United Parcel Fights Suit That Might Expand Investor Lawsuits
United Parcel Service Inc. asked the California Supreme Court not to expand the number of investors who can bring securities suits in a case involving its Fritz Cos. unit.
Fritz shareholders saw their stock fall by half after the company said merger costs in 1996 were higher than expected. Investors sued, saying they would have sold shares if they’d known about the problems. Under current securities laws, only shareholders who bought or sold stock can sue.
Allowing the new group of investors to sue would attract a barrage of cases filed by stockholders claiming that they would have sold their stock before it dropped, some attorneys said. Investors had already sued a record 260 companies last year in the wake of accounting scandals at Enron Corp. and WorldCom Inc., according to the Stanford Law School.
“This kind of holding is susceptible to someone making up a claim that they would have sold their stock,” said Jim Lico, an attorney at Clifford Chance LLP’s office in San Francisco. “You might have a flood of nuisance suits.”
The California Supreme Court is considering whether the suit against United Parcel, the world’s largest package-delivery company, which acquired Fritz in 2001, can proceed. A California state court ruled in 2000 that the investors, who say they relied on misleading company reports, could sue for fraud.
Michael D. Braun, an attorney representing the Fritz shareholders, said similar rulings in New York and New Jersey haven’t led to a flood of suits.
`I was Damaged’
The investors sued Fritz, a customs management and freight company, and its top executives in 1996 after the company revised its earnings, which caused shares to fall 55 percent. The investors claimed that earlier earnings reports were false and sought to recover the losses they sustained when their shares fell, plus punitive damages.
Allowing lawsuits by shareholders who chose to keep their stock could “open the floodgates to litigation in California,” said Justice Ming Chin, at a hearing yesterday in San Francisco. “Isn’t everyone going to say, `Oh yes, I was damaged, I should have done something.”
The court is expected to rule in 90 days. Peggy Gardner, a United Parcel spokeswoman, said the company believes the suit “has no merit.”
“It has twice been dismissed by the trial court as have related state and federal cases,” Gardner said.
