The complaint charges Choice Hotels and certain of its officers and directors with violations of the Exchange Act. The Company, along with its subsidiaries, operates as a hotel franchisor worldwide. It franchises lodging properties under the Comfort Inn, Comfort Suites, Quality, Clarion, Sleep Inn, Econo Lodge, Rodeway Inn, MainStay Suites, Suburban Extended Stay Hotel, Cambria Suites, and Flag Hotels brand names. According to the complaint, Defendants issued a series of materially false and misleading statements concerning Choice Hotels, its business, operations and prospects. Unbeknownst to shareholders, the true facts were that the Company was experiencing a dramatic decrease in the number of new hotel franchise contracts such that it was not meeting internal expectations and would report slowing growth in this important business segment. Moreover, the Company was experiencing declining growth in its conversion of hotels to its system. Prior to the disclosure of the true facts about the Company, Company insiders sold more than $16 million dollars of their personally-held shares to the unsuspecting public. On July 25, 2006, after the markets closed, Choice Hotels revised their earnings guidance for 2006 downward and reported slowing new franchise growth and reduced hotel conversions. Upon this announcement, the price of Choice Hotels common stock fell $13.30 per share, or approximately 23%, to close at $45.55 per share, on heavy trading volume.
As summarized by the Company’s FORM 10-Q For The Quarterly Period Ended June 30, 2008, in April 2007, two putative federal securities law class actions were filed in the United States District Court for the District of Colorado on behalf of persons who purchased the Company’s stock between April 25, 2006, and July 26, 2006. These substantially-similar lawsuits assert claims pursuant to Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, against the Company, its current Vice Chairman and former Chief Executive Officer, and its former Executive Vice President and Chief Financial Officer. These claims are related to the Company’s July 25, 2006 announcement of its results of operations for the second quarter of 2006. Since the initial filings, the Company’s motion to transfer the litigation from Colorado to the United States District Court for the District of Maryland was granted. The United States District Court for the District of Maryland has also granted a lead plaintiff motion; the lead plaintiff is the Macomb County Employees’ Retirement System. On July 14, 2008, the Court granted the parties’ Stipulation Regarding Filing of Consolidated Amended Complaint and Responses. The parties agreed that a Consolidated Amended Complaint would be filed by August 1, 2008, that the Company would file its responsive pleading by September 30, 2008, that the lead plaintiff would file any opposition by December 1, 2008, and that the Company would file any reply by January 15, 2009.
On August 15, 2008, a Stipulation of of Dismissal was filed. The parties stipulate to the voluntary dismissal of this action pursuant to Federal Rule of Civil Procedure 41(a)(1) On August 18, 2008, the Court entered the Order signed by Judge Peter J. Messitte dismissing the action. The case is closed.