Schwartz v. Celestial Seasonings, Inc.

F I L E D
United States Court of Appeals
Tenth Circuit
PUBLISH
SEP 5 1997
UNITED STATES COURT OF APPEALS
PATRICK FISHER
Clerk
TENTH CIRCUIT

ARTHUR M. SCHWARTZ, on behalf
of himself and all others similarly
situated,

Plaintiff-Appellant,

v.

CELESTIAL SEASONINGS, INC.,
No. 95-1524
PAINEWEBBER, INCORPORATED,
SHEARSON LEHMAN BROTHERS,
INC., MO SIEGEL, RONALD V.
DAVIS, PHILIP B. LIVINGSTON,
VESTAR/CELESTIAL INVESTMENT
LIMITED PARTNERSHIP, JOHN D.
HOWARD, JAMES P. KELLEY,
ARTHUR J. NAGLE, DANIEL S.
O’CONNELL, ROBERT L. ROSNER,
BARNET M. FEINBLUM,

Defendants-Appellees.

Appeal from the United States District Court
for the District of Colorado
(D.C. No. 95-K-1045)
Dennis J. Johnson of Law Offices of Dennis J. Johnson, South Burlington,
Vermont, (Gerald L. Bader, Jr. and Randolph S. Dement of Bader & Villanueva,
P.C., Denver, Colorado, on the briefs), for Plaintiff-Appellant.

George B. Curtis of Gibson, Dunn & Crutcher, Denver, Colorado (Thomas M.
Piccone and Jessica Lee of Gibson, Dunn & Crutcher, Denver, Colorado, on the
briefs), for Defendants-Appellees PaineWebber, Incorporated and Lehman
Brothers, Inc.

Jeffrey B. Rudman of Hale and Dorr, Boston, Massachusetts (Peter J. Macdonald
and S. Tara Miller of Hale and Dorr, Boston, Massachusetts and Fred H. Bartlit,
Jr., P.C., Thomas R. Stephens and John S. Phillips of Bartlit, Beck, Herman,
Palenchar & Scott, on the briefs), for Defendants-Appellees Celestial Seasonings,
Inc., Mo Siegel, Ronald V. Davis, Philip B. Livingston, Vestar/Celestial
Investment Limited Partnership, John D. Howard, James P. Kelley, Arthur J.
Nagle, Daniel S. O’Connell, Robert L. Rosner and Barnet M. Feinblum.

Before HENRY *, RONEY ** and MURPHY, Circuit Judges.

MURPHY, Circuit Judge.

Arthur M. Schwartz sued Celestial Seasonings, Inc., and others in the

United States District Court for the District of Colorado for violations of

securities laws. The district court dismissed the suit for failure to satisfy the

particularized pleading requirements of Fed. R. Civ. P. 9(b). Exercising

jurisdiction pursuant to 28 U.S.C. § 1291, this court reverses and remands.

Judge Henry was not present during oral argument; he was vouched in,
*

however, and has listened to the tape-recording of oral argument.
**
The Honorable Paul H. Roney, Senior Circuit Judge for the Eleventh
Circuit, sitting by designation.

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 I. FACTUAL BACKGROUND

In July 1993 Celestial Seasonings, Inc., the largest manufacturer and

marketer of herb teas in the United States, issued approximately two million

shares of stock in an initial public offering (hereinafter “IPO”). The IPO

Prospectus revealed that Celestial was introducing new ready-to-drink (“RTD”)

iced tea products in an effort to expand beyond its established hot tea business.

The IPO Prospectus also revealed that Celestial had entered into a marketing

agreement with Perrier (hereinafter “Perrier Agreement” or “Agreement”), under

which Perrier gained exclusive rights to make and sell the new Celestial iced tea

beverages in the United States and Canada. Celestial made a secondary public

offering of stock (hereinafter “SPO”) in January 1994. The SPO Prospectus again

discussed the new iced tea products and the Perrier Agreement. In May 1994,

however, Celestial announced it had entered into discussions with Perrier to

amend or terminate the Agreement. Thereafter, Celestial stock prices declined.

II. PROCEDURAL HISTORY

Appellant-plaintiff, Arthur Schwartz filed suit in the district court on behalf

of himself and other similarly situated purchasers of Celestial stock claiming

fraud. He asserted that Celestial, despite knowingly or recklessly disregarding the

fact that the Perrier Agreement was an illusion, made statements which misled

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investors to conclude that the Agreement would enable Celestial to utilize

Perrier’s resources to sell its new iced tea products. Specifically, the Complaint

alleges that the appellees-defendants, which include Celestial, certain Celestial

insiders, and the underwriters for the IPO and SPO, PaineWebber, Inc., and

Lehman Brothers, Inc., issued statements which led investors to conclude as

follows: that Celestial would be able to utilize Perrier’s manufacturing,

marketing, and distributing capabilities to sell its RTD teas in the United States

and Canada; that the Perrier Agreement would enhance Celestial’s position as a

specialty beverage company, increase the availability of its products at

convenience stores, wholesale clubs, restaurants and food service operations, and

allow it to further capitalize on its high brand awareness and on the growth in the

RTD market; that Perrier, having promoted Celestial’s RTD teas in test markets,

would be selling Celestial’s RTD products in fourteen major metropolitan markets

in the Summer of 1993; and that a joint venture between Perrier’s parent, Nestle,

and Coca-Cola would not adversely impact the Perrier Agreement.

The Complaint further alleges that the defendants knowingly or recklessly

disregarded the following facts: Perrier’s distribution system was incompatible

with the sale of RTD teas; the Perrier Agreement could not result in any

significant sales of Celestial’s products unless Perrier were willing to expend

material amounts of money and time to revamp its distribution system and thus be

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able to market RTD teas in appropriate retail outlets; Perrier was not making, nor

would it make in the future, any significant effort to market Celestial’s RTD teas

because it was focusing its efforts elsewhere; Nestle’s arrangement with Coca-

Cola was already adversely affecting Perrier’s ability and willingness to market

Celestial’s RTD products; and Celestial, given the limited distribution it would be

able to achieve under the Perrier Agreement, was not then and would not in the

future be able to afford the shelf space “slotting fees” necessary for expansion.

[See id. at 4.]

Based on these assertions, plaintiff sought damages, claiming (1) primary

liability for direct violations of § 11 of the Securities Act of 1933 and § 10(b) of

the Securities and Exchange Act of 1934 (including Securities and Exchange

Commission Rule 10b-5 promulgated thereunder); and (2) secondary liability of

“control persons” for violations of § 15 of the 1933 Act and § 20 of the 1934 Act.

See Securities Act of 1933, ch. 38, 48 Stat. 74 (codified as amended at 15 U.S.C.

§§ 77a-77aa (1997)); Securities Exchange Act of 1934, ch. 404, 48 Stat. 881

(codified as amended at 15 U.S.C. §§ 78a-78mm (1997)).

The defendants filed a motion to dismiss, arguing that the Complaint failed

to satisfy the particularized pleading requirement of Fed. R. Civ. P. 9(b) and that

the action was barred by the statute of limitations. The district court dismissed

the suit, ruling that while the action was not time barred, the §§ 11 and 10(b)

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primary liability claims failed under Rule 9(b) 1; and the §§ 15 and 20 secondary

liability claims failed as a consequence of the failure of the primary liability

claims. 2

The district court’s Rule 9(b) analysis of the Complaint was as follows:

[T]he complaint amounts to eighty paragraphs of scattered
allegations -- some more specific than others -- which are then
lumped together generally in Schwartz’s federal securities claims.
While Schwartz’s had pleaded detailed facts in the first eighty
paragraphs of his complaint, he has failed to identify the
circumstances constituting fraud upon which his various securities
claims rely. Schwartz’s complaint fails to meet the particularity
requirements of Rule 9(b) because it does not adequately identify (1)
the time, place and contents of the fraudulent misrepresentations or
omissions; (2) the identity of the party alleged to have made the
misrepresentations or omissions; and (3) the consequences of those
misrepresentations or omissions.

Aplt. App. at 344. The district court also indicated that the §§ 11 and 10(b)

claims were deficient because they failed to indicate which specific documents

contained the alleged fraudulent statements, and because they failed to reveal the

contents of the misrepresentations by “at least enumerating which paragraphs in

the Complaint contain them.” The court also indicated that the § 10(b) claim

1
Preliminary to the district court’s holding that the §§ 11 and 10(b) claims
failed under Rule 9(b) was a ruling that the federal claims were premised on fraud
and thus subject to Rule 9(b); the plaintiff had argued that the § 11 claim was not
premised on fraud and thus was not subject to Rule 9(b).
2
The district court initially dismissed the suit without prejudice, giving the
plaintiff twenty days to amend. The court, however, threatened to impose
sanctions if the plaintiff filed an amended Complaint that failed to correct the
original Complaint’s deficiencies under Rule 9(b).

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failed to “identify the specific misrepresentations made and which defendants are

alleged to have made them.”

Plaintiff argues that the § 11 claim is not premised on fraud, and thus is not

subject to Rule 9(b); he further argues that the § 10(b) claim satisfies Rule 9(b).

He also argues that the district court correctly ruled that the action was not barred

by the statute of limitations and that this issue thus does not provide an

alternative ground to affirm the dismissal. 3

III. THE COMPLAINT

The Complaint identifies each of the defendants and describes their

involvement with, or responsibility for, the alleged fraud. (Complaint ¶¶ 6-24,

30-32.) It identifies, describes, paraphrases, and quotes allegedly fraudulent

statements and/or omissions found in the IPO and SPO Prospectuses (Complaint

¶¶ 33-40, 46, 61-62); the underwriters’ IPO “marketing materials” (Complaint ¶¶

41-44); several Celestial press releases (Complaint ¶¶ 48, 52-54, 58, 63, 65-66);

Celestial’s Form 10-K (Complaint ¶ 55), Form 10-Q (Complaint ¶ 64), and report

3
Plaintiff also argues that the district court violated Federal Rules of Civil
Procedure 8 and 15(a) when it threatened to impose sanctions if the plaintiff were
to submit an amended Complaint which failed to correct the Rule 9(b)
deficiencies. In light of this court’s reversal of the dismissal, it is not necessary
to address the issue. See Griffin v. Davies, 929 F.2d 550, 554 (10th Cir. 1991)
(holding court will not decide issues that will not affect outcome of dispute).

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to stockholders (Complaint ¶¶ 56-57); PaineWebber reports and internal broker

“wires” (Complaint ¶¶ 50, 68); and Wall Street Journal articles (Complaint ¶¶ 51,

67). The Complaint also alleges facts which the identified statements failed to

disclose or misrepresented, and it explains how the statements accomplished the

fraudulent scheme. (Complaint ¶ 45, 47, 59.)

Furthermore, the Complaint identifies the statements which first revealed

that there were problems with the Perrier Agreement, but it alleges that these

initial revelations were fraudulent because they failed to “fully reveal the nature

or extent of Celestial’s problems with Perrier.” (Complaint ¶¶ 69, 70.) The

Complaint alleges that the extent of these problems was not revealed until a May,

18, 1994 Dow Jones News Wire article, which it quotes. (Complaint ¶ 70.) The

Complaint quotes various statements which announced or discussed the

termination of the Perrier Agreement (Complaint ¶¶ 75-76.), including statements

taken from a Celestial press release (Complaint ¶ 71); a PaineWebber report

(Complaint ¶ 72) and internal wire to brokers (Complaint ¶ 73); statements by

individual stock market analysts (Complaint ¶ 74); Celestial’s August 9, 1994

Form 10-Q (Complaint ¶ 75), December 22, 1994 Form 10-K (Complaint ¶ 77),

and 1994 Annual Report to Shareholders (Complaint ¶¶ 78-79); and a joint

Celestial-Perrier press release (Complaint ¶ 76).

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 IV. ANALYSIS

We review each of the issues in this case de novo, confine our analysis to

the text of the Complaint, and accept as true the pleaded facts. See Barrett v.

Tallon, 30 F.3d 1296, 1299 (10th Cir. 1994); Seattle-First Nat’l Bank v.

Carlstedt, 800 F.2d 1008, 1011 (10th Cir. 1986) (treating dismissal under Fed. R.

Civ. P. 9(b) as dismissal under Fed. R. Civ. P. 12(b)(6)).

A. Section 11 Claim

When alleging a violation of § 11, a plaintiff who “purchased a security

issued pursuant to a registration statement . . . need only show a material

misstatement or omission to establish [a] prima facie case. Liability against the

issuer of a security is virtually absolute, even for innocent misstatements.”

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Herman & MacLean v. Huddleston, 459 U.S. 375, 382 (1983) (footnote omitted). 4

Thus, the plaintiff here was not required to have pleaded fraud in connection with

the § 11 claim.

Defendants argue, however, that the § 11 claim is premised on fraud,

thereby triggering Rule 9(b)’s particularity requirements, even though a § 11

claim may be pleaded without alleging fraud. In support thereof, defendants cite

the Third Circuit case, Shapiro v. UJB Financial Corp., 964 F.2d 272, 287-89 (3d

Cir. 1992). In Shapiro, the court rejected plaintiffs’ argument that their § 11

claim was based on negligence because the complaint was “devoid of allegations

4
In relevant part, § 11 provides:
(a) In case any part of the registration statement, when such part
became effective, contained an untrue statement of a material fact or
omitted to state a material fact required to be state therein or
necessary to make the statements therein not misleading, any person
acquiring such security (unless it is proved that at the time of such
acquisition he knew of such untruth or omission) may . . . sue--
(1) every person who signed the registration statement;
(2) every person who was a director (or person performing
similar functions) or partner in the issuer at the time of the
filing of the part of the registration statement with respect to
which his liability is asserted;
(3) every person who, with his consent, is named in the
registration statement as being or about to become a director,
person performing similar functions, or partner;
....
(5) every underwriter with respect to such security.
15 U.S.C. § 77k.

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that defendants acted negligently in violating [§] 11,” and because the count

containing the § 11 claim “did not allege ordinary negligence.” Id. at 288.

Assuming without deciding that this court adopts the Shapiro analysis, the

§ 11 claim in the case at bar is not premised on fraud and does not trigger Rule

9(b) scrutiny. The § 11 claim, Count I of the Complaint, alleges that defendants

failed to make a “reasonable investigation of the statements contained in the

Registration Statements and Prospectuses” (Complaint ¶ 86, emphasis added);

that the misrepresentations “would have been known [by the defendants] had they

carried out their responsibilities with reasonable care” (Complaint ¶ 86, emphasis

added); and that [the] defendants “failed to make a reasonable investigation, . . .

[did not] possess[] reasonable grounds for belief, . . . and knew, or in the exercise

of reasonable care should have known, that the statements . . . were materially

untrue and incomplete.” (Complaint ¶ 87, emphasis added.) Because Shapiro is

thus inapposite to the case at bar, and because plaintiff is not required to have

alleged fraud to establish a prima facie § 11 claim, Rule 9(b) does not apply to

plaintiff’s § 11 claim.

B. Adequacy of § 10(b) Claim under Rule 9(b)

Rule 9(b) provides: “In all averments of fraud or mistake, the

circumstances constituting fraud or mistake shall be stated with particularity.

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Malice, intent, knowledge, and other conditions of mind of a person may be

averred generally.” True to the rule’s straightforward language, this court has

held that Rule 9(b) requires only the identification of the circumstances

constituting fraud, and that it does not require any particularity in connection with

an averment of intent, knowledge or condition of mind. Seattle-First, 800 F.2d at

1101.

The requirements of Rule 9(b) must be read in conjunction with the

principles of Rule 8, which calls for pleadings to be “simple, concise, and

direct, . . . and to be construed as to do substantial justice.” Fed. R. Civ. P. 8(e),

(f); see Seattle-First, 800 F.2d at 1101. The purpose of Rule 9(b) is “to afford

defendant fair notice of plaintiff’s claims and the factual ground upon which

[they] are based . . .” Farlow v. Peat, Marwick, Mitchell & Co., 956 F.2d 982,

987 (10th Cir. 1992) (quoting Ross v. Bolton, 904 F.2d 819, 823 (2d Cir. 1990)).

Simply stated, a complaint must “set forth the time, place and contents of the

false representation, the identity of the party making the false statements and the

consequences thereof.” Lawrence Nat’l Bank v. Edmonds (In re Edmonds), 924

F.2d 176, 180 (10th Cir. 1991). Compare Bradford v. Moench, 670 F. Supp. 920

(D. Utah 1987) (holding securities purchaser’s allegations of fraud against

securities-issuing company and company directors to be sufficient under Rule 9(b)

because they set forth specific time period and content of misrepresentations) with

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Segal v. Gordon, 467 F.2d 602 (2d Cir. 1972) (upholding Rule 9(b) dismissal of

complaint which contained mere conclusory allegations of fraud phrased in terms

of federal securities legislation).

1. Identification of the Time, Place and Content of the Fraudulent
Misrepresentations or Omissions.

The Complaint adequately identifies the time, place, and contents of the

alleged fraudulent statements. It describes the statements with particularity and

even quotes them in most instances. Furthermore, the Complaint identifies the

documents, press releases, and other communications which contain the

statements. (Complaint ¶¶ 33-40, 46 (IPO Prospectus statements); 41-43 (IPO

marketing materials); 48, 52-54, 58, 63, 65, 66 (press releases); 55 (Form 10-K);

56-57 (report to stockholders); 64, 69 (Form 10-Q’s); 61-62 (SPO Prospectus

statements); 50, 68 (PaineWebber reports and internal wires to brokers); 51, 67

(Wall Street Journal articles); 70 (Dow Jones News Wire).) The Complaint also

specifically alleges the facts which the statements misrepresented or failed to

disclose. (Complaint ¶ 47.)

Count II, the § 10(b) claim, incorporates by reference all of the statement-

identifying paragraphs, as allowed under Federal Rules of Civil Procedure 10(c). 5

5
Rule 10(c) reads as follows: “Statements in a pleading may be adopted by
reference in a different part of the same pleading . . . .”

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See Nolan Bros. Inc. v. United States, 266 F.2d 143, 146 (10th Cir. 1959) (noting

generally that the sufficiency of a complaint must be judged by the complaint in

entirety, rather than in a piecemeal fashion). Count II also explicitly ties the

§ 10(b) violations to the “releases, prospectuses, statements and reports referred

to above.” (Complaint ¶ 94). The district court reasoned that the Complaint

failed under Rule 9(b) because Count II does not “enumerat[e] which paragraphs

in the Complaint” contain the statements which give rise to the § 10(b) claim.

This reasoning effectively deprives plaintiff of its Rule 10(c) right to incorporate

by reference. A fair reading of the Complaint indicates that by cross-referencing

as allowed by Rule 10(c), it sufficiently particularizes the circumstances

constituting fraud to comply with Rule 9(b). Seattle-First, 800 F.2d at 1101.

2. Identification of the Parties Alleged to Have Made the
Misrepresentations or Omissions

Rule 9(b) requires that a complaint set forth the identity of the party

making the false statements, that is, which statements were allegedly made by

whom. Lawrence, 924 F.2d at 180; Seattle-First, 800 F.2d at 1101 (10th Cir.

1986). Rule 9(b) does not require that a complaint set forth detailed evidentiary

matter as to why particular defendants are responsible for particular statements, or

that the allegations be factually or legally valid. Instead, Rule 9(b) requires that

the pleadings give notice to the defendants of the fraudulent statements for which

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they are alleged to be responsible. See Goldman v. Belden, 754 F.2d 1059, 1069-

70 (2d Cir. 1985) (“[T]he Complaint adequately . . . identified the defendants

charged with having made [the allegedly fraudulent] statements. . . . There can be

no doubt that the Complaint gives each defendant notice of what he is charged

with. No more is required by Rule 9(b).”).

The defendants fall into three groups: (a) Celestial Seasonings, Inc.; (b)

Certain of Celestial’s officers, directors, and major shareholders (hereinafter,

collectively the “Celestial defendants”); and (c) the lead underwriters of

Celestial’s IPO and SPO, PaineWebber, Inc., and Lehman Brothers, Inc.

(hereinafter, collectively the “underwriter defendants”).

(a) Celestial Seasonings, Inc.

Neither the district court nor the defendants address the question of whether

the Complaint adequately alleges the responsibility of Celestial itself for the

purported fraudulent statements, focusing instead on perceived inadequacies in

the allegations of the other defendants’ responsibility. Nonetheless, the

Complaint plainly attributes the statements of the individual defendants to

Celestial Seasonings, Inc. itself (see, e.g., Complaint ¶ 21.). 6

6
Celestial is responsible for the accuracy and completeness of its own
public filings. See, e.g., Virginia Bankshares, Inc. v. Sandberg, 501 U.S. 1098,
1083 (1991); Shapiro v. UJB Fin. Corp., 964 F.2d 272, 282 (3d Cir. 1991).

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 (b) The Celestial defendants

The Complaint alleges that the Celestial defendants, namely Mo Siegel,

Ronald V. Davis, Philip B. Livingston, Vestar/Celestial Investment Limited

Partnership, John D. Howard, James P. Kelley, Arthur J. Nagle, Daniel S.

O’Connell, Robert L. Rosner, and Barnet M. Feinblum, are responsible for all of

Celestial’s alleged fraudulent statements: “The Individual Defendants had the

power and the influence . . . to cause Celestial to engage in the unlawful acts and

conduct alleged herein. The Individual Defendants caused the publication of the

materially false and misleading Prospectuses, Registration Statements and

Celestial’s public filings and statements issued during the Class Period . . . .”

(Complaint ¶¶ 9-17, 19, 21, 23 (emphasis added)). 7

The defendants argue that the Complaint’s failure to match specific

Celestial statements with specific Celestial insiders violates Rule 9(b). To the

contrary, the identification of corporate insider defendants without matching

specific misstatements with specific officers or directors does not violate Rule

7
The Complaint identifies the “Individual Defendants” as including the
“Vestar Defendants,” Siegel, Livingston, Davis, and Feinblum, and identifies the
“Vestar Defendants” as including Vestar/Celestial Investment Limited
Partnership, Howard, Kelley, Nagle, and Rosner. (See Complaint ¶¶ 12, 18, 20.)
Conspicuously absent from the “individual Defendants” definition is defendant
O’Connell. O’Connell, however, is alleged to have signed the IPO and SPO
Registration Statements and 1993 Form 10-K, to have been a director of Celestial
through the SPO, and to have been a general partner of Vestar. (Complaint ¶ 16.)

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9(b). See Levit v. Aweida (In re Storage Tech. Corp. Sec. Litig.), 630 F. Supp.

1072, 1076-77 (D. Colo. 1986). Identifying the individual sources of statements

is unnecessary when the fraud allegations arise from misstatements or omissions

in group-published documents such as annual reports, which presumably involve

collective actions of corporate directors or officers. See id.; Samuel v. Pace

Membership, Inc., 686 F. Supp. 873, 874 (D. Colo. 1988); Wool v. Tandem

Computers, Inc., 818 F.2d 1433, 1440 (9th Cir. 1987) (prospectuses, registration

statements, annual reports, press releases, or other “group published information”

are presumed collective actions). The Complaint thus adequately identifies the

Celestial defendants it alleges are responsible for Celestial’s statements, 8 thereby

putting them on notice sufficient to satisfy Rule 9(b).

(c) The underwriter defendants

8
Paragraph 23 of the Complaint reads as follows:
Celestial’s Board of Directors operated as a collective entity through
periodic meetings held . . . where the Board discussed and approved
the issuance of Celestial’s Registration Statements and Form 10-Q
Reports to Shareholders. . . . Because Celestial’s Board acted as a
unit, conducted Celestial’s business pursuant to agreements and
formal resolutions as a Board, and received collectively the same
information about Celestial’s business at or about the same time, the
Individual Defendants are jointly and severally liable for the
wrongdoing alleged herein. All statements of Celestial as alleged
herein are equally the statements of all Individual Defendants.
(Complaint ¶ 23.) The Complaint also details the insider involvement of each of
the Celestial defendants. See Complaint ¶ 9-24.

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 In order to adequately allege underwriter responsibility for Celestial’s

statements, the complaint must identify the specific role of the underwriters in

propounding the fraudulent statements. See Anderson v. Clow (In re Stac Elec.

Sec. Litig.), 1994 WL 525256, at ** 15, 17-19 (S.D. Cal. June 29, 1994). The

Complaint alleges that the underwriter defendants, Lehman and PaineWebber,

were “co-lead underwriters of the Offerings” and “participated in the scheme to

inflate the stock price of Celestial .” (Complaint ¶ 8.) It also alleges that

PaineWebber issued false and misleading research reports about Celestial,

describing and quoting purported fraudulent statements therein. (See Complaint

¶¶ 8, 50, 68.) Furthermore, the Complaint identifies and quotes “false and

misleading written materials [used] to market the IPO, [namely] the underwriters’

written marketing materials . . . .” (See Complaint ¶ 41-43 (emphasis added).)

The Complaint thus adequately identifies the specific role of the underwriters in

propounding the allegedly fraudulent statements.

3. Identification of the Consequences of Misrepresentations or
Omissions

The Complaint plainly describes the fraud scheme and spells out the

consequences thereof. (Complaint ¶ 45.) It identifies the fraudulent statements

and alleges the facts which the statements misrepresented or failed to disclose.

(Complaint ¶ 47.) The Complaint specifically pleads:

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 [T]he materially false and misleading . . . statements . . . led
investors to believe that, as a result of the Perrier Agreement,
Celestial would obtain a substantial market for its ready-to-drink tea
in the very near future, with a resulting increase in earning and
profits.
The . . . unlawful acts and conduct alleged herein . . .
maintain[ed] an artificially high price for Celestial’s shares . . . .
....
By stressing the Perrier Agreement and its imminent prospects,
defendants knew that and intended that investors would look at
Celestial as an immediately viable competitor to Snapple, in the then
exploding market for ready-to-drink teas. To accomplish this
illusion, the Prospectus repeatedly touted the existence of the Perrier
Agreement . . . .

(Complaint ¶¶ 21-22, 33.) Additionally, the Complaint sets out the history of the

Celestial stock price, alleges the inflationary impact of the fraud, and describes

the eventual decline of the Celestial stock rating and prices upon Celestial’s

revelation of the problems with, and the eventual cancellation of, the Perrier

Agreement. (Complaint ¶¶ 30-32, 59, 70-76.)

C. Statute of Limitations

This court may affirm the decision of the district court for any reason

supported by the record below. Hensel v. Chief Admin. Hearing Officer, 38 F.3d

505, 508 (10th Cir. 1994). The defendants argue that the statute of limitations

provides an alternative ground for dismissal.

The federal securities claims raised in this case must be filed within one

year after the plaintiff has notice of the violation. See 15 U.S.C. § 77m. This one

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year period begins when the violations are or should have been discovered. Id.

Plaintiff filed this action on May 5, 1995. He claims he could not reasonably

have discovered the violations earlier than May 9, 1994, the date of Celestial’s

Form 10-Q which first announced that Celestial and Perrier were considering

terminating the Perrier Agreement. Defendants’ argument that earlier Celestial

reports of limited success in 1993 and predictions of limited success in 1994 put

plaintiff on “inquiry notice” is unavailing. Not until the May 9, 1994 Form 10-Q

could plaintiff reasonably have discovered the violations. The filing of this

action within one year of the Form 10-Q thus falls within the statute of

limitations.

Defendants present two additional alternative grounds upon which to

affirm: (1) that the IPO Prospectus “bespoke caution”; and (2) that twenty-one

“post-Prospectus” statements are not actionable. These arguments, however, fail

to address all of the statements alleged in the Complaint to violate federal

securities laws. Thus, they present only grounds to affirm in part. Furthermore,

although the defendants raised these issues in their Motion to Dismiss, the district

court did not address them. Under these circumstances, this court declines to

consider these issues on appeal.

V. CONCLUSION

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 This court holds (1) that the § 11 claim is not subject to Rule 9(b); (2) that

the § 10(b) claim is sufficient under Rule 9(b); and (3) that the action is not

barred by the statute of limitations. Furthermore, since the primary liability

claims under §§ 11 and 10(b) do not fail, the rationale upon which the district

court based the failure of the secondary liability claims under §§ 15 and 20 is not

valid.

We therefore REVERSE the judgment of the United States District Court

for the District of Colorado and REMAND the case to the district court.

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