On February 21, 2020, Judge George H. Wu of the United States District Court for the Central District of California adopted as final its tentative ruling, dated February 20, dismissing a putative class action asserting claims under Section 10(b) of the Securities Exchange Act of 1934 against a real estate investment trust and certain of its executives. Brian Barry v. Colony NorthStar, Inc. et al., No. 18-CV-02888 (C.D. Cal. Feb. 21, 2020). Plaintiff alleged that the company made misrepresentations in public statements regarding financial projections and fundraising that were misleading because those projections had become unreachable. The Court held that plaintiff failed to allege an actionable misstatement or omission and, because plaintiff had already amended its complaint twice before, the Court denied leave to amend.
As an initial matter, the Court held—as it had on defendants' prior motion to dismiss—that alleged misstatements regarding the company's financial projections fell within the PSLRA's safe harbor provision, as they were forward-looking statements accompanied by meaningful, cautionary language. Slip op. at 19-20. The Court rejected plaintiff's argument that the more stringent standard of the "bespeaks caution" doctrine should govern, under which cautionary language can negate a claimed misstatement only if "reasonable minds could not disagree that the challenged statements were not misleading." Id. at 18 (citing In re Atossa Genetics Inc. Sec. Litig., 868 F.3d 784, 798 (9th Cir. 2017)). The Court explained that the PSLRA safe harbor provision was not identical to the bespeaks caution doctrine, and the legislative history indicated that, while the safe harbor provision was "based on aspects of . . . the judicial[ly] created 'bespeaks caution' doctrine,'" the PSLRA was designed to permit greater flexibility to defendants who could satisfy the safe harbor provision. Id. at 18-19. Moreover, the Ninth Circuit had not required collapsing the safe harbor standard into the bespeaks caution doctrine. Id. at 19.
Turning to the alleged misrepresentations, the Court rejected plaintiff's argument that a reference on an earnings call to "[p]otential risks and uncertainties that could cause the Company's business and financial results to differ materially from these forward-looking statements are described in the Company's periodic reports filed with the SEC from time to time" was not specific enough to identify meaningful risk disclosures. Id. at 19-20. Rather, the Court held that general references to SEC filings were sufficient under Ninth Circuit precedent to invoke the safe harbor provision. Id. (citing Police Ret. Sys. of St. Louis v. Intuitive Surgical, Inc., 759 F.3d 1051, 1059 (9th Cir. 2014)).
Regarding the company's statements that it was "on track" to meet financial projections and expected to "fill that gap over time" between the projection and initial results, the Court held again—as it had in prior motions to dismiss—that such statements were protected under the safe harbor provision. Id. at 21. The Court maintained that, while different courts had reached different conclusions as to whether the words "on track" indicated a forward-looking statement, in this context "on track" was forward-looking because it indicated that the company expected in the future to meet its projections. Id. Similarly, the company's statement that it expected to "fill that gap over time" related to expected future performance and so, was forward-looking. Id. The Court also held that these statements were accompanied by meaningful cautionary language, in particular warnings that a variety of factors—including expected synergies from a merger, the ability to obtain credit, and adverse economic developments—could cause the company's actual results to differ significantly. Id. at 22-23.
Similarly, the Court again held that statements that "the tide appears to have turned" and that the company was "seeing strong progress" and was "optimistic that the retail investment management business will continue to institutionalize and rebound" were all non-actionable puffery as they were not capable of objective verification. Id. at 24. The Court noted that the company's statement that it was experiencing "strong progress in building the selling groups in [its] current offerings and a commensurate acceleration in the pace of fundraising" was a close call, but in context the statement appeared to be an expression of corporate optimism. Id. at 25.
The Court also rejected plaintiff's argument that the company's retail fundraising results were misleading by omission because they allegedly failed to disclose the amount of the investment in the funds that came from the company itself. In fact, the Court concluded that the company had disclosed that a portion of the funds came from the company, and requiring the company to release the amount of its investments in one or two funds that formed just a portion of one business segment "would bury the shareholders in an avalanche of trial information—a result that is hardly conducive to informed decision-making." Id. at 26.
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