The Safe Harbor At Work

The PSLRA’s safe harbor for forward-looking statements has a checkered history in the courts, with some judges refusing to apply it as written. It is therefore worth noting a decision that relies entirely on the safe harbor to dismiss the plaintiffs’ securities fraud claims.

In In re Aetna, Inc. Sec. Litig., 2009 WL 1619636 (E.D. Pa. June 9, 2009), the plaintiffs alleged that the health care company told investors it practiced “disciplined pricing” when, in fact, it was aggressively underpricing to bring in new business. The court found that “‘disciplined pricing’ means that Aetna expects that its pricing will be in line with its projected medical cost trend, a specific measurement of future performance.” Accordingly, the statements concerning “disciplined pricing” were forward-looking as defined by the PSLRA.

The court then applied the safe harbor and held that the statements were protected from liability. First, Aenta’s statements concerning its commitment to “disciplined pricing” were immaterial corporate puffery. Second, the company’s risk factors specifically warned investors “that profitability could be affected by Aetna’s ‘ability to forecast . . . costs’ and ‘there can be no assurance regarding the accuracy of medical cost projections assumed for pricing purposes.” The court found this was meaningful cautionary language that rendered the statements inactionable. Finally, the court noted that “there is still uncertainty” as to whether a forward-looking statement is protected by the safe harbor based on immateriality or meaningful cautionary language if a plaintiff adequately pleads that the defendant had actual knowledge of the falsity of the statements (see the Third Circuit’s recent Avaya decision). In this case, however, the plaintiffs failed to meet that pleading burden.
Holding: Dismissed with prejudice.

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