Cohen v. USEC, Incorporated ( 2003 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
HOWARD COHEN; MYLES WREN; PAUL 
SPIRGEL; AARON BRODY; JACK
LOCKWOOD; DAVID J. STEINBERG;
CHAILE B. STEINBERG; ARTHUR SPINA;
JAY V. GRIMM; IRA SAUL
SCHMOOKLER; FRANCIS SOLOMON;
MENACHEM SKLAR, on behalf of
themselves and all others similarly
situated,
Plaintiffs-Appellants,
and
STELLA SHEREMET,
Plaintiff,  No. 02-1459
v.
USEC, INCORPORATED; WILLIAM H.
TIMBERS, JR.; HENRY Z. SHELTON,
JR.; MORGAN STANLEY DEAN
WHITTER COMPANY, INCORPORATED;
MERRILL LYNCH & CO.; JANNEY
MONTGOMERY SCOTT, INCORPORATED;
LEHMAN BROTHERS; PRUDENTIAL
SECURITIES INCORPORATED; SALOMON
SMITH BARNEY; M.R. BEAL &
COMPANY,
Defendants-Appellees.

2 COHEN v. USEC, INC.
HOWARD COHEN; MYLES WREN; PAUL 
SPIRGEL; AARON BRODY; JACK
LOCKWOOD; DAVID J. STEINBERG;
CHAILE B. STEINBERG; ARTHUR SPINA;
JAY V. GRIMM; IRA SAUL
SCHMOOKLER; FRANCIS SOLOMON;
MENACHEM SKLAR; STELLA SHEREMET,
on behalf of themselves and all
others similarly situated,
Plaintiffs-Appellees,
v.
USEC, INCORPORATED; WILLIAM H.  No. 02-1489
TIMBERS, JR.; HENRY Z. SHELTON, JR.,
Defendants-Appellants,
and
MORGAN STANLEY DEAN WHITTER
COMPANY, INCORPORATED; MERRILL
LYNCH & CO.; JANNEY MONTGOMERY
SCOTT, INCORPORATED; LEHMAN
BROTHERS; PRUDENTIAL SECURITIES
INCORPORATED; SALOMON SMITH
BARNEY; M.R. BEAL & COMPANY,
Defendants.

Appeals from the United States District Court
for the District of Maryland, at Greenbelt.
Alexander Harvey II, Senior District Judge.
(CA-01-1858-H, CA-01-1859-H, CA-01-1868-H, CA-01-1869-H,
CA-01-1870-H, CA-01-1871-H, CA-01-1872-H, CA-01-1873-H,
CA-01-1874-H, CA-01-1875-H)
Argued: April 4, 2003
Decided: July 21, 2003
COHEN v. USEC, INC. 3
Before NIEMEYER and SHEDD, Circuit Judges, and
James R. SPENCER, United States District Judge for the Eastern
District of Virginia, sitting by designation.
Affirmed and remanded by unpublished per curiam opinion.
COUNSEL
ARGUED: Arthur Raphael Miller, Cambridge, Massachusetts, for
Appellants. Daniel Slifkin, CRAVATH, SWAINE & MOORE, New
York, New York; Richard Louis Brusca, SKADDEN, ARPS, SLATE,
MEAGHER & FLOM, L.L.P., Washington, D.C., for Appellees. ON
BRIEF: Paul D. Young, Christopher M. Huck, MILBERG, WEISS,
BERSHAD, HYNES & LERACH, L.L.P., New York, New York;
Barbara Podell, BERGER & MONTAGUE, P.C., Philadelphia, Penn-
sylvania; Charles J. Piven, Marshall N. Perkins, LAW OFFICE OF
CHARLES J. PIVEN, Baltimore, Maryland, for Appellants. Robert S.
Bennett, Mary L. Smith, Melissa M. Goldstein, SKADDEN, ARPS,
SLATE, MEAGHER & FLOM, L.L.P., Washington, D.C., for Appel-
lees.
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
OPINION
PER CURIAM:
Purchasers of the common stock of USEC, Inc., a producer of
enriched uranium, commenced this class-action against USEC, Inc.,
individual USEC officers, and the lead underwriters in the initial pub-
lic offering of USEC’s stock, alleging violations of §§ 11(a), 12(a)(2),
and 15 of the Securities Act of 1933. The complaint alleges that the
4 COHEN v. USEC, INC.
registration statement and prospectus filed in connection with the ini-
tial public offering misrepresented material facts and omitted to state
other facts necessary to make the statements made not misleading.
The alleged misrepresentations and omissions related primarily to a
new process for producing enriched uranium that USEC intended to
employ and to profitability generally.
Pursuant to the defendants’ motion, the district court dismissed
plaintiffs’ complaint as untimely under the one-year statute of limita-
tions contained in § 13 of the Securities Act of 1933. The court also
held that the alleged misrepresentations and omissions were not mate-
rial as a matter of law and that certain of the alleged misrepresenta-
tions were mere puffery.
Because the plaintiffs failed to bring their claims within the one-
year limitations period set forth in § 13 of the Securities Act of 1933,
we affirm. On defendants’ cross-appeal relating to sanctions, we
remand for findings required by § 27(c) of the Securities Act of 1933.
I
USEC, Inc. was created by Congress through the Energy Policy
Act of 1992 primarily to provide uranium enrichment services to
transform natural uranium into enriched uranium to be used as fuel
for nuclear reactors to produce electricity. USEC produced enriched
uranium using the gaseous diffusion process at two government-
owned gaseous diffusion plants ("GDPs") located in Kentucky and
Ohio. In addition, USEC acted as the executive agent for the United
States under a February 1993 government-to-government agreement
between the United States and the Russian Federation (the "HEU
Contract"), pursuant to which USEC was obligated to purchase from
Russia certain components of materials derived from the highly
enriched uranium contained in dismantled nuclear weapons of the for-
mer Soviet Union.
In April 1996, Congress enacted the USEC Privatization Act, 42
U.S.C. § 2297h, with the purpose of transferring USEC from public
to private ownership. The Act authorized the Board of Directors of
USEC to privatize the corporation either through an initial public
offering (an "IPO") or by having a private corporation acquire it, and
COHEN v. USEC, INC. 5
on June 11, 1998, the Board voted unanimously to privatize USEC by
means of an IPO. To that end, USEC filed an S-1 Registration State-
ment with the Securities and Exchange Commission on June 29,
1998, and a prospectus that became effective July 23, 1998. During
the IPO, which was held during the period from July 23 through July
28, 1998, USEC sold 100 million shares of common stock at $14.25
per share, raising approximately $1.4 billion.
The prospectus issued in connection with the IPO stated that USEC
was "the world leader in the production and sale of uranium fuel
enrichment services for commercial nuclear power plants," but the
prospectus cautioned that the uranium enrichment industry was
"highly competitive," identifying as USEC’s major competitors three
corporations controlled or operated by foreign governments in West-
ern Europe and Russia. It noted that the industry faced an "excess of
production capacity," producing a trend toward lower pricing even as
"certain suppliers have announced plans to expand their capacities."
Moreover, it explained that USEC’s competitors may be less cost-
sensitive due to support received by their governmental owners. The
prospectus pointed out that USEC was obligated to purchase an
agreed-to amount of enriched uranium from Russia under the HEU
Contract at a fixed price, and because the market was experiencing
declining prices, that fixed price could in the future exceed the price
at which USEC could sell the material to its customers. The HEU
Contract price was also higher than USEC’s cost of producing the
same materials at its GDPs. Finally, the prospectus explained that the
large quantity of uranium that USEC was obligated to purchase under
the HEU Contract reduced the amount of uranium that it needed to
produce at its GDPs, resulting in higher per-unit production costs at
its GDPs.
Burdened with government-supported competitors in an oversup-
plied market facing downward price pressure and constrained to some
extent by the HEU Contract that could reduce USEC’s profitability,
USEC set forth in the prospectus a strategy under which it could
"continue to be the world’s leading supplier of uranium fuel enrich-
ment services." In addition to general strategies of pursuing sales
opportunities, improving operating efficiencies, and diversifying over
the long term, the prospectus described USEC’s strategy of commer-
cializing a new uranium enrichment process called Atomic Vapor
6 COHEN v. USEC, INC.
Laser Isotope Separation ("AVLIS") as an alternative to the gaseous
diffusion process. The prospectus described USEC’s expectation that
AVLIS would (1) use only 5-10% of the power used by the GDPs to
produce each unit of enriched uranium, (2) require significantly less
capital than new centrifuge plants, and (3) use about 20-30% less nat-
ural uranium to produce comparable amounts of enriched uranium.
And it claimed that AVLIS "should permit USEC to remain one of
the lowest cost suppliers . . . and enhance its competitive position."
The prospectus anticipated commercial deployment of AVLIS in
2005, and stated that USEC’s exclusive commercial rights to AVLIS
gave USEC "a considerable lead-time advantage over others attempt-
ing to develop similar laser-based uranium enrichment technology."
The prospectus also indicated that USEC "could begin enrichment
operations at an AVLIS facility in 2004" and that, by 2006, AVLIS
was expected to "displace some or all of the production of the GDPs."
Thus, the prospectus identified AVLIS as one of USEC’s key compet-
itive advantages, along with favorable arrangements with the U.S.
government, large inventories, a strong financial position, and certain
advantages flowing from the HEU Contract.
Discussing the risk factors of investment in USEC, the prospectus
identified a number of risks associated with AVLIS, noting that "any
of these could have a material adverse effect on the Company’s finan-
cial or competitive position." It stated that "[a]dditional equipment
demonstration and testing activities" were necessary before USEC
would commit to constructing an AVLIS facility and warned of the
possibility of "unanticipated delays or expenditures at this stage." It
also stated that "[i]f the Company determines not to proceed with
AVLIS deployment, the Company would pursue other options for
enrichment services such as GDP upgrades or exploring other new
technologies, which could have a material adverse effect on the Com-
pany’s financial or competitive position."
On June 9, 1999 — less than 11 months after the IPO — USEC
issued a press release announcing its abandonment of the AVLIS
technology. The press release stated, in relevant part:
USEC Inc. announced today that it is suspending further
development of its AVLIS enrichment technology. USEC’s
COHEN v. USEC, INC. 7
Board of Directors and management reached this decision
after a comprehensive review of operating and economic
factors. . . . "[W]e have reexamined the AVLIS technology,
performance, prospects, risks and growing financial require-
ments as well as the economic impact of competitive mar-
ketplace dynamics. We now have enough data to conclude
that the returns are not sufficient to outweigh the risks and
ongoing capital expenditures necessary to develop and con-
struct an AVLIS plant."
The press release also indicated that USEC had spent about $100 mil-
lion on AVLIS since privatization and that abandonment of the tech-
nology would negatively impact the company’s financial statements
in the short term. It announced that suspension of AVLIS would result
in a non-recurring charge of $40 million for the current year.
About a month later, on July 2, 1999, USEC released documents
to the Oil, Chemical & Atomic Workers International Union
("OCAW Union") in response to a Freedom of Information Act
(FOIA) request made by the OCAW Union the day after the USEC
had announced its plans to conduct an IPO. Many of these documents
were also made public. The documents eventually released to the pub-
lic included information on USEC’s corporate organization (i.e.,
bylaws, organization chart, and personnel data); the minutes and tran-
scripts of the June-July 1998 USEC Board meetings; contracts
entered into between USEC and lawyers, investment advisors, and
consultants; and studies on AVLIS. OCAW Union v. United States
Dep’t of Energy, 141 F. Supp.2d 1, 5 (D.D.C. 2001). By the end of
July 1999, the minutes and transcripts of the USEC Board meetings
surrounding the decision to conduct an IPO were available to the pub-
lic. See Transcripts Show USEC Board Divided on Issuing IPO Last
July at $14.25/share, Nuclear Fuel, July 26, 1999; Board Minutes
Released: Congressmen, Union Critical of USEC Privatization Pro-
cess, FreshFUEL, July 26, 1999; Privatized Uranium Operation
Investigated, The Columbus Dispatch, Aug. 1, 1999. These minutes
and transcripts describe in further detail the factors that led the USEC
Board to choose an IPO and to pursue AVLIS.
Despite USEC’s election to pursue the AVLIS technology, the arti-
cles published during July 1999 revealed that the two consortiums
8 COHEN v. USEC, INC.
which had offered to buy USEC if it did not proceed on the IPO route
were less enthusiastic than USEC’s management on AVLIS technol-
ogy and would have reduced spending on it and delayed its deploy-
ment. Quoting the Board meeting transcripts, the FreshFUEL article
reported that the Board accepted USEC management’s view of
AVLIS "without regard for the doubt cast on AVLIS by all other bid-
ders and in the absence of admittedly needed independent review of
management’s claims." A USEC financial adviser attending the meet-
ing at which the Board decided to conduct an IPO dismissed the bid-
ders’ views of AVLIS as coming from "professional board spookers"
who had an "agenda," i.e., to own USEC. The articles uniformly char-
acterized the Board’s decision to proceed with privatization through
an IPO as rushed, influenced by the investment bankers, lawyers, and
USEC officers who stood to profit from the transaction, and insensi-
tive to the national security implications of the deal. Indeed, USEC’s
privatization subsequently became the target of widespread criticism
by politicians, academics, and national security experts. This criticism
led to an investigation by the House Commerce Committee, and testi-
mony was given at a hearing on April 13, 2000, regarding USEC’s
privatization and its impact on the domestic uranium industry. The
Board transcripts were also published at the hearing as part of the
congressional investigation.
On October 27, 2000, plaintiff Paul Spirgel commenced a class
action against USEC, its responsible officers, and underwriters in the
Western District of Kentucky on behalf of a class of persons who pur-
chased USEC stock between July 23, 1998 and December 2, 1999.
Spirgel’s complaint asserted that USEC’s registration and prospectus
in connection with the IPO contained false and misleading statements
and omissions relating to AVLIS, among other things. Spirgel’s com-
plaint was followed by nine identical class actions brought against the
same defendants on the same grounds, the latest being filed on Janu-
ary 8, 2001. On defendants’ motion, the ten cases were transferred to
the District of Maryland pursuant to 28 U.S.C. § 1404(a) and consoli-
dated. The district court then granted the motion of plaintiffs Cohen
and Myles to be lead plaintiffs and approved their selection of lead
and liaison counsel. The court also ordered the filing of an amended
consolidated complaint.
The amended consolidated complaint alleges in three counts (1)
that the defendants violated Section 11(a) of the Securities Act (pro-
COHEN v. USEC, INC. 9
viding for civil liability for false statements of material fact in a regis-
tration statement); (2) that the underwriter defendants violated Section
12(a)(2) of the Securities Act (providing for civil liability for offering
or selling a security by means of a prospectus containing a false state-
ment of material fact); and (3) that the individual defendant officers
were liable by reason of Section 15 of the Securities Act (providing
for joint civil liability of persons controlling a company liable for vio-
lations of Section 11 or 12 of the Securities Act). At the core of plain-
tiffs’ allegations were the assertions that:
[T]he Prospectus was materially false and misleading in that
it misrepresented that USEC had a viable core business
model, the cornerstone of which was deployment of a new
enrichment technology called AVLIS which would enable
the Company to reduce its production costs by 50% and
profitably compete in the global enriched uranium business.
However, at the time of the IPO, USEC had no reasonable
prospect or intention of deploying AVLIS. Further, without
AVLIS, because USEC had the most antiquated facilities
and highest production costs in the industry, its competitive
position was precarious at best. Unbeknownst to the public,
at a secret USEC Board meeting six weeks before the IPO,
USEC’s Executive Vice President for Operations George
Rifakes conceded: "And we cannot compete with the GDPs.
We are going to have trouble competing with the GDPs."
Specifically, plaintiffs alleged that the prospectus misrepresented:
(1) USEC’s ability to profitably produce enriched uranium
by falsely stating that the Company was close to deploying
a new technology — AVLIS — which would reduce pro-
duction costs by approximately 50% when in fact AVLIS’
viability was unproven and defendants intended to abandon
it after the IPO; (2) the costs associated with AVLIS; (3) the
impact that the HEU Contract [between the U.S. and Russia]
had on USEC’s profitability; (4) USEC’s plans related to
sales of natural uranium; (5) that USEC could profitably
produce enriched uranium at the GDPs; (6) USEC’s compet-
itive position in the enriched uranium market; and (7) that
USEC intended to continue to operate both GDPs.
10 COHEN v. USEC, INC.
To satisfy § 13 of the Securities Act, which requires compliance with
a statute of limitations as a condition to suit, the complaint alleged
that the "facts concerning USEC’s business and prospects at the time
of the IPO were not disclosed to the investing public until April 13,
2000" at the congressional hearing. Because the first class-action
complaint was filed October 27, 2000, plaintiffs asserted that "less
than one year elapsed from the time that plaintiffs discovered or rea-
sonably could have discovered these facts and the date of the filing
of this action."
On defendants’ motion made under Federal Rule of Civil Proce-
dure 12(b)(6), the district court dismissed the complaint, relying on
several separate grounds. First, the court held that plaintiffs’ claims
first filed on October 27, 2000, were time-barred under § 13 of the
Securities Act because they were not brought within one year of the
time plaintiffs discovered, or should have discovered through the
exercise of reasonable diligence, the alleged untrue statements or
omissions in the prospectus and registration statement. The court con-
cluded that USEC’s June 9, 1999 press release announcing the aban-
donment of the AVLIS technology — "the cornerstone of USEC’s
future profitability" — gave plaintiffs actual or constructive notice "of
facts suggesting that the prospectus contained misrepresentations or
omissions which were actionable under the Securities Act." The court
further held that this press release —combined with warnings in the
prospectus that USEC’s failure to deploy AVLIS "could have a mate-
rial adverse effect on the Company’s financial or commercial posi-
tion" disclosed the alleged misrepresentations. "With the
announcement that AVLIS had been abandoned, the falsity of the
statement in the prospectus that it would soon be deployed became
apparent, and a cause of action under the Securities Act existed."
Even with plaintiffs’ allegation that they did not then discover their
claims, the court held that an objectively reasonable investor would
have discovered the claims:
Had public information been reviewed by investors during
the four month period between June 9, 1999 and October 26,
1999, the exercise of reason and due diligence by plaintiffs
would have revealed the existence of the alleged untrue
statements and omissions, and the Spirgel complaint could
COHEN v. USEC, INC. 11
have been filed at an earlier date when it was not time
barred.
The court held alternatively that, based on our holding in Brum-
baugh v. Princeton Partners, 985 F.2d 157 (4th Cir. 1993), plaintiffs’
claims were time-barred because the prospectus itself put them on
inquiry notice of their claims more than one year prior to the filing
of their complaint.
In addition to dismissing the complaint on the statute of limitations,
the court held that many of the alleged misrepresentations identified
by plaintiffs are not actionable because they were merely predictive
statements and puffery. It also held that, to the extent statements
could be viewed as misrepresentations, they were not actionable
under the "bespeaks caution" doctrine. "Under the so-called ‘bespeaks
caution’ doctrine, claims of securities fraud are . . . subject to dis-
missal if cautionary language in the offering document negates the
materiality of the alleged misrepresentations or omissions." After list-
ing the extensive cautionary statements in the prospectus and discuss-
ing their relation to the alleged misrepresentations, the court
concluded:
this case, there is not a substantial likelihood that the disclo-
sure of the alleged actual or omitted facts would have been
viewed by a reasonable investor as having significantly
altered the "total mix" of information made available. Had
a reasonable shareholder read the prospectus in its entirety,
including the extensive cautionary language contained
therein, the alleged untrue facts and the alleged omitted facts
would not have assumed actual significance in the share-
holders’ deliberations.
From the district court’s order of dismissal, the plaintiffs filed this
appeal. The defendants cross-appealed because the district court
failed to make findings under Federal Rule of Civil Procedure 11(b),
as required by 15 U.S.C. § 77z-1(c)(1).
II
The plaintiffs’ complaint was brought under §§ 11(a), 12(a)(2), and
15 of the Securities Act of 1933 (the "Securities Act" or "Act"). Sec-
12 COHEN v. USEC, INC.
tion 11(a) provides that when a registration statement contains "an
untrue statement of a material fact or omit[s] to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading," a person unaware of the misrepresentations
or omissions who purchases the security may bring an action in any
court against parties including "every person who signed the registra-
tion statement," every director or partner in the issuer at the time of
the statement’s filing, and "every underwriter with respect to such a
security." 15 U.S.C. § 77k(a). Section 12(a)(2) makes liable to the
purchaser of a security "[a]ny person who offers or sells [the] security
. . . by means of a prospectus or oral communication, which includes
an untrue statement of material fact or omits to state a material fact
necessary in order to make the statements, in light of the circum-
stances under which they were made, not misleading (the purchaser
not knowing of such untruth or omission)." 15 U.S.C. § 77l(a)(2)
(emphasis added). Finally, § 15 of the Act provides for joint and sev-
eral liability of every person who "controls any person liable under
sections [11 or 12]." 15 U.S.C. § 77o. All of these claims are subject
to the statute of limitations set forth in § 13 of the Act which pro-
vides:
No action shall be maintained to enforce any liability cre-
ated under section [11 or 12(a)(2)] unless brought within
one year after the discovery of the untrue statement or the
omission, or after such discovery should have been made by
the exercise of reasonable diligence.
15 U.S.C. § 77m. Because § 13 of the Act "conditions [the Act’s]
enforcement on commencement of the action within specified time
periods, the plaintiff bears the burden of establishing that his action
meets the statutory requirements [, and it] is the general rule that in
these circumstances the plaintiff must plead and prove facts that show
that his action was filed within the time periods specified by statute."
Caviness v. Derand Resources Corp., 983 F.2d 1295, 1302 (4th Cir.
1993).
In this case, the plaintiffs alleged satisfaction of the limitations
condition in their complaint, asserting that they did not discover their
claims until April 13, 2000, when portions of the transcripts of the
Board meetings in June and July 1998 were made public at the con-
COHEN v. USEC, INC. 13
gressional hearing, revealing "for the first time why the Prospectus’
representations regarding, among other things, AVLIS, the competi-
tive position of USEC and the impact of HEU Contract on USEC
were materially false and misleading." Based on that assertion, they
alleged that their complaint filed on October 27, 2000, was timely.
The district court disagreed and concluded as a matter of law that,
based on materials incorporated into the complaint, plaintiffs were
imputed with knowledge of their claims when the June 9, 1999, press
release was issued by the defendants announcing the abandonment of
the AVLIS technology. The court concluded that that press release,
coupled with the prospectus, informed plaintiffs of the misrepresenta-
tions or omissions on which their complaint rests. The court con-
cluded alternatively that the information undoubtedly put the
plaintiffs on inquiry notice giving rise to a duty to conduct a reason-
able investigation and that that investigation would have revealed
shortly — certainly within four months — the misrepresentations and
omissions alleged in the complaint. The court pointed out that infor-
mation made public in connection with the OCAW Union litigation
under the Freedom of Information Act and other related litigation
included the very transcripts to which the plaintiffs pointed as their
source of discovery of the misrepresentations and omissions at issue
in this case.
On appeal, the plaintiffs contend that it was improper for the dis-
trict court to have decided this case on a motion to dismiss because
there was a factual dispute concerning when plaintiffs should have
discovered the existence of the alleged misrepresentations and omis-
sions. They also argue that the information imputed to them in June
and July 1999 was insufficient to put them on notice of their claims.
We agree with the district court that sufficient facts were revealed
in June and July 1999 to put the plaintiffs on actual or constructive
notice of their claims. At the very least, discovery of their claims can
be imputed to them on the basis that by October 1999, they should
have discovered their claims with the exercise of reasonable dili-
gence. The documents incorporated into the complaint by reference
or by reliance show that an objectively reasonable investor would
have discovered the misrepresentations relied on by plaintiffs in the
14 COHEN v. USEC, INC.
June-July 1999 time period, making their complaint filed in October
2000 untimely under § 13 of the Securities Act.
The misstatements on which the plaintiffs relied in their complaint
are:
(1) USEC’s ability to profitably produce enriched uranium
by falsely stating that the Company was close to deploying
a new technology — AVLIS — which would reduce pro-
duction costs by approximately 50% when in fact AVLIS’
viability was unproven and defendants intended to abandon
it after the IPO; (2) the costs associated with AVLIS; (3) the
impact that the HEU Contract had on USEC’s profitability;
(4) USEC’s plans related to the sales of natural uranium; (5)
that USEC could profitably produce enriched uranium at the
GDPs; (6) USEC’s competitive position in the enriched ura-
nium market; and (7) that USEC intended to continue to
operate both GDPs.
These alleged misstatements center on an assertion that USEC failed
to disclose to investors that the company had "no reasonable prospect
or intention of deploying AVLIS," which plaintiffs characterize as the
"cornerstone" of USEC’s "core business model." Plaintiffs’ complaint
reveals their position that they invested in USEC because of the com-
petitive advantage that USEC was hoping to gain from the new
AVLIS technology. The registration statement and prospectus por-
trayed a gloomy economic future for USEC in the uranium reprocess-
ing market if AVLIS did not live up to the stated expectations of near-
term viability, as prices and demand were declining and capacity was
increasing. This is all disclosed in the prospectus.
In this context, when USEC disclosed that it was abandoning the
AVLIS technology and taking a material and substantial financial
write-down, that fact coupled with the disclosures made in the pro-
spectus regarding the prospects of profitability without AVLIS
revealed the truth about the misstatements alleged in the complaint.
For example, USEC is alleged to have represented that it was "close
to deploying a new technology — AVLIS," yet when the company
announced abandonment of AVLIS, the alleged falsity of that state-
ment is revealed. Similarly, the plaintiffs complained about not being
COHEN v. USEC, INC. 15
advised of the costs of AVLIS, yet that cost was revealed in June
1999. The dependence on AVLIS to advance a business model of
profitability made abandonment of the technology a forecast of
unprofitability. Indeed, USEC’s prospectus admitted the difficulty in
remaining competitive without AVLIS, i.e., continuing operations
only with the two existing GDPs. Finally, any question about the via-
bility of AVLIS was put to rest with the announcement of its aban-
donment in the press release. When a company jettisons the
technology that serves as the raison d’etre of its core business model
only months after the company’s IPO, the misleading nature of sunny
expectations set forth in the prospectus regarding that technology are
revealed.
Even if the information given in the press release were not enough
to put plaintiffs on notice of their claims, however, the dramatic aban-
donment of AVLIS should have caused an objectively reasonable
investor to investigate, and in this case discover, the further details
surrounding USEC’s decision to abandon AVLIS. Yet, the plaintiffs
failed to conduct any investigation in this case. Had they done so,
they would have discovered the numerous documents made public in
the OCAW Union litigation as well as trade journal articles in July
and August 1999, particularly in Nuclear Fuel, FreshFUEL, and The
Columbus Dispatch. While these may not be mainstream publications
that an interested investor might read on a casual basis, the inquiry
notice prompted by the press release would have directed them to a
search that would have revealed the details. We agree with the district
court that any such inquiry would have revealed these additional
materials within a few months after June 1999, certainly before Octo-
ber 1999, making a lawsuit filed on October 27, 2000, untimely.
In sum, for the reasons given and the reasons more completely
articulated by the district court in its limitations rulings, we affirm the
district court’s ruling dismissing plaintiffs’ claims for failure to meet
the statute of limitations requirement of § 13 of the Securities Act.
III
On cross-appeal, the defendants argue that the district court erred
in failing to make Rule 11(b) findings expressly required by the Pri-
vate Securities Litigation Reform Act, 15 U.S.C. § 77z-1(c)(1)
16 COHEN v. USEC, INC.
("[T]he court shall include in the record specific findings regarding
compliance by each party and each attorney representing any party
with each requirement of Rule 11(b)") (emphasis added). See also
Ehlert v. Singer, 245 F.3d 1313, 1320 (11th Cir. 2001) ("Because the
district court did not make the necessary Rule 11 findings, we remand
for this purpose."); Gurary v. Winehouse, 190 F.3d 37, 47 (2d Cir.
1999) ("As the statute required the district court to make findings, we
have no choice but to remand in order to permit it to do so"). The
defendants seek a remand to have the court make those findings.
The plaintiffs oppose a remand, relying on a footnote analysis in
Dellastatious v. Williams, 242 F.3d 191 (4th Cir. 2001). But Dellasta-
tious is distinguishable. There, defendants cross-appealed after the
district court denied their motion for sanctions without making any
findings. We concluded that "[b]ecause the PSLRA ‘does not in any
way purport to alter the substantive standards for finding a violation
of Rule 11,’ and because our own review of the record provides no
basis for awarding sanctions in this instance, a remand here would be
unnecessary." Id. at 197 n.5 (citation omitted). Unlike here, the dis-
trict court in Dellastatious addressed the issue of sanctions, even if it
did not elaborate the findings supporting its ruling.
Because the statute commands that such findings be made, we
remand this case for that purpose. In doing so, however, we express
no opinion on whether sanctions are, in fact, appropriate.
AFFIRMED AND REMANDED