"tweak" the technology to get even better results. See id.
All of these facts must be viewed in relation to the fundamental fact underlying this case: at no time was Aprogenex capable of moving the GenSite system from the drawing board to the realm of marketable technology. See Compl. PP 29-30. The defendants were necessarily aware of this inability, even if they honestly believed it would soon be rectified. In combination with Aprogenex's refusal to release data to back up its optimistic forecasts, we think this awareness constitutes strong circumstantial evidence that Aprogenex knew all along that its representations that the GenSite system was "adequate" or "fixed," and that the launch date was imminent, were false. In Rehm, the court inferred scienter under similar circumstances. The court noted "the defendant's attempts to mollify public doubt about [their] financial health by putting an optimistic and reassuring 'spin' on otherwise damaging [reports] shows that the defendants acted with knowledge of [their] deteriorating earnings." Rehm, 954 F. Supp. 1246, 1997 U.S. Dist. LEXIS 767, 1997 WL 43037 at *10. The court concluded that, in combination with other evidence, "defendants' careful statements mitigating the seriousness of the [problem] raises a strong inference that defendants acted with [scienter]." Id. Similarly, we conclude that Aprogenex's statements mitigating the seriousness of their failure to complete the cell enrichment component of the GenSite system create a strong inference of scienter, and thus the plaintiffs have satisfied § 78u-4(b)(2).
3. forward-looking statements
As in the case of scienter, Rule 9(b)'s particularity requirement is heightened even further with respect to forward-looking statements,
which are protected by a "safe harbor" provision unless they are made in bad faith or without a reasonable basis. See 17 C.F.R. § 240.3b-6 (stating that a forward-looking statement "shall not be deemed to be a fraudulent statement . . . unless it is shown that such statement was made or reaffirmed without a reasonable basis or was disclosed other than in good faith"); In re Bally Mfg. Sec. Corp. Litig., 141 F.R.D. 262, 271 (N.D. Ill. 1992) (Aspen, J.) (dismissing a securities fraud claim because of the safe harbor provision), aff'd, 2 F.3d 1456 (7th Cir. 1993). Hence, when forward-looking statements are alleged to be fraudulent, the "plaintiffs must allege 'specific facts which illustrate that [the defendant's] predictions lacked a reasonable basis.'" In re Healthcare, 75 F.3d 276 at 281 (quoting Arazie v. Mullane, 2 F.3d 1456, 1468 (7th Cir. 1993)); Wielgos v. Commonwealth Edison Co., 892 F.2d 509, 513 (7th Cir. 1989). Aprogenex contends that many of the allegedly fraudulent statements listed in the Complaint are subject to this safe harbor provision. See Def.'s Reply Br. at 4 & n.2 (specifying predictive statements). We agree.
With respect to the forward-looking statements listed in the Complaint, the plaintiffs provide no facts that would support the view that Aprogenex lacked a reasonable basis when making them besides the simple reality that they ultimately proved to be wrong. To pick just two examples, in January 1995 Aprogenex predicted that when introduced in the European market, the GenSite system would attain $ 30-40 million in sales in its first year, see Compl. P 27 (statement 7), and in April 1995 it predicted a July launch date, at which time the company would stage a number of promotional "hooplas," see id. (statement 12).
Obviously these optimistic predictions turned out to be false, but this alone does not permit us to conclude that they lacked a reasonable basis when made. See In re Healthcare, 75 F.3d 276 at 281 ("Projections which turn out to be inaccurate are not fraudulent simply because subsequent events reveal that a different projection would have been more reasonable."); Wielgos, 892 F.2d at 513 ("Forward-looking statements need not be correct; it is enough that they have a reasonable basis."). Aprogenex may have honestly believed that these predictions would come true: the plaintiffs have not shown that the European market for prenatal diagnostic testing systems was smaller than $ 30 million per year, or that a July launch date was impossible as of April 1995. The plaintiffs have failed to carry their burden of alleging facts indicating that Aprogenex lacked a reasonable basis for its predictions, and thus Aprogenex's motion to dismiss is granted with respect to those statements.
B. Cautionary Language
As discussed in the Background section supra, Aprogenex's written public disclosures contained a good deal of general cautionary language regarding the risks facing prospective investors. See Compl. PP 18, 20; Def.'s Motion Ex. 1 at 6-13 (Aprogenex's 1993 prospectus, containing a lengthy discussion of "risk factors" related to the company's stock). For instance, Aprogenex emphasized that "there can be no assurance that there will not be additional delays in the enrichment system . . . or that the enrichment system will ever be successfully developed by the Company." See Compl. P 20. Aprogenex makes two separate arguments based on this kind of cautionary language. The first relies on the "bespeaks caution" doctrine, which provides that "when forecasts, opinions, or projections in a disclosure statement are accompanied by meaningful warnings and cautionary language," the forward-looking statements may be deemed immaterial as a matter of law. See Harden v. Raffensperger, Hughes & Co., 65 F.3d 1392, 1404 (7th Cir. 1995); In re Donald J. Trump Casino Sec. Litig., 7 F.3d 357, 371 (3d Cir. 1993). We need not address this argument since we have already dismissed the plaintiffs' claims insofar as they are based on forward-looking statements.
See supra Part III.A.3.
Aprogenex's second argument is that plaintiffs cannot claim to have reasonably relied on oral representations that are contradicted by the cautionary language in the company's written publications. Aprogenex directs our attention to the well-settled rule in securities fraud cases that "documents that unambiguously cover a point control over remembered (or misremembered, or invented) oral statements." Associates in Adolescent Psych. v. Home Life Ins. Co., 941 F.2d 561, 571 (7th Cir. 1991); see also Carr v. CIGNA Secs., Inc., 95 F.3d 544, 547 (7th Cir. 1996); Ambrosino v. Rodman & Renshaw, Inc., 972 F.2d 776, 786 (7th Cir. 1992); Teamsters Local 282 Pension Trust Fund v. Angelos, 762 F.2d 522, 530 (7th Cir. 1985). This principle is inapplicable to the facts of this case, however, because Aprogenex's fraudulent oral representations were not contradicted by its written warnings. The warnings merely indicate that Aprogenex stock should be regarded as a risky investment because its research efforts might ultimately fail. This does nothing to contradict Aprogenex's subsequent assertions that the GenSite system had been "fixed" and was ready for market: the riskiness of Aprogenex's venture ex ante does not mean that its subsequent success was impossible or implausible. The Carr case, upon which Aprogenex primarily relies, supports this reasoning: to contradict a representation that an investment is risky, one must represent that the investment is safe. See Carr, 95 F.3d at 547. The investment's actual success or failure is a different issue. The plaintiffs might reasonably have relied on Aprogenex's representations that its efforts had been successful despite the substantial risks looming at the outset of the venture, and we therefore decline to dismiss the Complaint on this ground.
C. Statute of Limitations
Securities fraud claims must be brought within one year after the discovery of the facts constituting the violation and within three years after the violation. See 15 U.S.C. § 77m; Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350, 364, 115 L. Ed. 2d 321, 111 S. Ct. 2773 (1991). The one-year clock begins to run when the plaintiff is put on inquiry notice of the fraud, rather than when the plaintiff actually discovers it. Whirlpool Fin. Corp. v. GN Holdings, Inc., 67 F.3d 605, 609 (7th Cir. 1995). Inquiry notice occurs "'when the victim of the alleged fraud [becomes] aware of facts that would have led a reasonable person to investigate whether he might have a claim.'" Id. (quoting Tregenza v. Great Am. Communications Co., 12 F.3d 717, 718 (7th Cir. 1993)). In the context of a motion to dismiss, we must bear in mind that the statute of limitations is an affirmative defense, and a plaintiff is not required to negate an affirmative defense in his complaint. See Tregenza, 12 F.3d at 718; cf. LaSalle v. Medco Research, Inc., 54 F.3d 443, 447 (7th Cir. 1995) (suggesting that statute of limitations questions are easier to resolve after discovery). But if the plaintiff pleads facts that show that his suit is time-barred, he can plead himself out of court. Tregenza, 12 F.3d at 718.
Aprogenex contends that claims based on stock purchases that occurred more than one year prior to the filing of this suit are barred because the plaintiffs had inquiry notice of the fraud as soon as the fraudulent statements were made.
See Def.'s Reply Br. at 8. Aprogenex's argument is very similar to its reasonable reliance challenge: it suggests that the "contradictory" cautionary language contained in its written publications would have caused a reasonable person to doubt the company's representations that the GenSite system was "fixed" and ready for market. See id. at 9-10. The problem with this reasoning, as we have already pointed out, is that there is really no contradiction between Aprogenex's initial warnings regarding the riskiness of the venture and its subsequent claim that the GenSite system was marketable. See supra Part III.B. The mere existence of the cautionary language would not compel a reasonable investor to suspect that Aprogenex's subsequent representations about the GenSite system were fraudulent.
When the critical misrepresentations were made--in August and September of 1995--there was no reason (or at least there is none apparent on the face of the complaint) why the plaintiffs' suspicions would necessarily have been aroused. The only evidence available to the plaintiffs that was in tension with Aprogenex's claims was the July report by Hoak Securities which suggested that the cell enrichment component of the GenSite system was not yet complete. When the plaintiffs, through Joseph Baba, asked Aprogenex officials whether the Hoak report was accurate, the officials specifically indicated that the problems had been fixed. A reasonable investor in the plaintiffs' position in August of 1995 might well have trusted the representations of the scientists at Aprogenex rather than those made by the investment bankers who authored the Hoak report, whose information, even if initially accurate, might have grown stale since July. The only event we can see that would unquestionably provoke suspicion in a reasonable investor is Aprogenex's refusal in October 1995 to provide Baba with test results that would back up its claims that the GenSite system was marketable. But if inquiry notice did not occur until October--eleven months prior to the filing of this suit--then the statute of limitations has not been violated.
Accordingly, we decline to dismiss this case pursuant to the statute of limitations.
For the foregoing reasons, Aprogenex's motion to dismiss is granted with respect to the forward-looking statements in the Complaint, but denied in all other respects. It is so ordered.
MARVIN E. ASPEN
United States District Judge