Opinion ID: 783853
Heading Depth: 4
Heading Rank: 1

Heading: The July 8, 1999, Letter to Shareholders

Text: 37 The July 8, 1999, Letter to Shareholders was forward-looking and fell within the safe harbor provision because it was accompanied by meaningful cautionary language. The letter, written by Young to Champion's shareholders, stated in pertinent part: 38 As we start the second half of the year, we know that you are as concerned as we are regarding the performance of Champion Enterprises stock compared with the overall market. Housing stocks in general have under performed the markets in 1999, and we are no exception. Given the continuation of outstanding earnings growth and the successful implementation of our retail strategy, we challenge ourselves as to what we can do to enhance our stock value in a market dominated by Internet and the Dow Jones Nifty 50 stocks.... 39 Some of our competitors have reported problems with meeting earnings estimates. Champion recently announced that we were comfortable with consensus earnings estimates of $0.59 per share for the second quarter, which would be a 13 percent increase compared to last year. 40 J.A. at 1045-46. The district court found that these statements were forward-looking and accompanied by sufficient cautionary language, and therefore protected under the safe harbor provisions of the PSLRA. 41 Plaintiff alleges that the statements with regard to Champion's earnings estimates were materially misleading given that Champion and Walter Young knew of Parker Homes's poor financial condition and the probability of its bankruptcy which would adversely impact Champion. Plaintiff further alleges that the statements are not subject to the PSLRA's safe harbor provision, because they are not forward-looking and lack meaningful cautionary language. Specifically, plaintiff argues that the word continuation refers to the present state of affairs, and that cautionary language referring to business downturns and possible inventory excesses is insufficient disclosure since Champion did not disclose the nature of its loans to Parker Homes. He also contends that the district court misapplied the holding in Ivax in finding that the statements were forward-looking. 42 In Ivax, the plaintiff sued Ivax Corporation for securities fraud and alleged that Ivax had made false or misleading statements concerning its financial outlook. 182 F.3d at 802. Ivax moved to dismiss the claims based on the safe harbor provision and heightened pleading requirements of the PSLRA. Id. The district court dismissed the action, and on appeal the Eleventh Circuit affirmed the judgment of the district court. Id. at 802, 808. In reaching this conclusion, the Eleventh Circuit held that in certain situations, mixed statements of present fact and future prediction must be treated as wholly forward-looking. Id. at 805-07. 43 We find plaintiff's arguments with regard to the July 8, 1999, Letter to Shareholders to be unpersuasive. The statements by Walter Young in his letter to Champion shareholders appear to be classically forward-looking. The statements speak of earnings estimates, of challenging themselves to enhance their stock value. These are all statements that imply projections or objectives, falling squarely within the definition of forward-looking statements found in 15 U.S.C. § 78u-5(i)(1). 10 The phrase given the continuation of outstanding earnings growth and the successful implementation of our retail strategy, although certainly implying some present circumstances, also is the basis for the later forward-looking statements, thus qualifying as an assumption underlying a forward-looking statement found in 15 U.S.C. § 78u-5(i)(1)(D). 11 See Ivax, 182 F.3d at 804-805 (the phrase [r]eorders are expected to improve as customer inventories are depleted was found to be a forward-looking statement under the assumptions underlying definition in 15 U.S.C. § 78u-5(i)(1)(D)). Furthermore, the July 8 letter does not contain a mixed statement of present fact and future prediction similar to that discussed in Ivax, and therefore we do not need to address plaintiff's argument in this regard. Given these facts, we conclude that the statements are forward-looking for the purposes of the PSLRA. 44 However, in order to be protected by the safe harbor provisions of the PSLRA, these statements must also have been accompanied by meaningful cautionary language. We conclude, as did the district court, that the statements were accompanied by meaningful cautionary language. The July 8 letter cited Champion's risk disclosures in its 1998 Form 10-K, which included a risk related to inventory levels of manufactured housing retailers. Additionally, the letter itself contained warnings that housing stocks in general have underperformed the markets in 1999, and that in certain regions we see too many retail locations, suggesting an over supply of retail inventory of homes in that region. Plaintiff argues that Champion should also have disclosed the nature of their loans to Parker Homes. This goes too far. Champion disclosed the exact risk that occurred in this situation: excess retailer inventory that could lead to negative economic effects on Champion. Champion is not required to detail every facet or extent of that risk to have adequately disclosed the nature of the risk. 45 Accordingly, since we conclude that the statements in Walter Young's July 8 Letter to Shareholders were both forward-looking within the meaning of the PSLRA, and that they were accompanied by meaningful cautionary language, the statements are subject to the safe harbor provisions of the PSLRA and are therefore not actionable. No investigation of defendant's state of mind is required. See 15 U.S.C. § 78u-5(c)(1)(A); see also Ivax, 182 F.3d at 803.