Opinion ID: 389315
Heading Depth: 4
Heading Rank: 4

Heading: The Misleading Projections.

Text: 99 The plaintiffs also claim they were deceived by the rosy projections for future growth expressed by Field's management. Specifically they allege misrepresentations in press releases of December 14 and 15, 1977, which recounted how confident about the future of the company management was, and that momentum within the company was excellent. The plaintiffs allege that these misrepresentations culminated in a public letter dated December 20, 1977. 5 The plaintiffs claim that this letter, which cited a thirteen percent increase in consolidated net income before ventures and taxes, was fatally misleading in that it failed to disclose that the defendants' five-year plan, a projective document generated for internal management use only, showed at that time an anticipated decline of seven percent in consolidated net income for the year. 100 While it is true that there is no duty upon management or directors to disclose financial projections, see, e. g., Freeman v. Decio, 584 F.2d 186, 199-200 (7th Cir. 1978), it is also axiomatic that once a company undertakes partial disclosure of such information there is a duty to make the full disclosure of known facts necessary to avoid making such statements misleading. Sundstrand Corp. v. Sun Chemical Corp., 553 F.2d 1033 (7th Cir.), cert. denied, 434 U.S. 875, 98 S.Ct. 224, 225, 54 L.Ed.2d 155 (1977) (release of nine months earnings figures showing $1.16 earnings per share were made misleading by the failure to release existing accounting reports which defendants knew would require year-end write-offs resulting in a $0.15 loss per share); see Marx v. Computer Sciences Corp., 507 F.2d 485, 489-92 (9th Cir. 1974). 101 However, projections, estimates, and other information must be reasonably certain before management may release them to the public. Thus in the recent case of Vaughn v. Teledyne, Inc., 628 F.2d 1214, 1221 (9th Cir. 1980), the Ninth Circuit rejected a claim that defendants had a duty to disclose internal projections during the course of a tender offer for its own shares. The court held (i)t is just good general business practice to make such projections for internal corporate use. There is no evidence, however, that the estimates were made with such reasonable certainty even to allow them to be disclosed to the public. Id.; see Berman v. Gerber Products, Inc., 454 F.Supp. at 1328; cf. First Virginia Bankshares v. Benson, 559 F.2d 1307, 1318 (5th Cir. 1977), cert. denied, 435 U.S. 952, 98 S.Ct. 1580, 55 L.Ed.2d 802 (1979) (a lender's duty to disclose known irregularities in his debtor's accounts resemble a recital of raw fact more than they resemble a prediction of future stock prices). 102 The earnings projections the plaintiffs allege should have been disclosed were contained in a five-year plan which had been hastily updated only the very day of the board meeting to consider the CHH first proposal. It was one of a series of five-year plans which were continually updated and used internally by Field's management to explore planning and development. That the projections it contained were highly tentative seems the compelling inference from the evidence that Field's projections varied from those of its own investment bankers, were considered merely valid to use for the present purpose, of evaluating the Carter Hawley offer, and that they ended up varying substantially from Field's performance as revealed by the actual year-end earnings which finally came in a full twenty-five percent down from the prior year. We therefore find that because the projections of the five-year plan were tentative estimates prepared for the enlightenment of management with no expectation that they be made public, there was no duty to reveal them. Indeed, in light of the degree by which they failed to project the extent of the decline in earnings, release of the seven percent estimate might have subjected the defendants to securities law liability. Cf. SEC v. Texas Gulf Sulphur, 312 F.Supp. 77, 83-84 (S.D.N.Y.1970), aff'd in part, rev'd in part, 446 F.2d 1301 (2d Cir.), cert. denied, 404 U.S. 1005, 92 S.Ct. 561, 30 L.Ed.2d 558 (1971) (optimistic press release misleading because not optimistic enough). 103 We therefore affirm the ruling of the district court that the plaintiffs failed to present sufficient evidence to support a reasonable jury finding of the element of deception required by Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934.