A District Court dismissed class action claims asserted under Section 10(b) and 20(a) of the Securities Exchange Act of 1934. Plaintiffs, investors in a retail clothing chain, alleged that defendants made material misstatements or omissions in two press releases that included financial projections that the defendant corporation failed to meet. Defendants asserted that plaintiffs failed to meet the heightened pleading requirements of Federal Rule of Civil Procedure 9(b) as well as the Private Securities Litigation Reform Act of 1995 (PSLRA).
The Court found that plaintiffs failed to allege scienter. The Court stated that, if a statement is “forward-looking” and is accompanied by sufficient cautionary language, it is protected. If the statement does not have the requisite cautionary language, the plaintiff must show that the defendants had actual knowledge of their false or misleading nature in order to allege scienter. Finally, if the statements are not forward-looking, the plaintiff must show that the defendants made the statements recklessly. The Court found that to the extent that the alleged misstatements were forward-looking projections, plaintiffs did not adequately allege that defendants had actual knowledge of their falsity. Additionally, to the extent that the statements related to present or historical facts, plaintiffs may have alleged that the defendants acted negligently in making such statements, but failed to allege that defendants were reckless in making such statements. Therefore, because plaintiffs had failed to allege scienter as required under the PSLRA, the court dismissed the complaint with prejudice. (Gruhn v. Tween Brands, Inc., 2009 WL 1542798 (S.D. Ohio June 2, 2009))