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Rand-Heart of New York, Inc. v. Dolan

United States Court of Appeals, Eighth Circuit

February 10, 2016

Rand-Heart of New York, Inc.; Michael Rodolico; Ian Henderson; Antonino Floridia; Matthew Dudevoir; David Hall; Tammy Hall, individually and on behalf of all others similarly situated, Plaintiffs - Appellants
v.
James P. Dolan; Vicki J. Duncomb, Defendants - Appellees

Submitted November 17, 2015

Page 1173

For Rand-Heart of New York, Inc., Plaintiff - Appellant: Gregory Michael Egleston, Thomas James McKenna, GAINEY & MCKENNA, York, NY; Shawn M. Perry, PERRY & PERRY, Minneapolis, MN.

For Michael Rodolico, Ian Henderson, Plaintiffs - Appellants: Gregory Michael Egleston, Thomas James McKenna, GAINEY & MCKENNA, York, NY; James M. Ficaro, THE WEISER LAW FIRM, INC., Berwyn, PA; Gregg Martin Fishbein, Vernon Jay Vander Weide, Attorney, LOCKRIDGE & GRINDAL, Minneapolis, MN.

For Antonino Floridia, Matthew Dudevoir, David Hall, Tammy Hall, individually and on behalf of all others similarly situated, Plaintiffs - Appellants: Carolyn Glass Anderson, June Pineda Hoidal, ZIMMERMAN & REED, Minneapolis, MN; Gregory Michael Egleston, Thomas James McKenna, GAINEY & MCKENNA, York, NY; Robert Vincent Prongay, GLANCY & PRONGAY, Los Angeles, CA; Avraham Noam Wagner, THE WAGNER FIRM, Los Angeles, CA.

For James P. Dolan, Vicki J. Duncomb, Defendants - Appellees: Justin P. Krypel, Wendy J. Wildung, FAEGRE & BAKER, Minneapolis, MN.

Before SMITH, BYE, and BENTON, Circuit Judges.

OPINION

Page 1174

BENTON, Circuit Judge.

Rand-Heart of New York, Inc. brought a putative class action on behalf of purchasers of Dolan Company's securities between August 1, 2013 and January 2, 2014, under Sections 10(b) and 20(a) of the Securities Exchange Act. The District Court dismissed for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). Having jurisdiction under 28 U.S.C. § 1291, this court reverses.

I.

DiscoverReady--a subsidiary of Dolan Company--performed litigation support, working mostly for Bank of America. In May or June 2013, Bank of America met with James P. Dolan (CEO of Dolan Company) and other DiscoverReady representatives. Bank of America noted concerns

Page 1175

about Dolan Company's finances, suspended discussions about a possible colocation agreement, and indicated it would send no new work to DiscoverReady until the financial concerns were resolved. A DiscoverReady representative stated, " It was our impression and our understanding that in order to continue to do work with the Bank of America, we have to take care of The Dolan Company's financial problems." Dolan reported what transpired at the meeting to Dolan Company's Board of Directors, which proceeded to authorize DiscoverReady for sale. Bank of America stopped sending new work to DiscoverReady in June.

On August 1, Dolan Company issued a press release announcing its financial results for the second quarter ending June 30, 2013. It reported a net loss of $4.62 per share, on revenues of about $47 million. It announced a plan to sell assets in order to raise cash, but also reported that DiscoverReady revenues had grown by 18%. Dolan Company also released a Form 10-Q, which stated:

In order to operate profitably on a continuous basis in the future, the Company must increase revenue and eliminate costs to achieve and maintain positive operating margins. . . . The Company's ability to generate sufficient cash flows in 2013 has been negatively impacted by the business challenges in its mortgage default foreclosure and public notice business. These challenges make it probable that the Company will be unable to comply with certain of its financial covenants in its senior secured credit facility as measured on the last day of the third quarter of 2013. The Company is currently in discussions with its lenders regarding resetting the financial covenants applicable to the third quarter and future periods. Any failure to comply with these covenants in the future may result in an event of default. . . . If the Company is unable to repay such indebtedness, the banks could foreclose on these assets.

Also on August 1, Dolan spoke with stock analysts. The District Court found actionable for fraud the italicized ...


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