Cooper et al v. DJSP Enterprises, Inc. et al

Filing 54

Final Order of Dismissal without Prejudice. Signed by Judge William J. Zloch on 9/30/2011. (bc)

f
'
'

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
CASE NO . 10-6l261-CIV-ZLOCH
PHILADELPHIA FINANCIAL
MANAGEMENT OF SAN FRANCISCO ,
LLC; BLUE LION MASTER FUND ?

L.
P., a/k/a Blue Lion Capital;
STAN COOPER ; NEERAJ METHI; and
GARY CURSON , DPM , individually
and on behalf of all others
similarly situated ,
FINAL ORDER OF DISM ISSAL

Plaintiffs,
V .

DJSP ENTERPRISES ? INC .; DAVID J .
STERN ; and KUMAR GURSAHANEY ,

Defendants .

THIS MATTER is before the Court upon Defendants' Motion To

Dismiss ( 44). The Court has carefully reviewed said Motion, the
DE
entire court file and is otherwise fully advised in the premises .
1.

Complaint A llegationsl

Defendant DJSP Enterprises, Inc. Ch
DJSP' performs processing
Q
services for residential mortgage foreclosures and related matters .
DJSP provides these services exclusively to the Law Offices of

David J . Stern, P. . ('
A
'
LODJS' a law firm that represents mortgage
'),
holders

in

foreclosure proceedings .

During

the

time period

relevant here , Defendant David J . Stern , the sole owner of LODJS,

served as the president , chief executive officer , and chairman of
DJSP, and Defendant Kumar Gursahaney served as its executive vice

The

facts recited here, taken mainly

from

Plaintiffs'

Consolidated Amended Complaint ( 38), are accepted as true for
DE
purposes of this Motion .

See Tellabs , Inc . v . Makor Issues &

Rights. Ltdw 551 U . 308, 322 (2007).
S.

president and chief financial officer .
z

Throughout the relevant

time period , DJSP'S common stock and warrants3 were publicly traded

on the NASDAQ market.
A.

Corporate Formation

Plaintiffs' Complaint describes the process by which DJSP was
formed . The Court will summarize this p rocess as it pertains to
the claims at issue here .

The original corporate entity , called

Chardan 2008 China Acquisition Corp . ('
'chardan'), was incorporated
d
in February 2008 . That same year, Chardan issued app roximately 11

million warrants Cl
the Chardan warrants' , each of which could be
o
exercised to purchase one share o f the company 's common stock for

$5.
00.

The majority of these warrants, issued as part of the

company 's initial public offering, could be redeemed by the company

for $0.
01 each after giving 30 days' notice, but only if two
conditions were met :

the shares underlying the warrants were

registered pursuant to a registration statement declared effective

by the Securities and Exchange Commission (
SEC), and

(
2) the

closing price of the company's stock equaled or exceeded $10. for
00
20 out o f 30 consecutive trading days .
satisfied

and

the company

proceeded

If these conditions were
to

redeem

the

warrants,

virtually a1l of the warrants would be exercised first, since the
market price of the company 's shares would almost certainly exceed

This Order refers collectively
Gursahaney as 'Defendants .'
'
'

to

DJSP,

Stern ,

and

3 A warrant is 1 ( n instrument granting the holder a long% a)
term ( . a five- to ten-year) option to buy shares at a fixed
usu
price .' Black's Law Dictionarv 1724 (
'
9th ed. 2009).
2

the exercise price (
$5.00) by an amount greater than the redemption
price ( 01).
$0.
In December 2009,

ownership

interest

Chardan agreed to purchase a majority
certain businesses owned by Stern that

performed non -legal services (
including processing, title, and

liquidation services) in support of the legal services provided by
LODJS .

The assets of these businesses were transferred to three

limited -liability companies that were subsidiaries of DAL Group ,

LLC (' ')
'DAL'

As part of the transaction, Stern would receive from

DAL a total payment of $146 million, consisting of three parts:
( an initial cash payment of about $58. million , ( a note in
l)
5
2)
a principal amount of approximately $52.5 million, and ( an
3)
additional payment of $35 million after the note was paid in full.
In addition , Chardan received warrants to purchase approx imately 11

million equity units in DAL ('the DAL warrantsr , which Chardan was
A
o
required to exercise if the corresponding Chardan warrants were
exercised .

Therefore , whatever funds Chardan received from the

exercise of the Chardan warrants would essentially pass through to

DAL and , ultimately , to Stern . The transaction also included other
terms to ensure that DAL promptly paid Stern the amounts owed to

him , using revenues from its business operations and funds received
from the exercise of the DAL Warrants .

These terms included a

promise by Chardan to redeem the Chardan warrants as soon as the
conditions needed to do so were met .

On January

2010, Chardan's purchase of the majority

interest in DAL was finalized .
3

A s of that date , Chardan was

renamed DJSP Enterprises, Inc w

and the company became publicly

traded under that name .

B.

Business Operations

A lthough LODJS'S legal services were officially separate from
the non -legal serv ices performed by DJSP, as a practical matter ,

the legal and non-legal businesses remained closely linked . LODJS
Was

DJSP 'S

only

customer ,

and ,

by

contract,

DJSP

prov ided

substantially all of the non-legal support serv ices requ ired by
LODJS . A lso , LODJS and DJSP operated out of the same facility .

Plaintiffs allege that before and during the time period
relevant to this case , emp loyees of LODJS and DJSP , acting at the

direction of Stern and other supervisors, routinely engaged in
unethical and illegal practices in the handling of foreclosure
actions , including the following :
*

churning out a large volume of foreclosure
documents with no regard for their accuracy ,
including signing court filings without ever
reading them ;

*

notarizing legal instruments outside the presence
of the signors and often long before or after the
documents were signed , passing around notary stamps
to be used indiscriminately by employees other than
the designated notaries public , and backdating
notarizations on documents using notary stamps that
did not ex ist until months after the documents were
originally filed ;

@

copying the signature page of a document concerning
one property and attaching it to a document
regarding another property , instead of obtaining a
true signature for the second document ;

@

concealing improprieties from outside parties by
altering case chronologies, temporarily changing
client codes on files , and hiding files ;

4

@

m ismanaging, and often losing , mortgage documents ;

@

signing affidavits of attorney 's fees with no
amounts filled in and having paralegals later write
in the amounts;

*

using social-security numbers for other people when
perform ing searches to determine whether missing
property owners were in military service ;

@

refusing to speak w ith homeowners who called w ith
compla ints, even
when
their
concerns
were
legitimate; and

@

imposing

excessive

homeowners .

C.

and

unjustified

fees

on

Pub lic Statements

Plaintiffs further claim that while this improper conduct was
occurring , Stern was attempting to drive up DJSP 'S stock price .
According to Plaintiffs , Stern wanted the stock price to rise above

$10. per share--a value it had never before seen--and remain at
00
that level long enough to trigger the exercise of the Chardan and
DAL warrants .4

This Would accelerate payment of the remaining

$87. million owed to Stern and eliminate the possibility that he
5
would never be paid in full due to a downturn in DJSP'S business .
For the same reasons, Stern was also try ing to meet the second

condition for redeem ing the Chardan warrants , namely , obtaining SEC

approval of a registration statement allowing the shares issued
upon the exercise of those warrants to be publicly traded .

4 More precisely, keeping the stock price above $10 .00 would
( cause the company to seek redemption of the redeemable portion
1)
of the Chardan warrants , effectively compelling the holders of

those warrants to exercise them; and ( ) encourage holders of the
2
nonredeemable Chardan warrants to exercise those warrants
voluntarily . The exercise of the Chardan warrants would , in turn ,
require the company to exercise the corresponding DAL warrants .
5

In furtherance of this plan , DJSP, Stern , and Gursahaney made
a series of statements, in SEC filings and other public forums ,
about DJSP'S business practices and expected financial performance .
Plaintiffs claim that these statements were materially false and

misleading because they m isrepresented or concealed the true nature
of DJSP'S operations and financial prospects . The statements that
Plaintiffs identify as false and misleading are discussed below .
On February

2010, DJSP filed with the SEC the first

version of a reg istration statement, signed by Stern , Gursahaney ,

and other company directors.

In this and later versions of the

registration statement filed during the first half of 2010 , as well
as in other SEC filingsps Defendants made various statements about
the processes used by DJSP and LODJS to ensure the efficient and
accurate handling of foreclosures and related matters- for example :

@

(
DJSP)

relies

heavily

on

a

proprietary

case

management software system , which stores, manages
and reports on the large amount of data associated
with each foreclosure, bankruptcy , REO liquidation
or eviction case file we process , to achieve a high
level of efficiency , accuracy and customer service .
@

Through extensive investment in its leading-edge
IT , development of scalable proprietary processes
as a centralized facility , and hiring and training
of the staff needed to conduct operations at a
large scale , we are well positioned to maintain a
competitive advantage in an industry generally
populated by smaller firms .

5 Three of DJSP'S filings with the SEc--the February 16 , 2010 ,
registration statement ; an April 2, 2010, annual report signed by
Gursahaney ; and a slide presentation that Stern and Gursahaney gave
at an investment conference on March l6, 2010--are attached to
Defendants' Motion to Dismiss . See DE 44-1, 44-2 , and 44 -3 . In

evaluating Defendants' Motion, the Court may take judicial notice
of these

and

other

relevant SEC

filings .

See

Thompson

v.

Relationserve Media, Inc w 6l0 F. 628, 63l n . (
3d
5 11th Cir. 2010).
6

@

Our IT systems allow us to interact efficiently
with clients and reduce processing time while
minim izing human error in handling approximately

5,000 new files that we currently receive l for
)
processing on average in a month .
@

A key factor in this success is the ongoing
implementation of leading edge IT solutions that
optim ize interface and data transfer activities
with clients and improve processing time while
reducing human error . We also deliver effective
staff training to ensure the efficient and
effective processing of a1l referrals .

@

Clients demand high levels of service from the
firms handling the mortgage foreclösure process ,
with a particu lar emphasis on the process rigor ,
efficiency and accuracy with which the firms

complete the foreclosure process. All the major

lenders have a well defined process for foreclosure
filings, and they expect their law firm vendors to
conform to the bank foreclosure process in order to
monitor progress and minimize losses throughout the
process . This process efficiency is critical, as
faster foreclosures mean fewer missed payments by
borrowers and fewer delinquency payments made by
loan serv icers to investors on behalf of delinquent
borrowers .
Accuracy is also critical, as any
resubmission of paperwork or additional court
hearings extend the foreclosure process and impose
additional cost . Reputation of the law firm and
tenure of the partner are also additional client
considerations .
@

We have . . . developed rigorous processes tailored

to the needs of each of E
LOIDJS'I clients as a
S!
result of having processed a significant percentage
of their case volume over many years of service .
We have also invested in proprietary technology
over the years to achieve h igh efficiency and
minimal foreclosure processing time . We believe
that, in comb ination with the increasing case
volumes , rising client expectations , and high
barriers to entry with respect to the substantial
minimum technological requirements to achieve
efficiency , we
are
uniquely
positioned
to
capitalize on opportun ities for further growth in
its current and future markets .
@

E
LOJDJS

has

made

significant

investments

in

technology , processes and staff in order to meet
the requirements for foreclosure actions throughout
Florida .

On February

2010, DJSP issued a press release announcing

its full-year earnings guidance for 2010 .

The company stated that

it expected to report adjusted net income of about $49 million and

adjusted EBI
TDA (
earni
ngs before i
nterest, t
axes, depreciation? and
amortization) of approximately $80.6 million, excluding one-time

expenses associated with the purchase of a majority interest in
DAL .

On March l1, 2010, DJSP issued another press release reporting

its financial results for the prior year .

This release included

the following quotation from Stern :
DJSP delivers unparalleled customer service by
combining unique mortgage and foreclosure
expertise with highly automated electronic
processing . This efficiency has historically
enabled us to significantly grow b0th our top
and bottom -line results . As a public company
we will be ab le to leverage our expertise,
diversify our service offerings, and expand
geographically in order to accelerate our
growth and enhance our client relationships .
Going forward , we are particularly excited
about our REO business which w ill become an
increasingly significant source of revenue and
income growth in the coming years .
In addition , the release reaffirmed DJSP 'S previously announced
earnings guidance for 2010 .
Between March and May 2010, Defendants held 'roadshows' to
'
'

promote

DJSP 'S

securities

to

market

analysts

and

potential

investors . According to Plaintiffs, these roadshows were unusual
because

Defendants

were

not

promoting
8

a

future

offering

of

securities but instead were seeking to create interest in the
company 's existing shares in order to bolster their price .
At a March l6, 2010, investment conference in California,
Stern

and

Gursahaney

separately

filed

that

gave
day

a

slide

with

presentation , which

the

SEC .

The

DJSP

presentation

highlighted , among other favorab le points, DJSP 'S 'unparalleled
'

customer service' and its ' tlransition to ( paperless system to
'
hl
a)
increase reliability , efficiency and margins .'
'

The presentation

also reiterated the company 's prior earnings guidance for 2010 . As
part of the presentation , Stern stated ,
Historical foreclosure growth , foreclosures
have experienced sustained growth for over 25
years at an annual rate of approximately 12:,
foreclosure volumes are expected by DJSP and
by all my comps to continue to grow to
historical height . Near term outlook , loans
past due the leading indicator for the future
foreclosures it continues to increase . No
matter what Obama rolls out , there is no
stopping this inflow of continued defaults
that we anticipate to go for another two or

three years. . . . REO (t
real estate owned by
foreclosing mortgage holdersll . . . need E
s)
to be liquidated and at the end of the day ,
the cycle will start again . Well, foreclosure
volumes through 2012 are expected to increase
dramatically and remain at high levels going
on till 2017 .

We currently only represent one client . We
expect to increase that in the year 2010 by
adding one and only one additional client to
achieve that 100% increase and keep in mind ,
we represent 17 out of the top 20 lenders in
the country and we really have not solicited
to this day additional REO business because we
kept it under an exclusive which is no longer
applicable .

Further, with regard to a $75 billion homeowner-relief program
imp lemented

by

the

federal

government ,

Stern

remarked

that

' flortunately, it is failing .' Stern went on to explain how DJSP
'l
'
would profit from this and other government programs designed to
help homeowners avoid foreclosure :
So no matter what the Obama administration
brings our way , we have found the way to
create a profit center on it and that I think
is part of the success .

So I don 't think we are going to see really
any bump s. I think we are going to see all of

the operating subsidiaries really jump out
especially with what's being pushed through
the systems . In my office alone , I have over
15 ,000 foreclosures that simply need to be set
for sale . When they are set for sale because

they are under HAMP (l
Home Affordable
Modification Programl) review, when they are
set for sale not only do I get $250 for
resetting each of them but once they are reset
if when they are sold , they will go back to
the GFE where under my contract I do cradle to
grave then I get to do the closing on them ,

$250 for stock price, plus $250 for closing
fee, $400 for title search, title exam, title
update and then I get a right to title policy
and if there is a lender involved , I get a
right to lender 's policy . So it all flows
nicely , yes sir .
On April 22 , 2Q10, Defendants held a conference call with
securities analysts . During the call , Gursahaney reaffirmed DJSP 'S
guidance

for 2010, and

Stern expressed his belief

that this

guidance was 'conservative .' Further, Stern stated that he was not
'
'

overly concerned by HAMP and that the company was well positioned

to adjust to, and even profit from, the procedures implemented by
that program .
10

In mid -May 2010, Defendants held additional roadshows in New
York and possibly Boston . Plaintiffs allege , 'upon information and
%
belief,' that Defendants repeated the optimistic statements they
'
had made at the March

conference and did not change their

previous earnings guidance .
Defendants ' promotion
working .

of DJSP'S

business

was

apparently

In March and April 2010, the company 's stock price rose

above $12. per share. Moreover, the stock price exceeded $10.00
00
per share for 20 out of 30 consecutive trading days, thereby
satisfying one o f the requirements for redemption of the Chardan
warrants .

Yet

Defendants

were

having

trouble

meeting

the

second

requirement for redeeming the warrants : obtaining SEC approval of
a registration statement for the shares underlying the warrants .
Between March and May 2010, DJSP filed three revised versions of
its proposed registration statement , in response to letters from
the SEC requiring various changes .
As of May 27, 2010, the SEC had not yet responded to DJSP 'S
latest registration statement, and the company 's stock price had

dropped below $10.
00. On that date, DJSP announced its financial
results for the first quarter of 2010.

The company reported that

total revenue had increased by 30 percent compared to the first
quarter of 2009, but that most of this increase was attributable to
growth in the company 's REO business rather than in its core
business of foreclosure processing .

In fact, DJSP announced that

' dluring the first quarter of 2010 the pace of new foreclosures
'E

slowed.' Additionally, the company adjusted its earnings guidance
'

for 2010, lowering its forecast of adjusted net income by $l5
million to $17 million ( reduction of about 33 percent from the
a

original guidance) and its estimate of adjusted EBITDA by
$l8 million to $22 million ( reduction of about 25 percent). The
a

new 2010 guidance predicted adjusted net income of $32 to $34
million and adjusted EBITDA of $58 to $62 million. The company
attributed its lowered guidance to two factors: (l) a foreclosure
system conversion by one of LODJS 'S largest bank clients, which had
reduced the number of foreclosure files referred by the client; and

(
2) a temporary slowdown

in

foreclosures due

to government

intervention programs .
On a conference call with analysts the following day , Stern

explained that in addition to the overall slowdown in foreclosures
during th1 first quarter, 'even more impactful in the short term ,
'
one of our largest clients initiated a systems conversion following
a recent merger that will impact foreclosure referral volume in the

second quarter and may continue into Q3.' More specifically , Stern
'
stated that

E
bleginning in April, we learned that one of
our largest clients initiated a foreclosure
system conversion , causing a decrease in
foreclosure volume in the month of April and
again in the month of May . A lthough this is a
temporary reduction , we are unsure if it will
continue into the third quarter .
In discussing this issue further , Stern also acknowledged that
government

intervention

programs

foreclosures :
12

had

reduced

the

number

of

To reiterate, this downward adjustment is

d irectly attributed to
a reduction
in
foreclosure case volumes by the impact of
governmental intervention and more accurately

by the system conversion delays at a major
client we serve .

increase E
d)

A ll indicators point to

file volumes on

the

horizon .

However , we cannot determine w ith certainty
when the foreclosure p ipeline will begin to
resolve itself . Therefore , we Eeel it prudent

to make the adjustment previously discussed.
In view of Stern 's recent optimistic statements about the company 's
prospects,

one

analyst

expressed

concern

about

the

sudden

revelation of these problems :

I mean , we all have issues in a business that

don't go away, but I mean, just last week, you
were marketing in New York , talking about the
quarter and reiterating to several clients
that everything was fine in your business , and
I'm very troubled ethically and legally that
you would go out on a marketing trip and say
such things when clearly , you know , a week
later you announce 20% lower numbers . I mean ,
is that ethically legal?
Is that , I mean ,
you 're an attorney , do you feel com fortable
with your actions?
Following

the

announcement

of

DJSP'S

guidance, its stock price dropped sharply.

reduced

earnings

On May 27, the last

trading day before the announcement, the company 's shares closed at

$8.87, on a volume of 412,500 shares traded. On May 28, the first
trading day after the revised guidance was announced , DJSP 'S stock

closed at $6.
38--a 28 percent decrease from the prior day's closing
price--on a volume of 4,931,300 shares traded .
On

June

25,

2010,

the

SEC

declared

effective

DJSP 'S

registration statement for the Chardan warrant shares , and the

company issued a prospectus for those shares .

13

By that time,

however , DJSP could no longer redeem the Chardan warrants because

the company's stock was then trading at around $6 . per share.
25
D.

DJSP'S Decline

Over the next several months, DJSP suffered a series of
adverse events , and its stock price continued to fall . On August
3,

2010,

Mother

Jones

magazine

published

Defendants and LODJS titled Fannie and

an

article

Freddie's

about

Foreclosure

Barons, which described many of the improper foreclosure practices
alleged by Plaintiffs here .
2010,

the

Florida

Attorney

About a week later , on August ll,
General

announced

that

he

was

investigating LODJS and certain other law firms that represented
mortgage holders in foreclosure proceedings . The A ttorney General
stated that these firms may have used fabricated documents in court

to obtain thousands of foreclosure judgments against Florida
homeowners . Through h is attorney , Stern denied these allegations .
On

September

2010, DJSP announced

its

second-quarter

financial results, reporting that total revenue had declined by

about nine percent from the year -earlier period , in part because of
a decrease in foreclosure referrals . That day , DJSP 'S stock closed

at $3.
32.
In October 2010, DJSP 'S business began to unravel . On October

7, an employee deposition taken as part of the Attorney General's
investigation

and

detailing

practices became pub lic .

the

company 's

alleged

improper

On October 12 , Citigroup Inc w

Fannie

Mae, and Freddie Mac announced that , at least temporarily , they
would no longer

refer cases to LODJS .
14

On 'October 14, DJSP

announced that it had reduced its staff by about 10 percent due to
a sharp drop in foreclosure referrals . The company reported that
referrals from LODJS had 'declined dramatically
s

following the

decision by numerous national mortgage lenders to suspend new and
existing

foreclosure

cases

pending

a

review

of

foreclosure

documentation and procedures .' Between October 11 and October
'
DJSP 'S stock lo st more than half its remaining market value,

opening the week at $3.22 per share and closing at $1. per share.
51
On October 18, the Attorney General released additional depositions
from his investigation , further detailing the company 's improper
foreclosure practices .

On October l9, Stern resigned as DJSP'S

chairman (
though he remained its president and CEO), and Gursahaney
resigned as the company 's executive vice president and chief
financial officer .
November 2010 brought even worse developments for DJSP .
November

On

Fannie Mae and Fredd ie Mac announced that they had

severed ties with LODJS and soon thereafter began removing their

files from the firm 's premises .

On November 5, DJSP announced

further staff reductions , bring its total number of layoffs to more
than 700 employees .

In a letter to terminated emp loyees , Stern

wrote that DJSP had lost more than 90 percent of its new business
in the past six months and that, as a result ,

percent of

employees would be laid off. On November l5 , the company disclosed
that DAL had defaulted on a bank credit line and equipment note ,
and Wells Fargo announced that it had cut ties w ith LODJS .

That

same day, DJSP'S stock declined by 32 percent, closing at $0.48 per
15

share. On November 19, DJSP announced that the company's interim
chairman had accepted the positions of chairman , president , and
CEO , succeeding Stern in the latter two positions .
II.

Procedural History

On July 20, 2010, Plaintiffs Stan Cooper and Neeraj Methi
filed the original Complaint in this action .

See DE

Plaintiffs

alleged that in the spring of 2010 , Defendants made a series of
public statements touting DJSP 'S business and future prospects but
failed

to

disclose

that DJSP was

experiencing

a

significant

downturn in its foreclosure-processing bu siness due to a system
conversion by one of LODJS 'S largest clients and government
intervention

programs .

Plaintiffs

claimed

that

Defendants '

m isrepresentations and om issions caused Plaintiffs to purchase
DJSP 'S securities at artificially inflated prices , resulting in
monetary losses when Defendants finally revealed the downturn

late May 2Q10. Plaintiffs' original Complaint p led a securities-

fraud claim against al1 Defendants under Section 10(
b) of the
Securities Exchange Act of 1934 (
uthe Act' and SEC Rule 10b-5,6 as
')
well as a controlling persons claim against Stern and Gursahaney

under Section 2O( of the Actv In addition to their own claims,
a)
;
Plaintiffs sought to represent a class nconsisting of all those who
purchased DJSP 'S securities between March
6 see 15 U . S.
C.

2010 and May

5 78j(
b), amended bv Pub. L. No. 111-203, 5
-

762 ( 3), 124 Stat. 1376, 1761 (
d)(
July 2l, 2010); 17 C.F.
R. 5
240.105-5 (
2010).
? See 15 U . S.
C. 5 78t (
a), amended ky Pub .

929P(
c), l24 Stat. 1376, 1865 (
July 21, 2010).
16

No . 111-2Q3, 5

2010, inclusive , and who were damaged thereby . '
'
On October

Id . at

2010, Defendants moved to dism iss Plaintiffs'

original Complaint, arguing that it failed to satisfy the pleading
requirements for private securities-fraud claims .
October

See DE l1 .

On

2010, the Court granted Plaintiffs' Motion To Stay

Consideration Of Defendants ' Motion To Dismiss pending the Court 's
rulings on two motions seeking appointment as lead p laintiff and
approval of lead counsel .

See DE 24 .

On November 24, 2010 , the

Court granted a joint Motion, filed by all the present Plaintiffs,
to appoint Philadelphia Financial Management of San Francisco , LLC

('PFM') as lead plaintiff in this action and to approve PFM 'S
' '
selection of lead counsel .

See DE

The Court also granted a

request in the joint Motion to allow PFM until January l0, 2011, to
file a proposed amended complaint incorporating u'
an abundance of
new information about DJSP , its operations and business prospects

that has become public since the filing of the initial Complaint .''
'

Id. at 8 (
guotinq DE 35 at
On January

10, 2011, Plaintiffs filed their Consolidated

Amended Comp laint , which sets forth the allegations described in
Part I above . See DE 38 . Like the original Complaint , Plaintiffs '
Amended Complaint alleges that Defendants made false and misleading
public

statements

about

the

strength

of

DJSP'S

foreclosure-

processing business and that Plaintiffs, all of whom purchased

DJSP 'S

securities , suffered

financial

losses when

Defendants

finally revealed the slowdown in th is business in late May 2Q1Q .

Further, the Amended Complaint claims that Defendants publicly
17

represented thkt Dlsp processed foreclosures efficiently and
accurately--when , in fact, its operations wefe plagued by unethical
and illegal shortcuts-- and that Plaintiffs suffered additional

losses as the truth about DJSP 'S business practices gradually
became pub lic over the course of 2010 .

The Amended Comp laint also

alleges that Defendants had a strong motive to conceal the true
nature of DJSP'S business prospects and operations , specifically ,
inflating the company 's stock price in order to trigger the
exercise of warrants

and

thereby

accelerate

remaining money that DAL owed to Stern .

payment of the

A s in the original

Complaint , Plaintiffs assert a claim against all Defendants under

Section l0( and Rule 10b-5, along With a claim against Stern and
b)
Gursahaney under Section 20 (
a).

Based on

the new

factual

allegations in the Amended Comp laint, Plaintiffs have expanded
their proposed class to include Mall persons and entities who
purchased or otherwise acquired DJSP securities during the period
from February l6, 2010 through November 15, 2010 , inclusive
and were damaged thereby .'
'

Id . at 4 .

On February 9, 2011, Defendants filed the present Motion to

Dismiss pursuant to Fed. R. Civ. P . 12( 6). See DE 44. As in
b)(
their

previous

dismissal

motion ,

Defendants

contend

that

Plaintiffs' Amended Complaint fails to meet the applicable p leading
requirements, especially those imposed by the Private Securities

Litigation

Reform

Act

of

1995

(%
'PSLRA'
').

See

15

U. . .
S C

5 78u-4 ( 3)( (
b)( A) requiring dismissal of a private securities-fraud
complaint that fails to meet the PSLRA'S pleading standards) .
18

Plaintiffs have filed a Response (
DE 45) opposing Defendants'
Motion to Dismiss, and Defendants have filed a Reply ( 47) in
DE
support of the Motion .
111 . Analysis
A.

Legal Standards

1.

Elements of Plaintiffs' Claims

Plaintiffs' primary claim is that Defendants violated Section

1O(
b)

of

the

Act

and

Rule

l0b-5

by

making

material

misrepresentations and om issions in SEC filings , press releases,

and other public statements. Section l0( makes
b)

unlawful to

use or employ , in connection with the purchase
or sa le of any security registered on a
national securities exchange or any security
not so registered .
. any manipulative or
deceptive
device
or
contrivance
in
contravention of such rules and regulations as
the Commission may prescribe as necessary or
appropriate in the public interest or for the
protection of investors .

15 U.S. . 5 78j( .
C
b)

As relevant here , Rule

l0b-5 prohibits

Amak E
'
ing) any untrue statement of a material fact or
omit l
ting) to state a material fact necessary in order to make the
statements made, in the light of the circum stances under which they

were made, not misleadingp' 17 C.F. 5 240.l0b-5 (
'
R.
b). The Supreme
Court has recognized that Section l0 ( (
b) and Rule l0b-5 promulgated
thereunder) 'affords a right of action to purchasers or sellers of
'

securities injured by its violation .'
'
Issues & Riqhts, Ltdw

Tellabs, Inc. v . Makor

55l U .
S. 308, 3l8 (
2007).

Under these

provisions, a securities-fraud claim based on failure to disclose

19

information

to

investors has

six

m isrepresentation or omission ,

elements :

(
1) a material

made with scienter, (
3) in

connection with the purchase or sale of a security, ( reliance on
4)
the misrepresentation or omission , (
5) economic loss, and ( a
6)
causal connection between the misrepresentation or omission and the
economic loss, referred to as '
'loss causation .'
'

See Mizzaro v .

Home Depot, Inc., 544 F. 1230, 1236-37 (
3d
11th Cir. 2008) (
citinq
Dura Pharms ., Inc . v . Broudo , 544

336, 341-42 (
2005)).

Plaintiffs also claim that Stern and Gursahaney are liable as

'controlling persons' of DJSP under Section 20( of the Act, which
'
'
a)
provides as follows :
Every person who , directly or indirectly ,
controls any person liab le under any prov ision
of this chapter or of any rule or regulation

thereunder shall also be liable jointly and
severally with and to the same extent as such
controlled person to any person to whom such
controlled person is liable
. . unless the
controlling person acted in good faith and did
not directly or indirectly induce the act or
acts constituting the violation or cau se of
action .

15 U. . 5 78t(
S C.
a)
statute

As the Eleventh Circuit has explained, ul
tlhis

imposes derivative liability on persons that control

primary violators of the Act.' Mizzaro, 544 F. at 1237 (
'
3d
internal
quotation marks omitted). To state a claim under Section 2O (
a),

Plaintiffs must allege that ( DJSP committed a primary violation
l)
of the securities laws,

Stern and Gursahaney 'had the power to
'

control the general business affairs' of DJSP, and ( Stern and
'
3)
Gursahaney '
'bhad the requisite power to directly or indirectly
control or influence the specific corporate policy which resulted
20

in primary liability .'' Id . (
'
cuotinq Theoharous v . Fonq, 256 F.
3d

1219, 1227 (
11th Cir.
200l)). Because controllingpersons liability
depends on a primary violation of the securities laws , Plaintiffs'

claim under Section 20( will survive dismissal only if Plaintiffs
a)
have adequately pleaded a claim under Section l0( and Rule l0b-5 .
b)
See id .

In the instant Motion To Dismiss ( 44), Defendants argue
DE
that Plaintiffs' Amended Comp laint does not adequately p lead the
first two elements of a securities-fraud claim :

that Defendants

made a material m isrepresentation or omission and that they did so
w ith the necessary scienter .

Defendants also contend that their

alleged statements about DJSP 'S expected financial performance are
protected

by

the

statutory

safe

harbor

for

forward -looking

statements . See 15 U. . 5 78u-5(
S C.
c).
2.

Falsity and Materiality

prove a claim under Section lo(
b) and Rule 10b -5, %a
'

plaintiff must show that the

(
defendant'sl statements were

m isleadinq as to a material fact .'
'

sasic Inc . v . Lev inson , 485

U.
S. 224, 238 (
1988) (
emphasis in original).

In alleging a

misleading statement or omission , a securities-fraud p laintiff

must, as with any fraud claim , ustate w ith particularity the
circumstances

constituting

fraud .'
'

Fed . R . Civ .

9 ( );
b

see M izzaro, 544 F .3d at 1237 . Moreover , in a private securitiesfraud action

such

as this one , the

PSLRA

mandates

that

the

comp laint 'specify each statement alleged to have been m isleading ,
the reason or reasons why the statement is m isleading , and ,
21

an

allegation

regarding

the

information and belief,

statement

or

om ission

is

made

on

state with particularity all facts on

which that belief is formed.' 15 U . C. 5 78u-4 ( (
'
S.
b) 1).
But ' ilt is not enough that a statement is false or
'E
incomplete, if the misrepresented fact is otherwise insignificant . ''

Basic, 485 U . . at 238 .
S

Thus, the plaintiff must also show that

the alleged misrepresentation or omission concerned a material
fact .

See id .

In Basic, the Supreme Court adopted , for claims

under Section lO ( and Rule 10b-5, a materiality standard that it
b)
had prev iously

applied

to

claims based on misleading proxy

statements :

An omitted fact is material if there is a
substantial likelihood that a reasonable

shareholdér would consider it important in
deciding how to vote.
. . (
This standard
requires) a showing of a
substantial
likelihood that , under all the circumstances ,
the omitted fact would have assumed actual
significance in the deliberations of the
reasonable shareholder .
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 Mtotal m ix'
'
of information made available .

TSC Indus. v . Northway, Incw 426 U . 439, 449 (1976) (
S.
footnote
omitted); see Basic, 485 U .
S. at 231-32, 249.

In

general,

therefore, '
l
materiality depends on the significance the reasonab le
investor

would

place

on

the

withheld

or

misrepresented

information .' Basic, 485 U .S . at 2407 accord TSC Indus ., 426 U .S .
'
at 445 .

Scienter
22

The PSLRA also imposes a heightened pleading standard for
claims, like those alleged here , requiring proof of scienter .
Specifically , hw ith respect to each act or omission alleged to

v iolate this chapter ,' the complaint must 'state with particularity
'
'
facts giving rise to a strong in ference that the defendant acted
with the required state of mind . ' 15 U . C . 5 78u-4( 2), amended
S.
b)(

ky Pub . L. No . 111-203, 5 933( l), 124 Stat . 1376, 1883 (
b)(
July 2l,
2010).

Further, 'the complaint must allege facts supporting a
'

strong inference of scienter 'for each defendant with respect to

each violation.d' Mizzaro, 544 F. at 1238 (
'
3d
guotinq Phillips v .
Scientific -Atlanta , Inc w

374 F . 3d 1015, 1016 (
11th Cir. 2004)).

To prove scienter for a claim under Section 10( and Rule
b)
l0b -5 , the plaintiff must normally show '
leither an

'intent to

deceive , manipulate , or defraud ,' or 'severe recklessness . r' Id .
'

(
cuotinq Bryant v . Avado Brands, Inc., 187 F.3d 1271, 1282 (
11th
Cir. 1999)).

The Eleventh Circuit has explained that 'severe
'

recklessness'
'

is lim ited to those highly unreasonable
om issions or misrepresentations that involve
not merely
simple or even
inexcusable
negligence, but an extreme departure from the
standards of ordinary care , and that present a
danger of m isleading buyers or sellers which
is either known to the defendant or is so
obvious that the defendant must have been
aware of it.

Bryant, l87 F. at 1282 n.l8 (
3d
internal quotation marks omitted);
see also Merck & Co . v . Reynolds , 130 S .

1784 , 1796 (
2010) ('
'
A

plaintiff cannot recover without proving that a defendant made a
material

misstatement

w ith

an
23

intent

to

deceive-not

merely

innocently

or

substantive

negligently .'
'

standard,

(
emphasis

combined

with

in

originall).

the

PSLRA 'S

This
p leading

requirement , dem ands that a plaintiff plead 'with particularity
N
facts giving rise to a strong inference' that the defendant either
'
intended to defraud investors or was severely reckless in making
the

alleged

material

misrepresentations

and

omissions .

See Mizzaro , 544 F .3d at 1238 .

The Supreme Court has held that a '
'strong inference' of
'
scienter is an inference that is '
%cogent and at least as compelling
'
as any opposing inference one cou ld draw from the facts alleged . '

Tellabs , 55l U .S . at 324 .

In deciding whether a securities-fraud

complaint satisfies this test, the court must consider %whether all
h
of the facts alleged , taken collectively , give rise to a strong
inference of scienter, not whether any

individual allegation ,

scrutinized in isolation , meets that standard . '
'

Id . at 323

(
emphasis in original). In so doing, the court must engage in a
%comparative inquiry' that 'take l into account plausible opposing
'
'
'
s)
inferences'
':
To determ ine whether the plaintiff has alleged
facts that give rise to the requisite nstrong
inference' of scienter , a court must consider
'
plausible nonculpable explanations for the
defendant 's conduct , as well as inferences
favoring the plaintiff. The inference that
the defendant acted with scienter need not be
irrefutable , i .e .. of the '
'smoking -gun' genre,
'
or even the 'most plausible of competing
'
inferences .'
'
. . . Yet the inference of
scienter must be more than merely ureasonable'
'
or 'permissibler-it must be cogent and
'
'
compelling , thus strong in light of other
explanations .
24

Id. at 323-24 (
citation omitted).

'In sum ,' Tellabs explained ,
'
'

'the reviewing court must ask : When the allegations are accepted
'

as true and taken collectively, would a reasonable person deem the
inference

of

inference?'
'

scienter

at

least

as

strong

Id . at 326; see Reynolds ,

l30

as

any

opposing

S . Ct . at

1796

PAl
ulnless a 5 l0 ( plaintiff can set forth facts in the complaint
b)
showing that it is 'at least as likely as ' not that the defendant

acted with the relevant knowledge or intent , the claim will fail .'
'

(
guotinq Tellabs, 55l U.S. at 328)).
4.

Safe Harbor

Aside from the normal pleading requirements for private claims
under the Act , the PSLRA provides securities-fraud defendants with
a

'safe
h

harbor' from
'

liability

for

certain

'forward-looking
'

statements.' 15 U.S. 5 78u-5 ( B %Congress enacted the safe'
C.
c). '
harbor provision in order to loosen the

'
muzzling effect ' of

potential liability for forward -looking statements , which often
kept investors in the dark about what management foresaw for the

company .'
'
1999)

Harris v . Ivax Corp., l82 F.3d 799, 806 (
11th Cir.

As pertinent here, the PSLRA defines a 'forward-looking
'

statement' to include
'

( ) a statement containing a projection of revenues,
A
income (
including income loss), earnings (
including
earnings loss) per share, capital expenditures,
dividends , capital structure , or other financial
items;
8 A lthough the safe-harbor statute excludes certain types of
forward-looking statements from its protection , see 15 U . S .C . 5

78u-5 (
b), these exclusions appear to be inapplicable here, and
Plaintiffs do not contend otherwise .
2s

() a
B

statement of the plans and objectives of

management for future operations, including plans

or objectives relating to the products or services
of the issuer;

() a
C

statement of fu ture econom ic performance
including any such statement contained in a
,
discussion and analysis of financial condition by
the management or in the results of operations
included pursuant to the rules and regulations of

the Commission; (
and)

(
D) any statement of the assumptions underlying or
relating to any statement described in subparagraph

( , ( , or ( (.1
A) B)
C)
15 U. . 5 78u-5( (
S C.
i) l)
Under the statutory

safe harbor, a defendant may avoid

liability for any forward-looking statement that is false or
m isleading if the statement is 'identified as a forward-looking
'
statement, and is accompanied by mean ingfu l cautionary statements
identifying important factors that could cause actual results to
differ materially from those in the forward-looking statement . ' 15
'

U. . 5 78u-5( ( ( (i). If a forward-looking statement meets
S C.
c) 1) A)
9
these conditions , then the defendant is protected from liab ility ,
regardless of any fraudulent intent in making the statement .

See

Edward J . Goodman Life Income Trust v . Jabil Circuit . Inc . , 594

F.3d 783, 795

(
11th Cir. 2010)

(%So long as the language
'

accompanying the projections is meaningfully cautionary, the law
requires us to be unconcerned with the speaker 's state of m ind at

the time he makes the projections.d); Harris, 182 F. at 803
'
3d

For oral forward-looking statements, the PSLRA specifies
more detailed requirements for making the d isclosures necessary for

safe-harbor protection. See 15 U . . 5 78u-5( (
S C.
c) 2).
26

('(
' I1f a E
forward-lookingl statement is accompanied by '
meaningful
cautionary

language,'

irrelevant.'
')

Even

the

defendants'

state

of

mind

is

a forward-looking statement does not

include the required disclosures, it is nonetheless protected if
the plaintiff fails to prove that the defendant made the statement
with

uactual

knowledge' that
'

it

was

'false
%

or

misleading .'
'

15 U.S. 9 78u-5( ( (
C.
c) 1) B). This heightened scienter standard is

also

subject

requirement.

to

the

PSLRA'S

hstrong

inference' pleading
'

See Theoharous, 256 F . at 1226 (
3d
explaining that

because certain statements Were forward-looking , 'the plaintiffs
'

were required

to allege particular

facts creating a

strong

inference that E
the defendant) knew that the statements were
false' , abrogated on other qrounds by Revnolds, 130 S. Ct. at
o
1798.

Additionally , the safe -harbor statute precludes liability

for forward-looking statements that are immaterial . See 15 U .S . C .

: 78u-5 ( ( ( (ii).1
c) 1) A)
0
B.

Statements Ahout Business Practices

As discussed above in Part I .C ., Plaintiffs allege that
Defendants made various statements representing that DJSP employed
'rigorous' processes to ensure the
h
'

hefficient' and
'

'accurate'
'
'

handling of foreclosures . Plaintiffs claim that these statements
were false and misleading because they failed to disclose that DJSP
routinely engaged in improper shortcuts and that its processes

1 This provision essentially reinforces , for forward-looking
0
statements , the existing materiality requirement for actionable
misrepresentations or omissions . See Mizzaro , 544 F . 3d at 1236-37 .
27

'
'
were , in fact , entirely chaotic and in substantial disarray .' DE
'
38 at

Defendants argue , however, that these statements were

not

or

false

puffery .'
'

misleading

and

were , at

DE 44 at 5 n .5; DE 47 at

most ,

nnon-actionable

The Court agrees with

Defendants .

First , Plaintiffs have not adequately alleged that Defendants'
statements about DJSP'S operations were

false

or misleading .

Viewed in context, Defendants' references to 'e fficiency' and
'
'
'accuracy' mainly concern DJSP 'S use of technology to streamline
'
'
foreclosure processing and , to a lesser extent, the company 's
hiring and training of employees to handle its large volume of

work.

See . e . ., DE 38 at 18 (' (
g
' DJSP) relies heavily on a

proprietary case management software system

to achieve a high

level of efficiency, accuracy and customer service .' (
' emphasis
omittedl); id. at 19 (h
bThrough extensive investment in its leadingedge

IT , development of

scalable proprietary

processes

as a

centralized facility , and hiring and training of the staff needed
to conduct operations at a large scale , we are well positioned to
maintain a competitive advantage in an industry generally populated

by smaller firms.' (
' emphasis omittedl); id . (1 key factor in this
'
A
success is the ongoing implementation of leading edge IT so lutions
that optimize interface and data transfer activities with clients
and improve processing time while reducing human error .

We also

deliver effective staff training to en sure the efficient and

effective processing of all referrals.' (
' emphasis omittedl); id . at
21 PI
DJSP delivers unparalleled customer service by combining
28

unique mortgage and foreclosure expertise with highly automated
electronic processing . This efficiency has historically enabled us

to significantly grow both our top and bottom-line results.' .
o
Nowhere do Plaintiffs allege that DJSP did not use the technology

it claimed or that these systems did not improve the firm 's
efficiency and accuracy in processing foreclosures .

Similarly ,

while

employees,

Plaintiffs

allege

that DJSP

mistreated

its

Plaintiffs do not dispute that the company hired and trained many
workers in an effort to manage the rapidly growing number of
foreclosure

files

referred

by

LODJS .

Indeed ,

Plaintiffs

acknowledge that DJSP constantly hired and trained new employees to
keep up with the skyrocketing demand for its serv ices .

See DE 38

at 8 (
recognizing that the number of employees quadrupled between

early 2008 and mid-2O09 and that ' o)rientations for new hires were
'l
a near-weekly affaird
')
Second , and more important, Defendants ' statements about the
'rigor' of DJSP 'S processes, the nefficiency' and 'accuracy' of its
'
'
'
'
operations , and its 'effective' staff training were not material .
'
'
As a general matter, all of these traits wou ld have been important

to the success of DJSP 'S foreclosure-processing business .

But as

used in the statements identified by Plaintiffs , these term s do not
assert specific, verifiable facts that reasonab le investors would
rely on in deciding whether to buy or sell DJSP'S securities . See
Basic , 485

at 240; In re BankAtlantic Bancorp ., Inc . Sec .

Litigw Case No . 07-6l542-CIVUNGARO? 2011 WL 1585605, at *32 ( D .
S.
Fla. Apr. 25, 2011)

('For a statement to be an actionable
'
29

misrepresentation , it mu st be of a definite factual nature .'
'

(
citing Va . Bankshares, Inc. v . Sandberg, 50l U .
S. 1083, 1095
(
1991)))
positive

Rather, Defendants' statements make the kind of vaguely
assertions

that

actionable 'pu ffery .'
l
'

courts

have

characterized

as

non-

See , e . ., ECA & Local 134 IBEW Joint
g

Pension Trust of Chicago v . JP Morgan Chase Co ., 553 F .3d 187, 205-

06 ( Cir. 2009) (
2d
holding that company's statements about its
hhighly

disciplined'
'

risk -management

processes ,

its

strong

reputation for uintegrity ,' and its 'focus on financial discipline'
'
'
'

were '
b
merely generalizations regarding

(
the firm 's) business

practices' and therefore hprecisely the type of '
'
puffery ' that this
and other circuits have consistently held to be inactionab le'
'

(
internal quotation marks omittedl); In re XM Satellite Radio
Holdinqs Sec. Litiqw 479

Supp . 2d 165, 179-80 ( . . 2007)
D D C.

(
holding that company 's statements describing its business model as
'cost effective,' 'smart,' Msound ' and 'efficient' were 'vague and
'
' l
'
'
'
'
l

incapable of objective verification' and thus lnot the type of
'
'
statement

upon

which

a

reasonab le

investor

would

rely

in

considering the 'total mix ' of facts available' (
' internal quotation
marks omittedll. l
l
Moreover , the Court notes that the ending date of
Plaintiffs' proposed class period , November l5, 2010, coincides
with DJSP'S disclosure that DAL had defaulted on a bank credit
line and equipment note and Wells Fargo 's ànnouncement that it had
ended its relationship with LODJS . While these events are arguably
related to the public revelation of DJSP'S alleged improper
business practices, Plaintiffs ' selection of this date as the point
at which Defendants' alleged concealment of the improper conduct
ended seems arbitrary . The Court understands Plaintiffs ' theory
that the facts about DJSP 'S misconduct became public over an
30

In sum , Plaintiffs have failed to allege adequately that
Defendants made false or misleading material statements about
DJSP'S operational practices .

Therefore , the Court will grant

Defendants' Motion to Dismiss With respect to these statementsxz
C.

Statements About Financial Performance

The other category of statements that Plaintiffs allege were
false and misleading-- those involv ing DJSP'S business prospects and

expected financial results--are forward-looking statements subject
to the PSLRA'S safe-harbor provisions. See 15 U . . 5 78u-5 (
S C.
c).

These statements included projections of DJSP'S earnings, comments
on management's plans and objectives for future operations, other
observations about the company's future economic performance, and
assumptions underlying these predicted events .

See 15 U .S .C . 5

78u-5 ( ( (
i) l) A)-(
D); supra Part I. H
C.
extended time . Still, the absence of any clear point at which a1l
the allegedly concealed conduct became public knowledge further
confirms that Defendants' earlier statements about DJSP'S
operations did not include any specific m isstatements or omissions
of material facts .
'
In concluding that Defendants are not liable for their
statements about DJSP'S business practices , the Court in no way
minimizes the seriousness of the underlying conduct alleged by
Plaintiffs . These allegations, if proven in other p roceedings, may
sh ow
th at
D efendan ts
enga ged
in
illeg a l- -an d
reprehensible--conduct . But in this action claiming securities
fraud , the Court 's inquiry is limited to whether Plaintiffs have
properly alleged that Defendants made false and material public
statements about DJSP'S operations . For the reasons discussed
herein , the Court answers this question in the negative .
H plaintiffs contend that some of Defendants' statements were
not forward-look ing because they included representations of
existing facts concerning the effects of government intervention

programs on DJSP'S business. See DE 38 at 22 (
statement at March
l6, 2010, investment conference that ' flortunately, (
'E
HAMP) is
31

Further ,

most

of

the

allegedly

fraudulent

statements

concerning DJSP 'S financial outlook were identified as forwardlooking statements and were 'accompanied by meaningful cautionary
b
statements identifying important factors that could cause actual
results to differ materially from those in the forward-looking

statement.' 15 U . C . 5 78u-5 ( ( ( (i). For example, Stern and
'
S.
c) 1) A)
Gursahaney 's March l6, 2010 , slide presentation , which included
DJSP'S original earnings gu idance for 2010, disclosed that the

presentation 'contain l
'
ed) forward-looking statements within the
DE 44 -3 at

meaning of the (
PSLRA) about DJSP

This

disclosure further explained that the forward-looking statements

were 'subject to risks and uncertainties, which could cause actual
'
results to differ from the forward looking statements .' Id . Among
'

failing' ; id. at 23 (
o
statement at same conference that 'no matter
'
what the Obama administration brings our way , we have found the way
to create a profit center on it and that I think is part of the

success' (
' emphasis omittedl); id . at 24 (
statement on April 22,

2010, analyst call that DJSP was well positioned to adjust to, and
even profit from , the procedures implemented by HAMP). The first
statement cited by Plaintiffs is not actionable in any event
because it is a general statement of opinion about a public matter

(
the success of the HAMP program).

The second and

third

statements, viewed as a whole, are forward -looking , essentially
predicting that the company would continue to profit despite HAMP
and other government intervention program s . See Harris, 182 F .3d

at 805

(
holding that a company's claim

that

it was

'
'
well

positioned' was a forward-looking statement 'whose truth can only
'
'

be known after seeing how (
the companyrs) future plays out'
').
l
4In deciding a motion to dismiss based on the statutory safe
harbor ( the Court must consider 'any statement cited in the
l
complaint and any cautionary statement accompanying the forward-

looking statement, which are not subject to material dispute, cited

by the defendant.' 15 U. . 5 78u-5 (
'
S C.
e); see Harris v. Ivax Corp.,
l82 F.3d 799, 802 n . (
2 11th Cir. 1999). Also, as previously noted,

see supra note 5, the Court may utake judicial notice of relevant
SEC filings .' Thompson , 610 F .3d at 63l n .5 .
'
32

other risk factors , Defendants referenced ufluctuations in customer
demand' and
'

'legislation
b

or other changes

in

the

regulatory

environment, particularly those impacting the mortgage default
industry .' Id . These disclosures encompassed the same facts that
'

Plaintiffs claim Defendants concealed and that ultimately led DJSP

to lower its 2010 guidance: a system conversion by a major client
that reduced the number of foreclosure referrals and a slowdown in

foreclosures due to government intervention programs . See Ehàert

v. Singer, 245 F.3d 1313, 1320 (
11th Cir . 2001) (
holding that
Cautionary

language

accompanying

forward -look ing

statements

satisfied safe -harbor statute because Mthe warnings actually given
were not only of a sim ilar significance to the risks actually
realized , but were also closely related to the specific warning

which Plaintiffs assert should have been given/ xs
o

similarly,

ls lthough Defendants ' presentation included oral statements
A
by Stern, see suDra Part I .C ., those statements were made
contemporaneously with the slide presentation and were based
largely on the written statements reflected in the slides . Under
these circumstances , the Court finds that the cautionary language
in the slide presentation satisfies the disclosure requirements for
the written and oral forward-looking statements made during the

presentation . See 15 U . C . 5 78u-5 ( (
S.
c) 1), (
2).
In addition , Plaintiffs claim that Defendants held other
roadshows in m id-May 2010 and further allege , 'upon information and
'
belief,' that nDefendants repeated the optimistic representations
'
made at the . . . conference in March , and did not alter their
prior guidance for the quarter , nor for the year .' DE 38 at 24 .
'
Even assuming arquendo that Defendants' statements at the mid-May
roadshows did not include the required forward-looking -statement

disclosures ( the statements at the March 16 conference did),
as
Plaintiffs have not alleged these statem ents with the necessary

specificity . See 15 U .
S.C. 5 78u-4 ( l) (
b)(
requiring complaint to
'specify each statement alleged to have been misleading (
'
and) the
reason or reasons why the statement is misleading' ; Fed. R. Civ .
o
P. 9 (
b)
Further, while Plaintiffs' allegations about the
33

6
DJSP 'S press releases of February 17, 2010, and March ll, 2010,1

which also included the company 's original 2010 earnings guidance ,
contained

forward-looking-statement

identical

to

those

in

the

disclosures

substantially

slide

presentation .

March

Consequently , the forward-looking statements in the presentation
and press releases are protected by the safe harbor . See 15 U .S .C .

ï 78u-5( (
c) l)
The remaining statements alleged by Plaintiffs are oral
statements that Stern and Gursahney made during a conference call

with analysts on April 22 , 2010 . Plaintiffs claim that during this
call, Gursahaney reaffirmed DJSP 'S original financial guidance for

2010, and Stern expressed his belief that this guidance was
'conservative .' Stern also stated that he was not overly concerned
'
'

about HAMP and that DJSP was well positioned to adjust to, and even
profit from , the procedures implemented by HAMP .

The existing

record does not show that these statements included the disclosures

required by the safe-harbor statute .

See 15 U . . . 5 78u S C

5( ( ( (
c) 1) A) i), ( (
c) 2). Nevertheless, the statements are entitled

statements at the mid-May roadshows are based on '
'information and
belief,' the Amended Complaint fails to lstate with particularity
'
l
a1l facts on which that belief is formed .'
'
15 U .S .C . 5

78u-4 ( (
b) l)
16

These press releases are publicly available on the SEC 'S

website. See http:
//- .
sec.
gov/Archives/edgar/data/l4366lz/
000121390010000486/f6k021010ex991 djsp.
htm; http:
//www.sec.
gov/
Archi
ves/edgar/data/14366l2/00012Y3900l0000879/f6
k0310ex99i djsp.
-

htm . Although Plaintiffs ' Amended Complaint states that the first
of these releases was issued on February l7, 2010 , see DE 38 at
2l, the press release itself is dated February l0 , 2010 .
34

to protection if they were immaterial or if Plaintiffs' complaint
does not permit a strong inference that Defendants made the
statements

with

actual

knowledge

that

they

were

false

or

misleading . See 15 U . C . j 78u-5 ( ( ( (
S.
c) l) A) ii); 15 U . C. 5 78uS.
5( ( (
c) 1) B); Theoharous, 256 F.3d at 1226.
With respect to Defendants ' statements confirming DJSP'S
original guidance , the Court finds that Plaintiffs ' allegations do

not

present a

strong

inference

that

Defendants made

these

statements knowing they were false . When Defendants subsequently
lowered DJSP 'S full-year guidance in late May 2010, the chief
reason they cited for doing so was a system conversion by one of
LODJS 'S largest clients , which reduced the number of foreclosure

files referred by that client. See DE 38 at 26 (
statement by Stern
on May 28, 2010, conference call that Meven more impactful in the
short

term , one

of our

largest clients

initiated

a

systems

conversion following a recent merger that will impact foreclosure

referral volume in the second quarter and may continue into Q3'
'

(
emphasis addedl); id . at 27 (
statement by Stern on same call that

lthis downward adjustment is directly attributed to a reduction in
'
foreclosure case volumes by the impact of governmental intervention

and more accurately by the system conversion delays at a major
client we serve' (
' emphasis addedl).

Even accepting Plaintiffs'

claim that Defendants knew by the time of the April 22 call that

foreclosures had slowed in the first quarter due to government
intervention programs, Plaintiffs ' allegations show that Defendants
would

not have

known

by

then
35

the

fu ll

effect

of

the

more

significant system-conversion issue .

According to Plaintiffs,

Stern explained in late May that DJSP had learned of the system
conversion sometime in April , that the conversion had reduced
foreclosure volumes in April and May , and that it was unclear
whether this temporary slowdown would continue into the third
quarter .

See id . at 26 .

Given that Defendants first learned of

the conversion issue no more than three weeks before the April 22
conference call and that they remained uncertain about the ongoing
effect of this problem even as of late May , the Court cannot
conclude that

is 'at least as likely as' not that Defendants
'
'

actually knew on April 22 that DJSP could not meet or exceed its

stated earnings guidance for the yearx ; Tellabs, 55l U . at 328.
S.
In arguing that Stern intentionally concealed the downturn in

DJSP 'S processing business, Plaintiffs also point to 'compelling
'
facts that establish a motive and opportunity to comm it fraud'
':
the possible exercise of the Chardan and DAL warrants .
l5 .

DE 45 at

Because a sustained increase in the value of DJSP'S shares

would have ultimately expedited payment of the remaining money owed
to Stern , the Court agrees that Stern had a financial incentive to

present DJSP 'S business prospects in a positive light .

But this

motive does not establish a strong inference of actual fraud , given
that as of the April 22 call, Stern had limited knowledge about the
effect of the client system conversion-the main reason for the

For this same reason, the Court rejects Plaintiffs'
invitation to draw a strong inference of actual fraud from the fact
that Defendants waited until late May to revise DJSP 'S fu ll-year
guidance primarily as a result of the system-conversion issue .
36

slowdown in DJSP'S core business .

(
explaining that although

See Tellabs, 55l U .S . at 325

'personal financial gain may weigh
'

heavily in favor of a scienter in ference p' the Msignificance that
'
can be ascribed to an allegation of motive

entirety of the complaint'
').

depends on the

Moreover, although the Amended

Complaint indicates that Stern retained a substantial equity stake

in DAL (
and therefore in DJSP'S processing business), see DE 38 at
Plaintiffs do not allege that Stern attempted to sell any part

of that interest while he was allegedly concealing the downturn in

foreclosure referrals. See Mizzaro, 544 F.3d at 1253 (nstock sales
or purchases timed to maxim ize returns on nonpublic in formation
weigh in favor of inferring scienter ; the lack of similar sales

weighs against inferring scienter./ .
o
Stern 's other statements on the April 22 call- -that he was not

overly concerned by HAMP and that the company was well positioned

to adjust to, and even profit from , that program 's procedures--were
immaterial . Again, the Court accepts Plaintiffs' contention that
Defendants

would

have

known

by

April

22

that

government

intervention programs had negatively affected DJSP'S business in
the already ended first quarter . Yet Stern 's remarks conveyed no

s
pecific representations about t
hat s
ubject, onl a general
y
statement of his relative lack

of concern with

one of the

government programs and broadly optimistic claims that DJSP was
nwell positioned' with
'

respect

investors would not attach
comments .

to

that program .

Reasonable

significant weight to these vague

See Basic, 485 U .S . at 2407 JP Morqan Chase Co ., 553

E

F .3d at 206; In re XM Satellite Radio, 479

F . Supp . 2d at 180; see

also Jabil Circuit, 594 F. at 796 (MThe anti-fraud provisions of
3d
the securities laws are plainly disinterested with immaterial

statements, no matter the state of mind of the speaker.o .
'
In sum , the PSLRA'S safe harbor precludes liability for all
the forward-looking statements alleged by Plaintiffs . Accordingly ,
the Court will grant Defendants ' Motion To Dismiss with regard to

Defendants' statements about DJSP'S financial prospectsxB
D.
In

Further Amendment of Complaint
their

response

to

Defendants '

Motion

To

Dismiss,

'Plaintiffs request that they be afforded leave to amend in the
'

event that the pending motion is granted in whole or in part .' DE
'
45 at

This bare request is not sufficient to raise the issue

of whether Plaintiffs shou ld be granted leave to amend their

complaint further. See Rosenberg v . Gould, 554 F . 962, 967 (
3d
11th
Cir. 2009) (
nWhere a request for leave to file an amended complaint
simply is imbedded within an opposition memorandum , the issue has

not been raised properly .' (
' internal quotation marks omittedl)
requesting leave to amend, a plaintiff must either attach

In
a

proposed amended complaint or at least describe the substance of
the proposed amendments .

See id .; Mizzaro , 544 F .3d at 1255 n .4 .

Because Plaintiffs here have not yet done so, the Court cannot
: Because Plaintiffs have not adequately p leaded a primary
8

securities-fraud claim under Section l0( and Rule l0b-5, their
b)
controlling-persons claim under Section 20( likewise fails. See
a)
Mizzaro , 544 F .3d at 1237 . Therefore, the Court need not consider
the parties' other arguments about Stern 's and Gursahaney 's
specific roles in the company and in the alleged fraud .
38

assess at this time whether further amendments should be permitted .

See, e. ., Mizzaro, 544 F. at 1255-57 (
g
3d
affirming district court's
denial o f leave to amend because plaintiff 's proposed amendments

would be futile); Harris, l82 F.3d at 807-08 (
same).
IV . Conclusion
For the reasons discussed , Plaintiffs' Consolidated Amended
Complaint lfails to surmount the pleading hurdles that Congress has
'

imposed on private securities fraud class actions .' Mizzaro , 544
'
F .3d at 1257 . Therefore , the Court will grant Defendants ' Motion

to Dismiss ( 44), and the above-styled cause will be dismissed
DE

without prejudice.
Accordingly , after due consideration , it is
ORDERED AMn ADJUDGED as follows :

1. Defendants' Motion To Dismiss ( 44) be and the same is
DE
hereby GKAHTED ;

The above -styled cause be and the same is hereby DISMISSED

without prejudice; and
3 . To the extent not otherwise disposed of herein , all pending
Motions are hereby DENIED as moot .
DONE ANn ORDERED in cha

ers at Fort Lauderdale, Broward

cu t Fo ia ti fWJ dyo sp eb r,2 1
o ny, lrd , h s I f a f etm e 01.
.

'

WILLIAM J . ZLOCH

United States District Judge
Copies furnished :
All Counsel of Record
39