Opinion ID: 691552
Heading Depth: 3
Heading Rank: 2

Heading: Statements of Past Performance

Text: 31 Appellants argue that the district court should have allowed the jury to determine whether several statements concerning Legent's past performance were fraudulent under Rule 10b-5 and Sec. 10(b). To establish liability for these statements under the fraud on the market theory, Appellants must prove that they were false or misleading statements of material fact made with scienter by Legent, and that they proximately caused Appellants' damages. Malone, 26 F.3d at 476. We address each of the four allegedly fraudulent statements in turn.
32 As discussed above in the section on statements predicting future performance, Legent issued a press release on January 27th stating that its first quarter performance indicated it was firmly on its 1993 plan for revenue and earnings growth. (J.A. 2613.) Appellants argue that the January 27th statement was an actionable fraudulent statement of past performance because it referred to Legent's performance to date, and evidence showed that Legent's first quarter performance did not coincide with its budget estimates. 16 Appellants further contend that Legent management used the terms plan and budget interchangeably, and thus a jury could infer that when Burton said Legent was on plan he meant that it was on budget. 17 Therefore, if Legent's actual first quarter revenues and earnings growth figures did not meet the budget, Appellants argue that Legent must have misled its investors by stating it was on plan. Even if we assume, however, that the plan referred to on January 27th was actually Legent's budget, Appellants presented no evidence that Legent's overall performance for the first quarter did not meet budget predictions. 33 Appellants support their argument by stating that, because the earnings and revenues from Goal's thirteenth month were not included in the 1993 budget, the roll-over of these funds was not part of the plan referred to in the January 27th press release. They contend that Legent was not on plan without the Goal additions. For example, Appellants point out that without Goal's revenues, first quarter new license revenues of $57.7 million was 11% short of the budgeted estimate of $64.6 million. 18 34 However, Legent informed analysts, and therefore the entire market, that earnings and revenues from the Goal merger were incorporated into Legent's actual first quarter performance figures. 19 During the January 27th conference call, Burton told analysts that the actual first quarter figures included $9 million in revenues and $0.05 in earnings per share from Goal's thirteenth month. The budget predicted first quarter earnings per share to be $0.49; actual first quarter earnings per share without Goal's thirteenth month earnings were $0.49 and with Goal's earnings were $0.54. The budget predicted total first quarter revenues to be $115 million; actual first quarter revenues without the addition of Goal's thirteenth month was $107 million, but with the addition was $116.7 million. 20 Thus, Legent's January 27th statement that it was on plan was true regarding its past performance for first quarter revenue growth and earnings, and, therefore, could not be fraudulent. 35 Thus, regardless of whether the plan referred to in the January 27th press release was Legent's 1993 budget or, as the district court determined, an overall business plan, Bentley, 849 F.Supp. at 432, there simply is no evidence that the statement was false as it pertained to Legent's past performance. Because there was no evidence from which a reasonable jury could conclude that the firmly on plan statement was fraudulent, we affirm on this issue.
36 An April 23rd press release noted that, although Legent fell short of expected new license revenues and although several particularly large orders did not close during the quarter, tight expense controls helped Legent achieve its $.52 earnings per share for the second quarter. (J.A. 2614-15.) Legent also made other statements in April stating that it achieved its second quarter earnings by using tight expense controls. Appellants argue that these statements were fraudulent statements of historical fact because Legent made representations that use of these tight expense controls could be relied upon again in later quarters to help meet earnings expectations. Appellants, however, refer us to no such representation, and we are unable to find one in the record. 21 Moreover, no analyst testified about any market expectations that Legent would repeat its use of any particular expense controls, and there is no evidence that Legent told the market that it would use these same tight expense controls in order to make its third quarter earnings. As with the Goal thirteenth month adjustment in January, use of the April expense controls was an accepted accounting practice that was not, in itself, evidence of securities fraud under Sec. 10(b) or Rule 10b-5. See Malone, 26 F.3d at 477-78.
37 In response to a question from an analyst near the end of the April 23rd conference call about deals that had closed in Europe during April, Burton incorrectly responded that Legent had closed three deals worth a total of $2 million in the United Kingdom. Appellants contend that Burton's misrepresentation was materially false and misleading and, therefore, fraudulent. They maintained during oral argument that this statement was material because it impressed upon analysts that Legent was closing big deals, when in fact the value of the three deals closed in the United Kingdom was only $193,000 and represented a portion of an undisclosed number of deals in Europe worth a total of $2 million. Burton admitted at trial that, in response to a question at the end of the April 23rd conference call, he mistakenly attributed the $2 million worth of sales that had closed in all of Europe to three sales in the United Kingdom. Burton further testified that he was unaware he had made this misstatement until this litigation began. 38 We reject Appellants' argument that the $2 million statement was fraudulent, because we find no evidence of scienter, the second essential element for a private cause of action for damages under Sec. 10(b) and Rule 10b-5. Malone, 26 F.3d at 476. 39 In a Rule 10b-5 action, issues of intent typically go to the jury and defendants are not entitled to judgment as a matter of law on the ground of lack of scienter unless the plaintiff has failed to present facts that can support an inference of bad faith or an inference that defendants acted with an intent to deceive, manipulate, or defraud. 40 Id. at 479 (quoting Wechsler v. Steinberg, 733 F.2d 1054, 1058-59 (2d Cir.1984)). 41 Appellants presented no evidence from which a jury could infer that Burton spoke in bad faith or intended the $2 million dollar statement to deceive the market. Thus, even assuming the statement concerned a material fact on which the analysts relied, there is no evidence of scienter. Without evidence supporting an inference that Burton knowingly spoke in bad faith or with the intention to deceive, manipulate, or defraud the market, the misstatement cannot satisfy the elements of securities fraud. Malone, 26 F.3d at 479.