Commercial Division Blog
Court Dismisses Federal Securities Fraud Claims
On September 26, 2019, Justice Scarpulla of the New York County Commercial Division issued a decision in Matter of Densply Sirona, Inc. v. XXX, 2019 NY Slip Op. 32849(U), dismissing federal securities fraud claims, explaining:
I find that Plaintiffs' statements concerning competition and the scope and prospects of Dentsply's and Sirona's business are expressions of puffery and corporate optimism, and accordingly, do not give rise to securities violations. The cases Plaintiffs' cite, in support of their argument that statements about competition are misleading absent disclosure of an existing anticompetitive scheme, are distinguishable in that those cases involved allegations that the defendant companies themselves participated in the anticompetitive schemes.
Here, in contrast, Plaintiffs allege that the Alleged Anticompetitive Scheme was perpetrated by Defendants' customers, the Distributors; the CAC does not allege that Defendants were participants in the Alleged Anticompetitive Scheme. In these circumstances, Defendants' failure to disclose the Distributors' Alleged Anticompetitive Scheme did not cause their general statements about the state of market conditions to be misleading and Plaintiffs allegations therefore fail to state a claim under the '33 Act.
Second, Plaintiffs allege that Defendants made misleading statements regarding existing and growing demand in the industry because the channel stuffing, which was allegedly known to Defendants' leadership, meant that there wasn't growth over all segments and that growth was actually stifled.
In essence, Plaintiffs assert that Defendants' customers bought excess product and this fact rendered Defendants' statements about existing and growing demand false. Defendants' statements about growth are statements of opinion which are not actionable. Accordingly, Defendants' statements about growth also do not give rise to a claim under the '33 Act.
Last, Plaintiffs allege that Defendants made misleading statements concerning inventory because the Registration Statement did not disclose facts about the Distributors' inventory stockpiling and the likelihood that such stockpiling would result in Patterson's termination of the Exclusivity Agreement.
Again, the CAC does not demonstrate that the statements regarding inventory were misleading when made. Plaintiffs do not allege that at the time of the Registration Statement, Patterson had terminated its Exclusivity Agreement or notified Defendants of its intention to terminate. Where, as here, an outcome is merely speculative, the duty to disclose does not attach. Therefore, this category of alleged omissions also fails to state a claim. For the foregoing reasons, Plaintiffs fail to state a claim under Sections 11 and 12(a)(2) of the '33 Act and I dismiss the aforementioned claims.
(Internal quotations and citations omitted).
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