## Facts

- Purchasers of Convergent Technologies, Inc. common stock brought a federal securities class action covering purchases from Convergent’s second public offering through the day after negative information was disclosed to analysts.
- Defendants included Convergent and certain officers, outside directors, offering underwriters, and Burroughs (later Unisys), a major customer and partner.
- Plaintiffs asserted claims under Securities Act § 11 and Exchange Act § 10(b) and Rule 10b-5, plus related state-law claims.
- Plaintiffs alleged defendants misled investors about: (1) demand for Convergent’s existing workstation products, (2) production and profitability problems affecting development-stage products (including NGEN and Workslate), and (3) Burroughs’ expected purchases (including an asserted change from a 30,000-unit figure to a lower forecast).
- Plaintiffs also challenged underwriter research reports as lacking an adequate factual basis and containing misleading statements.
- The district court dismissed the § 11 claims as time-barred based on inquiry notice and later granted summary judgment for all defendants on the remaining claims, finding the challenged statements not materially misleading.
- Plaintiffs appealed; the Ninth Circuit reviewed both the § 11 timeliness dismissal and the merits summary judgment.

## Issues

1. Whether the Securities Act § 11 claims were barred by the one-year limitations period because plaintiffs were on inquiry notice more than one year before filing.
2. Whether defendants’ statements and omissions about product demand, development-stage product difficulties, and a major customer’s expected purchases were materially false or misleading under § 10(b) and Rule 10b-5.
3. Whether underwriter research reports were actionable based on alleged lack of a reasonable factual basis or misleading content.

## Decision

- The Ninth Circuit affirmed the judgment.
- It held the § 11 claims were untimely because plaintiffs filed more than one year after inquiry notice of potential misstatements or omissions in offering materials.
- It affirmed summary judgment on the remaining federal and state claims because plaintiffs failed to produce sufficient evidence that the challenged statements or omissions were materially false or misleading.
- It rejected liability theories premised on the alleged “reduction” in Burroughs’ expected purchases, concluding the cited figure was not a binding commitment and its evolution did not render prior disclosures misleading.
- It upheld judgment for underwriters, concluding plaintiffs did not show the research reports misstated verifiable facts or lacked a reasonable basis in light of information then available.

## Legal Principles

- A § 11 claim must be brought within one year of the time a reasonably diligent investor would be on inquiry notice of potential misstatements or omissions; later filing is time-barred.
- Materiality turns on whether a reasonable investor would view the challenged statement or omission, considered in context, as significantly altering the total mix of information.
- Disclosures about business risks and uncertainties can defeat liability where they sufficiently convey the relevant contingencies and plaintiffs cannot show the issuer knew and concealed specific, contrary, material facts.
- Statements about expectations or forecasts are not actionable absent proof that they were materially misleading when made, including evidence of omitted facts that made the statements misleading in context.
- Research reports and analyst opinions require proof of materially false statements of fact or the absence of a reasonable basis; disagreement with projections, without more, does not establish liability.

## Conclusion

The Ninth Circuit upheld dismissal of the § 11 claims as untimely based on inquiry notice and affirmed summary judgment on the remaining claims because plaintiffs did not raise a triable issue that defendants’ disclosures and forecasts about demand, product-development difficulties, or customer expectations were materially misleading.


In re Convergent Techs. Sec. Litig., 948 F.2d 507 (9th Cir. 1991)