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July 13, 2004.


The opinion of the court was delivered by: RICHARD B. SURRICK, District Judge


Presently before us is the Defendants' Motion to Dismiss Consolidated Amended Class Action Complaint pursuant to Fed.R.Civ.P. 12(b)(6), (Doc. No. 13).*fn1 For the following reasons, the Defendants' Motion to Dismiss will be denied.

I. Background Facts

  The action presently before the Court is a class action alleging violations of the federal securities laws. Plaintiffs allege that Defendants violated Section 11 of the Securities Act of 1933 ("`33 Act"), 15 U.S.C. § 77k, 77o; Section 15 of the `33 Act, 15 U.S.C. § 77k, 77o; Sections 10(b) of the Securities Exchange Act of 1934 ("`34 Act"), 15 U.S.C. § 78j(b), and the rules and regulations promulgated under the `34 Act by the Securities and Exchange Commission ("SEC") including Rule 10b-5, 17 C.F.R. § 240.10b-5; and Section 20(a) of the `34 Act, 15 U.S.C. § 78t(a). (Compl. ¶¶ 2, 3.)

  This action arises out of stock purchases made during and after an initial public offering ("IPO") of Ravisent Technologies, Inc., between July 15, 1999, and April 27, 2000. Ravisent was founded in 1994. In 1999 Ravisent began the transition from a privately-owned to a publicly-traded company with the filing of a Registration Statement with the SEC on July 13, 1999. The Registration Statement and accompanying Prospectus stated that the IPO would be effective between July 15, 1999 and July, 22, 1999, and consist of the sale of 5,000,000 shares of stock at $12 each.*fn2 (Compl. ¶¶ 15-16.) The Registration Statement included audited financial statements from 1996 through 1998, as well as an unaudited financial statement for the first quarter of 1999. In addition, the Registration Statement included an assessment of Ravisent's financial condition; business strategy and future plans; customer names; a brief description of pending litigation filed against it by the Zoran Corporation; Ravisent's revenue recognition policies; and a description of risks associated with buying Ravisent stock. The Registration Statement specifically included a discussion of how Ravisent had changed its "strategic focus from selling hardware-based digital solutions to licensing software-based digital solutions." (Doc. No. 14 Ex. A "Reg. Stmt.") In addition, the Registration Statement included lengthy warnings concerning how this change in strategic focus could affect revenues. At the conclusion of the IPO, Ravisent's stock price had increased from $12 to $17.63 per share. (Defs.' Mem. of Law in Support of Mot. to Dismiss Consolidated and Am. Class Action Compl. ("Mot. to Dismiss") at 3.)

  Pursuant to SEC regulations, Ravisent filed timely financial statements for the second and third quarters of 1999. However, before releasing its audited fourth-quarter and year-end financial statements for 1999, Ravisent announced on February 18, 2000, that these financial statements for 1999 would be delayed "due to discussions with its auditors about revenue recognition on some of its contracts." (Compl. ¶ 49.) As a result of this announcement, Ravisent's stock price decreased from $29.63 a share to $18.56. (Id.) One month later, on March 14, 2000, Ravisent announced that it would be restating its financial statements for the second and third quarters of 1999. (Id.) These restatements were necessary for several reasons. First, Ravisent advised that a new interpretation of Statement of Position ("SOP") 97-2 required deferring revenue recognition derived from the future delivery of software technology, even though the revenue had already physically been received.*fn3 (Id.) Second, two transactions that were previously recorded as revenue were amended, and recorded instead as a return of inventory and an inventory consignment. (Mot. to Dismiss at 5-6.) The interpretation of SOP 97-2 resulted in the deferral of licensing revenue of $1.4 million that had previously been recognized in the second and third quarters of 1999. (Id. Ex. F.) The restatement of the second and thirdquarter financials for fiscal year 1999 associated with the two transaction adjustments resulted in an operating margin reduction of $200,000 for 1999. (Id.) On March 30, 2000, Ravisent filed its Form 10-K for fiscal year 1999. That report set forth the original financial statements for the year along with the restated financial statements.

  As a result of these restatements, numerous lawsuits were filed and eventually consolidated into the class action now before us. (Doc. No. 10.) The Class is made up of individuals who claim to have relied to their detriment on allegedly false and misleading affirmative statements and/or omissions made by the Defendants in the Registration Statement filed in connection with the IPO, the required financial disclosures made in the following year, and the statements made in conjunction with these financial statements.*fn4 Defendants are Ravisent; Francis E.J. Wilde, III; James C. Liu; Frederick J. Beste, III; Peter X. Blumenwitz; Walter L. Threadgill; and Paul A. Vais, collectively "Ravisent".*fn5 (Compl. ¶¶ 9-14.)

  Defendants contend that Plaintiffs have failed to state a claim upon which relief can be granted. In support of their motion to dismiss, Defendants argue that: (i) Plaintiffs' allegations associated with violations of Section 10(b) and Rule 10b-5 fail to meet the pleading requirements of the Federal Rules of Civil Procedure as well as the Private Securities Litigation Reform Act of 1995 ("PSLRA"); (ii) Plaintiffs have failed to allege any actionable misstatement or omission in connection with Section 10(b) and Rule 10b-5; (iii) Plaintiffs have failed to sufficiently allege a Section 11 claim; and (iv) Plaintiffs cannot state a cause of action for control person liability under Section 15 or 20(a) because there are no primary violations of the Securities laws, nor do the allegations satisfy the pleading requirements under the PSLRA. (Mot. to Dismiss at 8.)

  II. Standard of Review for Motion to Dismiss

  The purpose of a Rule 12(b)(6) motion to dismiss is to test the sufficiency of a complaint, not to resolve disputed facts or decide the merits of the case. Tracinda Corp. v. Daimlerchrysler AG, 197 F. Supp.2d 42, 53 (D. Del. 2002). A court should not dismiss a case for failure to state a claim unless the plaintiff can prove no set of facts in support of the claim that would entitle it to relief. See United States v. Marisol, Inc., 725 F. Supp. 833, 836 (M.D. Pa. 1989); see also Trump Hotels & Casino Resorts, Inc. v. Mirage Resorts Inc., 140 F.3d 478, 483 (3d Cir. 1998) ("A complaint should be dismissed only if, after accepting as true all of the facts alleged in the complaint, and drawing all reasonable inferences in the plaintiff's favor, no relief could be granted under any set of facts consistent with the allegations."). The court's inquiry is directed towards whether the plaintiff's allegations constitute a claim under Rule 8(a). Though the "plain statement" requirements of Rule 8(a) is construed quite liberally, the court need not credit a plaintiff's "bald assertions" or "legal conclusions" when deciding a motion to dismiss. Morse v. Lower Merion Sch. Dist., 132 F.3d 902, 906 (3d Cir. 1997). Finally, the court should not look to whether plaintiffs will "ultimately prevail," it should only consider whether they should be allowed to offer evidence in support of their claims. In re Burlington Coat Factory Secs. Litig., 114 F.3d 1410, 1420 (3d Cir. 1997).

  III. Discussion

  Plaintiffs' claims can be separated into three groups. First, Plaintiffs' Section 10(b) claims allege that Defendants made fraudulent statements during the entire class period. Thus, the basis of Plaintiffs' Section 10(b) claims are statements/omissions made in the Registration Statement as well as statements made during the rest of the class period. Second, Plaintiffs' Section 11 claims allege that Defendants made material statements and/or omissions in the Registration Statement. This claim focuses only on the Registration Statement and other documents issued in connection with the IPO. Third, Plaintiffs assert control-person liability claims against Defendants Wilde and Liu under Sections 15 and 20 in connection with the underlying violations of Sections 11 and 10(b).

  a. Section 10(b) and Rule 10b-5 Claims

  Plaintiffs allege violations of Section 10(b) and Rule 10(b)(5) (collectively "Section 10(b)") based on oral and written statements made by Defendants Ravisent, Wilde and Liu. Specifically, Plaintiffs allege that these Defendants are liable under Section 10(b) for alleged misstatements and omissions made in connection with the Registration Statement;*fn6 as well as the financial results released by Ravisent for the second and third quarters of 1999, that were ultimately restated. (Compl. ¶¶ 37, 42-47.) In addition, Plaintiffs claim that statements made by Wilde and Liu regarding Ravisent's finances also violated Section 10(b). To state a valid claim under Section 10(b)*fn7 and Rule 10b-5,*fn8 a plaintiff must show that defendants: (1) made a misrepresentation or omission of a material fact; (2) with scienter; (3) in connection with the purchase or the sale of a security; (4) upon which the plaintiff reasonably relied; and (5) that the Plaintiffs' reliance was the proximate cause of his or her injury. Semerenko v. Cendant Corp., 223 F.3d 165, 174 (3d Cir. 2000). Defendants contend that this cause of action should be dismissed because Plaintiffs' pleadings do not adequately plead scienter; and the statements made by Wilde and Lui are protected by the "safe harbor" of the PSLRA.

  Where pleadings allege fraud, they fall under the heightened requirements of Rule 9(b). In a complaint averring fraud, "the circumstances constituting fraud or mistake shall be stated with particularity."*fn9 FED. R. CIV. P. 9(b). The PSLRA also imposes a heightened pleading standard for securities fraud actions. Pursuant to the PSLRA, for each alleged misleading statement, the plaintiff must show the reasons why the statement is misleading, and the facts on which the belief is formed that the statement is misleading if the allegation is made on information or belief.*fn10 NAHC, 306 F.3d at 1328 (citing 15 U.S.C.A. § 78u-4(b)(1)). It also requires the plaintiff, to allege "with particularity" facts that give rise to a strong inference that the defendant acted with the required state of mind in connection with the alleged act or omission. 15 U.S.C.A. § 78u-4(b)(2). Whereas Rule 9(b) allows state of mind to be averred generally, the PSLRA requires the plaintiff to "state with particularity" facts relating to state of mind. NAHC, 306 F.3d at 1328 (citing In re Advanta Corp. Sec. Litig., 180 F.3d 525, 531 n. 5 (3d Cir. 1999)). To the extent that Rule 9(b) ...

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