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Lee v. Ernst & Young LLP

294 F.3d 969 (2002)

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Lee v. Ernst & Young LLP

United States Court of Appeals for the Eighth Circuit
294 F.3d 969 (2002)

  • Written by Robert Cane, JD

Facts

Summit Medical Systems, Inc. (Summit) (defendant) provided software related to medical databases. In 1995, Summit’s stock began trading publicly after an initial public offering (IPO). In the registration statement made in connection with offering its stock for trading, Summit had identified Ernst & Young LLP (defendant) as an expert that had audited and certified Summit’s financial statements. At the end of 1996, Summit’s stock price fell below the price of the IPO. In 1997, Summit admitted that it had been improperly recognizing revenues. In turn, Summit filed revised financial statements for the years 1994, 1995, and part of 1996, which showed a cumulative 11 percent shortfall in revenues. Jong Lee and other Summit shareholders (plaintiffs) who were aftermarket purchasers of Summit stock (i.e., they did not purchase Summit stock during the initial public offering) filed suit against Summit and Ernst & Young under § 11 of the Securities Act of 1933. Summit and Ernst & Young moved to dismiss the complaint for lack of standing. The district court dismissed the complaint, finding that standing under § 11 existed only for purchasers of stock who made their purchases during the initial public offering. Lee and the other Summit shareholders appealed.

Rule of Law

Issue

Holding and Reasoning (McMillian, J.)

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