Case 1:12-cv-00033-JRN Document 12 Filed 02/29/12 Page 1 of 32

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Case 1:12-cv-00033-JRN Document 12 Filed 02/29/12 Page 22 of 32condition, and results of operation.,,5o Such a contingency did not occur, and Plaintiff has notcontended otherwise. 51On this issue, Belodoffv. Netlist, Inc., is instructive. 52 In that case, plaintiff alleged thatthe defendant failed to disclose that customer demand for its products was in significantdecline. 53 The court originally dismissed the complaint based, in part on this allegation, but gaveplaintiff leave to amend, holding that if the defendant "already knew that its customers weresignificantly reducing their orders at the time of the lPO and had been for some time, Defendants[sic] representation of such an event as a contingency in the risk disclosure statement would bedeceitful.,,54 In dismissing the same claim from plaintiffs second amended complaint, the courtnoted that the sales figures set forth in defendant's public filings demonstrated "an increase andflat-lining of sales up and through the lPO," thereby defeating plaintiffs claim that defendantsknew of the "significant decline in customer demand. 55 Likewise, in this case, LPHI's business,financial condition, and operations for fiscal years 2007-2010, consistently exhibited dramaticimprovement, with revenues increasing from $30.3 million in fiscal year 2007 to $108.8 millionin fiscal year 2010, and net income increasing from $3.8 million in fiscal year 2007 to $26.1million in fiscal year 2010. 56 Such figures refute Plaintiffs claim that LPHI failed to disclose aknown risk. This is especially true in light of the inadequacy of Plaintiffs allegations regardingDefendants' knowledge of the purported underestimation of LEs, as discussed, supra. For the50 See id.51 See generally, Compl.52 No. SACV 07-00677 DOC (MLGx), 2009 U.S. Dist. LEXIS 78309 (C.D. Cal. Sept. 1,2009).53 2009 U.S. Dist. LEXIS 78309, at *19.54 [d. at *8.55 [d. at *22-26.56 See excerpt from LPHI's 2011 Form 10-K, in the Appendix as Exhibit K. While LPHI's revenue and net incomedecreased in fiscal year 2011 from fiscal year 2010, the 2011 numbers were still dramatically higher than thoseposted in fiscal years 2007 and 2008. Importantly, to the extent Plaintiff contends that the 2011 risk disclosure wasmaterially misleading, Plaintiff ignores the disclosure in the same Form 10-K describing Plaintiffs allegationsregarding the inaccuracy of the LEs. See Exhibit K. Thus, any claim regarding the 2011 Form 10-K must bedismissed as failing to allege a material misstatement or omission.DEFENDANTS LIFE PARTNERS HOLDINGS, INC. AND R. SCOTT PEDEN'S MOTION TO DISMISSAND BRIEF IN SUPPORT - Page 16
Case 1:12-cv-00033-JRN Document 12 Filed 02/29/12 Page 23 of 32same reasons, Plaintiff s claim that Defendants' risk disclosure was misleading because it failedto disclose "a material trend impacting [LPHI's] revenues" in contravention of Item 303 ofRegulation S-K must also be rejected. See Belodoff, 2009 U.S. Dist. LEXIS 78309 at *27-28. 57e. Plaintiff Failed to Adequately Allege Misrepresentations by Pardo.Plaintiff alleges that Defendant Pardo misrepresented the rates of return for LPIcustomers in October 2007 and October 2008 conference calls. 58However, Plaintiff fails tospecify any documents establishing that the ROls were inaccurate, and whether and how Pardoknew they were inaccurate at the time of his statements. 59 Thus, the allegation violates Rule 9(b)and must be rejected. See Plotkin v. IP Axess Inc., 407 F.3d 690,696 (5th Cir. 2005).In addition, Plaintiffs allegation that LPI, when conveying "historic ROI," did not takeinto account "policies that remained active beyond their LE,,,60 must be rejected as defyingcommon sense. It goes without saying that a life insurance policy that is still "active" is a policyfor which the insured is still living. Because purchasers of viaticals or life settlements do notreceive death benefits until the insured has died, it would be impossible to provide an accurateROI for "active" policies, for such cannot be appropriately calculated until there are "returns" tocalculate. 61Thus, common sense requires a rejection of this allegation. See Iqbal, 129 S.Ct. at1950. Further, to the extent, by this claim, Plaintiff is alleging that Defendants had a duty topredict or speculate what the ROls would be for policies that will mature in the future, such an57 Notably, "a violation ofItem 303 's reporting requirements does not automatically give rise to a material omissionunder Rule 10b-5." Gran v. Stafford, 226 F.3d 275, (3rd Cir. 2000); see also In re Enron Corp. Sec. Litig., 258F.Supp. 2d 576, 633 n.63 (S.D. Tex. 2003).58 Compl., ~~6l-62.59 Compl., ~62.60 See Compl., ~63.61 See, e.g., Return on investment, http://financial-dictionary.thefi·eedictionary.com/return+on+investment, at p. 1(citing Farlex Financial Dictionary) (ROI defined as "[t]he money that a person or company earns as a percentage ofthe total value invested."); Return on Investment (RO!): Meaning and Use, http://www.solutionmatrix.com/returnon-investment.htmlat p. 2 ("Return on investment is frequently derived as the 'return' (incremental gain) from anaction divided by the cost of that action.").DEFENDANTS LIFE PARTNERS HOLDINGS, INC. AND R. SCOTT PEDEN'S MOTION TO DISMISSAND BRIEF IN SUPPORT - Page 17
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Case 1:12-cv-00033-JRN Document 12 Filed 02/29/12 Page 1 of 32

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