Eighth Circuit Affirms Dismissal Of Putative Securities Class Action For Failure To Adequately Allege Falsity And Scienter
On October 18, 2021, the United States Court of Appeals for the Eighth Circuit affirmed a decision of the United States District Court for the Southern District of Iowa dismissing a putative securities class action asserting claims under the Securities Exchange Act of 1934 against a media company and certain of its executives. City of Plantation Police Officers Pension Fund v. Meredith Corp., –F.4th–, 2021 WL 4823411 (8th Cir. 2021). Plaintiff alleged that the company made misrepresentations in connection with the expected benefits from its acquisition of a magazine publisher. The district court dismissed the action with prejudice, holding that all but one of the challenged statements was not sufficiently alleged to be false, and that scienter was not adequately alleged for the remaining statement. The Eighth Circuit affirmed.
The Court first explained that “137 out of 138 statements listed in the amended complaint were either (1) statements identified as forward looking and accompanied by meaningful cautionary statements, (2) corporate puffery, or (3) forward-looking statements that the complaint’s allegations do not imply by strong inference were made with actual knowledge of their falsity.” Id. at *2. For example, the Court noted that statements about “hit[ting] the ground running,” “implementing ... proven strategies, standards, and discipline,” being “on track,” being “very pleased with the integration work so far,” and occupying an “industry-leading position” were “all paradigmatic examples of the kind of ‘vague’ and ‘optimistic’ rhetoric that constitutes corporate puffery.” Id.
The Court next addressed a statement by the company’s CEO that the company had “fully integrated [its] HR, finance, legal and IT functions,” which plaintiff alleged was false on the basis of a confidential witness who claimed that employees of the acquired magazine publisher operated on different finance software systems from the rest of the company at the time the statement was made. Id. While noting that this statement “comes closer than the other 137” because it was not forward-looking, the Court held that, even assuming the statement was false, plaintiff’s allegations did not “give rise to a strong inference of severe recklessness.” Id. at *3. The Court emphasized that plaintiff had not alleged that the confidential witness had any insight into what the CEO knew about the software systems; nor did plaintiff allege facts suggesting that the use of two software systems was so obvious that it was “an extreme departure from the standards of ordinary care” for the CEO to ignore that fact. Id. at *3. The Court concluded it was more plausible to infer that the CEO simply had limited information about the software systems used by the legacy firms’ finance departments. Id.
The Court also affirmed the district court’s denial of leave to amend. Because the district court provided no “meaningful explanation” for denying leave to amend, the Court “considered the issue of futility de novo” and concluded that plaintiff had failed to offer a proposed amended complaint to the district court. Id. While plaintiff pointed to a new allegation contained in an attachment to its opposition to defendants’ motion to dismiss, the Court determined that amendment would still be futile because the new allegation “merely supplement[ed]” a former employee’s statements in the complaint about reports certain company executives may have seen and did not affect the Court’s analysis. Id.