Opinion ID: 773420
Heading Depth: 3
Heading Rank: 1

Heading: Statements Made

Text: 110 As the majority points out, if a statement is immaterial, it is not actionable. See 15 U.S.C. § 78u-5 (c)(1)(A)(ii); see also17 C.F.R. § 240.10b-5(b). Material representations must be contrasted with statements of subjective analysis or extrapolations, such as opinions, motives and instructions, or general statements of optimism, which 'constitute no more than puffery and are understood by reasonable investors as such.' EP Medsystems, Inc. v. Echocath, Inc., 235 F.3d 865, 873 (3d Cir. 2000) (quoting In re Advanta Corp. Securities Litig., 180 F.3d 525, 538 (3d Cir. 1999)). [A] CEO's expression of 'comfort' with a financial analyst's predictions of his company's future earnings [is] not . . . factual in that, as a future projection, it [is] not capable of being proved false. Longman v. Food Lion, Inc., 197 F.3d 675, 683 (4th Cir. 1999) (citing Malone v. Microdyne Corp., 26 F.3d 471, 479-80 (4th Cir. 1994)). [S]tatements containing simple economic projections, expressions of optimism, and other puffery are insufficient to attach liability. Novak v. Kasaks, 216 F.3d 300, 315 (2d Cir. 2000); see also Friedman v. Mohasco Corp., 929 F.2d 77, 79 (2d Cir. 1991). Like these circuits, we have held that sales figures, forecasts and the like only rise to the level of materiality when they can be calculated with substantial certainty. James v. Gerber Prod. Co., 587 F.2d 324, 327 (6th Cir. 1978). 111 That management's statements have to be material to be actionable is only tangentially addressed by the majority. According to the majority, it does not believe that Vencor's strong estimates of stronger earnings were so uncertain or casually disregarded by the marketplace as to make the projections immaterial. Maj. Op. at 22. Of course, the question is not whether the projections were so uncertain, but rather, whether they were capable of being calculated with substantial certainty. I do not believe there is any indication that they were substantially certain and the majority points to no information to persuade me otherwise. Instead, it nimbly turns the question from whether estimates were capable of being calculated with substantial certainty to whether there was a substantial certainty that the Act, if enacted, would have any adverse effect on Vencor's business. This is disingenuous. That the Act may have an adverse effect does not mean that estimates were capable of being calculated with substantial certainty. If anything, the fact that a bill was before Congress which, if enacted, would potentially have an impact on Vencor's revenues makes estimates more uncertain. And Vencor made investors aware of this by informing them that management's projections did not include the effect of the Act with its statement that it could not predict the effect of the Act. The majority never answers the question of whether information existed to calculate future earnings with substantial certainty. Nor does it suggest how a statement that the projection does not purport to take into account proposed legislation is false because it does not take that legislation into account. 112 Even if there was such information, it would not make material all the statements the majority identifies. Two of the statements--the statement of comfort and the statement regarding the Act--are not earnings estimates made by Vencor's executives. The majority does not explain why these statements are material. Nor can I, as I believe they are not. I am at a loss for how an executive's statement that he is comfortable with another's projections is material. As the Fourth Circuit observed, such statements are incapable of being proven false, and, consequently, incapable of being material. SeeLongman, 197 F.3d at 683. The term comfortable in that context is vague; a reasonable investor would not rely on it. The report plaintiffs rely on, moreover, does not say that management said it was comfortable with the report. Accordingly, it is not material. Likewise, management's statement in its second quarter 10-Q filing for 1997 that it could not predict the form or effect of the Balanced Budget Act is not material. Like earnings estimates, such statements concern predictions of future events and thus are evaluated under the same standard. It should be kept in mind that two of the four proposals that plaintiffs believed would adversely affect Vencor were not passed. The President had initiated a number of unsuccessful attempts to institute Medicare reform, moreover. All these factors added to the uncertainty of the Act's form or passage this time around. The district court was entitled to take judicial notice of these facts when deciding the issue.