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Stransky v. Cummins Engine Co., Inc.

51 F.3d 1329 (1995)

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Stransky v. Cummins Engine Co., Inc.

United States Court of Appeals for the Seventh Circuit
51 F.3d 1329 (1995)

Facts

Cummins Engine Co., Inc. (Cummins) (defendant) designed and manufactured diesel engines. Cummins began producing redesigned engines in 1988. In the fall of 1988 and spring of 1989, Cummins’s board of directors allegedly was told that the new engines were experiencing problems due to design flaws and that Cummins’s costs for fixing the engines—which were covered by warranty—were rising. Cummins shareholders Alan Stransky and Raphael Warkel (collectively, Stransky) (plaintiffs) brought suit, alleging that Cummins violated Securities and Exchange Commission (SEC) Rule 10b-5 by not disclosing the engine problems and resulting increased warranty costs. Specifically, Stransky challenged four Cummins press releases, contending that Cummins had a duty to correct or update the releases. One release stated that the cost curves for the new engines were declining and that Cummins was making progress toward its targets for the new engines. A second release stated that the new engines were profitable and should become more profitable as their costs continued to decline. The two other releases did not directly relate to warranty costs. The district court dismissed the complaint. Stransky appealed.

Rule of Law

Issue

Holding and Reasoning (Kanne, J.)

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