In Re Burlington Coat Factory Securities Litigation

114 F.3d 1410 (3rd Cir. 1997)

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Nature of the Case

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Facts

D is one of the leading retailers of coats in the United States. Its specialty is selling brand name clothes at discount prices. D's 1992 Annual Report stated that 'the Company's revenues have increased each year for the past 13 years, from $24 million in 1978 to over $1 billion in 1992.' Further, D's earnings per share rose from $ 0.60 in 1990 to $ 1.06 in 1993.D announced its fourth quarter and full fiscal year results for 1994 on September 20, 1994. They were below the investment community's expectations, and the common stock fell sharply, losing approximately 30% in one day. Suits were filed by Ps. This case was brought as a class action on behalf of all purchasers of D common stock during the period from October 4, 1993, through and including September 23, 1994. Ps claim that during this period defendants (the company and the individual officer-defendants), through a number of misstatements in and omissions from disclosures made to the public, defrauded Ps into purchasing D stock at artificially high prices. D made additional explanatory disclosures, and the stock price fell even further. More investor suits were filed. Ds were sued under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. Section 10(b) provides a broad prohibition on the use of 'manipulative or deceptive devices' in connection with the purchase or sale of a security. Section 20 provides liability for 'controlling persons.' Ps claim that, as a result of D's misleading statements and omissions during the class period, the company's stock price was artificially inflated. Ps in part claimed that Ds owed a duty to update investors when a prior forecast became materially incorrect. The court dismissed. Ps appealed.