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(Article from Securities Law Alert, September 2016) 

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On August 22, 2016, the Third Circuit held that if a forward-looking statement is accompanied by meaningful cautionary statements, then “the state of mind of the individual making the statement is irrelevant” for purposes of the safe-harbor provisions of the Private Securities Litigation Reform Act (“PSLRA”). OFI Asset Mgmt. v. Cooper Tire & Rubber, 2016 WL 4434404 (3d Cir. 2016) (Jordan, J.).

The Third Circuit explained that the PSLRA’s “safe harbor” provisions establish a “disjunctive statutory test” for immunizing certain forward-looking statements from Section 10(b) liability. Under the first prong of the test, the safe harbor applies if the “forward-looking statement is identified as such, and is accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statement.” Id. (quoting 15 U.S.C. § 78u-5(c)(1)). Under the second prong of the test, the PSLRA’s safe harbor applies if “the plaintiff fails to prove the forward-looking statement was made with actual knowledge by the speaker that the statement was false or misleading.” Id. (quoting 15 U.S.C. § 78u-5(c)(1)). The Third Circuit found the PSLRA “provides two distinct entrances to the safe harbor” pursuant to which “any forward-looking statement is protected if it is either accompanied by substantive and tailored cautionary statements or if the plaintiff fails to show actual knowledge of falsehood.”

In the case before the court, plaintiff contended that a forward-looking statement concerning the effect of a strike on a planned merger was not protected under the PSLRA’s safe harbor despite the presence of meaningful cautionary statements. Plaintiff argued the safe harbor did not apply because the speakers “could not . . . have believed” their stated expectation “that the strike would not impede the closing of the merger.” The Third Circuit found plaintiff’s argument rested on a “misread[ing of] the law.” The court determined that in light of the “disjunctive” nature of the safe harbor test, the question of whether the speakers actually believed the forward-looking statement at the time it was made was “irrelevant” because “there was sufficient meaningful cautionary language.” The Third Circuit held that “where a future-looking statement is accompanied by sufficient cautions, then . . . the statement is not actionable regardless of the plaintiff’s showing of scienter.”