Mayer v. Mylod, Nos. 92-1363

• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)
• Writing for the Court: BOYCE F. MARTIN, Jr.
• Citation: 988 F.2d 635
• Parties: Fed. Sec. L. Rep. P 97,379, 25 Fed.R.Serv.3d 151 Mary MAYER (92-1363); and Louis Ehrenberg (92-1439), Plaintiffs-Appellants, v. Robert J. MYLOD; Peter K. Thomsen; Eric D. Booth; Lawrence L. Gladchun; and Michigan National Corporation, Defendants-Appellees.
• Decision Date: 11 March 1993
• Docket Number: 92-1439,Nos. 92-1363

Page 635

988 F.2d 635 Fed. Sec. L. Rep. P 97,379, 25 Fed.R.Serv.3d 151 Mary MAYER (92-1363); and Louis Ehrenberg (92-1439),
Plaintiffs-Appellants,
v.
Robert J. MYLOD; Peter K. Thomsen; Eric D. Booth;
Lawrence L. Gladchun; and Michigan National
Corporation, Defendants-Appellees. Nos. 92-1363, 92-1439. United States Court of Appeals,
Sixth Circuit. Argued Jan. 23, 1993.
Decided March 11, 1993.

Page 636

Richard M. Meyer (argued and briefed), Edith M. Kallas, Milberg, Weiss, Bershad, Specthrie & Lerach, New York City, Elwood S. Simon (briefed), Bloomfield Hills, MI, for plaintiffs-appellants.

Donald S. Young (briefed), Dykema & Gossett, Detroit, MI, Thomas J. Guyer, John R. Spreitzer, Michigan Nat. Corp. Legal Dept., Farmington Hills, MI, Scott B. Schreiber (argued and briefed), Helene B. Madonick, David P. Gersch, Arnold & Porter, Washington, DC, W. Merritt Jones, Jr. (briefed), Kay R. Butler, Hill, Lewis, Adams, Goodrich & Tait, Dykema & Gossett, Detroit, MI, for defendants-appellees in No. 92-1439.

Donald S. Young (briefed), Maria Del Monaco, Dykema & Gossett, Detroit, MI, Scott B. Schreiber (argued and briefed), Helene B. Madonick, David P. Gersch, Arnold & Porter, Washington, DC, Stephen I. Greenhalgh, Hill, Lewis, Adams, Goodrich & Tait, W. Merritt Jones, Jr. (briefed), Hill, Lewis, Adams, Goodrich & Tait, Detroit, MI, for defendants-appellees in No. 93-1363.

Before: MARTIN, MILBURN, and NORRIS, Circuit Judges.

BOYCE F. MARTIN, Jr., Circuit Judge.

Mary Mayer and Louis Ehrenberg appeal the district court's dismissal of their securities-fraud claims for failure to state a claim upon which relief can be granted. They also appeal the district court's refusal to certify their claims as class actions. We reverse the district court's dismissal of Mayer's and Ehrenberg's complaints and affirm the district court's refusal to certify their cases as class actions.

Mary Mayer bought stock in Michigan National Corporation on May 16, 1990 and held the stock without selling any shares through the period that is the subject of this lawsuit. Louis Ehrenberg bought stock in Michigan National Corporation on July 16, 1990 for $32 per share and sold it later for $35 per share.

On July 1, 1991, Ehrenberg filed an eighteen-page amended complaint against Michigan National, Robert Mylod, Chairman of the board of directors of Michigan National, and other directors of Michigan National. Ehrenberg's complaint alleged that Michigan National made false and misleading comments in several of its public statements and "concealed" Michigan National's financial position. The complaint stated two bases for recovery: violation of federal securities law and common-law negligent misrepresentation.

Ehrenberg alleged in his amended complaint that the following statements violated Sections 10(b) and 20(a) of the Securities Exchange Act, 15 U.S.C. §§ 78j(b), 78t (1989): Michigan National stated that it intended to have strong financial controls, intended to strengthen its balance sheet, had no non-performing real-estate loans, and had implemented a program to improve the quality of its operations; Michigan National stated that its loan portfolio was "soundly underwritten" and its value was "fairly reflected on the balance sheet;"

Page 637

Michigan National stated, in relation to a buy-back of its stock, that Michigan National stock was a "good investment" for the corporation and its shareholders; and Michigan National, in response to a fifty percent decline in the price of its stock, stated that its non-performing loans did not warrant the decline in share prices. In addition, Ehrenberg alleged that Michigan National's financial statements contained incorrect statements regarding its non-performing and potentially non-performing loans and that Michigan National omitted an adverse five million dollar judgment from the appropriate quarterly report.

Ehrenberg alleged that Michigan National's statements were false or misleading; Ehrenberg alleged in paragraph twenty of his amended complaint,

[D]efendants misrepresented and concealed the deteriorated quality of Michigan National's loan portfolio, intentionally concealed and misrepresented the likelihood of huge increases in non-performing assets, charge-offs and loss reserves, and failed to set appropriate loan loss reserve levels on commercial real estate loans. Michigan National's net income, assets and net worth were materially overstated as a result, and the market prices of Michigan National's publicly-traded securities were artificially inflated....

On August 27, Ehrenberg petitioned the court to certify a class consisting of himself and other investors in Michigan National stock, which the court refused. The court based its refusal on concerns that Ehrenberg had not proven damages and that he could not sue on behalf of a class that bought stock at different times than he did.

Mary Mayer filed her complaint on December 2. Mayer's complaint mirrored Ehrenberg's amended complaint, including the request to certify a class.

On January 7, 1992, the defendants moved to dismiss Mayer's complaint for failure to state a claim and to deny certification of a class. The district court refused to certify a class and dismissed Mayer's complaint on February 20 pursuant to civil Rule 12(b)(6). The district court stated,

I am of the opinion now, having had a chance to reflect more on Virginia Bankshares v. Sandberg, --- U.S. ----, 111 S.Ct. 2749, 115 L.Ed.2d 929, which holds that corporate directors' disbelief or undisclosed motivation, standing alone, is insufficient to satisfy the element of fact that must be established, and the holding of the Sixth Circuit in Sinay v. Lamson & Sessions ..., decided on November 7, 1991, ... that I should grant the motion to dismiss here. The Sixth Circuit pointed out that economic projections are not actionable if they bespeak caution, that when a corporation, through its officers or otherwise, states an honestly held view based upon the information currently before it, neither it or its officers may be held liable, and in determining whether the statements are actionable, the court must scrutinize the nature of the statement to determine whether the statement was false when made. While analyzing the nature of the statement, the Court must emphasize whether the prediction suggested reliability, bespoke caution, was made in good faith, or had a sound factual or historical basis.

The district court, in light of its decision regarding Mayer's complaint, dismissed Ehrenberg's complaint on March 19.

Ehrenberg and Mayer now appeal the district court's dismissal of their complaints, arguing that they stated a valid claim under federal securities law. ¹

Dismissals of complaints for failure to state a claim upon which relief can be granted are subject to de novo review.

Page 638

E.g., Sinay v. Lamson & Sessions Co., 948 F.2d 1037, 1039 (6th Cir.1991) (citing Craighead v. E.F. Hutton & Co., 899 F.2d 485, 489 (6th Cir.1990)). All factual allegations are considered to be true. Id. (citing Jenkins v. McKeithen, 395 U.S. 411, 421-22, 89 S.Ct. 1843, 1848-49, 23 L.Ed.2d 404 (1969)). If an allegation is capable of several inferences, the allegation must be construed in a light most favorable for the plaintiff. Id. (citing Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974)).

The...