June 23, 2015
The D.C. Circuit revived a securities class action Tuesday accusing Harman International Industries Inc. of misleading investors in the run-up to a doomed merger, saying statements about sales goals left out details that would have helpfully informed investors.
The three-judge panel’s opinion said that statements about Harman’s personal navigation devices issued in April and September 2007 conference calls were not accompanied by “meaningful cautionary language” that would provide the cover of safe harbor protection. The panel overruled a district court on those two statements and also said the fiscal year 2007 annual report could not be excused as puffery.
Cautionary language must be tailored to the forward-looking statement and not “mere boilerplate,” the panel said, and consistent with the facts. But several of the cautionary statements relied on by Harman were mere generalities issued by the moderator of the conference call’s comments and the annual report that vaguely warned of risk, the panel said.
“To the extent other statements were tailored to the company’s PND business operations, the purportedly cautionary statements were not meaningful because they were misleading in light of historical fact,” the opinion said. “Referenced to amassed inventory did not convey that inventory was obsolete, as opposed to stocked with the latest, cutting-edge models.”
Steven J. Toll of Cohen Milstein Sellers & Toll PLLC, representing lead plaintiff Arkansas Public Employees Retirement System, told Law360 on Tuesday the ruling was “a very thorough, thoughtful opinion.”
“When a company puts out what we say were boilerplate statements, that should not give them protection under securities laws,” Toll said. “When they know that the problems exist, you can’t just warn that issues may come up … when in fact the risk is already occurring.”
Shareholders have argued that the company itself modified the products in early 2007, rendering all of its older-generation units in inventory obsolete, the panel said. Also, Harman’s 2006 PND sales had been lower than anticipated, resulting in the company storing the devices in a warehouse, according to the opinion.
. . .
The investors are represented by Steven J. Toll and Daniel S. Sommers of Cohen Milstein Sellers & Toll PLLC and Tim Battin of Straus & Boies LLP.