                                                         United States Court of Appeals
                                                                  Fifth Circuit
                                                               F I L E D
               IN THE UNITED STATES COURT OF APPEALS
                                                                August 4, 2003
                       FOR THE FIFTH CIRCUIT
                                                           Charles R. Fulbruge III
                                                                   Clerk

                            No. 02-10120


ALLAN ZISHKA, Etc; ET AL,
                                           Plaintiffs,

GERALD R DAILEY, On behalf of themselves and all others similarly
situated; ROGER NORTON; PRISCILLA KNIGHT; DAVID W LEFFLER and FRED
E RYALS,

                                           Plaintiffs-Appellants,

                               versus

AMERICAN PAD & PAPER CO; ET AL,

                                           Defendants,

BAIN CAPITAL INC; BAIN VENTURE CAPITAL; GREGORY M BENSON; JONATHAN
S LAVINE; RUSSELL M GARD; MARC B WOLPOW; CHARLES G HANSON, III;
ROBERT C GAY and KEVIN W MCALEER,

                                           Defendants-Appellees.




          Appeal from the United States District Court
               For the Northern District of Texas
                          (98-CV-1072)



Before HIGGINBOTHAM, EMILIO M. GARZA, and DENNIS, Circuit Judges.

PER CURIAM:*

     Plaintiffs-appellants appeal the dismissal with prejudice of

their federal securities fraud claims which were brought as a

     *
      Pursuant to 5TH CIR. R. 47.5, the court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
putative class       action   under      Sections     10(b)    and    20(a)    of    the

Securities      Exchange   Act    of    1934   and    Rule    10b-5    of    the    SEC.

Plaintiffs      alleged    that     defendants       made    numerous       false    and

misleading statements regarding the success of American Pad & Paper

Company (Ampad) in order to deceive investors and maintain company

stock prices.        Specifically, plaintiffs alleged that defendants

misrepresented the success of Ampad’s strategy of acquiring other

paper products companies and integrating them into Ampad to achieve

efficiencies and higher profits; that defendants misrepresented the

success    of    their    pricing      strategy     to   insulate      profits      from

fluctuations in the price of raw materials (paper) by passing on

the increased costs to customers; and, that defendants manipulated

their Last In First Out (LIFO) accounting reserves to maintain

false     earnings    statements.          Plaintiffs        alleged    that       these

misstatements were made by defendants at numerous times in earnings

reports, prospectus, SEC filings, and through analysts who relied

on statements made to them by the defendants.                    Plaintiffs also

alleged that Bain Capital Inc., Bain Venture Capital, as well as

the directors of Ampad nominated by Bain - Wolpow, Gay, and Lavine

- were liable as control persons pursuant to Section 20(a).

     The defendants moved to dismiss, and the district court

dismissed    all     claims   with     leave   to    amend,    finding       that    the

plaintiffs had failed to adequately allege scienter and had not

pled with sufficient particularity to state a claim.                        Plaintiffs

filed their First Amended Complaint, and the defendants again moved

                                          2
to dismiss.     The district court granted their motions in part, and

denied them in part. On defendants’ motion to reconsider following

the publishing of this court’s decision in Nathenson v. Zonagen

Inc.,1 the district court dismissed the remaining claims with

prejudice. Plaintiffs timely appealed. We affirm, essentially for

the reasons stated by the district court.

                                   I

     We review a district court’s dismissal under Rule 12(b)(6) de

novo.2     In doing so, we accept the facts alleged in the complaint

as true and construe the allegations in the light most favorable to

the plaintiffs.3     A Rule 12(b)(6) motion should be granted only if

it appears beyond doubt that the plaintiffs can prove no set of

facts in support of their claim which would entitle them to

relief.4       On the other hand, conclusory allegations or legal

conclusions masquerading as factual conclusions will not suffice to

prevent dismissal under Rule 12(b)(6).5

     We find that appellants have failed to sufficiently plead the

element of scienter with respect to the individual defendants,



     1
         267 F.3d 400 (5th Cir. 2001).
     2
         See Nathenson, 267 F.3d at 406.
     3
         Id.
     4
      See ABC Arbitrage Plaintiffs Group v. Tchuruk, 291 F.3d 336,
348 (5th Cir. 2002).
     5
         Id.

                                   3
Benson, McAleer, Hanson, and Gard.6                A “strong inference” of

fraudulent intent is not supported by the alleged insider trading

by Hanson and Gard.           Insider trading “must be unusual to have

meaningful probative value,” and here the timing and amount of the

trade is not unusual.7           The plaintiffs’ other allegations, for the

most part, amount to nothing more than the unsupported assumption

that because of their positions in the company, the defendants had

knowledge that the company’s statements were false or misleading.

The defendants’ positions within the company are not sufficient to

presume knowledge of the company’s difficulties and manipulation of

the LIFO reserve.8         While the appellants do not rely solely on the

alleged insider trading and the defendants’ position within the

company, taking all of the allegations together, we find them

insufficient       to   create    a   strong   inference   of    scienter.   We

therefore affirm the dismissal of the claims against defendants

Benson, McAleer, Hanson, and Gard.

     We also affirm the dismissal of the claims against the Bain

defendants     -    Bain    Capital    Inc.,    Bain   Venture    Capital,   and

defendants Wolpow, Gay, and Lavine - as there can be no control

     6
       In order to state a claim under section 10(b) of the
Securities and Exchange Act of 1934 and SEC Rule 10b-5, a plaintiff
must allege, in connection with the purchase or sale of securities,
(1) a misstatement or an omission (2) of material fact (3) made
with scienter (4) on which plaintiff relied (5) that proximately
caused the plaintiffs' injury. See Nathenson, 267 F.3d at 406-7.
     7
         Id. at 420-21.
     8
         Id. at 424.

                                         4
person liability where the appellants have failed to plead the

predicate securities fraud claims.9

                                      II

     For    the   reasons   stated,   we   AFFIRM   the   district   court’s

dismissal of all claims with prejudice.




     9
         See ABC Plaintiffs Group, 291 F.3d at 362 n.123.

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