Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-14-07017/USCOURTS-caDC-14-07017-0/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued February 10, 2015 Decided June 23, 2015

No. 14-7017

IN RE: HARMAN INTERNATIONAL INDUSTRIES, INC. SECURITIES

LITIGATION,

ARKANSAS PUBLIC EMPLOYEES RETIREMENT SYSTEM,

INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY

SITUATED,

APPELLANT

CHEOLAN KIM AND CITY OF BOCA RATON GENERAL

EMPLOYEES PENSION PLAN, ON BEHALF OF ITSELF AND ALL

OTHERS SIMILARLY SITUATED - (CA-07-2175),

APPELLEES

v.

HARMAN INTERNATIONAL INDUSTRIES INC., ET AL.,

APPELLEES

Appeal from the United States District Court

for the District of Columbia

(No. 1:07-cv-01757)

Steven J. Toll argued the cause for appellant. With him on

the briefs was Daniel S. Sommers.

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Traci L. Lovitt argued the cause for appellees. With her on

the brief were Thomas F. Cullen Jr., Robert C. Micheletto, Kelly

A. Carrero, and Ian J. Samuel.

Before: HENDERSON, ROGERS and PILLARD, Circuit Judges.

Opinion for the Court by Circuit Judge ROGERS.

ROGERS, Circuit Judge: Between April 2007 and February

2008, Harman International Industries, Inc., and three of its

officers are alleged to have knowingly and recklessly propped

up the Company’s stock price by making materially false and

misleading statements about the Company’s financial condition

and by failing to disclose related material adverse facts, in

violation of Section 10(b) of the Securities Exchange Act of

1934 (“the Act”), 15 U.S.C. § 78j(b); Rule 10b-5, 17 C.F.R.

§ 240.10b-5; and Section 20(a) of the Act, 15 U.S.C. § 78t(a). 

This is alleged to have occurred during a period when the

Company was being considered for acquisition. Only after the

acquisition did not go forward, it is alleged, did the Company 

disclose information that would have been important to a

reasonable investor. The district court dismissed the complaint

for failure to state a claim.

 

On appeal, the only question is whether the complaint stated

a plausible claim of securities fraud with respect to three alleged

statements that focus primarily on the status of the Company’s

personal navigational device (“PND”) products. Consistent with

the standard to be applied in considering a motion to dismiss for

failure to state a claim, we necessarily offer no view on the

merits of the allegations. The district court concluded two of the

alleged statements fell within the statutory safe harbor for

forward-looking statements accompanied by meaningful

cautionary language and the third statement was “puffery” and

thus inactionable. Upon de novo review, we hold that although

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the challenge to the forward-looking nature of two statements

was forfeited, the complaint plausibly alleges that those

statements were not entitled to safe harbor protection because

the accompanying cautionary statements were misleading

insofar as they failed to account for historical facts about PNDs

that would have been important to a reasonable investor. We

also hold that the third statement, in the Company’s annual

report, is plausibly understood, in the alleged circumstances, as

a specific statement about its recent financial performance and

not mere “puffery.” Because loss causation was adequately

pleaded and the Section 20(a) claims alleged against the

individual defendants are plausible, we reverse the dismissal of

the complaint as to these three statements and remand the case

to the district court for further proceedings. 

I.

Section 10(b) of the Securities Exchange Act of 1934, as

amended, provides that it shall be unlawful “[t]o use or employ,

in connection with the purchase or sale of any security registered

on a national securities exchange . . . any manipulative or

deceptive device or contrivance in contravention of such rules

and regulations as the [Securities and Exchange] Commission

may prescribe as necessary or appropriate in the public interest

or for the protection of investors.” 15 U.S.C. § 78j(b). SEC

Rule 10b-5 closely tracks Section 10(b), providing that, “in

connection with the purchase or sale of any security,” it is

unlawful:

(a) To employ any device, scheme, or artifice to

defraud,

(b) To make any untrue statement of a material fact or

to omit to state a material fact necessary in order to

make the statements made, in the light of the

circumstances under which they were made, not

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misleading, or

(c) To engage in any act, practice, or course of business

which operates or would operate as a fraud or deceit

upon any person[.] 

17 C.F.R. § 240.10b-5. The Act, as amended, provides a safe

harbor from liability for forward-looking statements that are

“identified as . . . forward-looking” and “accompanied by

meaningful cautionary statements identifying important factors

that could cause actual results to differ materially from those in

the forward-looking statement.” 15 U.S.C. § 78u-5(c)(1)(A)(i)

(emphases added); see Private Securities Litigation Reform Act

of 1995, Pub. L. 104-67, 109 Stat. 737 (1995). Section 20(a)

subjects to liability “[e]very person who, directly or indirectly,

controls any person liable under” another provision of the Act

or implementing rules. 15 U.S.C. § 78t(a).

In 2008, when the consolidated class action complaint was

filed, Harman International Industries, Inc., was “a leading

manufacturer of high-quality, high fidelity audio products and

electronic systems for the automotive, consumer, and

professional markets in the Americas, Europe, and Asia.” 

Compl. ¶ 2. Its products included information and entertainment

systems for automobiles. According to the complaint, on April

26, 2007, the Company announced its potential acquisition by an

entity formed by Kohlberg Kravis Roberts and an affiliate of

Goldman Sachs, two prominent private equity firms. The same

day, and on two subsequent occasions at issue, the Company,

through its chief executive officers and chief financial officer

and in its FY 2007 Annual Report, made statements regarding

past and forecasted sales of its products, including PNDs. The

price of the Company’s stock rose markedly following the April

2007 merger announcement and held steady through September

2007. When the Company announced in September 2007 that

the acquisition plans had been abandoned, the Company’s share

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price fell by more than 24 percent. It fell again in January 2008

when the Company lowered projected earnings per share, noting

among other things “a major shift” in its PND business. Id.

¶ 109. It continued to fall in February 2008, when the Company

announced the financial results for the second quarter of FY

2008, noting PND sales had fallen by $29 million compared to

the same period in the previous year, in part due to sale of older

products at substantial discounts. Id. ¶ 113.

The lead plaintiff, Arkansas Public Employees’ Retirement

System (“Appellant”), a purchaser of common stock between

April 26, 2007, and February 5, 2008, sued the Company and

three of its officers for securities fraud. Count one of the

complaint alleges that the Company violated Section 10(b) of

the Act and Rule 10b-5 when its chief executive officers and

chief financial officer “knowingly or recklessly propped up [the

Company’s] stock price by issuing materially false and

misleading disclosures regarding the Company’s financial

condition in fiscal 2007 (ending June 30, 2007) and in fiscal

2008 (beginning July 1, 2007).” Id. ¶ 3. They, additionally,

“knowingly or recklessly failed to disclose material adverse

facts about the [c]ompany’s financial condition.” Id. Count two

alleges that three officers were individually liable under Section

20(a) of the Act for the Company’s Section 10(b) and Rule 10b5 violations “[b]y virtue of their positions as controlling

persons.” Id. ¶ 186. The complaint identified a number of

allegedly actionable false and misleading statements. Only three

statements are at issue on appeal, and they relate primarily to the

Company’s automotive PND line of business. We quote

relevant portions of the alleged statements.

First, on April 26, 2007, CEO Sidney Harman stated during

a conference call with analysts:

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I had indicated in earlier conference calls that the PND

environment in Europe was not as margin challenged

as it is in the United States, but that we could surely

anticipate it. There was reasonable foresight in that

observation. In the recent quarter, the European PND

market has become extremely competitive. We are

working extraordinarily hard to increase sales and to

maintain adequate margins in that environment. In our

earnings call three months ago, it was noted that

Harman/Becker PND inventories in Europe had

grown substantially. We said then that the inventory

had been developed to support a vigorous sales effort

and that we planned to reduce it to normal levels at

year-end. The plan forecasts total unit sales of

618,000 units for the fiscal ‘07 year, and that plan is

proceeding. Where March 31 inventory was $75

million, we expect April 30 inventory to be

approximately $50 million, May 31 inventory to be

approximately $30 million, and June 30 inventory to be

approximately $15 million, that a very normal level.

Id. ¶ 57 (bold emphases added). Thereafter, in response to a

question by an analyst, the Company CFO, Kevin Brown, stated

that the Company had sold 84,000 PNDs during the prior quarter

and 300,000 units for the preceding nine months. When asked

whether, in light of those numbers, he still expected total PND

sales to eclipse 600,000 for the fiscal year, CEO Harman stated:

“We do, and we said so.” Id. ¶ 58 (emphasis omitted). 

Following the April 26 acquisition announcement and

conference call, the Company’s stock price rose from $102.56

to $122.50, closing the next day at $122.59. At the beginning of

the conference call the moderator had stated that “certain

statements by the [C]ompany during this call are forwardlooking statements” that “include the [C]ompany’s beliefs and

expectations as to future events and trends affecting the

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[C]ompany’s business and are subject to risks and

uncertainties.” Harman Int’l Indus. Earnings Release Conf. Call

Tr. at 1 (Apr. 26, 2007). Persons on the call were “advised to

review the reports filed by Harman International with the [SEC]

regarding these risks and uncertainties.” Id.

The complaint alleges that the CEO’s forecast for PND

sales, particularly his statement that “that plan is proceeding,”

was materially false and misleading because the defendants

“knew or recklessly disregarded that the Company’s foray into

PND sales in Europe would cause material declines in its

operating income as a percentage of net sales.” Compl. ¶ 64(a). 

At the time of the April conference call, the complaint alleges,

there was “a large inventory of older generation, obsolete PNDs

which [the Company] could not sell or was forced to sell at a

substantial loss,” and the “prospects for future sales of PNDs

were being adversely affected by increasing competition and

pressures from competitive pricing.” Id. ¶ 64(b). The

Company’s former sales engineer advised that the Company had

not sold PNDs up to expectations in either FY 2006 or FY 2007,

with the result that the Company “had a stockpile of the devices

in inventory,” id. ¶ 64(c), and that in early 2007, the Company

modified its PND design, rendering all of the earlier generation

units in inventory obsolete. The Company’s former accounting

manager advised that the Company had released five different

versions of the same PND between March 2006 and July 2007

but did not sell a significant number of the devices until July

2007.

Second, on August 29, 2007, the Company filed its FY 2007

year-end Annual Report with the SEC, on Form 10-K, which

was signed by the individual defendants. The Report stated:

“Sales of aftermarket products, particularly PNDs, were

very strong during fiscal 2007.” Compl. ¶ 82 (emphasis

added). Once the Annual Report was publicly released, the

Company’s stock rose, from $112.93 to $113.39. Early on the

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Report stated that it “contains forward-looking statements within

the meaning of the [Act]” and that readers should “not place

undue reliance on these statements.” Harman Int’l Indus. SEC

Form 10-K at i (Aug. 29, 2007). The Report listed various

factors that “may cause fluctuations in [the Company’s]

operating results and/or the price of [its] common stock,” id. at

ii, and included a detailed account of the “risk factors,” id. at 9. 

The complaint alleges the statement that the Company’s

PND sales were “very strong” was “false and misleading when

made and/or omitted to disclose material facts necessary to

make the statement[] made not misleading.” Compl. ¶ 86. 

Specifically, the Company failed to disclose: (1) the growing

inventory of obsolete PNDs, (2) the fact that the Company had

missed PND sales targets for the previous fiscal year by more

than $85 million, and (3) that the Company had recently sold

100,000 obsolete PND units at a substantial discount.

Third, on September 27, 2007, CFO Brown stated during a

conference call with analysts that the Company had forecast first

quarter FY 2008 sales to be $950 million, up 15 percent

compared to the first quarter of FY 2007. When an analyst

observed that “the $950 million of revenue expectation is the

highest number [the Company had] ever achieved” and asked

whether “that observation [is] correct” and “to what degree did

the spillover of [Mercedes Benz] C Class revenues influence

that number,” id. ¶ 101, CFO Brown responded:

Yes, Peter, you are correct that that is a very strong

first quarter on the top line for us, reflecting getting

fully up the ramp curve on Mercedes C Class but also

reflecting the fact that we are bringing additional

business on stream at Chrysler as we ramp up our

Missouri plant and in the PND business, where we

continue the growth and expansion of that business

primarily in Europe.

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Id. (bold emphases added). The conference call was convened

to discuss the Company’s almost-completed first quarter FY

2008 financial results and expectations for the remainder of the

fiscal year. The conference call’s moderator again began the

call by stating that “certain statements made by the Company

during this call are forward-looking statements” that “include

the Company’s beliefs and expectations as to future events and

trends affecting the Company’s business and are subject to risks

and uncertainties.” Harman Int’l Indus. Guidance

Announcement Tr. at 1 (Sept. 27, 2007). Those on the call were

“advised to review the reports filed by Harman International

with the [SEC] regarding these risks and uncertainties.” Id.

The complaint alleges that the statement “growth and

expansion” would “continue” in the PND business was

materially false and misleading, primarily because of the

historical evidence of growing inventory, widespread

obsolescence, and stagnant sales. Compl. ¶ 102.

Proceeding on a corrective disclosure theory of loss

causation, the complaint points to the Company’s statements in

January and February 2008, allegedly “when [the Company]

disclosed [its] deteriorating financial condition and the truth

became apparent to the market, [and the Company’s] stock fell

sharply,” eliminating “the prior artificial inflation.” Id. ¶ 125.

• On January 14, 2008, prior to the opening of the

market, a Company press release disclosed revised FY 2008

earnings guidance, “significantly lowering estimates of earnings

per share.” Id. ¶ 109. The release explained that “[t]he change

in guidance was prompted primarily by a major shift in the

market for Portable Navigation Devices (PNDs). In recent

months this sector has experienced significant pricing pressure

which is affecting the entire industry.” Id. The release quoted

the statement of the Company’s then-CEO, Dinesh Paliwal, that

“[w]hile the growth fundamentals of our core business remain

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sound, the difficult PND environment presents a challenge.” Id.

The share price of the Company’s stock dropped by nearly 40

percent on the day the press release issued. Id. ¶ 110.

• On February 5, 2008, the Company announced its FY

2008 second quarter results, stating that “its Automotive

division’s earnings were ‘under pressure’ due to PNDs and that

it had suffered a gross margin decline from lower margins on

PND products; product mix change . . . ; and higher than

expected material costs.” Id. ¶ 112. Operating income for the

second quarter of FY 2008 (ending December 31, 2007) was $61

million, or 5.7 percent of sales, as compared to $116 million and

12.4 percent, respectively, for the same quarter of the previous

year. The Company’s “PND sales had fallen by $29 million

compared to the same period in 2006” and “PND sales and

margins decreased due to aggressive price reduction by

competitors, the delay of new products, and the sale of older

products at substantial discounts.” Id. ¶ 113 (emphases

added) (internal quotation marks omitted). The Company’s

stock price fell more than 15 percent the next day. According to

the complaint, the second quarter report, which was filed on

SEC Form 10-Q on February 11, 2008, “disclosed more

specifically the reasons why operating income and margins had

declined in the first six months of fiscal 2008.” Id. ¶ 115. That

is, “the [recent] gross margin decline was the result of lower

margins on PND products” attributable to “a significant

decline in average market prices, delayed introductions and

lower volumes of new generation products and the inventory

clearance of prior generation models at a loss.” Id.

(emphases added).

The district court granted the defendants’ motion to dismiss

the complaint on the grounds that the statements during the

conference calls fell within the safe harbor for forward-looking

statements accompanied by meaningful cautionary statements,

and the statement in the FY 2007 Annual Report was “mere

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puffery” and inactionable. In re Harman Int’l Indus., Inc. Sec.

Litig., 27 F. Supp. 3d 26, 46, 50, 51 (D.D.C. 2014). The court

did not reach the question whether loss causation had been

adequately pleaded. On appeal, Appellant contends that the

district court erred because the Company’s statements during the

two conference calls were neither forward looking, nor

accompanied by meaningful cautionary language, and its

statement in the FY 2007 Annual Report was not puffery, and

further that loss causation and its Section 20(a) claim were

adequately pleaded. Our review of the dismissal of the

complaint, pursuant to Federal Rule of Civil Procedure 12(b)(6)

for failure to state a claim, is de novo. See English v. District of

Columbia, 717 F.3d 968, 971 (D.C. Cir. 2013).

II.

The elements of a claim under Rule 10b-5 are “(1) a

material misrepresentation or omission by the defendant; (2)

scienter; (3) a connection between the misrepresentation or

omission and the purchase or sale of a security; (4) reliance

upon the misrepresentation or omission; (5) economic loss; and

(6) loss causation.” Janus Capital Grp., Inc. v. First Derivative

Traders, 131 S. Ct. 2296, 2301 n.3 (2011) (internal quotation

marks omitted). “To survive a motion to dismiss, a complaint

must contain sufficient factual matter, accepted as true, to ‘state

a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal,

556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly,

550 U.S. 544, 570 (2007)). Although the court need not accept

the plaintiff’s legal conclusions, the court must assume the truth

of all well-pleaded factual allegations in the complaint and draw

all reasonable inferences from those allegations in the plaintiff’s

favor. See, e.g., de Csepel v. Republic of Hungary, 714 F.3d

591, 597 (D.C. Cir. 2013); Doe v. Rumsfeld, 683 F.3d 390, 391

(D.C. Cir. 2012). Fraud must be pled with particularity, see

FED. R. CIV. P. 9(b), and the Act, as amended in 1995, requires

a plaintiff to “specify each statement alleged to have been

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misleading[ and] the reason or reasons why the statement is

misleading,” 15 U.S.C. § 78u-4(b)(1)(B), and to “state with

particularity facts giving rise to a strong inference that the

defendant acted with the required state of mind,” id.

§ 78u-4(b)(2)(A).

A.

The complaint alleges that none of the Company’s

statements were entitled to safe-harbor protection because many

were not “identified” as forward looking and that, “[t]o the

extent there were any forward-looking statements, there were no

meaningful cautionary statements . . . .” Compl. ¶ 171

(emphasis added). The district court concluded that the parties

were “not in dispute as to whether any particular statement is

‘forward-looking,’” explaining that although Appellant had

alleged that many of the statements “were not identified as

forward-looking when made,” Appellant did not move forward

with this theory in briefing on the motion to dismiss. Harman,

27 F. Supp. 3d at 40 & n.4. In opposing the Company’s motion

to dismiss the complaint, Appellant discussed the two statements

made during the conference calls under the heading:

“Defendants’ Forward-Looking Statements Are Not Protected

by the PSLRA’s Safe Harbor.” See Lead Pl.’s Mem. in Opp. to

Defs’ Mot. to Dismiss at 13–15. Characterizing some

statements as pertaining to current or historical facts, i.e., not

forward looking, Appellant did not characterize the two

statements at issue as pertaining to current or historical facts.

Appellant has at least forfeited the argument that the two

conference call statements were not forward looking. See

United States v. Volvo Powertrain Corp., 758 F.3d 330, 338

(D.C. Cir 2014). It is true that the court has recognized that

“‘[o]nce a federal claim is properly presented, a party can make

any argument in support of that claim; parties are not limited to

the precise arguments they made below.’” Woodruff v. Peters,

482 F.3d 521, 525 (D.C. Cir. 2007) (quoting Yee v. City of

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Escondido, 503 U.S. 519, 534 (1992)). Neither this court’s

precedent nor the Supreme Court in Yee sweeps as broadly as

Appellant suggests. In Yee, 503 U.S. at 534–35, the Supreme

Court distinguished between a claim (that a city ordinance

effected an unconstitutional taking) that had to be raised in the

district court and an argument in support of that claim that did

not need to be raised in the district court. Thus, on appeal a

party may “refine and clarify its analysis in light of the district

court’s ruling,” Teva Pharm., USA, Inc. v. Leavitt, 548 F.3d 103,

105 (D.C. Cir. 2008), including citing “additional support for his

side of an issue upon which the district court did rule, much like

citing a case for the first time on appeal,” Koch v. Cox, 489 F.3d

384, 391 (D.C. Cir. 2007). But that is not what Appellant seeks

to do. 

Although this court has acknowledged it has discretion to

consider issues raised for the first time on appeal, Roosevelt v.

E.I. Du Pont de Nemours & Co., 958 F.2d 416, 419 n.5 (D.C.

Cir. 1992); see Singleton v. Wulff, 428 U.S. 106, 121 (1976), it

has done so where there are exceptional or otherwise particular

circumstances, see, e.g., Lesesne v. Doe, 712 F.3d 584, 588 (D.C.

Cir. 2013); Meier, Inc. v. Biovail Corp., 533 F.3d 857, 867 (D.C.

Cir. 2008). Declining to address Appellant’s new issue would

not involve a miscarriage of justice in view of its counseled

decision in the district court declining to move forward with the

argument that the two statements were not forwarding looking. 

It is true, as Appellant suggests, that the issue is purely legal and

has been fully briefed, but the parties’ briefs demonstrate that

resolution of the issue is not “beyond any doubt,” Singleton, 428

U.S. at 121; see also Lesesne, 712 F.3d at 588, and to treat the

issue as “antecedent to the secondary question of whether

cautionary language is meaningful,” Reply Br. 4, would extend

the concept of “antecedent to and ultimately dispositive of the

dispute,” U.S. Nat’l Bank of Or. v. Indep. Ins. Agents of Am.,

Inc., 508 U.S. 439, 447 (1993) (internal quotation marks and

alteration omitted), in a manner that would recast Appellant’s

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position in the district court. Nor are we persuaded that the

passage of time alone, during which Appellant asserts without

substantive elaboration that the law interpreting the safe harbor

provision has “evolve[d],” Reply Br. 5, is the type of intervening

change in the law that warrants exercising our discretion to

consider Appellant’s new argument rather than adhering to “our

ordinary practice of refusing to entertain an argument made for

the first time on appeal,” Volvo Powertrain, 758 F.3d at 338

(internal quotation marks omitted).

B.

To come within the statutory safe harbor, a statement must

not only be forward looking (and identified as such), but also

“accompanied by meaningful cautionary statements.” 15 U.S.C.

§ 78u-5(c)(1)(A)(i). The safe harbor defines “meaningful

cautionary statements” as those that “identify[] important factors

that could cause actual results to differ materially from those in

the forward-looking statement.” Id. We first address the legal

standard, then its application.

1. Although the statutory text is somewhat ambiguous, see

Slayton v. Am. Express Co., 604 F.3d 758, 770 (2d Cir. 2010);

Asher v. Baxter Int’l Inc., 377 F.3d 727, 729 (7th Cir. 2004), as

amended (Sept. 3, 2004), given the variety of possible factual

circumstances that could arise, the words Congress chose are not

without instructive meaning, even if their application may be

unclear in specific circumstances. 

Dictionary definitions may not, in and of themselves, be

dispositive of whether a particular statement falls within the safe

harbor, but they indicate the general nature of the information

that Congress concluded must be part of a cautionary statement

for safe harbor protection. The word “meaningful” means

“significant,” 9 OXFORD ENGLISH DICTIONARY 522 (2d ed.

1989), or “having a serious, important, or useful quality or

purpose,” NEW OXFORD AMERICAN DICTIONARY 1052 (2d ed.

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2005). The word “important” means “[h]aving much import or

significance; carrying with it great or serious consequences;

weighty, momentous, grave, significant,” 7 OXFORD ENGLISH

DICTIONARY 728, or “of great significance or value; likely to

have a profound effect on success, survival, or well-being,” NEW

OXFORD AMERICAN DICTIONARY 849. The words imply

information that is tailored to a particular company’s status at a

particular time, because cautionary statements that are too

temporally general, or advise of a company’s performance in the

distant past, would not be “significant,” 9 OXFORD ENGLISH

DICTIONARY 522, to an investor, nor would they have any

“useful quality or purpose,” NEW OXFORD AMERICAN

DICTIONARY 1052. Furthermore, to the extent application of

these terms is ambiguous, the legislative history is helpful.

Congress’s purpose in enacting the safe harbor was to lessen the

“muzzling effect” of potential liability for forward-looking

statements, which often kept investors in the dark as to what was

foreseen for the company by managers “[f]ear[ful] that

inaccurate projections w[ould] trigger the filing of securities

class action lawsuit[s].” H.R.REP.NO.104-369, at 42–43 (1995)

(“CONF. REP.”). 

Applying the text and hewing to Congress’s purpose, our

sister circuits have resolved the definitional ambiguity as

follows:

“The requirement for ‘meaningful’ cautions calls for

substantive company-specific warnings based on a realistic

description of the risks applicable to the particular

circumstances.” Southland Sec. Corp. v. INSpire Ins. Solutions,

Inc., 365 F.3d 353, 372 (5th Cir. 2004) (some internal quotation

marks omitted). Thus, “cautionary statements must be

substantive and tailored to the specific future projections,

estimates or opinions in the [statements] which the plaintiffs

challenge.” Institutional Inv’rs Grp. v. Avaya, Inc., 564 F.3d

242, 256 (3d Cir. 2009) (internal quotation marks omitted). That

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cautionary language must be tailored to the forward-looking

statement that it accompanies follows from the statutory

requirement that cautionary language must warn of what “could

cause actual results to differ materially from those in the

forward-looking statement.” 15 U.S.C. § 78u-5(c)(1)(A)(i)

(emphasis added). 

By contrast, mere boilerplate — “This is a forward-looking

statement: caveat emptor,” Asher, 377 F.3d at 729 (internal

quotation marks omitted) — does not meet the statutory standard

because by its nature it is general and ubiquitous, not tailored to

the specific circumstances of a business operation, and not of

“useful quality,” NEW OXFORD AMERICAN DICTIONARY 1052. 

See Slayton, 604 F.3d at 772; Institutional Inv’rs Grp., 564 F.3d

at 256; Asher, 377 F.3d at 732; Southland, 365 F.3d at 372. So

too, generalized warnings that forward-looking statements are

“not guarantees of future performance . . . and involve known

and unknown risks and other factors that could cause actual

results to be materially different from any future results

expressed or implied by them,” Lormand v. US Unwired, Inc.,

565 F.3d 228, 244 (5th Cir. 2009) (internal quotation marks

omitted), because such a statement is not specific regarding the

business at issue. The Conference Report, in keeping with

Congress’s intent to “enhance market efficiency by encouraging

companies to disclose forward-looking information,” states that

“boilerplate warnings will not suffice as meaningful cautionary

statements identifying important factors that could cause actual

results to differ materially from those projected in the

statement.” CONF. REP. at 43. 

At the same time, cautionary language cannot be

“meaningful” if it is “misleading in light of historical fact[s],”

Slayton, 604 F.3d at 770, “that were established at the time the

statement was made,” id. at 769. Such statements are neither

“significant” nor of “useful quality or purpose.” 9 OXFORD

ENGLISH DICTIONARY 522; NEW OXFORD AMERICAN

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17

DICTIONARY 1052. Indeed, the Conference Report states that

“[a] cautionary statement that misstates historical facts is not

covered by the safe harbor.” CONF. REP. at 44. A warning that

identifies a potential risk, but “impl[ies] that no such problems

were on the horizon even if a precipice was in sight,” would not

meet the statutory standard for safe harbor protection. Asher,

377 F.3d at 733. If a company were to warn of the potential

deterioration of one line of its business, when in fact it was

established that that line of business had already deteriorated,

then, as the Second Circuit explained, its cautionary language

would be inadequate to meet the safe harbor standard. See

Slayton, 604 F.3d at 769–70. By analogy, the safe harbor would

not protect from liability a person “‘who warns his hiking

companion to walk slowly because there might be a ditch ahead

when he knows with near certainty that the Grand Canyon lies

one foot away.’” Rombach v. Chang, 355 F.3d 164, 173 (2d Cir.

2004) (quoting In re Prudential Secs. Inc. P’ships Litig., 930 F.

Supp. 68, 72 (S.D.N.Y. 1996)). As this court noted in Dolphin

& Bradbury, Inc. v. SEC, 512 F.3d 634, 640 (D.C. Cir. 2008),

there is an important difference between warning that something

“might” occur and that something “actually had” occurred.

Because Congress required that cautionary statements warn

of “important factors that could cause actual results to differ,”

the cautionary language need not necessarily “mention the factor

that ultimately belies a forward-looking statement.” Harris v.

Ivax Corp., 182 F.3d 799, 807 (11th Cir. 1999). That is,

Congress did not require the cautionary statement warn of “all”

important factors, so long as “an investor has been warned of

risks of a significance similar to that actually realized,” such that

the investor “is sufficiently on notice of the danger of the

investment to make an intelligent decision about it according to

her own preferences for risk and reward.” Id. (citing CONF.REP.

at 44). Perfect clairvoyance may be impossible because of

events beyond a company’s control of which it was unaware. 

See Asher, 377 F.3d at 730, 732. Congress required that a

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company must warn of factors that “[h]av[e] much import or

significance” and “carry[] with [them] great or serious

consequences,” 7 OXFORD ENGLISH DICTIONARY 728, and which

are “likely to have a profound effect on success,” NEW OXFORD

AMERICAN DICTIONARY 849.

We join our sister circuits’ reasoned analysis of the safe

harbor requirement that forward-looking statements be

accompanied by “meaningful cautionary statements.” The words

Congress chose provide instructive guidance and the remaining

ambiguity in application is informed by and resolved in view of

Congress’s purpose to protect companies from “[a]busive

litigation,” CONF. REP. at 42, while still providing investors the

information they require to make reasoned decisions, id. at

43–44. 

2. The question, then, is whether the Company’s statements

during the two conference calls were accompanied by warnings

specific to the Company and tailored to the specific forwardlooking statements, not mere boilerplate, and consistent with the

historical facts when the statements were made, thereby carrying

out Congress’s purpose to ensure that investors have the

information they need to make an informed decision on whether

or not to invest, or remain invested, in the Company. 

The Company does not dispute that PND obsolescence was

an “important factor[] that could cause actual results to differ

materially from those in the forward-looking statement,” 15

U.S.C. § 78u-5(c)(1)(A)(i), and thus that it was required to alert

investors to the risk of obsolescence in order to gain safe harbor

protection. See Appellees’ Br. 32–37. Rather, the Company

states that it did warn of obsolescence “many times.” Id. at 35. 

The moderator began both conference calls by warning generally

of risk and referring listeners to the Company’s recent Annual

Report. The 2006 Annual Report, referred to in the April

conference call, stated sales could suffer if the Company failed

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to “develop, introduce and achieve market acceptance of new

and enhanced products,” that it had to “maintain and improve

existing products, while successfully developing and introducing

new products,” and could “experience difficulties that delay or

prevent the development, introduction or market acceptance of

new or enhanced products,” as well as that competitors could

“introduce superior designs or business strategies, impairing [the

Company’s] distinctive image and [its] products’ desirability.” 

2006 Annual Report at 9–10. More specifically, the Company

stated that PND “inventories . . . had grown substantially,”

increasing to approximately $50 million. Compl. ¶ 57 (emphasis

omitted). Consequently, the Company concludes that when

“[c]onsidered against Dr. Harman’s particular warnings about the

competitive European PND market, the obsolescence risk was

adequately identified.” Appellees’ Br. 36.

Several of the cautionary statements relied on by the

Company consist of boilerplate, such as the generalities in the

moderators’ comments and the Annual Reports. To the extent

other statements were tailored to the Company’s PND business

operations, the purportedly cautionary statements were not

meaningful because they were misleading in light of historical

fact. References to amassed inventory did not convey that

inventory was obsolete, as opposed to stocked with the latest,

cutting-edge models. Even if viewed as implicitly raising the

specter of obsolescence, the statements were insufficient for at

least the reason that they did not warn of actual obsolescence that

had already manifested itself. The court, thus, need not reach the

parties’ arguments regarding the role of actual knowledge under

the safe harbor, 15 U.S.C. § 78u-5(c)(1). See Appellant’s Br. 24

n.12; Appellees’ Br. 37. 

The allegations in the complaint plausibly show that by

failing to disclose that PND obsolescence that had already

materialized and to tailor its cautionary statements to its PND

business, the purported cautionary statements were inadequate to

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qualify the April conference call statement for safe harbor

protection. According to the complaint, when the April

conference call was made, the threat of serious obsolescence was

materializing, because, according to a former sales engineer, the

Company itself had made a modification in early 2007, “which

rendered all of the older-generation units in inventory obsolete.” 

Compl. ¶ 64(d); see also id. ¶ 53. In addition, the Company’s

2006 PND sales had been lower than anticipated and this resulted

in the Company storing PNDs in a warehouse. Id. ¶ 64(c). 

Furthermore, the Company released five different versions of its

PND between March 2006 and July 2007, but at the time of the

first conference call had not sold “a significant number.” Id.

¶ 64(e). By early 2007, the sales engineer had initiated

conversations with Company sales representatives regarding the

need to lower PND prices in order to remain competitive. Id.

¶ 52. Nonetheless, there was no indication during the April

conference call that the Company’s PND business was

compromised by obsolescence, as distinct from inventory, let

alone due to the Company’s own actions, see id. ¶ 64(d). 

“[A]s a general matter, investors know of the risk of

obsolescence posed by older products forced to compete with

more advanced rivals. Technical obsolescence of computer

equipment in a field marked by rapid technological advances is

information within the public domain.’” Parnes v. Gateway

2000, Inc., 122 F.3d 539, 546–47 (8th Cir. 1997) (quoting In re

Convergent Techs. Sec. Litig., 948 F.2d 507, 513 (9th Cir. 1991))

(internal quotation marks and alterations omitted). But the

general information provided by the Company about its plan to

reduce its substantial inventory did not disclose historical facts

that could have affected the success of the plan being discussed. 

The omission left a misleading picture with regard to the impact

of “a large inventory of older generation, obsolete PNDs which

[the Company] could not sell or was forced to sell at a substantial

loss.” Compl. ¶ 64(b). For instance, the Company did not warn

as to the problem it faced — here, PND obsolescence — that it

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“has experienced, and may continue to experience,” certain

“problems,” Parnes, 122 F.3d at 549, or state “in detail what

kind of misfortunes could befall the company and what the effect

could be,” Harris, 182 F.3d at 807. 

 CEO Harman’s April statement referred to the Company’s

plan to draw down its PND inventory to “normal levels,”

commenting “that plan [wa]s proceeding.” Compl. ¶ 57. Yet the

purportedly cautionary statements did nothing to distinguish any

risk faced by PNDs in particular. The 2006 Annual Report that

was referenced by the conference call moderator spoke generally

of “products,” both “existing” and “new.” See 2006 Annual

Report at 9–10. Even viewing CEO Harman’s explanation “that

the PND market in Europe was ‘extremely competitive’ and that

the [C]ompany had to work ‘extraordinarily hard’ to increase

sales and maintain margins” as “not merely statements about

general market risks, but . . . specific to the European PND

market of which Plaintiffs complain,” Harman, 27 F. Supp. 3d

at 46, nothing said during the conference call or in the Annual

Report warned of PND obsolescence. Likewise, the Company’s

statement that it had amassed a sizeable PND inventory does not

render the cautionary language “meaningful.” CEO Harman’s

statements that “[i]n our earnings call three months ago, it was

noted that Harman Becker PND inventories in Europe had grown

substantially” and that a plan had been developed to reduce

inventory and “[wa]s proceeding,” Harman Int’l Indus. Earnings

Release Conf. Call Tr. at 7, is not a warning at all, much less of

obsolescence.

The Company’s cautionary language is not rendered

adequate by the Company’s statement during the April

conference call that, although it had projected annual sales of

618,000 units, the Company had sold only 300,000 through the

first nine months of FY 2007. In isolation, the statement could

be viewed as “allowing investors to evaluate for themselves

whether [the Company’s] projection of 318,000 unit sales in the

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fourth quarter was realistic.” Harman, 27 F. Supp. 3d at 47. But

not when viewed in context. When asked whether, even having

only sold less than half of its projected year-end total through

three quarters of the fiscal year, the Company could still hit its

target, CEO Harman responded unequivocally that it could. 

Stating that the Company was capable of nearly doubling its

three-quarter sales totals in the last quarter does not warn

investors that the Company was facing serious obsolescence in

its PND products, see Compl. ¶ 64(b).

The circumstances recounted in the complaint are not unlike

those in Lormand, 565 F.3d 228. The issue there was whether

US Unwired had provided meaningful cautionary language with

statements about its affiliation with Sprint. Id. at 231–33. To

simplify, US Unwired was forced over a period of several years

to change its working relationship with Sprint in a manner that

destroyed US Unwired’s business model. Id. at 232–38. US

Unwired nevertheless made a series of statements touting its

relationship with Sprint and the growth and vitality of its

business. Id. at 240–41. Accompanying its forward-looking

statements were warnings, such as “Sprint PCS may make

decisions that adversely affect our business like setting the prices

for its national plans at levels that may not be economically

sufficient for our business,” id. at 245 (emphasis added). The

Fifth Circuit, drawing inferences in US Unwired’s favor,

concluded that references to US Unwired’s “business” were

“very vague and general.” Id. at 246. With respect to risks

related to a no-deposit program offering service to low-income

and risky credit subscribers, id. at 237, 242, US Unwired warned:

US Unwired’s “PCS business may suffer because more

subscribers generally disconnect their service in the PCS industry

than in the cellular industry . . . . We plan to keep our subscriber

churn [i.e., turnover] down by expanding network coverage,

improving network reliability, marketing affordable plans and

enhancing customer care. We cannot assure that these strategies

will be successful. A high rate of PCS subscriber churn could

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harm our competitive position and the results of operations of

our PCS services.” Id. at 246. The court held this warning was

also insufficient to provide safe harbor protection because, in

part, US Unwired only warned of “a future risk of limited

magnitude that would be averted” while failing to disclose

“certain dangers that had already begun to materialize.” Id. at

247. So too here. The cautionary language included in the

Company’s April conference call is too general and fails to

account for the materialization, rather than abstract possibility,

of the important risk posed by PND obsolescence.

The allegations in the complaint also plausibly show that the

cautionary language provided during the September conference

call was inadequate for safe harbor protection for the same

reasons. CFO Brown referred to a favorable projection of

revenue, stating “we are bringing additional business on-stream

. . . in the PND business, where we continue the growth and

expansion of that business primarily in Europe.” Compl. ¶ 101

(emphasis omitted). For an investor, “[e]qually important was

‘inventory clearance of prior generation models at a loss,’ i.e.,

inventory obsolescence . . . [that the Company allegedly] did not

disclose for more than six months.” Reply Br. 15. In September,

no mention was made of the Company’s inventoried products

that would not be saleable due partly to obsolescence, or to the

stalling of the plan to reduce inventory to normal levels, or to

anything else that could warn of the serious obsolescence

problem. See id. ¶¶ 86(c)-(e). Instead, the cautionary statements

are essentially the same as those made during the April

conference call: a boilerplate statement about risk generally and

reference to the Company’s FY 2007 Annual Report, which

repeated the general warnings in the FY 2006 Annual Report. 

(The Company acknowledges that the two annual reports are

more or less indistinguishable. See Appellees’ Br. 35–36.)

The warnings accompanying the September statement, like

those that accompanied the April statement, were misleading in

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light of historical facts and were not tailored to the specific

forward-looking statement the Company made. According to the

complaint, by June 2007, the Company had agreed to sell

100,000 PNDs for $110 less than the ordinary $350 price tag. 

Compl. ¶¶ 56, 86(e). In all, the Company missed its PND sales

projected by more than 200,000 units in FY 2007, id. ¶ 55, which

meant PND sales fell short of projections by at least $85 million,

id. ¶¶ 56, 86(d). The information provided by the Company’s

former accounting manager indicated that “the Company had on

hand hundreds of millions of dollars worth of obsolete

Generation 2 PNDs which were being superseded by newer

Generation 3 PNDs in August 2007.” Id. ¶ 86(c). By the end of

FY 2007, there was no longer a mere risk and some evidence of

obsolescence, but rather an intractable problem of obsolescence

was a reality that the Company failed to disclose. “[T]he risk of

which [the Company] warned . . . had already transpired,”

Slayton, 604 F.3d at 770; see also Lormand, 565 F.3d at 247, by

the time of the September conference call, and consequently the

Company’s cautionary language was not “meaningful.” See id.

at 246–47. Even were it clear that the Company warned of

obsolescence, the warnings were misleading because they

provided, at most, information about a generalized risk of

obsolescence and the general effect that obsolescence could have

on sales. The district court did not address whether the

cautionary language accompanying the September statement was

misleading in light of historical facts. See Harman, 27 F. Supp.

3d at 50. 

Reinforcing our conclusion that safe harbor protection is

unavailable for the September statement is the fact that the

Company’s cautionary statements remained unchanged despite

a significant change in circumstances of material importance to

an investor. See Slayton, 604 F.3d at 772–73; see also Asher,

377 F.3d at 734; Helwig v. Vencor, Inc., 251 F.3d 540, 559 (6th

Cir. 2001), abrogated on other grounds by Tellabs, Inc. v. Makor

Issues & Rights, Ltd., 551 U.S. 308 (2007). Despite what had

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happened regarding PNDs between April and September, the

Company did not update or tailor its cautionary language to

make it meaningful, instead relying on the same general

prefatory language and reference to the Company’s general

statements regarding risk in its most recent annual report. 

Compare 2007 Annual Report at 10–11, with 2006 Annual

Report at 9–10. “The consistency of the defendants’ language

over time despite” changing circumstances “belies any

contention that the cautionary language was ‘tailored to the

specific future projection.’” Slayton, 604 F.3d at 773 (quoting

Institutional Inv’rs Grp., 564 F.3d at 256). 

The complaint points, moreover, in support of the theory of

corrective disclosure, to the Company’s January and February

2008 releases that disclosed, allegedly for the first time, the

obsolescence problems facing its PND line of business. See

Compl. ¶¶ 133, 135. CEO Harman had assured investors in

April that there was a plan to reduce inventory to normal levels,

from $75 million to $15 million by June 30, 2007, id. ¶ 57, and

CFO Brown had reassured investors in September that the PND

business was growing and expanding, id. ¶ 101. Thus, over this

period the Company failed to disclose what was an historical fact

of importance to a reasonable investor: by April, inventory

obsolescence was becoming a problem, see id. ¶¶ 64 (b), (d), (e);

by September it had fully materialized into a serious problem

effecting Company revenues, see id. ¶¶ 86(c)-(e). Prior to the

January and February statements, according to the complaint, the

Company had not “even mentioned that rapid obsolescence

might pose a material risk to the Company’s PND business, let

alone that such obsolescence might be caused by the Company’s

own product changes.” Appellant’s Br. 21; see Compl. ¶ 64(d). 

Given the rosy picture that the Company painted during the

April-September period, investors were unaware of the

obsolescence problem until January-February 2008, when the

Company, in announcing disappointing financial results in

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February 2008, first disclosed PND obsolescence that had

resulted in “the sale of older products at substantial discounts.” 

Id. ¶ 113 (internal quotation marks omitted).

The Company responds that it needed only to warn of

“risks,” Harris, 182 F.3d at 807 (emphasis added), not “actual

inventory obsolescence,” Appellees’ Br. 37 (emphasis in

original). Nothing in Harris purports to afford safe harbor

protection based on a statement that risk could come to fruition

where that risk has already begun to materialize. To conclude

otherwise, that even where a risk has materialized a company

need only warn that it is a “risk,” would render misleading

cautionary language sufficient, a result neither the statutory text,

nor legislative history, nor precedent supports.

Finally, the Company maintains that the internal reports on

which the complaint relies are irrelevant and unreliable, and

therefore inadmissible as a matter of law. This is because, the

Company continues, the complaint “fails to identify any

information about the internal reports, i.e., who prepared them,

who received them, how firm the numbers were within them,

how they were distributed, or to whom they were distributed, and

does not allege that any of the individual defendants received and

reviewed the internal reports.” Appellees’ Br. 49–50. The

precedent on which the Company relies for its categorical rule is

inapposite. San Leandro Emergency Medical Group Profit

Sharing Plan v. Philip Morris Companies, Inc., 75 F.3d 801, 812

(2d Cir. 1996), held that an “unsupported general claim of the

existence of confidential Company sales reports that revealed”

information that would render a company’s statement misleading

was “insufficient to survive a motion to dismiss.” Here, the

allegation that operating reports exist is not general and the

operating reports are not the only support for the alleged claims. 

Arazie v. Mullane, 2 F.3d 1456, 1467 (7th Cir. 1993), held that

the particularity requirement was not met by references to an

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internal report that did “not indicate who prepared the projected

figures, when they were prepared, how firm the numbers were,

or which [company] officers reviewed them.” Here, the

complaint identifies the internal reports as monthly and annual

reports of the Company’s Automotive Division, which were

“authored by executives of Harman Automotive in Germany and

distributed to Harman International executives,” including CEO

Harman and CFO Brown, and after July 1, 2007, then-CEO

Paliwal, as well as to several other executives and lower-level

accounting or financial personnel. Compl. ¶ 55.

For these reasons, we hold the allegations in the complaint

plausibly show that the April and September statements were not

accompanied by meaningful cautionary language and,

consequently, were not entitled to safe harbor protection. 

C.

The third statement appeared in the Company’s FY 2007

Annual Report. For a statement to be actionable under Section

10(b) and Rule 10b-5, it must be “material” in the sense that it

would have “been viewed by the reasonable investor as having

significantly altered the ‘total mix’ of information made

available,” Halliburton Co. v. Erica P. John Fund, Inc., 134 S.

Ct. 2398, 2413 (2014) (quoting Basic Inc. v. Levinson, 485 U.S.

224, 231–32 (1988)). The Supreme Court has recognized that

“statements of reasons, opinions, or beliefs” can be actionable,

Va. Bankshares, Inc. v. Sandberg, 501 U.S. 1083, 1091 (1991),

even when conclusory terms are used, id. at 1093. This is

because “conclusory terms [like ‘high’ value and ‘fair’] in a

commercial context are reasonably understood to rest on a

factual basis that justifies them as accurate, the absence of which

renders them misleading.” Id. But, “statements [that] are too

general to cause a reasonable investor to rely upon them” are

immaterial and inactionable. ECA & Local 134 IBEW Joint

Pension Trust of Chi. v. JP Morgan Chase Co., 553 F.3d 187,

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206 (2d Cir. 2009). “Puffery” refers to one type of immaterial

statement: the sort of “generalized statements of optimism that

are not capable of objective verification.” Grossman v. Novell,

Inc., 120 F.3d 1112, 1119 (10th Cir. 1997). Statements that

constitute puffery employ terms that are “too squishy, too

untethered to anything measurable, to communicate anything that

a reasonable person would deem important to a securities

investment decision.” City of Monroe Employees Ret. Sys. v.

Bridgestone Corp., 399 F.3d 651, 671 (6th Cir. 2005). 

In the FY 2007 Annual Report, the Company stated that

“[s]ales of aftermarket products, particularly PNDs, were very

strong during fiscal 2007.” Compl. ¶ 82. The district court

concluded that statement was immaterial puffery because

“strong” is “subjective and provides no standard against which

a comparison can be drawn.” Harman, 27 F. Supp. 3d at 51. But

the critical inquiry is whether the statement could “have misled

a reasonable investor,” San Leandro, 75 F.3d at 811, and given

the context in which it was made, according to the allegations in

the complaint, we conclude that the “very strong” statement in

the FY 2007 Annual Report is plausibly understood as a

description of historical fact rather than unbridled corporate

optimism, i.e., immaterial puffery. 

PNDs, although only a “rather small component of [the

Company’s] total portfolio,” Harman Int’l Indus. Earnings Call

Tr. at 6 (Feb. 5, 2008), were part of the Company’s automotive

division, which “comprised approximately 70% of [the

Company’s] business and generated the bulk of the Company’s

revenue and earnings.” Compl. ¶ 141. CEO Harman explained

during the April conference call that the Company would

undertake a “vigorous sales effort” to reduce PND inventory to

“normal levels at year-end,” and, when asked whether the

Company thought FY 2007 sales totals could double in the final

quarter, he responded “[w]e do, and we said so.” Id. ¶¶ 57–58. 

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The “very strong” statement was specific about product and time

period, and comparable to the statement in In re Lucent

Technologies, Inc. Sec. Litig., 217 F. Supp. 2d 529, 559 (D.N.J.

2002), that one of the defendant’s products was generating

“strong customer acceptance,” id. (internal quotation marks

omitted). The statement in Lucent Technologies was held not to

be puffery because, given recent fiscal results, “a reasonable

investor likely would consider material any information relating

to customer acceptance of key products for purposes of making

investment decisions.” Id. The context alleged here is similar. 

PNDs were part of the Company’s largest division and had been

the focus of recent public statements. The “very strong”

statement could have had the same effect on an investor in the

Company’s stock and is therefore actionable. Unlike the

statements in cases on which the Company relies, the statement

was tied to a product and a time period and it was not too vague

to be material. In re Copper Mountain Securities Litigation, 311

F. Supp. 2d 857, 868 (N.D. Cal. 2004), involved a bare statement

that “business remained strong,” id. (internal quotation marks

omitted). So too, the statement in In re Splash Technology

Holdings, Inc. Securities Litigation, 160 F. Supp. 2d 1059,

1076–77 (N.D. Cal. 2001), that demand was “strong.” 

Statements such as “Food Lion is one of the best-managed high

growth operators in the food retailing industry,” Longman v.

Food Lion, Inc., 197 F.3d 675, 684 & n.2 (4th Cir. 1999), a

company had achieved “substantial success” in integrating the

sales force of two merged entities, Grossman, 120 F.3d at 1121,

and a company was “optimistic” and “should deliver income

growth consistent with its historically superior performance,”

San Leandro, 75 F.3d at 811, are equally lacking in specifics that

an investor could use to evaluate the statement’s veracity.

The Company maintains that the “very strong” statement is

puffery because it “lacked a standard against which a reasonable

investor could expect [it] to be pegged,” quoting City of Monroe,

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399 F.3d at 671. Nothing in City of Monroe purports to render

inactionable any statement that does not contain its own metric. 

There the statements — that Bridgestone sold “the best tires in

the world,” that its products demonstrated “global consistent

quality,” and that it had experienced strong sales because of

“high regard among automakers for our strengths in product

quality,” id. at 670 — appear more in line with generalized

boasting, i.e., more “squishy,” id. at 671, than the Company’s

report of “very strong” PND sales in the FY 2007 Annual

Report. Alternatively, the Company maintains that “disclosure

of the actual sales results renders the ‘very strong’ statement

immaterial” because investors could review the relevant

information and undertake their own evaluation of the

Company’s statement. Appellees’ Br. 53. The Company points

to nothing in the current record showing that it had elsewhere

disclosed FY 2007 PND sales results.

D.

A claim under Section 10(b) and Rule 10b-5 requires proof

of “the traditional elements of causation and loss.” Dura

Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336, 346 (2005); see

15 U.S.C. § 78u-4(b)(4). A plaintiff may survive a motion to

dismiss the complaint for failure to state a claim “either by

alleging (a) the existence of cause-in-fact on the ground that the

market reacted negatively to a corrective disclosure of the fraud;

or (b) that . . . the loss was foreseeable and caused by the

materialization of the risk concealed by the fraudulent

statement.” Carpenters Pension Tr. Fund of St. Louis v.

Barclays PLC, 750 F.3d 227, 232–33 (2d Cir. 2014) (internal

quotation marks omitted). The 2008 consolidated class

complaint alleges the former. See Compl. ¶¶ 109–13, 125–38;

see also Reply Br. 23. At the pleadings stage, a plaintiff need

not “demonstrate . . . that the corrective disclosure was the only

possible cause for decline in the stock price.” Carpenters, 750

F.3d at 233. And “a corrective disclosure need not be a

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‘mirror-image’ disclosure — a direct admission that a previous

statement is untrue,” although it “must relate to the same subject

matter as the alleged misrepresentation.” Mass. Ret. Sys. v. CVS

Caremark Corp., 716 F.3d 229, 240 (1st Cir. 2013). Thus, “[t]he

appropriate inquiry is whether” the Company’s statements, taken

“as a whole, plausibly revealed to the market that” the Company

was experiencing significant difficulties in its PND business. Id.

The Company maintains, unpersuasively, that the complaint

failed adequately to plead that the alleged misrepresentations or

other fraudulent conduct proximately caused economic loss to

Appellant. According to the complaint, the Company’s January

14, 2008, press release on revised earnings guidance and its

February 5, 2008, press release announcing results for the second

quarter of FY 2008 disclosed that the Company’s PND business

was not as strong as previously indicated in the three statements

now at issue. Both releases were followed by marked declines

in the Company’s stock price, the first by a 37.65 percent decline

and the second by a drop of 15 percent, see Compl. ¶¶ 110, 114. 

The alleged releases were not, as the Company suggests, simply

“announcement[s] of a failed projection.” Appellees’ Br. 56. 

Rather, they provided specific information about the state of the

Company’s PND business, disclosing, allegedly for the first

time, that it was not flourishing as the Company had indicated

during the April and September conference calls and the FY

2007 Annual Report.

The Company responds that “the Complaint, on its face,

identifies so many alternative reasons for [Appellant’s] share

price drop that [Appellant] cannot prove loss causation as a

matter of law.” Appellees’ Br. 58. But “[p]laintiffs need not

demonstrate on a motion to dismiss that the corrective disclosure

was the only possible cause for decline in the stock price.” 

Carpenters, 750 F.3d at 233. The cases cited by the Company

are not to the contrary. In Dura, 544 U.S. at 343, the Supreme

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Court explained that a drop in a security’s price “may reflect, not

the earlier misrepresentation, but changed economic

circumstances, changed investor expectations, new

industry-specific or firm-specific facts, conditions, or other

events, which taken separately or together account for some or

all of that lower price,” concerned what “at the end of the day

plaintiffs need . . . establish, i.e., prove,” id. at 342 (internal

quotation marks omitted). In that case, the complaint failed for

absence of allegations on the loss suffered, id. at 347, a defect

that does not plague the complaint here, see Compl. ¶¶ 110, 114. 

Other cases on which the Company relies either relate to the

plaintiff’s burden to obtain judgment, see Nuveen Mun. High

Income Opportunity Fund v. City of Alameda, Cal., 730 F.3d

1111, 1123 (9th Cir. 2013); In re Williams Sec. Litig.-WCG

Subclass, 558 F.3d 1130, 1132 (10th Cir. 2009), or do not

involve the corrective disclosure theory alleged here, see Schaaf

v. Residential Funding Corp., 517 F.3d 544, 550 (8th Cir. 2008).

III.

Appellant also sued under Section 20(a) of the Act, which

provides that “a plaintiff must show a primary violation by the

controlled person and control of the primary violator by the

targeted defendant.” SEC v. First Jersey Sec., Inc., 101 F.3d

1450, 1472 (2d Cir. 1996); see also Stevens v. InPhonic, Inc.,

662 F. Supp. 2d 105, 129 (D.D.C. 2009). A claim under Section

20(a) can exist only if there is a viable claim against the

corporation. See First Jersey, 101 F.3d at 1472. There is a split

in the circuits on whether the plaintiff must show that the alleged

control person “culpably participated” in the underlying fraud.1

1

 Compare SEC v. J.W. Barclay & Co., 442 F.3d 834, 841 &

n.8 (3d Cir. 2006), and SEC v. First Jersey Secs., Inc., 101 F.3d 1450,

1472 (2d Cir. 1996), with Paracor Fin., Inc. v. Gen. Elec. Capital

Corp., 96 F.3d 1151, 1161 (9th Cir. 1996); Brown v. Enstar Group,

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In those not requiring proof of culpable participation, the

plaintiff need only show the defendant is a “controlling person,”

and the burden shifts to the defendant to show the actions were

taken “‘in good faith and did not directly or indirectly induce the

act or acts constituting the violation or cause of action.’” 

Paracor Fin., Inc. v. Gen. Elec. Capital Corp., 96 F.3d 1151,

1161 (9th Cir. 1996) (quoting 15 U.S.C. § 78t(a)). 

The court need not decide which approach to adopt because

the allegations in the complaint suffice to show culpable

participation by the individual defendants. See Compl. 

¶¶ 142–167. According to the complaint, each personally made

actionable statements: CEO Harman during the April conference

call, CFO Brown during the September conference call, joined

by CEO Paliwal, and each individual defendant also signed in

August 2007 the SEC Form 10-K for the FY 2007 Annual Report

containing the “very strong” statement. Even if corporate job

titles may not alone suffice, see Appellees’ Br. 62, the complaint

plausibly alleges each defendant made false and misleading

statements about the Company. 

Accordingly, we reverse the dismissal of the complaint for

failure to state a claim with respect to the three statements at

issue, and we remand the case for further proceedings.

Inc., 84 F.3d 393, 396 (11th Cir. 1996); Harrison v. Dean Witter

Reynolds, Inc., 974 F.2d 873, 881 (7th Cir. 1992); Metge v. Baehler,

762 F.2d 621, 630–31 (8th Cir. 1985); G.A. Thompson & Co. v.

Partridge, 636 F.2d 945, 958 (5th Cir. 1981); and Carpenter v.

Harris, Upham & Co., Inc., 594 F.2d 388, 394 (4th Cir. 1979).

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