399 F.3d 651 (6th Cir. 2005), 03-5505, City of Monroe Employees Retirement System v. Bridgestone Corp.
|Citation:||399 F.3d 651|
|Party Name:||CITY OF MONROE EMPLOYEES RETIREMENT SYSTEM, on Behalf of Itself and All Others Similarly Situated, Plaintiff-Appellant, v. BRIDGESTONE CORPORATION; Bridgestone/Firestone, Inc.; Yoichiro Kaizaki; Masatoshi Ono, Defendants-Appellees.|
|Case Date:||February 04, 2005|
|Court:||United States Courts of Appeals, Court of Appeals for the Sixth Circuit|
Argued: June 9, 2004
Rehearing En Banc Denied May 3, 2005.
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Pamela M. Parker, Lerach, Coughlin, Stoia, Geller, Rudman & Robbins, San Diego, California, for Appellant.
Thomas S. Kilbane, Squire, Sanders & Dempsey, Cleveland, Ohio, James E. Gauch, Jones Day, Washington, D.C., Erik L. Kitchen, Steptoe & Johnson, Washington, D.C., for Appellees.
Pamela M. Parker, Michael J. Dowd, William S. Lerach, Lerach, Coughlin, Stoia, Geller, Rudman & Robbins, San Diego, California, George E. Barrett, Barrett, Johnston & Parsley, Nashville, Tennessee, Edward M. Gergosian, Barrack, Rodos & Bacine, San Diego, California, for Appellant.
Thomas S. Kilbane, George M. Von Mehren, Paul B. Ockene, Frances F. Goins, Squire, Sanders & Dempsey, Cleveland, Ohio, James E. Gauch, Stephen J. Brogan, Jacqueline M. Holmes, Jones Day, Washington, D.C., Antonia B. Ianniello, Brian M. Heberlig, Steptoe & Johnson, Washington, D.C., for Appellees.
Before: KEITH and CLAY, Circuit Judges; OBERDORFER, Senior District Judge. [*]
OBERDORFER, Senior District Judge.
In this appeal, we review the district court's dismissal with prejudice of a securities fraud class action Consolidated Complaint ("Complaint") filed by investors in Bridgestone Corporation ("Bridgestone") against Bridgestone, its subsidiary Bridgestone/Firestone, Inc. ("Firestone"), Bridgestone Chief Executive Officer ("CEO") Yoichiro Kaizaki, and Bridgestone Executive Vice President and Firestone CEO Masatoshi Ono. The district court dismissed the claims against Kaizaki for lack of personal jurisdiction and dismissed the claims against Bridgestone, Firestone and Ono for failure to state a claim upon which relief could be granted. For the reasons stated below, we affirm in part, reverse in part, and remand.
We assume the truth of the following facts for the purpose of this appeal. Unless otherwise indicated, they are drawn from the Complaint.
Bridgestone, a multi-national corporation with its international headquarters in Japan, is the world's largest tire manufacturer. Bridgestone's stock trades in Japan on the Tokyo Stock Exchange. Bridgestone's stock does not trade on any American stock exchange. Accordingly, Bridgestone is not required to register its equity securities with the United States Securities & Exchange Commission ("SEC"). Bridgestone's stock trades in the United States on the over-the-counter, or "OTC," market. The OTC market is an American market for foreign-issued securities not traded on any domestic stock exchange. 1
Bridgestone operates in the United States through its regional corporate headquarters in Nashville, Tennessee, and through its wholly owned subsidiary Firestone. Firestone's corporate headquarters are in Nashville. Firestone's largest tire production facility is in Decatur, Illinois.
From 1993 to 2001, Yoichiro Kaizaki was Bridgestone's President and CEO. In January 2001, he resigned from both positions. Kaizaki is now retired and resides in Japan. From 1993 to October 2000, Appellee Masatoshi Ono was the Executive Vice-President of Bridgestone and CEO of Firestone. In October 2000, Ono resigned from both positions.
Lead Class Plaintiff City of Monroe Employees Retirement System ("the Retirement Fund") is, like all class members, a purchaser of Bridgestone common stock or
American Depository Receipts 2 for Bridgestone common stock between March 31, 1998 to August 31, 2000. The allegations in the Retirement Fund's Complaint relate to events dating back to 1978.
In that year, Firestone's "Firestone 500" tire was the leading steel-belted radial tire brand. In 1978 and 1979 combined, Firestone manufactured approximately 14,000 defective Firestone 500 tires, resulting in hundreds of passenger vehicle crashes and 41 fatalities. Initially, Firestone publicly attributed the known failures to consumers' failure to properly inflate or take care of their tires. Government investigators subsequently determined that Firestone had added too much of an adhesion-boosting compound to the rubber that held the steel belts together, resulting in rubber tire tread separating from underlying steel belts, eventually leading to the tires suddenly falling apart. As a result, in 1979, Firestone paid a $500,000 fine imposed by the National Highway Traffic Safety Administration ("NHTSA"), 3 the then-largest-ever fine imposed by the NHTSA, and instituted a recall from consumers of 13 million Firestone 500 tires. The recall injured Firestone's corporate image, brand, and financial performance. App. at 143 (Complaint).
In 1988, 4 Bridgestone acquired Firestone for $2.6 billion. Upon acquiring Firestone, Bridgestone sought to increase Firestone's revenue by expanding its contractual relationship with Ford Motor Company ("Ford"), a leading American automobile manufacturer.
In 1988 and 1989, Ford was developing the Explorer, a new sport-utility vehicle. Firestone sought to obtain the tire supply contract for the Explorer. Towards that end, Firestone, in 1989, submitted prototypes of its ATX tires to Ford for testing. 5 An outside company tested seventeen of the prototypes. In February 1989, the outside testing company reported that five of the seventeen prototypes had failed due to tread separation problems under heavy loads and strenuous conditions.
In March 1990, Ford introduced the new Explorer, equipped with Firestone ATX tires. Between 1990 and 1993, Ford sold over 300,000 Explorers per year. By 1993, Ford had become Firestone's leading customer as measured by sales volume and Firestone's financial health had improved markedly. Firestone had been losing approximately $1 million per day as of 1989-1990, prior to entering into the contract with Ford to outfit the Explorer with ATX tires; by 1993, Firestone was profitable.
Beginning in 1992, Firestone began receiving consumer complaints regarding tire tread defects, some of which led to "rollover" accidents in which the Explorer would flip over on to its side. Between
1992 and 1996, consumers filed 16 or more lawsuits against Bridgestone or Firestone for rollover accidents allegedly caused by ATX tire failures on the Explorer. Between 1993 and 1994, such suits based on problems with ATX tires increased from 13% of the claims filed against Firestone from problems in light truck tires to 43% of that category of claims. By 1999, at least 50 such suits had been filed.
The Complaint alleges that by 1994, under pressure to cut its costs and increase the productivity and production rates of its American manufacturing facilities, Firestone imposed longer hourly work shifts to permit around-the-clock, seven days-a-week operations. In July 1994, Firestone's labor force, which was unionized, responded by engaging in a massive production strike.
During the strike, Firestone continued production at its Decatur, Illinois manufacturing plant. To do so, Firestone staffed the manufacturing floor with "untrained and inexperienced non-union replacement workers," along with management employees. App. at 146. During the strike, the number of defective tires increased sharply "as supervisors and under-trained or untrained replacement workers were called on to master highly skilled jobs to keep the Decatur plant running." Id. at 147.
In 1996, Firestone management, as part of the negotiations that ended the strike, extracted from the Firestone employees' union concessions under which production speed increased, including longer work shifts and retention of a seven-days-a-week production schedule. Id. at 147. In its 1996 Annual Report, Bridgestone proclaimed that "[w]e reached an agreement in 1996 with the union that represents employees at several of our North American plants ... The union has accepted already-implemented adjustments in working hours that permit our plants to operate 24 hours a day, seven days a week." Id. at 246. After the strike, the increased level of production errors persisted in tires made at Firestone's Decatur plant. The Complaint alleges that production and inspection shortcuts resulted in a sharp rise in the number of tires that were not properly manufactured, tested, or inspected.
In 1996, Firestone performed random quality control high-speed durability tests on various ATX tires. In one of the sample tests, Firestone examined 129 ATX tires made at the Decatur plant. Eighteen of those tires failed the test due to tire tread separation. In another random test of 229 ATX tires from the Decatur plant, 31 failed. In an additional random test of 18 ATX tires, eight failed, seven of which were from the Decatur plant. Internal Firestone documents show that the tires' tread separation rate was highest for tires produced at the Decatur plant from 1994 to 1996, during and just after the strike.
In addition to the alleged several thousand claims submitted by consumers directly to Firestone for compensation, between 1997 and 1999, United States consumers filed 34 suits against Bridgestone or Firestone based on deaths or injuries allegedly caused by rollovers of Explorers equipped with Firestone ATX tires. By no later than 1997, senior Firestone officials, including Firestone CEO and Bridgestone Executive Vice-President Ono, were tracking the claims and lawsuits. Robert...
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