Broker-Dealer Litigation - Greenberg Traurig LLP

allegations did not reference particular dates on which material information was discovered and
allegedly conveyed to management that would permit a strong inference of scienter.
Monk v. Johnson and Johnson, 2011 WL 6339824 (D.N.J. Dec. 19, 2011).
Plaintiffs brought securities fraud claims against corporation, its wholly-owned
subsidiary, and current and former officers and directors, alleging that they misrepresented
material information about systemic quality control failures at certain drug manufacturing plants.
Certain individual defendants moved to dismiss for failure to meet the applicable pleading
standards imposed by Rule 9(b) and the Private Securities Litigation Reform Act of 1995. The
court found the scienter allegations sufficient with respect to some defendants but lacking as to
others, and thus granted the motion in part and denied it in part. Commenting on the demands of
Rule 9(b), the court found that the plaintiffs’ citations to press releases did not satisfy the
pleading standards because they did not identify the dates of the press releases or the precise
statements attributable to particular defendants. In addition, the court found allegations that a
defendant should have known about quality control problems simply by virtue of her position
defective because a corporate officer’s knowledge of day-to-day operations could not be
presumed.
Chau v. Aviva Life and Annuity Co., 2011 WL 1990446 (N.D. Tex. May 20, 2011).
The plaintiffs, a group of physicians and dentists and their professional corporations, sued
the defendant based on its advertising, marketing and sale of tax shelters, accusing the defendant
of common law fraud, negligent misrepresentation, violating Washington state securities laws,
and other state common law and statutory claims. The defendant moved to dismiss, and the
court granted dismissal of all claims except the breach of contract cause of action. The court
found that while the common law fraud claim adequately alleged the “who, what, when, where,
and how” of the alleged fraud, it failed to allege why the purported misrepresentations were false
when made. Specifically, the court found that allegations that the defendant was aware that the
IRS had questioned the propriety of similar plans failed to show that the defendant knew that its
statements regarding the benefits and legality of the tax shelters were false when made and since
the plaintiffs’ Washington state securities law claims were premised on the same allegations of
fraudulent misstatements, they also failed to state a claim with the particularity required by Rule
9(b). With respect to the plaintiffs’ contract claims, however, the court found it generally
inappropriate to apply Rule 9(b) to contract actions under Fifth Circuit law and, in any event, the
claimed breach was not based on the allegedly fraudulent misrepresentations, but the failure to
provide the promised benefits. Accordingly, the contract claims survived the motion to dismiss.
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