FILED

NOT FOR PUBLICATION AUG 30 2010

MOLLY C. DWYER, CLERK

UNITED STATES COURT OF APPEALS U.S. COURT OF APPEALS

FOR THE NINTH CIRCUIT

In re: JONES SODA COMPANY No. 09-35732

SECURITIES LITIGATION.

D.C. No. CV 07-01366-RSL ------------------------------

ROBERT E. BURRELL; MARYJANE MEMORANDUM*

BURRELL; BRIAN BURRELL; RON

BREJTFUS; ROBERT B. DAIL, JR.;

ERIC JANKOWSKI, on behalf of themselves and all others similarly situated,

Plaintiffs - Appellants,

v.

JONES SODA COMPANY; PETER M.

VAN STOLK,

Defendants - Appellees.

Appeal from the United States District Court for the Western District of Washington Robert S. Lasnik, Chief District Judge, Presiding

Argued and Submitted July 15, 2010 Seattle, Washington

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. Before: REINHARDT, GRABER, and PAEZ, Circuit Judges.

Plaintiff Robert E. Burrell and others appeal the dismissal of their securities

fraud class action against Defendants Jones Soda Company and its former Chief

Executive Officer, Peter M. van Stolk. Plaintiffs allege that Defendants misled

investors by overstating their efforts and accomplishments as Jones Soda entered

the carbonated, canned soft drink market, leading to an over-valuation of Jones

Soda’s stock. The district court dismissed the first amended complaint and denied

Plaintiffs’ motion to file a second amended complaint. Plaintiffs appeal the denial

of their motion to file a second amended complaint. We review that ruling for an

abuse of discretion. Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981, 989

(9th Cir. 2009).

The Private Securities Litigation Reform Act of 1995 ("PSLRA"), 15 U.S.C.

§§ 78u-4, 78u-5, requires that shareholders filing private securities actions must

meet heightened pleading requirements. Specifically, plaintiffs "must allege: (1) a

misstatement or omission (2) of a material fact (3) made with scienter (4) on which

[the plaintiffs] relied (5) which proximately caused their injury." DSAM Global

Value Fund v. Altris Software, Inc., 288 F.3d 385, 388 (9th Cir. 2002). Further,

plaintiffs must "specify each statement alleged to have been misleading, the reason

or reasons why the statement is misleading, and, if an allegation regarding the

2 statement or omission is made on information and belief, the complaint shall state

with particularity all facts on which that belief is formed." 15 U.S.C. § 78u-

4(b)(1). In order to withstand a motion to dismiss under Federal Rule of Civil

Procedure 12(b)(6), the complaint must, as to each act or omission alleged to

violate the securities laws, "state with particularity facts giving rise to a strong

inference that the defendant acted with the required state of mind." 15 U.S.C.

§ 78u-4(b)(2). In sum, private securities plaintiffs must "plead with particularity

both falsity and scienter." Ronconi v. Larkin, 253 F.3d 423, 429 (9th Cir. 2001).

In their proposed second amended complaint, Plaintiffs failed to allege

specific, contemporaneous statements that were deliberately misleading when

made. See Ronconi, 253 F.3d at 432 ("[T]he complaint must contain allegations of

specific ‘contemporaneous statements or conditions’ that demonstrate the

intentional or the deliberately reckless false or misleading nature of the statements

when made.").

With regard to falsity, the proposed complaint does not contain factual

allegations sufficient to demonstrate that the Defendants’ statements regarding the

canned-soda initiative were untrue. Defendants never claimed that their

investments were sufficient or adequate to ensure that the canned-soda initiative

would be profitable. Plaintiffs mischaracterize the statements made by Mr. van

3 Stolk; Defendants did not state that they would pay $30 million—or any particular

amount—specifically to promote or distribute canned soda. Indeed, Jones Soda

incurred expenses related to promotion and sales in the carbonated soft drink

market, which Plaintiffs acknowledge but claim were not enough to achieve

Defendants’ goals. Plaintiffs failed to raise a strong inference that any of

Defendants’ statements regarding their efforts to maximize Jones Soda’s share of

the carbonated, canned soft drink market was false, as distinct from overly

optimistic.

Faulting a company for poor business decisions does not equal scienter,

either. Plaintiffs must "specify facts or evidence that show why the statement[s

were] false at the time [they were] made." Id. at 431. Apart from Plaintiffs’ series

of conclusory allegations that Defendants knew or recklessly disregarded the

falsity of their statements, Plaintiffs point to a single fact from which they infer

scienter: Mr. van Stolk allegedly received certain sales data from major retailers.

The proposed complaint does not say what sorts of data were included in the

reports, or which retailers the data covered. This single factual allegation is not

sufficient to create a strong inference that Defendants deliberately misled their

investors.

4 Because the proposed second amended complaint did not cure the

deficiencies of the extant complaint, the district court did not abuse its discretion.

AFFIRMED.

5

FILED

Burrell v. Jones Soda, No. 09-35732 AUG 30 2010

MOLLY C. DWYER, CLERK

REINHARDT, Circuit Judge, dissenting. U.S. COURT OF APPEALS

Appellees Jones Soda Company and CEO Peter M. van Stolk engaged in

false statements in order to secure investments for its entry into the $66 billion

carbonated soft drink (CSD) market. Van Stolk claimed that in order to support its

CSD rollout to more than 14,000 new retailers, Jones Soda would be “hiring

additional personnel, making upgrades to [its] infrastructure, and increasing [its]

sales and marketing expenditures.” ER 38 (¶ 34). In fact, Jones Soda made no

infrastructure upgrades or marketing expenditures, ER 44 (¶ 48), 52-53 (¶¶73-74),

66-67 (¶115), and hired just eight new sales and marketing employees. ER 66 (¶

114). Even if all eight were assigned full-time to the CSD initiative, each of these

new hires would have been required to take on sole and full responsibility for

promoting and marketing 1750 new stores, an unlikely task. ER 65 ¶ (109).

The company never made the resource investments it promised to support its

CSD initiative; Jones Soda and Van Stolk were well aware that the company

suffered “continuous out of stocks” ER 53, 68 (¶¶74, 1191) and “didn’t have the

manpower to make sure the shelves were merchandised,” ER 66-67 (¶115), yet

never disclosed these facts to investors at any time during the Class Period.

1 The majority does not contest any of these facts. Instead, it asserts that

appellees’ statements to investors were not false but “overly optimistic,” (Maj.

Memo. 4) because Jones Soda and Van Stolk “never claimed that their investments

were sufficient or adequate to ensure that the canned-soda initiative would be

profitable.” Id. The majority misperceives the appellees’ obligations to potential

investors. In this case, appellee certainly should have been aware that its

misrepresentations regarding its future improvements to personnel, infrastructure,

and marketing expenditures would give the impression that Jones Soda would be

far better equipped to carry out the proposed initiative than it knew it would be. If

the majority’s conclusions were right, there would be little deterrent to a

company’s deliberate inflation of its qualifications to investors.

I dissent.

2