Gaines v. Guidant Corp.

Full title: IRA GAINES, LAWRENCE BEZIRDJIAN, George Gaynor Jr., George Gaynor…

Court: United States District Court, S.D. Indiana, Indianapolis Division

Date published: Nov 8, 2004

No. 1:03-cv-0892-SEB-WTL (S.D. Ind. Nov. 8, 2004)

Opinion

No. 1:03-cv-0892-SEB-WTL.

November 8, 2004

ENTRY GRANTING DEFENDANT'S MOTION TO DISMISS

SARAH BARKER, District Judge

Plaintiffs allege that Defendants engaged in a scheme to deceive and defraud the investing public as to the true value of Guidant Corporation ("Guidant" or the "Company") common stock. Plaintiffs contend that Defendants carried out this scheme, in part, by making misrepresentations about the Ancure Endograft System ("Ancure"), a product that Guidant designed, manufactured and marketed. According to Plaintiffs, these misrepresentations were false and misleading and resulted in the artificial inflation of Guidant' stock price. Plaintiffs claim that they were injured when they purchased Guidant's common stock at these artificially inflated prices.

Defendants seek to have dismissed the Consolidated Amended Complaint (the "Complaint") for failure to state a claim upon which relief can be granted, pursuant to Federal Rule of Civil Procedure 12(b)(6), and for failure to meet the pleading standards set forth in the Private Securities Litigation Reform Act of 1995, 15 U.S.C. § 78u-4(b) (the "PSLRA").¹ As we explain below, we hold that Plaintiffs have failed to plead an actionable claim of securities fraud; accordingly, we GRANT Defendants' Motion to Dismiss the Complaint.

1 This securities fraud action is distinct from and unrelated to other pending matters in this court related to Ancure, including the shareholder derivative suit (Cause no. 1:03-cv-0955-SEB-WTL).

Factual Background.

This putative class action lawsuit was originally brought by various plaintiffs individually and on behalf of persons who purchased common stock of Defendant Guidant during the four-year period between June 23, 1999, and June 12, 2003 (the "Class Period"). On October 6, 2003, the Court appointed Nancy Gaynor, Goeffrey Gaynor, George Gaynor, and Geoffrey Gaynor, Jr. ("Gaynors") Lead Plaintiffs, pursuant to § 21(D) (a)(3)(B) of the Securities Exchange Act of 1934 ("Securities Exchange Act"). Defendants include Guidant; its President and Chief Executive Officer Ronald W. Dollens ("Dollens"); its Chief Financial Officer Keith E. Brauer ("Brauer"); its then-President of the Cardiovascular and Vascular Surgical Group Thomas J. Watkins ("Watkins"); its wholly owned subsidiary, EndoVascular Technologies, Inc. ("EVT"); and Beverly A. Huss ("Huss"), President of EVT. Compl. ¶ 1, 22-25.

Guidant designs, manufactures and markets therapeutic medical devices for the treatment of cardiovascular and vascular diseases. During the Class Period, the Company designed, developed, and manufactured Ancure through EVT. Guidant marketed Ancure as a less-invasive alternative to the standard open surgical procedure used to treat abdominal aortic aneurysms ("AAA"). Compl. ¶ 2.

The Class Period began on June 23, 1999, when Guidant issued a news release announcing that the United States Food Drug Administration ("FDA") Advisory Panel had unanimously recommended approval of Ancure for treatment of AAA. Id. at ¶ 63. On June 12, 2003, the last day of the Class Period, Guidant announced that EVT had pled guilty to 10 felonies relating to Ancure, including misbranding and making false statements to government regulators. As part of the settlement with the government, EVT agreed to pay a fine of $92.4 million. During the next trading day, Guidant's stock price hit a low of $6.26, or 15%, below its June 12, 2003 opening price.² Id. ¶¶ 15-16. Defendants' conduct over this four-year span is the subject of this litigaton.

2 Plaintiffs have conveniently chosen numbers that appear to exaggerate the price drop experienced by Guidant's stock. The opening price of $43.23 on June 12, 2003 was the second highest price at which Guidant's stock had opened since February 27, 2002 (the highest was $44 on June 6, 2003). See Exhibit 17, daily prices for Guidant stock. Guidant's stock price closed on June 13, 2003, down only $1.66, or 4% from its June 10, 2003 closing price. By June 26, 2003, Guidant's stock again closed above $43 and continued to rise during the remainder of the year, closing at $60.2 on December 31, 2003. Id.

The roller coaster ride that was Ancure's market experience began in September 1999, when Guidant received approval from the FDA to market Ancure for use in the treatment of AAA. Plaintiffs allege that almost immediately doctors and patients experienced serious problems with Ancure after its release, including difficulties implanting Ancure in a way that was consistent with the FDA-approved instructions for use. As a result, doctors began devising spontaneous methods for removing the Ancure delivery system from their patients. After discovering the Ancure device would lodge in a patient's artery, Plaintiffs state that one surgeon and a creative sales representative of Defendants decided to break the handle used to insert the device, while the device was still in the patient, and then extract the Ancure delivery system piece by piece from the artery. This method soon became known as the "Handle-Breaking Technique." Plaintiffs contend that Guidant sales representatives, without the approval of the FDA, began recommending that surgeons use the Handle-Breaking Technique when problems with Ancure arose. Id. at ¶¶ 5-6, 40.

Plaintiffs contend that at all relevant times, Guidant was aware of every Ancure malfunction, and the methods used to remove Ancure devices lodged in patients' arteries, because, as a condition of FDA approval, the Company had sales representatives present in the operating rooms during each surgery. Plaintiffs allege that, through a variety of established business procedures and structures, Defendants personally learned of all the complications with Ancure and the use by surgeons of the Handle-Breaking Technique.³ Id. at ¶ 42. Plaintiffs reference five specific incidents whereby Defendants learned about Ancure-related problems: First, in early January 2000, Plaintiffs allege that a Guidant engineer e-mailed an unnamed superior proposing that the Handle-Breaking Technique be thoroughly tested and reported to the FDA for review and approval, and that in fact some testing was conducted by other unnamed employees. Id. at ¶ 49. Second, Plaintiffs state that, in February of 2000, a sales representative reported in a voice mail message that the Ancure was "just severely tight" as the doctor attempted to insert the device into a Minnesota man in his 60s. As a result of the Ancure block, the man's legs became paralyzed and required amputation. Id. at ¶ 47. Third, in October 2000, seven anonymous employees sent a letter to Michael Gropp, Guidant's Chief Compliance Officer, outlining ethical, legal and safety concerns related to Ancure. Fourth, after receiving the anonymous letter, Guidant undertook a series of audits of EVT which revealed thousands of Ancure malfunctions.⁴ Plaintiffs assert that these audits were completed by January 2001. Id. at ¶¶ 53-54. Fifth, Plaintiffs allege that a Director of Manufacturing went into the field in February or March of 2001 and personally saw Guidant sales representatives "training" doctors on the Handle-Breaking Technique, and informed defendant Huss of this fact. Id. at ¶ 112.

3 Although Plaintiffs explain in vague terms the methods whereby Defendants learned of these problems, those explanations are quite detailed:

After a surgery, the sales representatives phoned in their reports to a voice mail which other sales representatives, employees and managers would review. Information regarding failures of the Ancure were routinely tabulated and distributed to Company officials. In addition, all Ancure usage problems, including physician complaints about the product, were reviewed at monthly EVT All-Employee Quality meetings, monthly Premeetings (held before the All-Employee Quality meetings) and monthly Senior Management meetings. During his tenure as the senior executive in charge of EVT, defendant Watkins directly received the information contained in the voice mails, distributions and Pre-meetings during his regular one-on-one conversations with EVT personnel, and at the All-Employee Quality meetings and Senior Management meetings. Defendant Watkins directly transmitted the information he learned to defendants Dollens and Brauer at the quarterly GMB meetings, and in his weekly telephone reports to his director supervisor, defendant Dollens. After defendant Huss became President of EVT in December 2000, Huss also learned of the information contained in the voice mails, distributions and Pre-meetings during her one-on-one meetings with EVT personnel, and at the All Employee Quality meetings and Senior Management meetings. Defendant Huss directly transmitted the information she learned to the other defendants: (i) in the quarterly GMB meetings; (ii) through Huss' weekly telephone reports to her direct supervisor, defendant A. Jay Graf ("Graf"), Office of the President Group Chairman; and (iii) through Huss and Graf's one-on-one in-person meetings, held separate [sic] from the GMB meetings at least once per quarter. Graf, like Watkins, reported directly to defendant Dollens. Any information reported by Huss to defendant Graf at times other than the GMB meetings was then reported by Graf to Dollens and Brauer.

Id. at ¶ 42; see also ¶¶ 49, 110-12.

4 According to the EVT Plea Agreement, the audits revealed that EVT:

had serious quality system regulation violations, incomplete and untimely complaint handling and documentation, incomplete MDR reporting, inadequate corrective and preventative action activities, incomplete record keeping and poor traceability practices, and was significantly out of compliance with FDA regulations and its own internal policies. Id. at ¶ 55.

Plaintiffs allege that despite possessing knowledge of the problems related to Ancure, Defendants did not disclose such information to the FDA or the investing public. Plaintiffs contend that Defendants directly contravened FDA regulations by failing to file a premarket approval application ("PMA")⁵ with the FDA which described the Handle Breaking Techinique. Id. at ¶ 9, 50. Plaintiffs also assert that Defendants violated a statutory mandate by failing to file 2,628 Medical Device Reports ("MDRs")⁶ with the FDA documenting malfunctions with the Ancure device and/or serious injuries or deaths that may have been caused by Ancure. Id. at ¶¶ 11, 57. Plaintiffs state that Defendants further violated FDA regulations when, in July 2000, an FDA inspector began an investigation of EVT, its records, and its procedures, and that, during the inspection, Guidant and EVT specifically withheld from the FDA information regarding complications related to the Ancure delivery system. Id. at ¶ 51. Plaintiffs contend that Defendants misled the investing public by failing to disclose these problems in various news releases, public statements and financial statements, choosing instead to provide the public with promising statements about Ancure-related research and upbeat marketing reports. See Id. at ¶¶ 63, 66, 69-70, 72, 74, 76-77.⁷

5 A PMA includes the results of clinical studies conducted on humans which demonstrate that the device is safe and effective for its intended use. Plaintiffs note that a company must submit a PMA Supplement for review and approval by the FDA before it makes any changes which affect the safety or effectiveness of the device. Id. at ¶ 9.

6 Plaintiffs state that a company is required to file an MDR with the FDA whenever it receives or otherwise becomes aware of information from any source that reasonably suggests that a medical device: (i) may have caused or contributed to a death or serious injury; or (ii) had malfunctioned and the device would be likely to cause or contribute a death or serious injury if the malfunction were to recur. The MDR must be provided to the FDA within 30 days of the incident. Id. at ¶ 11.

7 Plaintiffs allege that, in total, over 20 statements by Defendants were misleading for a laundry list of reasons. When relevant, each statement and the reasons Plaintiffs assert it was misleading are explained in more detail in Section II.

On March 16, 2001, Guidant withdrew Ancure from the market for the stated reason that there had been discovered certain "deficiencies in the company's ANCURE related regulatory processes and communications with the [FDA]." Id. at ¶ 56. Guidant's shares closed at $46.25 on March 19, 2001, the first trading day following the announcement, down slightly over 7% from a close of $49.83 on March 15, 2001, the day before the announcement. Id. at ¶ 80; Exhibit 17, daily prices for Guidant stock. Shortly after announcing the recall, Defendants disclosed to the FDA the Handle-Breaking Technique and the 2,628 additional MDRs concerning the Ancure delivery system which had not been previously reported to the FDA. Id. at ¶ 57; Exhibit 7.2, EVT Plea Agreement, at 9. After considering these supplemental filings submitted by Defendants, the FDA again approved Ancure for market, and Guidant announced that re-approval in an August 17, 2001, news release. Id. at ¶ 92. Plaintiffs contend that during this period, public statements by Defendants relating to the Ancure recall were misleading because they failed to disclose that the Ancure device had experienced complications during implantation, that the FDA had forced Guidant to recall Ancure, that the real motivation for the recall was not disclosed, that Guidant was the target of a criminal investigation, and that Guidant had not taken proper reserves to cover its Ancure-related liabilities. See Id. at ¶¶ 79-91.

Plaintiffs acknowledge that Guidant did issue a long series of public disclosures about the criminal investigation and the financial reserves taken to cover Ancure-related liability. Guidant disclosed for the first time, on August 13, 2002, in its Quaterly Report, that matters relating to the Ancure were being investigated by the U.S. Department of Justice and the FDA's Office of Criminal Investigations. Id. at ¶ 59. In its Annual Report for the year ending December 31, 2002, Guidant again disclosed that it was a target of a criminal investigation. Exhibit 5 at 143. In January 30, 2003, Guidant issued a news release disclosing that it was taking $32 million in reserves for litigation matters, including the Ancure investigation. Compl. ¶ 99. On April 16, 2003, Guidant announced that it was taking an additional $64.9 million in reserves in anticipation of the resolution of the Ancure investigation. Id. at ¶ 100. On May 14, 2003, Guidant reported that it had taken $92 million in reserves as part of the anticipated resolution of the Ancure investigation. Exhibit 15, Quarterly Report for the period ending March 31, 2002, at 20. Plaintiffs contend that these disclosures and other public statements by Defendants during this period were misleading because they failed to mention a host of negative issues related to Ancure, including medical complications caused by Ancure, EVT's failure to properly file reports with the FDA, the motivations for the March 2001 recall, the criminal investigation and Guidant's failure to take proper reserves for Ancure related liability. See Compl. ¶¶ 92-101.⁸

8 Plaintiffs' complaint disingenuously alleges that the above-mentioned statements by Defendants were misleading because they failed to disclose information the statements actually specifically included. See, e.g., Id. at ¶¶ 85, 95, 97, 100-01 (alleging that Guidant's disclosures mentioning the criminal investigation related to Ancure were misleading because they failed to disclose there was a criminal investigation related to Ancure).

Finally, on June 12, 2003, the United States Attorney's Office for the Northern District of California issued a news release announcing that EVT had pled guilty to ten felonies and had agreed to pay $92.4 million to settle criminal and civil charges alleging that it had covered up thousands of incidents in which Ancure had malfunctioned and that use of Ancure had resulted in twelve deaths and dozens of invasive surgeries. Id. at ¶ 102. Plaintiffs allege that Guidant stopped selling Ancure in October 2003, but that the government investigation regarding individual criminal misconduct was still ongoing. Compl. ¶ 16. Five days after the announcement of the EVT guilty plea, the predecessor case to this class action was filed. Plaintiffs allege that during the Class Period Defendants deceived the investing public about problems related to Ancure in order to artificially inflate and maintain the market price of Guidant stock, thereby causing Plaintiffs and other members of the Class to purchase Guidant securities at inflated prices. Id. at ¶ 125. Defendants respond, arguing that the Complaint fails to satisfy the pleading requirements of the PSLRA⁹ in that Plaintiffs have failed to plead sufficient facts to subject Defendants to liability on any of the alleged claims.

9 The PSLRA requires that:

(b) (1) In any private action arising under this chapter in which the plaintiff alleges that the defendant —

(A) made an untrue statement of a material fact; or

(B) omitted to state a material fact necessary in order to make the statements made, in the light of the circumstances in which they were made, not misleading;

the complaint shall specify each statement alleged to have been misleading, the reason or reasons 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.

(2) In any private action arising under this chapter in which the plaintiff may recover money damages only on proof that the defendant acted with a particular state of mind, the complaint shall, with respect to each act or omission alleged to violate this chapter, state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.

(3) (A) In any private action arising under this chapter, the court shall, on the motion of any defendant, dismiss the complaint if the requirements of paragraphs (1) and (2) are not met.

15 U.S.C. § 78u-4(b) (emphasis added).

Legal Analysis

I. Motion to Dismiss Standard of Review

Pursuant to Federal Rule of Civil Procedure 12(b)(6), Defendants have moved to dismiss this action for failure to state a claim upon which relief may be granted. A party moving to dismiss bears a weighty burden: it must show that the pleadings themselves fail to provide a basis for any claim for relief under any set of facts. Ed Miniat, Inc. v. Globe Life Ins. Group Inc., 805 F.2d 732, 733 (7th Cir. 1986), cert. denied, 482 U.S. 915 (1987).

As a practical matter, a dismissal under Rule 12(b)(6) is likely to be granted only in the unusual case in which a plaintiff includes allegations that show on the face of the complaint that there is some insuperable bar to relief.Owner-Operator Indep. Drivers Ass'n v. Mayflower Transit, Inc., 161 F. Supp. 2d 948, 950-51 (S.D.Ind. 2001) (quoting 5A Charles A. Wright and Arthur R. Miller, Federal Practice Procedure: Civil § 1357). In analyzing a Rule 12(b)(6) motion, we treat all well-pleaded factual allegations as true, and we construe all inferences that reasonably may be drawn from those facts in a light most favorable to the party opposing the motion — in this case, Plaintiffs. Lee v. City of Chicago, 330 F.3d 456, 459 (7th Cir. 2003); Szumny v. Am. Gen. Fin., 246 F.3d 1065, 1067 (7th Cir. 2001). We are not required, however, to cast a blind eye to "facts alleged in the complaint that undermine the plaintiff's claim." Arazie v. Mullane, 2 F.3d 1456, 1465 (7th Cir. 1993) (citing Roots Partnership v. Lands' End, Inc., 965 F.2d 1411, 1416 (7th Cir. 1992)). The PSLRA did not shift or otherwise modify these burdens. See Helwig v. Vencor, Inc., 251 F.3d 540, 553 (6th Cir. 2001); In re HealthCare Compare Corp. Sec. Litig., 75 F.3d 276, 280 (7th Cir. 1996).

II. Additional Pleading Requirements for Securities Fraud Actions

Section 10(b) of the Security Exchange Act makes it unlawful "[t]o use or employ, in connection with the purchase or sale of any security . . ., any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors." 15 U.S.C. § 78j(b). Rule 10b-5 of the Securities and Exchange Commission ("SEC") specifies the following actions as being among the types of behavior proscribed by the statute: "To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading. . . ." 17 C.F.R. § 240.10b-5.

To state a valid claim for securities fraud, pursuant to SEC Rule 10b-5, a plaintiff must allege that the defendant (1) made a misstatement or omission, (2) of material fact, (3) with scienter, (4) in connection with the purchase or sale of securities, (5) upon which the plaintiffs have relied, and (6) that reliance proximately caused plaintiffs' injuries. In re HealthCare Compare Corp. Sec. Litig., 75 F.3d at 280 (citingStransky v. Cummins Engine Co., 51 F.3d 1329 (7th Cir. 1995)).

Scienter, as applied to securities fraud claims, refers to "a mental state embracing intent to deceive, manipulate, or defraud." Ernst Ernst v. Hochfelder, 425 U.S. 185, 193 n. 12 (1976). Regardless of the characteristic fact pattern a plaintiff alleges, those facts must present a strong inference of scienter. See Helwig v. Vencor, Inc., 251 F.3d 540, 551 (6th Cir. 2001) (quoting Greebel v. FTP Software, Inc., 194 F.3d 185, 196 (1st Cir. 1999)). The Seventh Circuit has held that reckless disregard for the truth can count as intent to satisfy the SEC Rule 10(b)-5 scienter requirement.S.E.C. v. Jakubowski, 150 F.3d 675, 681 (7th Cir. 1998) (citingSundstrand Corp. v. Sun Chemical Corp., 553 F.2d 1033, 1044-45 (7th Cir. 1977)). However, a plaintiff's complaint must still meet a demanding standard in order for a reckless omission to be considered the "equivalent of wilful fraud." Sundstrand, 553 F.2d at 1045 (citing S.E.C. v. Texas Gulf Sulphur Co., 401 F.2d 833, 868 (2d Cir. 1968) (Friendly, J., concurring) (en banc));see also: In re Brightpoint, Inc. Sec. Litig., 2001 WL 395752 (S.D.Ind. Mar 29, 2001). The Seventh Circuit has limited actionable recklessness, in the context of securities fraud litigation involving an omission, to actions involving a:

highly unreasonable omission, involving not merely simple, or even inexcusable negligence, but an extreme departure from the standards of ordinary care, and which presents a danger of misleading buyers or sellers that is either known to the defendant or is so obvious that the actor must have been aware of it.

Sundstrand, 553 F.2d at 1045 (quoting Franke v. Midwestern Oklahoma Development Authority, 428 F.Supp. 719 (W.D.Okl. 1976)); see also Sanders v. John Nuveen Co., 554 F.2d 790, 793 (7th Cir. 1977) (holding that "the definition of `reckless behavior' should not be a liberal one lest any discernible distinction between `scienter' and `negligence' be obliterated for these purposes").

Although a plaintiff may generally use notice pleading in a complaint, Rule 9(b) requires that a plaintiff alleging fraud must state with particularity in the complaint "the circumstances constituting fraud." In re Healthcare Compare Corp. Sec. Litig., 75 F.3d at 281; Fed.R.Civ.P. 9(b). Thus, in securities fraud cases such as this case, Rule 9(b) requires that the essential element of scienter be pled "in detail", i.e., a plaintiff must allege "the who, what, when, where, and how: the first paragraph of any newspaper story." Id. (quoting DiLeo v. Ernst Young, 901 F.2d 624, 627 (7th Cir. 1990), cert. denied, 498 U.S. 941). The purpose of the heightened pleading requirement in fraud cases is to force the plaintiff to do more than the usual investigation before filing a complaint. Ackerman v. Northwestern Mut. Life Ins. Co., 172 F.3d 467, 469 (7th Cir. 1999).¹⁰

10 The Seventh Circuit explained that "[g]reater precomplaint investigation is warranted in fraud cases because public charges of fraud can do great harm to the reputation of a business firm or other enterprise (or individual)." Id. (citing Bankers Trust Co. v. Old Republic Ins. Co., 959 F.2d 677, 683 (7th Cir. 1992); In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1418 (3d Cir. 1997); Norman v. Apache Corp., 19 F.3d 1017, 1022 (5th Cir. 1994); Segal v. Gordon, 467 F.2d 602, 607 (2d Cir. 1972); cf. Addington v. Texas, 441 U.S. 418, 424, 99 S.Ct. 1804, 60 L.Ed.2d 323 (1979)). The Seventh Circuit also noted that fraud charges are frequently brought "irresponsibly by people who have suffered a loss and want to find someone to blame for it." Id. (citing cf. Denny v. Barber, 576 F.2d 465, 470 (2d Cir. 1978) (Friendly, J.) ("fraud by hindsight"); Katz v. Household Int'l, Inc., 91 F.3d 1036, 1039 (7th Cir. 1996);Arazie v. Mullane, 2 F.3d 1456, 1465 (7th Cir. 1993) (stating "[t]he burden placed on plaintiffs to plead fraud with particularity is designed to protect companies that have suffered business reverses from strike suits brought by disgruntled investors"); DiLeo, 901 F.2d at 628).

Pursuant to Rule 9(b), a defendant's intent or other condition of the mind "may be averred generally." However, a complaint alleging securities fraud "must afford a basis for believing that plaintiffs could prove scienter." In re HealthCare Compare Corp. Sec. Litig., 75 F.3d at 281 (quoting DiLeo, 901 F.2d at 629). A plaintiff cannot survive a motion to dismiss by merely alleging rote conclusions that a defendant knew statements were false and/or misleading. See Robin v. Arthur Young Co., 915 F.2d 1120, 1127 (7th Cir. 1990). Nor may a plaintiff simply note the "temporal proximity between positive statements stressing a firm's strengths and announcements of poor economic performance."Arazie v. Mullane, 2 F.3d 1456, 1467-68 (7th Cir. 1993) (finding temporal proximity insufficient to create an inference of fraud) (citingIn re First Chicago Corp. Sec. Litig., 769 F.Supp. 1444, 1453 (N.D.Ill. 1991)); DiLeo, 901 F.2d at 628 (stating "fraud by hindsight" is not actionable).

The PSLRA imposes further "stringent procedural requirements" on plaintiffs in private securities fraud actions in order to "to curtail the filing of meritless lawsuits." Novak v. Kasaks, 216 F.3d 300, 306 (2d Cir. 2000) (quotation omitted).¹¹ Pursuant to the PSLRA, a plaintiff must specify in the complaint each allegedly misleading statement and the reason(s) why each statement is misleading. 15 U.S.C. § 78u-4(b)(1). If the plaintiff's allegation is based on information and belief, the complaint must "state with particularity all facts on which that belief is formed." Id. Additionally, the PSLRA requires that a plaintiff in the complaint "shall, with respect to each act or omission alleged to violate this chapter, state with particularity 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) (emphasis added). Finally, Section 78u-4(b)(3) mandates that a court dismiss a complaint that fails to (1) identify each of the allegedly material, misleading statements, (2) state facts that provide a basis for allegations made on information and belief, or (3) state with particularity "facts giving rise to a strong inference that the defendant acted with the required state of mind."

11 In Novak v. Kasaks, the Second Circuit found that Congress was "apparently motivated in large part by a perceived need to deter strike suits wherein opportunistic private plaintiffs file securities fraud claims of dubious merit in order to exact large settlement recoveries." 216 F.3d at 306 (citing H.R. Conf. Rep. No. 104-369, at 31 (1995) (noting "significant evidence of abuse in private securities lawsuits," including "the routine filing of lawsuits against issuers of securities and others whenever there is a significant change in an issuer's stock price, without regard to any underlying culpability of the issuer," and "the abuse of the discovery process to impose costs so burdensome that it is often economical for the victimized party to settle"), reprinted in 1995 U.S.C.C.A.N. 730, 730.

Given the force and clarity of these directives when applied to this action, we hold that the Complaint fails to state an actionable claim for securites fraud for three independent reasons: (A) The Complaint fails to state sufficient facts indicating Defendants' public statements were misleading. (B) The Complaint fails to state sufficient facts to support a strong inference that Defendants acted with scienter. (C) The Complaint includes, in large part, non-actionable statements of puffery. As a final matter, we also question whether Lead Plaintiffs meet the constitutional requirements for standing. We address in turn each of these conclusions below.¹²

12 Because we are dismissing the Complaint on other independent grounds, we do not need to reach a decision as to whether the PSLRA abolished the "group pleading doctrine" or whether it was properly pled here. We also do not address whether defendant EVT possessed any additional, independent grounds for dismissal.

(A) Alleged misleading statements by Defendants.

Plaintiffs cite upwards of twenty separate statements, SEC filings, and news releases by Defendants which allegedly contain misrepresentations.¹³ Since many of these statements contain the exact same or substantially similar misrepresentations, we have categorized the statements into the groups Plaintiffs designated in their complaint, for purposes of our analysis: (1) Statements concerning Ancure prior to the March 16, 2001, recall; (2) Statements concerning Ancure between the March 16, 2001 recall and the August 17, 2001 re-approval; and (3) Statements concerning Ancure subsequent to the August 17, 2001 FDA re-approval. In all respects, we find that Plaintiffs have not stated sufficient facts to support their securities fraud claims as to any of the alleged statements in each of the three categories.

13 Several of the statements that Plaintiffs allege contain misleading information were actually issued by third parties.See Compl. ¶ 68 (citing a Robertson Stephens release), ¶ 82 (citing an "item" in The Street.com), ¶ 83 (citing an article in the Indianapolis Star); ¶ 84 (citing a market report from U.S. Bancorp Piper Jaffray); ¶ 93 (citing an article in Medical Industry Today); ¶ 94 (citing an article in Medical Devices Surgical Technology). Plaintiffs' complaint lacks specific allegations suggesting any legal basis for holding Defendants liable for these third-party statements. Since we are dismissing the Complaint on other grounds, we do not decide here whether Plaintiffs claims based on third-party statements are actionable.

(1) Statements concerning Ancure prior to the March 16, 2001 recall.

Plaintiffs claim that Defendants made a series of statements between June 1999 and March 2001 that were misleading in that they failed to include the following information: (a) "Patients implanted with the Ancure did not experience significantly fewer complications than those who underwent conventional surgery;" (b) "Defendants learned from physicians during clinical trials that the delivery system for the Ancure was seriously flawed;" (c) Defendants knew that "malfunctions rendered the Ancure unsafe and potentially deadly;" (d) By marketing Ancure, Defendants exposed Guidant to "massive civil and criminal liability and damage to its reputation that would have a materially adverse effect on its financial performance;" (e) "Initial physician interest and the ramp-up in training for the Ancure System was not `phenomenal;'" (f) Defendants knew they were in direct violation of FDA regulations; and (g) Defendants knew they had "knowingly and intentionally misled the FDA about the frequency with which the delivery system of the Ancure Device malfunctioned." Compl. ¶¶ 65, 71, 73, 75. We shall address first whether Plaintiffs have adequately pled facts indicating knowledge on the part of Defendants of the above-mentioned statements associated with Ancure, and then, whether the stated facts in the Complaint support the claim that the alleged statements were misleading.

(i) Defendants' knowledge of problems related to Ancure.

To adequately allege fraud, Plaintiffs must be able to show either (1) that Defendants possessed the requisite state of mind when the misleading statements were issued; (2) that a subsequent duty arose to correct the earlier statements — "a duty the neglect of which amounts to fraud;" (In re HealthCare Compare Corp. Sec. Litig., 75 F.3d 276, 281 (7th Cir. 1996)); or (3) that the Ancure situation was "so obvious that the [Defendants] must have been aware of it" when they issued the statements in question. See Sundstrand Corp. v. Sun Chemical Corp., 553 F.2d 1033, 104-45 (7th Cir. 1977) (quoting Franke v. Midwestern Oklahoma Development Authority, 428 F.Supp. 719 (W.D.Okl. 1976)).

Plaintiffs appear to rely principally on approach (1), supra, — that Defendants had knowledge that the statements were misleading when they issued them.¹⁴ Thus, Plaintiffs bear the burden of pleading sufficient facts to demonstrate that, at the time the statements were made, Defendants possessed information contrary to what they stated publically. See In re HealthCare Compare Corp. Sec. Litig., 75 F.3d at 281 (citingRoots Partnership v. Lands' End, Inc., 965 F.2d 1411, 1419 (7th Cir. 1992)). Plaintiffs generally allege that "[a]t all times relevant herein, [Guidant] was aware of every malfunction of the Ancure, and methods used to remove Ancure devices lodged in patients . . ." Compl. ¶ 42. Plaintiffs further allege a variety of generic and indefinite sources from which Defendants acquired such knowledge.¹⁵ However, it is impossible to determine from the facts as alleged in the Complaint exactly what information Defendants learned from these unspecified sources and when they learned it. The Seventh Circuit has held that such vague allegations of knowledge are insufficient to support a fraud action. See Arazie v. Mullane, 2 F.3d 1456, 1466-67 (7th Cir. 1993) (noting "the plaintiffs did not say who sent the memo, when it was received, or whether it reflected a final determination . . .;" and that the "who, what, where, and when" are missing). Accordingly, we conclude that these "assertions lack the specific details required by Rule 9(b)" and 15 U.S.C. § 78u-4(b). Id.

14 See Compl. ¶¶ 65, 67, 71, 73, 75, 78, 85, 91, 101 (alleging statements by Defendants "were materially false and misleading when made" and Defendants possessed such knowledge at the time); Id. at ¶ 108 (stating "[a]s alleged herein, defendants acted with scienter in that defendants knew that: a) the statements issued or disseminated in the name of the Company were materially false and misleading"); Id. at ¶ 127 (stating "the Company and persons acting as corporate officers knew or recklessly ignored, but failed to disclose, the matters set forth herein"); see also Id. at ¶¶ 42-43, 47, 49, 109-12 (alleging what Defendants knew and how they acquired such information).
Plaintiffs also contend that Defendants "had a duty to . . . correct any previously issued statements that had become materially misleading or untrue." Id. at ¶ 33. Regarding the source of this alleged duty, Plaintiffs vaguely refer to the fact that Guidant's "common stock is traded on the New York Stock Exchange (`NYSE') and governed by the provisions of the federal securities laws." Id. at ¶ 33. This broad reference to the entire body of federal securities law is clearly insufficient to establish that Defendants possessed a duty to correct. Moreover, following this ambiguous reference in ¶ 33, Plaintiffs fail to specify a single, prior statement that they believe Defendants had a duty to correct. Accordingly, we hold that this sweeping allegation of a duty to correct lacks the particularity necessary to satisfy the requirements of § 78u-4(b).

15 See note 2 and accompanying text.

Plaintiffs do allege with more specificity two incidents that reflect on the knowledge possessed by Defendants, namely, an email in early January 2000¹⁶ and a voice mail message in February of 2000.¹⁷ However, the alleged e-mail is not pled with sufficient specificity to support a fraud action against Defendants because Plaintiffs have not included any facts indicating that any of the Defendants actually knew about this e-mail, or the testing of the Handle-Breaking Technique, in view of the fact that both of those communications were between unnamed Guidant employees. See Arazie, 2 F.3d at 1467. As for the voice mail message, even assuming that Defendants learned of it in February 2000, the message, at most, indicates that Defendants knew of that one complication arising from the implanting of an Ancure device. This voice mail message, standing alone, does not reveal that Ancure was experiencing wide-spread problems, that MDRs were not being reported to the FDA, or that sales representatives were training surgeons on the Handle-Breaking Technique. Accordingly, we conclude that these two "assertions lack the specific details required by Rule 9(b)" and 15 U.S.C. § 78u-4(b). See Arazie, 2 F.3d at 1466.

16 Plaintiffs allege that in early January 2000:

a Guidant Engineer e-mailed a superior proposing that the Handle-Breaking Technique be thoroughly tested and the problem reported to the FDA for review and approval. While some testing was done, the Handle-Breaking Technique was never reported to the FDA.

Compl. ¶ 49.

17 Plaintiffs' allegation states that in February 2000:

a sales representative reported in his voice mail message report that the Ancure was `just severely tight' as the doctor attempted to insert the Ancure into a Minnesota man in his 60s. This was after the Ancure had already torn through another artery and they had extensively re-lubricated the device. When the Ancure became lodged into the man, the surgeon had to break apart the device's handle to move it. As a result of the Ancure becoming blocked, the man's legs became paralyzed and had to be amputated.

Compl. ¶ 47.

Finally, Plaintiffs allege three methods whereby Defendants acquired knowledge of the problems connected to Ancure. However, this knowledge came only after Defendants had made all of the allegedly misleading statements during this period. First, Plaintiffs assert that in October 2000 "seven anonymous employees sent a letter to Michael Gropp, Guidant's Chief Compliance Officer. In that letter, the employees outlined ethical, legal and safety concerns related to the Ancure." Compl. ¶ 53. Second, Plaintiffs allege that "a Director of Manufacturing who went into the field in February or March of 2001 personally saw Guidant sales representatives `training' doctors on the Handle-Breaking Technique, and informed defendant Huss of this fact." Id. at ¶ 112. Third, Plaintiffs allege that Defendant Huss personally learned of the problems with Ancure after she became President of EVT in December of 2000. Id. at ¶¶ 31, 42, 112. As required, we assume these allegations are all true and draw all reasonable inferences from them in favor of Plaintiffs.¹⁸ Even so, these specific allegations do not support Plaintiffs' fraud action because Plaintiffs do not allege that Defendants issued any of their allegedly misleading statements after October 2000 and before March 16, 2001, the latter date being when the Ancure recall was announced.¹⁹ Unless Defendants had a "time machine," they obviously could not have disclosed knowledge they did not possess. See Gallagher v. Abbott Labs., 269 F.3d 806 (7th Cir. 2001). Accordingly, it is clear that Plaintiffs have failed to allege that Defendants made any misleading statements about Ancure after they learned about the delivery system complications or the regulatory problems.

18 Therefore, we assume that as of October 2000 Defendants had definitive knowledge of the problems with Ancure and in early 2001 they learned about sales representatives training surgeons in the Handle-Breaking Technique.

19 Moreover, Plaintiffs concede that after receiving the October 2000 letter Guidant "began a series of audits of the subsidiary which revealed thousands of malfunctions with the Ancure." Compl. ¶ 54. Shortly after the alleged Director of Manufacturing observed sales representative training surgeons on the Handle-Breaking Technique, Guidant recalled Ancure. These actions by Guidant do not support a "strong inference" that Defendants' conduct constituted an "extreme departure from the standards of ordinary care." See Sundstrand Corp. v. Sun Chemical Corp., 553 F.2d 1033, 1045 (7th Cir. 1977) (quotingFranke v. Midwestern Oklahoma Development Authority, 428 F.Supp. 719 (W.D.Okl. 1976)).

Assuming arguendo that Defendants had a "duty to correct" their previous public statements (see id.), we are of the view that, based on the facts alleged, Defendants satisfied this duty. Plaintiffs' complaint indicates that shortly after Defendants acquired knowledge of the issues surrounding Ancure, Guidant launched an internal investigation, announced the Ancure recall, and made public all the information about Ancure that allegedly had been withheld from the FDA.²⁰ Accordingly, because information concerning the Ancure-related problems was publically disclosed, Defendants cannot, as Plaintiffs contend, be liable for failing to disclose such information.

20 EVT disclosed to the FDA the Handle-Breaking Technique and the 2,628 MDRs it previously failed to timely file. See Compl. ¶ 57 (alleging that "[i]n March 2001, defendants finally disclosed . . . approximately 2,628 additional MDRs concerning the Ancure's delivery system [which] had not been previously reported to the FDA"); Exhibit 7.2, EVT Plea Agreement at 9; Exhibit 18, 4/27/01 FDA letter (stating "[t]he company reported to the FDA that they had failed to report many device malfunctions and adverse events, including severe vessel damage associated with problems with the deployment of the device"). MDRs filed with the FDA are publically available. See Compl. ¶ 11 (alleging that "MDRs are subsequently made available to physicians and other members of the public to warn them of recurring malfunctions and other risks concerning medical devices"); 21 C.F.R. § 803.9(a) (requiring that "[a]ny report, . . . submitted under this part is available for public disclosure"). Accordingly, we take judicial notice of the 2,628 MDRs filed with the FDA and their availability to the public. Plaintiffs' objection to taking judicial notice, to wit, that the documents do not state when they were made publically available, is unavailing. Plaintiffs do not allege that the documents were not made publically available; in fact, one of Plaintiffs' theories of fraud is that Defendants failed to file the MDRs and thereby kept that information from the public. See Compl. ¶¶ 13, 57, 85.

(ii) Specific allegations of misleading statements by Defendants.

Assuming arguendo that during this entire period Defendants did possess knowledge making the seven assertions Plaintiffs claim it made to have been misleading, we find that none of these factual challenges by Plaintiffs satisfies the pleading requirements of the PSLRA. We shall address each "misstatement" in turn below, as Plaintiffs set them out in their Complaint. Plaintiffs maintain that, contrary to Defendants' representations —

(a) Patients implanted with the Ancure did not experience significantly fewer complications than those who underwent conventional surgery.

Plaintiffs do not allege any facts to support their claim that patients implanted with Ancure experienced as many or more complications as patients undergoing conventional surgery. At the very least, Plaintiffs would need to muster some facts concerning the rate of complications for patients undergoing conventional surgery. Accordingly, this allegation fails to satisfy the requirements of 15 U.S.C. § 78u-4(b)(1).

(b) Defendants learned from physicians during clinical trials that the delivery system for the Ancure was seriously flawed.

Plaintiffs allege that Defendants knew the delivery system for the Ancure was "seriously flawed."²¹ Although the facts asserted by Plaintiffs do indicate that the delivery system for Ancure presented certain complications, that fact alone is not sufficient to support a securities fraud action. That a medical procedure can produce complications is, in and of itself, wholly unremarkable. We take judicial notice of the fact that medical procedures can and do sometimes present complications. Moreover, the mere fact that Defendants allegedly failed to disclose the complications with Ancure in their public statements does not create an actionable claim. See Schlifke v. Seafirst Corp., 866 F.2d 935, 944 (7th Cir. 1989) (holding that the "express language of 10b-5 only proscribes omissions that render affirmative statements misleading") (citing Rowe v. Maremont Corp., 650 F.Supp. 1091, 1105 (N.D.Ill. 1986); aff'd, 850 F.2d 1226 (7th Cir. 1988)). Gallagher v. Abbott Labs., 269 F.3d 806, 808 (7th Cir. 2001) (stating "firms are entitled to keep silent (about good news as well as bad news) unless positive law creates a duty to disclose") (citations omitted).

21 It is not clear from the complaint what Plaintiffs mean by the phrase "seriously flawed." To the extent that this phrase means that Ancure was "unsafe" or "deadly," we address such issues in subsection (c) below.

To survive a motion to dismiss, Plaintiffs must demonstrate how knowledge by Defendants that the delivery system for Ancure produced complications rendered any of the challenged statements misleading, and Plaintiffs have failed to meet this burden. Statements by Defendants that positively compare the utilization of Ancure to previously available methods of conventional surgery do not suggest that Ancure had no complications;²² nor do statements about physician interest in Ancure; nor do statements about the sales of Ancure,²³ nor do statements about the long-term effects of Ancure once implanted in a patient.²⁴ Accordingly, we hold that Defendants' omission of the complications associated with the Ancure delivery system did not render any of their public statements misleading.

22 See, e.g., Business Wire news release on June 23, 1999, stating in relevant part:

Guidant's data, presented to the Panel today, showed that patients implanted with the Ancure™ System experienced significantly fewer complications than those who underwent conventional surgery.

Compl. ¶ 63 (emphasis omitted); Business Wire news release on September 28, 1999:, stating in relevant part:

"The Ancure System represents a quantum leap in the treatment of AAA," said Jay Watkins, president of Guidant's Cardiac Vascular Surgery Group. "Guidant pioneered the development of this significant alternative to conventional AAA surgery." "We believe the approval of this device will come as good news to the estimated million and a half people in the United States who have abdominal aortic aneurysm disease.

Compl. ¶ 66 (emphasis omitted).

23 See, e.g., Business Wire news release on April 30, 2000, stating in relevant part:

"The robust sequential growth in cardiac and vascular surgery product sales in the first quarter reflects strong performances of the Ancure® System for minimally invasive treatment of Abdominal Aortic Aneurysms (AAA) as well as Cardio Thoracic Systems, Inc.'s line of less invasive coronary artery bypass surgical products," reflected Dollens. "Physician interest and the ramp-up in training for the Ancure System continued to accelerate in the first quarter, with over 350 cardiac centers and 700 physicians now trained in the use of the Ancure product line," Dollens continued. Compl. ¶ 70 (emphasis omitted).

24 See Compl. ¶ 77. This news release is lengthy and Plaintiffs do not highlight any relevant sections, so we will not reprint it here.

(c) Defendants knew that malfunctions rendered the Ancure unsafe and potentially deadly.

Plaintiffs assert that the malfunctions mentioned in Section (b) above rendered the Ancure "unsafe" and "potentially deadly." Plaintiffs apparently base this assertion that Ancure was "unsafe" on the large number of MDRs that EVT filed with the FDA after the March 16, 2001, recall and the fact that the Handle-Breaking Technique was not FDA-approved at this time. However, when the FDA re-approved Ancure in August 2001, it had knowledge of the Handle-Breaking Technique and all 2,628 MDRs which had not previously been timely filed. See Exhibit 7.2, EVT Plea Agreement, at 9; Exhibit 18, 4/27/01 FDA letter (cited in Compl. ¶ 93). Plaintiffs do not claim on the basis of any corroborative facts that the August 2001 FDA re-approval wrongly determined that Ancure was "safe" and "effective under the conditions of use prescribed." See 21 U.S.C. §§ 360e(d)(2)(A)-(B). Therefore, Plaintiffs' bare assertion aside, there is no basis referenced in the Complaint to doubt or question the FDA's determination that Ancure was "safe." Because Plaintiffs do not allege sufficient facts with the required particularity "on which that belief is formed," this allegation fails to satisfy the requirements of 15 U.S.C. § 78u-4(b)(1).

(d) By marketing Ancure, Defendants exposed Guidant to "massive civil and criminal liability and damage to its reputation that would have a materially adverse effect on its financial performance."

This allegation is essentially "fraud by hindsight," which the Seventh Circuit has explicitly stated is not actionable. DiLeo v. Ernst Young, 901 F.2d 624, 628 (7th Cir. 1990). Plaintiffs' complaint "discloses none of the circumstances that might separate fraud from the benefit of hindsight." Id. Moreover, the fact that the FDA re-approved Ancure in August 2001, despite knowledge of the complications and problems with the product, precludes an inference, let alone a strong one, that Guidant's decision to market Ancure was an "extreme departure from the standards of ordinary care." See Sundstrand Corp. v. Sun Chemical Corp., 553 F.2d 1033, 1045 (7th Cir. 1977) (quotingFranke v. Midwestern Oklahoma Development Authority, 428 F.Supp. 719 (W.D.Okl. 1976)). Accordingly, we conclude that this allegation does not form the basis for a securities fraud action.

(e) Initial physician interest and the ramp-up in training for the Ancure System was not "phenomenal."

The use of the adjective "phenomenal" is classic puffery and as such is not actionable. See, infra, Section II(C).

(f) (g) Defendants knew they were in direct violation of FDA regulations; and Defendants knowingly and intentionally misled the FDA about the frequency with which the delivery system of the Ancure Device malfunctioned.

Plaintiffs allege that four statements from Defendants were misleading because they failed to disclose the FDA regulation compliance problems with Ancure.²⁵ Three of the four news releases are statements describing the results of clinical studies on the efficacy of Ancure, and the fourth is a statement by Defendant Dollens about acceptance of Ancure in the clinical community. Plaintiffs do not dispute the results of the clinical studies, nor do Plaintiffs dispute that sales of Ancure continued to grow during this period. Accordingly, we find that these affirmative statements as contained in the news releases are not misleading in and of themselves.

25 June 12, 2000; July 18, 2000; October 16, 2000; and October 24, 2000, news releases over the Business Wire. Compl. ¶¶ 72, 74, 76-77. (Plaintiffs also state the former news release occurred on June 20, 2000. Id. at ¶ 73). Plaintiffs fail to highlight any particular statements from the October 16, 2000, news release which they allege were false.

To sustain a securities fraud action, Plaintiffs must allege facts indicating that during this period Defendants were under a duty to disclose the Ancure-related FDA regulation compliance problems. We note that a corporation does not have an independent duty to disclose all good or bad news that may influence its stock price. See Gallagher v. Abbott Labs., 269 F.3d 806, 808 (7th Cir. 2001) (stating "firms are entitled to keep silent (about good news as well as bad news) unless positive law creates a duty to disclose") (citations omitted). A duty to disclosure is created when additional information is necessary to rectify "incomplete disclosures" or "half-truths." Schlifke v. Seafirst Corp., 866 F.2d 935, 944 (7th Cir. 1989) (citing Rowe v. Maremont Corp., 650 F.Supp. 1091, 1105 (N.D.Ill. 1986); aff'd, 850 F.2d 1226 (7th Cir. 1988)). Plaintiffs have failed to indicate the manner in which news releases about the results of clinical studies or statements of puffery invoke a duty to disclose FDA compliance problems. None of the excerpts selected by Plaintiffs mention quality control standards, the FDA or regulatory compliance. Thus, "[n]o investor could reasonably conclude," based on the news releases, that Ancure "had no pending FDA issues." Anderson v. Abbott Labs., 140 F.Supp.2d 894, 906 (N.D.Ill. 2001); see also Chu v. Sabratek Corp., 100 F.Supp.2d 827, 834 (N.D.Ill. 2000) (finding that affirmative statements in SEC filings "are far too attenuated from the alleged regulatory problems . . . to establish fraud"). It is obvious, therefore, that the Plaintiffs' selections from the cited news releases are not "incomplete disclosures" or "half-truths" of that type that require additional information to clarify them.

We do find that one statement in the June 12, 2000 Business Wire news release could be considered misleading. Here, the news release states in relevant part:

The U.S. Food and Drug Administration approved the ANCURE System in September of 1999, making this method for endovascular repair available to hospitals throughout the U.S.

Compl. ¶ 72.²⁶ Because this statement implies that Ancure, as utilized by surgeons, was approved by the FDA in September 1999, it could be misleading, assuming Defendants knew that the FDA had not approved the Handle-Breaking Technique and that EVT sales representatives were training surgeons to use that method. Even so, this statement is not actionable because Plaintiffs have not pled specific facts to indicate that Defendants did, in fact, possess such knowledge as of June 12, 2000.²⁷

26 In identifying this statement in the Complaint, we note, however, that Plaintiffs did not highlight this particular segment of the news release as being misleading.

27 See, supra, Section II(A)(1)(i).

For the above-stated reasons, we conclude that, with respect to Defendants' public statements prior to March 2001, Plaintiffs have failed to present sufficient facts for an actionable claim for securities fraud.

(2) Statements concerning Ancure between the March 16, 2001, recall and the August 17, 2001, re-approval.

Plaintiffs contend that a series of statements made by Defendants between March 16, 2001 and August 17, 2001, were misleading for the following reasons: (a) that "[Guidant] had not `voluntarily' recalled the Ancure but actually was forced by the FDA to take it off the market because it had filed to [sic] a PMA Supplement concerning the Handle-Breaking Technique and over 2,628 additional MDRs;" (b) that "Ancure was not taken off the market solely because of `deficiencies' in the Company's ANCURE-related `regulatory processes' and communications with the FDA but because, in violation of FDA regulations, the Company (i) encouraged a dangerous usage of the Ancure that had not been authorized by the FDA, and (ii) failed to file 2,628 Medical Device reports;" (c) that "[Guidant/EVT] was the target of a criminal investigation; and (d) that "[Guidant] had not properly reserved for the consequences of its massive criminal and civil liability nor adjusted its recorded goodwill to account for the inevitable harm to its reputation that would ensue." Compl. ¶ 85. In addition, Plaintiffs recycle the same allegations they levied regarding Defendants' misstatements from the previous period.²⁸ The four reasons cited by Plaintiffs all fail to meet the pleading requirements of the PSLRA, as we explain below seriatim.

28 We decline to address these allegations a second time, and simply note that they are insufficient for the reasons explained in Section II(A)(1), supra. We also note that shortly after announcing the March 2001 recall, EVT disclosed to the FDA all the information it had previously withheld. See, supra, note XXX and accompanying text. Finally, we note that the FDA released a Public Health Notification describing the problems with Ancure on April 27, 2001, which stated in relevant part that:

[Guidant] reported to the FDA that they had failed to report many device malfunctions and adverse events, including severe vessel damage associated with problems with the deployment of the device. There were also manufacturing changes that were not properly reported to the FDA. The manufacturer told [the] FDA that an internal audit revealed problems with their complaint handling system, manufacturing quality systems, documentation procedures and training.

Exhibit 18, 4/27/01 FDA letter. Plaintiffs' complaint reveals that this public health notice was reported in Medical Industry Today on August 20, 2001. Compl. ¶ 93. For the above-stated reasons, we find that all the information that Plaintiffs allege Defendants withheld from the public before announcing the recall was actually disclosed subsequent to the recall. Accordingly, Plaintiffs' rehashed allegations that such information was not disclosed fail on factual grounds.

(a) Guidant had not "voluntarily" recalled the Ancure but actually was forced by the FDA to institute the recall.

Plaintiffs state no facts to support their assertion that the March 2001 recall of Ancure was not voluntary; indeed, they actually cite several references which belie that assertion.See Compl. ¶¶ 79, 83, 88, 90, 94, 97 (citing news releases and press stories all describing the recall as voluntary); see also Exhibit 18, 4/27/01 FDA letter (cited in Compl. ¶ 93) (stating "Guidant suspended production and announced a recall of all existing inventory"). Having failed to plead such facts with particularity regarding the voluntariness or not of the recall, this allegation fails to satisfy the requirements of 15 U.S.C. § 78u-4(b)(1).

(b) Ancure was not taken off the market solely because of "deficiencies" in the Company's ANCURE-related "regulatory processes" and communications with the FDA.

Guidant announced on March 16, 2001 that it was recalling the Ancure system because of "regulatory deficiencies" related to the deployment system of Ancure. Compl. ¶ 79. To the contrary, Plaintiffs allege, Guidant was forced to recall the Ancure system by the FDA because it failed to file a "PMA Supplement concerning the Handle-Breaking Technique and over 2,628 additional MDRs." Id. at ¶ 85. Plaintiffs do not connect their assigned reasons to the recall by explaining, for example, how the failure to file documents required by FDA regulations is a materially different matter from "regulatory deficiencies," which was the stated reason that Guidant provided for the recall.²⁹ A slight, semantic difference between these two explanations does not suffice to support the required, strong inference that Defendants acted with the requisite state of mind to deceive or mislead. Accordingly, this allegation also falls short of satisfying the pleading requirements of 15 U.S.C. § 78u-4(b).

29 Plaintiffs argue that the problems with Ancure involved "more than a failure to file paperwork." Pl.'s Opp. Brief at 11 n. 8. Plaintiffs support this assertion by arguing that "[Guidant] was breaking the law and endangering patients by encouraging a dangerous usage of the Ancure by doctors, a fact which was not made known to the FDA or investing public until the close of the Class Period." Id. Once again, Plaintiffs' own complaint, however, belies these assertions. First, Plaintiffs' complaint makes it clear that the reason Guidant "broke the law" was because it failed to file the proper "paperwork" with the FDA concerning the Handle-Breaking Technique and the MDRs. See, e.g., Compl. ¶¶ 9, 11, 45, 50, 51, 53. Second, documents that Plaintiffs rely on to support their substantive allegations reveal that Guidant did inform the FDA of these deficiencies more than two years before the close of the Class Period. See Id. at ¶ 57; Exhibit 7.2, EVT Plea Agreement at 9 (stating that on or about March 23, 2001 EVT informed the FDA about the Handle-Breaking Technique and the 2,628 MDRs it failed to file); Exhibit 18, 4/27/01 FDA letter (cited in Compl. ¶ 93). Third, after receiving all the information previously withheld by EVT, the FDA re-approved Ancure in August 2001. Plaintiffs do not allege that this second approval was mistaken or inappropriate or that the FDA would not have approved the Handle-Breaking Technique earlier if the proper paperwork had been filed. Accordingly, in our view, the phrase "regulatory deficiencies" fairly and accurately describes the motivation for the recall alleged by Plaintiffs, and Plaintiffs' arguments to the contrary are not supported by the allegations in their Complaint.

Further, Plaintiffs fail to state any facts to support their belief as to the motivation for the recall. The EVT Plea Agreement, on which Plaintiffs rely extensively in their Complaint, suggests that the FDA did not learn of the missing MDRs or the Handle-Breaking Technique until after the recall was announced. See Compl. ¶ 57; Exhibit 7.2, EVT Plea Agreement at 9 (stating that on or about March 23, 2001 EVT informed the FDA about the Handle-Breaking Technique and the 2,628 MDRs it failed to file). Plaintiffs also refer to a letter from the FDA to physicians in which the FDA represents that Guidant revealed the Ancure-related problems to the FDA. See Exhibit 18, 4/27/01 FDA letter. If anything, these facts as stated by Plaintiffs support an inference that the FDA did not learn of the problems with Ancure until after Guidant announced the recall. Logically, the FDA could not have forced Guidant to recall Ancure based on knowledge it did not possess. Once again, Plaintiffs' allegation fails to meet the pleading requirements of 15 U.S.C. § 78u-4(b)(2).

(c) Failure to disclose that Guidant/EVT was the target of a criminal investigation.

Plaintiffs allege that statements by Defendants concerning the March 2001 recall of Ancure were misleading because they failed to disclose that "the Company was the target of a criminal investigation." Compl. ¶ 85(c). To satisfy the pleading requirements of the PSLRA, Plaintiffs "must state with particularity 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). We conclude, again, that Plaintiffs' complaint fails to do so. The EVT Plea Agreement indicates that the investigation began in November 2000; however, this reference provides no assistance in determining when Defendants themselves learned of the investigation, and no other basis for pinpointing Defendant's knowledge is alleged in the Complaint. See Exhibit 7.2, EVT Plea Agreement, at 12-13 ¶ 10. Because Plaintiffs do not state any facts which indicate when Defendants learned about the criminal investigation, no basis exists to indicate that Defendants knew when they released the information in the public statements that it was misleading. See In re HealthCare Compare Corp. Sec. Litig., 75 F.3d 276, 281 (7th Cir. 1996). Nor do Plaintiffs state any facts demonstrating the criminal investigation was "so obvious that [Defendants] must have been aware of it." See Sundstrand Corp. v. Sun Chemical Corp., 553 F.2d 1033, 10445 (7th Cir. 1977) (quoting Franke v. Midwestern Oklahoma Development Authority, 428 F.Supp. 719 (W.D.Okl. 1976)). Accordingly, we conclude that Plaintiffs' complaint fails to state facts with the requisite particularity sufficient to give rise to an inference, let alone a strong inference, that the Defendants "acted with the required state of mind" by failing to disclose information there is no indication they possessed. 15 U.S.C. § 78u-4(b)(2).³⁰

30 Having found that Plaintiffs' allegation fails to meet the pleading requirements of § 78u-4(b)(2), we do not address the issue of whether Defendants would have had a duty to disclose the investigation, if they had known of its existence.

As a concluding matter here, we note that the Complaint reveals, contrary to Plaintiffs' argument,³¹ that nearly one year before the EVT Plea Agreement, Guidant disclosed the criminal investigation in its Quarterly Report for the period ending June 30, 2002. See Compl. ¶ 97. Guidant again disclosed the criminal investigation in its Quarterly Report for the period ending on September 30, 2002, and its Annual Report for the year ending December 31, 2002. See Exhibit 12 at 31-32; Exhibit 5 at 143. In addition, on January 30, 2003, on April 16, 2003, and in the Quarterly Report for the period ending March 31, 2003, Guidant disclosed the investigation when it reported the financial reserves that it was taking. See Compl. ¶¶ 99-100, Exhibit 15, Quaterly Report for the Period ending March 31, 2003, at 20. These repeated disclosures strongly undermine an inference that Defendants acted with the requisite state of mind by failing to disclose this information earlier.

31 Plaintiffs contend that "Guidant never informed investors that the Company was the target of a criminal investigation, until the investigation was resolved, . . ." Pl.'s Opp. Brief at 12 (citing Compl. ¶ 85).

(d) Guidant had not properly reserved for the consequences of its massive criminal and civil liability.

Plaintiffs allege that public statements by Guidant were misleading because "[Guidant] had not properly reserved for the consequences of its massive criminal and civil liability nor adjusted its recorded goodwill to account for the inevitable harm to its reputation that would ensue." Compl. ¶ 85(d). This allegation fails to satisfy the pleading requirement of the PSLRA for three reasons: first, the Complaint itself reveals that Guidant did allocate sufficient reserves to cover the civil and criminal liability from the Ancure investigation;³² second, Plaintiffs have not stated any facts to indicate that Guidant should have taken these reserves at earlier dates than it did; and third, as we discussed previously, Plaintiffs have not stated any facts to indicate that Defendants knew about the criminal investigation during this period thereby providing a basis upon which to determine the amount of reserves that Guidant should take. Accordingly, we hold that Plaintiffs' complaint does not contain facts sufficient to support an inference, let alone a strong inference, of scienter regarding the failure by Guidant to take reserves earlier than it did. 15 U.S.C. § 78u-4(2)(b).

32 The Complaint reveals that before the resolution of the criminal investigation, Guidant announced it would take reserves, which when taken actually proved to be sufficient. On January 30, 2003 Guidant announced it would take a $32 million charge related to the Ancure investigation. See Compl. ¶ 99. On April 16, 2003 Guidant announced it would take an additional $64.9 million reserve related to the Ancure investigation. See id. at ¶ 100. Finally, in its Quarterly Report for the period ending March 31, 2003, Guidant announced it was taking accounting reserves of $92 million in anticipated resolution of the Ancure investigation.See Exhibit 15 at 20. Guidant paid $92.4 million to resolve the civil and criminal charges related to the Ancure investigation. Compl. ¶ 26.

(3) Statements concerning Ancure subsequent to the August 17, 2001 FDA reapproval.

In addition to restating their previous allegations,³³ Plaintiffs assert one, final but "new" omission by Defendants occurring during this last period of time, which according to Plaintiffs, made Guidant's public statements misleading. Plaintiffs allege that:

33 Plaintiffs' previous allegations remain insufficient for the reasons discussed in Sections II(A)(1) and (2), supra.

neither the FDA nor Guidant disclosed to the public the extent of the problems caused by the Ancure, including but not limited to the fact that: (i) the Ancure had resulted in 2,628 Medical Device reports; (ii) 12 of those reports involved the death of the patient; (iii) Guidant's sales representatives had been encouraging the improper use of the Ancure; or (iv) Guidant had initially concealed the Medical Device reports from the FDA.

Compl. ¶ 95; see also id. at ¶ 101 (referring back to the allegations in ¶ 95).³⁴ This claim overlooks the facts stated in other parts of the Complaint. By this point in time, Guidant had already disclosed the missing MDRs and filed a PMA for the Handle-Breaking Technique, and the FDA had publically revealed Guidant's prior failure to properly report this information.³⁵ Because this information, in contradiction to Plaintiffs' claim that it was concealed from the public, had apparently already been disclosed, we determine that this allegation, like the others, does not support an action for securities fraud.³⁶

34 This alleged omission is not, in fact, new; rather, it is a rehash of Plaintiffs' previous allegations. See Compl. ¶¶ 65, 71, 73, 75, 85.

35 See, supra, note 19 and accompanying text.

36 The groundlessness of Plaintiffs' allegation in Compl. ¶ 95 is exposed by the immediately preceding paragraphs of the Complaint which directly and explicitly contradict their allegation of misrepresentation. Plaintiffs first cite an article from Medical Industry Today, which in relevant part states that " the FDA said Guidant had told regulators that it had failed to report many device malfunctions and adverse events, `including severe vessel damage associated with problems with the deployment of the device.' " Id. at ¶ 93 (emphasis in Compl.). Plaintiffs then quote an article in Medical Devices Surgical Technology from the week of September 9, 2001, stating in relevant part: " the FDA has reports of 530 injuries and 28 deaths among Ancure users. . . ." Id. at ¶ 94 (emphasis added). Plaintiffs' analysis strains credulity when claiming that these two statements were misleading because they failed to mention that exact same information. Id. at ¶ 101 (referring to ¶ 95).

(B) Allegations of scienter

For purposes of determining the issue of scienter, Plaintiffs urge that we not consider each allegation in "isolation," but instead assess "the substance of the entire Complaint." Pl.'s Opp. Brief at 23. As explained below, after examining the substance of the entire Complaint, there is a dearth of particularized facts in support of the required, strong inference of scienter. Plaintiffs' failure to satisfy the pleading requirements of 15 U.S.C. § 78u-4(b)(2), even when viewed in the broad context which Plaintiffs urge us to do, constitutes an independent ground for dismissal of the Complaint.

The Seventh Circuit has not yet addressed the PSLRA's requirements for pleading scienter; therefore, drawing our guidance from other circuits, we determine the proper legal standard for evaluating Plaintiffs' allegations. Plaintiffs urge us to accept the Second Circuit's formulation for pleading scienter, namely, that "a plaintiff must either (a) allege facts to show that `defendants had both motive and opportunity to commit fraud' or (b) allege facts that `constitute strong circumstantial evidence of conscious misbehavior or recklessness.'" Press v. Chemical Inv. Servs. Corp., 166 F.3d 529, 538 (2d Cir. 1999) (quoting Shields v. Citytrust Bancorp., Inc., 25 F.3d 1124, 1128 (2d Cir. 1994)); see also In re Advanta Corp. Sec. Litig., 180 F.3d 525 534-535 (3d Cir. 1999) (adopting the Second Circuit's requirements for pleading scienter). However, the weight of authority from six other circuits has not followed the Second Circuit standard. The First, Fifth, Sixth, Ninth, Tenth, and Eleventh Circuits have held that allegations of motive and opportunity, "standing alone," are insufficient to plead scienter. See Nathenson v. Zonagen, Inc., 267 F.3d 400, 410-11 (5th Cir. 2001) (holding that a plaintiff must state facts sufficient to raise a strong inference of scienter, and that allegations of motive and opportunity may contribute to such an inference but are not sufficient "standing alone"); City of Philadelphia v. Fleming Cos., Inc., 264 F.3d 1245, 1261-63 (10th Cir. 2001) (same);Helwig v. Vencor, Inc., 251 F.3d 540, 550-51 (6th Cir. 2001) (en banc) (same); In re Comshare Inc. Sec. Litig., 183 F.3d 542, 551 (6th Cir. 1999) (same); Greebel v. FTP Software, Inc., 194 F.3d 185, 197 (1st Cir. 1999) (same); Bryant v. Avado Brands, Inc., 187 F.3d 1271, 1282-83 (11th Cir. 1999); see also In re Silicon Graphics Inc. Sec. Litig., 183 F.3d 970, 974 (9th Cir. 1999) (holding that a plaintiff must plead "in great detail facts that constitute strong circumstantial evidence of deliberately reckless or conscious misconduct").

We are drawn to the view adopted by the First and Sixth Circuits that directs, pursuant to the language of the PSLRA, "whatever the characteristic patterns of the facts alleged, those facts must now present a strong inference of scienter." Helwig, 251 F.3d at 551 (quoting Greebel, 194 F.3d at 196). As theHelwig decision explained:

From the words of the Act, certain conclusions can be drawn. First, Congress plainly contemplated that scienter could be proven by inference, thus acknowledging the role of indirect and circumstantial evidence. Second, the words of the Act neither mandate nor prohibit the use of any particular method to establish an inference of scienter. Third, Congress has effectively mandated a special standard for measuring whether allegations of scienter survive a motion to dismiss. While under Rule 12(b)(6) all inferences must be drawn in plaintiffs' favor, inferences of scienter do not survive if they are merely reasonable, as is true when pleadings for other causes of action are tested by motion to dismiss under Rule 12(b)(6). Rather, inferences of scienter survive a motion to dismiss only if they are both reasonable and "strong" inferences.

Helwig, 251 F.3d at 551 (quoting Greebel, 194 F.3d at 195-96); see also Florida State Bd. of Admin. v. Green Tree Fin. Corp., 270 F.3d 645, 660 (8th Cir. 2001) (holding that "inferences of scienter survive a motion to dismiss only if they are both reasonable and `strong' inferences").

In our considered judgment, the substance of Plaintiffs' complaint does not support a reasonable or strong inference of scienter on the part of Defendants. Accepting all the factual allegations in the Complaint as true and drawing all reasonable inferences from these facts in favor of the Plaintiffs, we are stopped short of a finding of a strong inference of scienter based on the numerous facts contained in the Complaint that undermine an inference of scienter, which we cannot and must not ignore. Arazie v. Mullane, 2 F.3d 1456, 1465 (7th Cir. 1993) (citing Roots Partnership v. Lands' End, Inc., 965 F.2d 1411, 1416 (7th Cir. 1992)). For example: the Complaint reveals that during the class period: (1) Guidant initiated an internal audit of the practices at EVT related to Ancure; (2) Guidant recalled Ancure after completion of the audit and disclosed to the public the reasons for the recall;³⁷ (3) Guidant subsequently submitted to the FDA all the information that it had previously withheld; (4) The information Guidant submitted to the FDA was made a matter of public record; (5) Guidant itself made several public disclosures concerning the criminal investigation related to Ancure; and (6) Guidant set aside sufficient reserves to cover the civil and criminal liability from the Ancure investigation, about which it made repeated public disclosures. These facts drawn from the Complaint, itself, substantially undercut an inference that Defendants were acting with the requisite state of mind in attempting to mislead the investing public. To the contrary, these facts suggest that Defendants, once apprised of the situation at EVT, attempted to present to the public an accurate, although admittedly not totally inclusive, report on the issues surrounding Ancure. Moreover, to the extent that Plaintiffs' theory of scienter relies on allegations of reckless disregard for the truth, we find that the Complaint fails to incorporate facts that would demonstrate Defendants' actions were "an extreme departure from the standards of ordinary care." Sundstrand Corp. v. Sun Chemical Corp., 553 F.2d 1033, 1045 (7th Cir. 1977) (quoting Franke v. Midwestern Oklahoma Development Authority, 428 F.Supp. 719 (W.D.Okl. 1976)). Accordingly, in light of Defendants' repeated, voluntary disclosures of negative information regarding Ancure, as contained in the Complaint, the allegations considered as a whole preclude a strong inference of scienter.³⁸

37 Plaintiffs claim that Defendants did not disclose the true motivations for the recall; however, this allegation is not supported by the facts alleged in the Complaint. See, supra, Sections II(A)(2)(a) and (b).

38 See In re Nokia Corp. Sec. Litig., 1998 WL 150963, at *13 (S.D.N.Y. 1998) (finding that voluntarily disclosing negative information "undercuts" allegation that defendants acted recklessly); Stepak v. Aetna Life Cas. Co., 1994 WL 858045, at *22 n. 20 (D.Conn. Aug. 29, 1994) (finding that "[b]ecause the allegedly undisclosed information was disclosed in state public filings and mailed to numerous market professionals, no reasonable juror could conclude that Aetna acted with the requisite intent to deceive"), aff'd, 52 F.3d 311 (2d Cir. 1995) (citations omitted); Alfus v. Pyramid Tech Corp., 745 F. Supp. 1511, 1520 (N.D. Cal. 1990) (holding that "provision of adverse information to the securities analysts negates an inference that the company acted with an intent to defraud");see also Arazie, 2 F.3d at 1465 (7th Cir. 1993).

Plaintiffs' allegations that Defendants should have disclosed more information before the announcement of the EVT Plea Agreement are also insufficient to establish a strong inference of scienter. Much of Plaintiffs' complaint implies that firms have an absolute duty to disclose all information material to stock prices as soon as news comes into their possession. The securities laws do not impose such an obligation of absolute and instantaneous disclosure. Without a positive law basis for a duty to disclose particular information, we state again, firms are entitled to keep silent about good news as well as bad news.Gallagher v. Abbott Labs., 269 F.3d 806, 809-09 (7th Cir. 2001) (citing Basic, Inc. v. Levinson, 485 U.S. 224, 239 n. 17 (1988); Dirks v. S.E.C., 463 U.S. 646, 653-54 (1983); Chiarella v. United States, 445 U.S. 222, 227-35 (1980); Stransky v. Cummins Engine Co., 51 F.3d 1329, 1331 (7th Cir. 1995); Backman v. Polaroid Corp., 910 F.2d 10, 16 (1st Cir. 1990) (en banc)). As discussed previously, Plaintiffs have failed to plead facts with particularity that would give rise to a duty to disclose more information to the public than Defendants actually disclosed. Accordingly, on this score as well, we find that Plaintiffs' complaint fails to state facts creating a strong inference of scienter concerning Defendants' allegedly withholding information from the public to establish an intent to mislead.

The bare allegation that "Company insiders sold thousands of their personally held Guidant shares to the investing public for millions of dollars in proceeds" is also insufficient to support an inference of scienter.³⁹ Plaintiffs specifically identify only two stock sales by "insiders" in the Complaint. Compl. ¶ 62. The first involved a Guidant officer not named as a defendant in this litigation, and Plaintiffs do not allege any connection between this individual and the other named Defendants. Accordingly, we conclude that this alleged stock sale cannot support an inference that the named Defendants acted with scienter. The second stock sale involved defendant Dollens, who, Plaintiffs state, sold "280,341" shares for $7,069,000 on April 24, 2002.⁴⁰ Plaintiffs note that this stock sale occured "just three months before announcing the Department of Justice investigation." Id. Plaintiffs fail, however, to allege any facts indicating this stock sale was "dramatically out of line with prior trading practices at times calculated to maximize the personal benefit from undisclosed inside information." In re: Navarre Corp. Sec. Litig., 299 F.3d at 747. For example, Plaintiffs failed to plead what percentage of his Guidant stock Dollens retained after this sale or whether this trade was inconsistent with his prior trading history. We also note that this sale came slightly less than a year after Guidant announced the Ancure recall and that the price Dollens allegedly received for his personal shares⁴¹ was lower than the price Guidant shares sold for on the first day of trading after the Ancure recall was announced,⁴² was comparable to the low price on the day the EVT guilty plea was announced,⁴³ and was significantly lower than any of the prices received by the Gaynors when they sold their shares of Guidant.⁴⁴ Plaintiffs further fail to allege any stock sales by defendants Brauer, Huss, or Watkins, or provide a plausible explanation for an attempt by these individuals to artificially inflate Guidant's stock price through misleading public disclosures.⁴⁵ Accordingly, we find that Plaintiffs' allegation of a solitary stock sale by Dollens is woefully insufficient to support an inference that Defendants, acting with scienter, attempted to mislead the investing public over a period of almost three years.

39 The Seventh Circuit has not specifically addressed whether insider trading allegations alone are sufficient to establish a strong inference of scienter; however, other federal courts have held "that mere allegations of insider trading during the purported Class Period alone are not enough to sufficiently allege a strong inference of scienter." Johnson v. Tellabs, Inc., 262 F.Supp.2d 937, 955 (N.D.Ill. 2003) (citing In re Navarre Corp. Sec. Litig., 299 F.3d 735, 747 (8th Cir. 2002) (explaining that "[i]nsider stock sales are not inherently suspicious; they become so only when the level of trading is dramatically out of line with prior trading practices at times calculated to maximize the personal benefit from undisclosed inside information") (internal quotation omitted); Lipton v. Pathogenesis Corp., 284 F.3d 1027, 1037 (9th Cir. 2002) (same) (quotation omitted); Greebel v. FTP Software, Inc., 194 F.3d 185, 198 (1st Cir. 1999) (stating "mere pleading of insider trading, without regard to either context or the strength of the inference to be drawn, is not enough").)

40 We assume that Plaintiffs meant to say Defendant Dollens sold 180,341 shares for $7,069,000. This would produce a sale price of $39.20, which falls within the range of prices for Guidant stock sold on April 24, 2002, see Exhibit 17.2, daily stock prices for Guidant, at 9. This would also make Plaintiffs' allegation consistent with previous complaints filed in this case. If Plaintiffs' numbers are as they stated them, it would indicate that Defendant Dollens sold his personal shares for nearly $14 below market value on the date in question.

41 See, surpa, note 39.

42 Plaintiffs state that Guidant's share price "fell to $46.25 on March 19, 2001, the first trading day following the announcement." Compl. ¶ 80.

43 Plaintiffs state that Guidant's share price "on June 12, 2003, fell to $39 and closed the day at $40.46." Compl. ¶ 104.

44 The Gaynors sold their shares of Guidant for prices ranging between $69.03 and $45.71. See Compl. Attach.

45 Regarding these three defendants, Plaintiffs' allegations fail to meet even the permissive pleading requirements adopted by the Second Circuit. See Novak v. Kasaks, 216 F.3d 300, 307-08 (2d Cir. 2000) (explaining that "Plaintiffs could not proceed based on motives possessed by virtually all corporate insiders . . . [r]ather, plaintiffs had to allege that defendants benefitted in some concrete and personal way from the purported fraud") (citing Stevelman v. Alias Research Inc., 174 F.3d 79, 85 (2d Cir. 1999); Goldman v. Belden, 754 F.2d 1059, 1070 (2d Cir. 1985)).

(C) Puffery

Our review of many of the statements by Defendants that Plaintiffs allege are misleading leaves us with the clear sense that they are little more than non-actionable puffery.⁴⁶ Courts consistently hold that puffery and "optimistic rhetoric" generally cannot provide a basis for a securities fraud action. See Eisenstadt v. Centel Corp., 113 F.3d 738, 746 (7th Cir. 1997) (stating "[m]ere sales puffery is not actionable under SEC Rule 10b-5") (citing Searls v. Glasser, 64 F.3d 1061, 1066 (7th Cir. 1995) (finding "optimistic rhetoric" without specificity is not actionable);Shaw v. Digital Equipment Corp., 82 F.3d 1194, 1217-18 (1st Cir. 1996) (finding immaterial as a matter of law "loosely optimistic statements that are so vague, so lacking in specificity, or so clearly constituting the opinions of the speaker, that no reasonable investor could find them important to the total mix of information available"); San Leandro Emergency Med. Group Profit Sharing Plan v. Philip Morris Cos., 75 F.3d 801, 811 (2d Cir. 1996) (holding that "[s]uch puffery . . . cannot constitute actionable statements under the securities laws"); Raab v. General Physics Corp., 4 F.3d 286, 289 (4th Cir. 1993) (holding that "commonplace commercial puffery lacks, as a matter of law, the materiality to be actionable"); see also Johnson v. Tellabs, Inc., 262 F.Supp. 2d 937, 951 (N.D.Ill. 2003) (finding that "[c]ourts consistently hold that mere puffery and glowing representations of expected boom are not enough to state claims under the Exchange Act") (internal quotation omitted); Anderson v. Abbott Labs., 140 F.Supp. 2d 894, 905 (N.D.Ill. 2001) (stating "vague statements about industry leadership and unquantified growth are classic puffery, and are generally not actionable") (citation omitted). The statements alleged by Plaintiffs to be actionable are only that and thus are unable to provide the basis for a securities fraud action.

46 See, e.g., Compl. ¶ 66 (describing Ancure as "a quantum leap in the treatment of AAA ") (all emphasis in complaint unless otherwise noted); Id. at ¶ 69 (describing physician interest in Ancure as " phenomenal " and describing Ancure as " create [ing] significant growth opportunities in 2000 and beyond" ); Id. at 70 (stating that "robust sequential growth in cardiac and vascular surgery product sales in the first quarter reflects strong performances of the Ancure "); Id. at ¶ 72 (describing research results at " incredibly encouraging for physicians " and Ancure as " the best-in-class treatment "); Id. at ¶ 74 (stating that the "enthusiasm about this procedure and the ANCURE system has been remarkable" ); Id. at ¶ 76 (proclaiming that Ancure "continues to set the standard for clinical success and patency" ); Id. at ¶ 77 (describing clinical results as "very encouraging" and proclaiming "we're confident that endovascular repair with the ANCURE System will be the treatment of choice") (no emphasis in original); Id. at ¶ 89 (describing Ancure as " a very significant product with long-term data that is the best in class "); Id. at ¶ 90 (explaining that Defendants " believe strongly in the patient benefits of treatment with the ANCURE system and we look forward to getting this important therapy back into the hands of physicians "); Id. at ¶ 92 (stating that " ANCURE, will continue to fuel new growth for Guidant going forward — AAA alone represents a billion dollar market opportunity ").

(D) Standing of the Lead Plaintiffs

Finally we rasie, sua sponte, the question of standing on the part of the Lead Plaintiffs in this case. Plaintiffs, as the party invoking federal jurisdiction, bear the burden of establishing the required elements of standing. Lee v. City of Chicago, 330 F.3d 456, 468 (7th Cir. 2003) (citing Retired Chicago Police Assoc. v. City of Chicago, 76 F.3d 856, 862 (7th Cir. 1996); Lujan v. Defenders of Wildlife, 504 U.S. 555, 561 (1992)). Those elements are:

(i) an injury in fact, which is an invasion of a legally protected interest that is concrete and particularized and, thus, actual or imminent, not conjectural or hypothetical; (ii) a causal relationship between the injury and the challenged conduct, such that the injury can be fairly traced to the challenged action of the defendant; and (iii) a likelihood that the injury will be redressed by a favorable decision.

Lee, 330 F.3d at 468 (citing Lujan, 504 U.S. at 560-61). The facts laid out in the Complaint do not indicate that the Gaynors suffered any injury by fairly traceable to the challenged action of the Defendants.⁴⁷ If the Gaynors seek to continue as lead plaintiffs in this action, they bear the burden of mustering the necessary "competent proof" to establish their standing to bring this litigation. See Retired Chicago Police Ass'n, 76 F.3d at 862 (citing McNutt v. General Motors Acceptance Corp., 298 U.S. 178, 189 (1936);NLFC, Inc. v. Devcom Mid-America, Inc., 45 F.3d 231, 237 (7th Cir. 1995), cert. denied, 515 U.S. 1104 (1995)).⁴⁸

47 The Plaintiffs' Compl. Attach. indicates that the Gaynors repeatedly bought and sold Guidant stock during 1999 and 2000. The Gaynors claim that "plaintiffs and the other members of the Class acquired Guidant securities during the Class Period at artificially high prices and were damaged thereby." Compl. ¶ 128. We assume this is true; however, the Gaynors also sold all of their Guidant stock at those same "artificially high prices." Moreover, the Gaynors owned no Guidant stock at any time when there was negative information released to the public concerning Ancure. We further note that the Gaynors have alleged no facts that would in any way account for the various decreases in Guidant share prices between the times when they bought and sold their respective Guidant shares. Finally, we note the apparent contradiction between the Gaynors' argument that Defendants intentionally misled the public in order to "sell millions of dollars of their personally held Guidant stock to the investing public," (Compl. ¶ 108), and that fact that the only Defendant alleged to have sold his personal shares did so at a substantially lower price than any of the several prices the Gaynors earned in their transactions. Compare Id. at ¶ 62;with Compl. Attach.

48 The Seventh Circuit has defined "competent proof" as "requiring a showing by a preponderance of the evidence, or proof to a reasonable probability, that standing exists." Retired Chicago Police Ass'n, 76 F.3d at 862 (citing NLFC, 45 F.3d at 237).

Conclusion

For the foregoing reasons, we find that Plaintiffs have failed to satisfy the pleading requirements for a securities fraud action. Accordingly, we GRANT Defendants's Motion to Dismiss Without Prejudice. Any Amended Complaint must be filed withinforty-five(45) days from the date of this entry, which amended pleading must incorporate and otherwise fully reflect the gravamen of the discussions and ruling herein. Failure to file an amended pleading within the allotted 45-day period will result in a transformation this dismissal into a dismissal with prejudice on the basis of which a final judgment will be entered.

It is so ORDERED.