Intuitive Surgical (NSDQ:ISRG) chalked up a win yesterday after a federal appeals court upheld the dismissal of a shareholders lawsuit accusing it and its management of misleading investors.
A group of shareholders, led by the Police Retirement Systems of St. Louis, argued that ISRG and its leadership issued misleading statements about the state of the company and the effects of the economic recession. But Judge Lucy Koh of the U.S. District Court for Northern California dismissed the complaints, ruling that the so-called misleading statements were either protected under Safe Harbor, general expressions of "corporate optimism," or not false.
The shareholders group had gathered a set of 31 allegedly false or misleading statements, taking them from past ISRG conference calls with investors and the company’s financial reports. They alleged that ISRG "knew, but did not disclose, that: (1) the economic crisis was having a negative impact on the company; (2) Intuitive’s ability to sustain system placement growth, among both new accounts in the U.S. and to repeat purchasers, was reaching a saturation point; and (3) [da Vinci prostatectomy] growth was decelerating at a faster rate than disclosed, impacting the company’s ability to sustain recurring revenue growth," according to court documents.
The lawsuit, originally filed in August 2010, further claimed that ISRG stock dropped nearly 70%, from $305.61 on February 1, 2008, to $93.29 on January 23, 2009, because the company finally disclosed the true state of the market and that company executives had "reaped significant proceeds from insider sales" in the meantime.
Koh concluded that the clutch of suspect statements gathered by the plaintiffs were not legally false or misleading because they were "forward-looking" statements, which are protected under legal "safe harbor" rules for financial projections and sales forecasts. The court added that the projections were couched within cautionary statements, "and thus immunized by the safe harbor provision."
Other remarks were deemed "mere puffery" and "expressions of corporate optimism" that "no reasonable investor would rely on," she wrote, dismissing the case with prejudice late last month.
The shareholders group appealed in June 2012 to the U.S. Court of Appeals for the 9th Circuit to reverse the dismissal, but yesterday a 9th Circuit panel agreed with Koh’s ruling.
"The panel held that the company’s statements were, in large part, non-actionable forward-looking statements or garden variety corporate optimism. The panel also held that the complaint was deficient in suggesting that the executives made false statements with knowing or reckless disregard for the company’s economic circumstances," Judge Margaret McKeown wrote.