Opinion ID: 1854488
Heading Depth: 3
Heading Rank: 2

Heading: Materiality of Alleged Misstatements and Omissions.

Text: ¶ 27. The plaintiffs alleged in their complaint that the June 15, 2001 Registration Statement filed by Leap was false and misleading because it failed to disclose the risks associated with its purchase price adjustment dispute with MCG PCS, Inc. In particular, the plaintiffs alleged that the Registration Statement did not adequately disclose (1) that Leap's dispute with MCG created the basis for a massive dilution or `watering' of the Leap [stock] . . . first acquired by [AWG] in June 2001 and then acquired by Plaintiffs in the fall of 2001; (2) the amount of shares or dollars that Leap would have to deliver . . . to MCG if Leap was not successful in arbitration; and (3) that the dispute with MCG created a significant risk that Leap's covenants in its lending and financing arrangements would be violated. The Leap defendants assert that they disclosed all of these risks in the Registration Statement. ¶ 28. An omission is considered material if there is a substantial likelihood that [its disclosure] would have been viewed by the reasonable investor as having significantly altered the `total mix' of information made available. In re Donald J. Trump Sec. Litig., 7 F.3d 357, 369 (3d Cir.1993) (quoting TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449, 96 S.Ct. 2126, 2132, 48 L.Ed.2d 757 (1976)). See also Kapps v. Torch Offshore, Inc., 379 F.3d 207, 216 (5th Cir.2004). [I]f the alleged misrepresentations or omissions are so obviously unimportant to an investor that reasonable minds cannot differ on the question of materiality [it is] appropriate for . . . [a] court to rule that the allegations are inactionable as a matter of law. Trump, 7 F.3d at 369 n. 13 (internal quotations and citations omitted). ¶ 29. With regard to Leap's alleged failure to disclose the risk of dilution and the amount of money or number of shares that Leap would have to deliver to MCG if it was unsuccessful in the adjustment dispute, it is a fact issue whether such information was not adequately disclosed. Leap suggests that the June 15, 2001 Registration Statement warning, YOUR OWNERSHIP INTEREST IN LEAP WILL BE DILUTED UPON ISSUANCE OF SHARES WE HAVE RESERVED FOR FUTURE ISSUANCE, suffices. Whether such boilerplate language constitutes an adequate disclosure of the risk of dilution posed by the adjustment dispute is a mixed question of law and fact. Generally such vague or blanket (boilerplate) disclaimer which merely warns the reader that the investment has risks will ordinarily be inadequate to prevent misinformation. To suffice, the cautionary statements must be substantive and tailored to the specific future projections, estimates or opinions in the [registration statement]. Trump, 7 F.3d at 371-72. The Registration Statement also stated that up to 785,598 shares . . . [were] reserved for issuance in connection with our pending acquisition of wireless licenses in Buffalo and Syracuse, New York. MCG's identity as the company from whom the wireless licenses were being purchased was not disclosed; nor was it disclosed that Leap might have to issue 21 million shares to MCG as a result of the dispute, as it eventually did. ¶ 30. The only information in the Statement regarding the dispute is the following: In the pending acquisition of wireless licenses in Buffalo and Syracuse, New York . . . the seller has asserted that based on the results of the recent FCC auction of wireless licenses, it is entitled to a purchase price adjustment that would result in the purchase price being effectively doubled. Under the terms of the agreement, if we are obligated to pay a purchase price adjustment, we [are] entitled to pay such additional amounts in cash or Leap common stock at our discretion. Although Leap disclosed that a purchase price adjustment might force it to pay double the purchase price, the purchase price was not disclosed. For those reasons, the plaintiffs have sufficiently alleged a material omission in the Registration Statement. ¶ 31. Regarding Leap's failure to adequately disclose that a potential issuance of shares in connection with the dispute with MCG could violate Leap's lending covenants, the plaintiffs have alleged a material omission. The June 15, 2001 Registration Statement warned that HIGH LEVELS OF DEBT COULD ADVERSELY AFFECT OUR BUSINESS AND FINANCIAL CONDITION. Whether such boilerplate language constitutes an adequate warning is a mixed question of law and fact. Generally, such statements which are not substantive [or] tailored to future projections, opinions or estimates are inadequate. ¶ 32. We are not the triers of fact; we only determine if there are sufficient facts alleged to survive a motion to dismiss. Because the plaintiffs have alleged sufficient facts to survive a motion to dismiss, the motion was properly denied by the trial court.