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

Heading: The July 30, 1999, Press Release and Conference Call

Text: 70 The July 30, 1999, press release and conference call contained a number of statements, all of which were statements of present or historical fact, but since 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 issued a press release on July 30, 1999, in which it stated that the Parker Homes bankruptcy was not anticipated. Young reiterated this point in a conference call later that day: 71 We are the virtual exclusive supplier to Ted Parker Homes. This Chapter 11 filing, which we totally — was unanticipated by us.... [W]e are certainly supporting Ted Parker Home Sales in its Chapter 11 situation that it has taken on, we will support it as a supplier and as a creditor where we are, and we certainly hope that they can continue to operate through Chapter 11 and eventually come out of it. 72 J.A. at 62-63, 429-30. Following these statements Young went on to describe Champion's plans to use its own retail organization to move into the void left by Parker Homes's bankruptcy, as well as to sell the inventory that it would be obligated to repurchase. Among the numerous questions during the teleconference, one questioner asked whether Champion could explain the kind of financial information that Champion received regularly from large independent retailers, including Parker Homes, to which Champion responded: 73 [Chief Financial Officer Stegmayer:] [T]hat information varies depending on the relationship and retailer.... Financial information does not necessarily have to be provided by them, and then there's always the question of reliability on private financial statements. What we do, instead, is we try to track inventory to inventory turns, and monitor our liability with our retailer in that form, and we keep close tabs on the contingent liability we have with each of our retailers.... 74 [Young:] ... We had all impression the financials were going well. You know, we don't have an operational understanding here, but this organization continued to grow and expand, and with its new ownership here we had all impressions that it was valid regardless of the financial statements.... 75 J.A. at 432-33. 76 Walter Young and another Champion employee also responded to a question dealing with the circumstances leading up to Parker Homes's bankruptcy: 77 [Young:] We have been working with Ted Parker over the years and part of his expansion working with him, and positive [sic]. But we never — I mean, we have not really been getting operating statements or the financial aspects, so let me — we have been watching their inventory turn which is, with their unique operation, 15 always [unintelligible]. We have, over the, you know, over the last few — with the change of management it [sic].... 78 [Chief Operating Officer Surles:] ... [W]e had obviously been watching their inventories, and they have been a high expansion company, but as recent as a couple of months, the management had come to us and informed us that they were going into an inventory reduction mode and it might affect some of our plants, and so we suddenly reduced production at our Maxton, North Carolina, plant to compensate for that, and even though we're not — weren't excited about the profits and loss there, we were excited about their attitude in reducing inventories, and so we felt comfortable. 79 J.A. at 440. When asked if this occurred in approximately May or April, Young responded: Mmm hmm. And so that's why it so surprised us of the decision to go Chapter 11. Id. Young was then asked about Champion's discussions with Parker Homes since the Chapter 11 filing, to which Young responded: With the decision to go Chapter 11 we've had ongoing discussions and to add the color background to them I don't think would be productive, probably not legal.... Id. 80 Another Champion employee, when asked about Parker Homes's future and Chapter 11, answered: [W]e can't speak for them and [debtor-in-possession] financing, whatever, they might be preparing, we're not inside on that track. I mean, we're sitting here as outside creditors as any other creditor would be, so we really don't know. 81 In response to a later question asking whether Champion had any plans to buy Parker Homes out of bankruptcy, Young answered that 82 we've considered all options as far as the way to do it that led us to this announcement today. And, you know, we've bought many good retailers ... but when it went to Chapter 11 it changes the nature of things, okay? ... Now I have to say in going forward, you know, if Ted Parker Sales goes to another — we'll always consider all options at all time[s] ... okay? 83 J.A. at 436. Finally, when asked whether Champion's plan with respect to Parker Homes might change if Parker Homes filed a Chapter 7 petition, Young responded: 84 Well, that's some of the issue. It is in Chapter 11, and we do not know, so we're flying blind too. That's why the nature of this thing and rather than — you know, we'll be flexible whatever happens.... And as you say, there is a difference as to having Chapter 11 or the various chapters, but we're flexible to react to whatever accordingly. 85 J.A. at 446. 86 The district court found that the statement in the July 30, 1999, press release that Parker Homes's bankruptcy was not anticipated was a statement of present or historical fact, and therefore that the scienter required was recklessness. The district also found, applying Ivax, that the general import of the July 30, 1999, conference call was forward-looking, although there was not meaningful cautionary language, and therefore all the statements in that conference call required the scienter of actual knowledge. The district court did not look further into the issue, however, as it found that scienter was not sufficiently alleged in the CAC. As stated previously, the district court erred both in its application of Ivax and in concluding that scienter was not sufficiently alleged in the CAC. 87 Plaintiff alleges that these statements were at least recklessly false or misleading in several ways. First, plaintiff contends that the statements characterized Parker Homes's bankruptcy filing as unanticipated and indicated that Champion was unaware of Parker Homes's financial situation, when in fact Champion had been making strenuous efforts to save Parker Homes from bankruptcy. He also claims that these statements were at least recklessly misleading in that they imply that Champion was uninformed about Parker Homes's reorganization plans, when Champion was in fact engaged in discussions with Parker Homes and the bankruptcy court to buy out Parker Homes. Lastly, plaintiff asserts that these statements rejected suggestions that Champion purchase a large number of Parker Homes's sales lots, when in fact it had plans to do so and in fact did later purchase them. 88 Once again, we find these arguments, although plausible, to be insufficient to support a strong inference of recklessness by the defendants. Young's statements about Parker Homes's bankruptcy were statements of present or historical fact, and therefore recklessness with respect to their misleading nature is required. These comments were perhaps misleading, but the evidence does not support a strong inference of recklessness by the defendants with regard to their misleading nature. The bankruptcy certainly was not entirely unanticipated, yet there is also a fairly strong indication that Champion thought it had struck a deal to prevent the Chapter 11 filing. This will be discussed more in the next section. 89 As to the statements with regard to Parker Homes's financial situation, they also are statements of present or historical fact, and therefore recklessness is the state of mind required. These statements could also be somewhat misleading, but they are not so obviously misleading as to be reckless. The asserted facts are apparently consistent with the defendants' belief that Parker Homes was financially sound, at least up until a few months before the bankruptcy. Ostensibly, the defendants thought that although Parker Homes had a unique business plan that called for higher inventory, it was still in decent shape financially, especially considering that it had just recently been purchased by new owners that invested heavily in the company. A potential investor in Champion could have, however, interpreted these statements to mean that the defendants believed that Parker Homes's financial situation was good all the way up to the bankruptcy declaration, when the defendants knew that Parker Homes was, at a minimum, suffering some financial difficulties such that it needed some emergency funding, even if only temporarily. Although this is a plausible understanding of those statements, it is no more compelling than the previous interpretation advanced above. Therefore, plaintiff's allegations with regard to those statements do not raise the strong inference of recklessness required by the PSLRA. 90 Plaintiff also does not adequately assert that the defendants were knowingly or recklessly misleading in their statements concerning their present contacts and future plans with Parker Homes in bankruptcy. Some of these statements are of present or historical fact, while other are forward-looking, and therefore different standards apply. Plaintiff's argument is unconvincing regardless of the standard applied, as the evidence does not show that the statements were made even recklessly. Young explicitly stated in the conference call that Champion was engaging in ongoing discussions with Parker Homes now that it was in Chapter 11. Admittedly, Young and another Champion employee also stated that Champion was not inside on that track and flying blind, but these statements must be taken in light of the other comments confirming that they were engaging in discussions with Parker Homes since the Chapter 11 filing. Additionally, although Champion employees had stated that Champion currently had other plans for how it was going to relate to Parker Homes and how it was going to handle the repurchased inventory, the employees also stated very explicitly that they were flexible and would consider all options with respect to Parker Homes. However, the employees didn't want to say too much because they were unsure of how the Chapter 11 filing would affect all these issues. These statements by the defendants are not significantly misleading, much less made with a reckless disregard for the truth. 91 Under the heightened pleading requirements of the PSLRA, only allegations that give rise to strong inference of scienter will survive a motion to dismiss. 15 U.S.C. § 78u-4(b)(2). The allegations advanced by the plaintiff in this case do not give a sufficiently strong inference of recklessness with regard to the July 30, 1999, statements discussed above to survive such a motion. 92 Plaintiff also asserts that defendants were recklessly misleading in the July 30 conference call when they made statements about the nature of the $33.6 million charge Champion planned to take during the third quarter of 1999. Specifically, plaintiff takes issue with the following statement: 93 On the component question, the pre-tax is 33.6 million. And in there — here, I'm not going to break it apart for you and I'll tell you why. Primarily it's because of the discounting when we're required to take the homes back, what we may have to sell them for, and I don't want to say any percentage. We had to make that assumption obviously, what that is, because I don't want to negotiate with potential retailers of what those prices might be and it can only be worse. But that's, by far, the majority of this charge.... The other piece of it, the plant closing, is some of the costs of the opening of our retail, some of the actual physical moving is — you know, the physical moving of relocating these homes and, again, since they're environmental, but that's probably less than 15 percent of this total charge. 94 J.A. at 431. Plaintiff argues that this statement was recklessly misleading because it represents that the majority of the charge was related to future discounts necessary to resell the homes, when defendants actually knew that a large percentage of the charge was to write-off secret loans and undisclosed discounts. 95 We begin our analysis with whether this statement qualifies for protection under the safe harbor provision of the PSLRA. This statement is not forward-looking, as it is describing the components of a present charge that Champion has decided to take due to Parker Homes's bankruptcy. Even if some of the components are somewhat uncertain and dependent on future events, it nevertheless describes Champion's present calculation. Therefore, the scienter required with regard to this statement is recklessness. 96 Plaintiff's argument with respect to the statement about the $33.6 million charge is unavailing. Although Vencor requires that when an issuer reveals information it has no duty to disclose, it cannot give half-truths, in this case Walter Young explicitly and repeatedly stated that he was not revealing all the details of the charge. In other words, Young's statement was not recklessly misleading, because he told the investors that he was not going to break it apart and he didn't want to say any percentage, but instead only gave them a rough sketch. Although the statement might have been somewhat misleading, it was not so obviously so as to be reckless. Accordingly, we find that these facts do not give rise to the strong inference of recklessness that the PSLRA requires. See 15 U.S.C. § 78u-4(b)(2).