## Facts

- Windmere-Durable Holdings, Inc. (Windmere) manufactured and distributed small electrical kitchen appliances and other household items.
- On May 11, 1998, Windmere announced it would acquire Black & Decker’s Home Products Group (HPG), describing the transaction as giving Windmere the ability to use the Black & Decker brand name in North American and Latin American markets and increasing manufacturing and distribution capacity.
- Windmere financed the acquisition with a bridge loan from NationsBank and later sought to repay that financing through a public offering.
- In connection with the acquisition and financing plan, Windmere issued public statements (including a press release and SEC filings) and conducted a July 22, 1998 public offering of common stock and 10% Senior Subordinated Notes pursuant to a registration statement and prospectus. Nationsbanc Montgomery Securities, LLC (Montgomery) served as the lead underwriter for that offering.
- Windmere also held a roadshow for prospective investors and represented that it had established a licensing arrangement allowing continued marketing under the Black & Decker brand in North America and Latin America, with expected growth in those regions.
- Investors alleged that, when these statements were made, Windmere needed—but did not have—required business licenses to operate under the Black & Decker brand in those markets, and that the offering materials and related communications did not disclose that problem.
- After the HPG acquisition closed, Windmere’s sales in North American and Latin American markets reportedly declined.
- Sherleigh Associates, LLC and related plaintiffs filed a putative class action on behalf of purchasers of Windmere securities during the relevant period (including purchasers in the July 22, 1998 offering), asserting claims under Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 and under Section 10(b), Rule 10b-5, and Section 20(a) of the Securities Exchange Act of 1934.
- Windmere, certain officers, and Montgomery moved to dismiss the Consolidated Amended Class Action Complaint under Rule 12(b)(6), challenging the sufficiency of the alleged misstatements/omissions and (as to the Exchange Act claims) the scienter allegations.

## Issues

1. Whether the complaint plausibly alleged material misstatements or omissions in the registration statement, prospectus, and related public statements sufficient to state claims under Sections 11 and 12(a)(2) of the Securities Act of 1933.
2. Whether the complaint pleaded falsity and scienter with enough particularity to state a claim under Section 10(b) and Rule 10b-5 against Windmere and its officer defendants.
3. Whether the allegations stated claims against the offering’s lead underwriter, Nationsbanc Montgomery Securities, LLC, and whether any count failed as to Montgomery.

## Decision

- The court denied the Windmere defendants’ motion to dismiss in its entirety.
- The court granted Montgomery’s motion to dismiss only in part, dismissing Count IV as to Montgomery and denying Montgomery’s motion in all other respects.
- As a result, the case proceeded on the remaining Securities Act and Exchange Act theories, with Count IV eliminated only as to the underwriter.

## Legal Principles

- On a Rule 12(b)(6) motion, the court accepts well-pleaded factual allegations as true and draws reasonable inferences in the plaintiff’s favor; dismissal is improper if the complaint plausibly states a claim for relief.
- Securities Act Section 11 and Section 12(a)(2) claims generally turn on whether offering materials contained a materially false statement or omitted a material fact necessary to make statements not misleading; these claims do not require pleading scienter in the same manner as Exchange Act fraud claims.
- Exchange Act Section 10(b) and Rule 10b-5 claims require pleading a materially false or misleading statement or omission and a sufficiently strong inference of scienter under the PSLRA and Rule 9(b) standards applicable to fraud-based allegations.
- Statements about a company’s ability to operate, market products, or exploit acquired assets may be actionable when plaintiffs plausibly allege that undisclosed, existing regulatory or operational barriers (such as missing required licenses) made the statements misleading.
- A defendant’s role in an offering (including an underwriter’s role) matters for assessing which theories of liability are adequately pleaded against that defendant at the motion-to-dismiss stage; some counts may be sufficiently alleged while others may not be.

## Conclusion

The court largely refused to dismiss investors’ securities claims arising from Windmere’s Black & Decker HPG acquisition and July 1998 offering, holding that the consolidated complaint adequately alleged material misstatements and omissions—especially concerning the company’s ability to continue Black & Decker-branded operations in North American and Latin American markets—and adequately pleaded Exchange Act fraud as to the Windmere defendants; the court dismissed only Count IV as to the lead underwriter, Montgomery, and otherwise allowed the case to move forward.


Sherleigh Associates, LLC v. Windmere-Durable Holdings, Inc., 178 F. Supp. 2d 1255 (2000)