Opinion ID: 787524
Heading Depth: 2
Heading Rank: 3

Heading: gaap

Text: 20 The complaint alleges that Ford lied when it issued its financial statements when it failed to account for the possibility of future recall costs in the United States as a loss contingency under GAAP. See generally RESEARCH AND DEV: ARRANGEMENTS, Statement of Financial Accounting Standards No. 5, §§ 8-13 (Financial Accounting Standards Bd. 1975). 21 In their brief on appeal, plaintiffs argue only that [e]ven if the cost of replacing the tires [in the United States] could not reasonably be estimated, GAAP required that Ford disclose the nature of the liability if it was reasonably possible. We agree with Ford that the future recall costs that Ford agreed voluntarily to pay did not need to be disclosed in prior financial statements since no asset had been diminished nor had a liability been incurred at the date of the financial statements. Moreover, as the district court found, the tire company was responsible for the recall of the tires under 49 U.S.C. § 30120(b). Thus, it would be reasonable to expect the cost of replacing any tires would be on Bridgestone. While Bridgestone did not pay costs of tire replacement in Saudi Arabia or Venezuela, that did not mean it would not in the United States where it could be expressly mandated to do so by NHTSA under federal law. Further, plaintiffs have not pleaded sufficient facts to give rise to the strong inference of scienter that is required under the PSLRA. 22 Ford also points to disclosures it did make in its 1999 10-K stating that federal authorities had 28 investigations of alleged safety defects and warning that the costs of such recall campaigns could be substantial. It also disclosed that investigation arising out of safety defects and other problems could require very large expenditures. Similar disclosures are made in earlier 10-Ks. 23 In In re Sofamor, plaintiff alleged the company's financial statements were incomplete and misleading because defendant knew its product was defective and being sold for an improper use, and should have disclosed the hazard of that misuse and advised the public of likely intervention by regulators. We held that there was no duty to disclose either the hazards of the product or possible regulatory action, or predict its failure losses where such predictions were not substantially certain. 123 F.3d at 401-02. 24 Plaintiffs fail to allege any facts that establish that anyone at Ford thought or anticipated a massive recall of tires was necessary in the United States before the recall was announced.