Opinion ID: 783853
Heading Depth: 4
Heading Rank: 3

Heading: The July 21, 1999, Conference Call

Text: 52 The July 21, 1999, conference call contained a number of statements, some of which were forward-looking and some that were not, but because we find that none of the statements were made with sufficient scienter to amount to recklessness, we hold that the plaintiff failed to state a claim regarding these statements. Champion held a conference call following the July 21, 1999, press release. Plaintiff asserts that several statements — or groups of statements on the same topic — made during this conference call were misleading to investors and were made with either recklessness or actual knowledge of their falsity. The first statement he cites is identical to one found in the July 21 press release: 53 While our retail traffic remains healthy and we continue to keep our inventory levels under tight control, the biggest short-term challenge we face is to improve the industry's retail inventory excesses. Even though we anticipate that our retail sales should be strong for the remainder of the year, we expect that industry wholesale shipments could be down until this temporary adjustment is completed. 54 J.A. at 54. Plaintiff also cites some statements by Walter Young during the conference call, in which Young stated that Champion was watching and managing the inventory of its independent retailers. The final statements on this topic that plaintiff alleges were misleading are as follows: 55 The overall industry outlook, the overall retail demand seems to be holding up very well. The positive impact of this overall demand impact is somewhat dissipated due to the growth in the number of retail outlets in the industry, which has outpaced the overall industry growth, over the last year or so. Therefore, total industry inventory has probably increased maybe a month or so, somewhere around 20,000 homes, industry wide. 56 J.A. at 397. The above statement was given by Walter Young at the opening of the conference call, and in response to a follow-up question on the topic, Young answered as follows: 57 Again, there aren't any industry numbers as to turns that are really valid. So, it's — the Census Bureau comes out with some. There's plus or minus on that. So, the turn appears — and it changes because of the seasonal time of year. The industry turn has dropped below 2.5 time turns, from everything that we can see. So, it has gone down. That's why we think there may be a month of inventory, which would be about 20,000 homes in the industry, that should be excess and should be flushed through. Now, our inventory turns from our own organization ... are somewhere a little under three times turn.... Our independents are about at the industry number, the best we can see, overall, that['s] the 3,500 independent retailers we sell to. 58 Id. at 400. Plaintiff argues that, given that Champion knew of Parker Homes's excess inventory, these statements were false because Champion was not actually keeping inventory under tight control. He cites as evidence of the falsity of Young's statement three facts: (1) [Champion's] forcing [Parker Homes] to take more inventory than it needed; (2) 100 other retailers supplied by Champion went bankrupt in 1999; and (3) Young's admissions that there was too much industry expansion because manufacturers got carried away when greed overcame logic. 13 Pl. Br. at 41. Additionally, plaintiff contends that the statements are not forward-looking. 59 The district court found that the statements were forward-looking, in part because of its overly broad interpretation of mixed statements of present or historical fact and future projection under Ivax. The district court also held that the statements lacked meaningful cautionary language, and therefore were not protected under the first prong of the PSLRA's safe harbor provision, where scienter is not even considered. Nevertheless, because the statements were forward-looking, under the second prong the PSLRA's safe harbor provision they would only be actionable if they were made with actual knowledge as to their falsity. The district court did not reach this question, however, because it found that the plaintiff had not sufficiently alleged scienter with regard to any of the allegedly false statements in the CAC. As discussed earlier, the district court erred in so finding. 60 We are not persuaded by the plaintiff's arguments with respect to these statements. The statements are forward-looking in some respects, but they also contain numerous statements of present or historical fact, not all of which are simply assumptions underlying future projections. But even under a recklessness standard, Walter Young and Champion were not misleading. Certainly Champion and Walter Young professed to be monitoring inventory levels, both for their own retail stores and for their independent retailers. 14 However, Young also explicitly stated that there was excess inventory in the market, partially due to the growth of retailers in the industry outpacing that of the overall industry growth. In other words, Champion and Young acknowledged that there was excess inventory in the market, and that there was an excess of retailers in the market as well. 61 The evidence that the plaintiff cites to support his contentions is unavailing. He asserts that Champion was forcing [Parker Homes] to take more inventory than it needed. Pl. Br. at 41. We first note that the only real evidence of this is found in SASC, which, for reasons that will be discussed later in this opinion, the district court properly denied plaintiff's motion to file. But even if we were to consider this evidence, it does not show that Young was speaking with such reckless disregard for the truth that his statements amount to highly unreasonable conduct which is an extreme departure from the standards of ordinary care. Mansbach, 598 F.2d at 1025. Young admitted in the statements themselves that there was excess inventory in the market. The fact that he underestimated the true extent of the excess — which it is doubtful that he knew or should have been aware of — does not mean that he was reckless when he stated that there was an inventory excess or when he said that they were managing and watching the inventory. 62 The next statement that the plaintiff says was misleading from the July 21, 1999, conference call was Young's response to a question of whether Champion was voluntarily repurchasing inventory from weaker retail dealers. As plaintiff alleged in paragraph 38 of the CAC, CEO Young responded that he could not be `adamant enough' that Champion made no voluntary repurchases and that repurchases were limited to Champion's repurchase obligations to third party floor finance lenders when a retailer when bankrupt. When asked if any of the dealers had gone bankrupt, Young responded: I think one or two out of 3,500 across the country. There have been some. But ... under the repurchase obligation ... out of 70,000 homes that we build a year, I think we took back 100-110 homes last year.... Id. 63 The plaintiff, defendants, and the district court all agree that these are statements of present or historical fact, and therefore not entitled to protection under the safe harbor provision of the PSLRA. The district court did not discuss these statements further, however, finding that they were not sufficiently linked to allegations of scienter. Plaintiff contends that these statements were reckless and misleading given that in August, Champion chose to repurchase an additional $10 million of Parker Homes inventory beyond the $69 million which it was obligated to purchase, that the day after the conference call Parker Homes filed for bankruptcy, and that approximately 100 other retailers supplied by Champion also declared bankruptcy sometime in 1999. 64 The evidence does not support a strong inference that Young's statements with regard to repurchases were recklessly made. Simply because Champion later made a business judgment that it should voluntarily repurchase inventory does not make it reckless to state that Champion does not make such repurchases as a general matter. Even if the negotiations to purchase Parker Homes inventory were ongoing at this point, the plaintiff has not asserted facts that show Champion knew or should have known that the end result of such negotiations was that Champion would voluntarily repurchase inventory it was not obligated to. It is plausible to argue as the plaintiff does, but these facts do not give rise to a strong inference of recklessness by Young or Champion. 65 The statements with regard to bankruptcies raise a more difficult question. There is no contention by the plaintiff that the actual statement made by Young was materially inaccurate when made. Rather, plaintiff asserts that defendants recklessly minimized the risk of potential bankruptcies by referring to statistics from 1998. We agree with the plaintiff that it was somewhat disingenuous of the defendants to refer to the previous year's statistics given the possibility that Parker Homes would go bankrupt the next day, resulting in a far larger negative impact on Champion than that referred to from the 1998 figures. Nevertheless, many of the plaintiff's allegations also show that Champion was under the impression that it had reached a deal that would keep Parker Homes out of bankruptcy. Champion and Young were placed in the difficult position of either disclosing that Parker Homes might go bankrupt the next day, which would lead to a significant drop in Champion's stock price that day and potentially harm their ability to finalize the deal to keep Parker Homes out of bankruptcy (and if they did keep Parker Homes out of bankruptcy, have Champion's stock price shoot back up the next day), or not disclosing the Parker Homes situation, which, if it blew up in their faces (as it did), could lead to significant negative consequences, as well as open them up to suits. Given the circumstances, it is difficult to say that the defendants' statements were an extreme departure from the standards of ordinary care. Mansbach, 598 F.2d at 1025. Faced with a tough decision, defendants made a choice that ultimately proved to be erroneous, but there is no strong inference of recklessness. 66 Plaintiff's claim regarding 100 other retailers that allegedly went bankrupt in 1999 does not make these statements reckless. There is no indication that any of these other dealers had gone bankrupt as of July 21, 1999; if anything, the facts asserted seem to imply the opposite. What this allegation does seem to show is that 100 other businesses in the manufactured housing industry also had not yet realized the extent to which retail inventory had outpaced industry and market growth. Champion and Parker Homes, along with 100 other dealers, seem to have been caught off guard by an unexpected decline in the manufactured homes market. This does not support a strong inference of recklessness by the defendants in making these statements. 67 Plaintiff, citing Vencor, also alleges that defendants, since they chose to issue a press release and hold a conference call on July 21, were obligated to tell the truth about Parker Homes's possible bankruptcy and give full disclosure. In Vencor, this court stated that with regard to future events, uncertain figures, and other so-called soft information, a company may choose silence or speech elaborated by the factual basis as then known — but it may not choose half-truths. 251 F.3d at 561. The plaintiff's assertion goes beyond the Vencor requirement. Just because defendants issued a press release and held a conference call to discuss their second quarter earnings does not mean that they chose to speak on any situation that could possibly affect their financial condition. Such a rule would require almost unlimited disclosure on any conceivable topic related to an issuer's financial condition whenever an issuer released any kind of financial data. Additionally, the other topics discussed during the conference call were not things that defendants chose to discuss. They were asked questions by investors about repurchase obligations and bankruptcies, which it appears they endeavored to answer truthfully as to the current state of affairs. Furthermore, they studiously avoided speaking about future events. Vencor does not require more disclosure in such a situation. 68 In short, we find that these asserted facts do not imply reckless conduct on the part of Champion or Walter Young. They may not have been as careful as they could have been, but the asserted facts do not give rise to a strong inference that the defendants, in making these statements, displayed highly unreasonable conduct which is an extreme departure from the standards of ordinary care. See 15 U.S.C. § 78u-4(b)(2); Mansbach, 598 F.2d at 1025. 69