Barrie, et al v. Intervoice-Brite Inc, et al

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United States Court of Appeals
Fifth Circuit
F I L E D
May 12, 2005
Charles R. Fulbruge III
Clerk
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
__________________________
No. 03-11064
__________________________
DAVID BARRIE, On behalf of themselves and all others
similarly situated; JILL C. RICHLING, On behalf of themselves
and all others similarly situated; CARY ALAN LUSKIN, On
behalf of themselves and all others similarly situated;
DEBBIE LUSKIN, On behalf of themselves and all others
similarly situated.,
Plaintiffs - Appellants,
versus
INTERVOICE-BRITE, INC., DANIEL D. HAMMOND; ROB ROY J. GRAHAM;
DAVIS W. BRANDENBURG; GORDON H. GIVENS; MICHAEL J. POLCYN; DAVID A.
BERGER; DWAIN H. HAMMOND; HAROLD D. BROWN; M. GREGORY SMITH,
Defendants - Appellees,
DOMINICK CAPUANO, On behalf of himself and all others similarly situated,
Plaintiff-
Appellant,
versus
INTERVOICE-BRITE, INC., DANIEL D. HAMMOND; ROB ROY J. GRAHAM;
DAVIS W. BRANDENBURG; GORDON H. GIVENS; MICHAEL J. POLCYN; DAVID A.
BERGER; DWAIN H. HAMMOND; HAROLD D. BROWN; M. GREGORY SMITH,
Defendants - Appellees,
HENRY CASHMAN, On behalf of himself and all others similarly situated,
Plaintiff-
Appellant,

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versus
INTERVOICE-BRITE, INC., DANIEL D. HAMMOND; ROB ROY J. GRAHAM;
DAVIS W. BRANDENBURG; GORDON H. GIVENS; MICHAEL J. POLCYN; DAVID A.
BERGER; DWAIN H. HAMMOND; HAROLD D. BROWN; M. GREGORY SMITH,
Defendants - Appellees,
RICHARD KEARNS, On behalf of himself and all others similarly situated,
Plaintiff-
Appellant,
versus
INTERVOICE-BRITE, INC., DANIEL D. HAMMOND; ROB ROY J. GRAHAM;
DAVIS W. BRANDENBURG; GORDON H. GIVENS; MICHAEL J. POLCYN; DAVID A.
BERGER; DWAIN H. HAMMOND; HAROLD D. BROWN; M. GREGORY SMITH,
Defendants - Appellees.
___________________________________________________
Appeal from the United States District Court
For the Northern District of Texas
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ORDER ON REHEARING
(Opinion 1/12/05, 5th Cir., 397 F.3d 249)
Before BENAVIDES, DENNIS, and CLEMENT, Circuit Judges.
EDITH BROWN CLEMENT, Circuit Judge:
A. The panel’s opinion issued on January 12, 2005 inadvertently made conflicting rulings
regarding the allegations contained in paragraphs 38, 59, and 68 of the plaintiffs’ complaint. Having
duly considered the petition for rehearing, response, and reply, and the appellees’ letter submitted
pursuant to FED. R. APP. P. 28(j) and the appellants’ response thereto, we clarify our ruling by hereby

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modifying the opinion in the following respects as set out in (1) and (2) below, viz:
(1) The final paragraph of Section III.A.(2)a, which begins with the phrase “Six of the
statements” is hereby deleted from the opinion and replaced by the following:
Three of the statements fail to adequately identify the speaker. Complaint at
¶¶ 29, 44, and 56. Paragraphs 44 and 56 are press releases and contain no specific
allegation as to who made the statement. Id. at ¶¶ 44, 56. In Southland, this Court
affirmed the proposition that
the PSLRA requires the plaintiffs to “distinguish among those they sue
and enlighten each defendant as to his or her particular part in the
alleged fraud.” As such, corporate officers may not be held
responsible for unattributed corporate statements solely on the basis
of their titles, even if their general level of day-to-day involvement in
the corporation’s affairs is pleaded.
365 F.3d at 365 (quoting Southland Sec. Corp. v. INSpire Ins. Solutions, Inc., No.
4:00-CV-355-Y, 2002 U.S. Dist. LEXIS 26659, at *20-21 (N.D. Tex. April 2,
2002)). Although this Court stated that “corporate documents that have no stated
author or statements within documents not attributed to any individual may be
charged to one or more corporate officers provided specific factual allegations link
the individual to the statement at issue,” id., there are no such factual allegations here
linking the individual defendants to the statements in the press releases.
Consequently, these allegations were properly dismissed. Paragraph 29 attributes
false and misleading statements to “management.” Complaint at ¶ 29. Again, this
fails pursuant to Southland’s rejection of the group pleading doctrine.
Paragraphs 38, 59, and 68 attribute statements to “Hammond and Graham.”
Id. at ¶¶ 38, 59, and 68. The district court held that “the allegation that ‘Hammond

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and Graham’ made a statement does not identify the speaker; it merely narrows the
range of possible speakers down to two people.” The plaintiffs argue, however, that
defendants who silently listened as others made statements that they knew were false
are liable for their omission in failing to correct a falsehood. They claim that whether
a particular statement during a conference call or a road show was uttered by
Hammond or Graham, both are liable: one for the utterance, and the other for the
omission in failing to correct the falsehood.
As one district court held:
a high ranking company official cannot sit quietly at a conference with
analysts, knowing that another official is making false statements and
hope to escape liability for those statements. If nothing else, the
former official is at fault for a material omission in failing to correct
such statements in that context.
In re SmarTalk Teleservices, Inc. Sec. Litig., 124 F. Supp. 2d 527, 543 (D. Ohio
2000).
The defendants argue that this reasoning is inapplicable in this case, because
the Complaint did not specify whether Hammond spoke and Graham failed to correct,
or vice versa. They assert that the allegations concerning Hammond and Graham are
deficient given this Court’s rejection of the group pleading doctrine in Southland.
We reject the defendants’ argument. Where it is pled that one defendant
knowingly uttered a false statement and the other defendant knowingly failed to
correct it, even if it is not alleged which defendant made the statement and which
defendant did not correct it, the fraud is sufficiently pleaded as to each defendant.
This is not inconsistent with the plain language of subsection (1) of 15 U.S.C. §

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78u-4(b), and accords with common sense and the policy considerations underlying
the heightened pleading requirements. The Southland Court explained: “‘In securities
fraud suits, this heightened pleading standard provides defendants with fair notice of
the plaintiffs’ claims, protects defendants from harm to their reputation and goodwill,
reduces the number of strike suits, and prevents plaintiffs from filing baseless claims
and then attempting to discover unknown wrongs.’” 365 F.3d at 363 (quoting
Tuchman v. DSC Communications, 14 F.3d 1061, 1067 (5th Cir. 1994)). The
Complaint’s allegations that false statements were made by Hammond and Graham
imply that one of them made the statement and the other knowingly failed to correct
it. Accordingly, both Hammond and Graham are on fair notice of the claims against
them. The district court erred in dismissing the claims attributed to Hammond and
Graham when the allegations sufficiently indicated that one had spoken the fraudulent
statement, and the other had failed to correct it.
By the same reasoning, Smith is properly liable for his alleged omission to
correct Hammond and Graham’s alleged misrepresentation in the conference call
described in paragraph 38 of the Complaint. Although the Complaint does not specify
whether it was Hammond or Graham who uttered the alleged falsehood, it does
contend with sufficient particularity that Smith failed to correct it. Smith is also
properly liable for his alleged omission to correct Hammond’s alleged
misrepresentation in the conference call described in paragraph 58 of the Complaint.
(2) The final five paragraphs of section Section III.A.(2)b, which begin with the sentence “The
plaintiffs also argue that defendants who silently listened as others made statements that they knew

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were false are liable for their omission in failing to correct a falsehood,” are deleted from the opinion.
B. Except as above provided, the panel opinion issued herein January 12, 2005 is unchanged.
C. The Petition for Rehearing is DENIED.

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