Settlement Watch: Compuware
On February 3, 2004, Judge Taylor of the United States District Court for the E.D. of Michigan, Southern Division, denied defendants' motion to dismiss in In re Compuware Securities Litigation (No. 02-73793). The case has been added to SLW's informal Settlement Watch list.
Judge Taylor was effusive in denying the motion to dismiss, stating that
it is hard to imagine a complaint that could better withstand a motion to dismiss. The court finds that Plaintiffs have submitted a well-crafted, well-pled complaint, stating sufficient facts to create a plausible inference that Defendants knowingly misstated or omitted material information. Therefore, Defendants' Motion to dismiss must fail.
A copy of the Consolidated Complaint filed by lead counsel Cohen, Milstein, Hausfeld & Toll, P.L.L.C. is available here.
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Tuesday, November 25, 2003 |
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Settlement Watch: Abercrombie & Fitch
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.
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Friday, October 31, 2003 |
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Settlement Watch: Motion to Dismiss Denied in Sears, Roebuck and Co. Case
On October 24, 2003, Judge Bucklo of the U.S. District Court for the Northern District of Illinois, Eastern Division, denied defendant Sears, Roebuck and several individual defendants Motion to Dismiss. Accordingly, the case has now been added to SLW's "Settlement Watch" category.
Plaintiffs allege that defendants misled shareholders about the risk level of balances in accounts in Sears' credit card portfolio, the delinquencies in those accounts, and the amount of "charge-offs" of unpaid accounts. The Court rejected the following argument made by defendants:
1. Puffery: The Court found that while some statements, considered by themselves, may fall in the "puffery" category, they may be actionable when taken in context if they reinforce factual misstatements and contribute to ongoing deception. In addition, the Court found that a number of defendants' alleged statements regarding delinquencies and charge-offs and low risk customers were not, even considered by themselves, mere puffery.
2. Scienter: The Court rejected defendant argument that plaintiffs failed to adequately allege scienter, and accepted plaintiffs' argument that "the particular executive positions held by the individual defendants establish a strong inference of conscious misbehavior or recklessness." The Court observed that the individual defendants were all executive officers of Sears during the class period, including the CEO/Chairman and CFO. The Court held that "[o]fficers of a company can be assumed to know of facts 'critical to a business's core operations or to an important transaction that would affect a company's performance,'" and that Sears' credit card portfolio was a core operation.
Thus, the Court held, "[l]ogically, defendants in their positions would be expected to have knowledge of the facts regarding the credit card portfolio at the time they were making statements about the portfolio or signing off on SEC filings. Plaintiffs have sufficiently alleged facts leading to a "strong inference" of scienter."
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Tuesday, October 14, 2003 |
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Settlement Watch: Log On America
On July 25, 2003, the U.S. District Court for the District of Rhode Island denied the motion to dismiss filed by officers of the now-bankrupt "Log On America" (LOA), an Internet access provider. A copy of the opinion is available here. The motion having been denied, SLW's Settlement Watch is now officially on.
The Court denied the motion for several reasons, certain of which may be unsettling to defense counsel. First, the Court found that LOA's descriptions of itself as the "premier provider of high- speed DSL services in the Northeast corridor," "one of New England's leading providers of bundled communications services," "in a dominant position in the market for integrated data and voice services," and "a dominant super regional communications player" were, themselves, actionable. The Court found that such statements were material and not mere puffery.
Also of note--because defendants raised the puffery defense with respect to these alleged misstatements, the Court stated that "interposing the puffery defense is tantamount to conceding that the offending statements were technically inaccurate" and the Court therefore deemed the substance of these statements to be untrue for purpose of the motion to dismiss. A question for securities litigation counsel: Is it proper for a Court to conclude that defendants concede that statements are untrue where defendants assert the puffery defense?
Further, the Court found that a statement repeated at the bottom of numerous 1999 LOA press releases describing LOA's business was itself actionable. The statement was that "[LOA] is a ... 'CLEC' and ... 'IISP' providing local dial-tone, instate toll, long distance, high-speed Internet access and cable programming solutions...." The Court found that this was an actionable misstatement because, in fact, LOA was never able to offer cable programming at any time in the class period.
Memo to Issuers: Check your press release footers!
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