CITY OF DEARBORN HEIGHTS ACT 345 POLICE FIRE R, Paul Lichtman, Steve O’Brien, Robert Yasuhira, Lead-Plaintiffs-Appellants, Vincent W. Lee, On Behalf of Himself and All Others Similarly Situated, John Pifer, Plaintiffs, Alois Guy Bisschops, individually and on behalf of all others similarly situated, Wyma Jean Econ, on behalf of herself and all others similarly situated, Aviva Partners, LLC, individually and on behalf of all others similarly situated, Thomas Jordan, on behalf of himself and all others similarly situated, Rami Rao, on behalf of himself and all others similarly situated, Ilene Amour, individually and on behalf of all others similarly situated, Trevor I. Briede, on behalf of himself and all others similarly situated, Consolidated-Plaintiffs, v. AXONYX, INC., Marvin S. Hausman, Gosse B. Bruinsman, Defendants-Appellees,

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S. Colin Neill, Consolidated-Defendant.

Docket No. 09-1773-cv.United States Court of Appeals, Second Circuit.
March 23, 2010.

[EDITOR’S NOTE: This case is unpublished as indicated by the issuing court.]

Appeal from a judgment of the United States District Court for the Southern District of New York (Griesa, J.).


Susan K. Alexander (Sanford Svetcov, Samuel H. Rudman, Evan J. Kaufman, on the brief); Coughlin Stoia Geller Rudman Robbins LLP; San Francisco, CA, for Appellant.

May Orenstein, (Sigmund S. Wissner-Gross, on the brief); Brown Rudnick LLP; New York, NY, for Appellee.

Present: PETER W. HALL, DEBRA ANN LIVINGSTON, Circuit Judges, and DENNY CHIN, District Judge.[1]

[1] The Honorable Denny Chin, United States District Judge for the Southern District of New York, sitting by designation.

Plaintiffs-Appellants appeal from the district court’s opinion and order dismissing their complaint under Fed.R.Civ.P.12(b)(6) for failure to state a claim. We assume the parties `familiarity with the facts, procedural history, and specification of issues on appeal.

We review de novo a district court’s dismissal for failure to state a claim. S. Cherry St., LLC v. Hennessee Group LLC, 573 F.3d 98, 103 (2d Cir. 2009). We also assume all well-pleaded factual allegations are true and, applying that assumption, determine whether complainants are entitled to relief. Id. at 104; see also ECA, Local 1.U IBEW Joint Pension Trust of Chi. v. JP Morgan Chase Co., 553 F.3d 187, 196(2d Cir. 2009). “Any complaint alleging securities fraud must satisfy the heightened pleading requirements of the [Private Securities Litigation Reform Act (the “PSLRA”)] and Fed.R.Civ.P. 9(b) by stating with particularity the circumstances constituting fraud.”Id.
(citing Tellabs, Inc. v. Makor Issues Rights,

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Ltd., 551 U.S. 308, 127 S.Ct. 2499, 168 L.Ed.2d 179
(2007)). Even though “`we normally draw reasonable inferences in the non-movant’s favor on a motion to dismiss,’ the PSLRA’ establishes a more stringent rule for inferences involving scienter `because the PSLRA requires particular allegations giving rise to a strong inference of scienter.”Id. (quoting Teamsters Local H5 Freight Div. Pension Fund v. Dynex Capital Inc., 531 F.3d 190, 194 (2d Cir. 2008)); see also Tellabs, 551 U.S. at 314, 127 S.Ct. 2499 (“To qualify as `strong’ within the intendment of [the PSLRA], we hold, an inference of scienter must be more than merely plausible or reasonable — it must be cogent and at least as compelling as any opposing inference of non fraudulent intent.”).

Section 10(b) of the Securities Exchange Act of 1934 makes it illegal “for any person, directly or indirectly, . . . [t]o use or employ . . . any manipulative or deceptive device” in connection with a sale or purchase of securities. 15 U.S.C. § 78j. Its corollary, Rule 10b-5, makes it illegal “[t]o 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(b).

The appellants argue that Axonyx and the individual appellees violated § 10(b) and Rule 10b-5 by presenting artificially positive statements about the first Phase III trial of the Alzheimer’s drug Phenserine. The purpose of these statements, appellants allege, was to inflate the stock price of Axonyx in order to profit Axonyx’s owners to the detriment of the stockholders. The district court determined, however, that appellants failed to allege sufficient specific facts to state a claim that appellees purposely misled investors regarding Phenserine and the likelihood it would be successful as a drug to treat Alzheimer’s. In particular, the complaint failed to raise a strong inference of scienter on the part of the defendants. We agree.

Although appellants argue that, rather than accepting the arguments as true, Judge Gries a dismissed the complaint because he was skeptical of them, his opinion states clearly that “the court will accept as true the allegations about defects in the Phase III trials.” The decisive point for Judge Gries a remained “that there [wa]s no sufficient pleading of scienter regarding the so-called defects” in the Phase III trial. As Judge Griesa noted throughout his decision, appellants rely on opinions of confidential witnesses to support their allegations, but they fail to offer any factual under pinnings for those opinions. Ultimately, Judge Griesa determined, and we agree, that any inference in the complaint of scienter is less compelling that any opposing inference that Axonyx’s trial of Phenserine was merely unsuccessful. See Tellabs, 551 U.S. at 314, 127 S.Ct.2499.

After reviewing the issues on appeal and the record of proceedings below, we affirm for substantially the reasons articulated by the district court in its thoughtful and well-reasoned order and opinion.

Accordingly, the judgment of the district court isAFFIRMED.

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