                    FOR PUBLICATION
  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

SCOTT FOSTER; NEIL TREMBLAY;              
GLENN FOLEY,                                      No. 05-56424
              Plaintiffs-Appellants,
                v.                                 D.C. No.
                                                  CV 04-9552
PETER WILSON,                                     DSF(VBKx)
              Defendant-Appellee.
                                          

SCOTT FOSTER; NEIL TREMBLAY;              
GLENN FOLEY; AND WILLENKEN                        No. 05-56743
WILSON LOH & LIEB LLP,                              D.C. No.
              Plaintiffs-Appellants,
                                                 CV 04-9552
                v.                                DSF(VBKx)
PETER WILSON,                                      OPINION
              Defendant-Appellee.
                                          
         Appeal from the United States District Court
            for the Central District of California
          Dale S. Fischer, District Judge, Presiding

                    Argued and Submitted
              June 7, 2007—Pasadena, California

                      Filed October 5, 2007

      Before: Daniel M. Friedman,* Alex Kozinski, and
              Ronald M. Gould, Circuit Judges.

   *Daniel M. Friedman, Senior United States Circuit Judge for the Fed-
eral Circuit, sitting by designation.

                                13553
13554        FOSTER v. WILSON
        Opinion by Judge Friedman
13556                  FOSTER v. WILSON
                         COUNSEL

William A. Delgado and Jason H. Wilson, Willenken Wilson
Loh & Lieb LLP, Los Angeles, California, for appellants
Scott Foster, Neil Tremblay, and Glenn Foley in Case No. 05-
56424.

Shaun P. Martin, University of San Diego Law School, San
Diego, California, for appellants Scott Foster, Neil Tremblay,
and Glenn Foley and Willenken Wilson Loh & Lieb LLP in
Case No. 05-56743.

Rick Augustini, Law Office of Rick Augustini, Irvine, Cali-
fornia, for appellee Peter Wilson in both cases.


                          OPINION

FRIEDMAN, Circuit Judge:

   The principal issue is whether the district court correctly
dismissed, pursuant to Rule 12(b)(6) of the Federal Rules of
Civil Procedure for failure to state a claim upon which relief
could be granted, a complaint alleging federal securities fraud.
We affirm that dismissal, but reverse the district court’s impo-
sition of monetary sanctions against the appellants and their
attorney.

   The issues were presented in two separate appeals which
were argued consecutively. We decide both appeals in a sin-
gle opinion.

                               I

  A. The background facts, as alleged in the first amended
complaint (“amended complaint”), may be summarized as fol-
lows:
                       FOSTER v. WILSON                    13557
   The appellants Foster and Foley hired the appellee Wilson
“as a consultant to help with the business affairs of their then-
employer, Precision Vascular Systems (‘Precision Vascu-
lar’).” “Wilson represented to [them] that he was a consultant
for many different companies that would be profitable invest-
ments and that he would introduce Foster and Foley to such
investments.” Wilson subsequently extolled to the appellants
the prospects of a company called Car Rental Direct (“CRD”),
which was “in the business of renting cars to consumers on
a long term basis.” Wilson “held himself out as a consultant
for the company” and stated that he “received an equivalent
value in shares of CRD for every investment dollar he brought
to CRD.”

   When the appellants “indicated to Wilson they were inter-
ested in purchasing shares of CRD and would seek out a bro-
ker,” he told them that “they should not buy shares through
a broker but that they should buy shares through him because
of his special relationship with CRD. Wilson ultimately con-
vinced Plaintiffs to buy shares through him by promising
them: ‘I won’t let you lose money on this deal.’ ”

      Based on these many representations, in June
    2002, Foster, Foley, and Tremblay provided Wilson
    with $100,000, $30,000, and $20,000, respectively,
    so that he could purchase CRD shares from CRD in
    an equivalent value on their behalf. Wilson repre-
    sented he would immediately purchase shares of
    CRD from CRD for Plaintiffs and provide Plaintiffs
    with certificates.

       Subsequent thereto, Wilson provided Foley with a
    certificate for shares in CRD Holdings, Inc.
    (“CRDH”)—a holding company for CRD—made
    out to Scott Foster in the amount of 50,000 shares.
    However, the majority of these shares was to be
    returned to Wilson himself and did not represent the
    sum total of shares equivalent to Plaintiffs’ $150,000
13558                  FOSTER v. WILSON
    investment. As such, Wilson still had to provide
    Plaintiffs with more shares.

  Shortly thereafter, CRD’s fortunes began to decline, and in
June 2003 the company became bankrupt.

   The appellants’ attempts to obtain the additional shares
from Wilson were unsuccessful. On one occasion, after Wil-
son told the appellants that “he had finally received certifi-
cates for their shares of CRD stock and would overnight the
certificates to Plaintiffs,” he “subsequently informed Plaintiffs
that CRD had ‘mistakenly’ provided certificates in the name
of Wilson’s company.”

   “When Foster, Tremblay, and Foley confronted Wilson
with CRD’s bankruptcy, Wilson agreed to guarantee and
reimburse Plaintiffs the full $150,000 lost by providing them
with shares of Precision Vascular having an equivalent
value.” “Wilson never provided Plaintiffs with shares of Pre-
cision Vascular.”

   B. The amended complaint (like the original one) con-
tained four claims. Claim 1 alleged federal securities law
fraud. The three other claims were state law claims for Cali-
fornia securities law fraud, common law deceit and breach of
contract.

   The federal securities fraud claim alleged that Wilson “used
or employed, in connection with the purchase or sale of CRD
shares, manipulative or deceptive devices or contrivances,
within the meaning of 15 U.S.C. § 78j.” It asserted:

       After dissuading Plaintiffs from purchasing CRD
    stock from a broker, Defendant obtained from Plain-
    tiffs $150,000 for the ostensible purpose of obtaining
    shares of CRD directly from CRD on their behalves.
    Plaintiffs provided Defendant with $150,000 to pur-
    chase shares in reliance on his statement that he had
                       FOSTER v. WILSON                    13559
    a special relationship with CRD and his assurances
    he would not “let them lose money” on the CRD
    investment.

       . . . Defendant never provided all of Plaintiffs’
    money to CRD for the purpose of purchasing shares
    in CRD on Plaintiffs’ behalf. Instead, Wilson pur-
    chased some shares from CRD on behalf of Foster
    but used the majority of Plaintiffs’ investment to
    purchase shares on his own behalf and on behalf of
    his company, KPC.

   C. The district court dismissed the amended complaint for
failure to state a claim upon which relief could be granted.

   The court dismissed Foley and Tremblay’s securities fraud
claim because Wilson’s failure to deliver any securities to
them meant that they were not purchasers of a security. The
court dismissed Foster’s securities fraud claim because the
complaint did not sufficiently allege that Wilson’s representa-
tions to Foster were false. The court, however, did not imme-
diately dismiss the complaint, but allowed the appellants to
amend it to correct the defects it had noted.

   The appellants declined to amend and instead “elected to
stand on their first amended complaint and on the sufficiency
of the allegations alleged therein.”

   The court then dismissed the federal and state securities
fraud claims with prejudice, and, “[t]he sole claim . . . arising
under federal law having been dismissed,” the court dismissed
the remaining state claims without prejudice.

                               II

  A. Section 10(b) of the Securities Exchange Act of 1934,
15 U.S.C. § 78j(b), prohibits the use “in connection with the
purchase or sale of any security . . . , [of] any manipulative
13560                  FOSTER v. WILSON
or deceptive device or contrivance in contravention of such
rules and regulations as the [Securities and Exchange] Com-
mission may prescribe . . . .” Commission Rule 10b-5 imple-
ments that provision by making it unlawful “(a) To employ
any device, scheme, or artifice to defraud, (b) To make any
untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements 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 CFR § 240.10b-5.

   In addition to these substantive provisions, Congress has
provided, in the Private Securities Litigation Reform Act, 15
U.S.C. § 78u-4, special pleading requirements for federal
securities fraud claims. “The Act requires [federal securities
fraud] plaintiffs to state with particularity both the facts con-
stituting the alleged violation, and the facts evidencing
scienter, i.e., the defendant’s intention ‘to deceive, manipu-
late, or defraud.’ ” Tellabs, Inc. v. Makor Issues & Rights,
Ltd., 127 S. Ct. 2499, 2504 (2007).

   [1] Federal securities fraud, like its common law fraud
ancestor, requires knowingly making a false statement with
intent to deceive, reliance upon which injures the victim. See
Provenz v. Miller, 102 F.3d 1478, 1483 (9th Cir. 1996). The
amended complaint’s federal securities fraud charge does not
adequately or properly state such a claim. The district court
therefore correctly dismissed that count of the complaint for
failure to state a claim upon which relief could be granted.
Although our ground of decision is not that of the district
court, we may affirm the district court’s judgment on any
ground the record supports. See Engleson v. Burlington
Northern R.R. Co., 972 F.2d 1038, 1044 (9th Cir. 1992).

   [2] The federal securities fraud claim in the amended com-
plaint, after reiterating the statutory language of § 10(b),
states that “[a]fter dissuading Plaintiffs from purchasing CRD
                       FOSTER v. WILSON                   13561
stock from a broker, Defendant obtained from Plaintiffs
$150,000 for the ostensible purpose of obtaining shares of
CRD directly from CRD on their behalves,” and that the
plaintiffs gave the defendant $150,000 “to purchase shares in
reliance on his statement that he had a special relationship
with CRD and his assurances he would not ‘let them lose
money’ on the CRD investment.” There is no allegation that
either of these two statements attributed to the defendant was
false.

   [3] The complaint then alleges that the “Defendant never
provided all of Plaintiffs’ money to CRD for the purpose of
purchasing shares in CRD on Plaintiffs’ behalf. Instead, Wil-
son purchased some shares from CRD on behalf of Foster but
used the majority of Plaintiffs’ investment to purchase shares
on his own behalf and on behalf of his company, KPC.” There
is no allegation that when Wilson accepted the $150,000 from
the appellants, he intended not to purchase shares for them.
All that the complaint alleges is that Wilson agreed to pur-
chase shares for the appellants with the money he received
from them, but did not do so. At most, the claim alleges a
breach of contract. Such a breach, however, does not consti-
tute federal securities fraud under § 10(b). See, e.g., Gurary
v. Winehouse, 190 F.3d 37, 44 (2d Cir. 1999) (“The failure to
carry out a promise made in connection with a securities
transaction is normally a breach of contract.”) (internal quota-
tion marks omitted).

   The federal securities fraud claim’s failure to allege that
Wilson intended not to purchase the stock when he accepted
the appellants’ payment for it stands in stark contrast to that
explicit allegation in the appellants’ state common law deceit
claim. That claim states:

      Defendant’s representation that he would purchase
    $150,000 worth of shares of CRD from CRD on
    Plaintiffs’ behalves was false. At the time that the
    representations and each of them were made, Defen-
13562                   FOSTER v. WILSON
    dant knew the representation was false because he
    intended to use the majority of Plaintiffs’ investment
    to purchase shares in CRD for himself and his com-
    pany, KPC. Defendant, and each of them, made the
    representations and each representation with the
    intent to deceive Plaintiffs and with the intent to
    induce Plaintiffs’ action in reliance thereon.

   In view of these allegations in the state law claim, it must
be assumed that the lack of a similar allegation in the federal
claim reflects the appellants’ decision not to base their federal
claim upon that theory of intentional misrepresentation. That
the omission of that allegation from the federal fraud claim
was not inadvertent but was intentional is further suggested
by the appellants’ declining the district court’s invitation to
amend their complaint and electing to “stand on . . . the suffi-
ciency of the allegations alleged [in] . . . their first amended
complaint.”

   This fatal deficiency in the federal securities fraud claim
goes far beyond a failure to satisfy the enhanced pleading
requirements of the Private Securities Litigation Reform Act.
If the defect were merely a failure “to state with particularity
both the facts constituting the alleged violation, and the facts
evidencing scienter,” Tellabs, 127 S. Ct. at 2504, consider-
ation of the allegations in the state law claim might be appro-
priate. See Tellabs, 127 S. Ct. at 2509-11 (in determining
whether a federal securities fraud claim adequately alleges
scienter under the Litigation Reform Act, “[t]he inquiry . . .
is whether all of the facts alleged, taken collectively, give rise
to a strong inference of scienter, not whether any individual
allegation, scrutinized in isolation, meets that standard”;
“faced with a Rule 12(b)(6) motion to dismiss a § 10(b)
action, courts must . . . consider the complaint in its entirety”).

   [4] Here the flaw in the federal securities fraud claim is not
a failure to allege sufficient facts, but a failure to state a tena-
ble theory upon which the claim could be established. This
                        FOSTER v. WILSON                   13563
defective claim cannot be saved by incorporating into it a dif-
ferent theory set forth in a state law claim contained in the
same complaint.

   B. The district court dismissed the three state law claims
because, having dismissed the sole federal claim, it “de-
cline[d] to exercise supplemental jurisdiction” over the
remaining claims. The decision whether to continue to exer-
cise supplemental jurisdiction over state law claims after all
federal claims have been dismissed lies within the district
court’s discretion. See 28 U.S.C. § 1367(c)(3); Fang v. United
States, 140 F.3d 1238, 1243-44 (9th Cir. 1998).

   [5] The district court did not abuse its discretion in dismiss-
ing without prejudice those state law claims. We affirm the
district court’s dismissal of the sole federal claim, and we also
affirm its dismissal of the three state law claims.

                               III

  A.   The facts relating to the sanctions issue are as follows:

   In their original complaint, the appellants’ federal securities
fraud claim was based upon Wilson’s alleged oral and written
misrepresentations about Car Rental Direct, and his failure to
disclose “material facts” that adversely affected that company.
The appellants alleged that those actions constituted “manipu-
lative or deceptive devices or contrivances” “in connection
with the purchase or sale of CRD shares.” In ruling on Wil-
son’s motion to dismiss that complaint, the district court
stated:

    Plaintiffs have not pleaded falsity or scienter with
    the particularity required by the PSLRA. Therefore,
    Plaintiffs’ first claim for relief must be dismissed.
    However, because Plaintiffs may be able to plead
    falsity and scienter with the requisite particularity,
    the Court grants Plaintiffs leave to amend.
13564                  FOSTER v. WILSON
   In the securities fraud claim of the amended complaint, the
appellants did not plead “falsity and scienter with the requisite
particularity.” Instead, they asserted a different theory of
securities fraud, which we have discussed and rejected in Part
II: that Wilson accepted money from them to be used to pur-
chase stock in CRD for them, but failed to do so and instead
used the money to purchase such shares for himself.

   After the district court dismissed the amended complaint,
Wilson moved for sanctions against the appellants and their
lawyers. He sought $25,871.45, representing his alleged legal
fees and expenses in defending against the lawsuit, which he
contended had been filed in violation of Rule 11(b) of the
Federal Rules of Civil Procedure.

   In a detailed memorandum, the district court rejected all the
grounds upon which Wilson had sought sanctions. The court
then ruled that three statements made in the original com-
plaint were inconsistent with statements in the amended com-
plaint, and that “there was a ‘substantial’ failure to comply
with Rule 11 in that false allegations of misrepresentations
formed the basis for the claims in the Initial Complaint, and
are precisely the kind of allegations the PSLRA meant to pre-
vent.” The court awarded $7,028 as the “reasonable and
appropriate” fees Wilson incurred “relating to” the original
complaint.

   [6] B. As this court has recognized, before sanctions may
be imposed upon a party there must be “sufficient, advance
notice of exactly which conduct was alleged to be sanction-
able.” In re DeVille, 361 F.3d 539, 549 (9th Cir. 2004) (quot-
ing Fellheimer, Eichen & Braverman v. Charter Techs., 57
F.3d 1215 (3d Cir. 1995). See also Mackler Prods., Inc. v.
Cohen, 225 F.3d 136, 144 (2d Cir. 2000) (“The purpose of
particularized notice is to put counsel on notice as to the par-
ticular factors that he must address if he is to avoid sanc-
tions.”) (internal quotation marks omitted).
                       FOSTER v. WILSON                   13565
   [7] The only notice the appellants received of the proposed
sanctions was Wilson’s motion and its attachments. The dis-
trict court, however, rejected all of the grounds for sanctions
asserted in that motion. The court then imposed sanctions on
three other grounds not included in the motion. The appellants
did not receive notice of those three additional grounds, and
had no opportunity to be heard in opposition to them before
sanctions were imposed.

   [8] A district court may impose sanctions sua sponte. See
In re Itel Sec. Litig., 791 F.2d 672, 675 (9th Cir. 1986).
Before doing so, however, the persons against whom the
sanctions were imposed must have been given the same notice
and opportunity to respond that are required for sanctions
generally. See Navellier v. Sletten, 262 F.3d 923, 943 (9th Cir.
2001) (“When a court imposes sanctions sua sponte, the gen-
eral rule is that it must first issue an order to show cause why
sanctions should not be imposed to give the lawyer or party
an opportunity to explain his or her conduct.”). That did not
occur in this case. The sanctions therefore cannot stand. Our
reversal of the sanctions, however, does not preclude the dis-
trict court from conducting further proceedings on the sanc-
tions issue if it deems such action appropriate.

                       CONCLUSION

   In No. 05-56424, the judgment of the district court dismiss-
ing the complaint is affirmed. In No. 05-56743, the order of
the district court awarding sanctions of $7,028 is reversed.

  AFFIRMED IN PART, REVERSED IN PART
