                                                             NOT PRECEDENTIAL

                     UNITED STATES COURT OF APPEALS
                          FOR THE THIRD CIRCUIT
                               ____________

                             Nos. 10-2788 and 10-3815
                                  _____________

          CITY OF ROSEVILLE EMPLOYEES‟ RETIREMENT SYSTEM,
             Individually and on Behalf of All Others Similarly Situated

                                          v.

   HORIZON LINES, INC.; CHARLES G. RAYMOND; MARK URBANIA;
GABRIEL SERRA; R. KEVIN GILL; GREGORY GLOVA; HORIZON LINES, LLC;
         JOHN V. KEENAN; JOHN W. HANDY; BRIAN TAYLOR

  THE POLICE AND FIRE RETIREMENT SYSTEM OF THE CITY OF DETROIT,
                          LEAD PLANTIFF,
                                     Appellant
                           _____________

            APPEAL FROM THE UNITED STATES DISTRICT COURT
                    FOR THE DISTRICT OF DELAWARE
                          (D.C. Civil No. 08-cv-00969)
                  District Judge: Honorable Harvey Bartle, III
                                 ____________

                               Argued June 23, 2011
                                  ____________

         Before: BARRY, AMBRO and VAN ANTWERPEN, Circuit Judges

                          (Opinion Filed: August 24, 2011)
                                  ____________

John C. Browne, Esq. (Argued)
Bernstein, Litowitz, Berger & Grossmann
1285 Avenue of the Americas
38th Floor
New York, NY 10019
Counsel for Appellant


Paul J. Lockwood, Esq. (Argued)
Skadden, Arps, Slate, Meagher & Flom
One Rodney Square
P.O. Box 636
Wilmington, DE 19801

Counsel for Appellees
                                     ______________

                                         OPINION
                                       ____________

BARRY, Circuit Judge

       In this securities fraud class action, the District Court dismissed all claims against

the corporate defendants and five of the individual defendants. The lead plaintiff appeals.

We will affirm.

I.     BACKGROUND

       Because we write only for the parties, we set forth only the facts and procedural

history necessary for our analysis. Horizon Lines, Inc., and its wholly owned subsidiary,

Horizon Lines, LLC (collectively “Horizon”), are shipping companies. This case is

bottomed on securities fraud claims that arise out of price fixing in Horizon‟s shipping

business from the United States to Puerto Rico, which is a limited, oligopolistic market

that comprised about a third of Horizon‟s business during the time period at issue.

Horizon held its initial public offering (“IPO”) on September 26, 2005. The price fixing


                                              2
conspiracy became public on April 17, 2008, when the Department of Justice and the FBI

executed search warrants on Horizon and Horizon issued a statement acknowledging the

investigation. On April 25, 2008, Horizon announced that “its revenue and earnings were

not sustainable.” (R. at A-448.) Its stock price plummeted after both announcements.

       There are eight individual defendants in this matter, all of whom hold or held

management or executive positions at Horizon. Three of them – Gabriel Serra, R. Kevin

Gill, and Gregory Glova (collectively “Puerto Rico managers”) – pled guilty to price

fixing in the Puerto Rico market from May of 2002 to April of 2008. No criminal charges

have been filed against the other five individual defendants: Charles Raymond, Mark

Urbania, John Keenan, John Handy, and Brian Taylor (collectively “senior executives”).

After the parties filed their briefs on appeal, Horizon Lines, LLC, itself pled guilty to

price fixing charges, for which it had respondeat superior liability.

       The Police and Fire Retirement System of the City of Detroit is the lead plaintiff in

this putative securities class action case. In brief, it alleges that defendants made

statements about Horizon‟s financial health, in particular explaining why Horizon was

increasing shipping rates and otherwise doing well in a tight Puerto Rico market, and that

those statements were false because the company‟s apparent well-being in Puerto Rico

was due to price fixing, not the reasons Horizon and its executives identified.

       The District Court granted the motion of Horizon and the senior executives to

dismiss all claims in the Amended Consolidated Securities Class Action Complaint


                                               3
(“Amended Complaint”).1 It held that the senior executives made materially false

statements, but nonetheless dismissed the claims against them because there were

insufficient allegations to raise a strong inference that they made those false statements

with scienter. The Court conversely held that the Puerto Rico managers acted with

scienter, but that they did not make material false statements on which plaintiff relied. As

to Horizon, the Court concluded that it could not be liable because there were not

sufficient allegations that an individual defendant both made material false statements, on

which the plaintiff relied, and acted with scienter.

II.    ANALYSIS2

       Plaintiff brings its claims pursuant to Section 10(b) of the Securities Exchange Act

of 1934 and the Securities and Exchange Commission‟s Rule 10b-5.3



       1
         The District Court previously granted a motion to dismiss the original
Consolidated Securities Class Action Complaint. The Puerto Rico managers did not file a
motion to dismiss either complaint, but after the Court granted the motion of Horizon and
the senior executives to dismiss the Amended Complaint, the Court issued a final
judgment under Fed. R. Civ. P. 54(b) in favor of all defendants except the Puerto Rico
managers. The claims against the Puerto Rico managers remain pending in the District
Court, where this case is stayed until the resolution of this appeal.
       2
         The District Court had jurisdiction pursuant to 28 U.S.C. §§ 1331 and 1337, and
we have jurisdiction pursuant to 28 U.S.C. § 1291.
       3
         In addition to dismissing the claims under § 10(b) and Rule 10b-5, the District
Court dismissed plaintiff‟s claims under § 20(a), which “creates a cause of action against
individuals who exercise control over a „controlled person,‟ including a corporation, that
has committed a violation of Section 10(b). Accordingly, liability under Section 20(a) is
derivative of an underlying violation of Section 10(b) by the controlled person.” Inst.
Investors Grp. v. Avaya, Inc., 564 F.3d 242, 252 (3d Cir. 2009) (citation omitted).
Because the Court correctly dismissed the § 10(b) claims, we will not further address §
20(a).
                                               4
       To state a claim for securities fraud under Rule 10b-5, plaintiffs must
       “allege defendants made a misstatement or an omission of material fact
       [“material false statement”] with scienter in connection with the purchase or
       the sale of a security upon which plaintiffs reasonably relied and plaintiff‟s
       [sic] reliance was the proximate cause of their injury.”

Inst. Investors Grp. v. Avaya, Inc., 564 F.3d 242, 251 (3d Cir. 2009) (quoting Winer

Family Trust v. Queen, 503 F.3d 319, 326 (3d Cir. 2007)).

       We are reviewing the grant of motions to dismiss the Amended Complaint. As

with any motion to dismiss, we assume that the facts pled in the Amended Complaint are

true, and we “consider the complaint in its entirety, as well as other sources courts

ordinarily examine when ruling on Rule 12(b)(6) motions to dismiss.” Tellabs, Inc. v.

Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007). A plaintiff alleging securities

fraud violations, however, “must satisfy the heightened pleading rules codified in the

PSLRA [Private Securities Litigation Reform Act].” Avaya, 564 F.3d at 252; see also

Merck & Co. v. Reynolds, 130 S. Ct. 1784, 1796 (2010) (“Indeed, Congress has enacted

special heightened pleading requirements for the scienter element of § 10(b) fraud

cases.”). Those heightened pleading rules require that

       the complaint must specify each allegedly misleading statement, why the
       statement was misleading, and, if an allegation is made on information and
       belief, all facts supporting that belief with particularity. Second, the
       complaint must, with respect to each act or omission alleged . . . state with
       particularity facts giving rise to a strong inference that the defendant acted
       with the required state of mind.

Avaya, 564 F.3d at 252-53 (internal quotation marks, citations, and footnote omitted).

       “Scienter is a mental state embracing intent to deceive, manipulate, or defraud, and

                                              5
requires a knowing or reckless state of mind.” Id. at 252 (internal quotation marks and

citations omitted). In this context, the standard for recklessness is high:

       [a] reckless statement is one involving not merely simple, or even
       inexcusable negligence, but an extreme departure from the standards of
       ordinary care, and which presents a danger of misleading buyers or sellers
       that is either known to the defendant or is so obvious that the actor must
       have been aware of it.

Id. at 267 n.42 (internal quotation marks omitted). Allegations akin to corporate

mismanagement are not sufficient. Id. In analyzing whether there is a strong inference of

scienter, we

       weigh the plausible nonculpable explanations for the defendant‟s conduct
       against the inferences favoring the plaintiff. A strong inference of scienter
       is one that is cogent and at least as compelling as any opposing inference of
       nonfraudulent intent. The pertinent question 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.

Id. at 267-68 (internal quotation marks and citations omitted). “[T]he inference of scienter

must be more than merely „reasonable‟ or „permissible‟” but “need not be irrefutable.”

Tellabs, 551 U.S. at 324. This is judged from the perspective of a “reasonable person.” Id.

at 326. “[O]missions and ambiguities count against inferring scienter.” Id.

       We substantively agree with the District Court‟s resolution of the defendants‟

motions to dismiss. There is no need to retrace all of the ground that the Court so ably

covered in its lengthy and extraordinarily thorough opinions, and we address below only

the few issues that merit some further discussion.


                                              6
       Our dissenting colleague concludes that the Amended Complaint pled sufficient

facts to raise a strong inference that the senior executives acted with scienter when they

made material false statements, and thus that there were sufficient allegations of

Horizon‟s scienter, as well.4 The dissent notes, for example, that the Puerto Rico market

was a significant portion of Horizon‟s business, that the conspiracy went on for six years,

that Urbania left Horizon under unusual circumstances, and that Horizon had an IPO

during this period, which would have required senior management to take a close look at

the company‟s finances.

       The dissent focuses not on the District Court‟s analysis of each of these allegations

but rather on the brevity of the Court‟s explicit discussion of the totality of the facts

related to scienter. That specific section of the Court‟s opinion was brief, but it followed a

lengthy discussion as to why each scienter-related allegation added little, if anything, to

plaintiff‟s side of the scienter scale. The Court did not need to explain at length that the

total weight of these allegations was also scant. To put it succinctly, it does not take much

to explain that zero plus zero equals zero.5


       4
         The dissent appears to agree, as we do, with the District Court‟s conclusion that
the Puerto Rico managers did not make statements that would be actionable under the
securities laws.
       5
          Plaintiff and the dissent also highlight two facts from related criminal
proceedings. In the case against Gill, the government stated that Gill had provided
evidence against “„his superiors‟” at Horizon, “„including presently uncharged co-
conspirators.‟” (R. at A-446-47.) The government neither named any of these “superiors”
nor, so far as we know, charged any of them with any crimes. This vague statement is
insufficient to strengthen the scienter allegations for any individual senior executive.
       After the parties filed their briefs in this appeal, Horizon Lines, LLC, pled guilty to
                                                 7
       The PSLRA places a weighty burden on plaintiffs, and in accord with the District

Court, we conclude that plaintiff did not plead sufficient facts, when viewed in their

totality, to raise a strong inference of scienter as to the senior executives. Horizon‟s

scienter, thus, cannot be based on the scienter of any individual.

       The question remains whether plaintiff may otherwise plead scienter as to Horizon,

and if so, whether it has done so. The District Court applied the Fifth Circuit‟s approach

in Southland Securities Corp. v. INSpire Insurance Solutions, Inc., in which the court

recognized that statements of executive officers may be attributed to a corporation when

they are “made pursuant to their positions of authority within the company.” 365 F.3d

353, 366 (5th Cir. 2004). But with respect to whether a corporation had the scienter to

make the statements, the Fifth Circuit held that

       it [is] appropriate to look to the state of mind of the individual corporate
       official or officials who make or issue the statement . . . rather than
       generally to the collective knowledge of all the corporation‟s officers and
       employees acquired in the course of their employment.

Id. Because there was no individual at Horizon who made actionable statements with

scienter, the Court concluded that plaintiff had not pled scienter against Horizon.

       Plaintiff contends, however, that it may plead scienter against the corporation

without successfully pleading a claim against any individual. It primarily relies on two


antitrust violations. Given Horizon‟s respondeat superior liability, this is an
unremarkable event, and we will not speculate about the government‟s motivation in
bringing the charges against Horizon. We have no way of knowing whether the
government “had information indicating that [Horizon‟s] senior management was
involved in the conspiracy.” (Dissent, Draft Slip. Op. at 11.)
                                             8
cases, but the facts in both cases are distinguishable from those alleged here, and so we

will discuss them only briefly. In City of Monroe Employees Retirement System v.

Bridgestone Corp., Bridgestone and its subsidiary Firestone had information that their

tires were rupturing and causing, among other things, a significant number of rollover

accidents. 399 F.3d 651, 656-59 (6th Cir. 2005). Bridgestone and Firestone engaged in a

variety of tactics, such as a large-scale secret settlement with State Farm Insurance Co., to

keep the scope of the problem from safety regulators in the United States and several

other countries, as well as from investors. Id. at 658-59. When the truth came out and the

stock declined, plaintiffs filed a suit under the PSLRA. The Sixth Circuit affirmed the

dismissal of the claims against the individual defendants but nonetheless held that the

facts supported scienter for corporate defendants. Id. at 690-91.

       The alleged wrongdoing in Bridgestone was, however, extraordinary, akin to the

facts imagined by the Seventh Circuit in this hypothetical:

       Suppose General Motors announced that it had sold one million SUVs in
       2006, and the actual number was zero. There would be a strong inference of
       corporate scienter, since so dramatic an announcement would have been
       approved by corporate officials sufficiently knowledgeable about the
       company to know that the announcement was false.

Makor Issues & Rights, Ltd. v. Tellabs, Inc., 513 F.3d 702, 710 (7th Cir. 2008).

       Although the price fixing conspiracy at Horizon was long-lasting and affected a

substantial portion of Horizon‟s business, the facts pled here are a far cry from those in




                                              9
Bridgestone or in the Seventh Circuit‟s hypothetical,6 and we need not decide whether we

agree with either approach. Even if, however, it were possible to plead scienter against a

corporation without pleading scienter against an individual, the facts alleged here would

not survive a motion to dismiss.

III.   CONCLUSION

       We will affirm the judgment of the District Court.




       6
        For example, it is not as though Horizon did no shipping in the Puerto Rico
market while claiming that business there was going well.
                                           10
      City of Roseville Employees‟ Retirement System v. Horizon Lines Inc.
                            Nos. 10-2788 & 10-3815


AMBRO, Circuit Judge, dissenting

       To state a claim under § 10(b) of the Securities Exchange Act, a plaintiff

must “allege defendants made a misstatement or omission of material fact with

scienter in connection with the purchase or the sale of a security upon which

plaintiffs reasonably relied . . . .” Institutional Investors Group v. Avaya, 564 F.3d

242, 251 (3d Cir. 2009) (quotations and citations omitted). The District Court,

with which my colleagues have expressed their agreement, held that plaintiffs,

represented by the Police and Fire Retirement System of the City of Detroit

(“PFRS”), failed to meet this requirement.

       Though it determined that PFRS had alleged sufficient facts to show that

senior officers of Horizon Lines, Inc. (“Horizon”)—Charles Raymond, M. Mark

Urbania, John V. Keenan, Brian W. Taylor, and John W. Handy (collectively, the

“senior executives”)—made false statements on which shareholders of Horizon

relied, the Court ruled that PFRS failed to show they acted with the requisite

scienter. While acknowledging that Gabriel Serra, R. Kevin Gill, and Gregory

Glova (the “Puerto Rico managers”) had scienter,1 it held that PFRS had not

alleged sufficient facts to show they made false statements. Then, applying the

rule of the Court of Appeals for the Fifth Circuit in Southland Sec. Corp. v.

1
 It was undisputed before us that the Puerto Rico managers had scienter, as they
were convicted of criminal antitrust violations for their role in the conspiracy and
sentenced to terms of imprisonment.
INSpire Ins. Solutions, Inc., 365 F.3d 353 (5th Cir. 2004) , the District Court

concluded that, because no strong inference existed that a single Horizon

employee made a false statement with scienter, PFRS could not survive a motion

to dismiss as to Horizon itself. Because I believe that PFRS has alleged facts

sufficient to support a strong inference that the senior executives made false

statements with scienter, I think the District Court erred in dismissing PFRS‟s

amended complaint as to the senior executives and to Horizon.2 Thus, I

respectfully dissent.

       Section 10(b) of the Securities and Exchange Act is given content by Rule

10b-5 of the Securities and Exchange Commission. The Rule makes it “unlawful

for any person . . . [t]o 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 . . . in connection

with the purchase or sale of any security.” 17 C.F.R. § 240.10b-5(b). To state a

claim for relief under this section, plaintiffs must plead facts showing that “(1) the

defendant[s] made a materially false or misleading statement or omitted to state a

material fact necessary to make a statement not misleading; (2) the defendant[s]


2
 PFRS‟s allegations that the senior executives made false statements were
essentially undisputed before us. The best Horizon can do is claim that although it
did not address whether the senior executives made false statements, it “d[id] not
concede” the point. Horizon Br. 17. As I agree with my colleagues and the
District Court that PFRS has more than adequately satisfied this requirement, and
Horizon presents no arguments to the contrary, I do not address this further.
                                          2
acted with scienter; and (3) the plaintiff[s]‟ reliance on the defendant[s]‟

misstatement caused [their] injury.” Cal. Pub. Employees’ Ret. Sys. v. Chubb

Corp., 394 F.3d 126, 143 (3d Cir. 2004); see also Avaya, Inc., 564 F.3d at 251.

       The Private Securities Litigation Reform Act (the “PSLRA”) imposes

heightened pleading requirements on plaintiffs bringing suit under the Securities

and Exchange Act. See 15 U.S.C. § 78u-4(b). Specifically, with respect to the

scienter requirement, a plaintiff must allege facts giving rise to a “strong

inference” of “either reckless or conscious behavior.” In re Advanta Corp. Sec.

Litig., 180 F.3d 525, 534-35 (3d Cir. 1999). We have held that the PSLRA

“obliges courts to weigh the „plausible nonculpable explanations for the

defendant‟s conduct‟ against the „inferences favoring the plaintiff.‟ . . . A „strong

inference‟ of scienter is one that is „cogent and at least as compelling as any

opposing inference of nonfraudulent intent.‟” Avaya, 564 F.3d at 267 (quoting

Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 314, 323 (2007)

(“Tellabs”)). However, as the Supreme Court has admonished, “[t]he inference

that the defendant acted with scienter need not be irrefutable, i.e., of the „smoking-

gun‟ genre, or even the most plausible of competing inferences.‟ . . . The 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.” Tellabs, 551 U.S. at 322-24.

       This is where I believe the District Court erred. In its 50-page opinion, the
                                            3
Court dedicated a scant one page to its collective analysis of scienter. As the

Supreme Court has made clear, we must consider all allegations of scienter

together. I agree with the Court of Appeals for the Sixth Circuit that “reviewing

each allegation individually before reviewing them holistically risks losing the

forest for the trees.” Frank v. Dana Corp., 2011 WL 2020717, at *5 (6th Cir. May

25, 2011).

       Moreover, I believe that PFRS has alleged sufficient facts to raise a strong

inference that the senior executives acted with scienter. First, this was not a subtle

conspiracy. It persisted for more than six years and involved a shipping market

that accounted for more than a third of Horizon‟s total revenue. Although

shipping volumes in the Puerto Rico market had been declining steadily for more

than a decade, and Horizon had three competitors for an ever-shrinking customer

base, it managed to increase its shipping rates, and thus its revenues, every year

during the class period. Moreover, the conspiracy spanned Horizon‟s initial public

offering of its stock, in preparation for which the senior executives assessed the

company‟s business and financial position. Against this “array of circumstantial

evidence” it is hard to believe that five of Horizon‟s most senior officers,

including the Chief Executive Officer and the Chief Financial Officer, were not at

least reckless in failing to discover the antitrust conspiracy. Avaya, 564 F.3d at

269.

       Second, while we may not infer scienter solely from management‟s
                                          4
position or “general awareness of the day-to-day workings of the company‟s

business,” we have held that a corporate officer had scienter as to risky behavior

by other employees when he was asked about the behavior and denied its

existence. Id. at 269-70; see also Makor v. Tellabs, 513 F.3d 702, 704 (7th Cir.

2008) (“When the facts known to a person place him on notice of a risk, he cannot

ignore the facts and plead ignorance of the risk.”). Similarly, in this case, the

senior executives were pressed repeatedly by perplexed investors about how

Horizon‟s regular shipping rate increases in Puerto Rico were possible. In

response, they credited a variety of reasons, including a stable competitive

environment, responsible competition, market discipline, customer relationships,

and good business practices. PFRS Br. 42-43 (citing A-483-84, 494, 516, 519,

525, 531-33, 535). Combined with the nature, scope, and timing of the

conspiracy, this is, I believe, sufficient to raise a strong inference that the senior

executives were aware of the anomaly presented by Horizon‟s ever-improving

financial situation in a declining market, and were, at best, reckless as to the cause.

       The evidence does not end there. Third, Urbania, Horizon‟s former Chief

Financial Officer, announced his resignation, departed, and was replaced just two

weeks prior to Horizon‟s announcement that it was being investigated for antitrust

violations. Putting aside the timing of his sudden leaving, Urbania purportedly

forfeited $4,000,000 in stock options and, contrary to standard company practice,

did not receive a severance package. To say that this is not typical politely
                                            5
understates suspicious circumstances deserving, at least, further inquiry. Indeed,

the Court of Appeals for the Ninth Circuit has held that scienter may be inferred

when an executive‟s resignation “was uncharacteristic when compared to the

defendant‟s typical hiring and termination patterns or was accompanied by

suspicious circumstances . . . .” Zucco Partners, LLC v. Digimarc Corp., 552 F.3d

981, 1002 (9th Cir. 2009).

       One is tempted to say that these allegations, if true, compel further

investigation if not a finding of scienter. Yet the District Court concluded that the

temporal proximity of Urbania‟s resignation to Horizon‟s disclosure was irrelevant

because the conspiracy and the investigation were covert prior to that

announcement. The Court determined that, because it did not allege a more direct

link, PFRS had “simply . . . not connected Urbania‟s resignation to the price-fixing

conspiracy.” A-90. But, to repeat, a “strong inference” of scienter need only be

“cogent and at least as compelling as any opposing inference of nonfraudulent

intent.” Tellabs, 551 U.S at 314. The District Court did not explore possibly

benign explanations for Urbania‟s sudden resignation at great personal expense

(and Horizon doesn‟t offer any). Taken together, it appears to me that the nature,

scope, and duration of the conspiracy, the questioning by investors, and Urbania‟s

resignation establish that it is more likely than not that one or more of the senior

executives acted with the requisite scienter.

       And there‟s more! Fourth, PFRS notes that the Government represented in
                                          6
a sentencing memorandum that defendant Gill had “provided evidence, in the form

of statements and documents, against his superiors within [Horizon], including

presently uncharged co-conspirators.” A-446-47 (emphasis added). PFRS points

out that it named as defendants all of Gill‟s superiors (including Taylor, to whom

he reported directly) who were involved with the Puerto Rican market. The

District Court dismissed this allegation as “vague” and “speculative at best,”

stating that PFRS had failed to plead particularized facts regarding scienter and the

specific role of each defendant in the conspiracy. A-39.

       Standing alone, I agree this would not be enough to raise a strong inference

of scienter. But we are not to view PFRS‟s allegations individually. Instead, we

must ask “whether all of the facts alleged, taken collectively, give rise to a strong

inference of scienter . . . .” Tellabs, 551 U.S. at 323 (emphasis in original). With

all else alleged, the Government‟s statement that Gill provided evidence of the

involvement of his superiors in the antitrust conspiracy crosses the divide from

suspicious to my belief that it is more likely than not Horizon‟s senior executives

acted with scienter.3


3
  PFRS also notes that motive, particularly financial gain, and opportunity “may
weigh heavily in favor of a scienter inference.” Id. at 325. PFRS alleges that the
senior executives acquired substantial stock and stock options in Horizon, some of
which they sold for millions of dollars in proceeds during the class period, and
thus had the motive to engage in the conspiracy to inflate the price of Horizon‟s
stock. Stock transactions may create an inference of scienter when they are
“„unusual in scope or timing.‟” Avaya, 564 F.3d at 279 (quoting Advanta, 180
F.3d at 540). The stock sales at issue at first blush do not appear to meet that test,
                                          7
       In sum, because PFRS‟s allegations are sufficient to raise a strong inference

of scienter as to the senior executives, I believe the District Court erred in

dismissing PFRS‟s amended complaint as to them.

       Our sister Courts of Appeals have required different things of plaintiffs to

survive a motion to dismiss on a § 10(b) claim against a corporation. In

Southland, the Court of Appeals for the Fifth Circuit held that a plaintiff must

plead that at least one individual acting on behalf of the corporation made a false

statement with the requisite state of mind. 365 F.3d at 367. This was the

approach adopted, without discussion, by the District Court. In contrast, the Court

of Appeals for the Sixth Circuit adopted a collective scienter rule, holding that

“knowledge of a corporate officer or agent acting within the scope of his authority

is attributable to the corporation.” City of Monroe Employees Retirement Sys. v.

Bridgestone Corp., 399 F.3d 651, 688 (6th Cir. 2005) (internal quotations

omitted). The Court of Appeals for the Seventh Circuit has applied the principle

of respondeat superior in analyzing whether an individual defendant‟s scienter

could be attributed to the corporation, Pugh v. Tribune Co., 521 F.3d 686 (7th Cir.

2008), and has suggested that “it is possible to draw a strong inference of

corporate scienter without being able to name the individuals who concocted and

as most of them were made pursuant to § 10b5-1 plans, under which corporate
executives sell predetermined amounts of stock on predetermined dates to avoid
liability for insider trading. However, the existence of the § 10b5-1 plans is also
not exculpatory because the plans were put into place in 2006, after the conspiracy
began.
                                           8
disseminated the fraud,” Tellabs II, 513 F.3d at 710. Finally, the Court of Appeals

for the Second Circuit has offered a helpful reconciliation of the cases:

                 When the defendant is a corporate entity, . . . the pleaded facts must
         create a strong inference that someone whose intent could be imputed to the
         corporation acted with the requisite scienter. In most cases, the most
         straightforward way to raise such an inference for a corporate defendant
         will be to plead it for an individual defendant. But it is possible to raise the
         required inference with regard to a corporate defendant without doing so
         with regard to a specific individual defendant. . . . Congress has imposed
         strict requirements on securities fraud pleading, but we do not believe they
         have imposed the rule urged by defendants, that in no case can corporate
         scienter be pleaded in the absence of successfully pleading scienter as to an
         expressly named officer.

Teamsters Local 445 Freight v. Dynex Capital, 531 F.3d 190, 195-96 (2d Cir.

2008).

         Because I believe that PFRS has alleged sufficient facts to show that the

senior executives made false statements with scienter, and thus satisfied the

strictest of the tests for corporate scienter (set forth in Southland), I believe that we

need not reach the question of whether plaintiffs could survive a motion to dismiss

as to Horizon with something less.

         If all the above is not convincing enough that Horizon‟s motion to dismiss

should be denied, we have late-breaking news: Horizon itself pled guilty to

criminal antitrust violations. And guess who was excluded from the

accompanying non-prosecution agreement? You guessed it—the senior




                                            9
executives (save Taylor).4

       Horizon argues that its guilty plea has “no bearing” on whether PFRS has

adequately pleaded corporate scienter because the standards are different—a

corporation may be criminally liable under the doctrine of respondeat superior if

any of its employees engage in antitrust activities, while under the securities laws

a corporation may only be held liable if persons responsible for making false

statements to the public also had scienter.

       But this argument begs the question of what plaintiffs are required to plead

to state a claim for corporate scienter. Even if we were to adopt such a rule,

Horizon‟s guilty plea, together with the exclusions in the non-prosecution

agreement, weigh in favor of the scienter of the senior executives. As PFRS

points out, “corporations are not charged criminally on the basis of actions of a

„rogue employee.‟” PFRS Supp. Br. 2 (quoting United States Attorney‟s Manual

9-28.500(A)) (emphasis in original). Rather, “the most important consideration in

determining whether to charge an entire corporation criminally is the „role and

conduct of management.‟” Id. (emphasis in original).


4
  PFRS does not “advocate[e] a rule that a corporate guilty plea, by itself,
automatically leads to a successful securities fraud complaint.” PFRS Supp. Br. 4.
As PFRS acknowledges, “[e]ven where a corporation pleads guilty to criminal
activities, the plaintiff must also establish that the corporation issued false
statements inconsistent with the facts admitted in the plea, that the false statements
were material, the truth was not known to the public, and that revelation of the
truth caused the plaintiffs‟ losses.” Id. (citing Dura Pharm., Inc. v. Broudo, 544
U.S. 336, 339 (2005)).
                                         10
       I believe it is more likely than not that the Government chose to pursue

criminal liability for Horizon, more than two years after the Puerto Rico managers

were imprisoned for their involvement, because it had information indicating that

its senior management was involved in the conspiracy. Gilding the lily is not

needed here, but there it is.

       In conclusion, because I have no doubt that PFRS‟s allegations are

sufficient to raise a strong inference of scienter as to the senior executives, I

conclude the District Court erred in dismissing PFRS‟s amended complaint as to

both the senior executives and Horizon. Indeed, it is hard to imagine a more

compelling confluence of circumstantial evidence in support of this conclusion. In

holding that the allegations in this case do not meet the requirements of § 10(b), I

believe that the majority is demanding precisely what the Supreme Court told it

not to require—a “smoking-gun.” See Tellabs, 551 U.S. at 324. Thus I

respectfully dissent.




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