The Third Circuit Court of Appeals affirmed in part the dismissal of a shareholder class action against Avaya, Inc. and two of its officers, holding that certain of defendants’ allegedly false statements were forward-looking and therefore protected by the Private Securities Litigation Reform Act’s (PSLRA’s) safe-harbor provisions. Plaintiffs had alleged that defendants made numerous misleading statements in violation of the Securities and Exchange Act of 1934, including statements about Avaya’s growth potential.
The Third Circuit rejected plaintiffs’ claim that defendants’ statements that the company was “on track” to meet its goals—which later turned out to be incorrect—were present statements of fact that could form the basis for a securities fraud claim. Instead, the court held that these statements, particularly when viewed in the context of the future projections of which they were a part, were entitled to protection under the PSLRA’s safe-harbor provision. In addition, because the statements were covered by the safe-harbor provision, in order to be actionable, plaintiffs were required to demonstrate that they were made with actual knowledge of their falsity, which they had not done. As a result, the court affirmed the dismissal of all claims based upon the statements that the company was “on track” to meet its financial goals. (Institutional Investors Group v. Avaya, Inc., 2009 WL 1151943 (3d Cir. Apr. 30, 2009))