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In re Burlington Coat Factory Sec. Litig.

United States Court of Appeals for the Third Circuit

December 12, 1996, Argued ; June 10, 1997, Filed

No. 96-5187



ALITO, Circuit Judge:

Burlington Coat Factory Warehouse Corporation ("BCF "), a Delaware corporation based in New Jersey, announced its fourth quarter and full fiscal year results for 1994 on September 20, 1994. The results were below the investment community's expectations, and BCF's common stock fell sharply, losing approximately 30% in one day. Within a day of the initial announcement, the first investor  [**2]  suit was filed. In the next few days, the company made additional explanatory disclosures, and the stock price fell even further. More investor suits were filed. The action at hand is the product of the consolidation of these suits.

BCF and certain of its principal officers and directors were sued under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act"). 15 U.S.C. §§ 78j(b), 78(t)(a). Section 10(b) provides a broad prohibition on the use of "manipulative or deceptive devices" in connection with the purchase or sale of a security. 15 U.S.C. § 78j(b). Section 20, in turn, provides liability for "controlling persons." 15 U.S.C. § 78(t)(a). Plaintiffs assert that they represent the class of investors who purchased BCF common stock between October 4, 1993, and September 23, 1994. Plaintiffs claim that, as a result of BCF's misleading statements and omissions during the class period, the company's stock price was artificially inflated.

The district court dismissed the case both for failure to state claims on which relief could be granted and for failure to plead those claims with adequate [**3]  particularity. The court also denied plaintiffs' request that they be allowed to amend and replead their claims in the event of a dismissal.

On appeal, plaintiffs challenge the dismissal of four of their six original claims. Since the fourth claim has two distinct parts, we describe the four claims as five. According to plaintiffs, the district court erred in ruling: (1) that the alleged earnings overstatements during fiscal year 1994 were not materially misleading because no violation of GAAP had been shown and that, in any event, the claim stated was, at most, a claim for negligence; (2) that the failure to disclose that the company had not received its usual discounts in its inventory build-up in January and February of 1994 was "largely irrelevant"; (3) that overstatements regarding the sales attributable to an extra, 53rd week in 1993 were not actionable; (4) that management's expression of "comfort" with certain specific earnings forecasts by analysts was not actionable because BCF did not "adopt" the analysts' estimates; and (5) that a statement that the company's earnings would continue to grow faster than revenues was not actionable because it was no more than "puffery."  [**4]  Plaintiffs argue that these were proper, viable claims under Section 10(b) and that they pled facts in support of their claims that met the particularity requirements for fraud claims. As a final matter, plaintiffs contend that even if the district court's dismissal of their claims on particularity grounds was justified, they should have been given leave to amend and replead their claims.

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114 F.3d 1410 *; 1997 U.S. App. LEXIS 13792 **; Fed. Sec. L. Rep. (CCH) P99,485; 38 Fed. R. Serv. 3d (Callaghan) 557


Prior History:  [**1]  ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY. (D.C. Civil Nos. 94-04663, 94-04737, 94-04751).

Disposition: Reversed in part and affirmed in part,


earnings, forecast, projections, plaintiffs', district court, disclosure, analysts, stock, investors, update, sales, misleading, disclose, fiscal, per share, traded, annual report, discounts, forward-looking, inflated, alleged facts, fiscal year, overstatements, particularity, allegations, grounds, amend, common stock, stock price, misstatement

Securities Law, Recordkeeping & Reporting Requirements, Issuers of Securities, General Overview, Securities Exchange Act of 1934 Actions, Express Liabilities, Misleading Statements, Civil Procedure, Pleadings, Heightened Pleading Requirements, Fraud Claims, Real Property Law, Financing, Secondary Financing, Lien Priorities, Responses, Defenses, Demurrers & Objections, Motions to Dismiss, Torts, Defamation, Defenses, Fair Comment & Opinion, Civil Liability Considerations, Disclosures, Appeals, Standards of Review, Abuse of Discretion, Amendment of Pleadings, Leave of Court