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Motions, Pleadings and Filings Only the Westlaw citation is currently available. United States District Court, N.D. Texas, Dallas Division. Todd FENER, on Behalf of Himself and All Others Similarly Situated, Plaintiffs, v. BELO CORP., et al., Defendants. No. Civ.A. 3:04-CV-1836-, Civ.A. 3:04-CV-1869-, Civ.A. 3:04-CV-2156-. March 30, 2006. Background: Purchasers of common stock in newspaper publisher's parent company filed putative securities fraud class actions against company's officers and directors. After actions were consolidated, defendants moved to dismiss. Holdings: The District Court, Fitzwater, J., held that: (1) plaintiffs engaged in impermissible form of group pleading; (2) fact that company president was aware that distributor had been pressured by his supervisors to report fraudulently overstated circulation numbers did not give rise to strong inference of scienter; and (3) allegation that senior officers approved incentive plan that resulted in artificially inflated circulation sales numbers did not give rise to strong inference of scienter. Motions granted. [1] Securities Regulation 60.18

To survive motion to dismiss securities fraud action, plaintiffs must plead specific facts establishing strong inference of scienter. Securities Exchange Act of 1934, §§ 10(b), 21D, 15 U.S.C.A. §§ 78j(b), 78u-4; 17 C.F.R. § 240.10b-5. [3] Securities Regulation 60.45(1) 349Bk60.45(1) Most Cited Cases Severe recklessness required to establish scienter necessary to support securities fraud claim is limited to those highly unreasonable omissions or misrepresentations that involve not merely simple or even inexcusable negligence, but extreme departure from standards of ordinary care, and that present danger of misleading buyers or sellers, which is either known to defendant or is so obvious that defendant must have been aware of it. Securities Exchange Act of 1934, §§ 10(b), 21D, 15 U.S.C.A. §§ 78j(b), 78u-4; 17 C.F.R. § 240.10b-5. [4] Securities Regulation 60.51 349Bk60.51 Most Cited Cases Appropriate allegations of motive and opportunity may meaningfully enhance strength of inference of scienter in securities fraud action, but allegations of motive and opportunity, without more, will not fulfill pleading requirements of Private Securities Litigation Reform Act (PSLRA). Securities Exchange Act of 1934, § 21D(b)(2), 15 U.S.C.A. § 78u-4(b)(2). [5] Securities Regulation 60.63(1) 349Bk60.63(1) Most Cited Cases Circumstantial evidence can support scienter inference necessary to establish securities fraud claim, and court may consider all facts and circumstances alleged to determine whether they, in toto, raise requisite strong inference of scienter. Securities Exchange Act of 1934, §§ 10(b), 21D, 15 U.S.C.A. §§ 78j(b), 78u-4; 17 C.F.R. § 240.10b-5. [6] Securities Regulation 60.45(1) 349Bk60.45(1) Most Cited Cases For purposes of determining whether statement made by corporation was made by it with requisite scienter to establish securities fraud claim, it is appropriate to look to state of mind of individual corporate official or officials who make or issue statement or order or approve it or its making or issuance, or who furnish information or language for in-

349Bk60.18 Most Cited Cases In order to state securities fraud claim under § 10(b) of Securities Exchange Act and Rule 10b-5, plaintiff must allege, in connection with purchase or sale of securities: (1) misstatement or omission (2) of material fact (3) made with scienter (4) on which plaintiff relied (5) that proximately caused plaintiff's injury. Securities Exchange Act of 1934, § 10(b), 15 U.S.C.A. § 78j(b); 17 C.F.R. § 240.10b-5. [2] Securities Regulation 60.51 349Bk60.51 Most Cited Cases

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clusion therein, or like, rather than generally to collective knowledge of all corporation's officers and employees acquired in course of their employment. Securities Exchange Act of 1934, §§ 10(b), 21D, 15 U.S.C.A. §§ 78j(b), 78u-4; 17 C.F.R. § 240.10b-5. [7] Securities Regulation 60.51 349Bk60.51 Most Cited Cases In securities fraud action, plaintiffs must distinguish among defendants and allege role of each. Securities Exchange Act of 1934, § 10(b), 15 U.S.C.A. § 78j(b); 17 C.F.R. § 240.10b-5. [8] Securities Regulation 60.40 349Bk60.40 Most Cited Cases Corporate officers are not liable under § 10(b) for acts solely because they are officers, even where their day-to-day involvement in corporation is pleaded. Securities Exchange Act of 1934, § 10(b), 15 U.S.C.A. § 78j(b); 17 C.F.R. § 240.10b-5. [9] Securities Regulation 60.40 349Bk60.40 Most Cited Cases In order to establish securities fraud claims against corporate officers, corporate statements can be tied to officers if plaintiffs allege they signed documents on which statements were made or allege adequately their involvement in creating documents. Securities Exchange Act of 1934, § 10(b), 15 U.S.C.A. § 78j(b); 17 C.F.R. § 240.10b-5. [10] Securities Regulation 60.51 349Bk60.51 Most Cited Cases Pursuant to Private Securities Litigation Reform Act (PSLRA), failure to adequately plead scienter requires dismissal of complaint. Securities Exchange Act of 1934, § 21D(b)(3)(A), 15 U.S.C.A. § 78u-4(b)(3)(A). [11] Securities Regulation 60.40 349Bk60.40 Most Cited Cases Corporate officers could not be held liable for securities fraud based on company's public statements, despite contention that, because of their positions within company, officers had ability and opportunity to prevent issuance of allegedly misleading statements or to cause them to be corrected, absent allegation that officers signed any document or orally

made any of misrepresentations or omissions that formed basis of securities fraud claims. Securities Exchange Act of 1934, § 10(b), 15 U.S.C.A. § 78j(b); 17 C.F.R. § 240.10b-5. [12] Securities Regulation 60.51 349Bk60.51 Most Cited Cases In case governed by Private Securities Litigation Reform Act (PSLRA), plaintiffs must allege facts sufficient to raise strong inference of scienter with respect to each individual defendant. Securities Exchange Act of 1934, § 21D(b)(2), 15 U.S.C.A. § 78u-4(b)(2). [13] Securities Regulation 60.51 349Bk60.51 Most Cited Cases Stock purchasers alleging that officers of newspaper publisher's parent company engaged in scheme to manipulate newspaper's circulation numbers so as to inflate parent's financial results engaged in impermissible form of group pleading, and thus failed to establish scienter necessary to state securities fraud claims against officers, to extent that allegations concerning officers' participation in scheme were addressed to "defendants" collectively. Securities Exchange Act of 1934, §§ 10(b), 21D(b)(2), 15 U.S.C.A. §§ 78j(b), 78u-4(b)(2); 17 C.F.R. § 240.10b-5. [14] Securities Regulation 60.45(1) 349Bk60.45(1) Most Cited Cases Stock purchasers' claim that officers of newspaper publisher's parent company implicitly and explicitly threatened to fire distributors that did not meet their circulation goals did not allege severe recklessness necessary to support strong inference of scienter needed to establish securities fraud claims against officers, despite purchasers' contention that threats were part of scheme to manipulate newspaper's circulation numbers so as to inflate parent's financial results. Securities Exchange Act of 1934, §§ 10(b), 21D, 15 U.S.C.A. §§ 78j(b), 78u-4; 17 C.F.R. § 240.10b-5. [15] Securities Regulation 60.51 349Bk60.51 Most Cited Cases Strong inference of scienter necessary to establish securities fraud claim requires pleading of particular facts that, assumed to be true, constitute persuasive, effective, and cogent evidence from which it can logically be deduced that defendant acted with intent to deceive, manipulate, or de-

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fraud. Securities Exchange Act of 1934, §§ 10(b), 21D, 15 U.S.C.A. §§ 78j(b), 78u-4; 17 C.F.R. § 240.10b-5. [16] Securities Regulation 60.45(1) 349Bk60.45(1) Most Cited Cases Stock purchasers' allegation that president of newspaper publisher's parent company was aware that distributor had been pressured by his supervisors to report fraudulently overstated circulation numbers, but did not revise circulation numbers included in company's public statements, did not give rise to strong inference that president acted with scienter, and thus were insufficient to state securities fraud claim under § 10(b), where president immediately caused corporate counsel to investigate distributor's allegation, distributor did not report false numbers, and president did not himself pressure distributor. Securities Exchange Act of 1934, §§ 10(b), 21D, 15 U.S.C.A. §§ 78j(b), 78u-4; 17 C.F.R. § 240.10b-5. [17] Securities Regulation 60.45(1) 349Bk60.45(1) Most Cited Cases Mere publication of inaccurate accounting figures, or failure to follow generally accepted accounting principles (GAAP), without more, does not establish scienter necessary to prove securities fraud claim; rather, party must know that it is publishing materially false information, or party must be severely reckless in publishing such information. Securities Exchange Act of 1934, §§ 10(b), 21D, 15 U.S.C.A. §§ 78j(b), 78u-4; 17 C.F.R. § 240.10b-5. [18] Securities Regulation 60.51 349Bk60.51 Most Cited Cases Stock purchasers' allegation that officers of newspaper publisher's parent company failed to publicly acknowledge that newspaper's circulation numbers had been artificially inflated until one and a half years after learning that its circulation sales rewards plan provided incentive to understate returned newspapers was insufficient to give rise to strong inference of scienter necessary to establish securities fraud claims against officers, where complaint failed to identify individual defendants by name, distinguish among them, or enlighten each defendant as to that person's particular role in alleged fraud. Securities Exchange Act of 1934, §§ 10(b), 21D, 15 U.S.C.A. §§ 78j(b), 78u-4; 17 C.F.R. § 240.10b-5.

[19] Securities Regulation 60.51 349Bk60.51 Most Cited Cases Allegations of incentives and bonuses can be part of larger body of averments that are sufficient to plead strong inference of scienter necessary to support securities fraud claim. Securities Exchange Act of 1934, §§ 10(b), 21D, 15 U.S.C.A. §§ 78j(b), 78u-4; 17 C.F.R. § 240.10b-5. [20] Securities Regulation 60.45(1) 349Bk60.45(1) Most Cited Cases Stock purchasers' allegation that senior officers of newspaper publisher's parent company approved incentive bonus plan that resulted in artificially inflated circulation sales numbers did not give rise to strong inference of scienter necessary to establish securities fraud claims against officers, where bonus plan was offered to lower-level managers and independent distributors, not to senior officers. Securities Exchange Act of 1934, §§ 10(b), 21D, 15 U.S.C.A. §§ 78j(b), 78u-4; 17 C.F.R. § 240.10b-5. [21] Securities Regulation 60.45(1) 349Bk60.45(1) Most Cited Cases Only insider trading in suspicious amounts or at suspicious times is probative of scienter necessary to establish securities fraud claims. Securities Exchange Act of 1934, §§ 10(b), 21D, 15 U.S.C.A. §§ 78j(b), 78u-4; 17 C.F.R. § 240.10b-5. [22] Securities Regulation 60.51 349Bk60.51 Most Cited Cases Stock purchasers' allegation that president of newspaper publisher's parent company sold stock three times at artificially inflated prices in order to profit from newspaper's fraudulent inflated circulation numbers was inadequate to plead strong inference of scienter necessary to state securities fraud claim, where other senior officers did not sell shares during relevant period, and there were no allegations that sales were out of line with president's prior trading practices. Securities Exchange Act of 1934, §§ 10(b), 21D, 15 U.S.C.A. §§ 78j(b), 78u-4; 17 C.F.R. § 240.10b-5. [23] Securities Regulation 60.45(1) 349Bk60.45(1) Most Cited Cases For purposes of determining whether insider stock sales support strong inference of scienter necessary to state securities fraud claim, sales are suspicious when they are dramat-

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ically out of line with prior trading practices at times calculated to maximize personal benefit from undisclosed inside information. Securities Exchange Act of 1934, §§ 10(b), 21D, 15 U.S.C.A. §§ 78j(b), 78u-4; 17 C.F.R. § 240.10b-5. [24] Securities Regulation 60.51 349Bk60.51 Most Cited Cases When court evaluates securities fraud complaint in its entirety to determine whether allegations as a whole raise requisite strong inference of scienter, it does not treat allegations that are not defendant-specific as if they did enlighten each defendant as to that person's particular part in alleged fraud. Securities Exchange Act of 1934, §§ 10(b), 21D, 15 U.S.C.A. §§ 78j(b), 78u-4; 17 C.F.R. § 240.10b-5. [25] Securities Regulation 60.45(1) 349Bk60.45(1) Most Cited Cases Stock purchasers' allegations that senior officers of newspaper publisher's parent company created incentive bonus plan that resulted in artificially inflated circulation sales numbers and emphasized to distributors importance of meeting sales goals and consequences of failure, that company president was aware of lower-level managers' attempts to coerce distributors to falsify their numbers, that company violated generally accepted accounting principles (GAAP), and that president made several stock sales during relevant period were legally inadequate to plead strong inference of scienter necessary to establish securities fraud claims against officers, even though plan created danger of abuse, where problems generated by these practices and methods came to light, and company disclosed problems and took corrective measures. Securities Exchange Act of 1934, §§ 10(b), 21D, 15 U.S.C.A. §§ 78j(b), 78u-4; 17 C.F.R. § 240.10b-5. Robert E. Jenkins, Vial Hamilton Koch & Knox, Roger F. Claxton, Claxton & Hill, Thomas E. Bilek, Hoeffner & Bilek, Dallas, TX, for Plaintiffs. Martin Burr McNamara, Gibson Dunn & Crutcher, Roger Evans, Mathis & Donheiser, Roger F. Claxton, Claxton & Hill, Willie Briscoe, Joe Kendall, Provost Umphrey Law Firm, Robert E. Jenkins, Vial Hamilton Koch & Knox, Dallas, TX, Benny C. Goodman, III, Henry Rosen, Lerach Coughlin Stoia Geller Rudman & Robbins, San Diego, CA, for Defendants.

MEMORANDUM OPINION AND ORDER FITZWATER, J. *1 Defendants move to dismiss these consolidated securities fraud actions, contending, inter alia, that certain defendants did not make public statements, that plaintiffs impermissibly rely on group pleading, and that they have failed to plead a strong inference of scienter, as required by the Private Securities Litigation Reform Act of 1995 ("PSLRA"), 15 U.S.C. § 78u-4. The court agrees that plaintiffs' complaint is defective in these respects, and it grants defendants' motions and allows plaintiffs to replead. I These consolidated cases constitute a putative securities fraud class action involving common stock of defendant Belo Corporation ("Belo"). The lawsuits are based on the reporting of circulation for The Dallas Morning News ("DMN") and of Belo financial results impacted by DMN's circulation figures and advertising revenue. The proposed class consists of all purchasers of Belo common stock between May 12, 2003 and August 6, 2004 (the "class period"). [FN1] The lead plaintiff is Operating Engineers Construction Industry and Miscellaneous Pension Fund. The defendants are Belo, five of its senior officers and directors-Robert W. Decherd ("Decherd"), Belo's Chairman, CEO since 1987, and President since 1994; James M. Moroney III ("Moroney"), DMN's publisher and CEO since 2001; [FN2] John L. (Jack) Sander ("Sander"), Belo's President/Media Operations since 2004; [FN3] Dunia A. Shive ("Shive"), Belo's Executive Vice President, [FN4] and Dennis A. Williamson ("Williamson"), Belo's Senior Corporate Vice President and CFO since 2004 [FN5] (collectively, the "Belo Officers")--and Barry Peckham ("Peckham"), who was DMN's Executive Vice President in charge of circulation at DMN until he resigned on August 5, 2004. [FN6] According to plaintiffs' first amended consolidated complaint ("complaint"), Belo is a media company that owns newspapers, television stations, cable news channels, and Internet websites. Belo's flagship subsidiary is DMN, a daily newspaper responsible for over 60% of Belo's overall newspaper revenue and more than 30% of Belo's total revenue. Between 2000 and 2003, DMN revenue declined a total of $100 million, putting tremendous pressure on defendants

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[FN7] because Belo was heavily burdened with debt that exceeded $1.2 billion. When Belo announced in early August 2004 that certain "questionable circulation practices" at DMN had resulted in overstating its circulation, Belo's stock price fell, and the first two of these lawsuits were filed within the month. Plaintiffs allege as their first claim that defendants are liable for violating § 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. § 78j(b), and Securities and Exchange Commission ("SEC") Rule 10b-5, 17 C.F.R. § 240.10b-5, promulgated thereunder. They assert as their second claim that the individual defendants are liable under § 20(a) of the Exchange Act, 15 U.S.C. § 78t(a), as controlling persons of Belo. *2 Plaintiffs allege that DMN derives 90% of its revenue from advertising and 10% from paid circulation. Many print advertising contracts, including those at issue in this case, contain circulation-based incentives; the greater the reported circulation, the more advertisers pay to place advertisements. Beginning as early as 1999, [FN8] defendants engaged in a scheme to defraud DMN advertisers and Belo investors by intentionally overstating DMN's circulation for the purpose of increasing advertising revenue. They regularly reported DMN's fraudulently overstated circulation numbers and Belo's artificially inflated financial results to investors and the market. The scheme resulted in Belo's improperly recognizing revenue and artificially inflating the value of Belo stock, thereby defrauding investors as well. Plaintiffs aver that defendants committed securities fraud by making false statements or failing to disclose adverse facts that each defendant knew about Belo, thereby deceiving investors concerning Belo's prospects and business, artificially inflating the price of Belo common stock, and causing plaintiffs and other class members to purchase Belo common stock at inflated prices. In various SEC filings, press releases, conference calls, industry conference presentations, and analyst reports, [FN9] defendants reported false and misleading DMN circulation figures, Belo operating revenues and earnings (or provided false and misleading earnings guidance), and reasons for changing circulation calculation methodology, knowing that Belo had improperly recognized unearned advertising revenues based on over-

stated circulation figures that resulted in overcharges to advertisers. They also knew that Belo had reported materially and artificially inflated results that did not conform with Generally Accepted Accounting Principles ("GAAP") and SEC rules. Furthermore, defendants knew that Belo lacked adequate internal controls capable of reporting accurate circulation data for DMN, had failed to reserve for the clearly foreseeable and estimable costs of providing advertising fee credits to DMN advertisers, had failed to reserve for the estimable administrative, legal, investigative, and public relations costs necessary to provide compensation to its advertisers and defend Belo against likely regulatory and legal scrutiny, had failed to disclose known adverse trends or conditions, and had committed other violations of GAAP. Belo and the Belo Officers move to dismiss under Fed.R.Civ.P. 12(b)(6) and 9(b), contending, inter alia, that plaintiffs have failed adequately to plead scienter. Peckham has filed a separate motion in which he seeks dismissal on this and other similar grounds. Plaintiffs have filed a consolidated opposition brief to both motions, and defendants have filed a joint reply brief. [FN10] II [1] "In order to state a claim under section 10(b) of the [Exchange] Act and Rule 10b-5, a plaintiff must allege, in connection with the purchase or sale of securities, '(1) a misstatement or an omission (2) of material fact (3) made with scienter (4) on which plaintiff relied (5) that proximately caused [the plaintiffs'] injury." ' Nathenson v. Zonagen Inc., 267 F.3d 400, 406- 07 (5th Cir.2001) (quoting Tuchman v. DSC Commc'ns Corp., 14 F.3d 1061, 1067 (5th Cir.1994)). "Scienter--a mental state embracing intent to deceive, manipulate, or defraud--is an essential element of a securities fraud claim under § 10(b) of the Exchange Act and Rule 10b-5. Section 10(b) proscribes knowing or intentional conduct." Coates v. Heartland Wireless Commnc'ns, Inc., 100 F.Supp.2d 417, 421 (N.D.Tex.2000) (Fitzwater, J.) ("Coates III" ) (citations and footnote omitted). *3 [2] "[T]o survive a motion to dismiss a securities-fraud action, plaintiffs must, inter alia, plead specific facts establishing a strong inference of scienter." Fin. Acquisition Partners L.P. v. Blackwell, 440 F.3d 278, ----, 2006 WL 330120, at *7 (5th Cir. Feb.14, 2006) (citing Nathenson, 267 F.3d at

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407). "The PSLRA pleading standard for scienter is especially challenging for plaintiffs." Plotkin v. IP Axess Inc., 407 F.3d 690, 696-97 (5th Cir.2005). "For PSLRA purposes, plaintiffs may establish scienter by demonstrating either intent or severe recklessness." Fin. Acquisition Partners, 440 F.3d at ----, 2006 WL 330120, at *7 (emphasis omitted); see Southland Sec. Corp. v. INSpire Ins. Solutions Inc., 365 F.3d 353, 365 (5th Cir.2004) ("[T]he PSLRA state of mind requirement is severe recklessness or actual knowledge."). A plaintiff can plead scienter by identifying circumstances that indicate conscious behavior on the part of the defendant, though the strength of the circumstantial allegations must be correspondingly greater. Conscious behavior is a more stringent standard. Conscious behavior, of course, means conscious mis behavior. To allege scienter based on conscious conduct, a plaintiff must plead strong circumstantial evidence of misbehavior. Mortensen v. AmeriCredit Corp., 123 F.Supp.2d 1018, 1025 (N.D.Tex.) (Fitzwater, J.) (citations, internal quotation marks, and brackets omitted), aff'd, 240 F.3d 1073 (5th Cir.2000) (per curiam). [3] Severe recklessness is limited to those highly unreasonable omissions 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 misleading buyers or sellers which is either known to the defendant or is so obvious that the defendant must have been aware of it. Nathenson, 267 F.3d at 408 (internal quotation marks omitted) (quoting Broad v. Rockwell Int'l Corp., 642 F.2d 929, 961-62 (5th Cir. Apr.1981) (en banc)). [4] "Appropriate allegations of motive and opportunity may meaningfully enhance the strength of the inference of scienter," id. at 412, but "allegations of motive and opportunity, without more, will not fulfill the pleading requirements of the PSLRA," Goldstein v. MCI WorldCom, 340 F.3d 238, 246 (5th Cir.2003) (citing Nathenson, 267 F.3d at 412). [5] "Circumstantial evidence can support a scienter inference." Fin. Acquisition Partners, 440 F.3d at ----, 2006 WL 330120, at *7 (citing Nathenson, 267 F.3d at 408). The

court "consider[s] all the facts and circumstances alleged to determine whether they, in toto, raise a requisite strong inference of scienter." Goldstein, 340 F.3d at 246 (citing Abrams v. Baker Hughes Inc., 292 F.3d 424, 430 (5th Cir.2002); Nathenson, 267 F.3d at 410). It "consider[s] any evidence of scienter pleaded by the plaintiffs cumulatively." Id. at 247. *4 [6] "The PSLRA ... requires that the complaint 'with respect to each act or omission alleged' to be false or misleading 'state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind." Southland, 365 F.3d at 363 (quoting 15 U.S.C. § 78u-4(b)(2)). Concerning the liability of the individual defendants, "[u]nder the PSLRA, it is not enough to particularize false statements or fraudulent omissions made by a corporate defendant. Plaintiffs must also particularize intent allegations raising a 'strong inference of scienter." ' Goldstein, 340 F.3d at 249 (addressing liability of corporation's Chief Executive Officer and Chief Financial Officer/Executive Vice President). Regarding Belo's liability under § 10(b) of the Exchange Act and Rule 10b-5 as a corporate defendant, [f]or purposes of determining whether a statement made by the corporation was made by it with the requisite Rule 10(b) scienter we believe it appropriate to look to the state of mind of the individual corporate official or officials who make or issue the statement (or order or approve it or its making or issuance, or who furnish information or language for inclusion therein, or the like) rather than generally to the collective knowledge of all the corporation's officers and employees acquired in the course of their employment. This is consistent with the general common law rule that where, as in fraud, an essentially subjective state of mind is an element of a cause of action also involving some sort of conduct, such as a misrepresentation, the required state of mind must actually exist in the individual making (or being a cause of the making of) the misrepresentation, and may not simply be imputed to that individual on general principles of agency. Southland, 365 F.3d at 366 (citations and footnotes omitted). [7][8][9] "[G]roup pleading ... is not permitted for PSLRA actions in our circuit." Fin. Acquisition Partners, 440 F.3d

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at ----, 2006 WL 330120, at *4; see Coates v. Heartland Wireless Commnc'ns, Inc., 26 F.Supp.2d 910, 915-17 (N.D.Tex.1998) (Fitzwater, J.) ("Coates I" ) (rejecting group pleading after enactment of PSLRA). Accordingly, concerning the individual defendants, [f]or the claimed fraud, Plaintiffs must distinguish among defendants and allege the role of each. Corporate officers are not liable for acts solely because they are officers, even where their day-to-day involvement in the corporation is pleaded. Corporate statements can be tied to officers if plaintiffs allege they signed the documents on which the statements were made or allege adequately their involvement in creating the documents. Fin. Acquisition Partners, 440 F.3d at ----, 2006 WL 330120, at *7 (citation omitted). In deciding defendants' motions to dismiss, the court "accept[s] the facts alleged in the plaintiffs' complaint as true and constru[es] their allegations in the light most favorable to them." Goldstein, 340 F.3d at 244 (citing Abrams, 292 F.3d at 430). The court does not, however, " 'strain to find inferences favorable to the plaintiff[s]." ' Id. (quoting Westfall v. Miller, 77 F.3d 868, 870 (5th Cir.1996) (alteration in original). "Nor [does the court] accept conclusory allegations, unwarranted deductions, or legal conclusions." Southland, 365 F.3d at 361 (citing Nathenson, 267 F.3d at 406). Additionally, concerning the issue of scienter, "[w]hile under Rule 12(b)(6) all inferences must be drawn in plaintiffs' favor, inferences of scienter do not survive if they are merely reasonable.... Rather, inferences of scienter survive a motion to dismiss only if they are both reasonable and strong inferences." R2 Invs. LDC v. Phillips, 401 F.3d 638, 645 (5th Cir.2005) (internal quotation marks omitted). *5 [10] "[P]ursuant to the PSLRA, failure to adequately plead scienter requires dismissal of the complaint." Fin. Acquisition Partners, 440 F.3d at ----, 2006 WL 330120, at *7 (citing 15 U.S.C. § 78u-4(b)(3)(A)). III Defendants maintain that plaintiffs' complaint relies improperly on group pleading. [FN11] Although they advance this argument in support of a broad challenge to the complaint, the court will initially focus more narrowly on whether the allegations against Moroney, Peckham, and Sander falter on

this basis. The Belo Officers move to dismiss the actions against these three defendants on the ground that the complaint does not allege that they ever made a public statement, fraudulent or otherwise. Peckham also moves to dismiss on this basis, asserting that he made no statements to the investing public, directly or indirectly, and had no contact with analysts, the financial press, or the investing public. Because the court agrees with defendants, it will dismiss the actions against Moroney, Peckham, and Sander on this ground. As the court has noted above, under the PSLRA plaintiffs must "distinguish among those they sue and enlighten each defendant as to his or her particular part in the alleged fraud." Southland, 365 F.3d at 365 (internal quotation marks omitted). Therefore, even if in a non-PSLRA case an assertion regarding "defendants" collectively might be viewed deferentially to mean all the defendants in the case, in a PSLRA action an allegation made against the "defendants" will normally have the effect of naming no defendant at all, because the assertion will not enlighten each defendant as to the person's particular part in the alleged fraud. See id. ("Consistent with our rejection of the 'group pleading' doctrine, we do not construe allegations contained in the Complaint against the 'defendants' as a group as properly imputable to any particular individual defendant unless the connection between the individual defendant and the allegedly fraudulent statement is specifically pleaded."). Instead, plaintiffs must tie each defendant to materials alleged to be fraudulent by pleading that the defendant signed the document or made the statements or by adequately alleging his involvement in creating the document or making the statement. See Fin. Acquisition Partners, 440 F.3d at ----, 2006 WL 330120, at *7. Plaintiffs assert that defendants committed securities fraud through misrepresentations in various SEC filings, press releases, conference calls, industry conference presentations, and analyst reports. Of the six individual defendants sued, plaintiffs do not explicitly identify Moroney, Peckham, or Sander as having signed any document or orally made any of the misrepresentations or omissions that are the basis for their claim under § 10(b) of the Exchange Act and Rule 10b-5. Reviewing the complaint in its entirety, it appears

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that plaintiffs seek to hold these three defendants (among the other individual defendants) liable based on their positions with Belo. In ¶ 55 plaintiffs allege that "[t]he Individual Defendants, because of their positions with the Company, possessed the power and authority to control the contents of Belo's quarterly reports, press releases and presentations to securities analysts, money and portfolio managers, and institutional investors, i.e., the market." Compl. ¶ 55. They aver that "[e]ach defendant was provided with copies of the press releases, alleged herein to be misleading, prior to or shortly after their issuance, and had the ability and opportunity to prevent their issuance or cause them to be corrected." Id. *6 [11] But the positions these defendants held with Belo cannot alone serve as a basis to hold them responsible for the contents of the materials alleged to be fraudulent. See R2 Invs., 401 F.3d at 646 ("We will not, however, attribute knowledge of the document's contents based solely on the positions of the defendants."); see also Fin. Acquisition Partners, 440 F.3d at ----, 2006 WL 330120, at *7 ("Corporate officers are not liable for acts solely because they are officers, even where their day-to-day involvement in the corporation is pleaded."); Nathenson, 267 F.3d at 424 ("We recognize that normally an officer's position with a company does not suffice to create an inference of scienter."). While plaintiffs correctly point out that there can be "special circumstances" that, together with an officer's position, support a different result, Ps. Br. 29 n. 12, plaintiffs have not alleged them with sufficient specificity as to these three defendants. Accordingly, the court dismisses plaintiffs' claim against these defendants under § 10(b) of the Exchange Act and Rule 10b-5 on the basis that they have failed adequately to connect them to the content of at least one of the SEC filings, press releases, conference calls, industry conference presentations, or analyst reports in question. Although the group pleading deficiency does not apply to Belo directly, it does result in the dismissal of the § 10(b)/Rule 10b-5 claim against it arising from the conduct of Moroney, Peckham, or Sander based on the failure adequately to plead scienter. Under Southland to determine whether a statement made by Belo was made with scienter, the court looks to the state of mind of the individual corpor-

ate official or officials who made or issued the statement, or ordered or approved it or its making or issuance, or who furnished information or language for inclusion therein, or the like. Southland, 365 F.3d at 366. "[T]he required state of mind must actually exist in the individual making (or being a cause of the making of) the misrepresentation...." Id. Here, because plaintiffs have failed to connect Moroney, Peckham, or Sander to an oral or written misrepresentation or omission, they cannot establish scienter against Belo based on their conduct. IV The court now turns to the question whether plaintiffs have adequately pleaded scienter. Defendants maintain that plaintiffs assert only general, conclusory allegations concerning the individual defendants. They contend that plaintiffs have not properly alleged conscious behavior or severe recklessness by any defendant because bare allegations that defendants knew about the circulation overstatement are insufficient to plead scienter, plaintiffs' unsupported allegations regarding the DMN Circulation Department do not establish scienter, misrepresenting Belo's announcements following the discovery of the circulation overstatement does not constitute evidence of scienter, and plaintiffs have not alleged facts giving rise to a strong inference of defendants' scienter based on GAAP violations. Defendants posit that plaintiffs have not alleged motive or opportunity that would give rise to a strong inference of scienter. They note that motive and opportunity allegations alone do not demonstrate scienter; they contend that, because plaintiffs have failed to plead sufficient allegations of scienter, their motive and opportunity allegations are irrelevant; and they assert that plaintiffs' effort to plead motive fails. Defendants reason that plaintiffs' attempt to plead motive lacks merit because universally held motives do not give rise to any inference of scienter; plaintiffs' allegations concerning pep talks and layoffs are irrelevant; and there is no evidence of insider trading to support plaintiffs' deficient scienter allegations. *7 Plaintiffs respond that they have adequately alleged a strong inference of scienter. They posit generally that their complaint does not suffer from conclusory allegations and that the court must analyze the allegations of the complaint

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as a whole, considering whether all the facts and circumstances taken together are sufficient to support the necessary strong inference of scienter. Plaintiffs argue that the complaint provides ample, specific details about defendants' actual knowledge of a circulation overstatement scheme at DMN that began in 2000 and events in 2002-03 that demonstrate defendants' actual knowledge of their false statements. They rely on the complaint's allegations concerning "The Morning News Game" and the scheme to enforce it, that defendants were aware of internal corporate information by at least January 2003 that contradicted their class period statements, Belo's numerous and repeated accounting violations, defendants' post-class period admissions that identify their false class period statements, and defendants' management bonuses and defendant Decherd's stock sales. V A Plaintiffs contend that the complaint's allegations concerning "The Morning News Game" support a strong inference of scienter. They argue that defendants actually knew that DMN's circulation was inflated because they developed a scheme to manipulate the circulation so as to inflate Belo's financial results. According to plaintiffs, the plan, developed in 2000, was called "The Morning News Game," and was a complex scheme designed to create a system that put immense pressure on DMN employees to "back into" circulation numbers of previous years. They allege that defendants used several methods to achieve the goal of forcing circulation employees to play "The Morning News Game" or lose their jobs: they set unrealistically high distributor draws [FN12] and refused to allow draw reductions; told State Regional Managers, State Zone Managers, and distributors the circulation figures that had to be achieved on audit work sheets; required distributors to report a very low number of papers left unsold in their racks and required distributors to go on midnight recoveries to collect excess papers from the racks; required employees to manipulate college drops and home delivery subscription service starts and stops; and threatened to terminate distributors who refused to play the game. Plaintiffs assert that defendants also created other incentives for DMN employees, such as paying bonuses for meeting circulation goals and offering free vacations for winning circulation contests.

Plaintiffs contend that to force DMN employees to participate in their scheme, they had to make it clear that everyone would participate in the game or risk losing his job. They cite as an example that defendants Decherd, Moroney, and Peckham regularly gave "pep talks" to all DMN executives, managers, employees, and distributors, in which they explained why it was imperative to achieve the previous year's circulation. They followed the "pep talks" with thinly-veiled threats of termination and unemployment if DMN employees did not play along. In support of this assertion, they cite an October 26, 2001 email that defendant Moroney sent to all DMN employees, in which he emphasized that 73 DMN colleagues had lost their jobs the previous day and stated that employees had a daily obligation to increase circulation; a November 7, 2001 employee letter from defendant Decherd regarding a reduction in force that affected 160 individuals, in which he noted that meeting "expected revenue levels has required sacrifice and understanding by everyone"; and the requirement that DMN distributors sign a Publishers Statement Period form that confirmed that they had received notice of the numbers they were required to meet during that audit period and noting that "[f]ailure to meet these goals will result in a review of your contract." *8 Plaintiffs also rely on allegations that defendants supported their scheme by creating a top-down bureaucratic system that forced each link in the chain of command to fill out documents--including Home Delivery Weekly Performance Reports and State Objective Recap Reports--that reported circulation numbers and start/stop information to upper circulation managers. State Zone Managers were required to create a "90 Day Action Plan" for review by their superiors. State Zone Managers were required to explain how they would improve the performance of their zones to meet the previous year's circulation numbers by marking choices such as terminating the contracts of distributors who did not meet their year-over-year numbers and play "The Morning News game." They cite as an example a January 2003 voicemail left by a State Regional Manager to a distributor in which he stated, "wait a minute, this is not our goal, this is where it's going to come in, 1.2 Sunday, 1.3 daily." Plaintiffs aver that this left a clear message from upper management that distributors were to do whatever was necessary to report circulation numbers equal to or greater than the

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prior year's. Finally, plaintiffs argue that the complaint pleads that defendants enforced their scheme by discouraging distributors from allowing service stops and creating "start plans" designed to increase circulation at any cost. They posit that State Zone Managers used the plans to push distributors into increasing new subscriber starts despite the fact that defendants knew that many starts were actually "bad starts" in which the subscriber declined service and was billed anyway. Plaintiffs cite an August 5, 2004 statement by defendant Decherd that DMN was making procedural changes necessary to ensure the collection and reporting of more accurate circulation data, which plaintiffs say is an admission that the "documentary cover" that defendants created to support their scheme could not provide accurate circulation data. B Plaintiffs appear to be relying on a theory of conscious misbehavior rather than severe recklessness. See Ps. Br. 30 ("Defendants actually knew that the DMN' s circulation was inflated because they developed a scheme to deliberately manipulate the circulation at their flagship newspaper in order to artificially inflate Belo's financial results."). [FN13] The premise of these allegations is that defendants developed a scheme to inflate DMN's circulation and then lied about it in SEC filings, press releases, conference calls, industry conference presentations, and analyst reports. 1 [12][13] As a threshold matter, the court observes that many of plaintiffs' allegations founder because they are not specific as to the defendant in question and they rely on an impermissible form of group pleading. [FN14] In a case governed by the PSLRA, plaintiffs "must allege facts sufficient to raise a strong inference of scienter with respect to each individual defendant." R2 Invs., 401 F.3d at 643 (citing Southland, 365 F.3d at 365). Yet virtually all--if not all--of plaintiffs' allegations concerning defendants' scienter based on "The Morning News Game" are addressed to "defendants" collectively. See Compl. ¶ 37 ("In fact, The Morning News game continued to be played for another year and a half, until defendants were forced to admit in August 2004 that The Dallas Morning News circulation was falsely overstated ."); ¶ 58 ("Defendants knew that Belo had recognized

unearned revenue because The Morning News game to overstate circulation figures operated to improperly overcharge advertisers for ads and inserts, which resulted in Belo recognizing unearned advertising revenue."); ¶ 65 ("Defendants knew that The Morning News game to overstate circulation figures operated to improperly overcharge advertisers for ads and inserts, which resulted in artificially inflated revenues at the Company."); ¶ 80 ("Defendants knew that the Company had recognized unearned revenue because The Morning News game to overstate circulation figures operated to improperly overcharge advertisers for ads and inserts, which resulted in artificially inflated revenues at the Company."); ¶ 106 ("Defendants knew that the Company had recognized unearned revenue because The Morning News game to overstate circulation figures operated to improperly overcharge advertisers for ads and inserts, which resulted in artificially inflated revenues at the Company."); ¶ 126 ("Defendants knew that revenues were not properly recognized because The Morning News game to overstate circulation figures operated to improperly overcharge advertisers for ads and inserts, which resulted in artificially inflated revenues at the Company."); ¶ 179 ("Moreover, the Individual Defendants not only knew about the scheme to overstate circulation at The Dallas Morning News, but they played a vital role in the scheme by encouraging participation in The Morning News game with "pep talks" disseminated by defendants Decherd, Moroney and Peckham in emails, letters and during meetings to all executives, managers, employees and distributors of The Dallas Morning News."). These allegations are plainly inadequate to plead a strong inference that any particular defendant acted with scienter. *9 Moreover, the allegations concerning defendants' participation in the scheme are also in many instances addressed to "defendants" collectively. The complaint describes the scheme in ¶¶ 6-29. In these paragraphs, only defendants Decherd and Moroney are mentioned by name, and then only in ¶ 10; otherwise, plaintiffs address their allegations to "defendants" as an undifferentiated unit. See id. at ¶ 6 ("Defendants embarked on a scheme to improperly recognize advertising revenue by overcharging their advertisers to place ads and inserts in daily and Sunday publications of The Dallas Morning News."); ¶ 7 ("Defendants carried out

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this scheme by utilizing various improper devices to back into the prior year's numbers and artificially inflate circulation figures at The Dallas Morning News."); id. at ¶¶ 7-8, 10, 11, 13 (alleging conduct that "Defendants" undertook); ¶ 19 ("Another device defendants employed in furtherance of their scheme to fraudulently inflate circulation figures at The Dallas Morning News was to falsely overstate home delivery subscriptions."). Similarly, these allegations are insufficient. 2 Regarding the allegations that do identify a specific defendant or defendants by name, it is necessary to separate the assertions that can serve as a basis for a claim of conscious misbehavior from those that appear to be nothing more than hyperbole or rhetoric. In other words, it is essential to gain an understanding from the complaint--unadorned by the embellishment and characterizations that a lawyer's pen can add through use of intensifiers, adjectives, and adverbs--of what plaintiffs say the scheme actually was and how a given defendant played a part in it. In a case that rests on an intentional plan to report artificially inflated circulation figures, it is necessary to separate permissible conduct aimed at boosting circulation from wrongful acts or omissions intended to falsify it. An ineluctable premise of plaintiffs' suit is that higher circulation numbers are better for a publication that charges for advertising based on circulation and that derives the vast majority of its revenue from advertising. This is unremarkable. Most, if not all, forms of media that accept advertising attempt to make a profit this way. It is not improper for such a business to undertake accepted business practices aimed at increasing circulation. Nor for the purpose of boosting circulation is it wrong for management to direct, persuade, or create incentives for those whose work they manage. What is wrong is to manipulate figures, fabricate numbers, or misrepresent the publication's actual circulation. The question then is whether plaintiffs have pleaded sufficient facts to place a specific defendant in the category that demonstrates improper conduct and thus creates a strong inference of scienter. [14] In ¶ 10 plaintiffs allege that defendants engaged in "scare tactics" to make clear to the entire State Circulation Department, and especially to distributors, that their willing-

ness to play "The Morning News game" was not optional, and that those who refused to play did so under the direct threat of losing their livelihood. They assert that, in late 2001, Moroney and Decherd sent repeated messages to everyone at DMN concerning the termination of large groups of employees and the "daily obligation" of the remaining employees to do whatever was necessary to increase circulation at DMN. When these allegations are read together with other parts of the complaint, they are insufficient to place Moroney and Decherd within the rubric of those engaged in improper conduct aimed at falsifying circulation figures. *10 In ¶ 179 of the complaint, plaintiffs assert that Decherd, Moroney, and Peckham played a vital role in the scheme by encouraging participation in "The Morning News game" with "pep talks" disseminated in emails, letters, and during meetings to all DMN executives, managers, employees, and distributors. The "pep talks" generally stressed the importance of increasing circulation figures at DMN in order to increase Belo's advertising revenue, and discussed how and why this would happen in the next year. On October 10, 12, and 16, 2001 Moroney distributed emails to everyone at DMN regarding meetings in which they could talk with him personally to address issues that had arisen from a letter that Decherd had sent to them on October 10, 2001. Decherd often sent "pep talks" to DMN and Belo employees. On November 7, 2001 Decherd sent another letter to all Belo employees updating them on the "good progress Belo is making," while at the same time admitting that the period at the end of the year "is crucial from a business standpoint in any year, but especially so in 2001." Id. He stated that revenues continued to improve gradually throughout the company, but that "fourth quarter comparisons to 2000 are difficult due to the absence of political revenues." Id. He stressed that, "[c]ontinuing to have outstanding revenue performance relative to Belo's peer companies is the single most important business result that positively impacts shareholder value," and that, "[e]ach of you is a contributor to Belo's success." Id. On April 10, 2002 Moroney held the DMN Vision Contractor Meeting, the first time that the Publisher/CEO had ever addressed the entire distributor force.

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In ¶ 180 plaintiffs aver that Moroney engaged in blatant "scare tactics" on October 26, 2001 when he sent an email to everyone at DMN that repeatedly mentioned that 73 DMN colleagues (many of whom had worked in the State Circulation Department) had lost their jobs the previous day, stressed that each remaining employee had a "daily obligation" to increase circulation, and emphasized that DMN had "not printed the most newspapers [DMN] will ever print.... Those days are ahead of us all." Id. They assert that Decherd personally sent a November 7, 2001 letter regarding an October 29, 2001 reduction in force that affected 160 individuals, noting that meeting "expected revenue levels has required sacrifice and understanding by everyone." Id. When ¶¶ 10, 179, and 180 are read together, it is clear that plaintiffs are accusing Moroney and Decherd of nothing more than techniques that shareholders--including, presumably, the plaintiff-shareholders--would expect management of a publicly-held company to undertake: stress among employees the importance of increasing circulation to bolster revenues; inform them that revenue positively impacts shareholder value; make each employee understand that person's individual role in contributing to the company's success; remind them of the consequences (employee layoffs) of not increasing circulation; and emphasize each employee's individual, daily obligation to increase circulation. These allegations do not create a strong inference of scienter. See, e.g., In re Alamosa Holdings, Inc. Sec. Litig., 382 F.Supp.2d 832, 858 (N.D.Tex.2005) (Cummings, J.) (holding that "setting of aggressive targets by management" and "desirability of subscriber growth" not bases for scienter). *11 In the paragraphs of their complaint that plaintiffs cite in their brief to show that they have adequately pleaded a strong inference of scienter based on the "The Morning News game," see Ps. Br. 30-33 (citing Compl. ¶¶ 3, 6- 29, 30, 32, 58, 130, 144, 179, 180, 183-88, 202), [FN15] they identify by name four of the individual defendants (all but Sander and Williamson). Having considered the pertinent paragraphs in which Decherd, Moroney, Shire, and Peckham are named, the court concludes that plaintiffs have failed to plead a strong inference of scienter based on "The Morning News game." [FN16]

VI A Plaintiffs contend that they have adequately pleaded a strong inference of scienter based on allegations that defendants knew of the artificially inflated circulation at DMN no later than January 10, 2003. They argue that receipt of a January 10, 2003 letter from a distributor, and their efforts to conceal DMN's inflated circulation, show that Decherd, Moroney, and Peckham had direct knowledge of DMN's circulation overstatement, that they knew the severity of the overstatement, and that advertisers would demand the return of advertising fees that were based on inflated circulation figures. They rely on assertions that, during a January 2003 audit of DMN's circulation, a distributor who refused to lie about his true circulation numbers and was told that failure to meet circulation goals would result in a review of his contract spoke with Decherd, Moroney, and Peckham and wrote a letter to Decherd on January 10, 2003, informing them that he was being pressured to lie on his 2003 audit by reporting fraudulently inflated circulation figures, and that he possessed numerous audiotapes of conversations with his superiors telling him to lie on the audit. He also sent Decherd a copy of the audiotapes. Plaintiffs allege that Decherd asked Belo's Assistant General Counsel, David S. Starr, Esquire ("Starr"), to respond to the distributor's letter, that Starr responded that Belo was investigating the claim, and that the distributor described in detail how Peckham and other high-level executives repeatedly begged him to turn over the audiotapes. They maintain that the distributor refused the requests of Peckham and the executives to turn over the original tapes, and that he did not lie on the January 2003 audit, so defendants took away his distribution contract in December 2004. Plaintiffs contend that, in February 2003, defendants fired all the State Zone and Regional Managers who could not force their distributors to play "The Morning News game." They posit that the letters and conversations with Decherd, Moroney, and Peckham are precise and detailed facts that show their knowledge of artificially inflated circulation numbers at DMN and direct knowledge that Belo's revenue and earnings were inflated. Responding to defendants' motions to dismiss, plaintiffs argue that defendants cannot portray their response to the distributor's complaints as an example of good management.

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Instead, they maintain that defendants fired all the State Zone and Regional Managers who could not force their distributors to play "The Morning News game." They argue that the so-called investigation was either a blunder or sham because, only 18 months later, defendants revealed that DMN's circulation had been overstated for at least a year, and for the very same reasons the distributor cited in January 2003. They also argue that in the first quarter of 2004, at the mid-point of the 18-month period, defendants decided to stop paying circulation bonuses and then lied about why DMN circulation had declined, citing an accounting methodology change as the reason why there would be a slight decline in circulation. Plaintiffs assert that the only reasonable inference is that defendants' so-called investigation revealed that target bonuses caused circulation inflation and needed to be discontinued, which alone is sufficient to create a strong inference of scienter. B *12 As before, see supra § V(B)(1), the court disregards the allegations of plaintiffs' complaint that do not identify a specific defendant, and it assesses the adequacy of plaintiffs' scienter allegations on the basis of those that name at least one specific defendant. In ¶ 32 plaintiffs allege that a State Zone Manager and a State Regional Manager told a distributor that he had no choice but to participate in a bogus January 2003 audit because upper management had set the circulation figures to be reported. The distributor, who understood that refusing to lie on the audit could cost him his job, began writing letters and making telephone calls to the top executives in charge, including Decherd, Moroney, and Peckham, to express concern and complain about the pressure he was under to lie on the audit by reporting fraudulently overstated circulation numbers. The distributor sent a January 10, 2003 letter to Decherd, telling him that he had been a DMN distributor for 15 years and had been told by his supervisors to lie about the amount of papers he had sold. He also informed Decherd that he had a dozen audiotapes that he had made of conversations instructing him to lie on the audit, and he sent a copy of an audiotape he had made the prior week. This tape contained recordings of the voice mail messages and conversations with his State Regional Manager and State Zone Man-

ager telling him to lie about his circulation figures. Plaintiffs aver in ¶ 33 that, in response to his letter, the distributor received a January 16, 2003 letter from Starr, Belo's Assistant General Counsel, writing on behalf of Decherd. Starr stated that Belo was investigating the issues he had raised, and he requested copies of all other tapes that the distributor had referred to in his letter. In ¶ 34 plaintiffs assert that, during the next few weeks, the distributor was contacted repeatedly by Starr, Peckham, Jeff Beckley ("Beckley"), Vice President of Circulation, and Rocky Swartz ("Swartz"), Circulation Director of Operations, each of whom begged him to turn over the tape recordings of voice mails and conversations containing damning evidence that distributors were being told to lie on the audit and demonstrating how the newspaper was backing into the circulation figures reported on the audit. They assert that the sum and substance of each telephone conversation and meeting with Starr, Peckham, Beckley, and Swartz was the same: the distributor said he refused to lie on the audit and that he did not want to lose his contract, and the executives said they were deeply concerned about getting all the tapes from the distributor and that he would be allowed to keep his contract as long as he wanted it. Plaintiffs allege that the executives were in a frenzy to obtain and permanently destroy this damning evidence that threatened to expose their whole scheme. In the end, the distributor did not lie on the January 2003 audit, but in December 2004 the executives took away his contracts to deliver the DMN. C *13 The court accepts the facts alleged in ¶¶ 32-34 regarding Decherd, Moroney, and Peckham as true and construes them in the light most favorable to plaintiffs, although it neither strains to find favorable inferences nor accepts conclusory allegations, unwarranted deductions, or legal conclusions as being true. Moreover, inferences of scienter do not survive if they are merely reasonable; they must be both reasonable and strong inferences. 1 Even if the court assumes arguendo that these allegations are sufficient to plead that Moroney and/or Peckham knew

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of a scheme to inflate circulation figures, the assertions are irrelevant as to either defendant individually or to Belo as a corporate defendant. As the court has held above, see supra § III, these defendants cannot be held liable individually because they have not been sufficiently connected to an oral or written misrepresentation or omission. Nor can Belo be held liable based on their conduct, because the absence of a basis to connect them to a misrepresentation or omission precludes a showing that Belo acted with scienter. 2 [15] The court now considers the allegations against Decherd. To establish scienter based on conscious misbehavior, plaintiffs must plead strong circumstantial evidence. Mortensen, 123 F.Supp.2d at 1025. A strong inference of scienter requires the pleading of "particular[ ] facts that, assumed to be true, constitute persuasive, effective, and cogent evidence from which it can logically be deduced that defendant[ ] acted with intent to deceive, manipulate, or defraud." Coates III, 100 F.Supp.2d at 422 (emphasis omitted). [FN17] Plaintiffs complain that in SEC filings, press releases, conference calls, industry conference presentations, and analyst reports dated as early as May 12, 2003 and as late as July 23, 2004, Decherd made false statements about DMN's circulation (and, in turn, its revenue and earnings) because he knew the circulation figures were inflated. [FN18] By relying on the distributor communications with Decherd during the January 2003 audit, they are necessarily asserting that Decherd knew based on information provided by one distributor, concerning one audit, that DMN's circulation numbers were being falsified on a wide-ranging scale. Viewed favorably to plaintiffs, the allegations concerning the January 2003 audit show that a single distributor expressed serious concern to Decherd, orally and in writing, because he was being pressured by his supervisors to lie during the January 2003 audit by reporting fraudulently overstated circulation numbers. The distributor had proof of his allegations in the form of audiotapes of conversations in which he was instructed to lie, and he provided Decherd a copy of one. This tape contained recordings that substantiated his accusations. Decherd thus knew in January 2003 that one distributor had been pressured to lie during the

January 2003 audit. [16] But plaintiffs also aver that the distributor did not lie during the audit. Moreover, he received within six days of his letter a written response from Starr, Belo's Assistant General Counsel, purporting to write on behalf of Decherd. Starr stated that Belo was investigating the issues raised in the distributor's letter, and he requested copies of all other tapes that the distributor had referred to in his letter. Although plaintiffs allege that lower-level executives were "in a frenzy to get a hold of and permanently destroy this damning evidence that threatened to expose their whole scheme," Compl. ¶ 34, no similar assertion is made about Decherd. There is no allegation that Decherd himself pressured the distributor, that lower-level executives or managers were acting at Decherd's behest when they communicated with the distributor, or that Decherd concocted the particular plan that the distributor should lie during this audit. [FN19] There is no assertion that Decherd did anything except listen to t