## Facts

- A class of investors bought Ford Motor Company common stock from March 31, 1998 to August 31, 2000, ending shortly after Ford and Bridgestone/Firestone announced a voluntary recall of certain ATX tires used on Ford Explorer vehicles.
- Investors alleged Ford knew of safety risks involving Explorers equipped with ATX tires and, during the class period, made public statements praising Ford’s “quality,” “safety,” and corporate responsibility while omitting the alleged risks.
- The challenged statements were broad promotional assurances (e.g., “quality comes first,” being a leader in safety, and commitments to corporate citizenship and social responsibility).
- Investors also alleged Ford’s financial statements were misleading because they did not disclose that favorable results were partly driven by sales of allegedly defective Explorers and because Ford did not disclose or accrue contingent liabilities tied to recalls and litigation under GAAP.
- Investors did not allege that Ford’s historical reported financial figures were numerically incorrect when issued; the theory was that omitted risk information rendered the otherwise accurate results misleading.
- The district court dismissed the consolidated complaint with prejudice for failure to state a claim under § 10(b) and Rule 10b-5 and denied a post-judgment request to set aside the judgment and amend; investors appealed.

## Issues

1. Whether generalized statements about safety, quality, and corporate citizenship can constitute actionable material misstatements or omissions under § 10(b) and Rule 10b-5.
2. Whether Ford’s financial statements were materially misleading due to nondisclosure of alleged product defects and related loss contingencies, and whether plaintiffs pled scienter with the particularity required by the PSLRA.
3. Whether the district court abused its discretion by denying leave to amend after dismissal with prejudice.

## Decision

- The Sixth Circuit affirmed dismissal with prejudice of the § 10(b)/Rule 10b-5 claims.
- The court held Ford’s broad safety/quality/corporate-responsibility statements were nonactionable puffery and too vague to be material.
- The court held plaintiffs failed to plead a material misrepresentation or omission in Ford’s financial reporting and failed to plead facts supporting a strong inference of scienter under the PSLRA.
- The court affirmed denial of the post-judgment motion to amend, finding no abuse of discretion and no adequate showing that amendments would cure the core defects.

## Legal Principles

- § 10(b) and Rule 10b-5 do not impose a freestanding duty to disclose all material information; a duty to disclose arises when needed to make an existing statement not misleading.
- Vague, aspirational, or promotional statements about corporate quality, safety, or citizenship generally constitute nonactionable puffery and are not material representations on which a reasonable investor would rely as a factual guarantee.
- To plead securities fraud based on financial reporting and nondisclosure of contingencies, plaintiffs must allege with particularity facts showing a materially misleading statement or omission and, where applicable, a clear basis for any asserted GAAP-related disclosure/accrual duty at the time of the statement.
- Under the PSLRA, scienter must be pled with particularized facts supporting a strong inference of intent to defraud or severe recklessness; conclusory allegations that management “knew or should have known,” without specific supporting facts, are insufficient.
- Denial of leave to amend after dismissal may be affirmed where plaintiffs already had an opportunity to amend and proposed changes would not remedy fundamental pleading deficiencies.

## Conclusion

The Sixth Circuit held that Ford’s generalized statements about safety, quality, and corporate responsibility were nonactionable puffery and that plaintiffs did not plead materially misleading financial disclosures or a strong inference of scienter as required by the PSLRA, and it affirmed dismissal with prejudice and denial of post-judgment leave to amend.


In re Ford Motor Co. Securities Litigation, 381 F.3d 563 (6th Cir. 2004)