                    United States Court of Appeals
                            FOR THE EIGHTH CIRCUIT
                                ________________

                                   No. 08-2452
                                ________________

In re: 2007 Novastar Financial Inc.,      *
Securities Litigation,                    *
                                          *
----------------------------------------- *
                                          *
Robert W. Boyd, III, individually and *
on behalf of all others similarly         *
situated; Bruce Gilmore; Steven J.        *
Gedy; Norman Pelletier; James E.          *
Murphy, on behalf of himself and all      *
others similarly situated,                *
                                          *
               Plaintiffs,                *
                                          *
Dr. Kevin Lester,                         *
                                          *
               Plaintiff - Appellant,     *
                                          *
Joshua Brown; Merri-Jo Hillaker;          *
Charles McComb; Lois McComb;              *
William Weakley; Alan James Bima,         *
individually and on behalf of all others *    Appeal from the United States
similarly situated; Gary M. Tanner;       *   District Court for the
Lee M. Edison; Jack F. Dunbar, on         *   Western District of Missouri.
behalf of himself and all others          *
similarly situated; Durston Winesburg, *
on behalf of himself and all others       *
similarly situated; Michael Owens, on *
behalf of himself and all others          *
similarly situated,                       *
                                          *
               Plaintiffs,                *
                                            *
      v.                                    *
                                            *
Novastar Financial, Inc.; Scott F.          *
Hartman; W. Lance Anderson;                 *
Gregory S. Metz,                            *
                                            *
             Defendants - Appellees.        *

                                 ________________

                            Submitted: January 16, 2009
                                Filed: September 1, 2009
                               ________________

Before BYE, COLLOTON and GRUENDER, Circuit Judges.
                                     ________________

GRUENDER, Circuit Judge.

       Kevin Lester appeals from the district court’s1 order dismissing his class-action
securities complaint under the heightened pleading requirements of the Private
Securities Litigation Reform Act of 1995 (“PSLRA”), 15 U.S.C. § 78u-4(b), and
concluding that any attempt to amend the complaint would be futile. For the reasons
discussed below, we affirm.

I.    BACKGROUND

      We draw the relevant facts from the class’s complaint because this appeal arises
from the district court’s grant of a motion to dismiss. See Fla. State Bd. of Admin. v.
Green Tree Fin. Corp., 270 F.3d 645, 648 (8th Cir. 2001).


      1
        The Honorable Ortrie D. Smith, United States District Judge for the Western
District of Missouri.

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       Novastar Financial, Inc. (“Novastar”) is a publicly-traded company that
originates, purchases, invests in, and services residential mortgages. Novastar is a
subprime lender, offering loans to nonconforming borrowers with credit profiles that
cannot satisfy the underwriting standards of conventional mortgage lenders. In
addition to servicing individual loans, Novastar raises additional capital by bundling
groups of loans into mortgage-backed securities and selling the rights to the income
generated by these securities.

       On February 20, 2007, Novastar announced its 2006 fourth-quarter and year-
end financial results, which were well below analysts’ expectations. In the same
announcement, Novastar stated that it expected to earn far less income for the 2007
to 2011 fiscal years than it had previously anticipated. The announcement drove
Novastar’s stock price down by forty percent the next day. Within days, shares of
Novastar stock were trading at less than thirty percent of their high in May 2006. In
the weeks following the announcement, numerous Novastar investors filed separate
class-action securities fraud lawsuits against Novastar and its officers and directors.
The district court consolidated these various actions into a single class-action lawsuit
and appointed Lester as the class’s lead plaintiff. The class was composed of all
persons who acquired Novastar’s securities between May 4, 2006, and February 20,
2007 (the “class period”).

      On October 19, 2007, Lester filed the class’s consolidated complaint. The 104-
page complaint named as defendants Novastar; its Chief Operating Officer, W. Lance
Anderson; its Chief Executive Officer, Scott F. Hartman; and its Chief Financial
Officer, Gregory S. Metz. It alleged that each defendant violated SEC Rule 10b-5, 17
C.F.R. § 240.10b-5, and sections 10(b) and 20(a) of the Securities Exchange Act of
1934, 15 U.S.C. §§ 78j(b), 78t(a), by making false and misleading statements about
Novastar’s operations and financial health during the class period. The complaint
began by describing the alleged deterioration of Novastar’s underwriting standards
and auditing processes and the alleged increasing number of loan defaults during the

                                          -3-
class period, drawing on information from former Novastar employees, including
corporate credit managers, quality control auditors, underwriters, fraud investigators,
and regional operations supervisors. Complaint at 11-34. Next, over the course of
thirty-six pages, the complaint reproduced, either in their entirety or lengthy excerpts
from, nineteen communications—including press releases, SEC filings, and
conference call transcripts—issued by Novastar and the individual defendants during
the class period that were allegedly false or misleading. Complaint at 34-70.2 The
complaint concluded by alleging loss causation and setting forth the complaint’s two
counts, one for violations of Rule 10b-5 and § 10(b) and one for violations of § 20(a).

       Novastar and its executives filed a motion to dismiss the complaint pursuant to
Federal Rule of Civil Procedure 12(b)(6), alleging that the complaint failed to comply
with the PSLRA’s heightened pleading requirements. Among other failings, Novastar
argued that the complaint failed to allege any material misrepresentations or omissions
and failed to plead facts establishing a strong inference of scienter. Novastar also
suggested that the district court should not allow plaintiffs leave to amend their
complaint because any such effort would be futile.

      The district court granted Novastar’s motion to dismiss, holding that the
complaint did not satisfy the PSLRA’s pleading requirements. Turning first to the
PSLRA’s requirement that the complaint “specify each statement alleged to have been
misleading [and] the reason or reasons why the statement is misleading,” 15 U.S.C.
§ 78u-4(b)(1), the court held that “Plaintiff has not specified the allegedly misleading
statements, nor has he specified why the statements he has referred to are misleading.”
In re 2007 Novastar Fin., Inc., Sec. Litig., No. 07-0139-CV-W-ODS, 2008 WL


      2
        Lester also alleged in the complaint that Novastar’s financial reports were false
and misleading because they violated generally accepted accounting principles.
Complaint at 70-89. However, the district court held that Lester failed to allege a
single false entry in the company’s financial statements, and Lester “does not appeal
this portion of the dismissal.” Appellant’s Br. at 6 n.4.

                                          -4-
2354367, at *2 (W.D. Mo. June 4, 2008) (unpublished). Moreover, the court held that
“Plaintiff has not explained how [the information from former Novastar employees]
demonstrate[s] the falsity of any particular public statement.” Id. at *3. Turning next
to the PSLRA’s requirement that the complaint “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), the court held that the “Plaintiff does not compare (1) an
allegedly false or misleading statement with (2) Defendants’ prior receipt of
information demonstrating that the statement would be false or misleading” and that
“whatever minimal inference of fraudulent intent that can be gleaned from the
Complaint is insufficient to allow the case to proceed.” Id. at *4. The court found that
Lester “has not presented facts creating an inference of scienter that is at least as
strong as an inference that Defendants lacked fraudulent intent, and this failing
constitutes an independent reason to dismiss the case.” Id. The court also agreed with
Novastar’s contention that the investors should not be afforded an opportunity to
amend because any such attempt would be futile. Id. at *5. In reaching that
conclusion, the district court noted that “Plaintiff has not addressed this issue.” Id.
Lester appeals.

II.   DISCUSSION

      A.     Dismissal Under the PSLRA

        We review de novo the district court’s dismissal of a securities fraud complaint
for failure to comply with the PLSRA’s heightened pleading requirements. In re
Cerner Corp. Sec. Litig., 425 F.3d 1079, 1083 (8th Cir. 2005). In reviewing the
district court’s dismissal, we “accept all factual allegations in the complaint as true[,]
. . . consider the complaint in its entirety[,] . . . [and] take into account plausible
opposing inferences.” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308,
322-23 (2007).



                                           -5-
      The PSLRA goes beyond the ordinary pleading requirements described in Rules
8(a)(2) and 9(b) of the Federal Rules of Civil Procedure, requiring that

      any private securities complaint alleging that the defendant made a false
      or misleading statement must: (1) “specify each statement alleged to
      have been misleading [and] the reason or reasons why the statement is
      misleading,” 15 U.S.C. § 78u-4(b)(1); and (2) “state with particularity
      facts giving rise to a strong inference that the defendant acted with the
      required state of mind,” § 78u-4(b)(2).

Tellabs, 551 U.S. at 321 (alteration in original). “The Reform Act requires the court
to dismiss the complaint if these requirements are not met.” Kushner v. Beverly
Enters., Inc., 317 F.3d 820, 826 (8th Cir. 2003) (citing 15 U.S.C. § 78u-4(b)(3)).
Lester contends that the district court erred in dismissing the complaint because it
contained sufficient allegations of both falsity, § 78u-4(b)(1), and scienter, §
78u-4(b)(2).

       We turn first to the question whether Lester’s complaint contained sufficient
allegations of falsity. The PSLRA’s heightened pleading requirements compel the
plaintiff to “plead the ‘who, what, when, where and how’ of the misleading statements
or omissions.” Cornelia I. Crowell GST Trust v. Possis Med., Inc., 519 F.3d 778, 782
(8th Cir. 2008) (quoting In re K-tel Int’l, Inc. Sec. Litig., 300 F.3d 881, 890 (8th Cir.
2002)). Plaintiffs alleging securities fraud must “plead their allegations of fraudulent
misstatements and omissions with particularity.” In re Navarre Corp. Sec. Litig., 299
F.3d 735, 743 (8th Cir. 2002). “[T]he complaint’s facts must necessarily show that the
defendants’ statements were misleading.” Cerner, 425 F.3d at 1083.

       Lester argues that the district court erred in concluding that his complaint failed
to specify the allegedly misleading statements. In support of his contention, he directs
our attention to a section of his complaint titled, “Defendants’ False and Misleading
Statements Issued During the Class Period,” and specifically to paragraphs 104, 109,

                                           -6-
116, 118, 119, 128, 132, 134, 136, and 137. This thirty-six page section reproduces,
either in their entirety or lengthy excerpts from, press releases, SEC filings, and
transcripts of conference calls made by Novastar and the individual defendants during
the class period. Absent from this section (and from every other section of the
complaint), however, is any indication as to what specific statements within these
communications are alleged to be false or misleading.3 This practice does not satisfy
the PSLRA’s requirement of pleading with sufficient particularity because it does not
identify “what” statements were allegedly false or misleading. See Cornelia I.
Crowell GST Trust, 519 F.3d at 782. Lester appears to recognize this defect, as his
brief to this Court identifies specific statements within these communications and
alleges that they are false or misleading. See Appellant’s Br. at 29-33. Identifying
specifically the false or misleading statements for the first time on appeal, however,


      3
       For example, in paragraph 116 of Lester’s complaint, Lester reproduces
Novastar’s three-page August 3, 2006 press release in its entirety. The press release
includes a plethora of statements, but the complaint gives no indication of which
statements Lester alleges were false or misleading. Even if we were to focus solely
on the following highlighted and italicized passage in the release, we still could not
say what statements were alleged to be false or misleading:

      NovaStar continues to demonstrate strength in a challenging time for
      the mortgage industry. We delivered our highest quality loan
      production ever, and earnings benefitted from reduced costs of
      production and higher coupons. Credit performance in the portfolio
      remains strong, and our proactive risk management strategies have
      protected the portfolio during a period of tightening interest rate
      policy.

Without specific guidance from Lester, a court can only speculate about whether he
alleges falsity with respect to (1) Novastar’s relative strength in the industry; (2) the
quality of Novastar’s loan production; (3) the strength of Novastar’s credit
performance; (4) the protective abilities of Novastar’s risk management strategies; (5)
some combination of the above; or (6) something else entirely found in the remaining
two-and-a-half pages of the press release.

                                          -7-
does not excuse a litigant’s failure to comply with the pleading requirements under the
PSLRA. Thus, we conclude that the district court did not err in dismissing Lester’s
complaint for its failure to “specify each statement alleged to have been misleading.”
See 15 U.S.C. § 78u-4(b)(1).

       Lester also argues that the district court erred in concluding that his complaint
failed to specify the reasons why the allegedly misleading statements were false or
misleading. However, absent an indication of precisely what statements Lester alleges
to be misleading, it is difficult, if not impossible, to determine whether the complaint
adequately specified why each statement was misleading. Even if we were able to
identify specific statements that were alleged to be misleading, we would still
conclude that Lester’s complaint failed to specify the reasons why each statement was
false or misleading. The complaint does not provide any link between an alleged
misleading statement and specific factual allegations demonstrating the reasons why
the statement was false or misleading, as the PSLRA requires. See Cerner, 425 F.3d
at 1083; 15 U.S.C. § 78u-4(b)(1). Instead, the complaint merely contains “[a] litany
of alleged false statements, unaccompanied by the pleading of specific facts indicating
why those statements were false.” See Metzler Inv. GMBH v. Corinthian Colls., Inc.,
540 F.3d 1049, 1070 (9th Cir. 2008). The closest that the complaint comes to linking
any statement with specific facts demonstrating the reasons why the statement was
misleading is paragraph 157. There, Lester arguably attempts to boil down the
complaint’s thirty-four pages of background material—including information from
former Novastar employees—into a generalized one-paragraph summary.4 Without

      4
       The complaint’s paragraph 157 contained the following allegations:

             157. The actual, but undisclosed facts, as detailed above, which
      were known by the defendants but concealed from the investing public
      during the Class Period, were as follows:
             (a) The Company lacked requisite internal controls, and, as a
      result, the Company’s projections and reported results issued during the
      Class Period were based upon defective assumptions about loan

                                          -8-
more, however, the broad allegations contained in paragraph 157 do not “necessarily
show that the defendants’ statements were misleading,” Cerner, 425 F.3d at 1083, or
provide the level of particularity required by the PSLRA, see Navarre, 299 F.3d at
743. Therefore, we conclude that the district court did not err in alternatively
dismissing Lester’s complaint for its failure to “specify . . . the reason or reasons why
[each] statement is misleading.” See 15 U.S.C. § 78u-4(b)(1).5




      delinquencies;
            (b) The Company’s financial statements were materially misstated
      due to its failure to properly account for its allowance for loan losses;
            (c) Given the deterioration and the increased volatility in the
      subprime market, the Company would be forced to tighten its
      underwriting guidelines which would have a direct material negative
      impact on its loan production going forward;
            (d) Given the increased volatility in the lending market, the
      Company had no reasonable basis to make projections about its ability
      to maintain its REIT taxable income, which drives dividends, and
      potentially even its very status as a REIT. As a result, the Company’s
      projections issued during the Class Period about its REIT taxable income
      and dividends were at a minimum reckless; and
            (e) The Company’s systematic deviation from its underwriting
      standards was creating “credit risk” and otherwise heightening the risk
      of default far beyond the scope defendants told investors.
      5
        Because we conclude that the district court properly dismissed the complaint
for failing to comply with the PLSRA’s pleading requirements concerning falsity
under § 78u-4(b)(1), we need not address Lester’s additional arguments concerning
his compliance with the PSLRA’s pleading requirements concerning scienter under
§ 78u-4(b)(2).

                                          -9-
      B.     Denial of Leave to Amend the Complaint

       “We ordinarily review the denial of leave to amend a complaint for abuse of
discretion, but when the district court denies leave on the basis of futility we review
the underlying legal conclusions de novo.” In re NVE Corp. Sec. Litig., 527 F.3d 749,
752 (8th Cir. 2008). Nevertheless, we need not reach the question of futility here
because we can affirm the court’s denial of leave to amend on the alternate basis that
Lester failed to offer a proposed amended complaint to the district court. Cf. K-tel,
300 F.3d at 889 (“[W]e may affirm the district court’s judgment on any basis
supported by the record” (quoting Wisdom v. First Midwest Bank, 167 F.3d 402, 406
(8th Cir. 1999))).

       “Although leave to amend ‘shall be freely given when justice so requires,’ see
Fed. R. Civ. P. 15(a), plaintiffs do not have an absolute or automatic right to amend.”
U.S. ex rel. Lee v. Fairview Health Sys., 413 F.3d 748, 749 (8th Cir. 2005). “[I]n
order to preserve the right to amend the complaint, a party must submit the proposed
amendment along with its motion.” Clayton v. White Hall Sch. Dist., 778 F.2d 457,
460 (8th Cir. 1985). Lester never submitted a proposed amended complaint to the
district court, nor did he proffer the substance of such an amended complaint until he
filed his appellate brief. Instead, Lester merely included a footnote at the end of his
response to Novastar’s motion to dismiss stating that “[t]o the extent that the court
finds the Complaint’s allegations insufficient, plaintiffs respectfully request an
opportunity to amend their claims.” These circumstances mirror those present in
Clayton, where we held that a district court properly denied a plaintiff leave to amend
because she “did not submit a motion for leave to amend but merely concluded her
response to [the defendant’s] motion to dismiss with a request for leave to amend” and
“did not offer a proposed amended complaint or even the substance of the proposed
amendment to the district court.” Id.; see also Dudek v. Prudential Sec., Inc., 295
F.3d 875, 880 (8th Cir. 2002) (reaching the same result under nearly identical
circumstances). Moreover, even after the district court dismissed Lester’s complaint

                                         -10-
and denied his request to amend the complaint, Lester failed to file a motion under
Federal Rules of Civil Procedure 15(a)(2), 59(e), or 60(b), seeking leave to file an
amended complaint. Cf. U.S. ex rel. Roop v. Hypoguard USA, Inc., 559 F.3d 818, 823
(8th Cir. 2009) (“[P]ost-judgment leave to amend may be granted if timely
requested.”). As we have noted before, “the district court [i]s not required to engage
in a guessing game” as a result of the plaintiff’s failure to specify proposed new
allegations. Meehan v. United Consumers Club Franchising Corp., 312 F.3d 909, 914
(8th Cir. 2002). Accordingly, we affirm the district court’s denial of leave to amend
the complaint.

III.   CONCLUSION

       For the foregoing reasons, we affirm the district court.
                       ______________________________




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