Tuesday, March 28, 2006

The Softer Side of Scienter

Well, looks like we have a result in the Sears securities class action. In a decision that is quite notable in terms of its brevity, Judge Robert W. Gettleman (N.D. Ill.) (who admits he looks good in black) doesn’t mince too many words. In rejecting Defendants’ arguments on falsity and scienter, he concluded that “in short, the amended complaint contains more than enough factual detail for a reasonable person to conclude that Lacy was aware that the statements being made were misleading and either intentionally chose to ignore them, or intentionally elected to mislead the public. Because Lacy was acting within his scope of his position as CEO of Sears, his alleged knowledge of the falseness of the statements can be imputed to Sears. Accordingly, the court concludes that the amended complaint alleges scienter adequately as to both Lacy and Sears. The motion to dismiss is denied.”

You can read Levie v. Sears Holding Corp, issued March 22, 2006, at 2006 U.S. Dist. LEXIS 12725.

Nugget: “Thus, whether and/or when the Sears-Kmart merger negotiations became material is a fact question not to be decided on a motion to dismiss as a matter of law.”

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