American Funds Securities Litigation ( 2012 )

FILED
NOT FOR PUBLICATION JUL 20 2012
MOLLY C. DWYER, CLERK
UNITED STATES COURT OF APPEALS U .S. C O U R T OF APPE ALS
FOR THE NINTH CIRCUIT
In re: AMERICAN FUNDS SECURITIES No. 11-55299
LITIGATION,
D.C. No. 2:06-cv-07815-GAF-
RNB
ARDEN GEIST; ROLF BASLER; ROLF
BASLER REVOCABLE TRUST,
MEMORANDUM *
Plaintiffs - Appellants,
v.
CAPITAL GROUP COMPANIES, INC;
CAPITAL RESEARCH AND
MANAGEMENT CO; AMERICAN
FUNDS DISTRIBUTORS, INC,
Defendants - Appellees.
Appeal from the United States District Court
for the Central District of California
Gary A. Feess, District Judge, Presiding
Argued and Submitted July 12, 2012
Pasadena, California
*
This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
Before: GILMAN,** TALLMAN, and N.R. SMITH, Circuit Judges.
Plaintiffs-appellants, investors in the American Funds mutual funds, appeal
the dismissal with prejudice of their claims that defendants-appellees Capital
Group Companies, Inc., Capital Research and Management Company, and
American Funds Distributors, Inc. (together, “defendants”), committed securities
fraud in violation of §§ 10(b) and 20(a) of the Securities Exchange Act of 1934, 15
U.S.C. §§ 78j(b) & 78t(a). The district court held that plaintiffs’ action was
untimely because it was filed more than two years after a reasonably diligent
plaintiff could have discovered the facts constituting the violation. See Merck &
Co. v. Reynolds, 130 S. Ct. 1784 (2010); 28 U.S.C. § 1658(b). We have
jurisdiction pursuant to 28 U.S.C. § 1291, and we review de novo a district court’s
decision to grant a motion to dismiss, Knievel v. ESPN, 393 F.3d 1068, 1072 (9th
Cir. 2005). We hold that the district court erred in dismissing the action as time-
barred; however, because plaintiffs’ complaint fails to allege scienter with the
requisite particularity, we affirm the dismissal but vacate the portion of the order
dismissing the complaint with prejudice and remand for the limited purpose of
granting plaintiffs leave to amend.
**
The Honorable Ronald Lee Gilman, Senior United States Circuit
Judge for the Sixth Circuit, sitting by designation.
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Under Merck & Co. v. Reynolds, a § 10(b) cause of action accrues “(1) when
the plaintiff did in fact discover, or (2) when a reasonably diligent plaintiff would
have discovered, ‘the facts constituting the violation.’” 130 S. Ct. at 1789–90.
The district court, in evaluating whether plaintiffs had adequately pled defendants’
scienter, identified numerous sources from 2003 and 2004 suggesting the
possibility that defendants were acting with the intent to deceive, but none of those
sources could have led a reasonably diligent plaintiff to actually discover that
intent (if such intent existed). Accordingly, the two-year statute of limitations did
not begin to run more than two years before the complaint was filed, and the
district court erred in dismissing the action as time-barred.
However, we may affirm the district court “on any basis supported in the
record, . . . even if the district court did not consider the issue.” United States v.
Lemus, 582 F.3d 958, 961 (2009) (internal quotation marks and citations omitted).
Plaintiffs’ present complaint fails to raise an inference of scienter that is “cogent
and at least as compelling as any opposing inference one could draw from the facts
alleged,” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 324 (2007),
and therefore is subject to dismissal. See Fed. R. Civ. P. 12(b)(6); 15 U.S.C. §
78u-4(b)(2)(A). But plaintiffs indicated at oral argument that they could cure this
defect by amending their complaint, and we cannot say at this stage that
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amendment would be futile, see Lopez v. Smith, 203 F.3d 1122, 1130 (9th Cir.
2000) (en banc); plaintiffs therefore must be given the chance to amend their
complaint to satisfy the heightened pleading standards established by Congress in
the Private Securities Litigation Reform Act of 1995. See 15 U.S.C. § 78u-
4(b)(2)(A); Tellabs, 551 U.S. at 324. Plaintiffs’ request that we reassign this case
to a different judge on remand is denied. See California v. Montrose Chem. Corp.,
104 F.3d 1507, 1521 (9th Cir. 1997).
AFFIRMED in part; VACATED in part; REMANDED for further
proceedings. Each party shall bear its own costs.
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