American Funds Securities Litigation

• Court: Court of Appeals for the Ninth Circuit
• Decided: July 20, 2012
• Docket: 11-55299
• Status: Unpublished

Opinion

FILED NOT FOR PUBLICATION JUL 20 2012

MOLLY C. DWYER, CLERK UNITED STATES COURT OF APPEALS U .S. C O U R T OF APPE ALS

FOR THE NINTH CIRCUIT

In re: AMERICAN FUNDS SECURITIES No. 11-55299 LITIGATION, D.C. No. 2:06-cv-07815-GAF- RNB ARDEN GEIST; ROLF BASLER; ROLF BASLER REVOCABLE TRUST, MEMORANDUM * Plaintiffs - Appellants,

v.

CAPITAL GROUP COMPANIES, INC; CAPITAL RESEARCH AND MANAGEMENT CO; AMERICAN FUNDS DISTRIBUTORS, INC,

Defendants - Appellees.

Appeal from the United States District Court for the Central District of California Gary A. Feess, District Judge, Presiding

Argued and Submitted July 12, 2012 Pasadena, California

* This disposition is not appropriate for publication and is not precedent except as provided by 9th Cir. R. 36-3. Before: GILMAN,** TALLMAN, and N.R. SMITH, Circuit Judges.

Plaintiffs-appellants, investors in the American Funds mutual funds, appeal

the dismissal with prejudice of their claims that defendants-appellees Capital

Group Companies, Inc., Capital Research and Management Company, and

American Funds Distributors, Inc. (together, “defendants”), committed securities

fraud in violation of §§ 10(b) and 20(a) of the Securities Exchange Act of 1934, 15

U.S.C. §§ 78j(b) & 78t(a). The district court held that plaintiffs’ action was

untimely because it was filed more than two years after a reasonably diligent

plaintiff could have discovered the facts constituting the violation. See Merck &

Co. v. Reynolds, 130 S. Ct. 1784 (2010); 28 U.S.C. § 1658(b). We have

jurisdiction pursuant to 28 U.S.C. § 1291, and we review de novo a district court’s

decision to grant a motion to dismiss, Knievel v. ESPN, 393 F.3d 1068, 1072 (9th

Cir. 2005). We hold that the district court erred in dismissing the action as time-

barred; however, because plaintiffs’ complaint fails to allege scienter with the

requisite particularity, we affirm the dismissal but vacate the portion of the order

dismissing the complaint with prejudice and remand for the limited purpose of

granting plaintiffs leave to amend.

** The Honorable Ronald Lee Gilman, Senior United States Circuit Judge for the Sixth Circuit, sitting by designation.

2 Under Merck & Co. v. Reynolds, a § 10(b) cause of action accrues “(1) when

the plaintiff did in fact discover, or (2) when a reasonably diligent plaintiff would

have discovered, ‘the facts constituting the violation.’” 130 S. Ct. at 1789–90.

The district court, in evaluating whether plaintiffs had adequately pled defendants’

scienter, identified numerous sources from 2003 and 2004 suggesting the

possibility that defendants were acting with the intent to deceive, but none of those

sources could have led a reasonably diligent plaintiff to actually discover that

intent (if such intent existed). Accordingly, the two-year statute of limitations did

not begin to run more than two years before the complaint was filed, and the

district court erred in dismissing the action as time-barred.

However, we may affirm the district court “on any basis supported in the

record, . . . even if the district court did not consider the issue.” United States v.

Lemus, 582 F.3d 958, 961 (2009) (internal quotation marks and citations omitted).

Plaintiffs’ present complaint fails to raise an inference of scienter that is “cogent

and at least as compelling as any opposing inference one could draw from the facts

alleged,” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 324 (2007),

and therefore is subject to dismissal. See Fed. R. Civ. P. 12(b)(6); 15 U.S.C. §

78u-4(b)(2)(A). But plaintiffs indicated at oral argument that they could cure this

defect by amending their complaint, and we cannot say at this stage that

3 amendment would be futile, see Lopez v. Smith, 203 F.3d 1122, 1130 (9th Cir.

2000) (en banc); plaintiffs therefore must be given the chance to amend their

complaint to satisfy the heightened pleading standards established by Congress in

the Private Securities Litigation Reform Act of 1995. See 15 U.S.C. § 78u-

4(b)(2)(A); Tellabs, 551 U.S. at 324. Plaintiffs’ request that we reassign this case

to a different judge on remand is denied. See California v. Montrose Chem. Corp.,

104 F.3d 1507, 1521 (9th Cir. 1997).

AFFIRMED in part; VACATED in part; REMANDED for further

proceedings. Each party shall bear its own costs.