## Facts

- A Novell shareholder filed a putative class action on behalf of purchasers of Novell common stock during April 27, 1994 to August 19, 1994.
- Novell announced a merger with WordPerfect Corporation and an acquisition of Borland’s Quattro Pro product line.
- To finance the merger, Novell filed an SEC registration statement (and amendments) that included extensive risk disclosures warning that integrating WordPerfect involved substantial risks and that successful integration could not be assured.
- Plaintiff alleged Novell and senior officers made false or misleading public statements during the class period about Novell’s financial condition and expectations for near-term revenues and earnings after the transactions.
- Plaintiff alleged defendants gave optimistic assurances that the merger would not negatively affect near-term earnings and that integration was going well.
- After Novell later reported disappointing earnings, its stock price declined, and plaintiff attributed the decline to prior misleading statements.
- Defendants moved to dismiss; plaintiff sought leave to amend.

## Issues

1. Whether the complaint plausibly alleged materially false or misleading statements or omissions under Exchange Act § 10(b) and Rule 10b-5, given the company’s detailed risk disclosures and the forward-looking character of many challenged statements.
2. Whether the complaint pled securities fraud with particularity as required by Federal Rule of Civil Procedure 9(b).
3. Whether leave to amend should be granted or denied as futile.

## Decision

- The court granted defendants’ motion to dismiss for failure to state a claim.
- The court held plaintiff failed to allege any materially misleading statement or omission when the challenged statements were considered alongside the company’s extensive cautionary risk disclosures.
- The court held many alleged misstatements were forward-looking projections or general corporate optimism rather than actionable misrepresentations of present or historical fact.
- The court held the complaint failed to plead fraud with particularity under Rule 9(b), including insufficient detail as to what was false, why it was false when made, and what contemporaneous facts showed falsity.
- The court denied plaintiff’s motion to amend, concluding amendment would be futile.

## Legal Principles

- Alleged misstatements must be evaluated in the “total mix” of information available to investors, including accompanying cautionary disclosures.
- Forward-looking statements accompanied by meaningful, specific cautionary language about the relevant risks are generally not actionable because a reasonable investor is warned of the contingencies.
- General statements of optimism, predictions, or goals about future performance are often immaterial and not actionable absent concrete, verifiable misstatements of fact.
- Rule 9(b) requires particularized pleading of fraud; later adverse results, without specific contemporaneous facts showing earlier falsity and deceptive intent, do not satisfy the standard.
- Leave to amend may be denied where defects are substantive and amendment would not cure the failure to state a viable securities fraud claim.

## Conclusion

The court dismissed the securities-fraud class claims because the alleged optimistic merger-related statements, viewed in context with extensive risk disclosures, were not materially misleading and because the complaint did not plead fraud with the particularity required by Rule 9(b); amendment was denied as futile.


Grossman v. Novell, Inc., 909 F. Supp. 845 (D. Utah 1995)