In re: Hertz Global Holdings Inc, No. 17-2200 (3d Cir. 2018)Annotate this Case
Pension Funds brought a putative securities fraud class action against Hertz and several of its current and former executives for violating sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended by the Private Securities Litigation Reform Act of 1995 (PSLRA), and Rule 10b-5, 17 C.F.R. 240.10b-5 by making materially false and misleading statements concerning the company’s financial results, internal controls, and future earnings projections. The Funds’ securities fraud allegations rely on a financial restatement Hertz issued with its fiscal year 2014 Form 10-K. In it, the Company admitted that “an inconsistent and sometimes inappropriate tone at the top was present under the then existing senior management” and that the tone “resulted in an environment which in some instances may have led to inappropriate accounting decisions and the failure to disclose information critical to … effective review[.]”. The Third Circuit affirmed the dismissal of the fourth amended complaint for failure to plead a strong inference of scienter, as required by the PSLRA. The court conducted a comparative analysis by considering both inferences favorable to the Funds as well as “plausible, nonculpable explanations for the defendant’s conduct” and did not effectively require the Funds to submit “smoking-gun” evidence to survive the defendants’ motions to dismiss.