Short Whoppers Do Count

The Ninth Circuit has issued an opinion in Employee Teamsters Local Nos. 175 and 505 Pension Trust Fund v. Clorox Co., 2004 WL 32963 (9th Cir. Jan. 7, 2004) that addresses discovery, the PSLRA’s safe harbor for forward-looking statements, and scienter issues.

An interesting part of the opinion deals with the plaintiff’s contention that the lower court “incorrectly held that knowingly false statements made by [an officer defendant] during her April 22 conference call are not actionable as long as they are short, and that it improperly relied on limited and general cautions to protect Clorox under the PSLRA’s safe harbor and the ‘bespeaks caution’ doctrine.” The Ninth Circuit disagreed, finding the basis for the district judge’s holding was that the forward-looking statements were accompanied by meaningful cautionary language, not the relative length of the statements. Although plaintiffs argued that the lower court should not have considered cautionary language contained in Clorox’s Form 10-K filing in making this determination, the appellate court found that the officer defendant had referenced the risk factors in the Form 10-K during the call and “the PSLRA does not require that the cautions physically accompany oral statements.”

Holding: Affirming grant of partial summary judgment and judgment on the pleadings.

Quote of note: “It is with respect to these statements that the court observed that [the officer defendant] ‘spoke only a couple of sentences and provided an approximate timetable.’ Investors submit that the court’s holding that ‘short whoppers don’t count’ is error, but we read its decision as turning on context rather than word count.”

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