Sunday, March 26, 2006

Goodyear Plaintiffs Deflated

Looks like Plaintiffs have suffered total loss in the Goodyear Tire & Rubber securities class action. This time, it’s Judge John R. Adams (N.D. Ohio) who punctures Plaintiffs’ amended complaint with comments like "Plaintiffs' argument is illogical," and "Plaintiffs’ allegations amount to nothing more than speculation and conjecture."

What happened? Well, Judge Adams rejected scienter, falsity, and just about every other argument that Plaintiffs made. As for scienter, he said that even though "arguably, the facts are such that there may be some inference of scienter," "the Court does not find this inference to be strong enough to sustain a securities fraud action."

Judge Adams also held that "the most plausible of competing inferences, as opposed to Plaintiffs' theory of divergent and wide ranging fraud, is that Defendants acted diligently in remedying problems as soon as they became aware of their existence. If the Court were to allow Plaintiffs to plead scienter on the fact that Goodyear recognized the need for remedial measures, it would give companies a disincentive to make public disclosures regarding their problems."

Judge Adams concluded by remarking that "while the Amended Complaint does specify each statement that was allegedly misleading, it falls short of describing the reason or reasons why each statement was misleading. To explain, the Amended Complaint repeatedly refers to a list of alleged improprieties that may or may not have anything to do with the statements. For example, each allegedly false series of statements refers back to section of the Amended Complaint that contains a laundry list of allegations purporting to pertain to each separate statement. It is Plaintiffs' burden to plead fraud on a statement-by-statement basis, and they may not evade that requirement by requiring the Court to try to match the allegedly fraudulent statements to the allegations of wrongdoing that are scattered throughout the seventy-plus page Amended Complaint."

Result? Judge Adams granted Defendants’ motions to dismiss, rejected "Plaintiffs' two-sentence request for leave to amend their Amended Complaint," and entered a judgment against Plaintiffs. Remains to be seen if we’ll see these parties in Cincinnati.

You can read In re Goodyear Tire & Rubber, issued March 22, 2006, at 2006 U.S. Dist. LEXIS 11914.

Nugget: "There is no disputing that Goodyear issued false statements -- the issue this Court is called on to decide is whether the statements were fraudulent."

No comments: