(Article from Securities Law Alert, August 2017)
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On July 25, 2017, the Eighth Circuit held that statements touting a product’s “unmatched speed, reliability, quality and connectivity” were too “vague and nonverifiable” to constitute actionable misstatements. In re Stratasys Ltd. S’holder Sec. Litig., 2017 WL 3139438 (8th Cir. 2017) (Benton, J.).
The Eighth Circuit explained that “[n]o reasonable investor would rely on soft, puffing statements—which encompass optimistic rhetoric and promotional phrases used to champion the company but [are] devoid of any substantive information.” The court further stated that “[o]ptimistic statements are not actionable if they cannot be supported by objective data or [are not] otherwise subject to verification by proof.” Applying these standards, the court held the statements in question were “such obvious hyperbole that no reasonable investor would rely upon them.”
The Eighth Circuit rejected plaintiffs’ contention that the statements at issue were “material” because they were made in connection with “a highly anticipated product launch” and “in the context of [the company’s] SEC filings.” The court found the statements too “indeterminate” to be “plausibly understood as a description of historical fact.”
In so holding, the Eighth Circuit distinguished the Supreme Court’s decision in Virginia Bankshares v. Sandberg, 501 U.S. 1083 (1991). There, the Court deemed potentially actionable a representation by a bank’s directors that the purpose of a planned merger was “to achieve a ‘high’ value, which [the directors] elsewhere described as a ‘fair’ price.” Virginia Bankshares, 501 U.S. 1083. The Virginia Bankshares Court stated that “such conclusory terms in a commercial context are reasonably understood to rest on a factual basis,” and held the directors’ statement could give rise to liability under the securities laws even though it “did not express a reason in dollars and cents.” The Eighth Circuit found the Virginia Bankshares “holding does not preclude statements, like the ones here, from being so vague” as to be inactionable. Stratasys, 2017 WL 3139438.