|  | | 2009 News and Press Releases | | |
DISMISSAL NEWS:
Kmart Shareholder Class Action Booted
Samuel Howard
Securities Law 360. July 22, 2009
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EXCERPT: A federal judge has tossed a putative class action by Kmart Corp. shareholders for failing to back up allegations that top officers of the big box retailer — now part of Sears Holding Corp. — concealed the true value of the company’s real estate assets, suppressing the company’s stock price. On Tuesday, Judge Lewis A. Kaplan of the U.S. District Court for the Southern District of New York dashed investors’ claims that Sears chairman Edward S. Lampert and former Kmart CEO Julian Day drastically undervalued Kmart’s real estate assets, causing shareholders to sell stock at basement prices in 2003 and 2004. Piling “one unsubstantiated assumption upon another” the consolidated class action complaint failed to support claims that the defendants made false and misleading statements about the worth of Kmart’s real estate and otherwise fell short of meeting the heightened pleading standards for securities fraud, Judge Kaplan said. The court discounted the lawsuit’s central allegation that the defendants told investors Kmart’s reorganized real estate was worth roughly $10 million while the assets were really valued at $9 to $18 billion. The claim, the court said, was founded more on the investors’ incomprehension than the defendants’ misconduct. While Kmart had stated in 2003 that it had reduced its property, plan and equipment, valued at $4.62 billion, to reflect the write-off of the reorganized company’s previous equity and “negative good will to long-lived assets,” the adjusted net valuation of $10 million did not constitute a misrepresentation, according to the opinion. “After reading these disclosures, no rational investor reasonably could have concluded that $10 million represented the fair market value of the company’s real estate. To the contrary, any literate person would have understood that Kmart had stated that the fair market value of the its property, plant and equipment was $4.62 billion,” Judge Kaplan said. |
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