                                                              [DO NOT PUBLISH]

                 IN THE UNITED STATES COURT OF APPEALS

                          FOR THE ELEVENTH CIRCUIT          FILED
                            ______________________ U.S. COURT OF APPEALS
                                                             ELEVENTH CIRCUIT
                                                                FEB 18, 2011
                                   No. 09-15595
                                                                 JOHN LEY
                             _______________________              CLERK

                        D.C. Docket No. 06-61844-CV-KAM

GEORGE DURGIN,
Individually and on Behalf of
all others Similarly Situated, et al.,

                                                                         Plaintiffs,

BRICKLAYERS & TROWEL TRADES
INTERNATIONAL PENSION FUND,

                                                                Plaintiff-Appellant-
                                                                    Cross Appellee,

                                         versus

ANTONIO P. MON,
DAVID J. KELLER,
RANDY L. KOTLER,

                                                            Defendants-Appellees-
                                                                 Cross Appellants.


                    Appeals from the United States District Court
                        for the Southern District of Florida


                                  (February 18, 2011)
Before EDMONDSON, PRYOR, and BARKSDALE,* Circuit Judges.

PER CURIAM:

        Lead plaintiff Bricklayers & Trowel Trades International Pension Fund

challenges the district court’s, pursuant to Federal Rule of Civil Procedure 12(b)(6)

(failure to state claim), dismissing this securities-fraud action because the Pension

Fund’s consolidated, amended complaint did not satisfy the heightened-pleading

standard imposed by the Private Securities Litigation Reform Act of 1995 (PSLRA),

Pub. L. No. 104-67, § 101(b), 109 Stat. 737, 743, as amended, 15 U.S.C. § 78u-4

(2006). Primarily at issue is whether the amended complaint’s allegations adequately

raised a “strong inference” that defendants acted with the requisite scienter.

AFFIRMED.

                                                   I.

        The following is based on the allegations in the amended complaint, consistent

with our de novo standard of review for a Rule 12(b)(6) dismissal, as discussed infra.

        The Pension Fund, lead plaintiff in this putative class action, purchased

common stock from Technical Olympic USA, Inc. (TOUSA), which built and

marketed homes. TOUSA’s stock ultimately lost its value, and the Pension Fund



        *
         Honorable Rhesa Hawkins Barksdale, United States Circuit Judge for the Fifth Circuit, sitting by
designation.

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suffered loss. Defendants served as TOUSA executive officers: Antonio P. Mon,

executive vice chairman, chief executive officer, and president since 2002; David J.

Keller, chief financial officer, senior vice president, and treasurer between May 2004

and May 2006; and Randy L. Kotler, vice president and chief accounting officer from

June 2002 until May 2006, when he replaced Keller as chief financial officer.

      In August 2005, TOUSA finalized the formation of a joint venture (JV), with

Falcone/Ritchie, LLC, to acquire substantially all homebuilding assets of

Transeastern Properties, Inc.—“approximately 22,000 homesites throughout all major

Florida markets”. The JV acquisition, which cost approximately $857 million, was

funded in large part by a $675 million loan to the JV by a consortium of banks (the

Lenders). The Lenders required TOUSA to guarantee it would complete certain JV

construction projects should the JV default on the loan and reimburse the Lenders for

losses arising from fraud, intentional misconduct, waste and misappropriation, or

voluntary bankruptcy filed by any party (the guarantees). The loan equaled nearly 70

percent of TOUSA’s net worth, and TOUSA lacked the liquidity to repay the debt in

the event the guarantees were triggered.

      Following the acquisition, defendants—in SEC filings, press releases, and

analysts’ conference calls—represented the loan was “non-recourse” to TOUSA,

implied it was secured only by the JV’s assets, and failed, until 10 March 2006, to

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disclose the guarantees to investors. On 13 March 2006, TOUSA’s stock closed at

$18.48 per share, down from the previous day’s $18.65 closing.

      In November 2006, TOUSA publicly disclosed Lenders’ demand letters,

informing TOUSA they were aware of problems it was experiencing due to the

housing market’s condition and demanding it satisfy its obligations under the

guarantees. The next day, TOUSA announced it was contesting its liability under the

guarantees; it asserted the JV’s problems stemmed only from “the inability to sell and

deliver the volume of homes necessary to support the capital structure due to the

downturn in the Florida housing market”. As a result of this disclosure, TOUSA’s

stock declined from $10.79 to $7.00 per share.

      The first of several securities-fraud actions against TOUSA was filed that

December; they were consolidated in March 2007. That July, TOUSA settled

Lenders’ separate JV-loan action against it.        TOUSA subsequently filed for

bankruptcy; hence, it is not a defendant in this action.

      The Pension Fund was designated lead plaintiff in July 2008 and, that

September, filed the amended complaint at issue. The Pension Fund alleged:

defendants, because of their positions with TOUSA, controlled the content of, inter

alia, TOUSA’s SEC filings, press releases, and presentations to securities analysts;

and, consistent with the below-discussed standard for securities-fraud liability,

                                          4
defendants intended to “deceive, manipulate, or defraud” shareholders or acted with

“severe recklessness”, by, inter alia, characterizing the JV loan as “non-recourse” to

TOUSA.

      In September 2009, the district court dismissed this action under Rule 12(b)(6),

ruling, inter alia, that the amended complaint failed to adequately allege defendants

“made” misleading statements, including with a “strong inference of scienter”. In

doing so, the court granted the Pension Fund leave to file a second amended

complaint, stating that it “must include allegations that establish the element of

scienter”. Electing instead to appeal, the Pension Fund had the court enter a final

judgment.

                                          II.

      A Rule 12(b)(6) dismissal for failure to meet PSLRA’s heightened-pleading

standard is reviewed de novo. E.g., Mizzaro v. Home Depot, Inc., 544 F.3d 1230,

1236 (11th Cir. 2008). As discussed infra, this action is pursuant, inter alia, to Rule

10b-5, 17 C.F.R. § 240.10b-5, promulgated by the SEC under § 10(b) of the

Securities Exchange Act of 1934, ch. 404, 48 Stat. 891, as amended, 15 U.S.C.

§ 78j(b) (2006).

      Primarily at issue is whether the amended complaint satisfies PSLRA’s

standard for pleading scienter, as required for a § 10(b) claim. Because it fails to do

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so, we need not decide, inter alia, whether defendants “made” false or misleading

statements or whether the JV loan was “non-recourse” to TOUSA.

      Also at issue is whether the amended complaint states a claim for “control

person” liability under § 20(a) of that Act, 15 U.S.C. § 78t(a). Such liability is

imposed against a “person who, directly or indirectly, controls any person liable

under any provision of this chapter”. 15 U.S.C. § 78t(a). “To state a claim under

section 20(a)[,] a complaint must allege that primary liability under section 10(b) [of

that Act] exists . . . .” Rosenberg v. Gould, 554 F.3d 962, 967 (11th Cir. 2009)

(internal quotation marks and citations omitted). Because the amended complaint

fails, as discussed infra, to satisfy PSLRA’s heightened standard for pleading scienter

for the § 10(b) claim, it also fails to state a claim under § 20(a).

                                           A.

      Section 10(b) proscribes

             us[ing] or employ[ing], in connection with the purchase or
             sale of any security registered on a national securities
             exchange or any security not so registered, or any
             securities-based swap agreement . . . , any manipulative or
             deceptive device or contrivance in contravention of such
             rules and regulations as the [SEC] may prescribe as
             necessary or appropriate in the public interest or for the
             protection of investors.
15 U.S.C. § 78j(b). The SEC’s resulting Rule 10b-5 forbids



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              any person, directly or indirectly, . . . (a) To employ any
              device, scheme, or artifice to defraud, (b) To make any
              untrue statement of a material fact or to omit to state a
              material fact necessary in order to make the statements
              made, in the light of the circumstances under which they
              were made, not misleading, or (c) To engage in any act,
              practice, or course of business which operates or would
              operate as a fraud or deceit upon any person, in connection
              with the purchase or sale of any security.
17 C.F.R. § 240.10b-5; see Mizzaro, 544 F.3d at 1236. To state a claim under that

Rule, the following must be alleged: (1) a material misrepresentation or omission by

defendant; (2) made with scienter; (3) in connection with the purchase or sale of a

security; (4) plaintiff’s reliance upon the misrepresentation or omission; (5) economic

loss; and (6) loss causation. E.g., Goodman Life Income Trust v. Jabil Circuit, Inc.,

594 F.3d 783, 789 (11th Cir. 2010).

       As noted, pursuant to PSLRA, there are heightened-pleading requirements for

Rule 10b-5 securities-fraud actions. See 15 U.S.C. § 78u-4(b)(1); Mizzaro, 544 F.3d

at 1238. For scienter, PSLRA provides: “the complaint shall, with respect to each

act or omission alleged to violate this chapter, state with particularity facts giving rise

to a strong inference that the defendant acted with the required state of mind”. 15

U.S.C. § 78u-4(b)(2) (emphasis added); see Rosenberg, 554 F.3d at 965. That

“required state of mind” can be either an “intent to deceive, manipulate, or defraud”




                                            7
or “severe recklessness”. Mizzaro, 544 F.3d at 1238; see also Tellabs, Inc. v. Makor

Issues & Rights, Ltd., 551 U.S. 308, 313 (2007).

      Accordingly, to survive a Rule 12(b)(6) motion, the allegations in the Pension

Fund’s amended complaint must give rise to a “strong inference” that defendants

acted with either an “intent to deceive, manipulate, or defraud” its investors or

“severe recklessness”. In Tellabs, the Supreme Court held: for an inference that

defendant acted with the requisite scienter to qualify as “strong”, it “must be more

than merely plausible or reasonable—it must be cogent and at least as compelling as

any opposing inference . . . .” 551 U.S. at 314.

      Along this line, and consistent with the above-stated standard of review for

Rule 12(b)(6) dismissals and the applicable law for a § 10(b) claim, the Court stated:

“First, faced with a Rule 12(b)(6) motion to dismiss a § 10(b) action, courts must .

. . accept all factual allegations in the complaint as true”[;] “Second, courts must

consider the complaint in its entirety . . . [and determine] whether all of the facts

alleged, taken collectively, give rise to a strong inference of scienter . . .”[;] “Third,

. . . the court must take into account plausible opposing inferences”. Id. at 322-23

(internal citations omitted) (emphasis in original). Accordingly, for the Pension Fund

to have adequately pleaded scienter: the allegations in the amended complaint must

give rise to a “strong inference” that defendants acted with either an “intent to

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deceive, manipulate, or defraud” or “severe recklessness”; and, that strong inference

must be “at least as compelling as any opposing inference one could draw from the

facts alleged”. See Mizzaro, 544 F.3d at 1238 (citing Tellabs, 551 U.S. at 323-24).



      The Pension Fund maintains here that the failure to timely describe the JV

loans as being with recourse against TOUSA, as discussed infra, satisfies the scienter

element. In that regard, the amended complaint alleges generally that defendants,

because of their positions with TOUSA: controlled the content of TOUSA’s SEC

filings, press releases, and presentations to securities analysts, all of which were

misleading because they described the JV loan, until March 2006, as “non-recourse”

to TOUSA; were privy to non-public information concerning TOUSA’s obligations

under the guarantees; and knew TOUSA’s public representations were materially

false and misleading or were deliberately reckless in regard to the truth of the

representations because the loan was not unequivocally “non-recourse” to TOUSA.

                                          1.

      The amended complaint fails to allege any direct evidence showing defendants

acted with the requisite scienter. For example, there are no allegations they: did not

reasonably believe the JV loan was “non-recourse” to TOUSA; ever told anyone or

questioned whether the loan was not “non-recourse”; ever read the guarantees, much

                                          9
less believed they required more extensive disclosure; thought any person at TOUSA

was engaging in fraud; or had any reason to believe the guarantees represented a

material risk for TOUSA and its investors. See Rosenberg, 554 F.3d at 966; Mizzaro,

544 F.3d at 1252.

      In short, even if the loan was not “non-recourse” to TOUSA, the amended

complaint fails to allege defendants knew that. As was the case in Mizzaro, the

Pension Fund contends here only: due to defendants’ positions with TOUSA and the

size of the JV loan, they “must have known about” the alleged misleading nature of

their statements. Mizzaro, 544 F.3d at 1250 (emphasis in original). There are no

allegations in the amended complaint of communications from any of the defendants

from which it can be inferred defendants knew the classification of the loan or

description of the guarantees was misleading. See id. at 1247-48, 1250 (“Indeed, the

amended complaint fails to cite even one communication of any kind from the

individual defendants . . . that could reasonably be interpreted as ordering or even

encouraging . . . fraud.”) (emphasis in original). The amended complaint alleges no

“‘‘red flags’” that would have alerted defendants that their non-recourse statements

were materially false or misleading; instead, it “rests [only] ‘on speculation and

conclusory allegations’”. Rosenberg, 554 F.3d at 966 (quoting Garfield v. NDC




                                        10
Health Corp., 466 F.3d 1255, 1265-66 (11th Cir. 2006)); see also Mizzaro, 544 F.3d

at 1252.

                                         2.

      In the absence of direct evidence, the Pension Fund maintains here that facts

alleged in the amended complaint circumstantially give rise to the requisite strong

inference of scienter. First, it alleged the $675 million loan equaled 70 percent of

TOUSA’s net worth, which was placed at risk “if the [JV] went bankrupt, became

insolvent, or if any other conditions under the Guarantees were triggered”. Second,

it alleged that “[d]efendants each actively participated in [TOUSA’s] acquisition of

Transeastern through the JV and were aware of the Guarantees as part of that

transaction”. The Pension Fund maintains defendants’ knowledge of the guarantees

is demonstrated by the allegations regarding extensive documentation the Lenders

required of TOUSA before, and after, the loan. (“[T]he Credit Agreements required

TOUSA and the . . . JV to provide the Lenders with a ‘Borrowing Base Certificate’

no later than 20 days after the last day of each calendar month”.). The Pension Fund

contends here that, as a result, each defendant was likely required to produce

numerous documents for the Lenders on behalf of TOUSA, and that this shows

defendants knew their representations concerning the guarantees were misleading.




                                        11
      The Pension Fund ultimately maintains here that it is “exceedingly unlikely”

defendants’ repeated statements about the loan’s being “non-recourse”, while acting

as TOUSA high-ranking officers, “were the result of merely careless mistakes at the

management level based on false information fed it from below, rather than of an

intent to deceive or a reckless indifference to whether the statements were

misleading”. Makor Issues & Rights, Ltd. v. Tellabs, Inc., 513 F.3d 702, 709 (7th Cir.

2008). Considering the amended complaint as a whole, however, its allegations are

insufficient to give rise to a “strong inference” of either fraudulent intent or severe

recklessness (the latter’s being discussed further below) that is “at least as compelling

as any opposing inference of” conduct that did not violate § 10(b). See Tellabs, 551

U.S. at 314.

                                           B.

      Regarding “severe recklessness”, the Pension Fund maintains here that the

allegations are sufficient to show such conduct. According to the Pension Fund,

because there is no plausible explanation how a member of TOUSA senior

management could have been unaware of the misleading nature of representing the

loan as “non-recourse” to TOUSA, defendants were severely reckless.                Such

recklessness, however, is




                                           12
               limited to those highly unreasonable omissions or
               misrepresentations that involve not merely simple or even
               inexcusable negligence, but an extreme departure from the
               standards of ordinary care, and that present a danger of
               misleading buyers or sellers which is either known to the
               defendant or is so obvious that the defendant must have
               been aware of it.
Mizzaro, 544 F.3d at 1238 (emphasis added) (internal citations omitted).

         Considering the amended complaint as a whole, including the terms of the

guarantees, it was not “highly unreasonable” or an “extreme departure from the

standards of ordinary care” to describe the loan as non-recourse because more was

required than TOUSA’s simply being liable for the balance due on the JV loan if

there was non-payment by the JV. The above-discussed conditions for the guarantees

had to be triggered: JV default on the loans; losses arising from fraud, intentional

misconduct, or waste and misappropriation; or voluntary bankruptcy filed by any

party.

         Even if the loan was not properly characterized as “non-recourse” to TOUSA,

the amended complaint fails to sufficiently allege defendants were severely reckless

by not being aware their statements could be perceived as false or misleading to the

extent required, as defined above, for severe recklessness. An inference of severe

recklessness is not as compelling as an inference that, at worst, defendants acted with




                                          13
inexcusable negligence. Restated, as quoted above, even that form of negligence

does not constitute severe recklessness. Id.

                                        III.

      For the foregoing reasons, the judgment is AFFIRMED.




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