Shareholder Lawsuit Against Best Buy Moves Forward
A Minnesota federal judge ruled Monday that certain claims made by Best Buy shareholders in a 2011 lawsuit may move forward.
The lawsuit alleges that top executives at the Richfield-based electronics retailer misled shareholders about the company’s earnings being “in line” and “on track” with expectations.
Lead plaintiff Marion Haynes represents a group of shareholders who are suing Best Buy, claiming that company executives lied about its sales performance and earnings forecast in a conference call and public interview in the fall of 2010. Those statements led to shareholders losing money when the stock dropped later that year, the lawsuit contends.
The claim is based on four allegedly fraudulent statements, three of which were made on September 14, 2010, during a conference call relating to Best Buy’s 2011 fiscal-year projections.
The action is being brought on behalf of all shareholders who purchased Best Buy stock between September 14, 2010, and December 13, 2010, during which period the complaint claims the company’s shares were trading misleadingly high because of the company’s statements.
In a recent court filing, U.S. District Judge Donovan Frank summarized the conference call statements as follows: “(1) Best Buy’s fiscal-year 2011 earnings per share (EPS) guidance of $3.55-$3.70 per share; (2) that Best Buy was ‘on track to deliver and exceed [the] annual EPS guidance’; and (3) that Best Buy's earnings were ‘essentially in line with [Best Buy’s] original expectations for the year.’”
The fourth statement came later in 2010 during an interview on Fox News in which Mike Vitelli, former Best Buy president of U.S. operations who was ousted in February, responded to a question about the performance of flat-screen televisions by saying: “Flat-screens are doing well at different levels . . . We are doing really well at Magnolia at the high end with 3-D. And the entry-level pieces are going really strong.”
The complaint argues that Vitelli’s comments regarding TV sales were false. Specifically, the complaint alleges that two weeks after the comments were made, Best Buy revealed that sales of flat screens had not been doing well, and later admitted that they saw declines in entry-level TV sales in November 2010.
The suit claims that as a result of these statements, Best Buy stock reached a high of $44.81 per share between September 14 and December 13, 2010. Then, on December 14, Best Buy lowered its annual guidance to between $3.20 and $3.40 per share, noting that third-quarter sales and earnings fell short of expectations, a trend that, according to the complaint, began in June. After the new guidance was revealed, the stock dropped about 15 percent, closing at $35.52 on December 14.
The judge found that the first statement, regarding the company’s earnings-per-share guidance, was covered by a safe harbor provision under the Private Securities Litigation Reform Act. Best Buy was not liable because it defined the claim as a “forward-looking statement” and accompanied it with “meaningful cautionary statements” that could cause future results to differ from those in the statement, the judge determined.
The judge also ruled that Best Buy wasn’t liable for Vitelli’s comment because “Vitelli's statements are not material enough so as to be actionable . . . [as the] November 24, 2010, interview was given before the Black Friday weekend and is hyperbole,” according to court documents.
However, the court concluded that Best Buy’s statements claiming that it was “on track to meet or exceed our annual guidance” and that “earnings are essentially in line with our original expectations for the year” were not “forward-looking” and are, therefore, not covered by the safe harbor provision and were enough to support a “cause of action.”
Thus, the judge ordered that Best Buy’s motion to dismiss the claim was granted in part and denied in part, allowing the case to proceed.
Shawn Williams, attorney at San Diego-based Robbins Geller Rudman & Dowd and lead counsel for the plaintiffs, declined to comment on the ruling.
Best Buy spokesman Jon Sandler said the company couldn’t comment on pending litigation.