10 F.Supp.2d 1068 (D.Minn. 1998), 97-CV-558, In re Summit Medical Systems, Inc.

Docket Nº:97-CV-558.
Citation:10 F.Supp.2d 1068
Case Date:June 29, 1998
Court:United States District Courts, 8th Circuit, District of Minnesota

Page 1068

10 F.Supp.2d 1068 (D.Minn. 1998)


No. 97-CV-558.

United States District Court, D. Minnesota.

June 29, 1998

Stanley M. Grossman, Patrick V. Dahlstrom, Pomerantz Haudek Block & Grossman, New York, NY, Peter G.A. Safirstein, Samuel D. Heins, Stacey L. Mills, Heins Mills & Olson, Minneapolis, MN, Glen DeValerio, Michael G. Lange, Berman DeValerio & Pease, Boston, MA, Richard J. Vita, Vita Law Office, Boston, MA, for Jong E. Lee.

Peter Scott Hendrixson, Peter W. Carter, Julie Gyurci Meaney, Dorsey & Whitney, Minneapolis, MN, for Summit Medical Systems, Inc.

John Alpiner Halpern, Halpern & Assoc., Minneapolis, MN, for Teachers' Retirement System of Louisiana.

Timothy Desmond Kelly, Wendy A. Snyder, Kelly & Berens, Minneapolis, MN, Stanley J. Parzen, Michele Odorizzi, Mayer Brown & Platt, Chicago, IL, for Ernst & Young LLP.

Page 1069


ROSENBAUM, District Judge.

Defendants seek an order dismissing plaintiffs' Amended Consolidated Class Action Complaint, 1 pursuant to Rules 9(b) and 12(b)(5) and (6) of the Federal Rules of Civil Procedure ("Fed.R.Civ.P.") and 15 U.S.C. § 78u-4. The Court heard oral argument on December 12, 1997. Defendants' motion is granted as to Count III of the Complaint, and denied as to the other Counts.

I. Background

Summit Medical Systems, Inc. ("Summit"), is a Minnesota corporation with its headquarters in Minneapolis. Summit provides "clinical outcomes" software and related support services for selected medical specialties in the healthcare business. The putative class plaintiffs purchased Summit stock from August 4, 1995, to March 3, 1997. The second plaintiff is a union retirement fund holding a substantial number of Summit's shares. On August 25, 1997, the class plaintiffs filed an Amended and Consolidated Complaint alleging claims against Summit, its officers and directors, and Ernst & Young ("E & Y"), Summit's public accountant-independent auditor.

According to the Amended Complaint, on or about August 4, 1995, Summit made an initial public offering ("IPO") of 2.5 million shares of stock at $9 per share. The registration statement and prospectus contained an auditor's opinion rendered by E & Y. E & Y opined that the company's financial statements for the years ending December 31, 1993, and December 31, 1994, fairly represented Summit's consolidated financial position.

After the IPO, Summit's stock price rose rapidly. This rise occurred, notwithstanding the fact that Summit never showed a profit during the class period. At the end of 1996, Summit's stock began to drop, falling below the IPO price.

On March 3, 1997, Summit announced its discovery that it had improperly recognized certain revenue in 1996. It conducted an investigation into prior years, and concluded it would have to restate its financial results for 1994 and 1995. Plaintiffs claim this announcement caused Summit's stock price to plummet to $3 7/8 per share. On April 4, 1997, Summit filed its 1996 10-K, in which it restated its financial results for 1994, 1995...

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