On February 21, 2017, the United States Court of Appeals for the Sixth Circuit affirmed the dismissal of a putative shareholder suit brought against officers, directors, principal shareholders and underwriters of EveryWare Global, Inc. (“EveryWare”), a now-bankrupt Ohio-based manufacturer of kitchenware. IBEW Local No. 58 Annuity Fund v EveryWare Glob., Inc., No. 16-3445, 2017 WL 677487 (6th Cir. Feb. 21, 2017). Plaintiffs alleged that EveryWare’s officers violated Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”), Securities Exchange Commission Rule 10b-5 promulgated thereunder and Section 20(a) of the Exchange Act by knowingly providing false and misleading financial projections. Plaintiffs also alleged that various defendants violated Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 (“Securities Act”) because the registration statement and prospectus purportedly contained material misrepresentations. The Court dismissed both the Exchange Act and Securities Act claims, finding that plaintiffs failed to adequately plead that EveryWare’s officers acted with the requisite intent to deceive shareholders or that the registration statement and prospectus contained material misrepresentations.

Plaintiffs alleged that defendants effectuated a “pump-and-dump” scheme wherein defendants made false and misleading statements to inflate the price of EveryWare’s shares and then sold their shares before prices plummeted. As evidence of this alleged scheme, plaintiffs pointed to financial projections released by EveryWare’s CEO in January 2013 as well as comments from EveryWare’s CEO and CFO to investors in August 2013 assuring that EveryWare was on track to meet its projections. According to plaintiffs, these statements disregarded input from senior finance officials who held a less optimistic view regarding the financial projections. The Sixth Circuit, citing the Ohio district court’s “thorough opinion,” rejected plaintiffs’ arguments, holding that the projections were forward-looking statements and, because the officers had not communicated directly with the finance officials regarding the projections, plaintiffs failed to plead facts giving rise to a “strong inference” that the executives had “actual knowledge” that the projections were false or misleading in January 2013. The Court similarly found that EveryWare’s CEO and CFO did not have “a mental state embracing intent to deceive, manipulate or defraud” when speaking with investors in August 2013. Finding no primary violation under Section 10(b) of the Exchange Act, the Court dismissed the secondary liability claim under Section 20(a).

The Court similarly rejected plaintiffs’ Securities Act claims based on the alleged failure of EveryWare to disclose material downward trends in its business in its registration statement and prospectus. In so holding, the Court agreed with the district court’s finding that the registration statement and prospectus contained adequate disclosures and that plaintiffs “ha[d] not pleaded plausibly that those documents contained material misrepresentations.” Finding no primary violations under Sections 11 and 12(a)(2) of the Securities Act, the Court dismissed the claims under Section 15 of Securities Act.

This decision serves as an important reminder of the high pleading standard that plaintiffs must meet when alleging intent in support of securities claims. In particular, it demonstrates the specificity required when pleading “actual knowledge” of a false statement, as well as the requirement to plead plausibly that offering documents contained material misrepresentations.

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