Federal Judge Dismisses Securities Class Action Against Timberland Co.

by Tara Arick on April 1, 2013 · 0 comments

in Securities Law

- From LexisNexis® Mealey’s™ Daily Legal News.

A New Hampshire federal judge on March 28 granted a motion filed by an outdoor gear company and others to dismiss a securities class action filed against them, finding that plaintiffs failed to allege specific facts showing that the company made false statements about its earnings (The City of Omaha Police and Fire Retirement System, individually and on behalf of itself and all others similarly situated v. The Timberland Company, et al., No. 11-cv-277, D. N.H.; 2013 U.S. Dist. LEXIS 44652).

The City of Omaha Police and Fire Retirement System filed a securities class action against The Timberland Co., its chairman, Sidney Swartz, and two high-ranking officers, CEO Jeffrey Swartz and CFO Carrie Teffner in the U.S. District Court for the District of New Hampshire. The system alleged that the defendants made false statements in violation of the Securities Exchange Act of 1934. The system also asserted claims for control person liability and insider trading.

The system subsequently filed an amended complaint.

Inflated Earnings

Timberland is a manufacturer of boots and outdoor gear. In 2010, Jeffrey Swartz entered discussions with VF Enterprises Inc. about the possible sale of Timberland to VF. Sidney Swartz, Jeffrey Swartz and Teffner would possibly gain significantly if a sale occurred. The system alleged that Sidney Swartz, Jeffrey Swartz and Teffner intended to increase Timberland’s stock price in order to obtain a higher offer from VF. The system alleged that the defendants inflated Timberland’s fourth quarter 2010 earnings performance.

In February 2011, Timberland issued a press release announcing the results for its fourth quarter and the full fiscal year ending Dec. 31, 2010. The system alleged that the defendants made false and public statements about its fourth quarter 2010 performance. VF’s acquisition of Timberland was completed in September 2011.

The defendants moved to dismiss the case in its entirety.

Advertising Costs

The defendants argued that the system’s complaint failed to allege that the results were false with the specificity that was required under the Private Securities Litigation Reform Act (PSLRA).

Judge Steven J. McAuliffe said the system failed to allege any fact-based claims to support its argument. He noted that the system failed to include any allegations explaining why advertising costs should not have been recognized in Timberland’s results. Even if the complaint had sufficiently alleged improperly deferred advertising expenses, Judge McAuliffe said, the system failed to submit any claims that suggested that the alleged deferral was material.

Judge McAuliffe found that the advertising expenses in the results were quantitatively minor and decided that the system failed to adequately allege that the deferral of advertising expenses rendered the results materially false or misleading.

Inventory

Judge McAuliffe also found that the system’s complaint failed to properly allege that the defendants deferred inventory cost write-offs from the fourth quarter of 2010 to the first quarter of 2011.

“In short, the complaint does not allege the existence of facts that were contrary to, or that called into question, defendants’ [bullish] statements about trends or conditions in 1Q11,” Judge McAuliffe said.

Judge McAuliffe dismissed the system’s amended complaint without prejudice.

Counsel

The system is represented by David R. Scott of Scott + Scott in Colchester, Conn.; Deborah Clark-Weintraub of Scott + Scott in New York; Mary K. Blasy and Walter W. Noss of Scott + Scott in San Diego; and Lucy J. Karl of Shaheen & Gordon in Concord.

The defendants are represented by C. Thomas Brown, Christopher G. Green and Randall W. Bodner of Ropes & Gray in Boston and David A. Anderson and Mark B. Rosen of Pierce Atwood in Portsmouth, N.H.

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