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IVERS v. KEENE CORP.

December 18, 1991

ALVIN J. IVERS, TRUSTEE OF THE ALVIN J. IVERS, P.C. PENSION TRUST, ERIK BALLAN, WILLIAM STEINER, LEE BLOOM AND VIOLET KLEIN, ON BEHALF OF THEMSELVES AND ALL OTHERS SIMILARLY SITUATED, PLAINTIFFS,
v.
KEENE CORPORATION AND GLENN W. BAILEY, DEFENDANTS.



The opinion of the court was delivered by: William C. Conner, District Judge.

OPINION AND ORDER

This class action is brought by plaintiffs on behalf of all those who purchased common stock of the Bairnco Corporation ("Bairnco") between March 13, 1989 and April 2, 1990. The Amended Class Action Complaint (hereinafter "Complaint") alleges violations of Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 promulgated thereunder.

This action is currently before the Court on defendants' motion to dismiss the Complaint pursuant to Rules 9(b) and 12(b)(6) of the Fed.R.Civ.P.

BACKGROUND

In the Complaint, plaintiffs allege that defendant Keene Corporation ("Keene"), a wholly owned subsidiary of Bairnco at all times relevant to this action, and defendant Glenn W. Bailey, the chief executive officer of Keene and Bairnco, caused Bairnco to disseminate in its publicly issued statements materially false and misleading information concerning Keene's financial condition which operated artificially to inflate the market price of Bairnco common stock. In particular, plaintiffs allege that defendants represented, without a reasonable basis, that then present and reasonably foreseeable claims for asbestos-related damages and the cost of defense against such claims would not have a materially adverse effect on the financial condition of Keene and of Bairnco.

Central to plaintiffs' claim is the following excerpt from Bairnco's 1988 Annual Report:

  Keene's management and its counsel believe that
  the disposition of the existing and possible
  unasserted asbestos claims and other cases will
  not have a material adverse effect on Keene.
  Accordingly, management of the corporation
  [Bairnco] believes that the disposition of such
  claims, along with various other lawsuits, will
  not have a material adverse effect on the
  consolidated financial position of the
  corporation.

Complaint ¶ 42(a). The Annual Report went on to explain that this conclusion was premised on five factors:

  (1) Keene's insurance coverage; (2) Keene's
  experience to date with asbestos cases and their
  settlement, including Keene's review of the trends
  with respect to new case filings; (3) the benefit
  derived from the cooperation of co-defendants . .
  . (4) the potential reduction of Keene's share of
  indemnity as Manville and possibly other
  responsible parties, such as the U.S. Government,
  pay a share of liability contribution to asbestos
  case costs and (5) the book accrual established by
  Keene. . . .

Complaint ¶ 42(b)).

These statements, which plaintiffs allege to be false and misleading, were consistently repeated in Bairnco's annual and quarterly reports to the public during the class period, plaintiffs contend.

On January 23, 1990, defendants announced a restructuring of Bairnco in which Keene would be "spun off" and shares of its stock distributed to Bairnco, shareholders in proportion to their Bairnco holdings.

In a press release issued on March 28, 1990, Bairnco reversed its prior assurances regarding the asbestos claim risks. The release stated that the management of Keene could not determine whether or not Keene's ultimate liability on asbestos claims would have a "material adverse effect upon Keene's financial position." Complaint ¶ 54. In the five business days following the press release, the per-share price of Bairnco common stock fell more than 50% in value, from $13.625 to $6.25.

In its 1989 10-K report, filed on or about April 2, 1990, Bairnco disclosed that "substantially all of Keene's remaining insurance coverage" was subject to litigation or dispute and would not be available until after such ...


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