## Facts

- Purchasers of Parmalat securities filed a consolidated federal securities-fraud action after Parmalat’s 2003 collapse and the public revelation of a massive accounting scandal.
- Defendant Maria Martellini was a citizen and resident of Italy and a university economics professor in Italy.
- Martellini served as a minority shareholder representative on the board of statutory auditors (the “Statutory Board”) of Parmalat’s holding company, Parmalat Finanziaria S.p.A., through approximately April 2002.
- Martellini was not an officer or director of Parmalat Finanziaria or its subsidiaries.
- Plaintiffs alleged that Statutory Board reports issued during the relevant period gave assurances about the company’s accounting/administrative systems, internal controls, and compliance in preparing financial statements, including statements that the Statutory Board performed required checks and relied on information obtained from outside auditors (including Deloitte).
- Plaintiffs claimed those assurances were misleading because Parmalat’s financial reporting was materially false, and the Statutory Board allegedly failed to detect or prevent the fraud.
- As to Martellini specifically, plaintiffs alleged she failed to discharge her monitoring duties by not taking action based on: (1) misconduct claims raised by certain shareholders in 2003, (2) concerns raised by Italy’s securities regulator in September 2002, and (3) questions raised by Parmalat’s auditors concerning an Argentina subsidiary and the Statutory Board’s allegedly inadequate response.
- The complaint did not allege that Martellini (or the Statutory Board) was presented with concrete, contemporaneous facts showing that Parmalat’s public financial reporting was false, and it did not identify a specific contradictory report or clearly suspicious conduct that she knowingly ignored.
- Martellini moved to dismiss, arguing (among other grounds) lack of personal jurisdiction and failure to plead securities fraud with the particularity and state-of-mind requirements imposed by Rule 9(b) and the PSLRA.

## Issues

1. Whether the complaint stated a claim against Martellini under § 10(b) and Rule 10b-5 by pleading actionable misstatements or omissions and facts supporting a strong inference of scienter, as required by Rule 9(b) and the PSLRA.
2. Whether the court could exercise personal jurisdiction over Martellini, an Italian resident whose alleged conduct occurred in Italy, consistent with due process.

## Decision

- The court granted Martellini’s motion to dismiss and dismissed her from the action.
- The court held that the complaint’s allegations against Martellini did not satisfy the heightened pleading standards for securities fraud, including the PSLRA requirement to plead facts giving rise to a strong inference of scienter.
- The court rejected plaintiffs’ attempt to infer scienter primarily from Martellini’s asserted failure to investigate or confirm information she allegedly had a duty to monitor, where the complaint did not plead specific “red flags” or contemporaneous contradictory information attributed to her.
- To the extent personal jurisdiction was contested, the court noted Martellini’s foreign residence and Italy-based conduct; the dismissal ultimately rested on the insufficiency of the fraud allegations against her.

## Legal Principles

- A § 10(b)/Rule 10b-5 plaintiff must plead, with Rule 9(b) and PSLRA particularity, the allegedly false or misleading statements or omissions, why they were false when made, and facts tying those statements to the defendant.
- The PSLRA requires facts supporting a “strong inference” that the defendant acted with intent to deceive, manipulate, or defraud, or with recklessness approaching conscious disregard; allegations consistent with negligence or even gross negligence are not enough.
- A theory that a board member or statutory auditor “must have known” of fraud because of a generalized duty to monitor does not, without specific contemporaneous facts, plausibly plead scienter.
- Allegations based mainly on later-disclosed wrongdoing do not substitute for time-specific allegations showing what the defendant knew (or was told) during the class period and how that knowledge made the challenged statements misleading.
- Where personal jurisdiction is challenged, a foreign defendant’s forum contacts must be sufficiently connected to the claims; foreign residence and primarily foreign conduct weigh against jurisdiction absent a claim-linked U.S. connection.

## Conclusion

In this Parmalat MDL decision, the court dismissed securities-fraud claims against Maria Martellini, an Italian statutory-board member, because the complaint did not plead with Rule 9(b) and PSLRA specificity that she made actionable misstatements or acted with the scienter required for § 10(b) liability, relying instead on generalized oversight duties and post hoc allegations that did not identify concrete, contemporaneous warning signs tied to her.


In re Parmalat Securities Litigation, 376 F. Supp. 2d 449 (2005)