Opinion ID: 768466
Heading Depth: 3
Heading Rank: 1

Heading: Statements relating to the Balanced Budget Act

Text: 32 Plaintiffs allege that the defendants made numerous false and misleading statements about the effect of the Balanced Budget Act on the financial prospects of Vencor 12 . In assessing this aspect of the plaintiffs' complaint, there are two relevant time periods. The plaintiffs have alleged a Class Period of February 10, 1997 until October 21, 1997. Statements made by the defendants during the time period from February 10, 1997 until August 4, 1997 are not actionable because the defendants could not know whether the proposed legislation would be enacted. Although the plaintiffs could state a claim for statements made after the enactment of the legislation on August 5, 1997, the plaintiffs do not allege sufficient facts to demonstrate that the defendants made any statements after the enactment of the legislation that were false or misleading. 33 15 U.S.C. § 78u-5(c) establishes a safe harbor for forward-looking statements. Statements fall into this safe harbor if they are identified as forward-looking when made and are accompanied by cautionary statements. See 15 U.S.C. § 78u-5(c)(1)(A) (West 1997). Statements also are entitled to this protection if the plaintiff cannot prove that the speaker had actual knowledge that the statement was false or misleading when made. See 15 U.S.C. § 78u-5(c)(1)(B). All of the statements alleged by the plaintiffs relating to the effect of the Balanced Budget Act on the earnings and revenues of Vencor that occurred before the legislation was passed are entitled to this safe harbor protection. These statements contained soft information concerning potential earnings and projected growth. See In re Sofamor Danek Group, Inc., 123 F.3d 394, 401 (6th Cir. 1997) (finding that soft information includes predictions and matters of opinion). This Circuit has held that soft information must be disclosed only if . . . virtually as certain as hard facts. Id. at 402 (quoting Starkman v. Marathon Oil Co., 772 F.2d 231, 241 (6th Cir. 1985)). Although the Sofamor Danek case precedes the adoption of the PSLRA, we believe that it is appropriate to apply its holding to this case. In Comshare, this Circuit held that the PSLRA did not change the scienter that a plaintiff must prove to prevail in a securities fraud case but instead changed what a plaintiff must plead in his complaint in order to survive a motion to dismiss. 183 F.3d at 548-49. The Sofamor Danek court's interpretation of the substantive law of scienter is not affected by the PSLRA's requirements for pleading; thus, its holding that soft information is not actionable continues to be the law of this Circuit. Because the enactment of the Balanced Budget Act was uncertain until August 5, 1997 defendants cannot be held responsible for not disclosinginformation about the possible effect that this legislation would have on Vencor's business. In addition, plaintiffs do not allege sufficient facts to permit a strong inference that any of the defendants had actual knowledge that the statements were false or misleading when made. 34 The plaintiffs also do not allege sufficient facts to demonstrate that Vencor made any false or misleading statements after the enactment of the Act. The pleadings set forth no statements, after August 5, 1997, which are directly attributable to any of the defendants. The alleged statements after the enactment of the Act are all statements made by financial analysts. The plaintiffs have failed to allege facts that demonstrate that the defendants took affirmative action allowing us to attribute these statements to the defendants. In addition, the plaintiffs have not alleged sufficient facts to demonstrate that the defendants knew these statements were false or misleading when made. Plaintiffs allege that the defendants received an internal memorandum in late July, after the bill had passed both houses, but prior to receiving the President's approval, informing them of the negative effect of the legislation on Vencor's earnings and revenues. This memorandum 13 is included in the exhibits attached to the defendant's motion to dismiss and does not support the plaintiffs' allegations 14 . Although the memorandum acknowledges that the legislation may have a negative impact on Vencor, it clearly states that no definite findings have been made and that further study is required before an accurate assessment of the effect of this legislation can be made. Even if plaintiffs' allegations are accepted as true and this court assumes that the defendants knew of this document, we do not believe the facts support a finding that the defendants knew that any statements about earnings and growth were false when made, nor that they were reckless. Because the plaintiffs do not allege any statements after August 5, 1997 that can be attributed to the defendants and plaintiffs do not allege sufficient facts to establish that the defendants knew any of the statements made prior to August 5, 1997 were false or misleading when made, plaintiffs do not state a claim for fraud based on their allegations associated with the effect of the Balanced Budget Act on Vencor's earnings and revenues.