On September 26, 2007, Judge Joan Gottschall found that the plaintiffs failed to sufficiently allege intent to defraud, or scienter, on the part of the OfficeMax defendants. The court noted that the U.S. Court of Appeals for the Seventh Circuit has not yet decided whether a defendant corporation can be liable for violating the federal securities laws even if the plaintiffs have not sufficiently pled scienter as to any of the individual defendants who made the allegedly misleading statements.
However, the court said that although "there may be circumstances under which a plaintiff who is unable to plead scienter as to individual corporate officers may still be able to plead scienter as to the corporate defendant," the pleadings in this case do not fall into that category. The case has been dismissed; plaintiffs have not filed an appeal.
On November 9, 2006, the plaintiffs filed a First Amended Consolidated Complaint.
On September 15, 2006, the Court entered the Memorandum Opinion and Order signed by U.S. District by Judge Joan B. Gottschall granting the defendants’ motion to dismiss the Consolidated Complaint without prejudice. Plaintiffs have 60 days from the date of the Order to file an amended complaint. If plaintiffs do not do so, the dismissal will be with prejudice and the case terminated.
As disclosed by the Company’s FORM 10-K for the fiscal year ended December 31, 2005, the Company and several former officers and/or directors of the Company or its predecessor are defendants in a consolidated, putative class action proceeding (Roth v. OfficeMax Inc., et. al, U.S. District Court, Northern District of Illinois) alleging violations of the Securities Exchange Act of 1934. The Complaint alleges, in summary, that the Company failed to disclose (a) that vendor income had been improperly recorded, (b) that the Company lacked internal controls necessary to ensure the proper reporting of revenue and compliance with generally accepted accounting principles, and (c) that the Company's 2004 and later results would be adversely affected by the Company's allegedly improper practices. The relief sought includes unspecified compensatory damages, interest and costs, including attorneys' fees. On September 21, 2005, the defendants filed a motion to dismiss the consolidated amended complaint, which is pending.
The original action charges OfficeMax and certain of its present and former executive officers violated federal securities laws by issuing a series of materially false and misleading statements to the market which had the effect of artificially inflating the market price of the Company's securities.
More specifically, the complaint alleges that the Company failed to disclose and misrepresented the following material adverse facts which were known to defendants or recklessly disregarded by them: (1) that certain employees of the Company fabricated supporting documentation for approximately $3.3 million in claims billed to a vendor of OfficeMax during 2003 and 2004; (2) that the Company improperly timed the recognition of recorded rebates and other such payments from vendors; (3) that the Company's financial results were in violation of Generally Accepted Accounting Principles ("GAAP"); (4) that the Company lacked adequate internal controls; and (5) that as a result of the above, the Company's financial results were materially inflated at all relevant times.