There are two prongs to the PSLRA's safe harbor for forward-looking statements. First, a defendant is not liable with respect to any forward-looking statement that is identified as forward-looking and is accompanied by "meaningful cautionary statements" alerting investors to the factors that could cause actual results to differ. Second, a defendant is not be liable with respect to any forward-looking statement, even in the absence of meaningful cautionary statements, if the plaintiff cannot establish that the statement was made with "actual knowledge" that it was false or misleading.
Although the circuit courts agree that the two prongs operate separately, they are split as to whether the defendant's state of mind should be considered in determining whether the cautionary statements are sufficiently "meaningful." The Sixth, Ninth, and Eleventh Circuits have held that the defendant's state of mind is irrelevant. The Seventh and Second Circuits, however, have suggested that it might be necessary to inquire into what the defendant knew about the risks facing the company before making that determination.
In In re Harman Int'l Indus., Inc. Sec. Litig., 2014 WL 197919 (D.D.C. Jan. 17, 2014), the district court agreed with the majority position and found that the defendant's state of mind is irrelevant. First, the plain text and the legislative history of the PSLRA make it clear that the first prong should be considered without reference to the defendant's state of mind. Second, considering the defendant's state of mind would improperly collapse the two prongs together, essentially making it impossible for a defendant to invoke the first prong at the pleadings stage of the case.
Holding: Motion to dismiss granted.