In re Huffy Corp. Securities Litigation, 3:05CV028.

CourtUnited States District Courts. 6th Circuit. United States District Courts. 6th Circuit. Southern District of Ohio
Citation577 F.Supp.2d 968
Docket NumberNo. 3:05CV028.,3:05CV028.
PartiesIn re HUFFY CORPORATION SECURITIES LITIGATION.
Decision Date17 September 2008

WALTER HERBERT RICE, District Judge.

This is a putative class action, predicated upon alleged securities fraud in connection with the purchase of publically traded securities of Huffy Corporation ("Huffy").1 The putative class is defined as persons who purchased shares of Huffy stock during the class period, i.e., between April 16, 2002, and August 13, 2004. Plaintiffs' Amended Complaint (Doc. # 22) at ¶ 1.2 This litigation arises out of Huffy's acquisition of Gen-X, a Canadian manufacturer of snowboards, in-line skates, golf clubs, hockey equipment and other types of sporting goods. Id. at ¶ 2. The Plaintiffs have named four former executives of Huffy as Defendants herein, to wit: Don Graber ("Graber"), who is alleged to have been its President and CEO from the beginning of the class period until January 31, 2004 (id. at ¶ 14); Timothy Howard ("Howard"), who is alleged to have served as a Vice President of Huffy and its Corporate Controller and principal accounting officer from the beginning of the class period until July 1, 2004 (id. at ¶ 15); Robert Lafferty ("Lafferty"), alleged to have served as Huffy's Vice President of Finance, CFO and Treasurer throughout the class period (id. at ¶ 16); and Paul D'Aloia ("D'Aloia"), who is alleged to have served in a number of capacities at Huffy during the class period, culminating as its CEO from January 7, 2004, through the end of that period (id. at ¶ 17).3 In their Amended Complaint (Doc. # 22), the Plaintiffs seek to impose liability on the Defendants in accordance with §§ 10(b) and 20(a) of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. §§ 78j(b) and 78t(a), as well as under Rule 10b-5, promulgated by the Securities and Exchange Commission ("SEC"), 17 C.F.R. § 240.10b-5.

This case is now before the Court on the Defendants' Motion to Dismiss (Doc. # 24), wherein they argue that the Plaintiffs' Amended Complaint fails to meet the pleading, standards of Rules 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure and § 21D(b) of the Private Securities Litigation Reform Act of 1995 ("PSLRA"), 15 U.S.C. § 78u-4(b).4 In support of that assertion, the Defendants have presented five bases for dismissal. See Doc. # 24 at 2 (the first). Rather than initially cataloguing the allegations Plaintiffs have set forth in their 121-page, 304-paragraph Amended Complaint (Doc. # 22),5 this Court will set forth a brief synopsis of the central allegations upon which the Plaintiffs' claims are based, following which it will review the procedural standards that are applicable to motions such as that filed by the Defendants herein. The Court will then turn to the parties' arguments concerning the five bases for dismissal the Defendants have set forth in their motion. During that analysis, the Court will conduct a more through review of the relevant allegations in the Plaintiffs' Amended Complaint (Doc. # 22).

As indicated, this litigation arises out of the decision of Huffy to purchase Gen-X. The Plaintiffs allege in their Amended Complaint that the acquisition was a "disaster," because Gen-X's costs were not controlled, its inventory was in a state of disarray, its invoices had not been collected and its bills were unpaid. Doc. # 22 at ¶ 3. Plaintiffs also contend that the "defendants" thereafter misrepresented the value of the assets Huffy had acquired and the impact of the acquired product lines on Huffy's revenue and earnings and that those misrepresentations caused Huffy's securities to trade at an inflated price. Id. at ¶¶ 4-5. In that pleading, Plaintiffs also categorize failings of Huffy, prior to the acquisition of Gen-X and the beginning of the class period, including investing in the manufacture of fad scooters that it could not sell, failing in its efforts to purchase the assets of its former competitor, Schwinn, and having its largest customer, Kmart, which accounted for more than one-third of its sales, declare bankruptcy. Id. at ¶ 30.

According to the Plaintiffs, the Defendants issued materially false and misleading statements during the class period, concerning:

(1) the "extensive due diligence" purportedly performed by defendants prior to the acquisition of Gen-X; (2) the value of the assets acquired from Gen-X; (3) the performance of Gen-X after the acquisition and its impact on Huffy's financial results; and (4) Huffy's financial results and condition, and its future prospects for profitability.

Id. at ¶ 89. In particular, the Plaintiffs have identified the following as sources of such statements:

1. A press release issued by Huffy on April 16, 2002, announcing its financial results for the First Quarter of Fiscal Year 2002 (id. at ¶¶ 90-94);

2. A press release issued by Huffy on June 17, 2002, announcing its agreement to acquire Gen-X (id. at ¶¶ 95-96);

3. Huffy's S-4 Registration Statement, filed on July 5, 2002, and Amended S-4 Registration Statement, filed on July 29, 2002, setting forth information concerning the merger between Huffy and Gen-X and recommending shareholder approval (id. at ¶¶ 97-100);

4. Huffy's release of information concerning its financial results for the Second Quarter of Fiscal Year 2002, including a press release, conference calls on July 16, 2002, in which Lafferty and Graber participated, and Huffy's report on Form 10-Q ("10-Q Report") for that period (id. at ¶¶ 101-108 and subparagraphs);

5. A press release issued by Huffy on November 13, 2002, a conference call conducted the following day and Huffy's 10-Q Report, all concerning its financial results for the Third Quarter of Fiscal Year 2002, as well as prospects for the future (id. at ¶¶ 109-118 and subparagraphs);

6. A press release issued by Huffy on January 9, 2003, concerning Huffy's financial results for the Fourth Quarter of Fiscal Year 2002 (id. at ¶ 119);

7. A press release issued by Huffy on February 11, 2003, conference calls conducted by Graber and Lafferty that day, and Huffy's Form 10-K Report ("10-K Report"), all concerning its financial results for the Fourth Quarter of Fiscal Year 2002, as well as for all of that Fiscal Year, and its prospects for the future (id. at ¶¶ 120-130 and subparagraphs);

8. A press release issued by Huffy on April 16, 2003, a conference call conducted by Graber and Lafferty that day, and Huffy's 10-Q Report, all concerning its financial results for the First Quarter of Fiscal Year 2003, and its prospects for the future (id. at ¶¶ 131-140 and subparagraphs);

9. A press release issued by Huffy on July 15, 2003, a conference call conducted by Graber and Lafferty the following day, and Huffy's 10-Q Report, all concerning its financial results for the Second Quarter of Fiscal Year 2003 (id. at ¶¶ 141-149 and subparagraphs);

10. An announcement by Huffy on September 10, 2003, that it was lowering its expectations for the full-year sales for Fiscal Year 2003 to between $455 and $460 million from between $470 and $480 million (id. at ¶ 150);

11. A press release issued by Huffy on October 15, 2003, a conference call conducted by Graber the following day, and Huffy's 10-Q Report, all concerning its financial results for the Third Quarter of Fiscal Year 2003, and its prospects for the future (id. at ¶¶ 151-159 and subparagraphs);

12. Huffy's projection on December 1, 2003, that it would suffer a loss in the Fourth Quarter of Fiscal Year 2003, that earnings for the entire year would fall short of previous expectations and that sales would be even lower (id. at ¶ 160);

13. A conference call conducted on December 2, 2003, during which Graber, Lafferty and D'Aloia attempted to explain Huffy's disappointing projection announced the previous day (id. at ¶¶ 161-162);

14. Huffy's announcement of December 31, 2003, that it had suffered a net loss for Fiscal Year 2003, of nearly $1.4 million (id. at ¶ 163);

15. Huffy's announcement of January 7, 2004, that Graber would retire as CEO effective the January 31 st, and that he would remain as Chairman of the Board throughout the remainder of 2004 (id. at ¶ 164);

16. Huffy's press release of January 15, 2004, that its loss for the Fourth Quarter of Fiscal Year 2003 would be substantially worse than anticipated and that, as a result, it now expected a modest loss for that Fiscal Year, as opposed to the previously anticipated profit of $0.08 to $0.10 earnings per share (id. at ¶ 165);

17. Huffy's press release of February 17, 2003, announcing that it suffered a net loss of $11.8 million, or $0.74 per share, for the Fourth Quarter of Fiscal Year 2003, and a net loss of $7.5 million, or $0.49 per share, for 2003, and that Huffy expected to realize a profit of $0.22 to $0.27 per share for 2004 (id. at ¶ 167);

18. A conference call conducted on February 17, 2004, during which Lafferty and D'Aloia "continued to falsely assure investors that Huffy's problems were being managed, while failing to disclose the extent of its problems with its lenders and suppliers" and D'Aloia claimed that the snowboard and golf lines of Gen-X had "`finished the year with solid earnings and . . . strong revenue growth'" (id. at ¶ 169);

19. Huffy's 10-K Report for Fiscal Year 2003 and 10-Q Report for the Third Quarter of that Fiscal Year, which, inter alia, contained incomplete disclosures, downplayed the significance of Huffy's debt and failed to disclose the full extent of the problems at Gen-X (id. at ¶¶ 170-175 and subparagraphs);

20. Huffy's press release of April 13, 2004, announcing that,...

To continue reading

Request your trial
18 cases
  • Local 295/Local 851 Ibt Emp'r Group Pension Trust v. Fifth Third Bancorp.
    • United States
    • U.S. District Court — Southern District of Ohio
    • 10 Agosto 2010
    ...requirement that the complaint state with particularity facts giving rise to a strong inference of scienter. In re Huffy Corp. Sec. Lit., 577 F.Supp.2d 968, 984-87 (S.D.Ohio 2008). This Court agrees with Judge Rice that group pleading, if it properly existed in the Sixth Circuit before, doe......
  • In re Sec.
    • United States
    • U.S. District Court — Southern District of Texas
    • 8 Diciembre 2010
    ...at all’ is sufficient to establish falsity at the pleading stage” under the PSLRA). See also in accord In re Huffy Corp. Sec. Litig., 577 F.Supp.2d 968, 1017–18 (S.D.Ohio 2008); In re H & R Block Sec. Litig., 527 F.Supp.2d 922, 928 (W.D.Mo.2007); Caiafa v. Sea Containers, Ltd., 525 F.Supp.2......
  • In re Co.
    • United States
    • U.S. Bankruptcy Court — Southern District of Ohio
    • 28 Abril 2011
    ...that this court's order approving the post-petition retention of CRG further supports dismissal of Count 3. Citing In re Huffy Corporation Securities Litigation and cases cited in that decision, CRG requests that this court consider the retention order and the engagement letter even though ......
  • Bond v. Clover Health Invs., Corp.
    • United States
    • U.S. District Court — Middle District of Tennessee
    • 28 Febrero 2022
    ...See, e.g. , Chamberlain v. Reddy Ice Holdings, Inc. , 757 F. Supp. 2d 683, 704 (E.D. Mich. 2010) ; In re Huffy Corp. Sec. Litig. , 577 F. Supp. 2d 968, 993 (S.D. Ohio 2008). That is sufficient to allow the court to consider the allegations in the Amended Complaint attributed to those source......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT