the public and to the investment community and to promptly correct any materially false and misleading statements disseminated by AnnTaylor so that the price of its securities would be based on accurate and complete information.
Because plaintiffs claim that the allegedly fraudulent after-market statements were uttered by AnnTaylor (PP 75-76) or by a Company spokesperson (P 81), the individual defendants argue that plaintiffs have not demonstrated any connection between themselves and these statements. This argument ignores the allegations in the Complaint that:
-- the allegedly fraudulent after-market statements were "group published information" (P 100(b));
-- the individual defendants had "actual knowledge" that the statements were false (P 108);
-- the individual defendants were in a position to control the statements or at least direct that corrective disclosures be made (P 100(b)); and
-- the individual defendants allowed such misleading statements to be published and failed to correct them despite their "duty to disseminate only truthful and accurate information to the public" (P 100(b)).
Thus, the Complaint does allege a connection between the individual defendants and the allegedly fraudulent after-market statements.
Regardless, these defendants, each of whom is alleged to have been aware of the dissemination and content of the allegedly fraudulent after-market statements through press releases and the media, need not be directly responsible for making each of the misstatements during the Class Period in order to satisfy the requirements of Rule 9(b). "Press releases and other statements to investors and purchasers of the companies' securities" are documents which "may be presumed to entail the collective actions of the directors [and] officers." Somerville v. Major Exploration, Inc., 576 F. Supp. 902, 911 (S.D.N.Y. 1983); see Quantum Overseas, N.V. v. Touche Ross & Co., 663 F. Supp. 658, 667-68 (S.D.N.Y. 1987); accord, Feldman v. Glaze, [1989 Transfer Binder]Fed. Sec. L. Rep. (CCH) P 94,450, at P 92,892 (N.D. Cal. 1989); Zatkin v. Primuth, 551 F. Supp. 39, 42 (S.D. Cal. 1982) ("Where alleged actions involve the issuance of annual reports or releases, it may be presumed that these are the collective actions of the directors and officers."). As another district court explained:
[A] plaintiff may not be able to plead the precise role of each defendant when a group of defendants has acted in concert to cause the complained of injury. Under those circumstances, it is appropriate to plead the actions of the group and leave development of individual liability questions until some discovery has been undertaken, rather than to dismiss the plaintiff because he does not have what may be concealed information.
Jackson v. First Federal Sav., F.A., 709 F. Supp. 863, 878 (E.D. Ark. 1988). See also Wool v. Tandem Computers, Inc. 818 F.2d 1433, 1442 (9th Cir. 1987) ("in cases of corporate fraud where the false or misleading information is conveyed in . . . press releases, or other 'group published information,' it is reasonable to presume that these are the collective actions of the corporate officers."); Seagoing Uniform Corp. v. Texaco, Inc., 705 F. Supp. at 934 ("defendants are 'all insiders . . . and numerous courts have held that the conduct of such individuals need not be specified if the complaint sufficiently describes the fraudulent acts and provides the individuals with sufficient information to answer'" [citation omitted].). Thus, plaintiffs have alleged sufficient facts demonstrating the participation or knowing acquiescence of the individual defendants in the dissemination of the allegedly fraudulent after-market statements to satisfy Rule 9(b).
3. The allegations in the Complaint satisfy Rule 9(b)'s requirements for pleading scienter.
Defendants' argument that the Complaint does not plead scienter with particularity is meritless. Rule 9(b) specifically permits scienter to be alleged generally. Thus, this court has recognized that "as a matter of law, defendants' knowledge and intent to defraud need not be alleged with the same particularity as other elements of fraud under rule 9(b)." Nicholas v. Poughkeepsie Savings Bank/FSB, [1990-91 Transfer Binder]Fed. Sec. L. Rep. (CCH) P 95,606, at 97,841 (S.D.N.Y. 1990) (citing Cosmas v. Hassett, 886 F.2d at 12-13). See Goldman v. Belden, 754 F.2d at 1070. However, the Second Circuit does require "plaintiffs 'to plead the factual basis which gives rise to a 'strong inference' of fraudulent intent.'" O'Brien v. National Property Analysts Partners, 936 F.2d 674, 676 (2d Cir. 1991).
The Second Circuit has indicated that there are essentially two ways to establish a strong inference of scienter. Plaintiffs may allege facts showing a motive for committing fraud and a clear opportunity for doing so, or may plead scienter by identifying circumstances indicating conscious behavior by defendants. Beck v. Manufacturers Hanover Trust Co., 820 F.2d 46, 50 (2d Cir. 1987), cert. denied, 484 U.S. 1005, 98 L. Ed. 2d 650, 108 S. Ct. 698 (1988), RICO claim overturned, United States v. Indelicato, 865 F.2d 1370 (2d Cir.) (en banc), cert. denied, 493 U.S. 811, 107 L. Ed. 2d 24, 110 S. Ct. 56 (1989).
In this case, plaintiffs claim that the individual defendants, and a fortiori AnnTaylor, had a motive for committing fraud and a clear opportunity for doing so. The Complaint alleges the motive of the individual defendants to perpetuate a fraud on plaintiffs and the class:
During the Class Period, defendants Joseph Brooks and Thomas Brooks (the "individual defendants") participated in the wrongdoing complained of herein in order to continue and prolong the illusion of AnnTaylor's successful growth and management and to inflate the price of AnnTaylor's securities, so that they could (1) protect and enhance their executive positions and the substantial compensation, emoluments, perquisites and prestige they obtained thereby, and (2) enhance the value of their personal holdings of AnnTaylor common stock and options.
Plaintiffs also claim that as control persons and the most senior executives of AnnTaylor, the individual defendants had a clear opportunity to commit fraud (PP 24-28). Thus, under the "motive and circumstances" analysis, plaintiffs have alleged specific facts giving rise to a sufficient inference of scienter. See Cosmas v. Hassett, 886 F.2d at 13 (allegations that failure to qualify bullish statements was intended to permit individual defendants to profit from an inflated market price before the truth became known were sufficient to satisfy scienter element of Rule 9(b)); Meilke v. Constellation Bancorp, No. 90 Civ. 3915, 1992 U.S. Dist. LEXIS 2368, at *2-3. ("the alleged positions of defendants in combination with other allegations of the Complaint, as a matter of pleading, give rise to a sufficient inference of wrongful intent or reckless disregard for the truth."); Spear, Leeds & Kellogg v. Pub. Serv. Co., 700 F. Supp. 791, 793 (S.D.N.Y. 1988) (allegations of financial self-aggrandizement, or for that of an employer, is sufficient to create an inference of scienter).
As discussed, supra, the Complaint also alleges facts which establish a strong inference of fraud specifically in connection with the allegedly fraudulent after-market statements at issue in Count III. For instance, plaintiffs claim that the August 29, 1991 press release -- in which AnnTaylor stated, among other things, that it "strongly believed" that the August decline in comparable store sales "was not meaningful" and that same store sales for the whole year would increase by 3.0% -- was, at least, recklessly made because AnnTaylor knew at that time, based on periodic sales reports, that comparable store sales were sliding and would continue to decline. (P 75). Moreover, plaintiffs suggest that the close proximity between the allegedly fraudulent after-market statements (such as the October 1, 1991 statement that AnnTaylor would earn $ 0.30 per share for the third quarter) and follow-up statements (such as the October 22, 1991 statement that AnnTaylor would earn $ 0.17 to $ 0.20 per share) creates an inference that defendants knew their initial statements were misleading. These inferences satisfy Rule 9(b).
For all of the foregoing reasons, defendants motions to dismiss the Complaint are denied in their entirety.
Dated: July 27, 1992
New York, N.Y.
CONSTANCE BAKER MOTLEY
United States District Judge