Court Cites Rule 10b5-1(c) Trading Plan in Private Securities Class Action Lawsuit

Originally published on this site November 7, 2003

Edited June 7, 2015 to report F. Supp. 2d cite


In a case argued by yours truly, Wietschner v. Monterey Pasta Co., No. C 03-0632 MJJ, slip op. (N.D. Cal. Nov. 4, 2003), [Editor’s Note:  subsequently, the decision was published at 294 F. Sup. 2d 1102]   Judge Martin Jenkins of the Northern District of California cited the alleged Rule 10b5-1(c) trading plans of the individual defendants as part of his ruling that the defendants' stock sales were not suspicious for purposes of pleading scienter in a private securities class action lawsuit.

To my knowledge, this is the first ruling of this type since the enactment of Rule 10b5-1(c). We have submitted the opinion for publication by WESTLAW; it is unknown whether Judge Jenkins intends to publish it in the Federal Supplement.    [Editor’s Note:  it was published, as noted above]

The Court granted a motion to dismiss in this lawsuit, which alleges channel stuffing by a fresh pasta company. The court found the complaint and its sole source woefully deficient in supporting its allegations. The court also agreed with defendants that an alleged violation of Item 303 and SAB 101 did not support a securities fraud claim, in part because the disclosure standards for those SEC pronouncements on the one hand and §10(b) on the other were different. Significantly, for the first time, a court held that the defendants' Rule 10b5-1(c) trading plans -- which had been annoucned in a press release and alleged in the complaint -- could negate an inference that stock sales were suspicious. Slip op. at 15. The court did suggest that it was inclined not to allow risk factors included in SEC filings incorporated by reference to count for Safe Harbor purposes.

The Court gave plaintiffs leave to amend if they so chose. I will keep you updated on any further developments.  [Editor’s Note:  plaintiffs declined to amend.]

© David Priebe 2016