USCA1 Opinion

United States Court of Appeals

United States Court of Appeals
For the First Circuit
For the First Circuit
____________________

No. 96-1088

DAVID GROSS,

Plaintiff, Appellant,

v.

SUMMA FOUR, INC., BARRY R. GORSUN, JAMES J. FIEDLER,

JOHN A. SHANE, WILLIAM M. SCRANTON, AND ROBERT A. DEGAN,

Defendants, Appellees.

____________________

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF NEW HAMPSHIRE

[Hon. Paul J. Barbadoro, U.S. District Judge]

___________________

____________________

Before

Stahl, Circuit Judge,

_____________
Campbell, Senior Circuit Judge,
____________________
and Lynch, Circuit Judge.
_____________

____________________

Arthur R. Miller, with

________________

whom Lee S. Shalov, Milberg Weiss Bers

_____________ ___________________

Hynes & Lerach LLP, Jules Brody, Mark A. Levine, Stull Stull & Bro
__________________ ___________ _______________ _________________

Edward L. Hann, McLane, Graf, Raulerson & Middleton, Joseph H. Wei

______________ ____________________________________ _____________

and Weiss & Yourman, were on brief for appellant.

_______________

Peter J. Macdonald, with whom Donald J. Williamson and Hale

___________________
_____________________
______
Dorr, were on brief for appellees.
____

____________________

August 12, 1996

____________________

STAHL, Circuit Judge.

STAHL, Circuit Judge.
_____________

from the district

claim

Investor David Gross appeals

court's dismissal of his

against Summa

Four, Inc.,

Summa Four officers and directors.1

Four committed

"fraud on the

public statements from

its

securities fraud

president, and

other

Gross claims that Summa

market" by making a

series of

January to July 1994 that were either

materially misleading in and of themselves, or incomplete and

misleading

due to the omission of materially relevant facts.

Gross further complains that Summa Four improperly overstated

its revenue

during

review, we affirm

the same

time

period.

After

the district court's dismissal

claims.

I.
I.

careful

of Gross's

__

Background
Background
__________

Summa

Four

is

a Delaware

corporation

with

principal place of business in Manchester, New Hampshire.

develops and

signaling

manufactures advanced-technology

systems

for use

in

its

It

switching and

telecommunications networks,

which it markets and distributes to clients worldwide.

On September

completed

23,

1993,

an initial public

Summa

Four

offering ("IPO") of

successfully

its common

____________________

1.

The

individual

defendants

president, CEO and Chairman

are

Barry

Gorsun,

of the Board; James

current

J. Fiedler,

president and director from July 1993 through July 1994; John
A.

Shane, director since 1976; William M. Scranton, director

since 1976; and Robert A. Degan, director since 1984.

otherwise

indicated

we

will

refer

to

all

Unless

defendants

collectively as "Summa Four" or "the company."

-22

stock.

shares

The individual

into

the IPO

defendants sold a

(at a

price

portion of

of $17

per

their

share), but

remained significant shareholders following the offering.

provided in a

individual

"lock-up" agreement with the

defendants

were

prohibited

As

underwriter, the

from

selling

any

retained shares

date of

in the

the offering.

individual defendants

underwriter to sell,

Summa Four stock

company for

180 days following

In late February 1994,

obtained special

and did

however, the

permission from

sell, over

the

130,000 shares

the

of

at an average market price in excess of $38

per share.

Gross, who purports to sue on behalf of himself and

all other

investors similarly situated, purchased 200 shares

of

Four

Summa

stock

in

late

approximately $27.50 per share.

date

of the class

from

$22.25

announcement

to

May

at

price

of

On July 5, 1994 (the closing

period),2 Summa

$11.75 per

1994

share

Four's stock

following

price fell

the company's

that its expected results for the first quarter

of fiscal year

of

1995 (ending June 30, 1994)

earlier projections.

terminated

Shortly

defendant James

would fall short

thereafter,

Fiedler who

had

Summa

served as

Four

its

president throughout the class period.

A. Summa Four's Public Statements

__________________________________

____________________

2.

The

purported "class

period" extends

July 5, 1994.

The district court

1994, to
the class.

-33

from

January 18,

never certified

From

January

several public

and

July

1994,

statements touting the

profitability.

excerpts from three

of securities fraud.

press

to

releases

In

the

Summa

Four

company's performance

complaint,

Gross

such statements to establish

The first two excerpts

dated January

18

issued

and

May

relies

on

his claims

are taken from

3,

1994,

that

accompanied the release of Summa Four's results for the third

and

fourth quarters

excerpt

is

taken

of its

from

1994

fiscal year.

June 29,

1994,

shareholders from Summa Four's then president

The

June 29

letter was sent

in advance

The

letter

third

to

the

James Fiedler.

of the end

of the

first quarter of Summa Four's 1995 fiscal year.

The relevant

portions of the three statements are quoted below.

1.

January 18, 1994, press release:

Competition at all levels and alternative

technologies caused by divestiture in the
U.S. and
are

privatization in

fueling

services.

growth for

new

We are also

demand for our

______ ___ ___
number

other markets
customized

seeing increased
_________

SDS distributed switch in

___ ___________ ______

of

international

markets

including China, Chile and Columbia where

there

is

rapid

infrastructure.
distributed

switch

development
.

.
is

The
becoming

in
SDS
the

platform of choice for rapidly developing

and

deploying

network-based

enhanced

services worldwide.

2.

May 3, 1994, press release:

In the

fourth quarter [ending

1994], the

Company received
________

March 31,
significant
___________

orders
______

from

AT&T, McCaw,

Sprint,

Unisys, and IBM to address a broad

of applications . . . .

GTE,
range

These new orders

-44

were

for

both

applications,
internationally.

new

and

domestically

existing
and

-55

3.

June 29, 1994, letter to shareholders:

We

are

pleased to

fiscal year
was

It

strengthened

year

was a
our

quarterly

you that
31, 1994,

in Summa
year

in

competitive

recorded our eighth

in

to

1994, ended March

watershed

history.

report

Four's
which we

position,

consecutive increase

revenues,

and

generated

record net income.

Our
___

strong
______

financial
_________

primarily the
in the

performance
___________

result of

our initiatives

highly competitive

market . . .

to maintaining
position

in

long distance

Summa Four is
its worldwide

the

public

distributed

switch

preeminent

customers

is

committed
leadership

network-based

market.
worldwide,

We

have
broad-

based

strategic

distribution

public

network-certified

strong
______

financial
_________

channels,

products,

position,
________

and

a
_
an

experienced management team.

Gross alleges

that, during the class period, Summa

Four possessed internal reports, documents, and board meeting

minutes revealing that the company was experiencing declining

growth in revenue

and earnings, delayed orders,

increases in expenses, and difficulties in

operations.

that the

Specifically, in

three public

misleading, Gross

and "Monthly

through

April

order to

statements were

significant

its international

support his

claims

materially false

or

relies on certain internal "Flash Reports"

Operating Reports"

1994,

for the

and recorded

months of

minutes

from

January

board and

internal operation meetings held in May and June 1994.

As we

progress with our

analysis, we will

discuss in more

detail

the content of these internal documents.

-66

B. The Present Lawsuit

_______________________

On

July

12,

1994,

shortly

after

Summa

Four's

announcement of its expected results for the first quarter of

fiscal

year 1995

and the

ensuing sudden

decline in

Four's

stock price, Gross filed this securities fraud action

in the New Hampshire federal district court.

to

bring

the

complaint

on

stock

purchased

Summa

Four

Following

Summa

Four's

district

court

behalf

initial

granted

Gross

Gross purported

of all

during

investors

the

motion

limited

Summa

class

to

who

period.

dismiss,

discovery.

the

Upon

completion of that discovery, Gross amended his complaint.

Subsequently,

amended complaint.

After

district court granted

claims.

The

portions of

Summa

Four

moved

briefing and

to

dismiss

the

oral argument,

the

the motion, rejecting all

court disagreed with

the statements

Gross that the

could be

viewed as

of Gross's

excerpted

affirmative

misrepresentations, stating that:

A reasonable person could

the pleaded

acts that demand

Four's products]
that

not infer from

was no

significant

orders

for [Summa

longer growing,
had

not

been

received from major corporations, or that

the

company

was

not

in

"strong

financial position" simply because it did

not

meet

its

projections,

its

were

than

lower

short-term
orders for
expected,

international operations were

budget

one
and

month
its

in a state

of disarray.

The

statements

court also

were misleading

rejected

Gross's

by omission.

-77

claim that

The court

the

noted

that, while many

of the facts Gross alleged

allegation

"might

have

investor,"

they were

been

important to

not sufficient

to

to support that

the

reasonable

indicate that

the

challenged statements were so incomplete as to be misleading.

The court

Four

had

allegations

the claim.

further rejected

overstated

its

Gross's final

revenue,

claim that

reasoning

that

Summa

the

on which Gross relied did not reasonably support

Gross now appeals.3

II.
II.

___

Discussion
Discussion
__________

Gross

contends that

dismissing his claims.

adequately

breached, to

possession

necessary

to

make

Four had

complaint

duty, which

its

public

its

revenue and

it

in its

statements

Gross also contends that

by not following

principles ("GAAP").

turn.

Summa

erred in

disclose material nonpublic information

improperly overstated

and the

district court

He argues that the amended

alleged that

materially misleading.

class period

the

not

Summa Four

earnings during

the

generally accepted accounting

After discussing the standard of review

relevant securities

law, we

address each

issue in

____________________

3.

The

alleged

amended

complaint

misstatements

misstatements

of

also included
future

performance

by third-party analysts.

abandoned those claims on appeal.

-88

A. Standard of Review
______________________

claims
and

regarding
alleged

Gross has expressly

We review the district court's dismissal of Gross's

amended

complaint

allegations

as true

de
__

novo,
____

and

giving Gross

reasonable inferences.

F.2d

22, 25

alleges

fraud,

requirements

"[i]n

(1st Cir.

constituting

1987).

is subject

of Fed.

R. Civ.

the fraud

all

the

well-pleaded

benefit of

all

See Roeder v. Alpha Indus., Inc., 814

___ ______
__________________

he

all averments of

taking

Nonetheless,

to

the

heightened pleading

P. 9(b), which

fraud or mistake,

or

mistake

because Gross

shall

provides that

the circumstances

be

stated

with

particularity."

Rule 9(b) sets

"minimize

the

chance

groundless

claim will

a demanding standard in

that

bring a

plaintiff

suit

with

and conduct

order to

largely

extensive

discovery

rather

than

relevant

F.2d

in the hopes of obtaining an increased settlement,

in

hopes

evidence."

875, 878

citations

the

Romani
______

(1st

Cir.

omitted).

We

demanding adherence to

that

the process

will

v. Shearson Lehman Hutton, 929

_______________________

1991)

have

(internal

been

quotations

especially

Rule 9(b) in the

strict

"general

averments

knowledge

of material

9(b),

of

defendants'

falsity will

not

Consistent with Fed. R. Civ. P.

the

complaint

must

set

forth

specific facts that make it reasonable to

believe that the defendant[s] knew that a
statement
misleading.

was
The

materially

false

or

rule requires that

the

-9-

and

in

securities context,

id., expressly stating that

___

suffice.

reveal

particular times, dates, places, or other

details

of

the

alleged

fraudulent

involvement of the actors be alleged."

Lucia v. Prospect St. High Income Fund, 36 F.3d 170, 174 (1st
______
_____________________________

Cir. 1994) (quoting

Serabian v. Amoskeag Bank Shares, Inc.,

________
___________________________

24 F.3d 357, 361 (1st Cir. 1994)).

Furthermore,

we

have

consistently

held

that

securities

Rule

plaintiff does

9(b)

merely

by

not satisfy

pleading

the requirements

"`fraud

Greenstone v. Cambex Corp., 975 F.2d 22, 25

__________
_____________

(quoting Denny v. Barber, 576

_____
______

In

other words, "a

earlier what

necessary particularity

addition, the

applies even

within

hindsight.'"

(1st Cir. 1992)

F.2d 465, 470 (2d Cir. 1978)).

general averment that

later turned

by

out

badly" does

defendants `knew'

not convey

that Rule

9(b) requires.

heightened pleading

requirement of

when the

of

fraud relates

the defendant's knowledge.

Romani, 929 F.2d at 878.

______

B. Requirements of a 10b-5 Claim

_________________________________

to matters

Lucia,
_____

Id.
___

the

In

Rule 9(b)

peculiarly

36 F.3d

at 174;

Gross

of

bases his fraud claims on alleged violations

10(b) of the Securities

Exchange Act and the Securities

and Exchange Commission's Rule

15 U.S.C.

10b-5 promulgated thereunder.

78j(b); 17 C.F.R.

240.10b.5.

provisions prohibit any person, directly

committing

securities.

fraud in connection with

Together these

or indirectly, from

the purchase or sale of

Id.; Shaw v. Digital Equip. Corp., 82 F.3d 1194,

___ ____
____________________

-1010

1217

10(b)

(1st Cir. 1996).

and

Rule

To state

10(b)(5),

sufficient particularity,

statement

or omitted

a cause of

plaintiff

that

action under

must

the defendant

a material

fact,

plead,

made a

with the

with

false

requisite

scienter, and that the plaintiff's reliance on this statement

or omission caused the plaintiff's

1217; see
___

injury.

Shaw, 82 F.3d at
____

also San Leandro Emergency Medical Group Profit

____ _____________________________________________

Sharing Plan v. Philip Morris Cos., 75 F.3d 801, 808 (2d Cir.
____________
__________________

1996).

material

A misrepresented

or omitted fact will

be considered

only if a reasonable investor would have viewed the

misrepresentation

or

omission

as

"having

significantly

altered the total mix of information made available."

Basic,
______

Inc. v. Levinson, 485 U.S. 224, 231-32 (1988).

____
________

By

itself, however, Rule 10b-5, does not create an

affirmative duty of

disclosure.

Indeed, a

corporation does

not commit securities fraud merely by failing to disclose all

nonpublic

814 F.2d at

222,

material information in

its possession.

Roeder,
______

26 (citing Chiarella v. United States, 445 U.S.

_________
______________

235 (1980));

see
___

also Shaw,
____ ____

corporation must first have a

82 F.3d

at

1202.

The

duty to disclose the nonpublic

material information

before the potential for

under the securities

laws emerges.

Roeder, 814
______

any liability

F.2d at 26.

Such

a duty

previously

may arise

if,

inter alia,
_____ ____

made a statement of

a corporation

has

material fact that is either

-1111

false,

inaccurate, incomplete, or misleading in light of the

undisclosed information.

See id. at 27.4

___ ___

Thus, "[w]hen a corporation does make a disclosure-

-whether it be voluntary or required--there is a duty to make

it complete and accurate."

Id.
___

at 26.

"This, however, does

not mean that by revealing one fact about a product, one must

reveal

all others that,

too, would be

wise, but means only such others,

that

what was

mislead.'"

revealed would

Backman
_______

interesting, market-

if any, that are needed so

not be

`so incomplete

v. Polaroid Corp., 910 F.2d

______________

Cir. 1990) (en banc) (quoting

__ ____

as to

10, 16 (1st

SEC v. Texas Gulf Sulphur Co.,

___
______________________

401 F.2d 833, 862 (2d Cir. 1968) (en banc), cert. denied, 394
__ ____
_____ ______

U.S. 976 (1969)).

Furthermore, the fact that

reported accurately about

a company has

past successes does not

by itself

burden

present

the company

with a

duty to

circumstances are less

1202; Serabian
________

inform the

positive.

market that

Shaw,
____

82 F.3d at

v. Amoskeag Bank Shares, Inc., 24

___________________________

F.3d 357,

361 (1st Cir. 1994).

C. Analysis
____________

We turn first

to Gross's claims that

Summa Four's

various public statements during the class period were either

____________________

4.

In Roeder, we also
______

could
when an

give rise to

a duty to disclose

insider trades

basis of nonpublic

alluded to two other

in the company's

situations that

material facts:

(1)

securities on

the

material information; (2) when

or regulation mandates disclosure.

n.3 (discussing Roeder).
______

a statute

See Shaw, 82 F.3d at 1202

___ ____

-1212

false

and

misleading in

misleading by omission.

June

29 letter

from

the

and

We

January

themselves

or false

and

take the claims arising from the

first, and then

earlier

of

address the

18 and

May

claims arising

press

releases.

Finally, we turn to Gross's claim that, by employing improper

accounting

procedures,

Summa

Four

overstated its

revenue

during the class period.

1. June 29 Letter
__________________

Gross complains that, given the letter's failure to

disclose Summa Four's

for the

that

first quarter

the

company

performance" and

either

Summa

impending poorer-than-expected results

had

disputes

"a strong

or

clearly

this

complaint.

Summa

its statements

"strong

misleading by

arguing

performance"

statement

statement

referring to

its record

is

results

are

omission.

that

by the facts alleged

Four argues that

financial

financial

financial position"

contention,

statements are completely borne out

the amended

year 1995,

experienced

was in

patently false

Four

of fiscal

both

in

the "strong

backward-looking

in fiscal

year

1994.

Summa Four further

complaint,

viz.,
____

adds that nothing in

allegations concerning

first quarter 1995

its

the amended

disappointing

results, supports the inference

that the

company was not in a "strong financial position."

While

represent,

the

issues

raised by

the

perhaps, Gross's

strongest

claims, we

-1313

June

29 letter

need not

choose between

the parties' contrary positions.

Regardless

of the merits,

because Gross purchased his stock

on May 27,

1994, well

before Summa Four

has no standing to complain

the letter.

See Shaw, 82
___ ____

purchased shares after

_____

have

suffered a

(similar).

In

965

letter, he

about the statements included in

F.3d at 1222 (only individuals who

allegedly misleading statement

cognizable

Lands' End, Inc.,

_________________

issued the June 29

F.2d

other words,

injury);

1411,

could

Roots Partnership
_________________

1420

because Summa

(7th

Cir.

Four issued

v.

1992)

the

letter after Gross had purchased his stock, the statements in

the letter could not possibly

have inflated the market price

that he paid

at 1420.

for those shares.

Moreover, although

Roots Partnership, 965 F.2d

__________________

Gross purports to bring a class

action on behalf of all individuals who purchased

shares during the

Summa Four

class period, he cannot maintain an action

on behalf of class members to

redress an injury for which he

has no standing in his own right.

Id. at 1420 n.6; see Britt

___
___ _____

v. McKenny, 529 F.2d 44, 45 (1st Cir.) ("If none of the named
_______

plaintiffs

may maintain action on their own behalf, they may

not seek such

429 U.S.

relief on behalf of a

854 (1976);

see also Lewis

___ ____ _____

class."), cert. denied,

_____ ______

v. Casey,

64 U.S.L.W.

_____

4587, 4590 (U.S. June 25, 1996).

2.

January 18

Press

Release:

False

_________________________________________

Statement of Current Facts

__________________________

-1414

Apart

letter,

from the

Gross points

claims arising

to one

statement

from

the June

excerpted from

29

the

January

18,

1994,

press release

statement of current facts.

complaint sufficiently

that "We are

switch

as

constituting

a false

Gross contends that the amended

alleged that

Summa Four's

statement

seeing increased demand for our SDS distributed

_________ ______

in a number of international markets including China,

Chile and Colombia" is patently false and a violation of Rule

10b-5.

We disagree.

Though Gross adamantly

contends that the statement

is false, the amended complaint provides little in the way of

specific facts to

support this contention.

See Greenstone,
___ __________

975 F.2d at 25 ("complaint must set forth specific facts that

make it reasonable to believe

statement

was materially

that the defendant knew that a

false

or

misleading"); see

also

___

Glassman
________

31-34 (1st

v. Computervision Corp.,
____________________

Cir. July 31,

sufficient

factual

No. 95-2240, slip

1996) (complaint failed

basis

for

claim

that

pressed

following

by

the

the

district court

limited discovery,

that the amended complaint failed

that

expressly say that on January

the [SDS] switch

on

Gross's

this

op. at

to allege

up-to-date

information was ignored in setting offering prices).

when

____

Indeed,

very

issue

counsel conceded

to point to any "documents

18th or thereabouts that

[was] experiencing declining orders."

The

only document contemporaneous to the January 18 press release

-1515

that Gross

cites to support

his claim, a January

20 "Flash

Report," made no comment on any product, or on any particular

international market.

At best, the January 20 "Flash Report"

revealed that Summa Four had experienced some slight negative

variances

from its overall

budgeted revenues and

the reporting period ending December 31, 1993.

hardly

supports the inference

that the

costs for

Such evidence

demand for

the SDS

switch was not increasing in the named international markets.

Moreover, the additional

20

"Flash Report" that

sales

Summa Four's

and marketing efforts

will be revised"

claim.

January

"overall International

are currently under

review and

provides little further support for Gross's

That

international

statement in the

Summa

Four

marketing

was

efforts

reviewing

does

not

its

overall

contradict

the

assertion in the January 18 press release that demand for the

SDS switch was

later reports

increasing in certain areas.

and meeting minutes adverted to in the amended

complaint adequately

from the

Neither do the

January

support the inference

18 press

release

that the excerpt

was false

when

made.5

Operating Report,

issued

____________________

5.

Summa

Four's January

Monthly

February 25, 1994, states, inter alia, that

_____ ____

[a]

major

reorganization

responsibilities

in

[the

of

sales

company's

international operations]

is planned

take

It is intended

place during March.

to refocus that

organization on European

opportunities

and

development of

distribution channels

major

to

marketplaces

to

emphasize

such as

-1616

France

the
in
and

See,
___

e.g.,
____

Shaw,
____

plaintiff may not

less

82

F.3d

at 1223

difference is fraud).

China,

although

they

or

optimism with

and then simply

demand

Colombia

arguably

experiencing growing

international

9(b),

contend the

None of these later reports or minutes

reflect on

Chile,

Rule

contrast a defendant's past

favorable actual results,

specifically

(under

for the

markets.

suggest

operations

at

the

More

that

difficulties in

SDS switch

importantly,

Summa

Four

the management

time those

in the

was

of its

documents

or

minutes were issued (in late February, April, and June), they

do not adequately support the inference that the company knew

of

these difficulties

(or that they

issued the January 18 press release.

even existed)

when it

3.
May 3 Press Release:
Misleading Omissions of
___________________________________________________

Current Facts
_____________

Gross also contends

technically

without

that Summa

accurate statements about

disclosing

facts

known to

Four made

several

its receipt of orders

the

company

that were

____________________

Germany.

The report further states that a "corporate reorganization of

Austrel's

domestic

responsibilities

has

and
slowed

international
completion

of the

marketing
Australian

opportunities."
Summa Four's March Monthly Operating Report, issued
in April 1994,

indicated that the

Managing Director of
with
In

company had replaced

Summa Four's European

the

operations along

two other members of the international management team.

addition, an excerpt from the minutes of a June 20, 1994,

meeting

indicated that Summa

Four was

experiencing further

difficulties in its international operations.

-1717

necessary to

make the

disclosed statements

Gross points principally

release,

not misleading.

to an excerpt from the

May 3 press

stating that "[i]n the fourth quarter [ending March

31, 1994], the Company [had] received significant orders from

________ ___________ ______

AT&T, McCaw, Sprint, GTE, Unisys,

range

of applications."6

and IBM to address a broad

Gross contends that this statement

was materially

misleading because

Summa Four

did not

also

tell investors that, at that time, it was experiencing delays

in consummating contracts for

at least one of

these orders,

in receiving other orders, and in shipping products.

We find

Gross's arguments unavailing.7

First,

assuming

arguendo that
________

sufficiently particular facts to

the company

issued

alleged

knew about the

Gross

has alleged

support the inference

purported delays at the

that

time it

the May 3 press release, we do not believe that those

delays make

Summa

Four's

statement

that

it

had

received "significant orders" in the prior quarter materially

____________________

6.

In

of

the challenged statement that expressly indicates that it

refers

the amended complaint, Gross never quotes the portion

to

orders

Nevertheless,
consider

received

in reviewing

in its

relied on by the

entirety

"[i]n
a

the

motion

to

relevant

plaintiff in the

fourth

quarter."

dismiss,

document

complaint.

we

may

explicitly

See Shaw,
___ ____

82

F.3d at 1220; Philip Morris, 75 F.3d at 809.

_____________

7.

Gross also points to an excerpt from the January 18 press

release, which noted that Summa Four had received orders from
Unisys, Sprint, IBM, DEC, Pacific
reject

Gross's

essentially the

claims

Bell, USWest and AT&T.

with regard

same reasons that

to

this

-1818

statement for

we reject his

the May 3 statement was materially misleading.

We

claim that

misleading.

As

Gross acknowledges, the statement

orders is not false:

did

not

receive

about the

Gross does not contend that Summa Four

the

orders.

Moreover,

the

statement

specifically concerns past events -- the receipt of orders in

the prior quarter.

We have consistently held

that the fact

that a company makes an affirmative true statement about past

results does

current

not give

status.

Profit Sharing
______________

rise

Serabian,
________

to a

duty

24 F.3d

to comment

at

on

its

361; Capri Optics

_____________

v. Digital Equip. Corp., 950 F.2d 5,

_____________________

8 (1st

Cir. 1991).

Moreover,

the cases

on

which

Gross

relies

for

the

proposition

to

that the failure to disclose information similar

that alleged

distinguishable.

here was

For

Technology Corp., 764

________________

a material

omission are

example, Gross cites Alfus

_____

clearly

v. Pyramid
_______

F. Supp. 598, 603-04 (N.D. Cal. 1991),

as holding that a company's failure to

disclose, inter alia,

__________

"manufacturing delays" and "flattening sales" was an omission

sufficient to survive

the company's motion

to dismiss.

In

Alfus, however, the public statements allegedly undermined by

_____

the nondisclosed

about

information were

the company's

those Gross

revenue

alleges here.

public statements concerning

and

more specific

statements

earnings potentials

Where Gross

past orders

only points

received by

than

to two

Summa

Four, the statements in Alfus dealt with definite projections

_____

(e.g., "[W]e forecast total revenue growth of

____

40 percent, to

-1919

$110-120

million.

estimate.").

We

view

this

as

conservative

Id. at 602; see also In re Sunrise Technologies

___
___ ____ __________________________

Sec. Litig., [1992 Transfer Binder] Fed. Sec. L. Rep. (CCH)

___________

97,042 (N.D. Cal. Sept. 22, 1992) (similar).

not believe that

but failed to

In short, we do

Gross's allegations that the

company knew,

disclose, that it was suffering various delays

in closing contracts, receiving orders, and shipping products

are sufficient to

support a claim that its

statement in the

May 3 press release about past orders received was materially

misleading.

Furthermore, to

that Summa Four

the extent that

the statement

had received "significant orders"

carries a

positive implication about the its future success (viz., that

____

Summa Four received significant

that

it

would

fill

quarter), an so might,

and

orders last quarter

profit

from

those

implies

orders

arguably, be the basis for

this

a duty to

update claim, we think this

of

vague and loosely

has held

statement falls in the

optimistic statements that

nonactionable as

a matter of

law.

category

this court

See Glassman,
___ ________

slip op. at 49-50; Shaw, 82 F.3d at 1217-19.

____

In

forth

any event, the

amended complaint does

sufficiently particular

reasonably

infer

delays at the

that

facts

Summa Four

from

knew

not set

which one

about

could

the alleged

time it issued the May 3 press release.

Gross

first points to a March 17 report that stated both that Summa

Four had

experienced "delays in

-2020

resolving several

customer

issues

and gaining closure

on contracts [that]

caused some

[revenue] slippage out of [February]" and that, due to delays

of several

major orders in February, Summa

________

its internal bookings

ending

March 31,

speak to

support

the

experience

inference

delays

and revenue forecasts for

1994.

events that

in

Four had reduced

Both

of these

excerpts, however,

occurred in February

that Summa

Four

May substantial

the quarter

1994 and

was

enough

do not

continuing to

to

make the

statements in the May 3 press release materially misleading.

Moreover, neither do we believe that the references

in the minutes

orders

that

of the

the

June 14

company

sufficiently support the

knew

board meeting

was

experiencing

June 14 board

issued the

F.3d at 812

prospectus

the basis

the time of

the May 3

release.

(cannot infer

later) with Shaw,

____ ____

in sales

82 F.3d at

time

was (and

press release.

The

after the company

Compare Philip Morris, 75

_______ ______________

that company

concerning retail sales

that decline

that

in

alleged delays and other

meeting was held five weeks

May 3 press

at

inference that Summa Four

that it was) experiencing the

difficulties at

to delays

knew statements

were false when

was announced

in

made on

three weeks

1224-25 (where prospectus

was

issued just eleven days prior to the

end of the quarter with

disappointing results -- and three weeks prior to

disclosure of the

disappointing results -- the

the actual

proximity in

-2121

time, although not sufficient by itself to survive Rule 9(b),

provided some support for the fraud claims).

4. Overstatement of Revenue
____________________________

Gross

regarding

also

claims

its revenue and

that Summa

Four's

earnings during the

were materially misleading because,

statements

class period

contrary to GAAP,

Summa

Four recognized revenue upon receipt of orders rather than on

shipment

of

recognition

products.

of

significantly its

income

Gross

claims

allowed

Summa

revenues

and earnings

that

Four

this premature

to

during

overstate

the

class

period.

To support this claim, Gross alleges that, although

Summa Four typically requires twelve

its switches

following the

to twenty weeks to ship

placement of

an order,

Fiedler

stated

at a

generate up

June 14

to

$4.7 million

receipt of new

Summa

Four

inexplicable unless

receipt of

in

that the

new revenues

orders in the two weeks

end of the quarter.

takes

board meeting

company could

through

remaining before the

Gross contends that, given the

to

fill

orders,

the

the

time it

statement

is

the company was recognizing revenue upon

orders instead

of

upon shipment.

Gross

finds

further corroboration for this claim in Summa Four's May 1994

board meeting minutes where it is recorded that the company's

chief

financial

officer

was

working

-2222

on

new

"revenue

recognition

policy"

that

was to

be

"more

formalized and

somewhat more restrictive" than its previous policy.

Though these

nonetheless agree with

to

plead

purposes

allegation

this

of

Rule

contentions

give us

some pause,

the district court that

claim

9(b).

with

sufficient

As we

that the practices

have

Gross failed

particularity

noted,

at issue resulted

we

"a

for

general

in a false

report of company

claim

of

earnings is not a

misrepresentation

[to

Serabian, 24 F.3d at 362 n.5.

________

to allege any

Specifically, he has

company's earnings.

522

adjusted

and

(5th

or

Rule

9(b)]."

In this case, Gross has failed

through the use of

putative overstatement

517,

satisfy

particulars to support his

of inflated earnings

methods.

sufficiently particular

general allegation

improper accounting

not alleged the amount of the

the

net

effect it

had

on

the

See Shushany v. Allwaste, Inc., 992 F.2d

___ ________
______________

Cir.

1993)

(allegation

that

company

had

the accounting of its inventory to inflate revenues

earnings

does

complaint does not

affected the

not

sufficiently

plead

explain, inter alia, how

_____ ____

fraud

where

the adjustments

company's financial statements and whether they

were material

in light

of the

company's overall

position); Roots Partnership, 965

__________________

that company "failed

excessive

where

F.2d at

financial

1419 (allegation

to establish adequate reserves

for its

and outdated inventory" does not satisfy Rule 9(b)

investor does not

allege "what

-2323

the reserves

were or

suggest

how great the reserves should have been"); Decker v.

______

Massey-Ferguson, Ltd.,
______________________

(allegation that

did

allege amounts

have been

Ernst & Young,

_____________

(allegations

that

assets

company

of

particularize

to write

in

at

(2d

Cir. 1982)

down value

plead fraud

which

141 F.R.D. 23, 27

did

not

misrepresentations and

where plaintiff failed to allege

where

books);

(S.D.N.Y. 1992)

"significantly

prospectus

of

equipment was

carried--on company's

accountants

the alleged

overstatement); cf.
___

116

does not sufficiently

not

carried--or should

Schick v.
______

F.2d 111,

company's failure

obsolete equipment

plaintiff

681

overstated"

adequately

omissions

the amount of the purported

Cohen v. Koenig, 25 F.3d

_____
______

1168, 1173 (2d

Cir. 1994)

(fraud pleaded

with sufficient particularity

by

setting out representations made, what financial figures they

were given,

and what they

alleged to be the

true financial

figures).

Moreover, the

single statement

by Fiedler

during

the minutes of the June 14 board meeting is far too tenuous a

foundation

(at

least

for Rule

9(b)

purposes)

to support

Gross's claim that Summa Four had fraudulently overstated its

revenue.

Arguably,

inference that

contemplated

the statement

the company,

booking

revenue

or at

upon

supports

reasonable

least Fiedler,

the receipt

may have

of

orders

rather than shipment for the quarter ending on June 30, 1994;

however, we

do not think

that the statement, by

itself, is

-2424

sufficient to indicate

as

revenue

quarter.8

instead

Moreover,

statements

meeting

sales

that the company had

taken from

we

the

of

do

shipments

not

minutes of

think

the

actually booked

in

any

the

previous

ambiguous

May 1994

board

concerning review of the company's accounting system

corroborate

Fiedler's

June

14

statement

sufficiently

to

overcome the deficiencies in Gross's pleadings.9

III.
III.
____

Conclusion
Conclusion
__________

For

the foregoing reasons,

of the district court.

we affirm the judgment

affirm
______

Costs to appellee.
Costs to appellee.
_________________

____________________

8.

As with the June 29

letter, Gross would have no standing

to assert a securities fraud claim that

Summa Four misstated

its revenue only for the quarter ending June 30, 1994.

9.

Gross

also contends

refusing to
with

that the

consider two

the court to

accompany his motion

in

Gross filed

for reconsideration

The district court refused

consider the additional affidavits, noting that Gross had

"not

demonstrated that

information in
In

court erred

additional affidavits

pursuant to Fed R. Civ. P. 59(e).

to

district

he

response to

could

not

have

produced

defendant's motion to

this

dismiss."

that the affidavits address whether the amended complaint

adequately alleged undisclosed facts to support the inference

that a reasonable investor would have considered Summa Four's
public

statements

to be

false and

misleading --

an issue

clearly before the court on Summa Four's motion to dismiss -we find

no abuse of discretion by

refusal to consider them.

F.3d

271,

289

(1st

Cir.

the district court in its

See, e.g., Williams v. Poulos, 11

___ ____ ________
______
1993)

(reconsideration

reviewed only for abuse of discretion).

-2525

rulings