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On December 1, 2016, Parker Hannifin Corporation and CLARCOR Inc. announced that the companies have entered into a definitive agreement under which Parker will acquire CLARCOR for approximately $4.3 billion in cash, including the assumption of net debt. The transaction has been unanimously approved by the board of directors of each company. Upon closing of the transaction, expected to be completed by or during the first quarter of Parker’s fiscal year 2018, CLARCOR will be combined with Parker’s Filtration Group to form a leading and diverse global filtration business. Bass, Berry & Sims has served CLARCOR as primary corporate and securities counsel for 10 years and served as lead counsel on this transaction. Read more here.

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Securities Law Exchange BlogSecurities Law Exchange blog offers insight on the latest legal and regulatory developments affecting publicly traded companies. It focuses on a wide variety of topics including regulation and reporting updates, public company advisory topics, IPO readiness and exchange updates including IPO announcements, M&A trends and deal news.

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Sixth Circuit Articulates New Standard for Evaluating Corporate Scienter in Securities Fraud Claims

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October 17, 2014

On October 10, 2014, the Sixth Circuit revisited the standard for pleading scienter and a material misrepresentation or omission to support a securities-fraud claim under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5.  See In Re: Omnicare, Inc. Securities Litigation, No. 13-5597, 2014 U.S. App. LEXIS 19326 (6th Cir. Oct. 10, 2014).  The panel observed that despite the multiple decisions that have come out of the Sixth Circuit to date, these pleading requirements "remain somewhat hazy and muddled."  In an effort to "clear[] away any confusion" that has come out of prior Sixth Circuit decisions, the court went through the base line needed to satisfy these elements under the Private Securities Litigation Reform Act of 1995.  The court then adopted a new standard in the Sixth Circuit for determining whether a corporation has acted with the requisite scienter.

Currently, a circuit split exists with respect to the standard for the doctrine of collective corporate scienter.  The Omnicare panel adopted a new middle approach for the Sixth Circuit that has three categories of individuals whose states of mind could give rise to a strong inference that a defendant corporation acted with the requisite scienter.  Those categories include the following:

  • The individual agent who uttered or issued the misrepresentation;
  • Any individual agent who authorized, requested, commanded, furnished information for, prepared (including suggesting or contributing language for inclusion therein or omission therefrom), reviewed, or approved the statement in which the misrepresentation was made before its utterance or issuance;
  • Any high managerial agent or member of the board of directors who ratified, recklessly disregarded, or tolerated the misrepresentation after its utterance or issuance.

Out of these three categories, the first one is more likely to establish corporate scienter as it relies on the state of mind of the individual officer making the statement. Depending on the circumstances of each case, the last two categories are designed to permit a finding of scienter when corporations permit shielding of bad news from management. The Sixth Circuit stated that this new approach is intended to "protect[] corporations from liability—or strike suits—when one individual unknowingly makes a false statement that another individual, unrelated to the preparation or issuance of the statement knew to be false or misleading" but also should "prevent[] corporations from evading liability through tacit encouragement and willful ignorance."

When evaluating the alleged securities fraud at issue in the case, the court further cautioned that companies cannot simply "attach[] throat-clearing language to their public utterances" by including phrases in a statement such as "we believe" or "the government might have a different view" to insulate the corporation or its officers from potential liability. The panel, however, affirmed dismissal because, even if the alleged statement had been misleading, the plaintiffs still did not adequately plead scienter against the individual defendants or the company under its new corporate scienter standard. It should be noted that only the Sixth Circuit has explicitly adopted this new corporate scienter approach, and it remains to be seen whether any other circuit will endorse it or whether the Supreme Court may ultimately weigh in on this circuit split.


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