StockerYale suit clears hurdle

The class action suit against StockerYale can continue, a federal court judge ruled last week.

Steven McAuliffe, chief judge of the U.S. District Court in Concord, threw out the Salem company’s effort to dismiss the case on Sept. 29, clearing a legal hurdle for the plaintiffs that could result in a trial, or more probably a settlement.

The suit stems from two press releases the Salem company issued in 2004 about a contract with BAE Systems. The first release allegedly falsely implied that it was part of a new large homeland security contract for commercial aircraft that StockerYale would directly benefit from. As a result of the first release, the suit says, the price shot up, enabling two top executives – CEO Mark Blodgett and his father Lawrence Blodgett, who sits on the board of directors – to use their inside knowledge to earn a profit. Then, as the truth emerged, the price plummeted, causing investors to lose out on thousands of dollars, the suit alleges.

StockerYale settled with the Securities and Exchange Commission over these charges in May 2005. In the settlement, Blodgett agreed to pay approximately $900,000, but didn’t admit any wrongdoing.

StockerYale argued that the judge should dismiss the complaint, contending that each sentence in the first press release was literally true, and even if the release as a whole was misleading, executives at StockerYale didn’t know that.

The judge ruled that the complaint was specific enough – that if true, it would back up the plaintiff’s case.

“As it turns out, the baseless implication was not just misleading, it was actually false,” McAuliffe wrote. “The allegations in the complaint are sufficient to support a claim that StockerYale knew that the press release contained false and misleading information at the time it was issued.”

As for the second release, that the complaint – if true – establishes that “the stated facts [about the duration of the BAE contract] were simply invented by StockerYale.”

Furthermore, StockerYale’s alleged failure to seek BAE’s prior approval “demonstrates a high degree of recklessness,” the judge wrote.

McAuliffe also threw out the claims of the Blodgetts and other defendants that they were not responsible for the releases, ruling they were either in a position of responsibility or they allegedly help draft them.

While the suit is still alive, the plaintiffs still have to prove the allegations in the complaint. Usually what follows at this stage is a long period of discovery, class certification and a contest over summery judgment before it goes to trial.

“It’s a long process,” said Laurence Rosen, attorney for the plaintiffs. “The fact that we have a case doesn’t mean we win. It just means that it can go forward.”

Still Rosen was happy with the opinion, and wondered if the Blodgetts would be able to pay for any judgment against them.

“They could be liable for the money they earned,” said Rosen. “I heard they have a lot of money, and I’d like to get some of it for my clients.”

Attorneys for StockerYale could not be reached before deadline. – BOB SANDERS

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