Federal Judge Dismissed Class Action Against Cemetery Company for Failure to State a Claim
In Anderson v. StoneMor Partners, LP, No. 16-6111, 2017 BL 390217 (E.D. Pa. Oct. 31, 2017), the United States District Court for the Eastern District of Pennsylvania granted the motion to dismiss filed by StoneMor, LP (“StoneMor”), its parent company American Cemeteries Infrastructure Investors, LLC, and the controlling shareholder executives (collectively, the “Defendants”). The court held the class action suit failed to state a claim because Plaintiffs could not show statements made by StoneMor between March 2012 and October 2016 misled or materially harmed investors.
According to the allegations, the Defendants issued materially false and misleading statements regarding the financial performance of StoneMor’s business to create the appearance that the company issued its regular quarterly distributions to investors with available cash. StoneMor’s main business plan, however, involved selling cemetery plots on a “pre-need” basis to living customers. State law required most of these pre-need sales proceeds to be kept in a trust until the actual burial services were performed, meaning StoneMor could not access this cash until after the customers died. The Plaintiffs asserted the Defendants misled investors to believe the sales of cemetery plots provided the cash distributed to investors. StoneMor, the complaint explained, wanted to avoid revealing its indirect reliance on debt and equity to make the quarterly distributions to investors and to conceal the risk that distributions could be cut significantly if StoneMor’s access to capital markets failed.
A party may move to dismiss a complaint for failure to state a claim upon which relief can be granted. Fed. R. Civ. P. 12(b)(6). For a claim to survive a motion to dismiss, the complaint’s factual allegations must contain a facially plausible claim and raise a non-speculative right to relief. Bell Atl. Corp v. Twombly, 550 U.S. 544, 555 (2007); Gelman v. State Farm Mut. Auto. Ins. Co., 583 F.3d 187, 190 (3d Cir. 2009). Claims for relief under section 10(b) of the Securities Exchange Act of 1934 must demonstrate (1) the defendant made a materially false or misleading statement or omitted to state a material fact; (2) the defendant acted with scienter; and (3) the plaintiff’s reliance on the defendant’s misstatement caused harm or injury. 17 C.F.R. § 240.10b–5; Cal. Pub. Emps.’ Ret. Sys. v. Chubb Corp., 394 F.3d 126, 143 (3d Cir. 2004).
The court held the Plaintiffs failed to show they relied on materially false or misleading statements made with an intent to deceive. None of the statements made by the company materially misled investors because StoneMor provided accurate information, despite focusing the investor’s attention on financial figures created with non-generally accepted accounting principles (Non-GAAP). Additionally, the court determined the Plaintiffs failed to show StoneMor acted with intent to deceive or manipulate investors.
For the above reasons, the court granted StoneMor’s motion to dismiss based on a failure to state a claim.
The primary materials for this case may be found on the DU Corporate Governance website.