A Panel of the Eighth Circuit has affirmed the District of Nebraska’s dismissal of Plaintiffs’ 1933 and 1934 claims in the Acceptance Insurance securities class action. "The primary allegation of the shareholders was that Acceptance failed to have adequate reserves in place prior to 1999 to account for increased claims stemming from a California Supreme Court decision" (Montrose v. Admiral, 913 P.2d 878 (1995)). So the shareholders claim under Section 11 was that Defendants’ "registration statement misstated the reserve holdings of the company because they did not take into account the Montrose decision." The shareholders argued "that numerous statements made by the [Defendants] after the registration statement was issued show that Acceptance's reserves were inadequate at the time of issuance." But the Panel held that "this type of retrospective analysis of awareness cannot be the basis for a claim," and that "under both FAS-5 and Section 11, information is required to be included only if it is available prior to the issuance of a financial statement." Thus, Plaintiffs "complaint alleges no such facts to support prior knowledge by" Defendants. In addition, Plaintiffs "do not cite any legal authority to support the contention that specific mention of the Montrose decision was required by law."
As for the 10(b) claims, the Panel focused on one particular statement by an employee that the District Court held was inadmissible hearsay. In refusing to overturn the evidentiary ruling, the Panel ruled that Plaintiffs’ experts merely offered "opinions meant to substitute the judgment of the district court." As for the other statements offered by Plaintiffs "to prove scienter," they "do not show knowing falsity about the reserves. They do show concern about the Montrose decision, but they do not weigh on the issue of a failure to properly account for reserves. Without evidence of intentional falsity, the Appellants' claim cannot survive summary judgment."
The opinion was authored by Eighth Circuit Judge Melloy, and joined by Circuit Judges Heaney and Fagg.
You can read In re: Acceptance Insurance Companies, issued August 29, 2005, at 2005 U.S. App. LEXIS 18571.
Nugget: "Given that there are no substantive differences in the facts offered in the proposed amendment, we conclude that the amendment would be futile."