## Facts

- Baxter International Inc. and senior executives repeatedly issued optimistic 2002 projections between November 5, 2001 and July 18, 2002, including low-teens revenue growth, mid-teens EPS growth, and at least $500 million in operational cash flow.
- Baxter disseminated these projections through SEC filings, press releases, and executives’ oral statements, at times calling them “2002 full-year commitments.”
- On July 18, 2002, Baxter released second-quarter 2002 results that missed market expectations; the stock price fell from about $43 to $32.
- Investors filed a putative class action alleging the pre–July 18 price was inflated by materially misleading projections and omissions.
- Plaintiffs alleged Baxter failed to disclose contemporaneous adverse facts undermining the projections, including Renal division underperformance against internal budgets, multiple plant closures, and a costly sterility failure in the BioScience division.
- Plaintiffs alleged Baxter continued reiterating projections without updating them or tailoring cautionary language to those internal problems.

## Issues

1. Whether Baxter’s projections were protected by the PSLRA safe harbor because they were accompanied by “meaningful cautionary statements” identifying important factors that could cause actual results to differ materially.
2. Whether dismissal at the Rule 12(b)(6) stage was proper where plaintiffs plausibly alleged the cautionary language failed to reflect specific, known risks, and where defendants relied in part on market-knowledge (“truth-on-the-market”) assertions.

## Decision

- The Seventh Circuit reversed the Rule 12(b)(6) dismissal and remanded.
- The court held it was premature to conclude, as a matter of law at the pleading stage, that Baxter’s cautionary statements were “meaningful” within the PSLRA safe harbor.
- The court held plaintiffs could attempt to prove that Baxter’s warnings omitted known, specific risks that rendered the projections misleading.
- The court treated defendants’ market-knowledge arguments as fact-dependent and generally unsuitable for resolution on a motion to dismiss.

## Legal Principles

- The PSLRA safe harbor provides independent protection for forward-looking statements if (1) they are accompanied by “meaningful cautionary statements” identifying important, case-specific risk factors, or (2) plaintiffs cannot prove the speaker had actual knowledge of falsity or misleadingness.
- “Meaningful” cautionary language is not satisfied by warnings that omit the very risks that allegedly made the forecast misleading; generic risk disclosures may be inadequate if management allegedly knew of concrete internal problems threatening performance.
- Whether cautionary statements correspond to the issuer’s actual, known risks is commonly a fact-sensitive inquiry that may not be resolvable solely from the pleadings.
- “Truth-on-the-market” defenses typically raise factual disputes about what information was absorbed and priced by investors and ordinarily do not support dismissal at the pleading stage.

## Conclusion

The court allowed the securities claims to proceed because plaintiffs plausibly alleged that Baxter continued optimistic projections while failing to warn about specific, known operational problems, making it improper to apply the PSLRA safe harbor as a categorical basis for dismissal on the pleadings.


Asher v. Baxter Int'l Inc., 377 F.3d 727 (7th Cir. 2004)