Summary
The Second Circuit reviewed the dismissal of a securities-fraud complaint under Rules 9(b), 12(b)(6), and the PSLRA. It held that the district court improperly relied on materials outside the complaint involving disputed factual issues and therefore vacated the dismissal and remanded for further proceedings.
Topics
Practice areas
Questions Presented
- Whether the district court could dismiss the amended complaint under Rule 12(b)(6) based on materials outside the complaint when the record contained disputed factual issues concerning the authenticity, relevance, receipt, and reliance on those materials.
- Whether consideration of disputed extrinsic materials required conversion of the Rule 12(b)(6) motion into a motion for summary judgment under Rule 12(b).
Holdings
- A district court may not rely on materials outside the complaint to dismiss under Rule 12(b)(6) when the record does not clearly establish that there is no dispute concerning the materials' authenticity or accuracy and no material dispute concerning their relevance, including which plaintiffs received or relied on them.
- It would be error to dismiss the amended complaint on the basis of factual contentions contained in declarations or affidavits rather than on the basis of the complaint itself.
Key quotations
“Generally, consideration of a motion to dismiss under Rule 12(b)(6) is limited to consideration of the complaint itself.” (134)
“However, before materials outside the record may become the basis for a dismissal, several conditions must be met.” (134)
“The district court appears to have assumed that all plaintiffs had received all of the documents attached to the complaint. However, the terms of the complaint itself clearly put that factual assumption in dispute.” (135)
Factual background
The plaintiffs invested in Nustar investment vehicles after being solicited by Andrew Beer and alleged that promotional materials and oral statements materially misrepresented Nustar's investment strategy, asset value, dilution, redemption rights, financial condition, and related-party investments. They alleged that Nustar's investments and financial practices caused their shares to become effectively worthless. In deciding the motion to dismiss, the district court considered offering memoranda, annual reports, a prospectus, and other materials outside the amended complaint, despite factual disputes concerning which plaintiffs received or relied on which documents.
Procedural history
The district court dismissed the federal claims for failure to plead fraud and scienter with particularity and concluded that cautionary language supported application of the bespeaks-caution doctrine. It dismissed the remaining state-law claims without prejudice after declining supplemental jurisdiction. The plaintiffs appealed, and the Second Circuit vacated the dismissal and remanded.
Remand instructions
The district court must conduct further proceedings without relying on disputed extrinsic materials to resolve the pleading-stage issues. The court may reconsider the sufficiency of the complaint under Rule 9(b), the PSLRA, and other applicable grounds consistent with the opinion.