Southern District Of Florida Dismisses Putative Securities Class Action, Finding Vague And Generalized Statements Regarding Company’s Mortgage Servicing Compliance Non-Actionable Puffery And Opinion
On Monday, April 30, 2018, Judge Robin L. Rosenberg of the United States District Court for the Southern District of Florida dismissed a consolidated putative securities class action against financial services company Ocwen Financial Corporation (the “Company”) and two of its officers. Carvelli et al. v. Ocwen Financial Corp. et al., No. 9:17-cv-80500 (S.D. Fla. April 30, 2018). Plaintiffs—shareholders of the Company—alleged that defendants violated Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and SEC Rule 10b-5, and that the individual defendants violated Section 20(a) of the Exchange Act, by making materially false and misleading statements and omissions regarding operational and technological deficiencies within the Company’s mortgage servicing software platform, causing losses to plaintiffs when the deficiencies were revealed and the Company’s stock declined. The Court disagreed, finding that the statements in question were non-actionable puffery or opinion, forward-looking statements accompanied by meaningful cautionary statements, or statements on their face not false, and therefore dismissed the action with prejudice.
The Court first considered plaintiffs’ allegation that defendants misrepresented the Company’s compliance with various consent orders entered into with regulators regarding its mortgage servicing business. After entering into the consent orders, the Company allegedly made various statements concerning its expectations for its compliance management systems in which the Company described itself as a leader compared to its peers. Plaintiffs alleged that such statements were materially false and were intended to convince the market that the Company was “turning over a new leaf and that its history of mortgage servicing misconduct was a thing of the past.” The Court disagreed, finding that the Company’s statements were mere puffery, noting that the Company never stated it was in compliance with regulations, but rather merely made vague statements about its efforts towards compliance. Emphasizing that such generalized “puffery” statements are not actionable because a reasonable investor would not base his or her investment decision on such statements, the Court concluded that the statements were not materially false or misleading.
The Court similarly rejected plaintiffs’ allegations that certain of the Company’s statements, including that it “expected to continue to be profitable and generate strong operating cash flow,” were false, finding that such statements were merely optimistic forward-looking statements that were accompanied by sufficient cautionary language detailing factors that could affect the Company’s results. The Court also agreed with the Company that certain statements alleged by plaintiffs to be false, such as the Company’s belief concerning its competitive strengths, were non-actionable statements of opinion, which would be actionable only if the opinion was not sincerely held or included untrue facts. Finding that the complaint did not sufficiently allege any misstatement with the particularity required by Rule 9(b), the Court held that the complaint did not sufficiently allege that the Company knew that the statements in question were false, or that the Company lacked a sufficient basis for forming the stated opinion. The Court also noted that certain remaining statements that plaintiffs alleged to be misrepresentations—such as statistics concerning the Company’s industry leadership based on the number of completed loan modifications—were on their face not false.
Finding no primary violation under Section 10(b), the Court dismissed plaintiffs’ Section 20(a) control liability claims against the two individual defendants. The Court also held that because any amendment would not cure the infirmities inherent in the complaint and that plaintiffs have had adequate opportunity to amend its pleadings, the Court dismissed the complaint with prejudice.