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USCA1 Opinion
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
____________________
No. 96-1138
VICKI MATCH SUNA AND LORI ROSEN,
Plaintiffs - Appellants,
v.
BAILEY CORPORATION, ET AL.,
Defendants - Appellees.
____________________
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APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE
[Hon. Steven J. McAuliffe, U.S. District Judge] ___________________
____________________
Before
Torruella, Chief Judge, ___________
Boudin, Circuit Judge, _____________
and Lisi,* District Judge. ______________
_____________________
Jules Brody, with whom Stull, Stull & Brody, Backus, Me ___________ _____________________ _________
Solomon & Rood and Weiss & Yourman were on brief for appellan ______________ _______________
Sydelle Pittas, with whom Law Offices of Sydelle Pittas
______________ _____________________________
on brief for appellee Bailey Corporation.
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____________________
February 26, 1997
____________________
____________________
* Of the District of Rhode Island, sitting by designation.
TORRUELLA, Chief Judge. On May 26, 1994, Plainti TORRUELLA, Chief Judge. ____________
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____________________
Appellants Vicki Match Suna ("Suna") and Lori Rosen ("Ros
1 The officers included William A. Taylor, who served a
(collectively "plaintiffs" or "appellants") brought this c
consultant and as a Bailey director at all relevant times;
R. Phillips, who served as Chairman of the Board, Presi
action suit against Bailey Corporation ("Bailey") and indivi Chief Executive Officer and Secretary of Bailey during the c
period; Leonard Heilman, who served as Senior Vice Presiden
officers1 of the corporation (collectively "defendants"
Finance and Administration, Chief Financial Officer, Treasu
and Assistant Secretary of Bailey during the class perio
"appellees") on behalf of all persons who purchased Bail Gordon Young, who served as a director of Bailey and as Execu
Vice President at all relevant times; and John G. Owens,
common stock during the class period. The suit allegesserved in various management capacities and as a directo
Bailey during the class period.
appellees violated Section 12 of the Securities Act2 of 1933
2 Any person who --
Sections 10(b)3 and 20(a)4 of the Securities Exchange Act
(1) offers or sells a security . . . by means
of a prospectus or oral communication, which
includes an untrue statement of a material
fact or omits to state a material fact
necessary in order to make the statements, in
the light of the circumstances under which
they were made, not misleading . . . , and
who shall not sustain the burden of proof
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that he did not know, and in the exercise of
reasonable care could not have known, of such
untruth or omission,
shall be liable to the person purchasing such security fro
. . . .
15 U.S.C. 771 (1976).
3 Section 10(b) provides:
It shall be unlawful for any person, directly
indirectly, by the use of any means or instrumenta
of interstate commerce or of the mails, or of
facility of any national securities exchange --
* * *
(b) To use or employ, in connection with
the purchase or sale of any security
registered on a national securities exchange
or any security not so registered, any
manipulative or deceptive device or
contrivance in contravention of such rules
and regulations as the Commission may
prescribe as necessary or appropriate in the
public interest or for the protection of
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-2-
1934, as well as Rule 10b-55 promulgated by the Securities
Exchange Commission ("SEC"). Appellants allege that appel
made, or caused to be made, materially false and mislea
statements either through Bailey's corporate documents or thr
analysts' reports disseminated to the public. On November
1994, the District Court of New Hampshire granted appell
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investors.
15 U.S.C. 78j(b) (1981).
4 Section 20(a) provides, in part:
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 to any
person to whom such controlled person is
liable . . . .
15 U.S.C. 78t (1981).
5 Rule 10b-5 provides:
It shall be unlawful for any person, directly
or indirectly, by the use of any means or
instrumentality of interstate commerce, or of
the mails or of any facility of any national
securities exchange,
(a) To employ any device, scheme, or
artifice to defraud,
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(b) To make any untrue statement of a
material fact or to omit to state a material
fact necessary in order to make the
statements made, in the light of the
circumstances under which they were made, not
misleading, or
(c) To engage in any act, practice, or
court of business which operates or would
operate as a fraud or deceit upon any person,
in connection with the purchase or sale of
any security.
17 C.F.R. 240.10b-5 (1996).
-3-
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motion to dismiss this complaint for failure to comply wit
pleading requirements of Federal Rule of Civil Procedure 9
The district court then allowed appellants to amend t
complaint, but rejected the first amended complaint appell
submitted. The district court "reluctantly grant[ed] plaint
leave to file a second amended complaint," Order of November
1994, at 2, but cautioned that if "the second complaint fail
to satisfy the pleading requirements, the action [would] the
dismissed with prejudice." Id. On September 1, 1995, appell ___
filed a Second Amended Complaint, which the district court r
did not meet Rule 9(b)'s pleading requirements. Order of
29, 1995. The district court then dismissed the action
prejudice. Appellants now appeal the dismissal of the Se
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Amended Complaint.
BACKGROUND BACKGROUND
We accept as true all facts alleged in appella
Second Amended Complaint. Shields v. Citytrust Bancorp, Inc._______ ______________________
F.3d 1124, 1125 (1st Cir. 1994). Bailey manufactures mo
plastic exterior components and supplies them to North Amer
original equipment manufacturers of cars, light trucks, s
utility vehicles and minivans. Bailey's primary customer is
Motor Company, which accounted for approximately ninety-t
percent of Bailey's sales in the nine months ending April
1993. Of the remaining sales, three percent were to Gen
Motors Corporation and four percent to other customers.
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-4-
During the class period, the individual defen
signed various SEC filings. Each received or had access to
public reports and documents depicting Bailey's finan
condition and business prospects. Each participated in Ba
board meetings at which information about the company
discussed. A secondary public offering was held on August
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1993, during which Bailey and the individual defendants
shares at $11 each.
On April 5, 1994, both Suna and Rosen purchased Ba
stock. During the class period, the stock reached a high of
than $18 per share.
The public documents issued by Bailey and allege
appellants to contain materially false and misleading state
include Bailey's April 18, 1993, Prospectus and Registra
Statement, its 1993 Annual Report, and 10-K, quarterly report
shareholders, and press releases. In addition, appell
contend that reports published by analysts regarding Bail
earnings prospects and its ability to continue to incr
earnings per share are imputable to Bailey. Appellants con
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that all of these documents artificially inflated the ma
price of Bailey common stock.
Large sections of appellants' brief and Second Ame
Complaint are devoted to quoting at length from these docume
We will not reproduce all of these quotes, but will highl
relevant portions as becomes necessary throughout the opin
Appellants contend that the statements at issue were false
-5-
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misleading because Bailey's anticipated growth did not cont
and its revenue declined. The decline in revenue led
decrease in the value of Bailey's common stock to $6 1/8
share. Appellants a
