Asher v. Baxter Int'l Inc.

377 F.3d 727 (7th Cir. 2004)



15 U.S.C.S. § 77z-2(c)(1)(A)(i) provides a safe harbor only if a written statement is "accompanied by" the meaningful caution; a statement published elsewhere differs from one that accompanies the press release. As for the oral statements: § 77z-2(c)(2)(A)(ii), a special rule for oral statements, provides a safe harbor only if the statement includes at least that the actual results could differ materially from those projected in the forward-looking statement. 


When the manufacturer's shares swiftly fell when sales and profits did not match analysts' expectations, the plaintiff investors sued defendants, a manufacturer and others, alleging securities fraud. The investors contended that defendants made materially misleading projections regarding revenue growth, earnings-per-share growth, and operational cash flow. The investors alleged that these forward-looking statements were materially false because, inter alia, a division had not met its internal budgets in years, the manufacturer had closed three plants, and a division had experienced a sterility failure in the manufacture of a major product. Even if the manufacturer provided cautionary statements that mentioned risks and product lines, the investors argued that the cautionary statements did not follow the manufacturer's fortunes. The United States District Court for the Northern District of Illinois, Eastern Division, dismissed the complaint, finding that the manufacturer's forecasts came within the safe harbor created by the Private Securities Litigation Reform Act of 1995 (PSLRA). The investors appealed.


Can the investors’ claim be dismissed under PSLRA's safe harbor?




The appellate court found that, because the market for the manufacturer's stock was efficient, the manufacturer's cautionary language had to be treated as if attached to every one of its oral and written statements. Based on the pleadings, the appellate court ruled that the investors’ claims could not be dismissed under the PSLRA safe harbor, because there was a possibility that defendants knew of important variables that would affect its forecasts but omitted them from the cautionary language. Thus, the appellate court reversed the district court's decision and remanded the case.

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