In re Hertz Global Holdings, Inc.

In re Hertz Global Holdings, Inc.

Opinion

 [*111]  OPINION OF THE COURT

JORDAN, Circuit Judge.

Sheet Metal Workers Local No. 80 Pension Trust Fund and Westchester Teamsters Pension Fund ("the Funds") brought a putative securities fraud class action against Hertz Global Holdings, Inc. ("Hertz" or "the Company") and several of its current and former executives for violating §§ 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended by the Private Securities Litigation Reform Act of 1995 ("PSLRA"), and Rule 10b-5, 17 C.F.R. § 240.10b-5. The Funds appeal the District Court's dismissal of their fourth amended complaint ("FAC") for failure to plead a strong inference of scienter, as required by the PSLRA. We will affirm.

I. Background

A. Allegations in the FAC¹

The Funds allege that Hertz, through its former Chief Executive Officer Mark Frissora, former Chief Financial Officer Elyse Douglas, and former Senior Vice President of Finance and Corporate Controller Jatindar Kapur (collectively, the  [*112]  "Individual Defendants")² violated the securities laws by making materially false and misleading statements concerning the Company's financial results, internal controls, and future earnings projections. The Funds' securities fraud allegations rely on a financial restatement [**3]  Hertz issued with its fiscal year 2014 Form 10-K ("the Restatement"). In it the Company admitted that "an inconsistent and sometimes inappropriate tone at the top was present under the then existing senior management" and that the tone "resulted in an environment which in some instances may have led to inappropriate accounting decisions and the failure to disclose information critical to ... effective review[.]" (App. at 609.)

The Restatement corrected material errors to Hertz's 2011, 2012, and 2013 financial statements that, cumulatively, "[overstated] its pre-tax income ... by $215 million and its net income ... by $132 million." (App. at 467.) Those errors stemmed from misstatements relating to fifteen distinct accounting categories, causing Hertz to make twenty separate accounting adjustments to its previous financial statements. Those accounting errors were, in turn, a result of "four categories of material weaknesses in [Hertz's] internal control over financial reporting": control environment, risk assessment, information and communication, and monitoring. (App. at 609.)

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