Opinion ID: 748183
Heading Depth: 2
Heading Rank: 2

Heading: The Earnings Growth Projections

Text: 57 For the reasons discussed above, we have concluded that plaintiffs' claim based on defendants' statements about the total debt-to-total capitalization guideline ratio should not have been dismissed. We do not, however, think that plaintiffs' claim based on defendants' projections of earnings growth merits resuscitation. The district court correctly held that, in the particular circumstances of this case, these projections were immaterial. 11 58 Smithburg's statement at the August 4, 1994 public meeting that Quaker was confident of achieving at least 7% real earnings growth in fiscal 1995, Complaint at p 27, might--if left unmodified until the announcement of the merger--have supported an action under 10b-5. 12 Statements of soft information from high-ranking corporate officials can be actionable if they are made without a reasonable basis. See Shapiro, 964 F.2d at 283. And Smithburg's was not a vague expression of optimism like those that we have in the past held to be immaterial. See, e.g., In re Burlington Coat Factory Securities Litigation, 114 F.3d 1410, 1432 (3d Cir.1997)(finding vague and therefore immaterial a general, non-specific statement of optimism or hope that a trend will continue); Shapiro, 964 F.2d at 283 n. 12 (holding United Jersey looks to the future with great optimism to be inactionable puffing). Instead, it was a specific figure regarding a particular, defined time period--namely, fiscal 1995. 59 Furthermore, the statement contained no explicit cautionary language. The bespeaks caution doctrine, adopted by this court in In re Trump Casino Securities Litigation, 7 F.3d 357 (3d Cir.1993), cert. denied, 510 U.S. 1178, 114 S.Ct. 1219, 127 L.Ed.2d 565 (1994), provides that when forecasts, opinions or projections are accompanied by meaningful cautionary statements, the forward-looking statements will not form the basis for a securities fraud claim if those statements did not affect the 'total mix' of information ... provided investors. In other words, cautionary language, if sufficient, renders the alleged omissions or misrepresentations immaterial as a matter of law. Id. at 371. Smithburg's statement was accompanied by no such language. 13 60 However, for the statement to have had deleterious effect, it would have had to remain alive in the market, unmodified, until the merger was announced. See Burlington, 114 F.3d at 1432. Plaintiffs allege that the harm caused by defendants' conduct--a reduction in the value of plaintiffs' shares--occurred only after the November 2 announcement of the Snapple acquisition. If defendants made a public statement tending to cure any misleading effects of Smithburg's statement between August 4, the date of the news conference, and November 2, then Smithburg's statement would essentially be neutralized, and thereby made immaterial. 61 Quaker's 1994 Annual Report--issued on September 23, 1994, more than five weeks prior to the November 2 merger announcement--contained the statement that we are committed to achieving a real earnings growth of at least 7 percent over time. Complaint at p 33 (emphasis added). We conclude that the phrase over time in this second statement inoculates Quaker from any claims of fraud that point to a decline in earnings growth in the immediate aftermath of the Snapple acquisition. No reasonably careful investor would find material a prediction of seven-percent growth followed by the qualifier over time. Therefore, we hold that no reasonable finder of fact could conclude that the projection influenced prudent investors. 62 Accordingly, we hold that the projections of earnings growth cannot form a basis for an action under § 10(b), § 20(a), and Rule 10b-5 because any misleading effect the August 4 statement might have had was cured by the qualifier over time that appeared in the 1994 Annual Report. Given our decision with regard to the total debt-to-total capitalization ratio guideline, this holding does not prevent plaintiffs' suit from going forward. It may, however, limit the class period--should the district court, on remand, decide to certify a class--to the period between September 23, 1994, the date of the first potentially misleading restatement of the guideline--and November 2, 1994, the date of the merger announcement. 63 Therefore, we will affirm the dismissal of the earnings-growth claim, albeit for reasons different from those given by the district court.