At the heart of the class action lawsuit was a claim that Danier had mislead investors by predicting in a prospectus document for its IPO that the retailer would report a profit in its fiscal fourth quarter for 1998. Two weeks after the stock sale closed, however, Danier’s stock took a dive when the company announced it was expecting a quarterly loss because unseasonably hot weather was deterring customers from buying its products.
In a unanimous decision, the Supreme Court found that the bad weather and subsequent sales decline was an unforeseen event that Danier’s management could not reasonably have been expected to anticipate when it wrote the prospectus. Because the sales slump was temporary and Danier ultimately was able to deliver a profitable quarter, the court ruled that the company had no legal obligation to report the temporary setback.
‘There is no evidence that Danier made a change in its business, operations or capital during the period of distribution. It is not disputed that the revenue shortfall as of May 16 was caused by unusually hot weather, a factor external to the issuer. Consequently, Danier experienced no material change that required disclosure,’ the court said in its decision.
Danier lawyer Alan Lenczner said he was ‘pleased’ with the decision that puts to rest a case he has argued in three separate courts. ‘My client is happy to get back to its core business,’ he said.
Danier’s legal battle began in 1999 when investor Rick Durst launched a class action lawsuit against the company and some of its senior executives alleging the company had failed to properly warn investors about poor store sales before the IPO closed.
The decision is expected to deliver an immediate boost to Danier’s stock which was halted this morning pending the outcome of the court’s decision.
