On November 17, 2003, Judge Griesa of the SDNY denied all but one of the defendants' motions to dismiss in In re: Abercrombie & Fitch Securities Litigation, No. M21-83 (TPG) (S.D.N.Y., Nov. 17, 2003), finding that the plaintiffs had stated a claim against all remaining defendants. Accordingly, the case has now been added to SLW's "Settlement Watch" category. A copy of the decision is available here.

The Court used some curious language in finding that there was a "sufficient basis" for pleading scienter against defendants. Under the Reform Act, that basis is required to be facts, stated with particularity, that give rise to a strong inference of scienter. Here, after finding sufficient allegations that one of three individual defendants knew of a particular Wall Street expectation of 15%-17% same-store growth (as shown by a telephone call in which he discussed this), the Court went on to state:

It is reasonable for plaintiffs to assume, at the pleading stage, that this knowledge was shared by Jeffries and Johnson. Plaintiffs also have a reasonable basis for asserting that, during the relevant time, these defendants knew that A & F would not meet that expectation, and that the 12% figure was known for some period of time before it was put into the October 13 press release. By the same token, there is a basis for plaintiffs to assert that the defendants in question knew that the market drop of October 8 was not merely caused by speculation and rumor.

"Reasonable for plaintiffs to assume?" "Reasonable basis for asserting?" It is hard to equate such findings with the rigorous standard called for under the Reform Act. It may be that the Court implicitly found, as in the recent Sears decision, that because of the individual defendants' management positions, they could be expected to have knowledge of certain facts. As discussed in detail here by The 10b-5 Daily, it is fair to ask whether allegations that a defendant held an executive position are sufficient to establish scienter.