Best Buy Beats Back Securities Class Action

(CN) - Best Buy shareholders cannot sue the electronics retailer for claims that it misled investors by saying its earnings were "on track" for 2011, a divided Eighth Circuit ruled.

A class of consumers led by the IBEW Local 98 Pension Fund sued the consumer electronics giant in 2011, claiming Best Buy executives lied about the state of the company in 2010 and inflated stock prices before a 14 percent decline three months later.

In a September 2010 press release and conference call, Best Buy executives said that the company was "on track" to deliver earnings of $3.55-$3.70 per share for 2011.

But Best Buy's quarterly earnings released in December did not paint such a rosy picture. After "lower than expected" third quarter sales, Best Buy reduced its earnings guidance to $3.20-$3.40, court records show. The company's market cap allegedly fell $6.3 billion on high trading volume.

A federal judge ruled that the statements made in the company's press release were not actionable because they were forward-looking and accompanied by cautionary language, but granted class certification on the executives' statements in the follow-up call.

However, the Eighth Circuit reversed the class certification ruling Tuesday in a victory for Best Buy.

The consumers' own expert presented strong evidence that the statements did not impact Best Buy's share price, Judge James Loken said, writing for the panel's 2-1 majority.

"[Bjorn] Steinholt opined that the 'economic substance' of the non-fraudulent press release statements and the alleged misrepresentations in the immediately following conference call was 'virtually the same,' and that the two 'would have been expected to be interpreted similarly by investors,'" Loken wrote. "His event study showed that the forward-looking [earnings per share, or EPS] guidance in the press release had an immediate impact on [Best Buy's] market price, whereas the confirming statements in the conference call two hours later had no additional price impact."

Loken said that this reading is "consistent with common sense."

Simply put, "The allegedly 'inflated price' was established by the non-fraudulent press release," not by executives' statements, the judge wrote.

Judge Diana Murphy dissented, saying, "The majority's claim that the company's statements during the call and in the press release were nearly identical is factually incorrect."

The conference call also contained statements reflecting on its performance so far in the fiscal year, whereas the press release focused on its increase in EPS guidance, Murphy wrote.

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.

Email *

Submit