As most public company officers and directors are aware, forward-looking statements made in a company’s public filings are protected by certain safe harbor provisions. The rule is that the statements are protected if the forward-looking statements are: (i) accompanied by “meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statement;” (ii) is immaterial; or (iii) a plaintiff fails to prove that the statement was made with actual knowledge the statement was false or misleading. In most companies’ filings they rely on a combination of all three of these factors for protection in making forward looking statements related to their business.
A recent court case decision (Slayton v. American Express Company et al., No. 08-5442-cv (2d Cir. 2010)), has shed some light on how these factors are reviewed by courts in determining if the forward-looking statements are protected by the safe harbor. Although the decision discusses all three factors, the most pertinent part of this decision for our purposes relates to the first factor – what should be contained in a company’s cautionary statement. This is likely due to the fact that if the forward-looking statement is either immaterial or is made with the knowledge the statement is false, then other factors are at play, either irrelevant statements are being made (immateriality) or the statements are fraudulent (knowingly making a statement that is false), and the company’s disclosure should be modified to ensure these two factors are not in play.
Regarding the first factor, the court makes clear that the forward-looking statement disclaimer protection will not apply unless the language contained therein is specifically tailored to the risks involved based on the forward-looking statements being made. Based on this decision, now is a good time for companies to review their forward-looking statement disclaimer to ensure the disclaimer is not merely boilerplate language that is repeated in each filing period after period, as the court makes clear that such boilerplate disclaimers, in the face of changing factual situations and forward-looking statements, will not provide protection for the statements. The other two prongs will still be available to protect such statements, but companies should use all that is available to them to protect such statements. Therefore, make sure you review your disclaimers with your legal counsel in conjunction with your next public filing that contains forward-looking statements.
