plaintiff, Commodore bought back one-third of the warrants it had transferred at six dollars apiece on March 14, 1989, almost one third of the way through the life of the senior notes. On May 9, 1991, almost two-thirds of the way through the life of those notes, Commodore re-purchased precisely the same number of warrants at precisely the same price. The loan from Prudential was arranged, according to plaintiff, by Medhi R. Ali, who is the current president of Commodore but who worked for Prudential in 1987. Plaintiff claims that the timing of the re-purchases made no sense from either party's perspective, and that therefore the re-purchases must have been the result of a prior, undisclosed agreement between Commodore and Prudential.
This issue may proceed. I will permit a 60-day period of discovery only on the allegation of Commodore's undisclosed obligation to buy back warrants from Prudential. After 60 days, the parties may submit whatever motions they think appropriate.
With respect to the Commodore defendants' representations about CDTV, summary judgment is appropriate. Despite plaintiff's re-characterizations and, indeed, mischaracterizations of Commodore's promises about CDTV, it is clear from the press releases themselves, recited above, that Commodore said nothing which reasonable jurors could find was both misleading and material. There is therefore no genuine issue precluding judgment for the Commodore defendants.
All of Commodore's statements about CDTV either constitute unactionable "puffing" (CDTV is "revolutionary," it can "change the world," could "be what VCR's . . . were to the 1980's"),
or they are not misleading. Commodore promised only that it would have 50 titles "in [its] introductory phase," not that it would have them immediately.
Mr. Gould announced that CDTV represented a "major potential opportunity" -- which could only be taken as a doubly qualified advertisement, not any kind of promise at all. The analysts' "great enthusiasm" for CDTV was accompanied by the company's precise bases for so reporting. Finally, Commodore said clearly that early CDTV sales were only "nominal."
Plaintiff points to the subsequent admission of Commodore's chief financial officer, defendant Ronald B. Alexander, that Commodore "never expected [CDTV] to be an instant success," as evidence of the company's duplicity. Mr. Alexander's statement, however, is wholly consistent with Commodore's other, earlier representations that CDTV's success would be gradual.
That the complaint only charges Commodore with "hinting that CDTV . . . would pave the way for the company's future growth" suggests the plaintiff's larger inability to allege, at least in compliance with Rule 11, that Commodore actually misstated or misrepresented anything material. Summary judgment for defendants is appropriate.
4. Reliance on the European Market
Finally, the Commodore defendants are also entitled to summary judgment on the claim that they falsely portrayed Commodore's continued growth in a shrinking European market. The thrust of plaintiff's allegation, narrowed now through two complaints, several memoranda, and one oral argument, is that without telling its shareholders, Commodore drastically reduced its computer prices in Europe so as to continue to report high sales volume despite the European recession. As the Commodore defendants have pointed out, however, there is no actionable fraud in failing to report a price decrease (assuming that is what happened), because Commodore accurately reported both its large drop in earnings and its much smaller drop in sales. Anyone with an elementary mathematics education could determine that Commodore's sale price dropped proportionately.
When the undisclosed elements of a company's financial situation are obvious from that which the company does disclose, the company cannot be held liable for a material omission. As Judge McGlynn held in In Re Bell Atlantic Securities Litigation, No. 91-0514, 1993 U.S. Dist. LE3XIS 12023, 1991 WL 234236 (E.D. Pa. Oct. 30, 1991):
Simple calculations show expenses were increasing at a higher percentage rate than operating revenues from the second to the third quarters. Although the average investor may not take the time to do the calculations, the information was available from which he could conclude on his own that expense growth was "outstripping" revenue growth.
Id. at *5. All pertinent information was similarly available here. No reasonable juror could find that the Commodore defendants defrauded stockholders about the company's growth in Europe.
Plaintiff's argument relies on the theory that the whole of Commodore's alleged fraud is greater than the sum of its parts. Cumulatively, plaintiff contends, Commodore's small, individual "misrepresentations" in its financial reports and press releases amounted to one larger, intentional scheme to conceal the company's failing financial health.
I disagree. With the one exception discussed, none of the alleged misrepresentations even presents a genuine issue of fact about fraud on the part of Commodore (much less Andersen). Plaintiff fails to rebut defendants' strong documentary evidence that there was no actionable fraud in Commodore's financial statements, in its predictions for CDTV, or in its reports about its growth in the European market. Consequently, even taken together, these allegations do not amount to fraud.
Only with respect to Commodore's alleged undisclosed obligation to re-purchase stock warrants from Prudential is there an issue of potential fraud. This question alone, as against the Commodore defendants alone, may proceed to discovery.
Plaintiff's state claim of negligent misrepresentation against the Commodore defendants may also therefore survive, at least through the 60-day discovery period. An order follows.
ORDER - August 27, 1993, Filed; August 30, 1993, Entered
AND NOW, this 26th day of August, 1993, it is hereby ordered that:
1. Defendants' motions to dismiss are converted to motions for summary judgment pursuant to Federal Rule of Civil Procedure 12(b).
2. Summary judgment is entered for defendant, Arthur Andersen & Co.
3. Summary judgment is entered for defendants, Commodore International Limited, Irving Gould, Medhi R. Ali, and Ronald B. Alexander, except insofar as they are alleged to have failed to disclose an obligation to re-purchase warrants from the Prudential Insurance Company.
4. With respect to that remaining claim, all discovery shall be completed on or before Monday, October 25, 1993.
BY THE COURT:
J. William Ditter, Jr., J.