A dismissed class-action securities fraud lawsuit against two former top executives of Dana Holding Corp. was resurrected Wednesday by a three-judge panel of the 6th U.S. Circuit Court of Appeals in Cincinnati.
The suit, filed in October, 2005, in U.S. District Court in Toledo, contends that Michael Burns, former chief executive officer, and Robert Richter, former chief financial officer, knowingly misled investors about the company's financial performance in 2004 and 2005, when the Maumee auto supplier was named Dana Corp.
Dana spokesman Chuck Hartlage said the lawsuit, which names Dana Corp. as a defendant, no longer involves the company because it reorganized as Dana Holding during Chapter 11 bankruptcy proceedings. The firm filed for bankruptcy protection in 2006 and emerged in 2008.
Plaintiffs in the case allege that Mr. Burns and Mr. Richter made positive statements about the auto supplier's fiscal strength despite their knowledge of various problems that could cause stock prices to dip.
"Even though Burns' and Richter's statements painted a publicly rosy picture, some divisions of Dana were wilting," the appeals court decision reads.
The district court dismissed the case in 2007 on the grounds that the plaintiffs did not show that Dana and its executives acted with knowledge of wrongdoing. The appeals court reversed the dismissal because, it said, the evidence shows a possibility that Dana executives may have acted with intent or negligence to mislead investors.
"Burns and Richter were the top two executives of an auto parts manufacturer, and they reported gang-buster earnings during a period of time when the entire auto industry was spiraling toward bankruptcy," the appeals decision reads.
The decision lists three pension funds as appellants. Joseph Daley, a San Diego lawyer who represented the pension funds in the appeal, said the parties are "very pleased" with the 3-0 decision to reverse the case dismissal.
"Now the case will go forward and injured class members will get their day in court again," he said.
The suit, originally filed by shareholder Howard Frank, was one of at least a dozen filed by pension funds and shareholders against officers of the auto-parts supplier after a stock-price slump and the bankruptcy filing. It was not clear who, if anyone, is providing legal representation for Mr. Frank.
An inquiry by the U.S. Securities and Exchange Commission found in 2009 that the Fortune 500 auto parts producer filed fraudulent financial reports in 2004 and 2005 that inflated profits by $88 million before taxes.
The SEC ordered four ex-Dana executives in 2009 to pay $400,000 in fines and penalties because of fraudulent accounting practices, but neither the company, Mr. Burns, nor Mr. Richter was penalized.
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