Davis Helps Secure Dismissal of Corporate Officers in Securities Class Action
On March 18, 2014 District Judge Stephen N. Limbaugh, Jr. issued a Memorandum and Order dismissing the former Chief Executive Officer and Chief Financial Officer of Patriot Coal Corporation in a stock drop securities class action filed in the Eastern District of Missouri. Glenn E. Davis, Partner in HeplerBroom LLC’s St. Louis office assisted Sidley Austin LLP with the decisive analysis and briefing under the Securities Exchange Act and Private Securities Litigation Reform Act (“PSLRA”). The Court found that the defendants lacked scienter to sustain federal securities fraud claims, in connection with alleged flawed accounting treatment for environmental remedial costs challenged by the SEC, which ultimately required a restatement of Patriot’s financial statements. Plaintiffs also alleged defendants engaged in a scheme to release wildly optimistic financial guidance on the eve of Patriot’s bankruptcy filing in 2012. According to the Court, plaintiffs failed to plead adequately: (1) facts demonstrating a mental state embracing an intent to deceive; (2) from conduct which rises to the level of severe recklessness; or (3) from allegations of motive and opportunity. The mere existence of SEC inquiries into accounting treatment and general allegations of intent to portray the financial health of the company and secure compensation were inadequate to overcome the reasonable inferences defendants demonstrated regarding the reasons for their accounting decisions under GAAP, accurate disclosures of the actual numbers underlying their financial statements, and lack of suspicious individual trading activity. These and other considerations supported dismissal under the heightened pleading requirements of the PSLRA.