Court Opinion

ID: 3029150
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:42:20.562433+00
Date Added: 2024-06-11T11:48:02.023807
License: Public Domain

United States Court of Appeals
                            FOR THE EIGHTH CIRCUIT
                                     ___________

                                     No. 01-2096
                                     ___________

Larry R. Romine, on behalf of himself     *
and all others similarly situated, et al.,*
                                          *
       Plaintiffs - Appellants,           * Appeal from the United States
                                          * District Court for the
       v.                                 * Eastern District of Arkansas.
                                          *
Acxiom Corporation, et al.,               *
                                          *
       Defendants - Appellees.            *
                                     ___________

                               Submitted: December 12, 2001

                                    Filed: July 15, 2002
                                     ___________

Before LOKEN and BYE, Circuit Judges, and BOGUE,* District Judge.
                              ___________

LOKEN, Circuit Judge.

      On July 23, 1999, publicly held Acxiom Corporation and the Pritzker
Foundation, a substantial Acxiom shareholder, sold 5,421,000 shares of Acxiom
common stock in a secondary public offering at $27 per share. Prior to the offering,
Acxiom filed a Registration Statement/Prospectus (the “Prospectus”) with the
Securities and Exchange Commission, as required by the Securities Act of 1933. See

       *
       The HONORABLE ANDREW W. BOGUE, United States District Judge for
the District of South Dakota, sitting by designation.
15 U.S.C. § 77e(a). A narrative portion of the Prospectus entitled “Recent
Developments” reported favorable results for Acxiom’s fiscal quarter that ended June
30, 1999, including earnings per share of $0.18, in line with analysts’ expectations.
These quarterly results were echoed in a press release issued by Acxiom three days
before the offering. Acxiom’s stock rose to $28 1/16 on July 23, assuring a
successful sale. But on August 30, an article in Barron’s financial magazine
expressed concern about some of Acxiom’s accounting practices and increasing
competition. See Barry Henderson, “Day of Reckoning for Acxiom? Critics Call its
Accounting Too Frisky,” Barron’s, August 30, 1999. The next day, the stock
tumbled to $17 3/16 on large volume, eventually falling to $16 1/8 on September 9.1

        In April 2000, plaintiffs commenced this class action under § 11 of the
Securities Act of 1933, 15 U.S.C. § 77k, alleging material misleading statements and
omissions in the Prospectus. Defendants -- Acxiom and individuals who signed the
Prospectus -- moved to dismiss the complaint under Rule 12(b)(6) of the Federal
Rules of Civil Procedure for failure to state a claim. The district court2 granted the
motion, and plaintiffs appeal. We review a Rule 12(b)(6) dismissal de novo under a
stringent standard. “[A]s a practical matter, a dismissal under Rule 12(b)(6) is likely
to be granted only in the unusual case in which a plaintiff includes allegations that
show on the face of the complaint that there is some insuperable bar to relief.” Fusco
v. Xerox Corp., 676 F.2d 332, 334 (8th Cir. 1982) (citation omitted). We conclude
this is such a case and therefore affirm.

      1
       Acxiom’s stock recovered and reached a high of $45 per share after the class
period before falling again in the recent down market.
      2
       The HONORABLE JAMES M. MOODY, United States District Judge for the
Eastern District of Arkansas.

                                         -2-
                                          I.

        Section 11 of the Securities Act of 1933 “allows purchasers of a registered
security to sue certain enumerated parties in a registered offering when false or
misleading information is included in a registration statement.” Herman & MacLean
v. Huddleston, 459 U.S. 375, 381 (1983). Section 11 imposes a stringent standard of
liability to ensure that registration statements are prepared in compliance with the
disclosure provisions of the Act. “To establish a prima facie § 11 claim, a plaintiff
need show only that he bought the security and that there was a material misstatement
or omission.” In re Nationsmart Corp. Sec. Litig., 130 F.3d 309, 315 (8th Cir. 1997),
cert. denied, 524 U.S. 927 (1988). The issuer’s liability is “virtually absolute, even
for innocent misstatements.” Herman & MacLean, 459 U.S. at 382.

       The district court dismissed plaintiffs’ § 11 claims under Rule 12(b)(6) for
failure to state a claim. A pleading issue that has divided federal courts is whether
§ 11 claims are “grounded in fraud” and therefore must be alleged with the
particularity required by Rule 9(b) of the Federal Rules of Civil Procedure. In
Nationsmart, 130 F.3d at 315-16, we held that § 11 claims do not require proof of
fraud and therefore the notice pleading requirements of Rule 8(a) apply, not the
particularity requirements of Rule 9(b). At oral argument, Acxiom suggested that 15
U.S.C. § 78u-4(b), enacted as part of the Private Securities Litigation Reform Act of
1995, overruled Nationsmart by imposing additional requirements for pleading § 11
claims. We disagree. The structure and legislative history of that Act persuade us
that § 78u-4 applies only to fraud actions brought under the Securities Exchange Act
of 1934. Compare Pub. L. 104-67 § 101(a), with § 101(b), 109 Stat. 737-49; see
1995-2 U.S.C.C.A.N. 679, 705, 740. Accordingly, Nationsmart remains a controlling
precedent, and plaintiffs’ complaint need only comply with the short and plain
statement requirements of Rule 8(a).

                                         -3-
                                         II.

      As relevant to this appeal, plaintiffs alleged that the favorable quarterly
financial information reported in the narrative section of the Prospectus was false and
misleading in three material respects:

      • Earnings were inflated $.02 per share by reversing $2,300,000 in employee
benefit accruals, contrary to Generally Accepted Accounting Principles (GAAP).

      • Earnings were inflated another $.01 per share by reducing Acxiom’s
allowance for doubtful accounts “even as total receivables skyrocketed.”

       • Acxiom failed to disclose that a new five-year contract with its largest
customer, Allstate Insurance, would result in lower pricing for Acxiom services and
reflected the company’s “adverse competitive environment.”

In its order granting defendants’ motion to dismiss, the district court separately
analyzed these three alleged misstatements and concluded none was sufficient to state
a § 11 claim. On appeal, the parties, too, have separately discussed whether each of
the three was sufficient to support plaintiffs’ § 11 claim that the Prospectus was
materially misleading. We will address these disclosure issues seriatim, except to the
extent their cumulative impact may become relevant.

        A. The Employee Benefit Reserves Issue. Plaintiffs’ complaint alleges that
the recent quarterly earnings reported in the narrative section of the Prospectus were
“materially misstated” and “presented in violation of” GAAP because, in calculating
those earnings, Acxiom “improperly accounted for its reserve for employee benefits
. . . by reversing $2.3 million previously accrued.” Broadly construed, this claim
appears to assert two distinct theories that must be analyzed separately.

                                         -4-
        1. First, plaintiffs clearly allege that Acxiom’s undisclosed decision to reverse
$2.3 million in employee benefit reserves violated GAAP accounting principles.
Acxiom counters that this alleged accounting impropriety is immaterial as a matter
of law because SEC regulations do not require that a prospectus include financial
statements for a recently completed fiscal quarter, and do not require that GAAP
principles be followed when reporting financial information in the narrative section
of a prospectus. While not disputing those assertions, plaintiffs properly respond
that, if any financial information is voluntarily included in a narrative section of a
prospectus, it may not be presented in a materially misleading manner. See, e.g., 17
C.F.R. §§ 210.10-01(5), 229.303(b).

      The SEC regulations provide that financial statements are presumed misleading
unless prepared in compliance with GAAP principles. See 17 C.F.R. § 210.4-
01(a)(1). That means investors can reasonably expect that financial information a
company voluntarily includes in a prospectus, including financial forecasts or
unaudited recent financial results, was prepared in accordance with GAAP. Thus, a
complaint that sufficiently alleges an undisclosed departure from GAAP affecting a
material statement in a prospectus almost certainly states a § 11 claim, even if the
material statement appeared in a narrative section of the prospectus.

      However, in this case, after generally alleging that Acxiom’s improper reserves
were “presented in violation of” GAAP, plaintiffs more specifically alleged that
Acxiom disclosed the $2.3 million reserve adjustment in its Form 10-Q for that
quarter filed with the SEC on August 16, 1999, after the secondary offering. The
Form 10-Q recited that it was prepared “pursuant to the rules and regulations of the
Securities and Exchange Commission,” and that “the disclosures contained herein are
adequate to make the information presented not misleading.” Thus, plaintiffs’ own
complaint discloses that the quarterly financial report, including the employee benefit
reserves reversal, was prepared in accordance with GAAP principles; otherwise, it
would not have been prepared “pursuant to” the SEC regulations. As plaintiffs do not

                                          -5-
challenge the Form 10-Q in this regard, their complaint does not state a § 11 claim
based upon non-compliance with GAAP. “[W]hile notice pleading does not demand
that a complaint expound the facts, a plaintiff who does so is bound by such
exposition.” Bender v. Suburban Hosp., Inc., 159 F.3d 186, 192 (4th Cir. 1998); see
Hemenway v. Peabody Coal Co., 159 F.3d 255, 261 (7th Cir. 1998) (“[p]laintiffs
pleaded themselves out of court on the fraud theory”).

      2. Second, although not clearly stated in the rambling complaint, plaintiffs
appear to allege that, even if consistent with GAAP principles, the reserves reversal
was unwarranted in fact. Plaintiffs further allege that this accounting adjustment was
material because it caused Acxiom’s reported quarterly earnings, $0.18 per share, to
be overstated by $0.02 per share and thus permitted Acxiom to meet analysts’
quarterly earnings expectations by means of “accounting adjustments and
manipulations.” We disagree.

      To satisfy the § 11 requirement that a misstatement be material, “there must be
a substantial likelihood that the disclosure of the omitted fact would have been
viewed by the reasonable investor as having significantly altered the total mix of
information made available.” TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438,
449 (1976) (quotation omitted); see Basic Inc. v. Levinson, 485 U.S. 224, 231-32
(1988). “[A] complaint that alleges only immaterial misrepresentations presents an
insuperable bar to relief.” Parnes v. Gateway 2000, Inc., 122 F.3d 539, 546 (8th Cir.
1997) (quotation omitted). Though materiality is a question of fact,“a court may
determine as a matter of law, that the alleged misrepresentation is immaterial,” if a
“reasonable investor could not have been swayed by the alleged misrepresentation.”
Gateway 2000, 122 F.3d at 546.

      Here, the background portions of the complaint state, and the Acxiom financial
statements in the record on appeal confirm, that the reserve adjustment was the result
of a September 1998 merger that required Acxiom to merge separate employee

                                         -6-
benefit plans. A $2.3 million adjustment to employee benefit reserves would not be
unusual in these circumstances. Even if arguably unwarranted, such an adjustment
would not be a material non-disclosure in the narrative portion of a prospectus
reporting quarterly earnings of $15.7 million on revenues of $211.5 million, so long
as the adjustment was made in accordance with GAAP principles. In Gateway 2000,
we upheld a Rule 12 dismissal because a two percent overstatement of assets by a
high-risk/high-yield investment opportunity would not have significantly altered the
total mix of information available to a reasonable investor. 122 F.3d at 547. For the
same reason, this § 11 non-disclosure theory was properly dismissed.

      B. The Allowance for Doubtful Accounts Issue. Plaintiffs allege that
Acxiom overstated the quarterly earnings reported in the Prospectus by $.01 per share
when it decreased its allowance for doubtful accounts from $5.6 million to $5.2
million despite a $30 million increase in accounts receivables and an increase in its
“days sales outstanding” (the average number of days it takes to collect accounts
receivables), which signaled the company was having problems collecting from
customers. Relying on Gateway 2000, the district court concluded that this alleged
omission was not material as a matter of law because a reasonable investor “would
not have been put off” by a decrease of this magnitude. 122 F.3d at 547. We agree.

       Plaintiffs argue that the alleged doubtful accounts misstatement is material
standing alone because, by inflating the most recent quarterly earnings by $.01 per
share, it permitted Acxiom to meet analysts’ expectations on the eve of the stock
offering. We agree that earnings trends are important to potential investors in a
growth company like Acxiom; therefore, misstating income so as to meet analysts’
expectations can be significant to a reasonable investor. See Ganino v. Citizens Util.
Co., 228 F.3d 154, 166 (2nd Cir. 2000). But the allowance for doubtful accounts is
a balance sheet account. The net increase or decrease in that account over the course
of a quarterly period -- here, the $400,000 upon which plaintiffs exclusively focus --
reflects a combination of additions charged to costs and expenses minus net bad debts

                                         -7-
written off during the period. Only the additions charged to costs and expenses affect
earnings and reflect the company’s estimate of doubtful accounts resulting from sales
for that accounting period. Plaintiffs do not allege what those additions were for the
quarter ending June 30, 1999, nor do they allege that those additions were insufficient
based upon Acxiom’s accounts receivable and days sales outstanding for that period,
nor do they allege that Acxiom made a non-recurring adjustment to the account
during that quarter that directly affected quarterly earnings. In fact, Acxiom’s
additions charged to costs and expenses totaled $3,323,000 for that calendar quarter.
In these circumstances, plaintiffs’ allegation that a net change of $400,000 in the
allowance account caused the earnings reported in the narrative portion of the
Prospectus to be materially misleading fails to state a § 11 claim.

       C. The Allstate Contract Issue. The SEC regulations require disclosure of
“[t]he name of any customer and its relationship, if any, with the registrant or its
subsidiaries” if sales to the customer are “equal to 10 percent or more of the
registrant’s consolidated revenues and the loss of such customer would have a
material adverse effect on the registrant.” 17 C.F.R. § 229.101(c)(vii). In the
Prospectus, Acxiom disclosed that its largest client, Allstate, represented 10.9% of
its revenues in fiscal year 1999. The Prospectus also disclosed that “[m]any of our
clients typically operate under long-term contracts” and that “approximately 51% of
our revenue was derived from long-term contracts” in fiscal 1999. It did not disclose
that on April 1, 1999, Acxiom and Allstate had entered into a new five-year Data
Management Outsourcing Agreement. However, a copy of the new Allstate contract
was attached to Acxiom’s Form 10-K for fiscal 1999, which was filed with the SEC
on June 21, 1999, and incorporated by reference in the July 23 Prospectus.

      Plaintiffs’ complaint alleges that the Prospectus was materially misleading
because it failed to disclose that the new Allstate contract “would result in lower
pricing for traditional services performed by Acxiom” and “represented a negative
trend for Acxiom in that the price reductions were reflective of the adverse

                                         -8-
competitive environment in which Acxiom was working.” Plaintiffs supported these
allegations by quoting from Acxiom’s August 16 Form 10-Q:

      Services segment revenues grew 34% when compared to the first quarter
      in the prior year. Allstate, the Company’s largest customer generated
      revenues of $19.7 million, a 5% decrease from the prior year, principally
      due to the revised pricing under the recently signed five-year contract
      under which pricing has been “unbundled” which resulted in lower
      pricing for the traditional services performed by the Company in support
      of the underwriting area.

and by quoting from the August 30 Barron’s article, which reported that “[o]bservers
say” the Allstate contract was “proof” Acxiom “is facing stiff new pricing pressure
from competitors,” and then detailed two pricing changes which “make it clear that
the company’s business with Allstate won’t be as profitable as it has been.”

       The district court concluded that Acxiom disclosed all material facts about the
Allstate contract, noting that “[a] company has no duty to disparage its own
competitive positions in the market where it has provided accurate hard data from
which analysts and investors can draw their own conclusions about the company’s
conditions and the value of its stock.” In re Ultrafem Inc. Sec. Litig., 91 F. Supp. 2d
678, 699 (S.D.N.Y. 2000) (citation omitted). We agree. A five percent decline
resulting in gross revenues of $19.7 million from Allstate means that the decline was
$1.036 million, which is not a material decline under Gateway 2000 for a company
whose quarterly revenues totaled $211 million and whose total revenues from that
segment of its business increased 34%. Citing the Barron’s article, plaintiffs argue
that Acxiom was required to describe the details of the Allstate contract because it
reflected a negative trend that Acxiom reasonably should have expected to materially

                                         -9-
impact its future revenues and income. See 17 C.F.R. § 229.303(a)(3)(ii).3 But one
individually negotiated contract with a major customer does not establish or even
effectively allege a competitive trend, particularly here, where the Barron’s author
attributed his information about increased competition to “observers” and “short-
sellers,” and Acxiom disclosed that its business was highly competitive in both the
Prospectus and, in greater detail, its June 21 Form 10-K.

       In these circumstances, we conclude that Acxiom’s failure to describe the
expected impact of the new Allstate contract did not make the Prospectus materially
misleading. Acxiom obviously believed that long-term contracts in general, and the
new Allstate contract in particular, were in its best business interests. The five-year
contract had been in effect for three months and its long-term impact on revenues and
earnings was speculative at best. The Prospectus made no affirmative representations
concerning this contract and incorporated by reference Acxiom’s recently filed Form
10-K, where the entire contract appeared as an exhibit. While this type of
incorporation by reference might not be sufficient to disclose an obviously material
recent event or development, we should not lightly subject companies to § 11 liability
for failing to describe or predict the possible impact of specific customer contracts.
As the Supreme Court said in TSC Industries, 426 U.S. at 448-49:

      Some information is of such dubious significance that insistence on its
      disclosure may accomplish more harm than good. . . . [N]ot only may
      the corporation and its management be subjected to liability for
      insignificant omissions or misstatements, but also management’s fear of
      exposing itself to substantial liability may cause it simply to bury the

      3
       Great care must be used in applying this general principle. “While
§ 229.303(a)(3)(ii) provides that ‘known trends or uncertainties’ be disclosed in
certain SEC filings, another SEC regulation, which expressly addresses forecasts,
states that forward-looking information need not be disclosed. 17 C.F.R.
§ 229.303(a).” In re Verifone Sec. Litig., 11 F.3d 865, 870 (9th Cir. 1993).

                                         -10-
      shareholders in an avalanche of trivial information -- a result that is
      hardly conducive to informed decisionmaking.

See also Glassman v. Computervision Corp., 90 F.3d 617, 632-34 (1st Cir. 1996).

      For the foregoing reasons, the judgment of the district court is affirmed.

BYE, Circuit Judge, dissenting.

       Public investors rely on companies like Acxiom to report material information
accurately. Perverting that information, by allegedly fudging earnings or otherwise,
effectively undermines the operation of the federal securities laws and cuts against
the very principles upon which the stock market's strength and success depend. Here,
the plaintiffs contend Acxiom's Registration Statement/Prospectus (the "Prospectus")
was false and misleading in three material respects. Because each of the three alleged
materially misleading statements and omissions in the Prospectus states a claim under
§ 11 of the Securities Act of 1933, I respectfully dissent.

I.    Employee Benefit Reserves Issue

      In the Complaint, plaintiffs allege that

      Contrary to GAAP, Acxiom improperly accounted for its reserve for
      employee benefits to inflate the Company's earnings in the Registration
      Statement/Prospectus by reversing $2.3 million previously accrued and
      failing to adequately accrue for liabilities which were probable and the
      amount which Acxiom could reasonably estimate. This caused the
      Company's EPS to be overstated by $0.02. In addition, Acxiom's
      Prospectus was misleading and violated § 11, because it failed to
      disclose that Acxiom was only able to make its first quarter numbers by
      reversing $2.3 million of its employee benefits accrual.

                                        -11-
Complaint ¶ 38. I agree with the majority that plaintiffs assert two distinct theories
under the employee benefit reserves issue: (1) Acxiom improperly reversed $2.3
million of its employee benefit reserves, in violation of Generally Accepted
Accounting Principles (GAAP); and (2) Acxiom failed to disclose this reversal in its
Prospectus.

      As to the first theory, the majority concludes that plaintiffs' failure to challenge
the Form 10-Q as violative of GAAP necessarily precludes them from stating a § 11
claim based upon non-compliance with GAAP. Even assuming that plaintiffs' § 11
claim rises or falls on this basis, I believe plaintiffs have adequately challenged the
information contained in the Form 10-Q.

       In the Complaint, plaintiffs allege that, in order for Acxiom to have met its first
quarter numbers, Acxiom overstated its earnings and reported them in the narrative
section of the Prospectus. Acxiom achieved those inflated results, plaintiffs allege,
by improperly reversing $2.3 million of its employee benefits which had already
accrued. Of course, plaintiffs learned of the $2.3 million reversal from the Form 10-
Q. By alleging the $2.3 million reversal was improper (because it was contrary to
GAAP), plaintiffs necessarily contend the information contained in the Form 10-Q
violates GAAP. The plaintiffs have more than adequately challenged the information
contained in the 10-Q and have not pleaded themselves out of court. To dismiss
plaintiffs' claim because they fail to state the magic words that Acxiom's "Form 10-Q
violates GAAP" is improper and inconsistent with the liberal pleading requirements
of Fed. R. Civ. P. 8(a)(2). See Hishon v. King & Spalding, 467 U.S. 69, 73 (1984)
("A court may dismiss a complaint only if it is clear that no relief could be granted
under any set of facts that could be proved consistent with the allegations.").

       As to the second theory, the majority observes that materiality is a question of
fact. Yet it proceeds to decide, as a matter of law, that Acxiom's overstatement of its
earnings by two percent would not have significantly altered the total mix of

                                          -12-
information available to a reasonable investor. The majority concludes plaintiffs have
failed to state a § 11 claim because the alleged non-disclosure was immaterial as a
matter of law. I disagree.

       To be actionable under the federal securities laws, misrepresentations or
omissions must be material. See Parnes v. Gateway 2000, Inc., 122 F.3d 539, 546
(8th Cir. 1997). For an omission to be material, there must be "'a substantial
likelihood that the disclosure of the omitted fact would have been viewed by the
reasonable investor as having significantly altered the 'total mix' of information made
available.'" Id. (quoting Basic Inc. v. Levinson, 485 U.S. 224, 231-32 (1988)). In
this case, plaintiffs point out that, without the reversal, Acxiom's net income would
have fallen by $1.5 million to $14.2 million. If earnings per share were adjusted
downward to reflect this change, they would have come in at sixteen cents per share,
two cents lower than the expected earnings estimate. Thus, plaintiffs allege Acxiom
inflated its earnings by two percent in order to hide its failure to meet analysts'
consensus earnings, effectively ensuring a successful secondary offering.

        Remarkably, the majority finds, based on the background portions of the
Complaint and Acxiom's financial statements, that the reserve adjustment was the
result of a September 1998 merger that required Acxiom to merge separate employee
benefit plans. While this may prove to be true, plaintiffs clearly have alleged the
reserve adjustment was aimed at inflating Acxiom's earnings so that it could meet its
expected earnings at the time of the offering. At this preliminary stage of the
litigation, we must accept plaintiffs' allegations as true. See Abels v. Farmers
Commodities Corp., 259 F.3d 910, 916 (8th Cir. 2001).

       The majority ultimately concludes that Acxiom's failure to disclose the two
percent overstatement of earnings is immaterial as a matter of law. It relies on
Gateway 2000, which upheld a Rule 12 dismissal because a two percent
overstatement of assets by a high-risk/high-yield investment opportunity would not

                                         -13-
have significantly altered the total mix of information available to a reasonable
investor. Here, however, we are not dealing with assets, but rather an overstatement
of two percent of earnings. See In re Burlington Coat Factory Sec. Litig., 114 F.3d
1410, 1420 n.9 (3rd Cir. 1997) (explaining that earnings reports are among the pieces
of data that investors find most valuable in making their investment decisions).

       Moreover, like the Second Circuit, I find the Securities and Exchange
Commission's (SEC) Staff Accounting Bulletin (SAB) No. 99 to be a persuasive
guide in evaluating the materiality of an alleged misrepresentation. See Ganino v.
Citizens Util. Co., 228 F.3d 154, 163 (2nd Cir. 2000) (recognizing that SAB No. 99
does not carry the force of law, yet is nonetheless persuasive in evaluating the
materiality of an alleged misrepresentation). In SAB No. 99, the SEC commented
that "[q]ualitative factors may cause misstatements of quantitatively small amounts
to be material," including "whether the misstatement masks a change in earnings or
other trends," or "the misstatements hides a failure to meet analysts' consensus
expectations for the enterprise." SAB No. 99, 64 Fed. Reg. 45150, 45152 (1999).
This is precisely why the plaintiffs allege Acxiom manipulated its earnings—to meet
analysts' consensus expectations.

       Additionally, we must not forget the market's response to the information
considered by the majority to be immaterial as a matter of law. At the time of the
offering, Acxiom stock sold at $27 per share, but following the Form 10-Q and the
Barron's article, which disclosed the information, Acxiom stock dropped to $17 per
share. See Oran v. Stafford, 226 F.3d 275, 285 (3rd Cir. 2000) (suggesting that the
materiality of the undisclosed information was confirmed by, among other things, a
four percent drop in share prices on September 17, the day The New York Times and
The Wall Street Journal reported it).

                                        -14-
II.   The Allowance for Doubtful Accounts Issue

      Plaintiffs allege Acxiom overstated the quarterly earnings reported in the
Prospectus by $.01 per share when it decreased its allowance for doubtful accounts
from $5.6 million to $5.2 million despite a $30 million increase in accounts
receivables and an increase in its "days sales outstanding." Plaintiffs allege this
information is material because it permitted Acxiom to meet analysts' expectations
on the eve of the stock offering.

       The majority acknowledges that earnings trends are important to potential
investors in a growth company like Acxiom and, therefore, misstating income to meet
analysts' expectations can be significant to a reasonable investor. Ante at 7. The
majority, however, proceeds to scrutinize the Complaint, faulting the plaintiffs for not
adequately particularizing specific facts, id., despite concluding that plaintiffs are not
subject to the heightened pleading requirements of Fed. R. Civ. P. 9(b). Plaintiffs
have clearly complied with Rule 8(a)(2) by alleging "Acxiom's Prospectus was
misleading because it failed to disclose that despite a $30 million increase in accounts
receivable and an increase in days outstanding, Acxiom decreased its allowance for
doubtful accounts from $5.6 million to $5.2 million." Complaint ¶ 39. This
allegation, coupled with the allegation contained in ¶ 42 of the Complaint (alleging
quarterly earnings were overstated by $.01 per share due to Acxiom's failure to record
reserves adequately for uncollectible receivables), sufficiently states a claim under
§ 11.

      The Supreme Court recently articulated the purpose of Rule 8(a)(2), explaining

      a complaint must include only a short and plain statement of the claim
      showing that the pleader is entitled to relief. Such a statement must
      simply give the defendant fair notice of what the plaintiff's claim is and
      the grounds upon which it rests. This simplified notice pleading
      standard relies on liberal discovery rules and summary judgment

                                          -15-
       motions to define disputed facts and issues and to dispose of
       unmeritorious claims.

Swierkiewicz v. Sorema N.A., 122 S. Ct. 992, 998 (2002) (internal quotations and
citations omitted). In dismissing this claim under Rule 12(b)(6), the majority snubs
the spirit of the liberal pleading requirements of Rule 8(a).

III.   The Allstate Contract Issue

        The plaintiffs allege the Allstate contract had been renegotiated in March 1999
for an additional five years, resulting in lower pricing for traditional services
performed by Acxiom. They further allege the Allstate contract represented a
negative trend for Acxiom in that the price reductions reflected the adverse
competitive environment in which it operated. Plaintiffs explained that a disclosure
of its significance was required for investors to fully understand the state of Acxiom's
business and worth of its stock. After all, Allstate was Acxiom's largest client in
1999, representing 10.9% of its revenues for fiscal year 1999.

       The majority agrees with the district court that "[a] company has no duty to
disparage its own competitive positions in the market where it has provided accurate
hard data from which analysts and investors can draw their own conclusions about
the company's conditions and the value of its stock." Ante at 9. The plaintiffs allege,
however, that Acxiom did not reveal the hard data—the Prospectus omitted any
discussion or description of the new contract's actual impact on first quarter results.
The majority then notes the Prospectus made no affirmative representations
concerning this contract. But the plaintiffs' claim with respect to the Allstate contract
relates to Acxiom's failure to disclose, not affirmatively misrepresent, material
information.

                                          -16-
       Moreover, the plaintiffs allege Acxiom was required to describe the details of
the Allstate contract because it reflected a negative trend that Acxiom reasonably
should have expected to materially impact its revenues and income. 17 C.F.R. §
229.303(a)(3)(ii) requires a registrant to "[d]escribe any known trends or uncertainties
that have had or that the registrant reasonably expects will have a material favorable
or unfavorable impact on net sales or revenues or income from continuing
operations." Here, the plaintiffs allege Acxiom knew the impact of the renegotiated
contract with Allstate, at least as it pertained to the first quarter results. They also
allege Acxiom knew the renegotiated contract was reasonably likely to have material
effects on its financial condition or results of operation. That is, the Allstate contract
"would result in lower pricing for traditional services, and represented a negative
trend in that price reductions were reflective of the adverse competitive environment
in which Acxiom was working." Complaint ¶ 25(e)-(f). The majority nonetheless
determines that "one individually negotiated contract with a major customer does not
establish or even effectively allege a competitive trend . . . ." Ante at 9. Granted, this
claim relates only to the renegotiated contract with Allstate, but Allstate was
Acxiom's single largest customer and the renegotiated contract was effective for five
years.4 This certainly could have a negative trend in pricing. Even the sophisticated
financial analyst who wrote the article in Barron's noted the renegotiated Allstate
contract reflected a more general pricing pressure, under which Acxiom "has been
straining its balance sheet to keep up with the earnings growth that it's been
promising Wall Street," and observed further that "[t]he terms of this contract, . . .

      4
       According to the SEC's 1989 release interpreting 17 C.F.R. §
229.303(a)(3)(ii), "[r]equired disclosure is based on currently known trends, events,
and uncertainties that are reasonably expected to have material effects, such as: A
reduction in the registrant's product process; erosion in the registrant's market share;
changes in insurance coverage; or the likely non-renewal of a material contract."
Management's Discussion and Analysis of Financial Condition, Securities Act
Release No. 6835, 54 Fed. Reg. 22,427, 22,429 (May 24, 1989) (emphasis added).

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make it clear that the company's business with Allstate won't be as profitable as it had
been." Complaint ¶ 30 (quoting Barron's article).

      Because each of the three alleged materially misleading statements and
omissions in the Prospectus states a claim under § 11 of the Securities Act of 1933,
I would reverse the judgment of the district court. I respectfully dissent.

      A true copy.

             Attest:

                CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.

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