143 F.3d 1293 (9th Cir. 1998), 97-55199, Steckman v. Hart Brewing, Inc.
|Citation:||143 F.3d 1293|
|Party Name:||, 98 Cal. Daily Op. Serv. 3660, 98 Daily Journal D.A.R. 5047 Jeffrey D. STECKMAN, and all others similarly situated, Plaintiff-Appellant, v. HART BREWING, INC.; George Hancock; John Stoddard; Don Burdick; John E. Morse; Peter T. Morse; John T. Bryce; Marcia L. Ellis; Janet Morse; Paine Webber, Inc.; Dean Witter Reynolds, Inc., Defendants-Appellees.|
|Case Date:||May 14, 1998|
|Court:||United States Courts of Appeals, Court of Appeals for the Ninth Circuit|
Argued April 7, 1998.
James C. Krause, Patrick N. Keegan, Krause & Kalfayan, San Diego, CA; Burton H. Finkelstein, Finkelstein, Thompson & Loughran, Washington, DC, for plaintiff-appellant.
Stellman Keehnel, Peter S. Ehrlichman, Tim J. Filer, Foster Pepper & Shefelman PLLC, Seattle, Washington; Shirli Fabbri Weiss, Gray Cary Ware & Freidenrich, San Diego, California, for defendants-appellees Hart Brewing Inc., George Hancock, John Stoddard, Don Burdick, John E. Morse, Peter T. Morse, John T. Bryce, Marcia L. Ellis and Janet Morse.
William F. Alderman, John H. Kanberg, Tanya Herrera, Orrick, Herrington & Sutcliffe LLP, San Francisco, California, for defendants-appellees PaineWebber Incorporated and Dean Witter Reynolds, Inc.
Appeal from the United States District Court for the Southern District of California; Judith N. Keep, Chief Judge, Presiding. D.C. No. CV-96-01077-JNK.
Before: FARRIS, O'SCANNLAIN, and FERNANDEZ, Circuit Judges.
FARRIS, Circuit Judge:
Pyramid Breweries Inc., formerly Hart Brewing Inc., a maker of craft beers, conducted an initial public offering on December 13, 1995, less than three weeks before the end of the fourth quarter. Shares were priced at $19, netting the company $34.2 million.
According to Pyramid's uncontested prospectus, gross sales grew at a compound annual rate of around 88% from 1990 to the
end of the third quarter 1995. Operating income grew at a compound annual rate of 200% from 1990 through 1994. The prospectus also disclosed that income was merely 83% higher for the first three quarters of 1995 compared to the same period in 1994, thus suggesting a slowdown at Pyramid.
Pyramid's annual production capacity grew from 9,300 barrels in 1990 to almost 160,000 barrels at the time of the offering. The company had an annual capacity of 87,000 in 1994 and 72,100 barrels were shipped (83% of capacity); its capacity for the first three quarters of 1995 was 152,300 barrels, of which 89,100 were shipped (58.5% of capacity). Id. at 15. In other words, the company disclosed in its selected financial data that it had nearly doubled capacity in 1995, and that the amount of beer it produced was not increasing proportionately. It announced in its prospectus that its annual production capacity would be further increased to 290,000 barrels by the end of 1996.
The company also included four pages of risk factors in the prospectus, which warned investors, among other things, that "there is no assurance that the same level of sale and operating margins can be maintained in existing markets or achieved in new markets."
In the first 45 days or so of trading (to January 31, 1996), the share price declined to around $15.00. Pyramid announced its results for the fourth quarter of 1995 on February 1, 1996. The results were essentially flat. The fourth quarter results showed that net sales had declined from $6.77 million in the third quarter to $6.48 million in the fourth, a decrease of about 4%. Operating income had also decreased, by about 2%. The rate of barrels sold per quarter declined slightly, from 34,900 to 34,000. The prospectus also included figures which showed that fourth quarter results had been essentially flat in 1994 and 1993 as well. Moreover, the sales and income figures in the fourth quarter of 1995 were up 88% and 228%, respectively, from corresponding data for the fourth quarter of 1994.
Following the release of the flat fourth quarter 1995 results, Pyramid's share price rose to $16.00 by February 5, 1996.
Jeffrey Steckman bought 100 shares at the offering price on the first day of trading, December 13. By June, 1996, the share price had declined to $12.125 per share. On June 12, Steckman sold his shares and initiated this class action lawsuit in district court...
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