FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
ELLEN RUBKE, as Trustee of the
1986 Rubke Living Trust; JACK
FERGUSON, individually and on
behalf of all other similarly
situated shareholders of Napa No. 07-15083
Community Bank,
Plaintiffs-Appellants, D.C. No.
CV-05-04800-PJH
v. OPINION
CAPITOL BANCORP LTD, a
Michigan corporation; JOSEPH D.
REID,
Defendants-Appellees.
Appeal from the United States District Court
for the Northern District of California
Phyllis J. Hamilton, District Judge, Presiding
Argued and Submitted
October 22, 2008—San Francisco, California
Filed January 13, 2009
Before: Robert R. Beezer, Jane R. Roth,* and Jay S. Bybee,
Circuit Judges.
Opinion by Judge Bybee
*The Honorable Jane R. Roth, Senior United States Circuit Judge for
the Third Circuit, sitting by designation.
401
RUBKE v. CAPITOL BANCORP LTD 405
COUNSEL
James V. Weixel, Jr., San Francisco, California; George S.
Trevor, Corte Madera, California; John F. Friedemann and
Kyle M. Fisher, Friedemann Goldberg LLP, Santa Rosa, Cali-
fornia, for the plaintiffs-appellants.
Bruce A. Ericson, Kevin M. Fong, and Andrew D. Lanphere,
Pillsbury Winthrop Shaw Pittman LLP, San Francisco, Cali-
fornia, for the defendants-appellees.
OPINION
BYBEE, Circuit Judge:
Ellen Rubke, as Trustee of the 1986 Rubke Living Trust,
and Jack Ferguson, individually and on behalf of other simi-
larly situated minority shareholders of Napa Community
Bank, appeal the district court’s dismissal of their First
406 RUBKE v. CAPITOL BANCORP LTD
Amended Complaint, which alleges that Capital Bancorp, Ltd.
and its CEO and Chairman Joseph Reid violated section 11 of
the Securities Act of 1933 and sections 10(b) and 14(e) of the
Securities Exchange Act of 1934. They argue that the district
court erred in dismissing their section 11 claims for failure to
meet the pleading standards of Federal Rule of Civil Proce-
dure 9(b) and in dismissing their section 10(b) and 14(e)
claims for failure to meet the pleading standards of the Private
Securities Litigation Reform Act of 1995. For the reasons dis-
cussed below, we conclude that the district court did not com-
mit reversible error in either regard and affirm the dismissal
of the plaintiffs’ First Amended Complaint with prejudice.
I
Capitol Bancorp, Ltd. (“Capitol”) is a bank holding com-
pany that uses an unusual business model to create and con-
trol small community banks. Capitol begins its process by
soliciting investors in a proposed bank’s community to pro-
vide capital in exchange for common stock in the bank. In this
initial stock offering, Capitol informs potential investors that
it will buy approximately 51% of the community bank’s com-
mon stock and will thus be the controlling shareholder in the
bank. It also warns these investors that there will likely be no
public market for the bank’s stock. Capitol does indicate,
however, that it may buy out the investors around the third
anniversary of the bank’s opening—usually for a price equiv-
alent to the book value of the common stock plus a 50% pre-
mium. Capitol provides administrative and other services to
the bank (albeit not necessarily at competitive prices), but
community members comprise the bank’s board of directors
and have general autonomy to set pricing and make other stra-
tegic decisions.
In November 2001, consistent with this basic business
model, Capitol solicited investors in California’s Napa region
to purchase common shares of Napa Community Bank
(“NCB”). Capitol also formed a holding company—First Cal-
RUBKE v. CAPITOL BANCORP LTD 407
ifornia Northern—whose primary function was to own a con-
trolling share of NCB. Capitol then solicited separate
investors in First California Northern and bought a controlling
stake in that company. First California Northern thereafter
bought 51% of NCB’s common stock, and community inves-
tors, including Rubke and Ferguson, purchased the remaining
49%. NCB began operating in March 2002, and was quite
successful.
In May 2004, Capitol began a share exchange offering for
First California Northern. This exchange offer gave First Cali-
fornia Northern’s minority shareholders the opportunity to
exchange their shares for shares of Capitol at a ratio that
translated to a payment of 167% of the book value of First
California Northern shares. The offer was accompanied by a
fairness opinion prepared by JMP Financial (“JMP”). As a
result of this offering, Capitol acquired 100% of shares in
First California Northern.
Thereafter, in early 2005, Capitol began its anticipated
attempt to acquire the minority shares of NCB (the “Exchange
Offer” at issue in this case). It filed a registration statement
with the SEC in April 2005, and amended that statement in
May. On June 7, 2005, the effective date of the Exchange
Offer, Capitol sent all NCB shareholders the offer document.
In the document, Capitol offered to exchange shares of NCB
common stock for shares of Capitol (which was publicly
traded on the New York Stock Exchange) at a ratio equal to
approximately 150% of the book value of the NCB common
stock. Specifically, because Capitol estimated the book value
of the NCB stock at approximately $10.60 per share, it would
issue $15.90 worth of Capitol shares for each NCB share ten-
dered (approximately 0.51 Capitol shares for every NCB
share). The Exchange Offer was set to expire on June 30,
2005. The offer document was accompanied by two fairness
opinions—one by JMP, and the other by Howe Barnes Invest-
ment, Inc. (“Howe Barnes”). Each concluded after analysis
that the transaction was “fair from a financial point of view.”
408 RUBKE v. CAPITOL BANCORP LTD
Several minority shareholders, believing that the Exchange
Offer was unfair, formed a minority shareholders’ committee
(“MSC”) to combat the offer. The MSC obtained competing
fairness opinions from The Findley Group and Hoefer &
Arnett, Inc., each of which stated that the fair market value of
the NCB common shares was approximately $21 per share
(around 33% higher than Capitol was offering).
During this time period, some NCB minority shareholders
reported receiving phone calls from members of the bank’s
board of directors encouraging them to participate in the
Exchange Offer and tender their shares to Capitol. During
these phone calls, NCB’s directors allegedly claimed that
NCB shares would be worthless if they were not sold to Capi-
tol through the Exchange Offer, that the NCB shareholders
were required to sell their shares, that the NCB shares would
be illiquid if they were not sold to Capitol, that 98% of NCB’s
shareholders had already tendered their shares to Capitol, and
that all members of NCB’s board of directors had already ten-
dered their shares to Capitol.
The Exchange Offer closed on June 30, 2005. Capitol,
through the offer, acquired approximately 87% of NCB stock.
Several minority shareholders who tendered their stock to
Capitol, however, filed suit, claiming that Capitol was able to
purchase their shares at a price below fair market value
because of misrepresentations made in the registration state-
ment, the offer document, and the telephone calls.
The plaintiffs in this action filed their original complaint on
November 23, 2005, in the Northern District of California.
The plaintiffs formulated their claims as actions under sec-
tions 11 and 15 of the Securities Act of 1933 (“Securities
Act”); sections 10(b), 14(e), and 20(a) of the Securities
Exchange Act of 1934 (“Exchange Act”); and state law viola-
tions of the California Corporations Code. On June 16, 2006,
the district court dismissed the original complaint, holding
that the claims were subject to heightened pleading standards
RUBKE v. CAPITOL BANCORP LTD 409
under Federal Rule of Civil Procedure 9(b) and/or the Private
Securities Litigation Reform Act of 1995 (“PSLRA”), 15
U.S.C. § 78u-4, and that the complaint failed to meet these
heightened standards. Although the state law claims were dis-
missed with prejudice, the court gave plaintiffs leave to file
an amended complaint remedying the federal claims.
The complaint at issue in this case was filed shortly thereaf-
ter, on July 31, 2006. This First Amended Complaint added
a claim under section 12(a)(2) of the Securities Act, but other-
wise retained the same federal claims alleged in the original
complaint. Again, the defendants moved to dismiss the com-
plaint, and the district court granted that motion on October
27, 2006. See Rubke v. Capitol Bancorp Ltd., 460 F. Supp. 2d
1124 (N.D. Cal. 2006). The district court held that the plain-
tiffs’ Securities Act claims failed to satisfy the pleading stan-
dards of Federal Rule of Civil Procedure 9(b), that the
plaintiffs’ Exchange Act claims failed to satisfy the pleading
requirements of the PSLRA, and that plaintiffs’ control per-
son liability claims failed because the plaintiffs had failed to
adequately plead a primary violation under either Act. See id.
at 1152. Although the court dismissed only the Securities Act
sections 11, 14(e), and 15, and the Exchange Act sec-
tion 20(a) claims with prejudice—and gave the plaintiffs
leave to amend the Securities Act section 12(a)(2) claim and
the Exchange Act section 10(b) claim—the plaintiffs decided
not to file a second amended complaint, and instead filed a
“Notice of Intention Not to File an Amended Complaint.” The
district court entered judgment on this motion on December
13, 2006 by dismissing all the claims with prejudice, and the
plaintiffs filed a timely notice of appeal to this court.1
1
Rubke challenges only the dismissal of her claims under section 11 of
the Securities Act and sections 10(b) and 14(e) of the Exchange Act.
Rubke makes no argument about the dismissal of her claims under sec-
tions 12 and 15 of the Securities Act and section 20(a) of the Exchange
Act. Thus, these claims have been forfeited on appeal. Indep. Towers of
Wash. v. Wash., 350 F.3d 925, 929 (9th Cir. 2003).
410 RUBKE v. CAPITOL BANCORP LTD
II
We review de novo dismissals for failure to state a claim
under Federal Rule of Civil Procedure 12(b)(6). Livid Hold-
ings Ltd. v. Salomon Smith Barney, Inc., 416 F.3d 940, 946
(9th Cir. 2005).
A
[1] The plaintiffs (collectively, “Rubke”) first challenge the
district court’s determination that their First Amended Com-
plaint failed to allege with the particularity required by Fed-
eral Rule of Civil Procedure 9(b) that Capitol’s registration
statement in connection with the NCB Exchange Offer con-
tained material misrepresentations in violation of section 11
of the Securities Act. Section 11 of the Securities Act contains
a private right of action for purchasers of a security if the
issuer publishes a registration statement in connection with
that security that “contain[s] an untrue statement of a material
fact or omit[s] to state a material fact required to be stated
therein or necessary to make the statements therein not mis-
leading.” 15 U.S.C. § 77k(a). To prevail in such an action, a
plaintiff must prove “(1) that the registration statement con-
tained an omission or misrepresentation, and (2) that the
omission or misrepresentation was material, that is, it would
have misled a reasonable investor about the nature of his or
her investment.” In re Daou Sys., Inc., 411 F.3d 1006, 1027
(9th Cir. 2005) (internal quotation marks omitted).
[2] Although the heightened pleading requirements of the
PSLRA do not apply to section 11 claims, Falkowski v. Ima-
tion Corp., 309 F.3d 1123, 1133 (9th Cir. 2002), plaintiffs are
required to allege their claims with increased particularity
under Federal Rule of Civil Procedure 9(b) if their complaint
“sounds in fraud.” See Daou, 411 F.3d at 1027. To ascertain
whether a complaint “sounds in fraud,” we must normally
determine, after a close examination of the language and
structure of the complaint, whether the complaint “allege[s] a
RUBKE v. CAPITOL BANCORP LTD 411
unified course of fraudulent conduct” and “rel[ies] entirely on
that course of conduct as the basis of a claim.” Vess v. Ciba-
Geigy Corp. USA, 317 F.3d 1097, 1103-04 (9th Cir. 2003).
Where as here, however, a complaint employs the exact same
factual allegations to allege violations of section 11 as it uses
to allege fraudulent conduct under section 10(b) of the
Exchange Act, we can assume that it sounds in fraud. See
Daou, 411 F.3d at 1028.
[3] Because Rule 9(b) thus applies to Rubke’s section 11
claims, her First Amended Complaint must “state with partic-
ularity the circumstances constituting fraud . . . .” FED. R. CIV.
P. 9(b). In other words, the complaint must “set forth what is
false or misleading about a statement, and why it is false.”
Yourish v. Cal. Amplifier, 191 F.3d 983, 993 (9th Cir. 1999)
(quoting In re GlenFed Sec. Litig., 42 F.3d 1541, 1548 (9th
Cir. 1994)). This requirement “can be satisfied ‘by pointing to
inconsistent contemporaneous statements or information
(such as internal reports) which were made by or available to
the defendants.’ ” Id. (quoting GlenFed, 42 F.3d at 1549).
1
[4] Rubke’s First Amended Complaint alleges that six types
of statements in Capitol’s registration statement were either
affirmatively misleading or were misleading by omission.
First, according to the complaint, Capitol’s registration state-
ment misled the NCB minority shareholders by incorporating
two fairness opinions (by JMP and Howe Barnes) concluding
that the transaction was “financially fair” to the minority
shareholders.
Because these fairness determinations are alleged to be
misleading opinions, not statements of fact, they can give rise
to a claim under section 11 only if the complaint alleges with
particularity that the statements were both objectively and
subjectively false or misleading. See Va. Bankshares, Inc. v.
Sandberg, 501 U.S. 1083, 1095-96 (1991); In re McKesson
412 RUBKE v. CAPITOL BANCORP LTD
HBOC, Inc. Sec. Litig., 126 F. Supp. 2d 1248, 1265 (N.D.
Cal. 2000). Thus, the First Amended Complaint must allege
with particularity that Capitol’s directors and officers believed
the Exchange Offer was unfair.
[5] The First Amended Complaint fails to allege that either
JMP, Howe Barnes, or Capitol believed the deal offered the
minority shareholders was unfair. Although the complaint
alleges that the MSC’s competing Findley Group fairness
opinion was circulated to members of Capitol, and thus that
Capitol should have known that JMP’s opinion was unreli-
able, nothing in the complaint indicates that anyone at Capitol
actually saw or assessed the Findley Group fairness report.
The complaint only alleges, “[b]ased on information and
belief,” that “copies of the [Findley Group] Fairness Opinion
and the Fairness Memorandum, and/or a written or oral sum-
mary of their terms, were delivered to Capitol and Reid, and/
or Capitol and Reid should have known about the substance
of the [report].” The complaint does not indicate on what facts
this belief is formed. Similarly, Rubke’s allegations that
JMP’s prior relationship with Capitol should have alerted
Capitol to the investment bank’s biases do not adequately
allege subjective falsity. Although the First Amended Com-
plaint alleges that “in 26 of 30 [prior] transactions, JMP
Financial, Inc.’s fairness opinions concluded that a valuation
of 150% of book value (or very minor deviations from 150%
of book value) were fair, and in the other four, the highest val-
uation . . . was approximately 175% of book value and the
lowest . . . approximately 124% of book value,” it fails to
plead facts indicating that Capitol believed these prior valua-
tions were incorrect.
2
Second, according to the First Amended Complaint, Capi-
tol’s registration statement was misleading because it failed to
mention the fact that one year prior to the tender offer, Capitol
initiated a similar offer for shares of NCB’s holding company,
RUBKE v. CAPITOL BANCORP LTD 413
First California Northern, and paid approximately 167% of
book value for those shares.
[6] A securities fraud complaint based on a purportedly
misleading omission must “specify the reason or reasons why
the statements made by [the defendant] were misleading or
untrue, not simply why the statements were incomplete.”
Brody v. Transitional Hosps. Corp., 280 F.3d 997, 1006 (9th
Cir. 2002). There is no indication that the omitted information
about the First California Northern share exchange made any
statement in Capitol’s registration documents false or mis-
leading. The First Amended Complaint fails to detail any lan-
guage in Capitol’s registration statement that implies that
Capitol did not enter into a previous transaction with the
minority shareholders of First California Northern. It also
fails to enumerate the specific language in the registration
statement that allegedly was made misleading by its failure to
mention the earlier transaction.
[7] Also, as the district court noted, information concerning
the First California Northern tender offer was publicly avail-
able. As many of our sister circuits have recognized, “[i]t is
pointless and costly to compel firms to reprint information
already in the public domain.” Wielgos v. Commonwealth
Edison Co., 892 F.2d 509, 517 (7th Cir. 1989); see also Klein
v. Gen. Nutrition Cos., 186 F.3d 338, 343 (3d Cir. 1999); Sie-
bert v. Sperry Rand Corp., 586 F.2d 949, 952 (2d Cir. 1978).
Section 11 does not require the disclosure of all information
a potential investor might take into account when making his
decision: for example, although an investor might weigh the
general trends of the market when deciding whether to buy or
hold, it would be unreasonable to require every firm making
a tender offer to chronicle the historical performance of the
New York Stock Exchange to avoid liability under securities
disclosure laws. In many cases, this information will not only
be extraneous, but may by its very volume confuse and mis-
lead potential investors. The fact that Capitol purchased a dif-
414 RUBKE v. CAPITOL BANCORP LTD
ferent security nearly a year earlier for a slightly higher price
was simply extraneous to the Exchange Offer.
3
Third, according to the First Amended Complaint, Capitol
materially misrepresented NCB’s future income projections in
the registration statement. Specifically, the complaint notes
that “Page 28 of the Prospectus included in the Registration
Statement . . . stated that ‘Capitol believes that NCB’s profit-
ability will increase.’ ” This projection, the complaint alleges,
“failed to adequately disclose the dramatic growth in NCB’s
net income, retained earnings and book value in 2005 that
Capitol knew was occurring.” Essentially, Rubke appears to
argue that because the statement “profitability will increase”
did not indicate the extraordinary nature of NCB’s growth, the
Prospectus should have included more expressive language
such as “Capitol believes NCB’s profitability will dramati-
cally increase.”
[8] In addition to the fact that Capitol did disclose that
NCB’s net income for the first quarter of 2005 was nearly
four times as large as that for the first quarter of 2004, this
allegation clearly does not state a claim under section 11. This
allegation merely squabbles about the adverbs used in the reg-
istration statement, and fails to indicate that the language used
was false. Furthermore, there is no duty to disclose income
projections in a prospectus. See In re Lyondell Petrochemical
Co. Sec. Litig., 984 F.2d 1050, 1053 (9th Cir. 1993).
4
Fourth, according to the First Amended Complaint, several
references in the offer document and elsewhere to a precon-
ceived “plan” to sell NCB shares to Capitol on the three year
anniversary of NCB’s operations misled investors into believ-
ing that they had a moral or legal obligation to tender their
shares to Capitol. Thus, Rubke claims, Capitol had an obliga-
RUBKE v. CAPITOL BANCORP LTD 415
tion to disabuse the shareholders of this notion by “disclos-
[ing] in the Registration Statement that the NCB shareholders
had no obligation, legal or moral, to participate, and that they
were not bound by any ‘plan.’ ”
[9] As with the other omission allegations, the complaint
fails to demonstrate that the failure to include this disclaimer
was misleading. There is no allegation in the complaint that
the characterization of the tender offer as part of a “plan” was
false (in fact, although the third anniversary tender offer was
not guaranteed, it was suggested as typical in the original
investment documents). Moreover, there were numerous dis-
closures in the registration statement and offer documents
indicating that accepting the tender offer was optional. It is
difficult to imagine that a shareholder who was not adequately
appraised of her options by these existing disclosures would
suddenly understand after being exposed to simply one more
disclaimer.
5
[10] Fifth, according to the First Amended Complaint, Cap-
itol’s registration statement also contained misleading refer-
ences to a “premium” that caused the NCB minority
shareholders to believe that accepting the tender offer would
give them a premium on their shares’ fair value. As the dis-
trict court noted, however, these allegations simply miscon-
strue the language in the registration statement. The language
in the registration statement specifically referred to a premium
to the “book value” of the NCB shares, not a premium to the
fair value of the shares.
6
Finally, the First Amended Complaint alleges that Capitol
made misleading statements in connection with the registra-
tion statement through telephone communications with the
minority shareholders. According to the complaint, members
416 RUBKE v. CAPITOL BANCORP LTD
of the NCB board were encouraged by Capitol to call the
minority shareholders and convince them that, inter alia, their
shares would be worthless if not sold to Capitol.
[11] Although these allegations are fashioned as claims
under section 11, because they were allegedly made after the
registration statement became effective on June 7, 2005, they
cannot be a basis for relief under that section. A claim under
section 11 based on the omission of information must demon-
strate that the omitted information existed at the time the reg-
istration statement became effective. Cooperman v.
Individual, Inc., 171 F.3d 43, 47 (9th Cir. 1999). Capitol
could not know on the effective date of the registration state-
ment that board members of NCB would engage in potentially
deceptive telephone calls later that month, and therefore could
not include a disclaimer to that effect at the time the registra-
tion statement was published.
B
Rubke also challenges the district court’s determination
that her claims under section 10(b) of the Exchange Act,
which employ the same factual allegations as her section 11
claims, fail to meet the pleading standards of the PSLRA.
[12] Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b),
in combination with SEC Rule 10b-5, prohibits “any act,
practice, or course of business which operates or would oper-
ate as a fraud or deceit upon any person, in connection with
the purchase or sale of any security.” 17 C.F.R. § 240.10b-
5(c). To prevail on a section 10(b) claim, a plaintiff must
prove “(1) a material misrepresentation or omission of fact,
(2) scienter, (3) a connection with the purchase or sale of a
security, (4) transaction and loss causation, and (5) economic
loss.” Daou, 411 F.3d at 1014. At the pleading stage, a com-
plaint stating claims under section 10(b) and Rule 10b-5 must
satisfy the dual pleading requirements of Federal Rule of
Civil Procedure 9(b) and the PSLRA. Thus, a plaintiff must
RUBKE v. CAPITOL BANCORP LTD 417
plead falsity with particularity: a plaintiff must “specify each
statement alleged to have been misleading, the reason or rea-
sons why the statement is misleading, and, if an allegation
regarding the statement or omission is made on information
and belief, the complaint shall state with particularity all facts
on which that belief is formed.” 15 U.S.C. § 78u-4(b)(1).
Unlike Rule 9(b), the PSLRA also requires a plaintiff to plead
scienter with particularity: a plaintiff must “state with particu-
larity facts giving rise to a strong inference that the defendant
acted with the required state of mind.” 15 U.S.C. § 78u-
4(b)(2).
[13] The Supreme Court recently defined “strong inference
of scienter,” concluding that a complaint will survive a
motion to dismiss under the PSLRA “only if a reasonable per-
son would deem the inference of scienter cogent and at least
as compelling as any opposing inference one could draw from
the facts alleged.” Tellabs, Inc. v. Makor Issues & Rights,
Ltd., 127 S. Ct. 2499, 2510 (2007). The Court cautioned that
in performing this inquiry, courts should determine whether
“all of the facts alleged, taken collectively, give rise to a
strong inference of scienter, not whether any individual alle-
gation, scrutinized in isolation, meets that standard.” Id. at
2509. Thus, we can no longer summarily dismiss a complaint
whose individual allegations are insufficient under the
PSLRA. Instead, we must perform a second holistic analysis
to determine whether the complaint contains an inference of
scienter that is greater than the sum of its parts. See South
Ferry LP, No. 2 v. Killinger, 542 F.3d 776, 784 (9th Cir.
2008); Metzler Inv. GMBH v. Corinthian Colls., Inc., 540
F.3d 1049, 1066 (9th Cir. 2008).
[14] Because the inquiry into whether plaintiffs have pled
falsity with the requisite particularity under the PSLRA is
nearly identical to that under Federal Rule of Civil Procedure
9(b), the foregoing analysis of Rubke’s section 11 claims also
demonstrates (with the exception of the telephone call allega-
418 RUBKE v. CAPITOL BANCORP LTD
tions2) that Rubke’s First Amended Complaint fails to allege
a material misrepresentation or omission in connection with
the purchase or sale of securities. Thus, the only issue under
section 10(b) is whether the complaint’s allegations regarding
telephone calls to minority shareholders adequately plead fal-
sity and scienter under the PSLRA.
The First Amended Complaint details a large number of
telephone conversations between one of NCB’s board mem-
bers, Dennis Pedisich, and NCB minority shareholders in
which Pedisich exhorted the shareholders to accept Capitol’s
tender offer. The complaint alleges that in these phone calls,
Pedisich told the shareholders that if they failed to tender their
NCB shares to Capitol as part of the Exchange Offer, “[their]
shares were likely to wind up as worthless pieces of paper”
and that the shareholders would “lose [their] investment[s],”
that the shareholders “had no choice but to tender [their] NCB
shares to Capitol,” that the shares would be illiquid if not sold
to Capitol, that 98% of minority shareholders were going to
tender, and that “all of the members of the NCB board of
directors were tendering their shares to Capitol.” All of these
statements, Rubke contends, were materially false or mislead-
ing.
[15] Because the First Amended Complaint only provides
detailed allegations about Pedisich’s calls, however, and fails
to allege with particularity that Capitol or its officers either
made similar calls themselves or exhorted Pedisich to make
the calls, these allegations are not sufficient to meet the
PSLRA’s pleading requirements for either falsity or scienter.
Dennis Pedisich, although he was in contact with Capitol
2
Because we found that Rubke could not sustain a claim under section
11 based on allegedly omitted information that did not exist at the time the
registration statement became effective, we did not have the occasion to
analyze Rubke’s telephone call allegations under section 11. See supra
Part II.A.6.
RUBKE v. CAPITOL BANCORP LTD 419
and its executive officers throughout the time covered by the
complaint, was not an employee of Capitol. We acknowledge
that this does not make his misrepresentations to the NCB
minority shareholders irrelevant. In Warshaw v. Xoma Corp.,
74 F.3d 955, 959 (9th Cir. 1996), we recognized that where
the plaintiff adequately alleged that the defendant “used . . .
third parties to disseminate false information to the investing
public,” the defendant “cannot escape liability simply because
it carried out its alleged fraud through the public statements
of third parties.” However, Xoma does not stand for the prop-
osition that a plaintiff only has to allege the bare possibility
that such third-party dissemination occurred to avoid a motion
to dismiss. Instead, these third-party allegations are subject to
the same pleading requirements as other securities fraud alle-
gations.
[16] The First Amended Complaint fails to allege with the
requisite particularity that Pedisich called the minority share-
holders at the behest of Capitol or its executive officers. The
complaint states that “in a meeting of the board of directors
on May 26, 2005 in the NCB boardroom in Napa, California,
and on other occasions [Pedisich and other NCB directors]
were exhorted by Reid [Capitol’s CEO] to call or otherwise
communicate with the NCB shareholders on behalf of Capi-
tol.” This allegation, the complaint admits, is based only on
“information and belief.” As such, in order to meet the
PSLRA’s standard for pleading falsity, the complaint must
“state with particularity all facts on which that belief is
formed.” 15 U.S.C. § 78u-4(b)(1); see Daou, 411 F.3d at
1015. Rubke has failed to reveal “the sources of her informa-
tion” with regard to the telephone conversations, see In re Sil-
icon Graphics Inc. Sec. Litig., 183 F.3d 970, 985 (9th Cir.
1999), and has not otherwise described how she knows that
Capitol “exhorted” Pedisich to make the calls. Thus, she has
not properly alleged the falsity of these statements under the
PSLRA. See R2 Invs. LDC v. Phillips, 401 F.3d 638, 646 n.10
(5th Cir. 2005) (“We note that [the plaintiff’s complaint] has
not explained the factual basis for its information and belief
420 RUBKE v. CAPITOL BANCORP LTD
that Burmeister, Yokley and Mies participated in the tele-
phone conversation in question. Accordingly, we decline to
consider the allegation with respect to those defendants in
determining the sufficiency of R2’s complaint.”).
The First Amended Complaint has also failed to allege with
particularity that Capitol made any of the statements or omis-
sions “intentionally or with deliberate recklessness.” Daou,
411 F.3d at 1015. The complaint’s allegations about Pedi-
sich’s telephone calls do not adequately plead that the defen-
dants in this case had the requisite mental state. The
complaint’s remaining allegations concerning Capitol’s men-
tal state allege nothing but “motive and opportunity,” which
is not enough to create a strong inference of scienter. Silicon
Graphics, 183 F.3d at 974. The complaint alleges that Capitol
“[was] motivated to [acquire shares of NCB] for financial as
well as strategic reasons related to taking total control of NCB
to maintain Capitol’s business plan and to freeze out dissident
shareholders;” that Capitol was motivated to acquire the NCB
shares at a discount to fair value; that Capitol was motivated
to acquire over 80% of the NCB stock for tax purposes, and
over 90% in order to effect a squeeze-out of the minority
shareholders; and that Capitol needed to set a precedent so
that it could continue to enforce the 150% buyout in future
business ventures. These allegations are hardly indicative of
scienter. Instead, they merely restate the obvious: that Capitol
would benefit from buying out the minority shareholders.
Even considered holistically, under Tellabs, these motive alle-
gations cannot support a strong inference of scienter.
C
Finally, Rubke argues that the district court erred in dis-
missing her claims under section 14(e) of the Exchange Act
for failure to meet the PSLRA’s pleading standards. Section
14(e) was enacted as one of the 1968 Williams Act amend-
ments to the Exchange Act, for the purpose of “insur[ing] that
public shareholders who are confronted by a cash tender offer
RUBKE v. CAPITOL BANCORP LTD 421
for their stock will not be required to respond without ade-
quate information.” Plaine v. McCabe, 797 F.2d 713, 717 (9th
Cir. 1986) (quoting Rondeau v. Mosinee Paper Corp., 422
U.S. 49, 58 (1975)) (internal quotation marks omitted). It pro-
hibits a person from making an untrue statement of material
fact or a misleading omission in connection with a tender
offer. 15 U.S.C. § 78n(e).
[17] We have previously applied the PSLRA’s falsity
pleading requirement to claims under section 14(e). Brody,
280 F.3d at 1005-06. Accordingly, the analysis of Rubke’s
section 14(e) claims is identical to that of her section 10(b)
claims with regard to falsity. As analyzed above, the First
Amended Complaint has failed to prove that any of Capitol’s
alleged misstatements and omissions in the registration docu-
ment were misleading, and has failed to indicate the facts sup-
porting her “information and belief” that Capitol exhorted
Pedisich to call the minority shareholders and make false
statements. See 15 U.S.C. § 78u-4(b)(1). Thus, her section
14(e) claims are inadequately pled.
III
[18] When a district court dismisses a complaint without
leave to amend, we must review for abuse of discretion, see
Gompper v. VISX, Inc., 298 F.3d 893, 898 (9th Cir. 2002),
and find it “improper unless it is clear that the complaint
could not be saved by any amendment.” Livid Holdings, 416
F.3d at 946. The district court’s discretion is particularly
broad in cases such as this, where a plaintiff has previously
been granted leave to amend and fails to add the requisite par-
ticularity to her claims. See In re Vantive Corp. Sec. Litig.,
283 F.3d 1079, 1097-98 (9th Cir. 2002). The district court
was well within its discretion in dismissing Rubke’s claims
with prejudice. Rubke failed to cure the deficiencies in her
Securities Act section 11 claims and Exchange Act section
14(e) claims after a prior dismissal. Although the district court
originally granted Rubke leave to amend her Exchange Act
422 RUBKE v. CAPITOL BANCORP LTD
section 10(b) claims, and Rubke voluntarily moved for the
district court to dismiss them with prejudice, this voluntary
dismissal does not change our analysis.
IV
Rubke’s First Amended Complaint fails to allege with the
requisite particularity that Capitol and its CEO Reid made
materially misleading statements and omissions in connection
with the Exchange Offer in violation of section 11 of the
Securities Act and sections 10(b) and 14(e) of the Exchange
Act. We therefore affirm the district court’s dismissal of the
First Amended Complaint with prejudice.
AFFIRMED.