This was allegedly a result of the negative reaction the merger
received from analysts and its concomitant stock price decline.
(¶ 56.) NorthPoint argues that Verizon had know of the revised
third-quater results prior to the filing of its November 14,
2000 From 10-Q as well as its approval of NorthPoint's November
29, 2000 press release. "The truth is that increase in
NorthPoint's reported losses and negative cash flow were not
contrary to expectations." (¶ 5; see ¶¶ 49, 53.)
II. Lawsuits Commenced by Verizon and NorthPoint
On December 1, 2000, Verizon filed a lawsuit against
NorthPoint in the Delaware Superior Court seeking a declaratory
judgment that NorthPoint's financial difficulties constituted a
Material Adverse Effect under the Merger Agreement. (¶ 64; see
Verizon Communications, Inc. v. NorthPoint Communications Group,
Inc., Civ. No. 00C-11-240 (Del.Super.Ct. Dec. 1, 2000.))
On December 8, 2000, NorthPoint commenced a lawsuit against
Verizon in the California Superior Court, San Francisco County
(the "NorthPoint California litigation"), asserting claims of
breach of contract, fraud, negligent misrepresentation, and
violation of CAL. BUS. & PROF. CODE § 17200. (¶ 65; see
NorthPoint Communications Group, Inc. v. Verizon Communications,
Inc., No. 317249 (Cal.Super.Ct. Dec. 8, 2000).)*fn1 It
alleged that Verizon was without a basis to terminate that
Merger Agreement and that its purported reasons were merely a
pretext designed to free Verizon from its investment obligations
and to lift its depressed stock prices. "In addition, Verizon
and its management determined that Verizon could destroy
NorthPoint's business by reneging on the merger and could then
usurp the DSL business opportunities of NorthPoint in Verizon's
monopoly territory." (NorthPoint Cal. Complt. ¶ 35.) On June
14, 2000, after holding oral argument in connection with the
fraud claim, the California Superior Court granted Verizon's
motion to dismiss the fraud claim because of lack of
specificity. (Def Reply Mem. Supp. Mot. Dismiss at 3 n. 2.) The
court granted NorthPoint 30 days leave to amend its Complaint.
On July 12, 2001, NorthPoint filed its Amended Complaint and
on July 25, 2001, plaintiffs' submitted a copy to this Court
requesting leave to amend the Complaint in this action pursuant
to FED. R. Civ. P. 15(a). It is obvious that the NorthPoint
California Amended Complaint was neither incorporated by
reference nor integrally related to the Complaint in this
action. Although it is a public document, we decline to take
judicial notice of unproven allegations therein. See infra n.
9 Therefore, those allegations will not be considered in
connection with this motion to dismiss.
I. Applicable Law
A. Rule 12(b)(6)
On a motion to dismiss pursuant to Rule 12(b)(6), the Court
must accept as true all of the well pleaded facts and consider
those facts in the light most favorable to the plaintiff. See
Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d
90 (1974), overruled on other grounds, Davis v. Scherer,
468 U.S. 183, 104 S.Ct. 3012, 82 L.Ed.2d 139 (1984); Hertz Corp. v.
New York, 1 F.3d 121, 125 (2d Cir. 1993); In re AES Corp.
Sec. Litig., 825 F. Supp. 578, 583 (S.D.N.Y. 1993) (Conner, J.).
On such a motion, the issue is "whether the claimant is entitled
to offer evidence to support the claims." Scheuer, 416 U.S. at
236, 94 S.Ct. 1683. A complaint should not be dismissed for
failure to state a claim "unless it appears beyond doubt that
the plaintiff can prove no set of facts in support of his claim
which would entitle him to relief." Padavan v. United States,
82 F.3d 23, 26 (2d Cir. 1996) (quoting Hughes v. Rowe,
449 U.S. 5, 10, 101 S.Ct. 173, 66 L.Ed.2d 163 (1980)). Generally,
"[c]onclusory allegations or legal conclusions masquerading as
factual conclusions will not suffice to prevent a motion to
dismiss." 2 JAMES WM. MOORE ET AL., MOORE'S FEDERAL PRACTICE §
12.34[b] (3d ed. 1997); see also Hirsch v. Arthur Andersen &
Co., 72 F.3d 1085, 1088 (2d Cir. 1995). Allegations that are so
conclusory that they fail to give notice of the basic events and
circumstances of which the plaintiff complains, are insufficient
as a matter of law. See Martin v. New York State Dep't of
Mental Hygiene, 588 F.2d 371, 372 (2d Cir. 1978). In assessing
the legal sufficiency of a claim, the court may consider those
facts alleged in the complaint, documents attached as an exhibit
thereto or incorporated by reference, see FED. R. Civ. P.
10(c); De Jesus v. Sears, Roebuck & Co., Inc., 87 F.3d 65, 69
(2d Cir. 1996), and documents that are "integral" to plaintiffs
claims, even if not explicitly incorporated by reference.
Cortec Indus., Inc. v. Sum Holding L.P., 949 F.2d 42, 46-48
(2d Cir. 1991); Lee v. State of New York Dep't of Corr.
Servs., No. 97 Civ. 7112, 1999 WL 673339, at *2 n. 4 (S.D.N.Y.
Aug. 30, 1999); see United States Fidelity & Guaranty Co. v.
Petroleo Brasileiro S.A.-Petrobas, No. 98 Civ. 3099, 2001 WL
300735, at *2 (S.D.N.Y. Mar. 27, 2001) ("the Court can consider
documents referenced in the complaint and documents that are in
the plaintiffs' possession or that the plaintiffs knew of and
relied on in their suit."). Pursuant to FED. R. EVID. 201(b), we
may take judicial notice of pleadings in other lawsuits attached
to the defendants' motion to dismiss, as a matter of public
record, see Rothman v. Gregor, 220 F.3d 81, 92 (2d Cir. 2000);
see, e.g., 5-Star Mgmt., Inc. v. Rogers, 940 F. Supp. 512, 518
(E.D.N.Y. 1996), as well as reports filed pursuant to Securities
and Exchange Commission ("SEC") regulations as facts "capable of
accurate and ready determination by resort to sources whose
accuracy cannot reasonably be questioned." See Kramer v. Time
Warner Inc., 937 F.2d 767, 773-74 (2d Cir. 1991) (limiting
holding to forms required to be filed by the SEC and not press
releases and announcements).
B. The PSLRA and Rule 9(b) Pleading Requirements
To state a prima facie case under § 10(b)*fn2 and
Rule 10b-5,*fn3 "a plaintiff must
show that `in connection with the purchase or sale of
securities, the defendant, acting with scienter, made a false
material misrepresentation or omitted to disclose material
information and that plaintiffs reliance on defendant's action
caused [plaintiff] injury.'" Suez Equity Investors, L.P. v.
Toronto Dominion Bank, 250 F.3d 87, 95 (2d Cir. 2001) (quoting
Press v. Chemical Inv. Servs. Corp., 166 F.3d 529, 534 (2d
Cir. 1999) (alterations in original)).
In 1995, the Securities and Exchange Act was amended by the
PSLRA, in order "to deter strike suits wherein opportunistic
private plaintiffs file securities fraud claims of dubious merit
in order to exact large settlement recoveries." Novak v.
Kasaks, 216 F.3d 300, 306 (2d Cir. 2000). In order to
effectuate its goal, it places "stringent procedural
requirements" on plaintiffs who pursue private securities fraud
claims. Id. Therefore, with respect to scienter, the PSLRA
mandates that in any private action wherein monetary damages are
sought, "only on proof that the defendant acted with a
particular state of mind, the complaint shall, with respect to
each act or omission alleged to violate this chapter, state
with particularity facts giving rise to a strong inference that
the defendant acted with the requisite state of mind."
15 U.S.C. § 78u — 4(b)(2) (emphasis added). With respect to
material misrepresentations and omissions, the PSLRA requires
[i]n any private action arising under this chapter in
which the plaintiff alleges that the defendant —
(A) made an untrue statement of a material fact; or