The opinion of the court was delivered by: McKENNA, D.J.
Scientific-Atlanta, Inc., Motorola, Inc., Julian Eidson & Wallace Haislip (04 Civ. 5759) -- is brought by lead plaintiffs appointed to pursue the claims alleged in the Consolidated Class Action Complaint (now settled), represented by the co-lead counsel appointed for that case and others.
The corporate defendants, Scientific-Atlanta, Inc. ("Scientific-Atlanta") and Motorola, Inc. ("Motorola"), supplied Adelphia Communications Corporation ("Adelphia"), which was engaged in the provision of cable television, with digital converters (settop cable boxes). (Comp. ¶ 5.)
Beginning in or about December 2000, Adelphia negotiated and entered into supplemental agreements with Motorola and Scientific-Atlanta to buy cable boxes at the original contract price plus a premium. At the same time, Adelphia entered into other agreements with Motorola and Scientific-Atlanta whereby Motorola and Scientific-Atlanta agreed to pay to Adelphia an amount equivalent to the premium as "marketing support payments." (Id.) "These deals were in essence "wash" transactions. Their only impact was to make Adelphia's financial performance look better from an accounting standpoint, by artificially inflating Adelphia's [earnings before interest, taxes, depreciation and amortization ["EBITDA"]] throughout the Class Period." (Id. ¶ 6.)*fn1
Plaintiffs allege the violation of Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240, by all defendants (Count I), and the controlling person liability, under Section 20(a) of the 1934 Act, 15 U.S.C. § 78t, of defendants Eidson, during the class period vice-president and controller of Scientific-Atlanta (Comp. ¶ 20), and Haislip, during the class period chief financial officer, treasurer and vice-president of finance of Scientific-America. (Id. ¶ 19.)
Defendants move for dismissal of the complaint pursuant to Fed. R. Civ. P. 9(b) and 12(b)(6) and the Private Securities Litigation Reform Act ("PSLRA"). Defendants contend both that the complaint's claims are barred by limitations and that its allegations are inadequate in several respects: that the complaint (i) attempts to allege a claim for aiding and abetting securities fraud that is precluded by Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164 (1994), and (ii) does not meet the pleading standards for the claims asserted under Fed. R. Civ. P. 12(b)(6) and 9(b) and the PSLRA.
Subsequent to the filing of the motions, the parties have called the Court's attention to Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc., 128 S.Ct. 761 (2008), and briefed that case's application here. Since Stoneridge is dispositive, the Court does not reach defendants' other arguments.
On a motion under Fed. R. Civ. P. 12(b)(6), a court must accept all factual allegations in the complaint as true and draw all reasonable inferences in the plaintiff's favor, and the court may consider any written instrument attached to the complaint, statements or documents incorporated into the complaint by reference, legally required public disclosure documents filed with the SEC, and documents possessed by or known to the plaintiff and upon which it relied in bringing the suit. To survive dismissal, the plaintiff must provide the grounds upon which his claim rests through factual allegations sufficient "to raise a right to relief above the speculative level."
ATSI Communications, Inc. v. The Skaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007) (quoting Bell Atlantic Corp v. Twombly, 127 S.Ct. 1955, 1965 (2007) (footnote omitted)) (other citation omitted). "Allegations that are conclusory or unsupported by factual assertions are insufficient." Id. (citation omitted).
The present complaint, alleging the violation of Section 10(b) of the 1934 Act and Rule 10b-5, must also satisfy the requirements of Fed. R. Civ. P. 9(b) and the PSLRA that fraud be pleaded with particularity, as well as the PSLRA requirements as to pleading scienter. 15 U.S.C. § 78u-4(b)(2).
In a typical § 10(b) private action a plaintiff must prove (1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a connection between the misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the ...