by arguing that the assertion that TLI was late to the market is not a material fact under the securities laws because the public was already aware of such fact.
In TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 48 L. Ed. 2d 757, 96 S. Ct. 2126 (1976), the Supreme Court defined the standard of materiality within the concept of proxy solicitations under Rule 14a-9 of the Exchange Act.
The Court stated that an omitted fact is material if there is a substantial likelihood that a reasonable investor would consider it important. Id. at 449. "Put another way, there must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the 'total mix' of information made available." Id. Moreover, there can be no liability under the securities laws because of an alleged failure to disclose information that is already available to the public. This is because such information is already part of the "total mix." In re Kulicke & Soffa Industries, Inc. Sec. Litig., 697 F. Supp. 183, 186 (E.D. Pa. 1988); In re Goodyear Tire & Rubber Company Sec. Litig., 1993 U.S. Dist. LEXIS 5333, *30 (E.D. Pa. April 21, 1993).
Defendants have produced various documents which indicate that TLI's delay getting the W32 to market was already known to the public, even before the Class Period. Initially, TLI expected meaningful sales contributions from the W32 to begin in the fourth quarter of 1992 and announced such in a press release dated April 27, 1992. On August 28, 1992, Wheat First Securities reported that TLI was approximately a quarter behind its original schedule on the W32. (Ex. 21 of Defs.' Mem.). Furthermore, on September 10, 1992, the Wall Street Journal reported that TLI's W32 was three months behind schedule. (Ex. 14 of Defs.' Mem.). On October 30, 1992, Pacific Growth Securities reported that regular production shipments of the W32 would begin in early 1993 rather than in the fourth quarter of 1992 because of a process change required at Toshiba, TLI's foundry. (Ex. 22 of Defs.' Mem.). Again, on November 18, 1992, Pacific Growth Securities announced that TLI would have had more design wins had it not experienced last minute problems with its foundry. (Ex. 23 of Defs.' Mem.).
Thus, the fact that TLI was late to the market was available to the investing public even prior to Defendants' statements in February 1993. Since this information had already entered the market, the facts allegedly omitted by Defendants would already be reflected in the stock's price. In re Apple Computer Sec. Litig., 886 F.2d 1109, 1114 (9th Cir. 1989). I find that Plaintiffs have failed to demonstrate that the claimed omissions involved material facts. Therefore, summary judgment will be granted in favor of Defendants on Plaintiffs' claim that the February 1, 1993 press release contained omissions of material fact.
2. March 9, 1993 Reuters Report
Defendant Gibbons was interviewed by Reuters news service on March 9, 1993 and was quoted as saying the he expected TLI to ship 1.2 to 1.7 million W32 units in the second quarter of 1993. As it turned out, Defendants ended up shipping approximately 844,056 W32 units in the second quarter.
Plaintiffs contend that even if TLI's best internal estimates for the second quarter were realized, the range given by Gibbons was unattainable. Defendants respond that the Reuters report was not an accurate reflection of the interview that took place. Specifically, Gibbons maintains that he told the reporter that he expected that "demand" for the W32 would be between 1.2 to 1.7 million units. Nevertheless, Defendants argue that even if Gibbons made the statement attributed to him, he had a reasonable basis for doing so.
a. "Fraud by Hindsight"
In essence, Plaintiffs claim that because Gibbons' forward looking statement to Reuters report did not materialize, it must have been fraudulent when made. However, a claim under 10(b) and Rule 10b-5 is not stated solely because a projection later proves to be inaccurate. Eisenberg v. Gagnon, 766 F.2d 770, 776 (3d Cir.), cert. denied, 474 U.S. 946, 88 L. Ed. 2d 290, 106 S. Ct. 342, 106 S. Ct. 343 (1985). This "fraud by hindsight" concept was discussed in the case of In re Donald J. Trump Sec. Litig., 793 F. Supp. 543 (D.N.J. 1992), aff'd, 7 F.3d 357 (3d Cir. 1993), cert. denied, 510 U.S. 1178, 127 L. Ed. 2d 565, 114 S. Ct. 1219 (1994):
We are wary, too, of the dangers raised by claims of "fraud by hindsight." Monday morning quarterbacking cannot present actionable securities fraud claims. . . . At one time the firm bathes itself in a favorable light. Later the firm discloses that things are less rosy. The plaintiffs contend that the difference must be attributable to fraud. . . . Because only a fraction of financial determinations reflect fraud, plaintiffs may not proffer the different financial statements and rest. Investors must point to some facts suggesting that the difference is attributable to fraud.
Trump, 793 F. Supp. at 556-57, quoting, DiLeo v. Ernst & Young, 901 F.2d 624, 627 (7th Cir), cert. denied, 498 U.S. 941, 112 L. Ed. 2d 312, 111 S. Ct. 347 (1990).
In order to establish liability for a forward looking statement such as the one made by Gibbons, a plaintiff must prove that the statement was untrue when made and made with scienter. Eisenberg v. Gagnon, 766 F.2d 770, 776 (3d Cir.), cert. denied, 474 U.S. 946, 88 L. Ed. 2d 290, 106 S. Ct. 342, 106 S. Ct. 343 (1985) (citations omitted). A forward looking statement is untrue if made without a reasonable basis- that is, without a sound factual or historical basis. Id. Plaintiffs assert that Gibbons had absolutely no basis to make his statement because at the time the statement was made TLI had both inadequate supply and demand to ship in the upper realm of the 1.2 to 1.7 million range stated by Gibbons.
a. Defendants' Supply of W32 Units
As of March 9, 1993, TLI had ordered approximately 1.2 million W32s from Toshiba for delivery in the second quarter of 1993. (Ex. 24 of Defs.' Mem.). TLI also ordered an additional 325,000 units for delivery during the second quarter of 1993 for a total of 1,525,000 units. Plaintiffs cite a letter dated February 1, 1993 from Toshiba proposing a support plan by which Toshiba would provide capacity for up to 1.45 million chips in the second quarter and argue that this amount is "far less than the 1.7 million units of the upper end of Gibbons' projections." See Pls.' Mem. at 52, n.40. Defendants correctly point out that the 1.45 million figure is also far above the lower end of Gibbons' range. Defendant Gibbons does not dispute that at the time he was interviewed by the Reuter's reporter on March 9, 1993, he did not expect Toshiba to be able to supply TLI in the upper end of the range. However, Reuters printed a range and the undisputed facts show that Toshiba had the capacity to supply TLI with enough W32s to be well within such a range.
b. Customer Demand for W32 Units
Gibbons indicates that his statement to Reuters was based on discussions with TLI's customers and the TLI sales department in addition to his review of sales forecasts and actual orders. (Gibbons Dep. at 109, Ex. 55 of Defs.' Mem.). Plaintiffs maintain that TLI's "own internal documents reveal that [TLI] had nowhere near orders for 1.2 million units at the time of Gibbons' interview." See Pls.' Mem. at 71. In support of this proposition, Plaintiffs rely on TLI Open Order Reports dated February 26, 1993 and March 31, 1993 as well an internal forecast produced on March 15, 1993.
The Open Order Report dated February 26, 1993 contained only actual orders for the W32 prior to that date. This report did not account for the fact that TLI expected to receive more orders for the W32 after that date. Furthermore, the prospect of additional orders was strong in light of the fact that approximately 50% of TLI's sales in a quarter traditionally occurred in the last month of the quarter.
See Kirby v. Cullinet Software, Inc., 721 F. Supp. 1444, 1453 (D. Mass. 1989) (holding plaintiff's argument that modest sales in first quarter made it reckless for defendants to project 30% growth in same quarter not supported by record since evidence showed a majority of defendant's sales occurred at end of quarter). As for the March 31, 1993 Open Orders report and the March 15, 1993 forecast, both were prepared after Gibbons' interview with Reuters. Furthermore, the March 15, 1993 forecast was based on internal discussions, not with TLI's customers.
In short, the evidence submitted by Plaintiffs is insufficient to show that Gibbons lacked a reasonable basis at the time of his statement to Reuters and Defendants could not foresee that its customers would experience delays in their own manufacturing facilities. "An inability to foresee the future does not constitute fraud." Eckstein v. Balcor Film Investors, 8 F.3d 1121, 1132 (7th Cir. 1993). Furthermore, "on its face, the word 'expects' limits [a] statement's potential to mislead." Pache v. Wallace, 1995 U.S. Dist. LEXIS 3511, No. 93-5164, 1995 WL 118457 at *3. (E.D. Pa. March 20, 1995), aff'd, 72 F.3d 123 (3d Cir. 1995). Accordingly, summary judgment will be granted in favor of Defendants on this claim.
For the reasons expressed above, I am granting Defendants' Motion for Summary Judgment and will, therefore, enter the following Order:
AND NOW, this 19th day of March, 1996, upon consideration of Defendants' Motion for Summary Judgment, and the response thereto, it is hereby ORDERED that said motion is GRANTED. Judgment is entered in favor of Defendants and against Plaintiffs.
BY THE COURT:
Robert F. Kelly, J.