Filed: Aug. 23, 2004
Latest Update: Mar. 02, 2020
Summary: RECOMMENDED FOR FULL-TEXT PUBLICATION Pursuant to Sixth Circuit Rule 206 2 In re Ford Motor Co. No. 02-1670 ELECTRONIC CITATION: 2004 FED App. 0275P (6th Cir.) Securities Litigation File Name: 04a0275p.06 Argued: September 11, 2003 UNITED STATES COURT OF APPEALS Decided and Filed: August 23, 2004 FOR THE SIXTH CIRCUIT _ Before: KENNEDY, GUY, and DAUGHTREY, Circuit Judges. In re: FORD MOTOR X COMPANY SECURITIES - _ LITIGATION, Class Action. - - No. 02-1670 COUNSEL _ - > ARGUED: William S. Lerach,
Summary: RECOMMENDED FOR FULL-TEXT PUBLICATION Pursuant to Sixth Circuit Rule 206 2 In re Ford Motor Co. No. 02-1670 ELECTRONIC CITATION: 2004 FED App. 0275P (6th Cir.) Securities Litigation File Name: 04a0275p.06 Argued: September 11, 2003 UNITED STATES COURT OF APPEALS Decided and Filed: August 23, 2004 FOR THE SIXTH CIRCUIT _ Before: KENNEDY, GUY, and DAUGHTREY, Circuit Judges. In re: FORD MOTOR X COMPANY SECURITIES - _ LITIGATION, Class Action. - - No. 02-1670 COUNSEL _ - > ARGUED: William S. Lerach, ..
More
RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206 2 In re Ford Motor Co. No. 02-1670
ELECTRONIC CITATION: 2004 FED App. 0275P (6th Cir.) Securities Litigation
File Name: 04a0275p.06
Argued: September 11, 2003
UNITED STATES COURT OF APPEALS
Decided and Filed: August 23, 2004
FOR THE SIXTH CIRCUIT
_________________ Before: KENNEDY, GUY, and DAUGHTREY, Circuit
Judges.
In re: FORD MOTOR X
COMPANY SECURITIES - _________________
LITIGATION, Class Action. -
- No. 02-1670 COUNSEL
____________________ -
> ARGUED: William S. Lerach, LERACH, COUGHLIN,
, STOIA & ROBBINS, San Diego, California, for Appellants.
PUBLIC SCHOOL TEACHERS ’ - Stuart J. Baskin, SHEARMAN & STERLING LLP, New
PENSION AND RETIREMENT - York, New York, for Appellees. ON BRIEF: William S.
FUND O F CHICAGO ; - Lerach, Eric A. Isaacson, LERACH, COUGHLIN, STOIA &
INTERNATIONAL - ROBBINS, San Diego, California, Edward M. Gergosian,
BROTHERHOOD OF - Matthew P. Montgomery, BARRACK, RODOS & BACINE,
- San Diego, California, for Appellants. Stuart J. Baskin,
ELECTRICAL WORKERS ,
- Jerome S. Fortinsky, SHEARMAN & STERLING LLP, New
LOCAL 98; JOSEPH SELLIMAN; -
York, New York, for Appellees.
OHIO TUITION TRUST -
AUTHORITY , - _________________
Plaintiffs-Appellants, -
- OPINION
- _________________
v. -
- KENNEDY, Circuit Judge. Lead plaintiff, Public School
FORD MOTOR COMPANY , et - Teachers’ Pension and Retirement Fund of Chicago (Pension
al., - Fund), and named plaintiffs, Ohio Tuition Trust Authority,
Defendants-Appellees. - Joseph Selliman, and International Brotherhood of Electrical
- Workers, Local 98, (collectively “plaintiffs”) filed this
N consolidated class action complaint against Ford Motor
Appeal from the United States District Court Company, Inc. on behalf of all investors who purchased Ford
for the Eastern District of Michigan at Detroit. common stock between March 31, 1998 and August 31, 2000
Nos. 00-74233; 00-74247; 00-74324; 00-74667; (“class period”), alleging violations of Section 10(b) of the
00-74685; 00-75091; 00-75110—Arthur J. Tarnow, Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) (2002),
District Judge. and Rule 10b-5, 17 C.F.R. § 240.10b-5 (2002). This class
1
No. 02-1670 In re Ford Motor Co. 3 4 In re Ford Motor Co. No. 02-1670
Securities Litigation Securities Litigation
action surrounds allegations that during the class period were held on the motion to dismiss. At the hearing, the
which ended ten days after the announcement of a joint district court, over the defendant’s objections, permitted
voluntary recall by Ford and Bridgestone/Firestone, Inc. plaintiffs to present and rely on additional exhibits and argue
(“Bridgestone”) of Bridgestone ATX tires (“ATX tires”) on their support for plaintiffs’ allegations of Ford’s scienter. On
Ford Explorer vehicles: 1) Ford omitted material information December 10, 2001, the district court granted Ford’s motion
concerning the dangerousness of Ford Explorer vehicles to dismiss with prejudice, and entered judgment in favor of
equipped with ATX tires when making statements about the Ford. Specifically, the district court held that the plaintiffs’
quality and safety of Ford Explorers, thereby making them complaint failed to state a claim under § 10(b) of the
false, incomplete, or misleading; and 2) Ford’s financial Securities Act and Rule 10b-52 in violation of Federal Rule of
statements during the period are presumptively false because Civil Procedure 12(b)(6); that plaintiffs failed to allege any
Ford failed to include material information concerning the legally cognizable untrue statements or omission of material
contingent liability of related lawsuits and recalls in violation fact; and that the allegedly false statements praising the
of Generally Accepted Accounting Principles (“GAAP”). quality or safety of Ford products failed to state a claim
The district court dismissed the action for failure to state a because they are “vague, corporate puffery or accurate.” With
claim under § 20(b) of the Securities Act and Rule 10b-5. respect to the alleged GAAP violation, the court held that
Plaintiffs appeal from the judgment of dismissal with GAAP did not require Ford to disclose potential future recall
prejudice and the denial of their motion to set aside the costs because “[t]he tire manufacturer is responsible for a tire
judgment and permit them to file an amended complaint. recall” under 49 U.S.C. § 30120(b), because “Ford was not
required to disclose such unforeseeable information, and Ford
I. Procedural History had no independent duty to disclose potential recall costs.” As
an independent ground for its decision, the district court, after
On January 4, 2001, the district court consolidated a series examining the non-exhaustive list of factors typically relevant
of class actions against Ford for alleged securities fraud. On to the pleading of scienter contained in Helwig v. Vencor, Inc.
February 14, 2001, the district court appointed Pension Fund 251 F.3d 540 (6th Cir. 2001), also held that plaintiffs failed to
as lead plaintiff and directed Pension Fund to file a plead a strong inference of Ford’s scienter, as the PSLRA’s
consolidated complaint. The consolidated complaint heightened pleading requirements mandate. On December
(“complaint”) was filed March 16, 2001. On May 15, 2001, 22, 2001, plaintiffs filed a motion to amend the judgment and
Ford moved to dismiss the complaint with prejudice1 for leave to amend their complaint together with a proposed
pursuant to Federal Rule of Civil Procedure 8, Federal Rule amended complaint (“PAC”).
of Civil Procedure 12(b)(6), and/or the Private Securities
Litigation Reform Act of 1995 (“PSLRA”), 15 U.S.C. § 78u- On April 15, 2002, the district court denied plaintiffs’
4(b)(2). Both parties were permitted to file fifty-page briefs motion on the ground that plaintiffs had not met any of the
and to submit full copies of the exhibits relied upon in the
complaint. On October 16, 2001, extensive oral arguments
2
1
Section 10(b) of the Securities Act and Rule 10b-5 promulgated
Ford asserted the com plaint should be dismissed with prejudice thereunder prohibits “fraudulent material misstateme nt or omission s in
since it was an am ended co mpla int. connection with the sa le or purchase of a se curity.”
No. 02-1670 In re Ford Motor Co. 5 6 In re Ford Motor Co. No. 02-1670
Securities Litigation Securities Litigation
grounds permitting the district court to amend its judgment requisite state of mind is scienter, a “mental state embracing
under Federal Rule of Civil Procedure 59(e). intent to deceive, manipulate or defraud.” In re Comshare,
Inc. Sec. Litig., 183 F.3d 542, 548 (6th Cir. 1999) (quoting
II. District Court’s Dismissal with Prejudice under Ernst & Ernst v. Hochfelder,
425 U.S. 185, 194 (1976))
Rule 12(b)(6) (internal quotation marks omitted). In particular, this court
has held that, concerning “statements of present or historical
We review the district court’s dismissal on the pleadings fact,” Helwig, 251 F.3d at 552, plaintiffs may satisfy the
under Federal Rule of Civil Procedure 12(b)(6) de novo. scienter pleading requirement “by alleging facts giving rise to
Bovee v. Coopers & Lybrand, C.P.A.,
272 F.3d 356, 360 (6th a strong inference of recklessness.”3 In re Comshare, 183
Cir. 2001). We “must construe the complaint in the light F.3d at 549. “[R]ecklessness [is] highly unreasonable
most favorable to the plaintiff, accept all the factual conduct which is an extreme departure from the standards of
allegations as true, and determine whether the plaintiff can ordinary care. While the danger need not be known, it must
prove a set of facts in support of . . . [his] claims that would at least be so obvious that any reasonable man would have
entitle . . . [him] to relief.”
Id. “When an allegation is known of it.”
Id. at 550 (internal quotation marks and citation
capable of more than one inference,” we must construe that omitted). However, a plaintiff cannot satisfy the scienter
allegation in the plaintiff’s favor.
Helwig, 251 F.3d at 553. pleading requirement “by alleging facts merely establishing
Yet, we “need not accept as true legal conclusions or that a defendant had the motive and opportunity to commit
unwarranted factual inferences.”
Bovee, 272 F.3d at 361 securities fraud.”
Id. at 549 (emphasis added) (noting that,
(internal quotation marks and citation omitted). although facts concerning motive and opportunity may be
relevant to pleading circumstances from which one could
To succeed on a § 10(b)(5)/Rule 10b-5 claim, plaintiffs infer a strong inference of fraudulent scienter “and may, on
must establish: “(1) a misrepresentation or omission, (2) of a occasion, rise to the level of creating a strong inference of
material fact, (3) made with scienter, (4) justifiably relied on reckless or knowing conduct, the bare pleading of motive and
by plaintiffs, and (5) proximately causing them injury.” opportunity does not, standing alone, constitute the pleading
Helwig, 251 F.3d at 554 (citation omitted). of a strong inference of scienter”). Under the PSLRA’s
“strong inference” requirement, plaintiffs “need not foreclose
Adding to the Federal Rules of Civil Procedure 9(b) all other characterizations of fact,” but their factual
requirement that fraud must be stated with particularity, the allegations, in creating an inference of scienter that is
PSLRA mandates that the complaint “specify each statement “strong,” must rely on “the most plausible of competing
alleged to have been misleading, the reason or reasons why inferences.” Helwig, 251 F.3d at 553 (“Strong inferences . . .
the statement is misleading, and, if an allegation regarding the
statement or omission is made on information and belief, the
complaint shall state with particularity all facts on which that 3
Under the PS LRA ’s “safe harbor” pro vision for forward-loo king
belief is formed.” 15 U.S.C. § 78u-4(b)(1). In addition, “the statements, 15 U .S.C. § 78u-5(c)(1), a defendant is liable for such
complaint shall, with respect to each act or omission alleged statem ents only if they were material; if the defendant “had actual
to violate this chapter, state with particularity facts giving rise knowledge that the statements were false or misleading”; and if the
to a strong inference that the defendant acted with the defendant did no t identify the statements as forw ard-looking or insulate
required state of mind.” 15 U.S.C. § 78u-4(b)(2) (2001). The them w ith “meaningful cautionary language.” Helwig, 251 F.3d at 547-
548 .
No. 02-1670 In re Ford Motor Co. 7 8 In re Ford Motor Co. No. 02-1670
Securities Litigation Securities Litigation
involve deductive reasoning; their strength depends on how In 1996, Bridgestone quietly replaced ATX tires in Arizona
closely a conclusion of misconduct follows from a plaintiff’s related to ATX tire failure.
proposition of fact.”).
In 1998, Ford received a number of complaints about ATX
A. Plaintiffs’ Allegations tires from drivers of Explorers in Saudi Arabia. Ford referred
those to Bridgestone, which posited that they were due to
In 1988-89 Ford designed the Explorer to replace the driving conditions there -- high speeds, off-road driving, high
Bronco, a line of sports utility vehicles (SUV).4 Plaintiffs temperatures -- and not to the tires.
have alleged that the Explorer was not thoroughly tested, and
that it had problems with its suspension and high-center of When complaints continued, Ford replaced ATX tires in
gravity. The Explorer was sold with ATX tires of “C” Saudi Arabia and other Persian Gulf countries with “C” tires
heat/temperature rating. While safe, this is the lowest rating from another manufacturer which appeared to take care of the
of the National Highway Traffic Safety Administration tire separation problems. At about the same time, similar
(NHTSA) Uniform Tire Quality Grading System. This rating complaints were made by drivers in Venezuela. There, too,
has less ability to resist heat build-up than “A” and “B” tires. the problems were attributed to specific local conditions;
Ford recommended a tire inflation of 26 psi. This was less namely, driving at speeds of up to 100 miles-per-hour for
than the tire pressure recommended by Bridgestone for C- hundred-mile stretches and to the heat. Many of the tires in
rated tires. Low tire pressure decreases a tire’s ability to Venezuela were manufactured by a Bridgestone factory there.
resist heat – a cause of tire separation. Over 6,000,000 At Ford’s direction, ATX tires on vehicles in Venezuela were
Explorers were sold by the end of the class period. replaced with ATX tires with a nylon cap. Additional
strength permitted raising the recommendation for inflation
As of 1993, five lawsuits had been filed against Ford and pressure to 30 psi. Ford also made suspension changes and
Bridgestone for tire separation failures of ATX tires on different shock absorbers for Explorers being sold in
Explorers. By 1996, fifteen suits were filed. By 1999, the Venezuela. Bridgestone refused to pay for the changes,
end of the class period, 50 such lawsuits had been filed blaming the Explorer’s suspension system. Plaintiffs allege
against Ford for injuries or deaths from Explorer crashes. that the failure of Ford to reveal that it was experiencing these
Ford and Bridgestone, in settling suits, obtained secrecy problems with its Explorers with ATX tires in the Middle
agreements which required non-disclosure of discovery East and Venezuela made all statements about the quality of
materials and return of any discovery documents. In addition, Ford products in general, false statements. The Venezuelan
there were complaints due to tire failure made to Bridgestone. government is now prosecuting Ford and Bridgestone for
their alleged collusion in hiding the defective nature of the
Explorer equipped with ATX tires.
4 B. Actionable Misrepresentation or Omission
W hile there was no discovery in this case, Ford’s conduct and
knowledge during the class period had b een explored in d epth in
Congressional hearings held before the class complaint was filed and in The PSLRA mandates that, where plaintiffs allege that the
depositions in a pro duct liability case, permitting p laintiffs to be quite defendant “made an untrue statement of a material fact” or
specific in their allegations with respect to both misrepresentations and “omitted to state a material fact necessary in order to make
scienter in their 77-page and 154 -paragraph com plaint.
No. 02-1670 In re Ford Motor Co. 9 10 In re Ford Motor Co. No. 02-1670
Securities Litigation Securities Litigation
the statements made, in light of the circumstances in which Ford’s financial status. However, we have held that “[t]he
they were made, not misleading,” plaintiffs must “specify disclosure of accurate historical data does not become
each statement alleged to have been misleading, the reason or misleading even if . . . [the company might predict] less
reasons why the statement is misleading, and, if an allegation favorable results . . . in the future.” In re Sofamor Danek
regarding the statement or omission is made on information Group, 123 F.3d 394, 401 n.3 (6th Cir. 1997). Because
and belief, the complaint shall state with particularity all facts plaintiffs have not alleged the historical inaccuracy of Ford’s
on which the belief is formed.” 15 U.S.C. § 78u-4(b)(1). financial and earnings’ statements, such statements are not
“Silence, absent a duty to disclose, is not misleading under misrepresentations.
Rule 10b-5.” Basic, Inc. v. Levinson,
485 U.S. 224, 239 n.17
(1988). Yet, “even absent a duty to speak, a party who A misrepresentation or an omission is material only if there
discloses material facts in connection with securities is a substantial likelihood that “a reasonable investor would
transactions ‘assume[s] a duty to speak fully and truthfully on have viewed the misrepresentation or omission as ‘having
those subjects.’”
Helwig, 251 F.3d at 561 (quoting Rubin v. significantly altered the total mix of information made
Schottenstein,
143 F.3d 263, 268 (6th Cir. 1998)). There is no available.’” In re
Sofamor, 123 F.3d at 400 (quoting Basic,
general or independent duty to disclose “soft information,”
Inc., 485 U.S. at 232). We may properly dismiss a complaint
information that is uncertain and not objectively verifiable on the ground that the alleged misrepresentations or
such as “predictions, matters of opinion, and asset appraisals.” omissions are immaterial only if “they are so obviously
Helwig, 251 F.3d at 559. However, even with “soft unimportant to a reasonable investor that reasonable minds
information,” a defendant may choose silence or speech based could not differ on the question of their unimportance.”
on the then-known factual basis, but it cannot choose half-
Helwig, 251 F.3d at 563 (internal quotation marks, citation
truths.
Helwig, 251 F.3d at 561, 564 (holding that a company and emphasis omitted). “Immaterial statements include
may remain silent regarding soft information “until the vague, soft, puffing statements or obvious hyperbole” upon
fullness of time and additional detail permit confident which a reasonable investor would not rely. In re K-Tel Int’l,
disclosure,” but it may not volunteer material, soft Inc. Sec. Litig.,
300 F.3d 881, 897 (8th Cir. 2002).
information despite its uncertainty and then escape liability Statements that are “mere puffing” or “corporate optimism”
for that information’s misleading or false nature). may be forward-looking or “generalized statements of
optimism that are not capable of objective verification.”
Plaintiffs allege, not that Ford had an independent duty to Grossman v. Novell, Inc. 120 F.3d 1112,1119 (10th Cir.
disclose the dangerousness of ATX equipped Explorers or the 1997). In their complaint, plaintiffs allege that Ford made
possible loss contingency regarding it, but that Ford made many misleading statements regarding its commitment to
misrepresentations or statements that are misleading absent quality, safety, and corporate citizenship, such as: 1) “[A]t
the disclosure of such material information. In their Ford quality comes first.”; 2) “We aim to be the quality
complaint, plaintiffs allege that Ford made many statements leader”; 3) “Ford has its best quality ever”; 4) “Ford is “taking
about Ford having experienced earnings improvement and the across-the-board actions to improve . . . [its] quality.”; 5) Ford
Explorer having set various sales records that were has made “quality a top priority”; 6) “Ford is a worldwide
misleading because Ford knew that such profits and sales leader in automotive safety”; 7) Ford has made “quality a top
were due to its sale of a defective product and that the priority”; 8) Ford is “designing safety into . . . [its] cars and
eventual public revelation of the defect would affect adversely trucks” because it wants its “customers to feel safe and secure
No. 02-1670 In re Ford Motor Co. 11 12 In re Ford Motor Co. No. 02-1670
Securities Litigation Securities Litigation
in their vehicles at all times”; 9) Ford “want[s] to make because Ford permitted Bridgestone, its largest tire supplier
customers’ lives . . . safer”; 10) Ford has “dedicated . . . for the Explorer, Ford’s most important product, “to supply
[itself] to finding even better ways of delivering . . . safer defectively designed and/or improperly manufactured ATX
vehicles to [the] consumer”; 11) Ford “want[s] to be clear tires . . . [that] utilized bad, out-of-specification or
leaders in corporate citizenship”; 12) Ford’s “greatest asset is inappropriate raw materials, and had only a ‘C’
the trust and confidence . . . [it] has earned from . . . [its] heat/temperature rating.”
customers”; 13) Ford “is going to lead in corporate social
responsibility.” Such statements are either mere corporate Plaintiffs allege only three affirmative statements relating
puffery or hyperbole that a reasonable investor would not specifically to the safety of Ford Explorers with ATX tires.
view as significantly changing the general gist of available The first two are related. In February 2000, in response to an
information, and thus, are not material, even if they were inquiry from a Houston, Texas television station regarding
misleading. All public companies praise their products and three specific rollover accidents involving Explorers with
their objectives. Courts everywhere “have demonstrated a ATX tires, a Ford public affairs manager is alleged to have
willingness to find immaterial as a matter of law a certain said that the “[F]ord Explorer is an extremely safe and
kind of rosy affirmation commonly heard from corporate thoroughly engineered vehicle that, as substantiated by
managers and numbingly familiar to the marketplace – NHTSA data, performs as well as or better than peer vehicles
loosely optimistic statements that are so vague, so lacking in in its class. . ..Ford is very, very proud of the Explorer and
specificity, or so clearly constituting the opinions of the strongly believes that the vehicle is extremely safe when
speaker, that no reasonable investor could find them operated properly.”
important to the total mix of information available.” Shaw v.
Digital Equip. Corp., 82 F.3d 1194, 1217 (1st Cir. 1996); see In response to either the same or another inquiry regarding
also Nathenson v. Zonagen, Inc.
267 F.3d 400, 404, 419 (5th Texas accidents, a public affairs manager stated “these
Cir. 2001) (“broad, general statements” about “positive” and accidents clearly resulted from driver error and had nothing
“statistically significant” test results of a new drug were to do with the design of the vehicle.”
puffery); Lasker v. N.Y. State Elec. & Gas Corp.,
85 F.3d 55,
58 (2d Cir. 1996) (corporation’s self-praise about its business Ford asserts as to these allegations, first, that they are
strategy is “not considered seriously by the marketplace and statements of opinion, that plaintiffs offer no basis to believe
investors in assessing a potential investment”). Ford was not proud or otherwise did not believe the opinions
expressed, and that there is, therefore, no basis to conclude
The same is true with respect to statements such as (1) “We that Ford knew they were false or made recklessly. Further,
want to ensure that all our vehicles have world-class quality[,] with respect to the first statement, it was a comment on the
. . . developing cars and trucks that are defect-free” and vehicle itself since that is what is measured by NHTSA. In
(2) “We’re also insisting our suppliers maintain Ford’s the instance of the second statement plaintiffs have failed to
stringent quality standards.” What Ford “wants” or is allege with particularity that the Ford spokesman or Ford
insisting its suppliers do would not be interpreted by an knew that the statements were false or made with the
investor as a representation that its products achieve that recklessness required under the PLRA. There are no
objective or its suppliers maintain the quality standards it allegations with respect to the actual cause of the accidents
asks. Yet, plaintiffs maintain that this statement was false referred to or further identifying the accidents referred to.
No. 02-1670 In re Ford Motor Co. 13 14 In re Ford Motor Co. No. 02-1670
Securities Litigation Securities Litigation
The third statement was made on August 1, 2000, after agree with Ford that the future recall costs that Ford agreed
NHTSA had opened an investigation into the safety of voluntarily to pay did not need to be disclosed in prior
Bridgestone tires. In response to two safety groups urging financial statements since no asset had been diminished nor
Ford to recall Ford Explorers equipped with ATX tires, Ford had a liability been incurred at the date of the financial
responded in a written statement that it was “extremely statements. Moreover, as the district court found, the tire
satisfied with the safety record of their vehicles.” Since the company was responsible for the recall of the tires under
recall of tires was legally the responsibility of Bridgestone 49 U.S.C. 30120(b). Thus, it would be reasonable to expect
under 49 U.S.C. § 30120(b), the statement, as fairly read, is the cost of replacing any tires would be on Bridgestone.
the expression of Ford’s opinion as to the safety record of the While Bridgestone did not pay costs of tire replacement in
vehicle itself. As statements of the speakers’ opinions, these Saudi Arabia or Venezuela, that did not mean it would not in
statements are actionable only “if the speaker does not believe the United States where it could be expressly mandated to do
the opinion and the opinion is not factually well grounded.” so by NHTSA under federal law. Further, plaintiffs have not
Helwig, 251 F.2d at 562. Plaintiffs did not allege facts that pleaded sufficient facts to give rise to the strong inference of
demonstrate the speaker did not believe the statements they scienter that is required under the PSLRA.
made.5
Ford also points to disclosures it did make in its 1999 10-K
III. GAAP stating that federal authorities had 28 investigations of alleged
safety defects and warning that the costs of such recall
The complaint alleges that Ford “lied when it issued its campaigns could be substantial. It also disclosed that
financial statements when it failed to account for the investigation arising out of safety defects and other problems
possibility of future recall costs in the United States as a loss could “require very large expenditures.” Similar disclosures
contingency” under GAAP. See generally RESEARCH AND are made in earlier 10-Ks.
DEV : ARRANGEMENTS, Statement of Financial Accounting
Standards No. 5, §§ 8-13 (Financial Accounting Standards In In re Sofamor, plaintiff alleged the company’s financial
Bd. 1975). statements were “incomplete and misleading” because
defendant knew its product was defective and being sold for
In their brief on appeal, plaintiffs argue only that “[e]ven if an improper use, and should have disclosed the hazard of that
the cost of replacing the tires [in the United States] could not misuse and advised the public of likely intervention by
reasonably be estimated, GAAP required that Ford disclose regulators. We held that there was no duty to disclose either
the nature of the liability if it was reasonably possible.” We the hazards of the product or possible regulatory action, or
predict its failure losses where such predictions were not
“substantially certain.” 123 F.3d at 401-02.
5
W hile Mr. Nasser, President of Ford, stated at a later time that, in his
judgment, there was more than driver error involved, that was a judgment Plaintiffs fail to allege any facts that establish that anyone
made in retrospect after the recall and after he had the information at Ford thought or anticipated a massive recall of tires was
brought out in the congressional hearings. Plaintiffs do not allege any necessary in the United States before the recall was
specific fact about these specific accid ents that establish they were not due announced.
to driver error or, if they were, that the speaker or Ford knew otherw ise
at the time.
No. 02-1670 In re Ford Motor Co. 15 16 In re Ford Motor Co. No. 02-1670
Securities Litigation Securities Litigation
IV. MOTION TO FILE AMENDED COMPLAINT Saudi Arabia and Venezuela are based on the attached
exhibits of all the Ford internal documents regarding the
Plaintiff filed a motion to set aside the judgment and to file problems there. The additional allegations, as well as the
an amended complaint under Fed. R. Civ. P. 15(a) and Fed. exhibits, confirm Ford’s assertion that the cause of the
R. Civ. P. 59(e), together with the proposed amended problems appeared to be largely related to the driving
complaint and a brief in support. Ford filed a response brief. conditions in those countries; namely, the very hot
The district court refused to permit the filing of the amended temperatures, driving 100 miles-per-hour for a hundred miles,
complaint, finding no showing of (1) an intervening change and driving off road. While Ford personnel in Saudi Arabia
in controlling law; (2) evidence previously unavailable; (3) believed the problem was due to Bridgestone tires (since
clear error of law in its prior opinion; or (4) manifest Explorers with Goodyear tires did not have tire separation
injustice. problems), Ford management in the United States relied on
Bridgestone’s explanations.
The court recognized that plaintiffs sought to file under
Fed. R. Civ. P. 15(a), as well as 59(e), but, noting that While Bridgestone refused to pay for the additional expense
plaintiffs had been permitted to present additional exhibits of caps or replacements tires in Venezuela, there is nothing in
relating to scienter during the oral argument on the motion to the additional allegations that indicates any knowledge on the
dismiss, and that a court does not abuse its discretion in part of Ford that there was any such problem in the United
denying a Rule 59(e) motion when it is premised on evidence States or that Bridgestone would not comply with 49 U.S.C.
that the party had in its control prior to the original judgment, § 30120(b) and be responsible for any recall.
it denied the motion.
The proposed complaint references two internal emails
We agree that the amended complaint presents the same from Glenn R. Drake, the National Business Operations
legal theories as the previously dismissed complaint. While Manager for Ford International Business Development, to
better organized, the substance of the allegations of Ford’s various other U.S.-based management members in late
knowledge, of scienter, and of the legal theories are no January and early March of 1999, respectively, expressing
different, except for a few additional advertisements regarding Drake’s doubt about whether Bridgestone, which had stated
Ford products, generally more complete Ford correspondence that improper repairs on the ATX tires had caused the
files regarding the Middle East and Venezuela, and two Explorer rollovers”, was lying to avoid liability and
expert opinions as to whether plaintiffs had stated a cause of requesting Ford’s independent investigation into the matter.
action under PLSRA and GAAP. However, there is no allegation that any such investigation
was undertaken.
While arguing that the motion to amend was properly
decided under Rule 59(e), Ford urges us to examine the The only other new allegations are “expert opinions” by an
amended complaint, which relies on the same legal theories accountant and an attorney expressing their opinions on
and basic facts as the original complaint on the grounds that whether plaintiffs have stated a cause of action. Whether a
granting the motion would have been futile and then should complaint states a cause of action is a question for the court.
have been decided under Rule 15(a) as well. The proposed We do not see any reason to change our conclusions because
amended complaint’s allegations with respect to events in of any arguments made in either opinion.
No. 02-1670 In re Ford Motor Co. 17
Securities Litigation
In short, because nothing in the amended complaint cures
the failure to plead “with particularity facts giving rise to a
strong inference that defendant acted with the required state
of mind,” the district court did not abuse its discretion in
denying the motion to amend, whether under 15(a) or 59(e).
Even if we were to find that it abused its discretion, the error
would be harmless. Jet, Inc. v. Sewage Aeration Sys., 165
F.3d 419 (6th Cir. 1999). As we noted in an earlier case,
allowing the plaintiffs to file the proposed amended complaint
that contains the same deficiencies as the dismissed complaint
would frustrate the purpose of the PSLRA. See Miller v.
Champion,
346 F.3d 660, 692 (6th Cir. 2003).
V. CONCLUSION
For the reasons stated above, we affirm the district court’s
order granting Ford’s summary judgment motion for failure
to state a claim. We also affirm the district court’s denial of
Plaintiffs’ motion to set aside the judgment and permit them
to file an amended complaint.
