Opinion
Civil No. 3:03-CV-2761-H.
June 10, 2004
MEMORANDUM OPINION AND ORDER
Before the Court are Defendants' Motion to Dismiss Amended Complaint, filed April 9, 2004; Plaintiffs' Response, filed April 29, 2004; and Defendants' Reply, filed May 14, 2004. Plaintiffs, a putative class of public investors in Allegiance Telecom stock from April 24, 2001, to February 19, 2002 (the "Class Period"), bring securities fraud claims against Defendants who were officers and directors of Allegiance Telecom during the Class Period. Defendants move to dismiss Plaintiffs' Amended Class Action Complaint, filed March 26, 2004, for failure to meet the pleading requirements of the Private Securities Litigation Reform Act of 1995 ("PSLRA"), Rule 9(b) of the Federal Rules of Civil Procedure, and Fifth Circuit case law. Upon review of the pleadings, briefs, and relevant authorities, the Court is of the opinion for the reasons stated below that Defendants' Motion to Dismiss should be GRANTED in part and DENIED in part.
I. BACKGROUND
Plaintiff Oscar Private Equities ("Oscar") filed its original Class Action Complaint for Breach of Fiduciary Duty and Violations of Federal Securities Laws ("Original Complaint") on November 13, 2003. On January 27, 2004, Oscar and Plaintiffs Brett Messing and Marla Messing (the "Messings") filed their motion for appointment as lead plaintiffs and for approval of lead plaintiffs' selection of counsel. The Court appointed Oscar and the Messings as lead plaintiffs and approved their selection of lead counsel by Order entered February 6, 2004.
The Original Complaint named only Royce J. Holland ("Holland") and Thomas M. Lord ("Lord") as Defendants. Defendants Holland and Lord moved to dismiss the Original Complaint on February 4, 2004. The Court denied Defendants' motion as moot because Plaintiffs were allowed to amend their complaint once as a matter of course pursuant to Rule 15(a) of the Federal Rules of Civil Procedure. ( See Memorandum Opinion and Order, entered March 17, 2004.) The Court ordered Plaintiffs to file any amended complaint no later than March 26, 2004. ( See id.) In compliance with the Court's order, Plaintiffs filed their Amended Class Action Complaint for Violations of Federal Securities Laws ("Amended Complaint") on March 26, 2004. In addition to Holland and Lord, the Amended Complaint named two new Defendants, Daniel Yost ("Yost") and Anthony Parella ("Parella").
Allegiance Telecom ("Allegiance") was a publicly traded company that provided integrated telecommunications services to business, government, and other institutional users in major metropolitan areas across the United States during the Class Period. Allegiance also offered local, long-distance, broadband/Internet access and Internet-related services, bundled and carrier-oriented wholesale services, as well as end-user equipment sales and maintenance services to individual customers and businesses. Defendant Holland was the Chairman and Chief Executive Officer of Allegiance during the Class Period. Defendant Lord was the Executive Vice President and Chief Financial Officer; Defendant Yost was the Chief Operating Officer and President; and Defendant Parella was the Executive Vice President for Sales. Allegiance Telecom is not named as a defendant in this case because it has filed for Chapter 11 bankruptcy.
Plaintiffs assert claims for securities fraud pursuant to § 10(b) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder, for deceiving the investing public and causing Plaintiffs and other class members to purchase securities of Allegiance at artificially inflated prices. Plaintiffs also assert claims for violations of § 20(a) of the Securities Exchange Act. All of Plaintiffs' claims result from a statement issued by Allegiance on February 19, 2002, informing the public that Allegiance had overstated its "installed line count" — the number of lines sold to customers that were being used to provide services. Plaintiffs assert that these line counts were important measures of Allegiance's performance and prospects, and were relied on by the market, because, as a start-up company, Allegiance's success could not be measured by its net income figures.
Plaintiffs allege that Defendants engaged in several schemes to artificially inflate Allegiance's line count and thus deceived the market and inflated Allegiance's stock price. Plaintiffs claim that Defendants recklessly ignored the fact that the billing database would provide an accurate line count, and instead chose to use the order management system to calculate the line count. Plaintiffs contend Defendants artificially inflated the line count by engaging in the following schemes:
1) counting lines sold under obviously forged contracts;
2) staggering termination of customer-cancelled lines for months while continuing to invoice customers in the interim;
3) designing a data entry system to process line additions automatically while requiring manual entries in order to terminate a line;
4) counting lines which were on hold until the potential customer passed a credit check or the line was operational, i.e., installed;
5) counting the same lines twice;
6) purchasing lines from other carriers which did not meet the stated definition of an `installed line,' e.g., lines purchased on an `as-needed' basis from SBC solely to perform billing services, for which Allegiance retained only a fraction of the revenue; and
7) acquiring and gutting companies solely to artificially inflate the line count.
(Am. Compl. at 7.)
Plaintiffs allege that Defendants made six false or misleading statements regarding the line count that form the basis of the complaint: 1) the April 24, 2001, Press Release; 2) the May 2, 2001, Form 10-Q; 3) the July 24, 2001, Press Release; 4) the August 14, 2001, Form 10-Q; 5) the October 23, 2001, Press Release; and 6) the November 14, 2001, Form 10-Q. ( See Am Compl. at 41-53.) All line counts reported in the above statements, Plaintiffs claim, were artificially inflated, and thus false and misleading. Plaintiffs allege that because the market for Allegiance securities was an efficient market, they are entitled to a presumption of reliance on the alleged false and misleading statements pursuant to the fraud-on-the-market doctrine. ( See Am. Compl. at 59-60.)
Defendants moved to dismiss Plaintiffs' Amended Complaint on April 9, 2004. Defendants advance five arguments for why the Amended Complaint should be dismissed in its entirety with prejudice: 1) Plaintiffs employ "group pleading" which has been rejected by the Fifth Circuit; 2) Plaintiffs have failed to plead with particularity the facts underlying their allegations based on information and belief as required by the PSLRA; 3) Plaintiffs have failed to plead the who, what, when, where, and why for each alleged false or misleading statement; 4) Plaintiffs have not sufficiently plead scienter; and 5) Plaintiffs' allegations are not material and not actionable. ( See Mot. at 2-3.) Defendants also argue that the § 20(a) claim should be dismissed because it is derivative. The Court will address these allegations below.
II. MOTION TO DISMISS STANDARD
In considering a motion to dismiss a complaint for failure to state a claim pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, the Court must accept as true the nonmovant's well-pleaded factual allegations and any reasonable inferences to be drawn from them. Tuchman v. DSC Communications Corp., 14 F.3d 1061, 1067 (5th Cir. 1994). To avoid dismissal for failure to state a claim, however, a plaintiff "must plead specific facts, not mere conclusory allegations." Guidry v. Bank of LaPlace, 954 F.2d 278, 281 (5th Cir. 1992) (citation omitted). Thus, the Court will not accept as true any conclusory allegations or unwarranted deductions of fact. Generally, the Court may not look beyond the pleadings, except in instances where public officials' qualified immunity is raised. Compare Mahone v. Addicks Util. Dist., 836 F.2d 921, 936 (5th Cir. 1988) with Babb v. Dorman, 33 F.2d 472 (5th Cir. 1994) [ and] Schultea v. Wood, 47 F.3d 1427 (5th Cir. 1995) [ and] Elliot v. Perez, 751 F.2d 1472 (5th Cir. 1985).
Dismissal for failure to state a claim is not favored by the law. Mahone, 836 F.2d at 926. A plaintiffs "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." Conley v. Gibson, 355 U.S. 41, 45-46 (1957); see Scheuer v. Rhodes, 416 U.S. 232, 236 (1974) ("The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims."); Heimann v. National Elevator Industry Pension Fund, 187 F.3d 493, 502 (5th Cir. 1999) (allowing the court to dismiss a claim under 12(b)(6) only if "it appears that no relief could be granted under any set of facts that could be proved consistent with the allegations") (quoting Barrientos v. Reliance Standard Life Ins. Co., 911 F.2d 1115 (5th Cir. 1990). However, "there are times when a court should exercise its power to dismiss a complaint under Rule 12(b)(6) of the Federal Rules of Civil Procedure." Mahone, 836 F.2d at 927 (emphasis in original).
This case also involves the PSLRA, which was passed to prevent abuse of the federal securities laws by private individuals. See Nathenson v. DSAM Global Value Fund Ltd., 267 F.3d 400, 406 (5th Cir. 2001). The PSLRA imposes a heightened pleading requirement for Plaintiffs alleging § 10(b) and Rule 10b-5 claims. See id.; see also Lain v. Evans, 123 F. Supp.2d 344, 347 (N.D. Tex. 2000) (Sanders, J.).
"It is well-settled that, in order to state a claim under section 10(b) of the 1934 Act and Rule 10b-5, a plaintiff must allege, in connection with the purchase or sale of securities, (1) a misstatement or an omission (2) of a material fact (3) made with scienter (4) on which plaintiff relied (5) that proximately caused the plaintiffs' injury." ABC Arbitrage Plaintiffs Group v. Tchuruk, 291 F.3d 336, 348 (5th Cir. 2002) (quotations omitted). "The PSLRA reinforces the particularity requirements of [Federal] Rule [of Civil Procedure] 9(b), requiring the plaintiffs to state not only the time, place, the identity of the speaker, and the content of the alleged misrepresentation, but also to explain why the challenged statement is false or misleading." Southland Securities Corp. v. Inspire Ins. Solutions, Inc., ___ F.3d ___, ___, No. 02-10558, 2004 WL 626721 (5th Cir. March 31, 2004).
III. ANALYSIS
Defendants advance five arguments for why the Amended Complaint fails the pleading requirements of the PSLRA and Rule 9(b) and why it should be dismissed with prejudice: 1) Plaintiffs employ "group pleading" which has been rejected by the Fifth Circuit; 2) Plaintiffs have failed to plead with particularity the facts underlying their allegations based on information and belief as required by the PSLRA; 3) Plaintiffs have failed to plead the who, what, when, where, and why for each alleged false or misleading statement; 4) Plaintiffs have not sufficiently plead scienter; and 5) Plaintiffs' allegations are not material and not actionable. ( See Mot. at 2-3.) The Court will address these arguments below.
1. Group Pleading
Defendants first argue that the Amended Complaint employs group pleading, which has been "categorically rejected" by the Fifth Circuit. (Mot. at 3.) Defendants argue that Plaintiffs "fail to provide a single particularized nexus between Holland, Lord, Parella, or Yost and any actionable statement." ( Id. at 4.) Defendants also argue that although Plaintiffs do allege that Holland and Lord signed the Form 10-Q statements alleged to be misleading, that "more than one signature generically attributed to the entire contents of a public filing is impermissible group pleading." (Reply at 4.)
Some courts have allowed plaintiffs "to link certain defendants to alleged misrepresentations simply by pleading that the defendants were part of the `group' that likely put the challenged documents together." Southland Securities, ___ F.3d at ___. This is known as group pleading. The Fifth Circuit recently held that such group pleading does not meet the requirements of the PSLRA's heightened pleading standards. See id. ("These PSLRA references to `the defendant' may only reasonably be understood to mean `each defendant' in multiple defendant cases, as it is inconceivable that Congress intended liability of any defendants to depend on whether they were all sued in a single action or were each sued alone in several separate actions.") The Fifth Circuit explained what its rejection of group pleading meant at length:
[T]he PSLRA requires the plaintiffs to "distinguish among those they sue and enlighten each defendant as to his or her particular part in the alleged fraud." As such, corporate officers may not be held responsible for unattributed corporate statements solely on the basis of their titles, even if their general level of day-to-day involvement in the corporation's affairs is pleaded. However, corporate documents that have no stated author or statements within documents not attributed to any individual may be charged to one or more corporate officers provided specific factual allegations link the individual to the statement at issue. Such specific facts tying a corporate officer to a statement would include a signature on the document or particular factual allegations explaining the individual's involvement in the formulation of either the entire document, or that specific portion of the document, containing the statement. Various unattributed statements within documents may be charged to different individuals, and specific facts may tie more than one individual to the same statement. And, the corporation itself may be treated as making press releases and public statements issued by authorized officers on its behalf, and statements made by its authorized officers to further the interests of the corporation. . . . [W]e do not construe allegations contained in the Complaint against the "defendants" as a group as properly imputable to any particular individual defendants unless the connection between the individual defendants and the allegedly fraudulent statement is specifically pleaded.Id. (emphasis in original).
Plaintiffs argue that the Amended Complaint does not violate the Fifth Circuit's prohibition on group pleading. (Resp. at 12.) Plaintiffs first contend that because Holland and Lord signed the Forms 10-Q, they may be held liable for those alleged misrepresentations. ( Id.) The Court concludes, however, that the Forms 10-Q are confirmatory and thus not actionable as a matter of law. A plaintiff may not rely on a fraud-on-the-market theory for "confirmatory information [that] has already been digested by the market and will not cause a change in the stock price." Greenberg v. Crossroads Sys., 364 F.3d 657, 665-66 (5th Cir. 2004) ("Because the presumption of reliance is based upon actual movement of the stock price, confirmatory information cannot be the basis for a fraud-on-the-market claim.") (emphasis in original). The Court finds that the alleged misrepresentations in the Forms 10-Q merely confirm the information previously disclosed in the Press Releases. Therefore, the Court need not decide if the two signatures on the Forms 10-Q violate the prohibition on group pleading. Defendants' Motion to Dismiss is GRANTED as to the statements in the Forms 10-Q and such claims are DISMISSED with prejudice. The Court will consider only the alleged false or misleading statements in the Press Releases.
Plaintiffs next argue that all Defendants can be held liable for the alleged misrepresentations in the Press Releases because the Amended Complaint "abundantly alleges the specific roles of Holland, Parella and Yost in the schemes which generated the inflated line counts reported to investors as well as their obsessive monitoring of line counts." ( Id. at 13.) The Court concludes that the Amended Complaint alleges that Parella and Yost were in charge of the "Count the Line" meetings where the line count was discussed, but gives no specific facts as to their roles in the Count the Line meetings. ( See Am. Compl. at 23.) The Court agrees with Defendants that the Amended Complaint "is rife with prohibited group pleading" and references to "the defendants" and "the company." ( See Mot. at 4.) Despite this, the Court concludes that Plaintiffs have sufficiently pleaded particular factual allegations of Holland and Parella's involvement in the formulation of the line count number, and thus the alleged misrepresentations of the Press Releases at issue, to withstand the Fifth Circuit's prohibition on group pleading. The Amended Complaint alleges specific facts demonstrating that Parella and Holland were involved in or had knowledge of certain schemes Plaintiffs allege led to the inflated line count. ( See Am. Compl. at 27-29, 32-33, 35-37.) Defendants' Motion to Dismiss all claims against Defendants Holland and Parella based on alleged misstatements in the Press Releases is DENIED.
Defendants argue that Southland requires "that plaintiffs allege the specific manner in which any defendant who signed a document participated in its preparation in total or in part." ( See Reply at 4.) The Court disagrees. Southland requires either that a defendant signed a document, or that other specific factual allegations are pleaded which can explain an individual's participation in the formulation of the document or the misstatement; a signature is merely one type of factual allegation that can serve to tie a corporate officer to a statement. To require both would mean that corporate officers could avoid liability for involvement in false and misleading statements simply by never signing a document; the Court refuses to read Southland so narrowly.
The Court does not conclude, however, that Lord or Yost's participation in the alleged schemes are pleaded with particularity. Plaintiffs appear to rely on Lord and Yost's position in the company to impute their involvement, a tactic not allowed in the Fifth Circuit. See Southland, ___ F.3d at ___ ("[C]orporate officers may not be held responsible for unattributed corporate statements solely on the basis of their titles, even if their general level of day-to-day involvement in the corporation's affairs is pleaded."). Accordingly, the Court concludes that Lord and Yost's involvement with the formulation of the line counts, and thus the alleged misrepresentations in the Press Releases at issue, is not sufficiently pleaded to withstand the Fifth Circuit's prohibition on group pleading. Defendants' Motion to Dismiss is GRANTED as to Defendant Lord and he is DISMISSED without prejudice.
Plaintiffs also argue that because Yost participated in the scheme to defraud investors, and because of his independent duties to make full disclosure of all material facts, Yost can be held liable for failure to disclose the falsely inflated line counts. ( Id. at 14-15.) Plaintiffs argue that because Yost "assumed the leading role in generating the line count reported to investors," he had a duty to disclose the false reporting of the line count. (Resp. at 15.) After reviewing the Amended Complaint, the Court cannot conclude that Yost took the leading role, either with Parella or alone, in generating the line counts. Plaintiffs' argument fails and Defendants' Motion to Dismiss is GRANTED as to Defendant Yost, and he is DISMISSED without prejudice.
Finally, Plaintiffs contend that because Holland is quoted directly in the April 24, 2001, Press Release, the misstated line count may be attributed to him. The Court agrees that the alleged misstatement in the April 24, 2001, Press Release may be attributed to Holland
2. Information and Belief
Defendants next argue that dismissal is appropriate because Plaintiffs have failed to plead with particularity the facts underlying their allegations based on information and belief as required by the PSLRA. "[T]he PSLRA specifically provides in 15 U.S.C. § 78u-4(b)(1) as to pleading allegations on information and belief that, `if an allegation regarding the statement or omission is made on information and belief that, `if an allegation regarding the statement or omission is made on information and belief, the complaint shall state with particularity all facts on which that belief is formed.'" ABC Arbitrage, 291 F.3d at 350. The Fifth Circuit adopted the multi-step analysis of the Second Circuit to determine whether a plaintiff has pleaded "with particularity sufficient facts to support their allegation of false or misleading statements made on information and belief":
1) if plaintiffs rely on confidential personal sources and other facts, their sources need not be named in the complaint so long as the other facts, i.e., documentary evidence, provide an adequate basis for believing that the defendants' statements or omissions were false or misleading;
2) if the other facts, i.e., documentary evidence, do not provide an adequate basis for believing that the defendants' statements or omissions were false, the complaint need not name the personal sources so long as they are identified through general descriptions in the complaint with sufficient particularity to support the probability that a person in the position occupied by the source as described would possess the information pleaded to support the allegations of false or misleading statements made on information and belief;
3) if the other facts, i.e., documentary evidence, do not provide an adequate basis for believing that the defendants' statements or omissions were false and the description of the personal sources are not sufficiently particular to support the probability that a person in the position occupied by the source would possess the information pleaded to support the allegations of false or misleading statements made on information and belief, the complaint must name the personal sources.Id. at 352-53.
After reviewing the Amended Complaint, the Court finds that many of the statements linking Holland and Parella to the alleged schemes are not attributed to any of the confidential witnesses or to any documentary evidence. ( See e.g., Am. Compl. at 25, 32, 37.) The Court also finds that many of the statements linking Holland and Parella to the alleged schemes that are attributed to a confidential witness are not based on that witness's personal knowledge, but rather based on what the confidential witness was told by another, unidentified person. ( See e.g., Am. Compl. at 29, 35, 36.) However, except for these deficiencies, the Court concludes that the general descriptions in the complaint are sufficient "to support the probability that a person in the position occupied by the source as described would possess the information pleaded to support the allegations of false or misleading statements made on information and belief." ABC Arbitrage, 291 F.3d at 353.
3. Rule 9(b) Standards
Defendants next argue that Plaintiffs have failed to plead the who, what, when, where, and why for each alleged false or misleading statement. Rule 9(b) requires a plaintiff "to specify the statements contended to be fraudulent, identify the speaker, state when and where the statements were made, and explain why the statements were fraudulent." ABC Arbitrage, 291 F.3d at 349. Although the Court agrees that Plaintiffs' could have laid out the elements in a more organized manner, the Court nevertheless concludes that Plaintiffs have met this standard.
4. Scienter
Defendants' fourth argument for why the Court should dismiss Plaintiffs' Amended Complaint is that Plaintiffs have not sufficiently plead scienter. The PSLRA amended the 1934 Act to require:
In any private action arising under this chapter in which the plaintiff may recover money damages 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 required state of mind.15 U.S.C. § 78u-4(b)(2). See also, Nathenson v. Zonagen, Inc., 267 F.3d 400, 407 (5th Cir. 2001). Plaintiffs, therefore, must state with particularity facts giving rise to a strong inference of scienter. See Nathenson, 267 F.3d at 408. Severe recklessness serves to show scienter and is defined in the Fifth Circuit as "limited to those highly unreasonable omissions or misrepresentations that involve not merely simple or even inexcusable negligence, but an extreme departure from the standards of ordinary care, and that present a danger of misleading buyers or sellers which is either known to the defendant or is so obvious that the defendant must have been aware of it." See id. (quoting Broad v. Rockwell Int'l Corp., 642 F.2d 929, 961 (5th Cir. 1981)).
After a thorough review of the Amended Complaint, specifically those relating to conduct of Holland and Parella that are adequately pleaded on information and belief, the Court determines that Plaintiffs have adequately pleaded scienter. Plaintiffs claim that Defendants used the order management system to determine the line count that was reported to the public in the Press Releases at issue even though Defendants knew that the billing system was more accurate. ( See Am. Compl. at 51-52.) However, the conduct Plaintiffs claim led to the artificially inflated line count, specifically the forged contracts and the delay in processing cancellations, could have been reflected in the billing system as well as the order management system. Plaintiffs do not adequately plead the relationship between the conduct they claim led to the artificially inflated line count and the system used to generate that line count. The Court concludes that Plaintiffs have not sufficiently alleged scienter in relation to Defendants' choice to use the order management system rather than the billing system to generate the line counts. The Court further concludes, however, that despite this deficiency, scienter was sufficiently alleged in relation to the conduct that allegedly inflated the line count, i.e., forged contracts and delay in cancellations. Plaintiffs' allegations as to this conduct give rise to a strong inference that such conduct was an intentional attempt to artificially inflate the line count. As such, Plaintiffs have adequately pleaded scienter for Defendants Holland and Parella, and Defendants' Motion to Dismiss for failure to plead scienter is DENIED.
5. Materiality
Defendants argue that none of the allegedly false statements are material, either individually or in the aggregate. (Mot. at 19-24.) "[M]ateriality is determined by evaluating whether there is `[a] substantial likelihood that' the false or misleading statement `would have been viewed by the reasonable investor as having altered the `total mix' of information made available.'" ABC Arbitrage, 291 F.3d at 359 (quoting Nathenson, 267 F.3d at 418 (quoting Basic Inc. v. Levinson, 485 U.S. 224, 231-32 (1988))). Although a court "can determine statements to be immaterial as a matter of law on a motion to dismiss," materiality is usually a mixed question of law and fact properly left to a jury. See id.
In the instant case, Plaintiffs have included in the Amended Complaint explanations for why the line counts were material. Plaintiffs have also included analysts' statements equating Allegiance's line count with its performance. The Court concludes that Plaintiffs have adequately alleged that the statements in the Press Releases regarding the line count were material. Defendants' Motion to Dismiss for failure to plead materiality is DENIED.
6. Section 20(a) Claims
Defendants argue that all claims pursuant to Section 20(a) of the Securities Exchange Act of 1934 must be dismissed because there are no primary claims that survive the Motion to Dismiss. (Mot. at 24.) Section 20(a) provides, "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. To establish liability under § 20(a), therefore, there must be a finding that a provision of the Securities Exchange Act has been violated. To the extent that Plaintiffs' § 20(a) claim is premised on the statement in the Forms 10-Q, Defendants' Motion to Dismiss is GRANTED and Plaintiffs' § 20(a) claim is dismissed with prejudice. To the extent Plaintiffs' § 20(a) claim is premised on the actions of Defendants Lord and Yost, Defendants' Motion to Dismiss is GRANTED and Plaintiffs' § 20(a) claim is dismissed without prejudice. To the extent Plaintiffs' § 20(a) claim is premised on the actions of Defendants Holland and Parella and the statements in the Press Releases, Defendants' Motion to Dismiss is DENIED.
IV. CONCLUSION
In summary, the Court GRANTS Defendants' Motion to Dismiss Plaintiffs' claims premised on the statements in the Forms 10-Q because such statements are inactionable as a matter of law; such claims are DISMISSED with prejudice. As to Plaintiffs' claims premised on the statements in the Press Releases, the Court DENIES Defendants' Motion to Dismiss those claims as to Defendants Holland and Parella. The Court GRANTS Defendants' Motion to Dismiss those claims as to Defendants Lord and Yost because Plaintiffs' Amended Complaint violates the prohibition on group pleading; such claims are DISMISSED without prejudice and with leave to amend.
"The Court suggests that Plaintiffs consider how their Second Amended Complaint could be better drafted than their Amended Complaint. Judge Lindsay's description of the plaintiffs' complaint in Schiller [ v. Physicians Res. Group, No. 3:97-CV-3158-L, 2002 WL 318441, at *5 (N.D. Tex. Feb. 26, 2002) (Lindsay, J.)], is equally apt here: Plaintiffs' Amended Complaint `represents a labyrinth, requiring the court to piece together the elements of the claims from allegations made all over the complaint.'" In re Blockbuster Inc. Securities Litigation, No. 3:03-CV-0398-M, 2004 WL 884308, *22 (N.D. Tex. April 26, 2004) (Lynn, J.).
If they choose to do so, Plaintiffs must file their Second Amended Complaint no later than noon, July 12, 2004. Defendants shall answer or otherwise respond no later than noon, August 2, 2004. If Defendants file a Motion to Dismiss, Plaintiffs may file a Response no later than noon, August 23, 2004. Plaintiffs may file a Reply no later than noon, September 7, 2004.
SO ORDERED.