City of Taylor Police and Fire v. Zebra Technologies Corp., No. 20-3258 (7th Cir. 2021)
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Retirement System contends that Zebra defrauded investors by making bad predictions during a corporate consolidation with a division of Motorola. The consolidation proved more onerous than anticipated, leading to expenditure of an additional $200 million and a decline in Zebra’s share price. A purported class action under the Securities Exchange Act, 15 U.S.C. 78j(b), asserted that Zebra CEO Gustafsson and CFO Smiley duped investors by knowingly issuing false statements.
The Seventh Circuit affirmed the dismissal of the complaint. Retirement System failed to state an adequate section 10(b) claim and did not satisfy the pleading requirements of the Private Securities Litigation Reform Act (PSLRA). The Securities Act does not impose a duty of total corporate transparency; nor does the Act demand perfection from forecasts, which are inevitably inaccurate. Some cited statements were non-specific puffery. The PSLRA requires plaintiffs to “state with particularity facts giving rise to a strong inference” that defendants spoke with intent to deceive (scienter), 15 U.S.C. 78u–4(b)(2)(A). Executives possess only limited information about the internal operations of other corporations. Gustafsson and Smiley would have known comparatively little about Motorola’s operations until consolidation was underway. While retrospective statements are held to a higher standard Retirement System challenged only statements made before or during integration.
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