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Backman v. Polaroid Corp.
United States Court of Appeals for the First Circuit
910 F.2d 10 (1990)
In 1978 Polaroid Corp. (defendant) introduced the Polavision, an instant-motion-picture system, to much acclaim, which resulted in worldwide sales of 200,000 units in 1978. In its third-quarter report to stockholders in November 1978, Polaroid announced record earnings and sales but briefly acknowledged that its earnings “continue to reflect substantial expenses with Polavision.” Two other statements by Polaroid noted that Polavision expenses were raising Polaroid’s overall costs of sales. Although Polaroid’s overall earnings remained high, Polavision sales were below expectations, and Polaroid reduced production. In February 1979, Polaroid withdrew $6.8 million from its reserves to cover expenses associated with Polavision. At around the same time, Polaroid’s founder, Dr. Edwin Land, caused a foundation he controlled to sell 300,000 shares of Polaroid stock. Later in the month, Polaroid issued another press release announcing that Polavision costs substantially exceeded revenues. Polaroid stock fell from $49.62 to $39.87. Irving A. Backman (plaintiff), on behalf of himself and other purchasers of Polaroid stock or call options during the period of early January 1979 to late February 1979, sued based on the Securities and Exchange Commission Rule 10b-5, claiming Polaroid had a duty to disclose developments of Polavision’s problems and the failure to disclose of Polavision’s situation inflated the market price for Polaroid shares. At trial, the jury found for Backman. On appeal, Polaroid filed a motion for judgment notwithstanding the verdict. The district court found for Backman on the issue of liability and denied Polaroid’s motion for judgment notwithstanding the verdict. On appeal, a divided First Circuit panel affirmed the district court’s denial of Polaroid’s motion. The panel opinion held that Polaroid’s statement could be found misleading by a jury due to subsequent developments, including Polaroid telling Polavision’s Austrian manufacturer to stop production and to keep the cutback a secret. The First Circuit decided to hear the case en banc.
Rule of Law
Holding and Reasoning (Aldrich, J.)
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