TIMOTHY C. BATTEN, SR., District Judge.
This securities-fraud case comes before the Court on the individual Defendants'
Defendant Montgomery is a holding company for Montgomery Bank & Trust, a federally licensed bank in Georgia. The individual Defendants are directors (and in some cases senior officials) of Montgomery and the bank. In early 2010, Montgomery wanted to sell controlling interest in the company, so it marketed the sale of common stock principally through a confidential private placement offering memorandum (PPM) dated April 9, 2010. Among other things, the PPM included an unaudited consolidated balance sheet as of December 31, 2009. "Loans, less allowance for loan losses" constituted the lion's share of Montgomery and the bank's combined assets — $154.5 million of $247.9 million, or 62.3 percent. According to the PPM, "allowance for loan losses" meant "an estimated allowance that we believe will be adequate to absorb losses inherent in the loan portfolio based on evaluations of its collectability" in light of several factors, including the "overall portfolio quality, specific problem loans and commitments and current anticipated economic conditions that may affect the borrower's ability to pay." This allowance was $1.88 million as of December 31, 2009.
In late spring or early summer 2010, Montgomery began negotiating with Aubrey Price, a financial advisor who managed the investment fund PFG, LLC and offered investment advice through PFG Asset Management, LLC (later Montgomery Asset Management, LLC). Price became interested in purchasing controlling interest of Montgomery and formed PFGBI, LLC to pool funds from his clients that would be invested in Montgomery.
On September 28, 2010, PFGBI executed a subscription agreement with Montgomery whereby it committed to pay $5.1 million and to raise $5.1 million from a private placement to purchase the bulk of Montgomery's common stock. To gain approval for the sale, representatives from Montgomery and PFGBI met several times with banking regulators. At an October 2010 meeting, Montgomery represented that its loan portfolio value had dropped $17.5 million to $137 million, an 11.3 percent decline in just ten months.
On May 31, 2012, just weeks before the FDIC's takeover, the loan portfolio's value totaled $100 million.
On July 11, 2013, in lieu of a response to the individual Defendants' June 24 motion to dismiss, Plaintiff Melanie Damian, who serves as the receiver for the estate of Aubrey Price and several legal entities,
The individual Defendants have moved to dismiss the amended complaint for failing to state a claim. They make four arguments. First, the Court lacks subject-matter jurisdiction because the amended complaint does not set forth well-pleaded facts establishing a nexus with interstate commerce. Second, the amended complaint fails to meet the heightenedpleading standards of Federal Rule of Civil Procedure 9(b) and the Private Securities Litigation Reform Act of 1995 (PSLRA). Third, without a well-pleaded securities claim against Montgomery, the alleged primary violator, the securities claim against the individual Defendants necessarily fails. And fourth, absent a well-pleaded federal claim, the state-law claims should be dismissed.
Montgomery has also moved to dismiss the amended complaint for failure to state a claim. Montgomery adopted the individual Defendants' arguments and added another: no party that Damian represents could have reasonably relied on loan-portfolio-valuation numbers in the PPM that were "unaudited, out of date, and subject to numerous disclaimers and exceptions."
The crux of Damian's response is that the amended complaint meets the heightened-pleading requirements under Rule 9(b) and the PSLRA. And insofar as the Court identifies defects in the amended complaint, she "respectfully requests leave to amend to correct any deficiency."
The individual Defendants contend that Damian has failed to plead facts sufficient to establish this Court's subject-matter jurisdiction. Federal Rule of Civil Procedure 8(a)(1) governs whether federal jurisdiction is well pleaded; that is, the complaint must include "a short and plain statement of the grounds for the court's jurisdiction." The amended complaint does.
In a securities-fraud case under § 10(b) and Rule 10b-5, federal-question jurisdiction exists where the defendant accomplished the alleged violation "directly or indirectly, by use of any means or instrumentality
This is an exceedingly low threshold. For instance, to satisfy this requirement the defendant need only make use of an instrumentality of interstate commerce — such as telephone or email service — or the mails in connection with the alleged fraud. See, e.g., Gower v. Cohn, 643 F.2d 1146, 1152 (5th Cir. Unit B 1981) (holding use of a telephone sufficient); Bunnell v. Netsch, No. 3:12-cv-3740-L, 2013 WL 2494987, at *7 (N.D.Tex. June 11, 2013) (holding that "it is beyond debate that the Internet and email are facilities or means of interstate commerce" (quoting United States v. Barlow, 568 F.3d 215, 220 (5th Cir.2009)) (alterations omitted) (internal quotation marks omitted)).
Damian alleges that Montgomery engaged in interstate commerce by selling and marketing its securities (shares of common stock) to residents of other states and that it used the mails and email while doing so. Nothing else is required. Thus, the Court denies the individual Defendants' request to dismiss the amended complaint on the basis that Damian fails to allege a sufficient connection to interstate commerce.
A claim will be dismissed under Federal Rule of Civil Procedure 12(b)(6) if the plaintiff does not plead "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 547, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007); Chandler v. Sec'y of Fla. Dep't of Transp., 695 F.3d 1194, 1199 (11th Cir.2012). The Supreme Court has explained this standard as follows:
Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (internal citation omitted); Resnick v. AvMed, Inc., 693 F.3d 1317, 1325 (11th Cir.2012). Thus, a claim will survive a motion to dismiss only if the factual allegations in the complaint are "enough to raise a right to relief above the speculative level," and "a formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555, 127 S.Ct. 1955. And while all well-pleaded facts must be accepted as true and construed in the light most favorable to the plaintiff, Powell v. Thomas, 643 F.3d 1300, 1302 (11th Cir.2011), the court need not accept as true plaintiff's legal conclusions, including those couched as factual allegations, Iqbal, 556 U.S. at 678, 129 S.Ct. 1937.
Additionally, because this case involves federal securities fraud, Damian's amended complaint must satisfy the special-pleading standard of Rule 9(b) and the heightened-pleading standard of the PSLRA to survive Montgomery's and the individual Defendants' motions to dismiss. FindWhat Investor Grp. v. FindWhat.com, 658 F.3d 1282, 1296 (11th Cir.2011).
Section 10(b) and Rule 10b-5 make it unlawful for an individual to employ a manipulative or deceptive device in connection with the purchase or sale of any security. 15 U.S.C. § 78j(b); 17 C.F.R. § 240.10b-5. To state a securities-fraud claim under these provisions, a plaintiff
Rule 9(b) and the PSLRA set the standard for pleading a material misrepresentation. First, the complaint must "precisely" identify each allegedly misleading statement — its content, when and where it was made, and who was responsible for making it. 15 U.S.C. § 78u-4(b)(1); FindWhat Investor Grp., 658 F.3d at 1296 (emphasis added). Second, the complaint must specify why the statement is misleading and how it misled the plaintiff, and if the plaintiff's allegation that the statement is misleading is made on "information and belief," then the complaint must "state with particularity all facts on which that belief is formed." 15 U.S.C. § 78u-4(b)(1); see also FindWhat Investor Grp., 658 F.3d at 1296. Finally, the complaint must specify what the defendant gained as a result of making the false or misleading statement. FindWhat Investor Grp., 658 F.3d at 1296.
The PSLRA is clear: if the plaintiff alleges that the defendant company made a misstatement or omission "on information and belief," then the plaintiff must "state with particularity all facts on which that belief is formed." 15 U.S.C. § 78u-4(b)(1). Any allegation in a federal securities-fraud case that is not based on the plaintiff's personal or firsthand knowledge is based on information and belief. See ABC Arbitrage Plaintiffs Grp. v. Tchuruk, 291 F.3d 336, 351 & n. 70 (5th Cir.2002) (holding that the PSLRA's pleading requirements applied because the allegations in the complaint were "not based upon [the plaintiffs'] personal knowledge and are therefore necessarily pleaded on `information and belief,' although not labeled as such"); Carpenters Health & Welfare Fund of Phila. v. Coca-Cola Co., No. 1:00-cv-02838-WBH, 2002 WL 34089163, at *14 (N.D.Ga. Aug. 20, 2002) (noting that "any allegation that is not based on first hand knowledge is necessarily based on information and belief").
The parties dispute whether all of Damian's allegations are made on information and belief. She asserts that only her statement about how much money the FDIC provided after its takeover is made on information and belief. The individual Defendants counter that all of her allegations are based on information and belief, since she was not appointed the receiver until August 10, 2012 — long after any alleged misstatement of the loan portfolio's value.
But does the fact that Damian was not present for any alleged misstatement necessarily preclude her from having personal knowledge? She doesn't think so. She contends that she has firsthand knowledge to support her allegation that the bank's
Thus, the Court must decide whether allegations based on a receiver's personal review of confidential information is nonetheless "made on information and belief" for purposes of determining the pleading requirements under § 78u-4(b)(1).
Although no cases address whether a receiver's investigation of the receivership entity's books and records gives rise to personal or firsthand knowledge for purposes of § 78u-4(b)(1), many cases have addressed whether allegations based on the investigations of counsel are based on information and belief. Those cases generally hold that they are. See, e.g., Adams v. Kinder — Morgan, Inc., 340 F.3d 1083, 1098 (10th Cir.2003) ("Because the plaintiffs' complaint refers to the investigation of their counsel as the basis for their allegations, we treat their complaint as having been made on information and belief."); ABC Arbitrage Plaintiffs Grp., 291 F.3d at 351 n. 70 ("We also agree with those courts which have held that allegations made on `investigation of counsel' are equivalent to those made on `information and belief for the purposes of the heightened pleading requirements under [the PSLRA]."); In re Theragenics Corp. Sec. Litig., 105 F.Supp.2d 1342, 1351 (N.D.Ga.2000) ("The Court has reviewed the cases on point and agrees with those that hold that allegations based on the investigations of counsel are the equivalent of allegations based on information and belief.").
Why this is so is succinctly stated in Malin v. XL Capital Ltd., 499 F.Supp.2d 117 (D.Conn.2007), a case where all of the plaintiff's allegations were based on counsel's investigation of SEC filings, analyst reports, press releases, corporate documents and interviews with confidential witnesses.
Id. at 136 n. 16 (internal citations omitted).
The Court can discern no reason to treat the investigations of receivers and counsel differently. Here, for instance, Damian states that her allegations are based on her extensive review of the same type of documents as the counsel in Malin: corporate records. The only wrinkle is that most of these are documents are confidential. Yet no matter how extensively or thoroughly she reviewed these documents, one simple fact remains: she lacks personal knowledge of the value of the bank's loan portfolio at the time Montgomery
But this is only half of an answer. To determine whether Damian's allegations satisfy the PSLRA's pleading standard, the Court next considers what must be included in the complaint to do so.
Despite the plain language of § 78u-4(b)(1), most courts — including this Court — do not construe that section to require that the plaintiff specifically plead "all facts" that gave rise to an allegation based on information and belief. For example, after an extensive review of the PSLRA, its history and numerous decisions, this Court in In re Theragenics Corp. Sec. Litig., 105 F.Supp.2d at 1355, agreed with the conclusion of the Second Circuit: "[N]otwithstanding the use of the word `all,' [§ 78u-4](b)(1) does not require that plaintiffs plead with particularity every single fact upon which their beliefs concerning false or misleading statements are based. Rather, plaintiffs need only plead with particularity sufficient facts to support those beliefs," Novak v. Kasaks, 216 F.3d 300, 313-14 (2d Cir.2000). Thus, plaintiffs in securities-fraud cases in this Court can satisfy this pleading requirement by
In re Theragenics Corp. Sec. Litig., 105 F.Supp.2d at 1355.
The Eleventh Circuit has never considered what information must be included in a securities-fraud complaint when the plaintiff seeks to rely on confidential documents. But other circuits have. Those cases have arrived at the following rule: A plaintiff who makes allegations based on documentary evidence — whether confidential or not — "needs to specify the internal reports, who prepared them and when, how firm the numbers were or which company officers reviewed them." ABC Arbitrage Plaintiffs Grp., 291 F.3d at 356 (quoting In re Scholastic Corp. Sec. Litig., 252 F.3d 63, 72 (2d Cir. 2001)) (internal quotation mark omitted). Consequently, an "unsupported general claim of the existence of confidential sales reports that revealed the larger decline in sales is insufficient to survive a motion to dismiss." Id. at 355-56 (quoting San Leandro Emergency Med. Grp. Profit Sharing Plan v. Philip Morris Cos., 75 F.3d 801, 812 (2d Cir.1996)) (internal quotation marks omitted). Similarly, an allegation is wholly conclusory and lacks data to support it where a plaintiff "fail[s] to identify who authored the alleged report, when it was authored, who reviewed the report, and what data its conclusions were based upon." Cal. Pub. Emps.' Ret. Sys. v. Chubb Corp., 394 F.3d 126, 147 (3d Cir. 2004).
These cases are persuasive.
The Court now turns to Damian's allegations.
Damian alleges that while Montgomery was attempting to sell controlling interest in the company, it falsely stated the value of the bank's loan portfolio on two occasions: first, in the April 2010 PPM, and second, during an October 2010 meeting with banking regulators.
Yet after carefully reviewing both the amended complaint and her brief, the Court finds that Damian marshals only two facts to support her allegation. The first is her belief that when the FDIC took over the bank in June 2012 — seventeen months after PFGBI purchased controlling interest of Montgomery — it provided $70 million to cover the insured deposits.
Contrary to Damian's contention, her § 10(b) and Rule 10b-5 claim is not well pleaded. All of her allegations — including her allegation that Montgomery made a material misstatement — are made on information and belief. But the amended complaint includes no information that allows the Court to understand the foundation or basis for her belief that Montgomery falsely stated the value of the loan portfolio in the April 2010 PPM or the October 2010 meeting with banking regulators. Thus, the amended complaint must be dismissed for failure to plead a material misstatement or omission with sufficient particularity. The Court, however, will grant Damian leave to file a second amended complaint that cures this and the other the pleading deficiencies described below.
While Rule 9(b) permits scienter to be plead generally, the PSLRA imposes a higher standard: the plaintiff in a securities-fraud case must "state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind." 15 U.S.C. § 78u-4(b)(2). The plaintiff must allege facts that create a strong inference of scienter for each defendant and each alleged violation of the statute. Mizzaro, 544 F.3d at 1238. And to plead corporate scienter, the plaintiff must allege facts that engender a strong inference "that somebody responsible for the allegedly misleading statements must have known about the fraud." Id. at 1254.
To satisfy the scienter element, the defendant must have acted with either "intent to deceive, manipulate, or defraud" or "severe recklessness." Id. at 1238 (quoting Bryant v. Avado Brands, Inc., 187 F.3d 1271, 1282 (11th Cir.1999)) (internal quotation marks omitted). The Eleventh Circuit describes "severe recklessness" as
Id. (quoting Bryant, 187 F.3d at 1282 n. 18).
In other words, to adequately plead scienter for a securities-fraud claim, the plaintiff must set forth "`with particularity facts giving rise to a strong inference' that the defendants either intended to defraud investors or were seriously reckless when they made the allegedly materially false or incomplete statements." Id. And the inference of scienter is "strong" when it is "more than merely plausible or reasonable — it must be cogent and at least as compelling as any opposing inference of nonfraudulent intent." Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 314, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007).
To determine whether scienter is well pleaded, a court follows a three-step approach: (1) it accepts as true all allegations in the complaint; (2) it considers the complaint holistically along with the other
Damian's brief posits that the amended complaint raises a strong inference of scienter. To reach this conclusion, she seizes first on the size of the alleged misstatement ($50 million), noting that it is nearly five times the amount that PFGBI paid for controlling interest of Montgomery.
Neither the amended complaint nor Damian's brief suggests that Montgomery intended to defraud potential investors. Thus, to adequately plead a strong inference of scienter, the amended complaint must establish that Montgomery was severely reckless in projecting the amount of loan losses. It does not.
Put simply, Damian seeks to conclude from two disjointed pieces of information — the audit report she cites and her belief that the FDIC provided $70 million after its takeover — that the reported valuations of the loan portfolio were false and that this falsity was so obvious that anyone responsible for making them either knew or was severely reckless in not knowing that they were false. But unlike in Mizzaro, where the facts alleged in the amended complaint, if accepted as true, established the existence of a fraudulent scheme, the two facts upon which Damian relies do not even establish that Montgomery's alleged misstatements were false when they were made.
More importantly, even if they did, they do not establish that a reasonable person would infer that there is at least a 50 percent chance the individual Defendants either approved of the alleged fraud (and thus always knew about it), learned about it sometime before October 2010 (the date of the last alleged misstatement), or were
In Mizzaro, the Eleventh Circuit held that an amended complaint that "relie[d] exclusively on the widespread nature of the fraud, and the purported amount of the fraud, to draw a strong inference that the individual defendants (all high-ranking officials) acted with the requisite scienter" did not satisfy the scienter element. Id. For example, the plaintiffs had not cited any "documentation, communication, or conversation suggesting that the high-ranking defendants knew anything about the alleged fraud." Id. at 1250. Nor was the amount of the alleged fraud pleaded with sufficient specificity. See id. at 1251 ("[E]ven assuming the fraud was widespread, we have no reliable way of estimating its total amount, let alone inferring from the dollar amount the knowledge of senior management."). Thus, to adequately plead a strong inference of scienter Damian needs to plead facts that connect the individual Defendants with the allegedly false statements.
Damian's attempt to do so through the October 6 order fails. To be sure, the FDIC's investigation uncovered several areas of concern, which were identified in the October 6 order, including "the volume and quality of the Bank's loans; the Bank's operation with an excessive volume of adversely classified assets; [and] the adequacy of the Bank's allowance for loan and lease losses." For this reason, and as noted in the PPM, the October 6 order required the board of directors to take specific actions. For example, the bank had to "maintain a fully funded allowance for loan and lease losses; implement an effective system of grading and reviewing the Bank's loan portfolio; ... establish a comprehensive plan for determining the adequacy of the Bank's allowance for loan and lease losses; ... [and] implement a written lending and collection policy to provide guidance over the Bank's lending function," among other things. Additionally, the order mandated that the bank charge-off or collect any loan classified as "loss" and 50 percent of loans classified as "doubtful," and it prohibited the bank from extending any credit to borrowers whose loans had been charged-off or were classified as "loss," "doubtful" or "substandard."
In short, the October 6 order paints an unhappy picture of the bank's financial condition as of May 4, 2009, the date of the FDIC's investigation. Indeed, the FDIC's findings and the remedial measures it ordered reveal that the bank was struggling to remain adequately capitalized and that the bank's allowances for loan losses may have been undervalued. But rather than hiding these adverse facts from potential investors like PFGBI, Montgomery explicitly disclosed them in the PPM.
Even after considering the amended complaint holistically, the brief Damian filed and the PPM, and treating the facts alleged as true (even though they are improperly pleaded), the amended complaint fails to satisfy the strict pleading requirements of the PSLRA. At most the October 6 order gives rise to an inference that the bank's officers and directors had been negligent — perhaps even inexcusably so — in overseeing how and ensuring that the bank properly determined the allowance for loan losses before the entry of that order. But under the PSLRA a showing of negligence is not enough to support a strong inference of scienter. See Mizzaro, 544 F.3d at 1238.
In a securities-fraud case, the plaintiff must show "justifiable reliance" on
To prove justifiable reliance on the misrepresented or omitted information, Damian must show that "with the exercise of reasonable diligence [PFGBI] still could not have discovered the truth behind the fraudulent omission or misrepresentation." Gochnauer v. A.G. Edwards & Sons, 810 F.2d 1042, 1047 (11th Cir.1987). "The traditional (and most direct) way a plaintiff can demonstrate reliance is by showing that he is aware of a company's statement and engaged in a relevant transaction — e.g., purchasing common stock — based on that specific misrepresentation." Erica P. John Fund, Inc. v. Halliburton Co., ___ U.S. ___, 131 S.Ct. 2179, 2185, 180 L.Ed.2d 24 (2011).
Damian fails to adequately plead reliance even under the minimal notice-pleading standard of Rule 8(a). As discussed, she has not adequately pleaded a material misrepresentation and thus cannot adequately plead reliance. See Morgan Keegan, 678 F.3d at 1244. The Court therefore need not address Montgomery and the individual Defendants' additional arguments that Damian did not sufficiently plead reliance.
Under the PSLRA, a plaintiff has the burden of proving that the act or omission of the defendant proximately caused the plaintiff's injury. See Dura Pharm., 544 U.S. at 340, 125 S.Ct. 1627; see also 15 U.S.C. § 78u-4(b) (requiring proof that the misrepresentation "caused the loss for which the plaintiff seeks to recover"). Loss causation refers to the link between the defendant's misconduct and the plaintiff's economic loss; thus, the plaintiff must show that "the untruth was in some reasonably direct, or proximate, way responsible for his loss." In re Coca-Cola Enters., Inc. Sec. Litig., 510 F.Supp.2d 1187, 1203 (N.D.Ga.2007).
Allegations of loss causation in a securities-fraud case need only satisfy Rule 8(a)(2). In re HomeBanc Corp. Sec. Litig., 706 F.Supp.2d 1336, 1361 (N.D.Ga. 2010) (citing Dura Pharm., 544 U.S. at 346, 125 S.Ct. 1627). To adequately plead this element, the plaintiff must allege that the share price of the security at issue "fell significantly after the truth became known," Dura Pharm., 544 U.S. at 347, 125 S.Ct. 1627, or that the defendant's misstatements concealed a foreseeable risk that ultimately materialized and "negatively affected the value of the security," Lentell v. Merrill Lynch & Co., 396 F.3d 161,
Patel v. Patel, 761 F.Supp.2d 1375, 1381 (N.D.Ga.2011). At the motion-to-dismiss stage, dismissal is required if the plaintiff offers no facts that distinguish "between losses caused by the defendants' alleged misrepresentations and the intervening events that wreaked havoc on the banking industry as a whole." Id.
Damian contends that the amended complaint meets this standard because it includes an allegation that "PFGBI would not have invested in [Montgomery] if it would have known that [Montgomery]'s representations about loan loss projections were off by $50 million." [35 at 19]. She further contends that PFGBI's losses were caused by the alleged false statements rather than the bank's closing.
The individual Defendants argue that the outcome in this case should be the same as in Patel because Damian has failed to plead facts that show that the losses of the estate of Aubrey Price and the receivership entities were caused by Montgomery's conduct rather than intervening events.
Damian has not adequately pleaded loss causation. She attempts to distinguish Patel by contending that it was the alleged overvaluation of the bank's loan portfolio, not the FDIC's takeover in June 2012, that rendered the securities PFGBI purchased worthless. But this attempt falls flat for two reasons. First, she has not adequately pleaded a material misstatement. Second, she has not pleaded facts that if proven would establish that the common stock PFGBI purchased on December 31, 2009 was worthless. Nor has she pleaded any facts that if proven would distinguish the losses that were the result of the alleged overvaluation of the bank's loan portfolio from those that were the result of intervening events unrelated to Montgomery's conduct. Thus, even under the minimal pleading standard of Rule 8(a), Damian has failed to adequately plead that the alleged misstatements were a substantial or significant contributing cause of her damages.
In sum, Damian has failed to sufficiently plead a misstatement or omission of material fact, a strong inference of scienter, reliance on the alleged misstatement, and loss causation. As a result, her claim under § 10(b) and Rule 10b-5 against Montgomery must be dismissed.
Section 20(a) of the Exchange Act provides that "[e]very person who, directly or indirectly, controls any person liable under any provision of this chapter ... shall ... be liable jointly and severally with and to the same extent as such controlled person." 15 U.S.C. § 78t(a). This statute "imposes derivative liability on persons that control primary violations of the Act." Laperriere v. Vesta Ins. Group, Inc., 526 F.3d 715, 721 (11th Cir.2008). A primary violation of the securities laws is an
The amended complaint also includes state-law claims for negligent misrepresentation and common-law fraud. Damian has not alleged that the Court has original subject-matter jurisdiction over these claims but rather asks that the Court exercise supplemental jurisdiction under 28 U.S.C. § 1367(a). Because the Court "has dismissed all claims over which it has original jurisdiction," the Court declines to exercise supplemental jurisdiction over the remaining state-law claims. Id. § 1367(c)(3); see also Baggett v. First Nat'l Bank of Gainesville, 117 F.3d 1342, 1353 (11th Cir.1997) ("State courts, not federal courts, should be the final arbiters of state law."). Damian's state-law claims are accordingly dismissed without prejudice.
The individual Defendants and Montgomery's motions to dismiss for failure to state a claim [26, 28] are GRANTED WITHOUT PREJUDICE. Damian is granted leave to file, on or before November 27, 2013, a second amended complaint that cures the deficiencies discussed above.
Id. at 1240. Thus, allegations based on confidential personal sources are well pleaded so long as "in a cognizable and detailed way" the complaint "fully describes the foundation or basis the witness's knowledge."
