|  | | 2004 News and Press Releases | | |
HEADLINE NEWS:
TWO CIRCUITS ARE SPLIT ON 'SAFE HARBOR' PROTECTION FOR COMPANIES
Michael Bobelian
New York Law Journal. December 30, 2004
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EXCERPT: TWO FEDERAL appeals courts, including the U.S. Court of Appeals for the Second Circuit, have split over the degree to which a federal law on company disclosures shields them from shareholder suits. The law, a "safe harbor" provision of the 1995 Private Securities Litigation Reform Act, gives companies a defense from liability for forward-looking statements made in their communications if they include warnings of risks to investors. Nearly a year ago, the Second Circuit held that companies can apply the defense at the pleadings stage of a shareholder suit even if their cautionary statements -- or disclaimers -- are somewhat formulaic, a powerful weapon for defendants in terminating cases before the onset of expensive and time-consuming discovery. The case, Rombach v. Chang, 355 F.3d 164, was brought by shareholders of a now defunct company claiming executives and underwriters failed to disclose the company's troubles in public filings and statements. The split occurred when the U.S. Court of Appeals for the Seventh Circuit established a different doctrine. In July, it overturned a lower court's dismissal citing the safe harbor defense in Asher v. Baxter, 377 F.3d 727. The Baxter case also focused on forward looking statements that shareholders claimed failed to disclose risks that undermined the company's projections of its future performance. The appellate panel found that at the pleadings stage, a court could not determine whether the defendant's cautionary statements included the main risks the company faced and declined to apply the defense in the broad manner applied by the Second Circuit. |
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