Teamsters Loc. 237 Welfare Fund v. ServiceMaster Global Holdings, Inc., No. 22-5981 (6th Cir. 2023)
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Pest-control company Terminix faced a “super termite” crisis from 2018-2019 that predominately affected homeowners in Alabama. The Fund alleged that Terminix’s parent company, ServiceMaster and its executives (Defendants), violated federal securities laws through a series of misrepresentations and omissions that understated ServiceMaster’s liability for the resulting termite-damage claims, concealed the risk of such claims from investors, and falsely touted the company’s customer-retention and growth efforts while strategically using price increases to cause affected customers to drop their service contracts in an attempt to limit future liability. The Fund claims that these actions and omissions constituted a scheme to defraud ServiceMaster’s investors by inflating the company’s reported financial results relative to its true financial condition, causing a financial loss to investors in ServiceMaster’s stock.
The Sixth Circuit affirmed the dismissal of the suit. Although the Fund alleged potentially actionable misstatements and omissions, it had failed to plead a “strong inference” that the Defendants had acted with the scienter required by the Private Securities Litigation Reform Act, 109 Stat. 737. The Fund’s “allegations can be read to plausibly suggest that Defendants knew they had a problem in Alabama and then misled investors about the extent of the problem” but the opposing inference is also plausible–that the Defendants had developed what they thought was a solution to larger problems at Terminix and disclosed the existence of the Alabama problem with reasonable promptness.
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