holding district court did not abuse its discretion in denying leave to file surreply because the court did not consider new evidence included in reply briefSummary of this case from Sekera v. Allstate Ins. Co.
Nos. 95-15839, 95-16819
Argued and Submitted June 11, 1996 — San Francisco, California
Original Opinion Filed September 11, 1996 Amended Filed December 18, 1996
Jonathan K. Levine, Kaplan, Kilsheimer Fox, New York City and Patrick J. Coughlin, Milberg, Weiss, Bershad, Hynes Lerach, San Diego, CA, for plaintiffs-appellants.
Steven M. Schatz, Wilson, Sonsini, Goodrich Rosati, Palo Alto, CA, for defendants-appellees.
Appeal from the United States District Court for the Northern District of California. Ronald M. Whyte, District Judge, Presiding.
D.C. No. CV-92-20159-RMW
Before: Alfred T. Goodwin, Harry Pregerson, and Alex Kozinski, Circuit Judges
Plaintiffs Diane Provenz and Ahikim Eizenberg, on behalf of themselves and all other similarly situated purchasers of stock of MIPS Computer Systems, Inc. (MIPS), appeal the district court's grant of summary judgment in favor of all defendants. Plaintiffs brought this action against MIPS and MIPS' officers and directors, Charles M. Boesenberg, Robert C. Miller, David G. Ludvigson, Stephen R. Bennion, and William D. Jobe, under section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5 of the Securities Exchange Commission, 17 C.F.R. § 240.10b-5. The plaintiffs also appeal the district court's order awarding costs to defendants. The district court had jurisdiction under 28 U.S.C. § 1331. We have jurisdiction under 28 U.S.C. § 1291. We affirm in part, reverse in part, and remand.
The plaintiffs brought this securities fraud case as a class action. The class period runs from January 31, 1991, through October 9, 1991. Plaintiffs allege that, during the class period, the value of MIPS' stock was artificially inflated because defendants recognized revenue before the revenue was earned and failed to disclose to the market information about MIPS' products and forecasts. At the beginning of the class period, MIPS' stock traded at about $11 a share. At the high end of the class period, MIPS' stock traded at $20 5/8 a share. On October 10, 1991, the day that plaintiffs allege the fraudulently withheld information about MIPS' business and prospects entered the market, the price of the MIPS' stock declined to about $9 a share.
On June 27, 1994, the district court granted defendants' motion for summary judgment. The district court held that there was insufficient evidence of scienter to hold defendants liable for securities fraud. The district court also awarded defendants their costs. This appeal followed.
STANDARD OF REVIEW
A grant of summary judgment is reviewed de novo. Warren v. City of Carlsbad, 58 F.3d 439, 441 (9th Cir. 1995), cert. denied, 116 S.Ct. 1261 (1996). A court must view the evidence in the light most favorable to the non-moving party and draw any reasonable inferences in the non-moving party's favor. Id. Summary judgment is proper only if no genuine issue of material fact exists and only if the moving party is entitled to judgment as a matter of law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). Where material factual disputes exist, the court must allow a jury to resolve the factual disputes. Chevron Corp. v. Pennzoil Co., 974 F.2d 1156, 1161 (9th Cir. 1992).
ANALYSIS  I. Procedural Issues
As a preliminary matter, we must resolve two procedural issues. First, after defendants filed their reply brief but before the hearing, plaintiffs filed a motion to strike the "new" evidence contained in defendants' reply. The plaintiffs also filed a supplemental declaration that rebutted defendants' "new" evidence. The district court denied plaintiffs' motion to strike the defendants' "new" evidence and also refused to consider plaintiffs' supplemental declaration.
 We believe the district court erred in not considering plaintiffs' supplemental declaration. In Marshall v. Gates, 44 F.3d 722, 723-25 (9th Cir. 1995), we noted that Fed.R.Civ.P. 56(c) states, in relevant part, that a "party prior to the day of hearing may serve opposing affidavits." Although we interpreted this language as allowing a district court to adopt local rules that set time limits for a non-moving party to follow in opposing a motion for summary judgment, our holding in Marshall does not mean that defendants in this case may submit "new" evidence in their reply without affording plaintiffs an opportunity to respond. Such a result would be unfair.
We agree with the Seventh Circuit, which held that "[w]here new evidence is presented in a reply to a motion for summary judgment, the district court should not consider the new evidence without giving the [non-]movant an opportunity to respond." Black v. TIC INV. Corp., 900 F.2d 112, 116 (7th Cir. 1990). Thus, in resolving this appeal, we have considered both the evidence submitted by defendants in their reply and the evidence submitted by plaintiffs in their supplemental declaration.
As to the second procedural issue we must resolve, plaintiffs contend that the district court abused its discretion in denying plaintiffs' motion for reconsideration that was based on allegedly newly discovered evidence. In their motion, plaintiffs submitted a declaration of a MIPS ex-employee. It appears, however, that plaintiffs learned about this employee well before plaintiffs filed their opposition. In these circumstances, we cannot say that the district court abused its discretion in denying plaintiffs' motion for reconsideration.
II. The Merits
To prevail on their securities fraud claims under section 10(b) and Rule 10b-5, plaintiffs must prove: (1) that defendants made a false statement or failed to disclose information that rendered another statement misleading; (2) that such statement or omission was material; (3) that plaintiffs relied on the statement or omission; and (4) that defendants acted with scienter or an intent to defraud. Monroe v. Hughes, 31 F.3d 772, 776 (9th Cir. 1994); In re Apple Computer Securities Litigation, 886 F.2d 1109, 1113 (9th Cir. 1989), cert. denied, 496 U.S. 943 (1990).
A. The Alleged False and Misleading Statements
In a securities fraud case, summary judgment is improper if a plaintiff "shows a genuine issue of fact with regard to a particular statement by the company or its insiders." In re Worlds of Wonder Securities Litigation ("WOW"), 35 F.3d 1407, 1412 (9th Cir. 1994) (quotations and citations omitted), cert. denied, 116 S.Ct. 185 (1995) and 116 S.Ct. 277 (1995). As we have explained, "[l]iability depend[s] on the plaintiffs' success in demonstrating that one of the statements made by the company was actually false or misleading." In Re Convergent Technologies Securities Litigation, 948 F.2d 507, 512 (9th Cir. 1991). Thus, to determine whether summary judgment was proper in this case, we must examine each false or misleading statement allegedly made by defendants.
1. Defendant's Income Recognition Practices
Plaintiffs allege that during the class period in question defendants made false statements in MIPS' quarterly income statements when they recognized revenue before it was earned. According to plaintiffs, under Generally Accepted Accounting Principles (GAAP) and MIPS' own policies, defendants could not recognize income until a binding agreement existed, until deliverables were shipped, and until material contingencies were satisfied. When revenue can be recognized is what is at issue in this case.
"Deliverables" include the computer tape containing programs and databases as well as the documents and manuals describing the technology.
 Although defendants maintain that during the class period at issue no specific GAAP rules existed governing revenue recognition for technology licensing agreements, defendants do not appear to dispute plaintiffs' contentions that, under GAAP, revenue must be earned before it can be recognized. Defendants concede that, under GAAP, the earnings process must be substantially completed and an exchange must have occurred before revenue can be recognized. MIPS' own policy, which was in existence during the class period, states that "technology revenue is recognized upon the completion of contract requirements."
 That contract requirements had to be completed before revenue could be recognized as "earned" makes perfect sense given the way that MIPS and its customers structured their deals and given the fact that intellectual property was involved. The purchase orders that were signed by customers contained various contingencies, including the approval of foreign governments and the receipt of deliverables. In some instances, the terms of the licensing agreements had not yet been negotiated or finalized when customers signed the purchase orders. Although the signed purchase orders stated that the licensing fee was nonrecoverable, normally no money exchanged hands until after customers received the deliverables. As a result, MIPS had a policy of not shipping any deliverables until a binding agreement existed. Finally, the technology that customers purchased was not completed or "taped out" until March 1991. Before that date, and until MIPS' customers received the actual technology, MIPS customers had received nothing they could use.
Defendants, however, contend, and the district court agreed, that the bulk of MIPS' technology was transferred during the sales process. As the district court explained:
The manner by which MIPS recognized revenue appears to have basically been consistent with its own written policy on the subject and GAAP. . . . The evidence indicates that while in some instances partial deliverables remained unshipped after revenue was recognized, the bulk of the terms of the technology transfers (i.e. transfer of sufficient technology to allow the purchaser to begin RISC utilization, payment and acceptances of nonrecoverable fees, etc.) had been substantially satisfied.
 The evidence, however, is not so clear and tells a more complicated story. We have combed through the record and are unable to determine what exactly was transferred to customers during the sales process. The technology, although licensed, had not yet been completed. If any technology was transferred during the sales process, such transfers would have been inconsistent with MIPS' policy of not transferring any technology until a binding contract had been executed. Thus, we find that plaintiffs have raised genuine issues of material fact as to whether technology transfers in fact occurred during the sales process and whether such transfers were sufficient under GAAP to support the recognition of revenue. Further, looking at the evidence in the light most favorable to plaintiffs, it appears that, in the transactions described below, defendants recognized revenue before binding agreements existed and before contract requirements were completed.
a. The Fourth Quarter for 1990
Plaintiffs contend that, in the fourth quarter of 1990, defendants recognized nearly $3 million in revenue from transactions with Sony, NEC, Control Data, Convex, and Olivetti. According to plaintiffs, had defendants not recognized this revenue, MIPS would have reported a $2,576,000 loss rather than the $546,000 loss, that was actually reported.
Defendants reported a total revenue of $43.1 million for the fourth quarter.
In the fourth quarter of 1990, defendants recognized $1 million in revenue from Sony based on a letter from Sony stating that it was exercising an option to purchase a license. The letter, however, stated that Sony was "agree[ing] to discuss, in good faith, the details and schedule associated with the above option during the first quarter of 1991." The discussions over the licensing agreement appear to have taken place after the income was recognized. An agreement was executed in April 1991 and provided that Sony's obligation to pay was conditioned on its receipt of all deliverables. In May 1991, Sony still had not received all deliverables.
In the fourth quarter of 1990, defendants recorded $250,000 in revenue from NEC based on a signed purchase order. That purchase order contained various contingencies, none of which had been satisfied when the revenue was recognized. In addition, plaintiffs provided evidence that suggests the actual agreement may have been finalized sometime in April 1991.
iii. Control Data
In the fourth quarter of 1990, defendants recognized $250,000 in revenue from Control Data. Plaintiffs provided evidence that suggests material terms of the licensing agreement were still being negotiated when defendants recognized the revenue.
In the fourth quarter of 1990, defendants recognized $950,000 in revenue from Olivetti. According to defendants, a binding agreement in the form of a signed letter of intent existed when the revenue was recognized. However, plaintiffs have provided documentary evidence that suggests that a binding agreement may not have been executed until after the fourth quarter ended and that Olivetti may have signed a backdated agreement. It also appears that the deliverables were not shipped until February 19, 1991.
In the fourth quarter of 1990, defendants recognized $450,000 in revenue from Convex based upon a December 28, 1990 agreement, which gave Convex the right to cancel and receive a full refund if MIPS failed to tape out the R4000 by December 31, 1991. There is evidence in the record that suggests the R4000 microprocessor was behind schedule. In addition, the deliverables had not yet been shipped when the revenue was recognized.
b. The First Quarter of 1991
According to plaintiffs, in the first quarter of 1991, defendants recognized $8 million in revenue from NKK, NEC, and Wang, which had not yet been earned. As a result, MIPS reported a $624,000 profit for the quarter. Had defendants not recognized the alleged unearned revenue, MIPS would have recorded a loss of more than $4.3 million.
Apparently, for the first quarter of 1991, MIPS recognized about $43 million in total revenue.
In the first quarter of 1991, defendants recognized $5 million in revenue from NKK based upon an agreement which was subject to approval from the Japanese government. In addition, plaintiffs contend that this agreement was subject to another material contingency — set out in a "side letter" — which stated that MIPS was required to ship deliverables by December 31, 1991. Defendants recognized the revenue before the deliverables were shipped and before the Japanese government provided its approval of the agreement.
In the first quarter of 1991, defendants recognized $2.25 million in revenue from NEC based on a purchase order for the extension of an existing licensing agreement. The purchase order, however, indicated that NEC could not formally enter into an agreement at that time. Apparently, the parties may not have reached an agreement until June 26, 1991. The June 26, 1991 agreement provided that it was not effective until executed and the Japanese government's approval obtained.
c. The Second Quarter for 1991
According to plaintiffs, in the second quarter of 1991, defendants improperly recognized $4.5 million revenue from NEC, Daewoo, and Tandem.
In the second quarter of 1991, defendants recognized $2 million in revenue from NEC based upon a purchase order for a joint venture with NEC called the Advanced Computing Environment ("ACE") initiative. Plaintiffs, however, provided evidence that suggests that at the time the revenue was recognized, NEC and MIPS were just beginning to negotiate the terms of the licensing agreement. In fact, as will be discussed below, ACE had not yet been announced. Thus, there is a question as to whether ACE in fact existed when the revenue was recognized.
In the second quarter of 1991, defendants recognized $2 million in revenue from Daewoo based on an "agreement" which required the Korean government's approval before it could be considered binding. Plaintiffs' evidence shows that when the income was recognized, the terms of the licensing agreement were still being negotiated, and the Korean government had not yet approved the agreement. In fact, the approval was not obtained until the third quarter of 1991, and only after the Korean government sought various changes to the licensing agreement.
In the second quarter of 1991, defendants recognized $600,000 in revenue from Tandem. Plaintiffs contend that a licensing agreement with Tandem was not binding when signed on June 30, 1991, because the agreement had not been finalized. Plaintiffs provided evidence that suggests drafts of the agreement were circulated as late as August and September 1991. An agreement was executed on October 1, 1991. In addition, it appears that Tandem did not execute a purchase order until November 6, 1991.
2. The Restructuring Reserve
Plaintiffs contend that MIPS' failure to record a restructuring charge of $25.5 million before June 30, 1991 violated GAAP. Plaintiffs' experts assert that defendants should have recorded the restructuring by the end of the second quarter of 1991, because at that time defendants knew a restructuring was necessary. In April 1991, MIPS and twenty other companies announced the formation of ACE, the Advanced Computing Environment initiative.
MIPS, however, waited until the third quarter of 1991 to record the restructuring charge. Apparently, defendants waited until then because MIPS had not yet made a formal decision to redirect its new product development around ACE. MIPS made this decision at the end of the second quarter of 1991. At that time, MIPS warned that a restructuring in the third quarter would be "significant" and would cause "a loss position for the third quarter and for total year 1991."
 We fail to see why waiting to record the restructuring charge until the third quarter was unreasonable. In reviewing the whole record, we find nothing that suggests this accounting decision violated GAAP or any of MIPS' policies. Thus, we hold that the defendants' decision to record the restructuring in the third quarter rather than the second quarter is not actionable as a false or misleading statement.
3. Defendants' Forecasts
Plaintiffs contend that defendants' forecasts for the second and third quarters of 1991 were false or misleading. The district court rejected plaintiffs' contentions. The district court explained:
Plaintiffs . . . have pulled isolated statements out of context. The overall effect of defendants' statements was cautionary and could not be said to have misled the market. As one analyst wrote in June 1990, "MIPS has a complex business model that is still in the process of maturing. . . . This is not a stock for the faint hearted."
By this explanation, the district court is alluding to the "bespeaks caution" doctrine and the "truth-on-the-market" doctrine, both of which have been developed by the courts to immunize defendants from liability for false and misleading statements. See WOW, 35 F.3d at 1413-15 ("The bespeaks caution doctrine provides a mechanism by which a court can rule as a matter of law . . . that defendants' forward-looking representations contained enough cautionary language or risk disclosure to protect the defendant against claims of securities fraud.") (quoting Donald C. Langevoort, Disclosures that "Bespeak Caution", 49 Bus.Law. 481, 482-83 (1994)); Wieglos v. Commonwealth Edison Co., 892 F.2d 509, 516 (7th Cir. 1989) ("Prompt incorporation of news into the stock price is the foundation for the fraud-on-the-market doctrine and therefore supports a truth-on-the-market doctrine as well.")
Before we consider these doctrines, we must first determine whether defendants' forecasts are actionable as false or misleading statements.
A projection is a "factual" misstatement "if (1) the statement is not actually believed, (2) there is no reasonable basis for the belief, or (3) the speaker is aware of undisclosed facts tending seriously to undermine the statement's accuracy." Kaplan v. Rose, 49 F.3d 1363, 1375 (9th Cir. 1994) (citing In re Wells Fargo Securities Litigation, 12 F.3d 922, 930 (9th Cir. 1993) (emphasis added), cert. denied, ___ U.S. ___, 115 S.Ct. 295 (1994)). In this case, plaintiffs focus on various statements made during conference calls with analysts.
a. The 1991 Second Quarter Forecasts
In an April 25, 1991 conference call with market analysts, defendant Ludvigson, MIPS' chief financial officer ("CFO"), stated that MIPS expected technology revenues "to decline slightly from the Q1 levels" but expected "higher technology revenue performance . . . for the total year." Although Ludvigson cautioned that he "would be hesitant to put a total number on it," he suggested that MIPS' earnings for the second quarter would be similar to the $624,000 earnings reported for the first quarter. Specifically, Ludvigson stated that his "expectations for Q2 would be bottom line about Q1."
 Plaintiffs' claim that these statements were false and misleading is based on a MIPS' internal spread sheet which predicted a loss of 17 cents per share. The spread sheet was dated April 17, 1991, eight days before the conference call. The spread sheet showed that MIPS' internal forecasts projected a loss of $4,000,000 for the second quarter.
The district court, however, did not think that the internal spreadsheet raised a triable issue of material fact. As the district court explained:
Plaintiffs ignore all of the other documents and testimony that put the spread sheet in context. The spreadsheet was the starting point for the discussion at the April 22-23 quarterly business review, not the quarterly forecast. The entire purpose of the quarterly business review was to develop a forecast for the quarter, known as the "QBR commitment." The QBR commitment is consistent with the general guidance given during the April 25 conference call, was distributed shortly thereafter, and was presented to the board on May 15, as a second quarter forecast. There is no evidence that the spreadsheet was other than a preliminary worksheet and, as such, was not something that should have been disclosed to the public. Nor does it suggest, given the way it was prepared, that defendants were hiding adverse facts.
The district court is partially correct. As we recently explained in In re Stac Electronics Sec. Litig.:
Issuers need not reveal all projections. Any firm generates a range of estimates internally or through consultants. It may reveal the projection it thinks best while withholding the others, so long as the one revealed has a "reasonable basis" — a question on which other estimates may reflect without automatically depriving the published one of foundation.
 In this case, Ludvigson predicted a profit when in fact MIPS had information that the company would suffer a loss. We found no evidence in the record that the defendants disclosed to analysts the financial information upon which the internal forecast was based. Further, according to the deposition testimony of MIPS' employees, the internal forecast represented "the best, most accurate representation as of the time it was prepared of what the company's financial results [would] be like for the prospective quarter." Based on this evidence, a reasonable trier of fact could conclude that defendants' forecasts or projections of a profit in the second quarter were unreasonable in light of the internal forecasts which indicated a loss for the second quarter. We find that plaintiffs have raised a genuine issue of material fact as to whether defendants' projections for the second quarter made during the April 25, 1991 conference call were false or misleading.
b. The 1991 Third Quarter Projections
In a July 30, 1991 press release, MIPS announced that it was going to take a "significant" restructuring charge in the third quarter. In a conference call with market analysts that same day, Ludvigson said that "the restructuring charge would be significant enough to put [MIPS] in a loss position for the third quarter and for total year 1991." Ludvigson, however, represented that, without the restructuring charge, the loss of revenue for the third quarter would be small.
Plaintiffs contend that these statements were misleading because defendants knew that there would be a huge loss without the restructuring charge. Plaintiffs point out that, only five days before the conference call, at the MIPS' Board of Directors meeting, defendants predicted a loss of more than $4.3 million without the restructuring charge.
The district court, however, rejected plaintiffs' evidence and found "that MIPS' forecasts were not inconsistent with the financial information they had concerning product and service revenue." At the July 30, 1991 teleconference, MIPS disclosed facts which suggested that it would suffer a multimillion dollar loss in the third quarter of 1991, independent of the restructuring charge. This forecast was consistent with the information that defendants had. We therefore conclude that the third quarter forecast is not actionable as a false or misleading statement.
4. Defendants' Omissions about the R6000 Line
Plaintiffs also allege that defendants failed to disclose that MIPS was having serious technical problems with its R6000 line. The district court, however, did not find defendants' failure to disclose this information to be misleading because the defendants had already disclosed that MIPS was having problems with its supplier. Defendants identified sourcing and cost problems with the R6000 line in their SEC Form 10-K and 10Q filings.
But a jury may find that such disclosures were not sufficient. As we have explained:
There is a difference between knowing that any product-in-development may run into a few snags, and knowing that a particular product has already developed problems so significant as to require months of delay.
Here, plaintiffs have provided evidence suggesting the R6000 line was experiencing more than simply supply problems. The R6000 line was plagued with delays and performance problems so severe that MIPS was losing orders and constantly cutting sales forecasts. Defendants, however, continued to represent to analysts that there was "pretty significant demand" and that shipment levels would increase in the third quarter of 1991. Based on this evidence, we believe that a jury could reasonably find that defendants' statements about the R6000 line were false or misleading.
Plaintiffs contend that defendants' alleged false and misleading statements defrauded the market by causing the price of MIPS' stock to be overvalued during the class period in question. Thus, plaintiffs' case is based on a "fraud on the market" theory. This court has recognized that where a "fraud on the market" is alleged, plaintiffs are not required to "show that they themselves actually relied on any particular misrepresentation or omission." Convergent Technologies, 948 F.2d at 512, n. 2 (citing Apple Computer, 886 F.2d at 1113-14). To show reliance, plaintiffs simply must "show that they relied on the integrity of the price of the stock as established by the market, which in turn is influenced by information or the lack of it." Id. Thus, in a "fraud on the market" case, "[a]n investor's reliance on the market . . . is equivalent to reliance upon statements made to the market, or the nondisclosure of material information." Id. Defendants do not dispute plaintiffs' allegations of reliance.
In "a fraud on the market" case, a plaintiff must still establish that the false or misleading statements are material. Materiality is established by "showing that a reasonable shareholder would consider the misrepresentation or omission important, because it altered the total mix of available information." Kaplan, 49 F.3d at 1381 (quotations and citations omitted).
 Defendants do not appear to dispute that the alleged false and misleading statements were material. Nor do we think that defendants can establish that the alleged false and misleading statements were not material as a matter of law. As we recently stated: "Whether an omission is `material' is a determination that `requires delicate assessments of the inferences a "reasonable shareholder" would draw from a given set of facts and the significance of those inferences to him, and these assessments are peculiarly ones for the trier of fact.'" Fecht v. Price, 70 F.3d 1078, 1080 (9th Cir. 1995) (quoting TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 450 (1976)). Thus, only if materiality is "so obvious that reasonable minds [could] not differ" is summary judgment appropriate. Id. at 1081 (quotations and citations omitted). Based on the evidence in this case, we believe that a jury could reasonably find that defendants' allegedly false and misleading statements were material and affected the total mix of information upon which a reasonable investor would have relied.
Generally, scienter should not be resolved by summary judgment. As we have explained:
Cases where intent is a primary issue generally are inappropriate for summary judgment unless all reasonable inferences that could be drawn from the evidence defeat the plaintiff's claim . . . . However, in opposing a motion for summary judgment the plaintiff must present significant probative evidence relevant to the issue of intent, e.g. the time, place or nature of the alleged fraudulent activities; mere conclusionary allegations are insufficient to require the motion for summary judgment be denied.
Vaughn, 628 F.2d at 1220 (emphasis added). Thus, summary judgment on the scienter issue is appropriate only where "there is no rational basis in the record for concluding that any of the challenged statements was made with requisite scienter." In re Software Toolworks, 38 F.3d 1078, 1088 (9th Cir. 1994) (quotations and citations omitted).
To establish scienter, plaintiffs must show that defendants had "`a mental state embracing an intent to deceive, manipulate, or defraud.'" WOW, 35 F.3d at 1424 (quoting Ernst Ernst v. Hochfelder, 425 U.S. 185, 194 n. 12 (1976)). Plaintiffs can "establish scienter by proving either actual knowledge or recklessness." Software Toolworks, 38 F.3d at 1088. As we have explained, "reckless" conduct involves "`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.'" Id. (quoting Hollinger v. Titan Capital Corp., 914 F.2d 1564, 1568-69 (9th Cir. 1990) (en banc), cert. denied, 499 U.S. 976 (1991)).
 Scienter can be established by direct or circumstantial evidence. See WOW, 35 F.3d at 1425. Plaintiffs in this case do not have any direct evidence that defendants acted with scienter. Rather, plaintiffs contend that defendants' allegedly false and misleading statements, combined with the evidence of insider trading, is sufficient to raise a reasonable inference of scienter.
The district court, however, disagreed and held that summary judgment in favor of defendants was appropriate here because plaintiffs' evidence was insufficient to establish scienter. As the district court explained:
If plaintiffs' papers are stripped of their harsh rhetoric they illustrate, at most, a difference of opinion as to when revenue should have been recognized. The facts do not justify a reasonable inference of fraudulent intent.
Further, according to the district court, defendants' good faith is evidenced by the fact that defendants allowed their accountant to audit MIPS' revenue recognition practices in January 1991 and January 1992. Both audits found that MIPS' accounting practices complied with GAAP. In addition, as the district court noted, MIPS regularly consulted with their accountant each quarter to confirm that transactions were completed or sufficiently completed to allow the recognition of revenue. Thus, the district court found that MIPS' reliance on outside auditors was inconsistent with an intent to defraud.
 At first glance, the district court appears to be correct. As we recently stated, "`[t]he mere publication of inaccurate accounting figures, or a failure to follow GAAP, without more, does not establish scienter.'" Software Toolworks, 38 F.3d at 1089 (quoting WOW, 35 F.3d at 1426). But here defendants appear to have violated MIPS' own policies when recognizing revenue for certain transactions.
 In addition, we agree with plaintiffs that the district court was wrong in resolving the factual disputes which exist as to the underlying transactions. Not only have plaintiffs provided documentary evidence that suggests that defendants may have recognized revenue before it was earned, they also provided expert testimony in support of their contentions. This evidence is sufficient to overcome summary judgment.
"As a general rule, summary judgment is inappropriate where an expert's testimony supports the non-moving party's case." WOW, 35 F.3d at 1425 (citing Apple Computer, 886 F.2d at 1116). Here, plaintiffs' two experts have explained in great detail how defendants' recognition of revenue for various transactions violated GAAP and MIPS' own internal policy for recognizing revenue. See In re GlenFed, Inc. Securities Litigation, 42 F.3d 1541, 1549 (9th Cir. 1994) (stating that under Rule 9(b) a plaintiff must "explain why the difference . . . is not merely the difference between two permissible judgments").
Defendants, however, assert that our WOW decision compels an affirmance in this case. In WOW, the court held that plaintiffs' expert testimony was insufficient to raise a reasonable inference of scienter. 35 F.3d at 1425-26. As the court explained, "[a]n expert's conclusory allegations that a defendant acted with scienter are insufficient to defeat summary judgment where the record clearly rebuts any inference of bad faith." Id. at 1426.
 But WOW is distinguishable. In WOW, defendants provided unrebutted evidence showing that their accountants had full knowledge of the disputed transactions. 35 F.3d at 1426. Here, there is evidence suggesting defendants failed to disclose material information to their accountant. If it is true that defendants withheld material information from their accountants, defendants will not be able to rely on their accountant's advice as proof of good faith. See C.E. Carlson, Inc. v. SEC, 859 F.2d 1429, 1436 (10th Cir. 1988) (stating that full disclosure to professional must be established to support the defense of reliance on expert opinion).
Plaintiffs also point to defendants' stock sales during the class period as evidence of defendants' bad faith. We have held that "[i]nsider trading in suspicious amounts or at suspicious times is probative of scienter." Apple Computer, 886 F.2d at 1117. We, however, also have recognized that "credible and wholly innocent explanations for stock sales, ranging from long-standing programs of periodic divestment, to the need to free cash to meet matured tax liabilities, [if] . . . unrebutted . . . are sufficient to defeat any inference of bad faith." Id. (emphasis added).
 According to plaintiffs, the individual defendants and other corporate insiders sold over $8.8 million of their individual holdings during the class period. The district court, however, found that "neither the time nor the amount of the sales support a finding of scienter and are consistent with defendants' innocent explanations." We agree that this observation applies to some defendants but not as to other defendants.
The district court incorrectly concluded that the sales of stock by Miller and Boesenberg did not support a finding of scienter. There is evidence that Miller, MIPS' chairman and CEO, and Boesenberg, MIPS' president, traded their stock in large amounts at sensitive times. Miller sold about 20% of his stock for $1,340,000. Boesenberg sold about 90,000 shares during the class period — almost six times more stock than he had sold during the twelve months preceding the class period — for $1,479,650. Both Miller and Boesenberg sold their stock shortly after the April 25, 1991 conference call but before the $4 million loss and the restructuring charge were disclosed to the public.
 However, we believe the district court was correct in granting summary judgment in favor of defendants Bennion and Jobe. Bennion, MIPS' vice president and treasurer, and Jobe, MIPS' president of the technology group, provided unrebutted evidence that they sold their stock for innocent reasons. Apparently, Bennion sold some shares to purchase a new home and sold the remainder of his stock when he resigned. Jobe also sold his shares to buy a new home. Jobe sold more stock before the class period than during it.
 Whether defendant Ludvigson, MIPS' CFO, was entitled to summary judgment presents a more difficult question. Although Ludvigson sold only 3,265 shares during the class period, Ludvigson made many of the allegedly false and misleading statements to the analysts during the April 25, 1991 and July 31, 1991 conference calls. In addition, Ludvigson was personally involved in and approved each decision to record revenue for the licensing agreements entered into during the class period. Thus, even though we find that Ludvigson's stock sales were too minimal to suggest insider trading, we still believe a genuine issue of material fact exists as to whether Ludvigson acted with scienter. See Software Toolworks, 38 F.3d at 1089 (holding that evidence that defendants participated in the drafting of documents containing false projections and that defendants knew or should have known of alleged fraud in quarterly financial statements was sufficient to defeat summary judgment on scienter issue).
Defendants assert that the district court's grant of summary judgment can be affirmed on a separate ground, namely that plaintiffs failed to establish "loss causation" or proximate cause. The district court rejected the "loss causation" defense in this case. We agree with that decision.
"Loss causation" is a defense for which defendants have a "heavy" burden of proof. WOW, 35 F.3d at 1422. To establish a "loss causation" defense at the summary judgment stage, the defendants must prove, as a matter of law, that the depreciation of the value of MIPS' stock resulted from factors other than the alleged false and misleading statements. WOW, 35 F.3d at 1422. Defendants have not provided enough evidence to establish as a matter of law that they are entitled to a "loss causation" defense.
 Plaintiffs can establish "loss causation" by simply alleging that the false and misleading statements "`touch upon the reasons for the investment's decline in value.'" Id. (quoting McGonigle, 968 F.2d at 821). Plaintiffs allege that the stock price was overvalued during the class period because defendants recognized revenue before it was earned and because defendants failed to disclose material information about MIPS. Plaintiffs correctly allege that soon after this information was disclosed, the price of the stock fell. Plaintiffs introduced expert testimony to establish that MIPS' revenue recognition practices "touched upon" the alleged overvalued price of the stock and that the public disclosures of the company also "touched upon" the fall in the price of the MIPS stock. Given the record before us, we believe the district court was correct in refusing to grant summary judgment on the "loss causation" defense.
F. Defendants' Cautionary Statements
The district court found that defendants' cautionary statements undercut an inference of scienter. As the district court explained: "A review of the analysts statements on MIPS through the class period show that the outlook for MIPS reflected in the market was far from overly optimistic." But as suggested above, the district court appears to have merged the "bespeaks caution" doctrine with the "truth-on-the-market" doctrine. These doctrines represent distinct legal theories. In this appeal, the defendants argue that these doctrines provide separate grounds for affirming the district court's grant of summary judgment. We disagree.
1. The "Truth-on-the-Market" Doctrine
In a "fraud on the market" case "an omission is materially misleading only if the information has not already entered the market." Convergent Technologies, 948 F.2d at 513 (citing Apple Computer, 886 F.2d at 1114). As we have explained, "[i]f the market has become aware of the allegedly concealed information, `the facts allegedly omitted by the defendant would already be reflected in the stock's price' and the market `will not be misled.'" Id. (quoting Apple Computer, 886 F.2d at 1114). This principle has been termed by some courts as the "truth-on-the-market" doctrine or corollary. See e.g., Associated Randall Bank v. Griffin, Kubik, 3 F.3d 208, 213-14 (7th Cir. 1993); Wieglos, 892 F.2d at 516.
The close relationship between the "truth-on-the-market" doctrine and the "fraud on the market" theory is aptly discussed by one commentator:
Some of the cases grappling with the role of market professionals in setting stock prices have done so under the rubric of the "truth-on-the-market" doctrine, which is the flip side of the fraud-on-the-market theory. Under this doctrine, a defendant can escape liability for a false statement — or one that reveals less than the full truth — by showing that the market was not affected by the misrepresentation because the truth of the matter was known already and had been factored into market prices. The issue of when the truth is actually "on the market" often arises in such cases.
John M. Newman, Jr. et al., Basic Truths: The Implications of the Fraud-On-The-Market Theory for Evaluating the "Misleading" and "Materiality" Elements of Securities Fraud Claims, 20 J.Corp.L. 571, 576 (1995).
However, before the "truth-on-the-market" doctrine can be applied, the defendants must prove that the information that was withheld or misrepresented was "`transmitted to the public with a degree of intensity and credibility sufficient to effectively counterbalance any misleading impression created by insider's one-sided representations.'" Kaplan, 49 F.3d at 1376 (quoting Apple, 886 F.2d at 1116).
The defendants bear a heavy burden of proof. Summary judgment is proper only if they show that "no rational jury could find" that the market was misled. Kaplan, 49 F.3d at 1376. If "the evidence presents a sufficient disagreement to require submission to the jury," summary judgment should be denied. Id.
 Here, defendants claim that information about the risky nature of MIPS' stock entered the market. In support of their position, defendants submitted 31 analyst reports and articles. According to defendants' evidence, as early as October 1990, one analyst rated the stock as "SELL." Another analyst, on February 13, 1991, recommended that MIPS be "avoid[ed]" because "technology revenues are only partially predictable."
 We do not think that these reports "effectively counterbalance[d]" defendants' false and misleading statements. Kaplan, 49 F.3d at 1376. There is no mention in the reports of defendants' allegedly improper revenue recognition practices, negative forecasts, or sales decline with the R6000 line. Most of the analysts link MIPS' riskiness with the "unusual" business model adopted by MIPS and the unsuccessfulness of alliances like ACE. In these circumstances, we cannot say as a matter of law that defendants have sustained their contention that the "truth-on-the-market" doctrine applies.
Under its business model, MIPS designs work stations for its microprocessors and licenses its microprocessor design to larger corporations, who develop their own computer products and work stations that compete with MIPS.
2. The "Bespeaks Caution" Doctrine
In granting summary judgment in this case, the district court also held that the "overall effect of defendants' [April 25 and July 31, 1991] statements was cautionary and could not be said to have misled the market." With respect to the April 25, 1991 statement, we disagree.
Summary judgment based on the "bespeaks caution" doctrine is only appropriate "when reasonable minds could not disagree as to whether the mix of information in the document is misleading." Fecht, 70 F.3d at 1082 (emphasis added). As we have explained:
The bespeaks caution doctrine provides a mechanism by which a court can rule as a matter of law (typically in a motion to dismiss for failure to state a cause of action or a motion for summary judgment) that defendants' forward-looking representations contained enough cautionary language or risk disclosure to protect the defendant against claims of securities fraud.
WOW, 35 F.3d at 1413 (quoting Donald C. Langevoort, Disclosures that "Bespeak Caution", 49 Bus.Law. 481, 482-83 (1994)).
But as we have recognized, the "bespeaks caution" doctrine is not new but a reformulation of two fundamental concepts in securities fraud law: reliance and materiality. WOW, 35 F.3d at 1414. "To put it another way, the `bespeaks caution' doctrine reflects the unremarkable proposition that statements must be analyzed in context." Id. (citations and quotations omitted).
Thus, to determine whether the "bespeaks caution" doctrine immunizes defendants' allegedly false and misleading statements, we must analyze what, if any, cautionary statements defendants made. The cautionary statements must be "precise" and "directly address . . . the [defendants'] future projections." WOW, 35 F.3d at 1414 (quotations and citations omitted). "Blanket warnings that securities involve a high degree of risk [are] insufficient to ward against a federal securities fraud claim." Id.
 In this case, the alleged cautionary statements appear to be too general to trigger the "bespeaks caution" doctrine. For example, when MIPS reported its loss in the fourth quarter of 1990, MIPS warned that it "lacked visibility and . . . [was] living in an uncertain economic environment so . . . [it was] approaching the next six months with a very conservative outlook and conservative management posture." MIPS predicted that its technology licensing fees would "remain fairly flat on a year to year basis." MIPS, however, did not disclose to the market that it was recognizing revenue before the terms of certain contracts had been negotiated, before the deliverables were shipped, and before certain contingencies were satisfied. In fact, the opposite was true. Defendants represented in its Form 10-K that "technology revenue is recognized upon the completion of contract requirements."
Defendants also contend that Ludvigson made cautionary statements during the April 25, 1991 conference call. Ludvigson's statements, however, were too general to trigger the "bespeaks caution" doctrine. Ludvigson simply stated that second quarter technology revenue was expected to "decline," that gross margin would be "flat to slightly down," and that technology revenue for 1991 "looked a lot like last year" but "he would be hesitant to put a total number on loss of revenue." Although these statements referred to MIPS' projections, there is no evidence that defendants disclosed the information that was relied upon to arrive at the internal forecast of a $4 million loss. If anything, Ludvigson's "cautionary" statements led the analysts to believe that the second quarter earnings would be similar to the first quarter earnings.
 The plaintiffs also appeal the district court's order awarding costs to defendants. Because we have reversed in part the district court's grant of summary judgment, we find that plaintiffs' appeal of the district court's order awarding costs is now moot.
As set forth above, we affirm the grant of summary judgment in favor of defendants Bennion and Jobe and reverse the grant of summary judgment in favor of defendants MIPS, Boesenberg, Miller, and Ludvigson. Because of this ruling, we find plaintiff's appeal of the district court's award of costs to be moot. Each side shall bear its own costs on appeal.
AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.