Several courts have held that only circumstantial evidence of conscious behavior by a defendant suffices to satisfy the pleading requirement of the PSLRA. See In re Silicon Graphics, Inc. Securities Litig., Fed.Sec. L.Rep. (CCH) ¶ 99,325, 1996 WL 664639 (N.D.Cal. Sept.25, 1996); Friedberg v. Discreet Logic Inc., 959 F. Supp. 42, 49 (D.Mass. 1997); Norwood Venture Corp. v. Converse Inc., 959 F. Supp. 205, 208 (S.D.N.Y. 1997). However, other courts have adopted the Second Circuit's test for pleading a "strong inference" of fraudulent intent.
Id. at 50. Likewise, the court in Norwood Venture Corp. v. Converse, Inc., 959 F. Supp. 205, 209 (S.D.N.Y. 1997), held that a plaintiff needs to allege "specific facts which create a strong inference of knowing misrepresentation . . ." in order to meet the PSLRA's scienter requirement. In Norwood, plaintiff alleged that defendant intentionally omitted to disclose that it was going to issue a bond and that its purchase of a target company depended upon the successful issuance of such bond.
See In re Silicon Graphics, Inc. Sec. Litig., Fed.Sec.L.Rep. (CCH) ¶ 99, 325, 1996 WL 664639, *6 (N.D.Cal. Sept. 25, 1996) ("Silicon Graphics I") ("plaintiff must allege specific facts that constitute circumstantial evidence of conscious behavior by defendants"); Friedberg v. Discreet Logic Inc., 959 F. Supp. 42, 49 n. 2 (D.Mass. 1997) ("In light of the fact that the [Reform Act] has eliminated recklessness, this Court is of the opinion that conscious behavior can now only take the form of circumstantial evidence indicating intent to defraud or knowledge of the falsity."); Norwood Venture Corp. v. Converse Inc., 959 F. Supp. 205, 208 (S.D.N.Y. 1997) (plaintiff must now "plead specific facts that create a strong inference of knowing misrepresentation on the part of the defendants"); Voit v. Wonderware Corp., 977 F. Supp. 363, 374 (E.D.Penn. 1997) (agreeing with Friedberg and Norwood decisions).
Conversely, other courts have concluded that Congress intended to strengthen the Second Circuit standard by holding that the "motive and opportunity" prong of the Second Circuit's pleading standard no longer suffices to raise a strong inference of scienter. See In re Silicon Graphics, Inc. Securities Litigation, 970 F. Supp. 746, 757 (N.D.Ca. 1997); Norwood Venture Corp. v. Converse Inc., 959 F. Supp. 205, 208 (S.D.N.Y. 1997). The courts in Silicon Graphics and Norwood noted a House Conference Report which stated that Congress intended to "strengthen the existing pleading requirements" and did "not intend to codify the Second Circuit's case law interpreting this pleading standard."
Conversely, other courts have concluded that Congress intended to strengthen the Second Circuit standard by holding that the "motive and opportunity" prong of the Second Circuit's pleading standard no longer suffices to raise a strong inference of scienter. See In re Silicon Graphics, Inc. Securities Litigation, 970 F. Supp. 746, 757 (N.D.Cal. 1997); Norwood Venture Corp. v. Converse Inc., 959 F. Supp. 205, 208 (S.D.N Y 1997). The courts in Silicon Graphics and Norwood noted a House Conference Report which stated that Congress intended to "strengthen the existing pleading requirements" and did "not intend to codify the Second Circuit's case law interpreting this pleading standard."
The growing trend in the courts, and particularly in this district, is to find that Congress intended to strengthen the Second Circuit standard. The two leading Southern District cases, Norwood Venture Corp. v. Converse, Inc., 959 F. Supp. 205 (S.D.N.Y. 1997) and In re Baesa Securities Litigation, 969 F. Supp. 238 (S.D.N.Y. 1997), both held that the pleading of motive and opportunity no longer suffices to raise a strong inference of scienter. See Baesa, 969 F. Supp. at 242; Norwood, 959 F. Supp. at 208.
In re Time Warner, Inc. Sec. Litig., 9 F.3d 259, 269 (2d Cir. 1993). In Norwood Venture Corp. v. Converse, Inc., 959 F. Supp. 205 (S.D.N.Y. 1997), I held that under the PSLRA a showing of motive and opportunity, without more, no longer suffices to raise a strong inference of scienter. Plaintiffs argue that Norwood was wrongly decided and that motive and opportunity suffice to raise a strong inference of scienter even under the PSLRA.
ken three different approaches: (1) apply the Second Circuit standard requiring plaintiffs to plead mere motive and opportunity or an inference of recklessness, see e.g., Epstein v. Itron Inc., 993 F. Supp. 1314 (E.D. Wash. 1998); Robertson v. Strassner, 32 F. Supp.2d 443, 447 (S.D. Tex. 1998); In re Wellcare Management Group, Inc. Sec. Litig., 964 F. Supp. 632 (N.D.N.Y. 1997); (2) apply a heightened Second Circuit standard rejecting motive and opportunity, but accepting an inference of recklessness, see e.g., Myles v. MidCom Communications, Inc., No. C96-614D (W.D. Wash. Nov. 19, 1996); Queen Uno Ltd. Partnership v. Coeur d'Alene Mines Corp., No. CIV 97-WY-1431-CB, 1998 WL 195299 (D. Colo. Apr. 13, 1998); or (3) reject the Second Circuit standard and accept only an inference of conscious conduct, see e.g., Voit v. Wonderware Corp., 977 F. Supp. 363 (E.D. Pa. 1997); Powers v. Eichen, 977 F. Supp. 1031 (S.D. Cal. 1997); Friedberg v. Discreet Logic Inc., 959 F. Supp. 42 (D. Mass. 1997); Norwood Venture Corp. v. Converse, Inc., 959 F. Supp. 205, 209 (S.D.N.Y. 1997). For further discussion of the cases, see, e.g., Richard H. Walker and J. Gordon Seymour, Recent Judicial and Legislative Developments Affecting the Private Securities Fraud Class Action, 40 ARIZ. L. REV. 1003 (1998).
Many courts hold that a showing of motive and opportunity no longer suffice but that the standard requires a showing of a high degree of recklessness. See Novak v. Kasaks, 997 F. Supp. 425, 430 (S.D.N.Y. 1998) (standard now requires conscious recklessness or actual intent); In re Olympic Financial Limited Sec. Litig., 1998 U.S. Dist. LEXIS 14789, September 10, 1998, (D.Minn. 1998) (standard now requires strong inference that defendants acted with fraudulent intent); In re Glenayre Techs., Inc. Sec. Litig., 982 F. Supp. 294, 298 (S.D.N.Y. 1997) (standard now requires conscious recklessness which approximates actual intent); Norwood Venture Corp. v. Converse Inc., 959 F. Supp. 205, 208 (S.D.N.Y. 1997) (standard now requires facts creating a strong inference of knowing misrepresentation); In re Baesa Sec. Litig., 969 F. Supp. 238, 242 (S.D.N.Y. 1997) (standard now requires recklessness constituting behavior that comes close to actual intent); Voit v. Wonderware Corp., 977 F. Supp. 363, 374 (E.D.Pa. 1997) (standard now requires conscious behavior). But see Press v. Chemical Investment Services Corp., 166 F.3d 529 (2d Cir. 1999) (recognizing that the reform act heightened the pleading standard, but applying the Second Circuit standard requiring motive and opportunity or circumstantial evidence of conscious misbehavior or recklessness).
Id., at 538. Compare Varljen v. H.J. Meyers, Inc., 97 Civ. 6742, 1998 WL 395266, at *3-4, n. 6, (S.D.N.Y. July 14, 1998); Press v. Quick Reilly, 96 Civ. 4278, 1997 WL 458666, at *2 n. 2 (S.D.N.Y. Aug. 11, 1997); In re Health Management, Inc. Sec. Litig., 970 F. Supp. 192, 201 (E.D.N.Y. 1997); Primavera Familienstiftung, 173 F.R.D. at 123; Sloane Overseas Fund, Ltd. v. Sapiens Int'l Corp., 941 F. Supp. 1369, 1377 (S.D.N.Y. 1996), with In re Health Management Sys. Inc. Securities Litig., 97 Civ. 1865, 1998 WL 283286, at *6 (S.D.N.Y. June 1, 1998); Novak v. Kasaks, 997 F. Supp. 425, 430 (S.D.N.Y. 1998); In re Baesa Securities Litig., 969 F. Supp. 238, 242 (S.D.N.Y. 1997); Norwood Venture Corp. v. Converse Inc., 959 F. Supp. 205, 208 (S.D.N.Y. 1997). Applying these principles, I find that the amended complaint satisfies the who, what, when and where requirements of Rule 9(b).