According to the latest docket posted, on November 1, 2002, the plaintiff filed a Corrected Consolidated Amended Complaint, and in November and December 2002, the defendants responded by filing motions to dismiss the plaintiffs' corrected consolidated amended complaint. On September 19, 2003, the Court entered the Opinion and Order signed by U.S. District Judge Gerald E. Rosen granting the defendants’ motions to dismiss. That day, the Court also entered Judgment in favor of the defendants and dismissed the case with prejudice. On October 2, 2003, the plaintiff filed an appeal, and on June 23, 2005, the Court entered the Order from the Sixth Circuit Court of Appeals affirming the decision of the District Court. On November 1, 2005, the Court entered the Mandate of the U.S. Court of Appeals.
The original Complaint alleges that defendant violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, by issuing a series of material misrepresentations to the market between May 17, 2001 and January 22, 2002, thereby artificially inflating the price of Kmart securities. Prior to and throughout the Class Period, as alleged in the complaint, Kmart and defendant Conaway represented that the Company was engaged in a comprehensive restructuring of the Company's operations which were revitalizing the Company and its sales. The complaint alleges that these representations were materially false and misleading because they failed to disclose and misrepresented the following adverse material facts: (a) that Kmart's purported revitalization was a complete failure as the Company was continuing to lose market share to competitors and the Company's purported efforts to reverse this trend were not meeting with success; (b) that the
Company's supply chain management was extremely problematic as the Company's distribution centers were outdated and inefficient and the Company's supply chain software was plagued by bugs and glitches, which were causing the Company to experience inventory problems. As a result of these supply chain management issues, the Company was experiencing difficulties routing inventory to stores, thereby negatively impacting the Company's sales; and (c) that the Company was experiencing substantial liquidity problems which would necessitate a major restructuring of the Company's operations and possibly a bankruptcy filing, which ultimately happened. On January 22, 2002, Kmart issued a press release announcing that it had filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code According to the press release, the Company's decision to seek "judicial reorganization" was based on a "combination of factors, including a rapid decline in its liquidity resulting from Kmart's below-plan sales and earnings performance in the fourth quarter..." Following this announcement, the price of Kmart common stock dropped from $1.74 per share to $0.70 per share, a one day decline of 59%, on extremely heavy trading volume.