## Facts

- Investors brought a putative class action against a generic-drug manufacturer and two senior officers, alleging securities fraud and negligent misrepresentation based on press releases issued during a period of deteriorating financial performance.
- The proposed class purchased company stock between August 2, 1996 and November 11, 1996.
- On August 2, 1996, the company issued a press release that acknowledged business problems but expressed optimism and included forward-looking statements accompanied by cautionary language; the stock price rose afterward.
- On September 30, 1996, the company issued another release projecting a $43 million third-quarter loss and listing factors affecting performance; the disclosure combined projection language with an itemized set of bases, assumptions, and business conditions.
- On November 11, 1996, the company announced a $179 million third-quarter loss, including a $104 million reduction in goodwill; the earlier releases had not mentioned the possibility of that goodwill write-down, and the stock price dropped sharply.
- Plaintiffs advanced two theories: (1) the projections were knowingly or recklessly false when made, and (2) the factor disclosure was misleading because it omitted the impending goodwill write-down.
- The district court dismissed under Rule 12(b)(6), and plaintiffs appealed.

## Issues

1. Whether the challenged press releases, including a disclosure combining projections with an itemized list of underlying factors, were “forward-looking statements” within the PSLRA safe harbor.
2. Whether a “mixed” disclosure can be parsed into actionable factual components, or is treated as a single forward-looking statement when the factual items function as bases or assumptions for the projection.
3. Whether the accompanying cautionary language triggered safe-harbor protection and permitted dismissal at the pleading stage.
4. Whether the complaint pled falsity and a strong inference of scienter with the particularity required by the PSLRA.

## Decision

- The court of appeals affirmed dismissal.
- The September 30 release, including its list of factors supporting the projection, was treated as a forward-looking statement for safe-harbor purposes.
- Because the projections were accompanied by cautionary language, the PSLRA safe harbor applied and plaintiffs did not state a viable § 10(b) or Rule 10b-5 claim on the alleged misstatements or omission theory.
- Plaintiffs also failed to plead facts giving rise to a strong inference that defendants acted with the required state of mind when the projections and related disclosures were made.
- The PSLRA permitted consideration of the cited statements and accompanying cautionary language in context on a Rule 12(b)(6) motion.

## Legal Principles

- Under the PSLRA, forward-looking statements include projections and the assumptions or bases underlying them.
- When a disclosure supporting a projection includes both suppositions and declarations of known fact as part of the projection’s underlying bases, the disclosure may be treated as forward-looking as a whole for safe-harbor analysis.
- Meaningful cautionary language accompanying forward-looking statements can bar liability for those statements under the PSLRA safe harbor.
- A securities-fraud complaint must plead with particularity facts supporting a strong inference of scienter; later adverse results, without particularized allegations of contemporaneous knowledge or severe recklessness, are insufficient.
- In evaluating a motion to dismiss under the PSLRA, courts may consider the allegedly fraudulent statements and accompanying cautionary language in context as directed by statute.

## Conclusion

The court held that projections and their integrated factor disclosures were protected forward-looking statements under the PSLRA safe harbor when accompanied by adequate cautionary language, and it affirmed dismissal because the complaint did not plead actionable falsity or a strong inference of scienter.


Harris v. Ivax Corp., 182 F.3d 799 (11th Cir. 1999)