trying to grow, or that Abbott had not built itself over many decades.
The July 9, 1999, press release discussed Abbott's third
quarter performance, including historical sales and earnings.
Accurate statements of historical fact, such as past financial
results, are not actionable. See Next Level, 1999 WL 387446 at
*6. Plaintiffs do not challenge these figures as factually wrong;
they do not predict anything for the future; and they do not
suggest anything about regulatory compliance that could possibly
be misleading. Consequently, they are not actionable. The release
also mentions the two acquisitions, several strategic alliances
and specific FDA approvals. These are all true facts. Since no
reasonable investor could imply from the fact that the FDA
approved certain products that there could not be problems with
others, this statement is not misleading either.
Lastly, we examine the April 8, 1999, press release. In form,
it was similar to the July 9, 1999, release, reporting quarterly
results and describing "Business Highlights." But plaintiffs only
identify two sentence fragments as potentially misleading,
neither of which is meritorious. Abbott reported "record sales
and earnings for the first quarter ended March 31, 1999," and
"accomplished a great deal in the quarter." Again, accurate
historical results are not actionable, nor is vague puffery.
These statements do not suggest anything about regulatory
compliance, and could not mislead investors about that topic.
They are also not forward-looking. They do not predict anything
in the future. The complaint also alleges that the release "went
on to detail a dozen `First Quarter Business Highlights.'" But it
does not identify the allegedly misleading statements. As
discussed above, this is insufficient under Fed. R. Civ. P.9(b),
DiLeo, 901 F.2d at 627, and the PSLRA, 15 U.S.C. § 78u-4(b)(1).
As we did with the Abbott plaintiffs, we also consider the
statements collectively, and with an identical result. See Next
Level Sys., 1999 WL 387446 at *4. The statements in question deal
predominantly with the merger, Abbott's pharmaceutical business
and general corporate performance. They say little, if anything,
about diagnostics or regulatory compliance. No reasonable
investor would be misled.
Having failed to establish that the statements themselves were
misleading, plaintiffs turn to SEC Regulation S-K, specifically
Item 303(a)(3)(ii), as the source for Abbott's supposed duty to
disclose. See 17 C.F.R. § 229.303(a)(ii). Unfortunately for
plaintiffs, the caselaw is clear that Item 303(a) does not give
rise to private action under Rule 10b. See Kriendler v. Chemical
Waste Management, 877 F. Supp. 1140, 1151, 1157 (N.D. Ill. 1995),
citing In re: Verifone Sec. Litig., 11 F.3d 865, 870 (9th Cir.
1993). Plaintiffs' cases do not contradict this proposition. The
disclosure rules are probative of what a company is otherwise
obliged to disclose, but they do not create an independent duty.
See, e.g., F&M Distrib. Sec. Litig., 937 F. Supp. 647, 654 (E.D.
Mich. 1996). Absent some other basis for the duty, plaintiffs
cannot rely solely on Item 303(a).
Finally, plaintiffs claim that White's April 13, 1999, trades
triggered a duty to disclose. Insiders must either disclose any
material non-public information, or abstain from trading in their
company's stock. See United States v. O'Hagan, 521 U.S. 642, 651
(1997) (affirming insider trading conviction). White is
undisputably an insider. But, once again, this rule does not
create a duty for Abbott to disclose anything here. Unlike
O'Hagan, this is not an insider trading case. An insider's duty
to disclose is not "transferable to the securities fraud claim
against the corporate defendant or
the individual defendants." In re: Seagate Technology II Sec. Litig.,
843 F. Supp. 1341, 1369 (N.D. Cal. 1994), quoted in In re:
Sofamor Danek Group, 123 F.3d 394, 403 (6th Cir. 1997). Nor have
plaintiffs pled a Section 11 claim for a defective registration statement.
See 15 U.S.C. § 77k (a); Shaw, 82 F.3d at
1204 (noting Section 10(b) and Rule 10b-5 do not contain comparable
disclosure requirements to Section 11).*fn10 White's transaction
does not provide the requisite duty for Abbott to disclose.
Lastly, we turn to the scienter requirement. Under the PSLRA,
plaintiffs must allege facts giving a strong inference of motive
and opportunity, or facts providing strong circumstantial
evidence of conscious misbehavior or recklessness. See Rehm, 954
F. Supp. at 1252. Even at the motion to dismiss stage, we must
consider the alleged facts and the inferences they support. Under
the heightened pleading standards it is not sufficient that a
reasonable jury could infer scienter. The complaints must create
a strong inference. Essentially this means that the most
reasonable interpretation of these facts is mischievous. The
complaints fall far short of this standard.
Plaintiffs' main argument is that defendants knew of, or
recklessly disregarded, a serious threat to the company's
prospects. But the inspection results did not necessarily mean
that 20% of Abbott's revenues were substantially at risk. As we
discussed above, given the history between Abbott and the FDA,
defendants could have reasonably believed that the sequence of
re-inspections and negotiations would continue. Plaintiffs cite a
1995 incident, where the FDA's delayed approval of an Abbott
product because of regulatory violations, as proof that
defendants knew severe sanctions were imminent. But this consent
decree was unprecedented, requiring Abbott to recall 125
products, not just one, and to pay a $100 million fine, the
largest ever by the FDA. The complaint does not identify any
facts suggesting defendants knew the FDA planned to impose
sanctions anywhere approaching the draconian penalties included
in the decree.
The evidence of motive is even weaker. Plaintiffs point to the
fact that White "sold" approximately 30% of his Abbott shares
during the class period. Heavy sales by an insider could well be
evidence of motive. Here, however, White used those shares to
exercise options and actually increased his holdings.*fn11
Admittedly, if the market price is higher, the option holder will
have to exchange fewer shares to exercise the same number of
options. But the options' terms usually dictate when the holder
may exercise them. Because plaintiffs have not alleged specific
facts to the contrary, we find nothing sinister in White's
Plaintiffs also argue that defendants delayed disclosing the
FDA issues to facilitate their pending mergers. But the September
29 press release, only nine days before Perclose shareholders
were scheduled to vote on the transaction, belies any such
More generally, the weakness of plaintiffs' arguments on the
materiality and misleading statement elements also hurts them
here. One who intends to defraud must get the market to believe
something that is untrue. Omitting marginally material facts will
rarely mislead anyone. The perpetrator would probably omit
something that is more likely to affect the market. Similarly, an
attempt to defraud will probably refer to the issue in question
more directly. Defendants' statements barely referenced
regulatory compliance and did so in the most vague terms. As we
discussed above, no one is likely to infer anything untrue about
Abbott's regulatory status from these statements. One who intends
to defraud will probably go to greater lengths to ensure that
investors draw the untrue inference.
None of these considerations establishes conclusively that
defendants did not intend to defraud shareholders. Combined with
other facts, they could imply malfeasance. But plaintiffs bear
the burden to plead facts giving a "strong inference" of
scienter. The alleged facts here are all susceptible to innocuous
interpretations. Plaintiffs have failed to meet their burden.
The allegations do not give rise to a § 10(b) violation.
Without a predicate § 10(b) violation, plaintiffs cannot state a
§ 20(a) controlling person claim. See Krieger v. Gast, 1998 WL
677161 (N.D. Ill. Sept. 22, 1998). Defendants' motions to dismiss
both complaints are granted.