Fait v. Regions Financial Corp.
2011 U.S. App. LEXIS 17517
| 2d Cir. | 2011Background
- Regions Financial acquired AmSouth Bancorporation in Nov 2006 for about $10 billion.
- Regions filed its 2007 Form 10-K reporting $11.5 billion in goodwill, $6.6 billion tied to AmSouth.
- Regions increased its loan loss reserves from $142.4 million to $555 million year-over-year.
- In 2008, Regions Financing Trust III issued 13.8 million Trust Preferred Securities in a registered offering.
- Offering Documents incorporated Regions' 2007 Form 10-K and related SEC filings.
- Plaintiff alleges the Offering Materials overstated goodwill and underestimated loan losses, violating Securities Act sections 11 and 12.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Are goodwill statements actionable as misstatements of fact? | Rensin argues goodwill was misstated as value. | Regions argues goodwill is a judgmental opinion. | Statements are opinions; not actionable. |
| Are loan loss reserve statements actionable as misstatements of fact? | Reserves were inadequate given mortgage risk. | Reserves reflect management judgment; not objective facts. | Reserve statements are opinions; not actionable. |
| Do SOX/GAAP/GAAS allegations survive given opinion-based claims? | Alleged standards were violated in filings. | Claims rely on opinion, not misstatements of fact. | Allegations fail as opinions; no liability. |
| Did the complaint plead objective falsity and non-belief under Virginia Bankshares? | Defendants did not honestly hold beliefs at filing. | Statements reflected opinions honestly held. | No objective falsity shown; claims fail. |
| Are Sections 11/12 claims viable against non-issuers like underwriters or auditors? | Non-issuers liable for negligence. | Only some defendants bear liability; reliance on beliefs matters. | Claims against non-issuers fail on stated grounds. |
Key Cases Cited
- Virginia Bankshares v. Sandberg, 501 U.S. 1083 (U.S. 1991) (opinions can be actionable if false when held)
- In re Morgan Stanley Info. Fund Sec. Litig., 592 F.3d 347 (2d Cir. 2010) (negligence and misstatement standards for §11/12)
- Friedman v. Mohasco Corp., 929 F.2d 77 (2d Cir. 1991) (projections/opinions not actionable as guarantees)
- In re Time Warner Inc. Sec. Litig., 9 F.3d 259 (2d Cir. 1993) (expressions of opinion/projections not actionable absent falsity)
- In re IBM Corp. Sec. Litig., 163 F.3d 102 (2d Cir. 1998) (expressions of optimism not actionable as claims)
- Data Probe Acquisition Corp. v. Datatab, Inc., 722 F.2d 1 (1st Cir. 1983) (necessity of verifiable facts in statements)