were often falsely told that interest rates on
home loan protection borrowing would not increase. Id. at ¶
37(viii)(g). Just as with Providian's other fee-based programs, sale
representatives were very aggressive and would often charge customers for
the program without consent. Id. at ¶ 37(viii)(h).
Both Mehta and Petrini received periodic sales reports, reports of
add-on product revenue, and flash reports of sales performance. Id. at
¶ 63. In addition, both received reports from the legal collections
department that showed that revenue from late and overlimit fees were
extraordinarily high. Id. at ¶ 37(vii)(f). Finally, both either
approved or allowed the use of misleading sales scripts by Providian's
sales personnel. Id. at ¶ 63. Both also either approved or allowed
the high-pressure sale environment in which the Providian's sale force
mislead customers or improperly added-on products to customer accounts
without approval. Id. at ¶ 65.
II. Standard of Review
The purpose of a Rule 12(b)(6) motion is to test the legal sufficiency
of the complaint. See Holder v. City of Allentown, 987 F.2d 188, 194 (3d
Cir. 1993). In deciding a motion to dismiss, the court must "accept as
true all allegations in the complaint and all reasonable inferences that
can be drawn from them after construing them in the light most favorable
to the [plaintiff]." Id. The court will only grant a 12(b)(6) motion to
dismiss if "it is clear that no relief could be granted under any set of
facts that could be proved consistent with the allegations." Hishon v.
King & Spalding, 467 U.S. 69, 73 (1984). "The issue is not whether a
plaintiff will ultimately prevail but whether the claimant is entitled to
offer evidence to support the claim." In re Burlington Coat Factory Sec.
Litig., 114 F.3d 1410, 1420 (3d Cir. 1997) (quotations omitted).
To state a claim under § 10(b) and Rule 10b-5, a plaintiff must
plead the following elements: (1) that the defendant misrepresented a
material fact or failed to state a material fact necessary to make a
statement not misleading and (2) that the defendant acted with knowledge
or recklessness. See id. at 1417. "Materiality" in this context means
"information that would be important to a reasonable investor in making
his or her investment decisions." Id. at 1425. Moreover, "[a]n omitted
fact is material if there is a substantial likelihood that a reasonable
investor would consider it important in deciding how to act. . . . Put
another way, there must be a substantial likelihood that the disclosure
of the omitted fact would have been viewed by the reasonable investor as
having significantly altered the `total mix' of information made
available." Ieradi v. Mylan Labs., Inc., 230 F.3d 594, 599 (3d Cir.
In addition to the substantive requirements of Rule 10b-5, the
plaintiffs' pleadings must satisfy the heightened pleading standards set
forth by Federal Rule of Civil Procedure 9(b) and by the Private
Securities Litigation Reform Act. See In re Advanta Corp. Sec. Litig.,
180 F.3d 525, 530 (3d Cir. 1999). Rule 9(b) requires that "[i]n all
averments of fraud or mistake, the circumstances constituting fraud or
mistake shall be stated with particularity. Malice, intent, knowledge,
and other condition[s] of mind of a person may be averred generally."
Rule 9(b) requires that complaints alleging violation of § 10(b) and
Rule 10b-5 must plead all averments of fraud with particularity. Id.
at 534. Pleadings must specify "the who, what, when, where, and how; the
first paragraph of any newspaper story." Id.
The Reform Act, in part, mirrors 9(b)'s requirements. It "requires
a plaintiff alleging a Rule 10b-5 violation to
`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.'"
Id. at 530 (quoting Reform Act, 15 U.S.C.A. § 78u-4(b)(1)). Just as
under Rule 9(b), allegations of false or misleading statements must be
plead with particularity. See 15 U.S.C. § 78u-4(b)(1). However, with
respect to the scienter element in § 10(b) and Rule 10b-5 actions,
the Act's requirements differ from Rule 9(b)'s and supercede Rule 9(b)'s
requirements. See id.; In re Advanta, 180 F.3d at 531 n. 5.
'"[i]n 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 give rise to a strong
inference that the defendant acted with the required
state of mind.'"
Id. at 531 (quoting 15 U.S.C. § 78u-4(b)(2)). Accordingly, here the
SAC must plead with particularity both the element of misrepresentation
or omission and the element of scienter.