Prologue — Bridgestone Corp. v. City of Monroe (Nos. 05-170, 05-168)

FILED

05-170 AUG 1 - 2005

No. 05- __OPRICE OF THE GLERK

@ Supreme Court, U.S.

IN THE

Supreme Court of the Anited States

BRIDGESTONE CORPORATION,

bi Ciepeermee nae Petitioner,

Vv.

Crry OF MONROE EMPLOYEES RETIREMENT SYSTEM, et al.,

Respondents.

On Petition for a Writ of Certiorari to the United

States Court of Appeals for the Sixth Circuit

PETITION FOR WRIT OF CERTIORARI

THomas S. KILBANE

_(Counsel of Record)

JosEPH C. WEINSTEIN

STEVEN A. DELCHIN

J. Purtip CALABRESE

SqumRE, SANDERS & Dempsey L.L.P.

4900 Key Tower

127 Pusiic SQUARE

CLEVELAND, OH 44114-1304

(216) 479-8500

Counsel for Petitioner

August 1, 2005

Becker Gallagher Legal Publishing, Inc. 800.890.5001

‘ i

QUESTIONS PRESENTED _

(1) In this private action alleging violations of the Securities

Exchange Act of 1934, did the Sixth Circuit err by

becoming’ the first Circuit to accept the “collective scienter”

theory, which - contrary to the Private Securities Litigation

Reform Act of 1995 (“Reform Act”) ~ imputes to a

corporate defendant the collective knowledge of all its

corporate officers and employees, rather than focuses upon

whether the corporate officials who participated in the

making of the alleged misrepresentation or omission had the

requisite state of mind?

(2) Did the Sixth Circuit err by adopting a standard of |

scienter that allows a plaintiff to state a claim for federal

securities fraud based on allegations of mere negligence

(based on what a defendant “should have” known) and by

relaxing the Reform Act’s mandate requiring a plaintiff to

“state with particularity facts giving rise to a strong

inference that the defendant acted with the required state of

mind”?

(3) Did the Sixth Circuit err by holding that a corporate

defendant commits securities fraud by failing to establish

reserves for expenses already paid and accounted for in the

company’s audited financial statements in accordance with

generally accepted accounting principles?

PARTIES TO THE PROCEEDING

Pursuant to Rule 14.1(b) of the Rules of this Court, a list

of all parties to the proceeding in the court whose judgment

is the subject of this petition is as follows:

Petitioner Bridgestone Corporation

(Defendant and appellee in the court below)

Respondent City of Monroe Employees Retirement

System

(Plaintiff and appellant in the court below)

Bridgestone/Firestone, Inc.

(Defendant and appellee in the court below)

Yoichiro Kaizaki

(Defendant and appellee in the court below)

Masatoshi Ono

(Defendant and appellee in the court below)

The decision below affirmed the district court’s judgment

in favor of Yoichiro Kaizaki and Masatoshi Ono. As

prevailing parties below, they do not have an interest in the

outcome of this petition.

iii

CORPORATE DISCLOSURE STATEMENT

REQUIRED BY RULE 29.6

Pursuant to Rule 29.6 of this Court’s rules, Petitioner

Bridgestone Corporation states that it has no parent

corporation, and-no publicly held company owns 10% or

more of its stock.

iv

TABLE OF CONTENTS

QUESTION POTN Kovebshieskvarsincsnccsincrctasesns i

PARTIES TO THE PROCEEDING.......................... il

CORPORATE DISCLOSURE STATEMENT ............ iii

PIN CAS ee aE on datinscnccdcetonisnscocksuamsaen vi

Re Oe BUTTE oni cc nnvnssniscssiocsaccecenss Viii

PETITION FOR WRIT OF CERTIORARI................. 1

SE I VE ici soishcnuebictenadenaseeven-thacatanane ]

ORS Sis ccrc pacers teem eccneneapan 1

STATUTORY PROVISIONS AND REGULATIONS

SPE EN Ko ck odadss canivsusapecerexerceciriacautingoeniooaa 2

SEA TICE OR THs CA iie oon oic snes cc cccickscseccennes 5

Pi. Frail no oon sc sin wisi cccnesceecees 7

eR ore Ee 8

1. The District Court’s Decision................ 9

2. The Sixth Circuit’s Amended Decision .. 10

REASONS FOR GRANTING THE WRIT.............. 13

I. THIS COURT SHOULD RESOLVE

THE SPLIT OF AUTHORITY

REGARDING THE “COLLECTIVE

PE SI os sciscdesecincinccce 14

II. THE DECISION BELOW

PRESENTS NUMEROUS ISSUES

ON WHICH THE CIRCUITS ARE

IN CONFLICT REGARDING THE

SUBSTANTIVE AND

PROCEDURAL ASPECTS OF

a es 18

A. The Decision § Below

Conflicts with «he Law of this

Court and the Circuits

Recognizing that Scienter

Consists of More Than Mere

PRN osc chcaycs ccs scuussiabasscccouseces 19

B. Supreme Court Review is

Necessary to Resolve the

Growing Split Among _ the

Circuits Regarding What a

Plaintiff Must Allege to

Support a “Strong Inference”

of Scienter under the Reform

Tl. THE SIXTH CirRcurr HAS

ADOPTED A NEW ACCOUNTING

STANDARD THAT IS

UNWORKABLE UNDER GAAP

AND CREATES A CONFLICT

WITH THE LAW OF OTHER

a. SERRA MRIS RRO c HIST yes RASPES 25

Ce BNR P NT Denar poaipreree pte anne Regier ney Raney eS 28

vi

INDEX TO APPENDICES

APPENDIX A

City of Monroe Employees Retirement System v.

Bridgestone Corporation, 399 F.3d 651 (6th Cir.

2005) (amended opinion of the Sixth Circuit

reversing the district court’s dismissal of all claims

against Bridgestone Corporation)

APPENDIX B

City of Monroe Employees Retirement System v.

Bridgestone Corporation, 387 F.3d 468 (6th Cir.

2004) (original opinion of the Sixth Circuit reversing

the district court’s dismissal of all claims against

Bridgestone Corporation)

APPENDIX C

City of Monroe Employees Retirement System v.

Bridgestone Corporation, Case No. 3:01-cv-00017

(M.D. Tenn. February 27, 2003) (memorandum and

order denying plaintiffs’ Motion to Alter Judgment

and for Leave to Amend Consolidated Complaint)

APPENDIX D

City of Monroe Employees Retirement System vy.

Bridgestone Corporation, Case No. 3:01-cv-00017

(M.D. Tenn. October 1, 2002) (opinion and order of

district court dismissing, for failure to state a claim,

plaintiff's claims against Bridgestone Corporation)

Vii

(con’t)

APPENDIX E >

City of Monroe Employees Retirement System v.

Bridgestone Corporation, Case No. 03-5505 (6th Cir.

May 3, 2005) (order denying petition for rehearing

and suggestion for rehearing en banc)

APPENDIX F

Lyle Roberts, Sixth Circuit Embraces Collective

Scienter, 10b-5 DAILY (October 22, 2004)

Vili

TABLE OF AUTHORITIES

CASES:

Bryant v. Avado Brands, Inc.,

ca ae we 3d 1271 (11th Cir. 1999)........... 19,

Chill v. General Elec. Co.,

101 F.3d 263 (2d Cir. 1996) ....................

City of Philadelphia v. Fleming Cos., Inc.,

264 F. 3d 1245 (10th Cir. 2001)................

Ernst & Ernst v. Hochfelder,

I ooo sinc ncisssereesnsnnes

Greebel v. FTP Software, Inc.,

194 F. 3d 185 (Ist Cir. 1999)...................

Greenstone v. Cambex Corp.,

ee. oe oe Chet Cit. 1992) «.........05 0006500005

Hoffman v. EstaBrook & Co.,

ee we ee tae Ce. 1976) ......2.2002002.00.

In re Advanta Corp. Sec. Litig.,

we bea BE Le ee) a ae

In re Alpharma Sec. Litg.,

Bee oe £37 8 CR. 206 ......00052000000..

In re Apple Computer, Inc. Sec. Litig.,

243 F. Supp. 2d 1012 (N.D. Cal. 2002) ......

Page

iX

In re Comshare Inc. Sec. Litig.,

183 F.3d 542 (6th Cir. 1999).................... 11

In re K-tel Int'l Inc. Sec. Litig.,— |

300 F. 3d 881 (8th Cir. 2002)..............0.... 24

In re Silicon Graphics Inc. Sec. Litig.,

183 F. 3d 970 (9th Cir. 1999).............. 19, 24

Kushner v. Beverly Enters., Inc.,

337 P56 B20 (Ot Cit. 2008). ins ccscscsadeess 22

Nathenson v. Zonagen, Inc.,

267 F. 3d 400 (Sth Cir. 2001)............2...... 24

Nordstrom, Inc. v. Chubb & Son, Inc.,

' 34 F.3d ,1424 (Sth Cir. 1995).................... 16

Novak v. Kasaks,

ZAG Fo Ge OE, BI ves vaciavconxcdscescs 5

Ottmann v. Hanger Orthopedic Group, Inc.,

353 F.3d 338 (4th Cir. 2003)............... 20, 24

Press v. Chem. Inv. Servs. Corp.,

166 F. 3d 529 (2d Cir. 1999) ................... 23

Southland Sec. Corp. v. INSpire Ins. Solutions Inc.,

365 F.3d 353 (Sth Cir. 2004)........... 14-15, 17

Sundstrand Corp. v. Sun Chem. Corp.,

S535 F208 1053 C7 Cit. IDFA) «00sec cesivesees 19

x

STATUTES:

De Bes A PR cia Wonca icccecccaeie Giabacenistinlestbiaeieleclas 2

15 U.SC. Be IE Giieiiisisnssh dicncadcates casandbatontiaunecs 2

SOE BFE sigcsicisdocces citi nagetadencas 3, 14

REGULATIONS:

BE eke IED ina haticntuincsatnaecancnuncatiodaciens 3

EF CP. BE isbikisisccccicccticiocttcstnee 7

OTHER:

Robert J. Giuffra, Jr., “Pleading Scienter under the

PSLRA,” New York Law Journal (July 22, 1999)........ 20

Lyle Roberts, Sixth Circuit Embraces Collective

Scienter, 10b-S DAILY (October 22, 2004) .................. 17

1

PETITION FOR WRIT OF CERTIORARI

Petitioner Bridgestone Corporation (“Bridgestone”)

respectfully requests that this Court grant its petition for a

writ of certiorari to review the judgment of the United States

Court of Appeals for the Sixth Circuit below, which

reversed in part the district court’s decision dismissing

plaintiff's complaint for failure to state a claim.

OPINIONS BELOW

The opinion of the Sixth Circuit dated February 4, 2005

is reported at 399 F.3d 651 (6th Cir. 2005), and appears as

Appendix A to this Petition. The court of appeals’ February

4, 2005 opinion amended an earlier decision reported at 387

F.3d 468 (6th Cir. 2004), which appears as Appendix B to

this Petition. The court of appeals’ unpublished order

denying the petition for rehearing and suggestion for

rehearing en banc appears as Appendix E to this Petition.

The opinions of the district court on review appear as

Appendix C and D to this Petition.

JURISDICTION

The Court of Appeals entered judgment on February 4,

2005 and denied a timely petition for rehearing and

suggestion for rehearing en banc on May 3, 2005. This

Court’s jurisdiction is invoked under 28 U.S.C. § 1254(1).