KAREN A. CARVELLI, individually and on behalf of all others similarly situated, UNIVERSITY OF PUERTO RICO RETIREMENT SYSTEM, Lead Plaintiff, RYAN HUSEMAN, versus OCWEN FINANCIAL CORPORATION, RONALD M. FARIS, MICHAEL R. BOURQUE, JR.,
No. 18-12250
IN THE UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT
August 15, 2019
D.C. Docket No. 9:17-cv-80500-RLR
[PUBLISH]
KAREN A. CARVELLI, individually and on behalf of all others similarly situated, Plaintiff,
UNIVERSITY OF PUERTO RICO RETIREMENT SYSTEM, Lead Plaintiff, Plaintiff - Appellant,
RYAN HUSEMAN, Consolidated Plaintiff,
versus
OCWEN FINANCIAL CORPORATION, RONALD M. FARIS, MICHAEL R. BOURQUE, JR., Defendants - Appellees.
Appeal from the United States District Court for the Southern District of Florida
(August 15, 2019)
Before WILLIAM PRYOR, NEWSOM, and BRANCH, Circuit Judges.
The University of Puerto Rico Retirement System purchased Ocwen Financial Corporation common stock at an allegedly inflated price after a series of statements by Ocwen‘s officers implied that the company would emerge from a regulatory mess. When Ocwen‘s stock price instead began to fall, the Retirement System brought a private securities-fraud action under §§ 10(b) and 20(a) of the
I
A
Ocwen is a financial-services company that focuses primarily on mortgage servicing—in particular, by processing borrower payments, administering loan loss-mitigation operations, and managing foreclosures. Between 2009 and 2012, Ocwen grew from big to bigger, expanding its portfolio from approximately 350,000 loans with an unpaid principal balance of roughly $50 billion to more than 1.2 million loans with a balance north of $200 billion. To manage the considerable amount of information required to administer all those loans, Ocwen used a software called REALServicing. Unfortunately for Ocwen, REALServicing didn‘t really work—the software, as it turned out, was incapable of properly tracking borrowers’ accounts and payments, and it recorded inaccurate information about interest, late fees, escrow accounts, or completed payments for up to 90% of the loans in the system.
These systemic shortcomings caused Ocwen to fail to timely and accurately apply borrower payments and maintain accurate account statements, to charge unnecessary and unauthorized fees, to impose force-placed insurance on borrowers who already had adequate coverage, and, worst of all, to initiate wrongful foreclosures on numerous loans. An outside consultant found that REALServicing had limited functionality and that Ocwen‘s “lack of business process automation had resulted in excessive manual processes,” which “posed significant risk in a heightened compliance environment.” These and other similar issues prompted Ocwen‘s former Head of Servicing to describe REALServicing as “an absolute train wreck” and to lament that “[e]very business unit in the entire organization[] lacked sufficient controls to prevent mistakes and to detect when mistakes occur.” Another former Head of Servicing similarly—if less colorfully—worried that Ocwen “could not service loans on REALServicing in compliance with applicable laws.”
Those concerns were apparently well-placed; the Consumer Financial Protection Board filed a civil action against Ocwen in 2012 for “violating consumer financial laws at every stage of the mortgage servicing process.” Other federal and state entities followed suit. Ocwen signed a consent order with 49 state attorneys general in 2013 that “required Ocwen to provide over $2 billion in relief to wronged homeowners and subject itself to a monitor . . . and a monitoring committee“; a consent order with the New York Department of Financial Services in 2014 that required Ocwen to adopt a “system of robust internal controls and oversight” and pay $150 million in fines and restitution; and a consent order with the California Department of Business Oversight in 2015 that required Ocwen to pay a $2.5 million fine and stop acquiring new mortgage-servicing rights in California until it could satisfactorily comply with the Department‘s requests for information.
The present suit arises from a series of statements that Ocwen made between 2015 and 2017, the years immediately following the federal and state regulatory actions. During this period, Ocwen stated, among other things, that it had “invested heavily in compliance and risk management,” such that its “operations [were] now mature and delivering improved controls and results,” and that it “expect[ed] the next round of results from the National Mortgage Settlement monitor to show that [it] ha[d] made progress in improving [its] internal testing and compliance monitoring.” Ocwen also asserted that it “believe[d] it ha[d] effective controls in place to ensure compliance with the California Homeowners Bill of Rights and all single point of contact requirements under federal and state laws.” In a 2015 earnings call with investors, President and CEO Ron Faris told investors that Ocwen was “committed to correcting any deficiencies, remediating any borrower harm, and improving our compliance management systems and customer
Despite this optimistic outlook, the financial effects of Ocwen‘s internal problems began to bubble to the surface in February 2016, when it released its Form 10-K for the 2015 fiscal year. Ocwen reported higher-than-expected monitoring and compliance costs in connection with its settlements and other regulatory and litigation matters. The company explained, in an accompanying
presentation, that it had incurred $170 million in monitoring expenses in 2015 and that it expected elevated legal costs to persist in 2016. Following this news, the price of Ocwen common stock dropped 58%, falling from an opening price of $5.02 on February 29, 2016, to $2.11 on March 1, 2016.
Ocwen stock continued to plummet over the next few months, even while company officials continued to maintain that the company‘s difficulties were not insurmountable. In July 2016, Ocwen‘s Second Quarter Form 10-Q reported that “[w]e are . . . intensely focused on improving our operations to enhance borrower experiences and improve efficiencies, both of which we believe will drive stronger financial performance through lower overall costs.” The 10-Q further stated that “[w]e believe[] [our] significant investments in servicing operations [and] risk and compliance infrastructure over recent years will position us favorably relative to our peers.” And in a conference call that same month, Faris said that “[a]s a Company we continue to make progress in resolving our legacy issues” and that “this legal spend is now largely behind us.” He also stated that Ocwen “remain[ed] focused on compliance, risk management, and service excellence” and was “striving to regain approvals to be able to acquire [mortgage-servicing rights] again” and to “resolve [its] remaining legacy, regulatory, and legal concerns.” On news that Ocwen was working toward a settlement with its monitor from the California Department of Business Oversight, Ocwen common stock rose 7.1% to close at $1.81 on July 28, 2016.
Over the next few months, Ocwen officials continued to express optimism about the prospect of overcoming regulatory hurdles, and Ocwen‘s stock prices continued to climb. In an October 2016 press release, Ocwen‘s board of directors stated that the company “remain[ed] focused on putting legacy matters behind us” and “continue[d] to progress towards a potential resolution with the California Department of Business Oversight to end the current consent order and associated third party auditor before year-end.” On October 27, 2016, Ocwen‘s share price rose 10.8% to close at $4.12.
But alas, trouble soon resurfaced. In February 2017, Ocwen spin-off Altisource revealed that the CFPB was weighing a potential enforcement action against it based on a violation of federal law that arose from REALServicing. And around the same time, Ocwen admitted in its Form 10-K for the period ending December 31, 2016, that it had spent $12.5 million in connection with investigations.
B
Based on what they alleged to be Ocwen‘s unrealistically optimistic statements and its failure to disclose the extent of its software-related problems, the Retirement System and several other investors filed a putative class action in August 2017, asserting claims for securities fraud under
Ocwen moved to dismiss, arguing that the complaint didn‘t sufficiently allege any material misrepresentations or omissions under the
II
Section 10(b) of the
regulations as the [SEC] may prescribe as necessary or appropriate in the public interest or for the protection of investors.”
To state a claim for securities fraud under
A misrepresentation or omission is material if, “in the light of the facts existing at the time,” a “reasonable investor, in the exercise of due care, would
have been misled by it.” FindWhat Investor Grp. v. FindWhat.com, 658 F.3d 1282, 1305 (11th Cir. 2011) (citation omitted). In other words, materiality depends on whether a “substantial likelihood” exists that a “reasonable investor” would have viewed a misrepresentation or omission as “significantly alter[ing] the ‘total mix’ of information made available.” S.E.C. v. Morgan Keegan & Co., 678 F.3d 1233, 1245 (11th Cir. 2012) (quoting TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976)).3 When it comes to omissions specifically, the Supreme Court has clarified that “[s]ilence, absent a duty to disclose, is not misleading under
The question of materiality is not subject to a bright-line test, see id. at 30, but instead depends on the specific circumstances of each case, including the totality of information available to investors, see id. at 37–45. The materiality requirement aims to strike a balance between protecting investors and allowing companies to distribute information without perpetual fear of liability—in essence,
to ensure that not every minor misstatement provides litigation fodder for disgruntled investors.
Before moving on to discuss the particular statements—and omissions—at issue in this case, we should pause briefly to explain the triple-layered pleading standard that a private securities plaintiff like the Retirement System faces. To survive a motion to dismiss, a securities-fraud claim brought under
Turning to the claims at issue in this case, the Retirement System alleges that Ocwen made numerous material misrepresentations and omissions because, at the time the company was touting improvements and painting a rosy picture of its future prospects, it remained out of compliance with regulatory settlements and, more importantly, remained unable to remedy that noncompliance. After careful review, we find that none of Ocwen‘s statements rises to the level of an actionable misrepresentation of material fact. Some statements are immaterial puffery, some are mere statements of opinion, some fall within the PSLRA‘s safe-harbor for forward-looking statements, and still others are simply not alleged to be false. Additionally, we find that the Retirement System failed to allege any actionable omissions—nothing that Ocwen failed to disclose rendered already-disclosed information misleading in context. Matrixx, 563 U.S. at 44. We will explain, in turn, our conclusions in more detail.
A
1
The district court determined that the majority of Ocwen‘s statements were nonactionable because they constituted immaterial “puffery.” Puffery comprises generalized, vague, nonquantifiable statements of corporate optimism. See Omnicare, Inc. v. Laborers Dist. Council Const. Indus. Pension Fund, 135 S. Ct. 1318, 1326 (2015) (differentiating between “mere puffery” and “determinate, verifiable statement[s]” about a company‘s products). The puffery “doctrine” presumes a relatively (but realistically) savvy consumer—the general idea being that some statements are just too boosterish to justify reasonable reliance. In general parlance, “puffing” is
While these slogans may be of relatively recent vintage, puffery itself—and in particular its relevance to the law—is nothing new. The concept “derives from a common-law defense to the tort of deceit or fraudulent misrepresentation.” Restatement (Second) of Torts § 542 cmt. e (Am. Law Inst. 1977). The legal origins of the term “puffery,” so far as we can tell, trace back at least as far as a nineteenth-century English case involving a manufacturer‘s promise to compensate customers if they contracted the flu after properly using its “carbolic smoke ball“—a rubber ball and tube that allowed users to inhale vapors purported to prevent disease. See Carlill v. Carbolic Smoke Ball Co., [1893] 1 Q.B. 256 (Eng. Wales CA). After a customer who came down with the flu tried unsuccessfully to collect, she sued the company. Id. At trial, the manufacturer defended by labeling its statement “mere puff“—sales talk. Id. Although the manufacturer lost because the panel determined that it made a valid offer to contract by placing the promised compensation in escrow, the panel‘s opinion also accepted that some advertisements—“mere puff“— clearly aren‘t meant to be taken seriously. See id.4
Back to the present. While this Court has accepted the puffery defense in the common-law context, we‘ve yet to apply it in a reported securities-fraud case. See Next Century Commc‘ns Corp. v. Ellis, 318 F.3d 1023, 1028–29 (11th Cir. 2003) (characterizing a comment concerning “strong performance” as nonactionable puffery in a Georgia fraud suit).5 We see
context.
As the Third Circuit has explained, “[t]o say that a statement is mere ‘puffing’ is, in essence, to say that it is immaterial, either because it is so exaggerated (‘You cannot lose.‘) or so vague (‘This bond is marvelous.‘) that a reasonable investor would not rely on it in considering the ‘total mix of [available] information.‘” Hoxworth v. Blinder, Robinson & Co., 903 F.2d 186, 200–01 (3d Cir. 1990) (citation and internal quotation marks omitted). So too the Eighth Circuit: “A statement is not material and is mere puffery, if it is ‘so vague and such obvious hyperbole that no reasonable investor would rely upon [it].‘” In re Stratasys, Ltd. S‘holder Sec. Litig., 864 F.3d 879, 882 (8th Cir. 2017) (citation and internal quotation marks omitted); see also Eisenstadt v. Centel Corp., 113 F.3d 738, 746 (7th Cir. 1997) (“Mere sales puffery is not actionable under
“expect[s] to continue to allocate significant resources” to regulatory compliance, Singh v. Cigna Corp., 918 F.3d 57, 64 (2d Cir. 2019), “generalized statements about [a company‘s] transparency, quality, and responsibility,” Emp‘s Ret. Sys. v. Whole Foods Mkt., Inc., 905 F.3d 892, 902 (5th Cir. 2018), and a description of company products as being “unmatched” in “reliability, quality and connectivity,” In re Stratasys, 864 F.3d at 882.
One final point—an asterisk of sorts—before proceeding to consider how Ocwen‘s statements stack up. Materiality is itself a mixed question of law and fact—as the Supreme Court recognized in TSC Industries, a materiality determination “requires delicate assessments of the inferences a ‘reasonable shareholder’ would draw from a given set of facts and the significance of those inferences to him, and these assessments are peculiarly ones for the trier of fact.” 426 U.S. at 450. That a statement smacks of puff is certainly a strong indicator of immateriality. But—and here‘s the caveat—it‘s not necessarily a clincher. A conclusion that a statement constitutes puffery doesn‘t absolve the reviewing court of the duty to consider the possibility—however remote—that in context and in light of the “total mix” of available information, a reasonable investor might nonetheless attach importance to the statement. Morgan Keegan, 678 F.3d at
1245.6 Accordingly, when considering a motion to dismiss a securities-fraud action, a court shouldn‘t grant unless the alleged misrepresentations—puffery or otherwise—are “so obviously unimportant to a reasonable investor that reasonable minds could not differ on the question of their importance.” Ganino v. Citizens Util. Co., 228 F.3d 154, 162 (2d Cir. 2000) (citation omitted).
2
So, what of Ocwen‘s statements promising, among other things, that it continued “to devote substantial resources to . . . regulatory compliance and risk management efforts,” that its investments in those areas were “now mature and delivering improved results,” that it felt “good about the progress” it had made towards its “national mortgage settlement compliance,” and that it had “taken a leading role in helping to stabilize communities most affected by the financial crisis“? The district court reasoned that these statements—and others like them—weren‘t the sort that a reasonable investor could possibly regard as significant because “Ocwen never said it was in compliance with regulations but rather made vague statements about its efforts towards compliance.” In short, Ocwen‘s statements were puffery.
The Retirement System raises two objections. First, it contends that Ocwen‘s statements can‘t be nonactionable puffery because Ocwen did not “genuinely or reasonably believe them.” Br. of Appellant at 22 (quoting IBEW Local Union No. 58 Pension Trust Fund and Annuity Fund v. Royal Bank of Scotland Grp., 783 F.3d 383, 392 (2d Cir. 2015)). This argument fails. Whether a statement was made in bad faith or without a reasonable basis is irrelevant to the question whether the statement is nonetheless so airy as to be insignificant. Certainly, such considerations could (and very well may be) relevant to whether the statements were made with the requisite level of scienter or whether the statements are entitled to safe-harbor protection (more on that later)—but what matters for materiality purposes is whether a statement is of a type that a reasonable investor would find relevant to investment decision-making. Put another way, “[t]he anti-fraud provisions of the securities laws are plainly disinterested with immaterial statements, no matter the state of mind of the speaker.” Edward J. Goodman, 594 F.3d at 796; see also W. Page Keeton, et al., Prosser and Keeton on the Law of Torts § 109, at 757 (5th ed. 1984) (“The puffing rule amounts to a seller‘s privilege to lie his head off so long as he says nothing specific, on the theory that no reasonable man would believe him or that no reasonable man would be influenced by such talk.“).
Second, and more concretely, the Retirement System argues that the statements deemed puffery by the district court are, in fact, material. In our view, though, the complained-of statements are quintessential puffery. Ocwen‘s proclamations that it was devoting “substantial resources” to its problems, with “improved results,” as well as its boasts that it was taking a “leading role” and making “progress” toward compliance are precisely the sorts of statements that our sister circuits have—we think correctly—deemed puffery and found immaterial as a matter of law. See, e.g., Singh, 918 F.3d at 64; Whole Foods Mkt., 905 F.3d at 902.
The Retirement System nonetheless insists that these statements become materially misleading when considered in context—because nothing had changed with REALServicing, it argues, promises about improvements and progress were false, and significantly so. We disagree. As both parties acknowledge, the market was well aware of Ocwen‘s regulatory problems—the consent orders, the auditors, and the fines were far from secret, and indeed were addressed openly in Ocwen‘s filings, investor calls, and press releases. To the extent that the Retirement System contends that Ocwen had a duty to disclose the specifics of its technological difficulties, its position is untenable. A duty to disclose
What‘s more, attending to the context of the complained-of statements, at times, actually cuts the Retirement System‘s argument out from under it. For example, the Retirement System‘s complaint highlights Ocwen‘s announcement that “[a]s a company we continue to make progress in resolving our legacy issues.” But the complaint elides the remainder of the sentence, including the recognition that “there is more work to be done.” That context matters in the materiality analysis cuts both ways.
In sum, we conclude that a number of Ocwen‘s statements can‘t be classified as material misrepresentations because no reasonable investor would have considered them in making investment decisions—in short, because they weren‘t material.
B
Other challenged statements are nonactionable for a different-but-related reason: they‘re opinions. The Supreme Court has explained in the analogous
First, the Court has explained, every statement of opinion “explicitly affirms one fact: that the speaker actually holds the stated belief.” Id. Thus, a statement of opinion that “falsely describe[s] [the speaker‘s] own state of mind” is an untrue statement of fact—as to what the speaker actually believes—and accordingly will “subject the issuer to liability (assuming the misrepresentation were material).” Id. For example, the statement “I believe that the earth is flat” may be true even if the earth is, in fact, round—but it can‘t be true if the speaker actually believes that the earth is round. Second, the Court pointed out, when statements of opinion “contain embedded statements of fact,” a speaker may be liable “if the supporting fact she supplied were untrue.” Id. at 1327. So, if a CEO states that “we believe that our product, which contains a state-of-the-art 2019 gadget, is the best on the market,” she can be liable if she knows that the product actually contains a refurbished 2015 gadget—in other words, if the embedded statement of fact (here, the gadget‘s
The Retirement System complains that Ocwen asserted, among other things, that—
- “[W]e believe that our competitive strengths flow from our ability to control and drive down delinquencies through the use of proprietary technology and processes and our lower cost to service.”
- “[We] believe significant investments in our servicing operations, risk and compliance infrastructure over recent years will position us favorably relative to our peers.”
- “[W]e expect the next round of results from the National Mortgage Settlement monitor to show that we have made progress in improving our internal testing and compliance monitoring.”
The district court concluded that these statements—and others like them—were nonactionable because they expressed only “belie[f]” and “expect[ation].” On appeal, the Retirement System contends that these statements violate
At best, the Retirement System alleged facts giving rise to an inference that Ocwen perhaps could or should have known that it would have difficulty improving results. But that‘s not enough—under the
There‘s more. Several other statements, the district court found, were forward-looking statements that are immune from liability under the
A forward-looking statement is what it sounds like—a prediction, projection, or plan.9 The safe-harbor provision ensures that, in a private securities-fraud action under
(A) the forward-looking statement is—
(i) identified as a forward-looking statement, and is accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statement; or
(ii) immaterial; or
(B) the plaintiff fails to prove that the forward-looking statement . . . was made with actual knowledge by that person that the statement was false or misleading.
A
The Retirement System contends that the safe harbor doesn‘t apply to several of Ocwen‘s statements because they were made within three years of a cease-and-desist order regarding violations of
We reject the legal premise that
Not surprisingly, while this Court has yet to determine whether
Having cleared away that bit of underbrush, let‘s head back to the four corners of the safe-harbor provision. The provision, if you‘ll recall, is framed in the disjunctive—it provides three independent, alternative means of inoculating forward-looking statements: those that are (1) accompanied by meaningful cautionary language, (2) immaterial, or (3) made without actual knowledge of their falsity. See
The first prong “requires courts to examine only the cautionary statement accompanying the forward-looking statement” and not “the state of mind of the person making the statement.” Harris v. Ivax Corp., 182 F.3d 799, 803 (11th Cir. 1999) (quoting H.R. Conf. Rep. 104-369, at 44 (1995), reprinted in 1995 U.S.C.C.A.N. 730, 743). In other words, “if a statement is accompanied by ‘meaningful cautionary language,’ the defendants’ state of mind is irrelevant.” Id. The second prong provides safe harbor for immaterial statements,11 and the third prong gives a defendant protection when the plaintiff “fails to prove” that a forward-looking statement was made with actual knowledge that the statement was false or misleading. See Bryant v. Avado Brands, Inc., 187 F.3d 1271, 1284 n.7 (11th Cir. 1999).
After reviewing the complaint and the district court‘s opinion, we agree that several of Ocwen‘s statements—like those that follow—fall within the safe harbor:
- A January 2015 news release stating that “[w]e expect our ongoing cooperation [with the California Department of Business Oversight] will result in a satisfactory outcome for all parties.”
- An April 2015 earnings call stating that Ocwen expected “to continue to be profitable and generate strong operating cash flow; continue to demonstrate strong corporate governance, risk management and compliance management; continue to refocus on improving operating margins in the servicing business.”
- A July 2015 earnings call stating that Ocwen believed that its servicer rating “should improve to levels similar to other large servicers” and would “continue to provide strong servicing results.”
The Retirement System contends that these and similar statements aren‘t shielded under the safe harbor because (1) some weren‘t accompanied by meaningful cautionary language and were knowingly false and (2) others contained false statements of present fact. We will consider each objection in turn.
1
We first consider the Retirement System‘s contention that the statements aren‘t accompanied by meaningful cautionary language. While boilerplate won‘t suffice, the meaningful-cautionary-language obligation “does not require a listing of all factors“—it‘s enough that an issuer mention “important factors that could cause actual results to differ materially from those in the forward-looking statement.” Harris, 182 F.3d at 807 (citation
While the Retirement System doesn‘t dispute this premise, it asserts that none of the cautionary language in the statements here could be “meaningful” because Ocwen‘s technology failures—which would preclude it from properly servicing loans and achieving regulatory compliance—had already occurred. In support of its argument, the Retirement System points to a D.C. Circuit decision that held that “cautionary language cannot be ‘meaningful’ if it is misleading in light of historical facts that were established at the time the statement was made.” In re Harman Int‘l Indus., Inc. Sec. Litig., 791 F.3d 90, 102 (D.C. Cir. 2015) (internal citation and quotation marks omitted).
Certainly, cautionary language can‘t be “meaningful” if it is nothing more than a front for present problems. After careful review, however, we find that the warnings accompanying Ocwen‘s complained-of statements here were meaningful, and none the less so because some of the warned-of risks related to events unfolding in the public eye. For example, in a January 2015 news release concerning regulatory action against it, Ocwen stated that “it [wa]s fully cooperating with the California Department of Business oversight [] to resolve an administrative action dated October 3, 2014” and that, going forward, it “expect[ed] [its] ongoing cooperation w[ould] result in a satisfactory outcome for all parties.” Accompanying this prediction was language explaining that many of Ocwen‘s statements were forward-looking, and identifying “uncertainty related to claims, litigation, and investigations brought by government agencies and private parties regarding our servicing.” Essentially, Ocwen disclosed a present problem (an administrative action against it), offered a forward-looking prediction (an expectation of a satisfactory outcome), and cabined its expectation with relevant cautionary language (the uncertainty that comes with agency actions and investigations).
The other challenged statements are more of the same: It was no secret that Ocwen faced ongoing regulatory action, and in each relevant disclosure Ocwen warned in some detail that it faced a serious risk of “claims, litigation, and investigations” regarding its “servicing, foreclosure, modification, origination and other practices,” underscoring that the risk arose from “uncertainty related to past, present or future investigations and settlements with state regulators, the Consumer Financial Protection Bureau . . . , State Attorneys General, the Securities and Exchange Commission . . . , the Department of Justice, or the Department of Housing and Urban Development . . . .” Given the circumstances, we find this language sufficient to warn an investor “of risks of a significance similar to that actually realized” and provide adequate “notice of the danger of the investment to make an intelligent decision about it according to her own preferences for risk and reward.” Harris, 182 F.3d at 807.
2
We next consider the Retirement System‘s contention that several purportedly forward-looking statements are ineligible for safe-harbor protection because they contain false statements of present fact. Ocwen‘s multiple statements that it was “‘committed’ to correcting any servicing deficiencies,” the Retirement System contends, “cannot be classified as ‘forward-looking’
We addressed a similar argument in Harris v. Ivax Corporation. There, investors alleged that a list of primarily forward-looking statements, sprinkled with a few assertions of present facts, was misleading when taken as a whole. 182 F.3d at 805-06. We held that the list fell within the safe harbor, despite the fact that it was a “mixed bag,” containing “some sentences that [were] forward-looking and some that [were] not.” Id. at 806. Key to this holding, however, was the investors’ allegation that the list as a whole was misleading. We clarified that our holding didn‘t give companies carte blanche to shield present statements of fact in the safe harbor, explaining that “a list or explanation will only qualify for this treatment” if any present-tense statements were limited to “assumptions underlying a forward-looking statement.” Id. at 807. Because “[f]orward-looking conclusions often rest both on historical observations and assumptions about future events,” we explained, “banish[ing] from the safe harbor lists that contain both factual and forward-looking factors . . . would inhibit corporate officers from fully explaining their outlooks.” Id. at 806.
Harris provides a helpful starting point for evaluating several of Ocwen‘s statements. As in Harris, the contested statements here “rest both on historical observations and assumptions about future events.” Id. To be sure, unlike the investors in Harris, the Retirement System challenges multiple individual statements rather than an entire list. That makes our job both easier and harder. On the one hand, it‘s easier because some of the complained-of statements are readily severable. To the extent that a lengthy statement includes distinct present-tense and forward-looking components, it makes sense to afford safe-harbor protection to the forward-looking portion (if applicable) and then evaluate the present-tense statement on its own. See Spitzberg v. Hous. Am. Energy Corp., 758 F.3d 676, 692 (5th Cir. 2014) (joining “the First Circuit, Third Circuit, and Seventh Circuit in concluding that a mixed present/future statement is not entitled to the safe harbor with respect to the part of the statement that refers to the present“) (footnotes and citations omitted). This approach, we think, best effectuates the purpose of the PSLRA, which extends safe harbor exclusively to statements that are forward-looking in nature. See
Take Ocwen‘s statement that “[w]e are fully cooperating with the Department of Business oversight[,] . . . .[and] expect our ongoing cooperation will result in a satisfactory outcome for all parties.” The first portion—that Ocwen is cooperating (currently, that is) to resolve a specific administrative action—is framed entirely in the present tense and isn‘t entitled to safe-harbor protection simply because it is appended to a forward-looking clause.12 The second portion—the expected result of a current action—is clearly forward-looking and, as we have already deemed the accompanying cautionary language adequate, qualifies for the safe harbor.
On the other hand, evaluating several of the individual statements in this case also
We do not hold today that false misrepresentations of present fact can be “smuggled” in under the cover of forward-looking statements. We do hold, however, that when a forward-looking statement is of the sort that, by its nature, rolls in present circumstances—that is, when a statement forecasts in a tentative way a future state of affairs in which a present commitment unfolds into action— the statement isn‘t barred from safe-harbor protection solely on that ground. After thorough review, we conclude that Ocwen‘s statements are either (1) forward-looking and accompanied by meaningful cautionary language, or (2) contain present-tense statements that (for reasons already explained) are immaterial puffery or weren‘t alleged to be false.
* * *
We recognize, of course, a fair amount of overlap (even, perhaps, redundancy) in our discussions of puffery, opinions, and forward-looking statements—all are different routes, with different scenery, that lead to the same bottom-line question: Did Ocwen make a material misrepresentation of fact—that is, a false representation that a reasonable investor would have relied on in light of the total mix of information available? While in many cases this multifaceted question may require jury deliberation, here its answer is clear. There is no genuine question as to whether the statements the Retirement System points to cross the line—each is easily either not material, not alleged to be a misrepresentation, not a fact, or exempt under the PSLRA (and many statements are more than one). Although numerous, the complained-of statements, in context, provide no information on which a reasonable investor could reasonably rely.
Accordingly, we hold that the Retirement System has failed to properly allege a material misrepresentation (or omission) and thus has failed to state a valid claim under
That conclusion compels the next—namely, that the Retirement System also fails to allege an actionable “control persons” violation against Ocwen officers Ron M. Farris and Michael R. Bourque, Jr. under
V
Lastly, the Retirement System asserts (in summary, afterthought fashion) that Ocwen could be liable for securities fraud based on violations of SEC Rule Item 303,
Item 303 is entitled “Management‘s discussion and analysis of financial condition and results of operations” and falls within the SEC‘s “Standard Instructions for Filing Forms.”
As an initial matter, no court of which we are aware has found a private right of action under Item 303, and the rule itself doesn‘t seem to contemplate one.14 Moreover, and in any event, the
Emphasizing precisely that difference, both the Third and the Ninth Circuits have rejected the very argument that the Retirement System makes here—namely, that a violation of Item 303 automatically gives rise to 10b-5 liability.15 In Oran v. Stafford, 226 F.3d 275, 287 (3d Cir. 2000), the Third Circuit refused to hold “that even if there is no independent private cause of action under [Item] 303, the regulation nevertheless creates a duty of disclosure that, if violated, constitutes a material omission under . . .
The Retirement System‘s GAAP-based argument fares no better. The relevant
This conclusory assertion fails to state a claim. To start, the Retirement System never explains precisely how Ocwen‘s disclosures ran afoul of GAAP. And even assuming for argument‘s sake that they did, an accounting violation doesn‘t necessarily give rise to
VI
At the end of the day, the Retirement System has failed to allege an actionable violation of
AFFIRMED.
Notes
Richard J. Leighton, Materiality and Puffing in Lanham Act False Advertising Cases: The Proofs, Presumptions, and Pretexts, 94 Trademark Rep. 585, 616–17 (2004) (alteration in original) (footnotes omitted) (citations omitted)). Regardless, suffice it to say that the defense has been around a long time.A concept that became a basis of the puffery exclusion predates 1534, when a compiler of English law gave the following example about the potential sale of a horse. “If he be tame and have been rydden upon [by the potential buyer], then caveat emptor [let the buyer beware].” The strange legal terms “puffer” and “puffery” apparently became associated with commercial activities in the mid- to late-18th Century. A “puffer” was a person secretly hired by a seller to bid up auction prices (“puffing“), thereby creating a deliberate and material deception that was outlawed by statute in many jurisdictions. By the 19th Century, the term “puffery” (sometimes called “sales talk” or “dealer‘s talk“) had transmogrified into a contrary connotation as a legal defense for vindicating salespeople accused of common law fraud and deceit.
(A) a statement containing a projection of revenues, income (including income loss), earnings (including earnings loss) per share, capital expenditures, dividends, capital structure, or other financial items;
(B) a statement of the plans and objectives of management for future operations, including plans or objectives relating to the products or services of the issuer;
(C) a statement of future economic performance, including any such statement contained in a discussion and analysis of financial condition by the management or in the results of operations included pursuant to the rules and regulations of the Commission;
(D) any statement of the assumptions underlying or relating to any statement described in subparagraph (A), (B), or (C);
(E) any report issued by an outside reviewer retained by an issuer, to the extent that the report assesses a forward-looking statement made by the issuer; or
(F) a statement containing a projection or estimate of such other items as may be specified by rule or regulation of the Commission.