed under the standard prescribed by the Private Securities Litigation Reform Act (" PSLRA" ). Metzler Inv. GMBH v. Corinthian Colleges, Inc., 540 F.3d 1049, 1054-55 (9th Cir. 2008). This heightened pleading standard exceeds those set forth in Fed.R.Civ.P. 8 & 9. See Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 313, 317, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007). In particular, a pleading must " specify each statement alleged to have been misleading [and] the reason or reasons why the statement is misleading" and 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)(1), (2).
In performing the relevant analysis, the court must accept all factual allegations in the complaint as true. Tellabs, 551 U.S. at 322. The court must also " 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."  Id. In relation to
scienter, " [t]he inquiry . . . is whether all of the facts alleged, taken collectively, give rise to a strong inference of scienter." Id. at 323 (emphasis added). This consideration necessarily requires the court to consider all inferences, both for and against plaintiffs' claims. Id. at 323-24. " 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. at 324.
Sufficient allegations of scienter are necessary to plead securities fraud. Scienter requires a showing that Defendants intended " to deceive, manipulate, or defraud." Ernst & Ernst v. Hochfelder, 425 U.S. 185, 188, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976). The D.C. Circuit has defined scienter as " [e]ither intentional wrongdoing or 'extreme recklessness.'" Liberty Prop. Trust v. Republic Props. Corp., 577 F.3d 335, 342, 388 U.S. App. D.C. 70 (D.C. Cir. 2009) (citation omitted). While extreme recklessness is a lesser form of intent, it is not a " 'should have known' standard." Dolphin & Bradbury, Inc. v. SEC, 512 F.3d 634, 639, 379 U.S. App. D.C. 200 (D.C. Cir. 2008) (citation omitted). Rather, extreme recklessness can only be shown where there is an " extreme departure from the standards of ordinary care, . . . which presents a danger of misleading buyers or sellers that is either known to the defendant or is so obvious that the actor must have been aware of it." SEC v. Steadman, 967 F.2d 636, 641, 296 U.S. App. D.C. 269 (D.C. Cir. 1992) (citation omitted). Stated another way, scienter can only be shown where " the danger was so obvious that the actor was aware of it and consciously disregarded it." Dolphin, 512 F.3d at 639.
To determine whether a " strong inference of scienter" exists, the court " engage[s] in a comparative evaluation; it must consider, not only inferences urged by the plaintiff . . . but also competing inferences rationally drawn from the facts alleged." Tellabs, 551 U.S. at 314. To this end, " [a]n inference of fraudulent intent may be plausible, yet less cogent than other, nonculpable explanations for the defendant's conduct." Id. In such a ...