Joel Miller v. CHAMPION ENTERPRISES, INC., a Michigan corporation; WALTER YOUNG

*The Honorable Gordon J. Quist, United States District Judge for the
W estern District of Michigan, sitting by designation.
1
RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
ELECTRONIC CITATION: 2003 FED App. 0359P (6th Cir.)
File Name: 03a0359p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
_________________
JOEL MILLER; GARY KISSIAH;
SIMCHE MARGULIES,
individually and on behalf of
all others similarly situated,
Plaintiffs-Appellants,
v.
CHAMPION ENTERPRISES,
INC., a Michigan corporation;
WALTER YOUNG,
Defendants-Appellees.
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No. 01-1955
Appeal from the United States District Court
for the Eastern District of Michigan at Detroit.
No. 99-74231—John Feikens, District Judge.
Argued: June 20, 2003
Decided and Filed: October 8, 2003
Before: DAUGHTREY and ROGERS, Circuit Judges;
QUIST, District Judge.*
2 Miller, et al. v. Champion
Enterprises, et al.
No. 01-1955
1The dismissed complaint was styled “Consolidated and Amended
Class Action Complaint,” and has generally been referred to as the
“CAC.”
_________________
COUNSEL
ARGUED: Robin Howald, GLANCY & BINKOW, Los
Angeles, California, for Appellants. Donna L. McDevitt,
SKADDEN, ARPS, SLATE, MEAGHER & FLOM,
Chicago, Illinois, for Appellees. ON BRIEF: Robin
Howald, Lionel Z. Glancy, GLANCY & BINKOW, Los
Angeles, California, E. Powell Miller, MANTESE MILLER
& SHEA, Troy, Michigan, for Appellants. Donna L.
McDevitt, Timothy A. Nelsen, SKADDEN, ARPS, SLATE,
MEAGHER & FLOM, Chicago, Illinois, Andrew J.
McGuinness, DYKEMA GOSSETT, Ann Arbor, Michigan,
Carl H. Von Ende, MILLER, CANFIELD, PADDOCK &
STONE, Detroit, Michigan, for Appellees.
_________________
OPINION
_________________
ROGERS, Circuit Judge. Plaintiff Joel Miller, a
shareholder of Champion Enterprises, Inc. (“Champion”),
appeals from the dismissal of his complaint, referred to as the
“CAC,”1 pursuant to Rule 12(b)(6), Federal Rules of Civil
Procedure, and the Private Securities Litigation Reform Act
(the “PSLRA”), 15 U.S.C. 78u-4 et seq. Plaintiff sued
Champion and its Chief Executive Officer for securities fraud
under Sections 10(b) and 20(a) of the Securities and
Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5
promulgated thereunder by the Securities Exchange
Commission (the “SEC”), alleging that the defendants made

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No. 01-1955 Miller, et al. v. Champion
Enterprises, et al.
3
2The proposed amended complaint was styled “Second Amended and
Supplemental Conso lidated Class Action Comp laint,” and has generally
been referred to as the “SASC.”
various false or misleading statements related to the
bankruptcy of its largest customer. The district court
dismissed the CAC because (1) it failed to meet the
heightened pleading requirements for scienter of the PSLRA,
(2) a number of the alleged misleading statements qualified as
“forward-looking statements” protected by the PSLRA’s safe
harbor provision, and (3) the CAC failed to give rise to a
strong inference that Champion or its CEO knowingly or
recklessly misstated or omitted any material facts.
Plaintiff also appeals from the district court’s denial of
leave to file a proposed amended complaint, referred to as the
“SASC.”2 The district court denied plaintiff’s leave to file
the SASC on two grounds: (1) the PSLRA restricts Rule 15
of the Federal Rules of Civil Procedure, thereby barring
repeated amendments to a complaint governed by the
PSLRA, and (2) the proposed amendments were futile. For
the following reasons, we AFFIRM the judgment of the
district court.
I. BACKGROUND
Plaintiff brought this securities fraud action against
Champion and Walter Young, President, Chairman of the
Board of Directors, and Chief Executive Officer of
Champion, for making allegedly false or fraudulent
statements concerning Champion’s relationship with Ted
Parker Home Sales, Inc. (“Parker Homes”), and especially
with regard to Parker Homes’s filing for bankruptcy on
July 22, 1999. Champion, headquartered in Michigan, is the
largest producer of manufactured housing in the nation, and
one of the largest retailers, although it sells the manufactured
homes through both its own 280 retail stores and 3,500
4 Miller, et al. v. Champion
Enterprises, et al.
No. 01-1955
independent retailers. Parker Homes, headquartered in North
Carolina, was Champion’s largest independent retailer,
accounting for 3.5 percent of the 70,000 homes sold by
Champion in 1998.
Prior to 1998, Champion, through two of its subsidiaries,
entered into agreements with Parker Homes whereby Parker
Homes would receive substantial volume discounts for
inventory purchases (the “Bonus Program”). Parker Homes
would also receive an additional $1,000 or $2,000 for each
single-section or multi-section home purchased under the
Bonus Program. Parker Homes did not purchase the homes
in its inventory directly. Instead, the homes were purchased
through third-party finance companies, which charged Parker
Homes interest on the amount financed. When Parker Homes
sold a home, it paid the finance company from the proceeds
of the sale. However, if a home remained unsold for 12 to 15
months and if the retailer—Parker Homes—went bankrupt or
defaulted, Champion was obligated by the finance company
to repurchase the home. Champion recognized revenue once
financing was obtained, and Parker Homes received the
advances under the Bonus Program at the same time. Parker
Homes was required to repay these advances if Champion
repurchased the home. However, according to the plaintiff,
this contingency was unlikely because Champion would only
repurchase the home if Parker Homes went bankrupt or
otherwise defaulted, in which case Parker Homes would be
unable to repay the advances.
Ted Parker was the original owner of Parker Homes. In
December of 1998 he sold a controlling interest of 60 percent
in Parker Homes to two professional investors, GE
Investment Private Placement Partners II, L.P. (“GE
Partners”), and Ardhouse, L.L.C. (“Ardhouse”). In the course
of the transaction two holding companies (the “Holding
Companies”) were created through which Ardhouse and GE
Partners invested approximately $42 million in Parker
Homes. Champion asserts in its brief that Ted Parker’s

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No. 01-1955 Miller, et al. v. Champion
Enterprises, et al.
5
purpose in undertaking this transaction was to provide
funding to Parker Homes for the opening of 26 new retail
centers.
Prior to this transaction between Parker Homes, GE
Partners, and Ardhouse, Champion and Parker Homes had
entered into agreements (the “revolving loan agreement”)
whereby Champion would lend Parker Homes $250,000 for
each new sales center that Parker Homes opened, and
Champion would credit $50,000 toward repayment of these
loans for each year a sales center purchased $5 million in
inventory. These loans by Champion were unsecured and
could not exceed $8 million. These agreements were renewed
on May 5, 1999, and also on that date, Champion agreed to
advance to Parker Homes an additional $2.25 million
pursuant to these agreements.
According to the plaintiff, beginning in the first quarter of
1999, Parker Homes’s inventory became significantly
overstocked. He cites as evidence of the overstocked
inventory a statement in GE Partners and Ardhouse’s
complaint in their lawsuit against Ted Parker and others for
fraud with respect to the sale of the 60% controlling interest.
The statement alleges that Parker Homes’s “inventory build-
up was so large that the Company was unable to fit all the
homes it purchased on its sales sites and, as a result, had to
convert extra lots into storage centers.” The plaintiff also
points to a due diligence report that was undertaken by
PricewaterhouseCoopers, L.L.P., on behalf of GE Partners
and Ardhouse prior to their purchase of the controlling
interest in Parker Homes. This report showed that (1) Parker
Homes’s inventory that was older than 15 months had
increased from 4.9% to 10% from December 31, 1997, to
September 18, 1998; (2) the average value of the inventory at
each of Parker Homes’s sales centers had increased over the
18 months that ended June 30, 1998; and (3) inventory
6 Miller, et al. v. Champion
Enterprises, et al.
No. 01-1955
3GE Partners and Ardhouse still decided to go forward with the
financing agreement despite having prior knowledge of these figures from
the due diligence rep ort.
turnover had decreased from an adjusted turnover rate of 1.7
on December 31, 1996, to 1.4 on June 30, 1998.3
According to the plaintiff, Champion was aware or should
have been aware of the overstock of inventory by Parker
Homes in the first quarter of 1999. He refers to several
instances when the defendants stated that they had been
monitoring inventory levels, both as a general matter and
specifically as to Parker Homes. The plaintiff also notes
several statements by industry experts that speak of the excess
inventory in the manufactured home market.
Plaintiff also argues that several other facts, not included in
the CAC, but outlined in detail in the SASC, show that
Champion knew that Parker Homes was both overstocked and
in some financial danger during the first quarter of 1999. A
former Parker Homes sales manager in North Carolina, John
Trapaso, said that one of Champion’s local manufacturing
plants “stayed in business because Ted [Parker] kept the
excess inventory going.” Plaintiff also states that a former
Champion employee, unnamed, estimated that Champion sold
$3 million to $4 million worth of unfinanced homes without
purchase orders to Parker Homes sometime around May
1999. This same employee went on to say that “[a]t the end,
Parker did not order a ton of houses. We forced them down
his throat to keep the plants running.” According to this
employee, “everyone at the plant” was talking about this
situation, including upper management.
Plaintiff further asserts that Parker Homes’s sales and
storage facilities became so overstocked that Champion had
to store more than 200 homes at one of its wholly-owned
subsidiary’s facilities. These homes were apparently visible

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No. 01-1955 Miller, et al. v. Champion
Enterprises, et al.
7
to the executives of the subsidiary when they were flying into
the nearby airport. Plaintiff contends that these facts were
confirmed by allegations made in a complaint filed by the
Holding Companies against Ted Parker. Plaintiff alleges that
John Trapaso, who originally worked for Parker Homes and
later worked for Champion, indicated that Parker Homes
“always” had too much inventory and that Champion knew
this because sales representatives from its wholly-owned
subsidiary were “always going from one [Parker Homes] lot
to another.” Trapaso also stated that the manager from the
subsidiary told him in March 1999 that Parker Homes had too
much inventory and “was going to go bankrupt.” The same
manager told Trapaso, in late March 1999, that Champion
could no longer deliver houses to Parker Homes because
Parker Homes had exhausted its financing. Finally, according
to a former employee of Parker Homes, Wayne Murchison,
when rumors began to circulate within Parker Homes in
March 1999 that the company was in financial straits, two
Parker Homes managers, Kathy Parker and Bob Dowless, told
the employees that “everything would be okay because
Champion would take over the company soon.”
On June 28, 1999, the Holding Companies that owned
Parker Homes pursuant to GE Partners and Ardhouse’s
purchase of a controlling interest in Parker Homes filed a
Chapter 11 bankruptcy petition. The board of directors of
Parker Homes also approved the filing of a Chapter 11
petition for Parker Homes on June 28. By June 30, 1999,
Champion was aware that the Holding Companies had filed
for bankruptcy. Thereafter, Champion, Ted Parker, GE
Partners, and Ardhouse began discussing plans to fund the
continuing operations of Parker Homes and avoid a
bankruptcy filing. Champion, GE Partners, and Ardhouse
executed a letter of intent on July 15, 1999, whereby they
agreed to the creation of a senior secured credit facility to
meet Parker Homes’s funding needs. Pursuant to this letter of
intent, on July 16, 1999, Champion made an initial advance
to Parker Homes of $350,000 on an unsecured basis.
8 Miller, et al. v. Champion
Enterprises, et al.
No. 01-1955
Prior to the execution of the letter of intent, on July 12, Ted
Parker had sent Parker Homes notices of default on lease
agreements for Parker Homes’s sales lots. Under these
agreements, if Parker Homes did not pay Ted Parker the
overdue rent on these leases by July 22, it would forfeit the
sales lots. According to the plaintiff, the only means Parker
Homes had to preserve the leases was to file for bankruptcy,
unless Ted Parker agreed to give Parker Homes more time.
The sales lots leases were Parker Homes’s only
unencumbered asset. According to the plaintiff, as of 1:42
a.m. on July 22, an agreement between Champion and Ted
Parker with respect to these leases was not yet finalized. An
e-mail of 1:42 a.m. showed that the documents for an
agreement were close to final, and that Parker Homes’s Board
would meet in the morning “to approve the Champion and
Ted deals and ratify the recent working capital borrowings
from [GE Partners] and [Ardhouse].” Later that day GE
Partners and Ardhouse filed for Chapter 11 bankruptcy for
Parker Homes. Champion and Ted Parker were unaware that
GE Partners and Ardhouse were going to take this action, and
did not learn of the Parker Homes bankruptcy filing until
July 23, 1999.
As of the time of Parker Homes’s Chapter 11 bankruptcy
filing, Parker Homes owed Champion about $10.4 million in
discounts and cash reimbursements under the Bonus Program.
Parker Homes also owed Champion an additional $7.2
million for loans extended when Parker Homes opened new
sales centers under the Revolving Loan Agreement.
Additionally, when Parker Homes filed for bankruptcy,
Champion became obligated to repurchase around $69
million of Parker Homes’s inventory under Champion’s
repurchase agreements with the third-party finance
companies.
The CAC also alleged that Champion had failed to disclose
its intent to purchase the assets of Parker Homes. According
to the plaintiff, Champion had begun negotiating with Parker

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No. 01-1955 Miller, et al. v. Champion
Enterprises, et al.
9
Homes to purchase all of Parker Homes’s assets sometime
prior to the filing of the Holding Companies’ Chapter 11
petitions. In a conference call on August 1, a Champion vice
president implied to employees at Parker Homes’s sales
centers that Champion would be taking over Parker Homes.
In a bankruptcy filing on August 9, Parker Homes and the
Holding Companies stated that “[c]ommencing prior to the
inception of Debtors’ [Parker Homes and the Holding
Companies] cases, and continuing after their filings, the
Debtors negotiated with Champion Enterprises, Inc. for the
sale of substantially all of their assets and post-petition
financing for working capital and the Debtors’ general
corporate requirements pending the closing on the sale.” On
August 13, Champion agreed, subject to bankruptcy court
approval, to: (1) repurchase all of the Parker Homes inventory
that was subject to a repurchase obligation, with a value of
$69 million; (2) repurchase other inventory not subject to a
repurchase obligation, with a value of $10 million;
(3) provide Parker Homes with $1.15 million in post-petition
financing; and (4) purchase the leases for 37 Parker Homes
sales centers for $1.25 million.
From July 8 until August 26, 1999, Champion made
numerous public disclosures in the form of press releases,
conference calls, and filings with the SEC. On July 8, Young
wrote a letter to the shareholders indicating that Champion
was comfortable with the earnings estimates for the second
quarter of 1999. On July 21, Champion issued a press release
indicating that the second quarter of 1999 had set records for
revenues and earnings. Also on July 21, Champion held a
conference call in which Young discussed retail inventory,
turn rates, repurchase obligations, and dealer bankruptcies.
On July 30, Champion again made a press release and held a
conference call, in which Young discussed the circumstances
and effects of Parker Homes’s Chapter 11 filing, as well as
Champion’s relationship with Parker Homes. On August 9,
Champion filed a Form 10-Q for the second quarter of 1999.
In this Form 10-Q Champion disclosed in a footnote that
10 Miller, et al. v. Champion
Enterprises, et al.
No. 01-1955
Parker Homes had filed a Chapter 11 petition, and that
Champion would take a pre-tax charge of $33.6 million
related to its repurchase obligations for Parker Homes’s
inventory. Finally, on August 26, Champion announced that
the bankruptcy court had approved its purchase of 37 of
Parker Homes’s sales center leases and all of Parker Homes’s
inventory, totaling about 1,850 homes. Also on August 26,
Champion stated that it expected that its earnings for the
second half of 1999 would be 40% lower than earnings for the
second half of 1998 because of a greater than expected build-
up of retail inventory in the market.
On July 21, the day before Parker Homes filed for Chapter
11 relief, Champion’s stock price closed at around $18 per
share. Champion’s stock price dropped to $13.50 per share
on July 30, the day Champion announced the $33.6 million
pre-tax charge. On August 26, 1999, after announcing that it
expected earnings to be lower in the second half of 1999,
Champion’s stock price fell to $8.94 per share, having closed
at approximately $11.94 per share the day before.
Plaintiff Joel Miller filed a securities fraud action against
Champion and Young on August 26, 1999. Two other
securities fraud class actions were also filed against
Champion and Young, and these actions were consolidated on
March 30, 2000. On May 15, 2000, plaintiff filed the CAC,
charging Champion and Young with violations of Section
10(b) of the Securities Exchange Act of 1934, 15 U.S.C.
§ 78j(b), and SEC Rule 10b-5 which was promulgated
thereunder, 17 C.F.R. § 240.10b-5. Defendant Young was
also alleged to have “controlling person” liability under
Section 20(a) of the Exchange Act, 15 U.S.C. § 78t(a). The
gravamen of the CAC was that Champion “violated the
federal securities laws by inadequately disclosing and
accruing more than $38 million in losses stemming from
Champion’s undisclosed business dealings with its then-
largest customer, Ted Parker Home Sales, Inc. [], a retailer of

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No. 01-1955 Miller, et al. v. Champion
Enterprises, et al.
11
manufactured homes that filed a Chapter 11 bankruptcy
petition on July 22, 1999.”
On June 30, 2000, defendants filed a motion to dismiss the
CAC. Plaintiff then filed a motion for leave to file the SASC
on December 1, 2000, and renewed this motion on March 27,
2001. The district court issued a Memorandum and Order on
April 9, 2001, stating that the CAC must be dismissed, but
stayed consideration of whether the dismissal should be with
prejudice until after considering plaintiff’s motion to amend.
Then, on June 13, 2001, the district court issued an opinion
denying plaintiff’s motion to file the SASC and dismissing
the case with prejudice.
II. ANALYSIS
A. Standard of Review
This appeal requires us to interpret the PSLRA, and
questions of statutory interpretation are reviewed de novo.
Hoffman v. Comshare, Inc. (In re Comshare Inc. Sec. Litig.),
183 F.3d 542, 547 (6th Cir. 1999). We also review a district
court’s dismissal of a complaint under Rule 12(b)(6) de novo.
Id. The facts set forth in the complaint must be accepted as
true, so long as they are well pleaded. Id. However, the panel
“is not restricted to ruling on the district court's reasoning,
and may affirm a district court's grant of a motion to dismiss
on a basis not mentioned in the district court's opinion.” Id.
at 548. Finally, a district court’s denial of leave to amend on
the ground of futility is reviewed de novo, Ziegler v. IBP Hog
Market, Inc., 249 F.3d 509, 518 (6th Cir. 2001), although
generally we review a district court's denial of leave to amend
for abuse of discretion, except in cases where the district court
bases its decision on the legal conclusion that an amended
complaint could not withstand a motion to dismiss. Morse v.
McWhorter, 290 F.3d 795, 799 (6th Cir. 2002).
12 Miller, et al. v. Champion
Enterprises, et al.
No. 01-1955
B. General Legal Background
In his complaint, the plaintiff alleges violations by
Champion and its CEO of Sections 10(b) and 20(a) of the
Exchange Act and Rule 10b-5 promulgated thereunder by the
SEC. Section 10(b) of the Exchange Act and Rule 10b-5
prohibit “fraudulent, material misstatements or omissions in
connection with the sale or purchase of a security.” Morse,
290 F.3d at 798; see 15 U.S.C. § 78j(b); 17 C.F.R. § 240.10b-
5. Section 20(a) of the Exchange Act makes a person liable
for violations of the Exchange Act when that person controls
the person whose action caused the violation. See 15 U.S.C.
§ 78t(a). Defendant Young’s liability is therefore dependent
on whether Champion’s statements at issue in this case
violated the Exchange Act.
In order to state a claim pursuant to Section 10(b) of the
Exchange Act and Rule 10b-5, “a plaintiff must allege, in
connection with the purchase or sale of securities, the
misstatement or omission of a material fact, made with
scienter, upon which the plaintiff justifiably relied and which
proximately caused the plaintiff’s injury.” Comshare, 183
F.3d at 548. In the present case there is no dispute as to the
purchase of securities, justifiable reliance, causation, or
damages. Therefore, this case centers on two issues:
(1) whether the defendants misstated or omitted material
facts; and (2) whether these misstatements or omissions were
made with scienter.
In order to allege scienter in a private securities action for
money damages, the PSLRA requires that “the complaint
shall, with respect to each act or omission alleged to violate
this chapter, state with particularity facts giving rise to a
strong inference that the defendant acted with the required
state of mind.” 15 U.S.C. § 78u-4(b)(2) (emphasis added).
There are three distinct scienter requirements for securities
fraud actions, each of which depends on the type of statement
that is being made, and, in the case of “forward-looking

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No. 01-1955 Miller, et al. v. Champion
Enterprises, et al.
13
4Und er the PSLRA , a “forward-looking statement” is defined as:
(A) a statement containing a projection of revenues, income
(including income loss), earnings (including earnings loss) per
share, capital expenditures, dividends, capital structure, or other
financial items;
(B) a statement of the plans and objectives of management for
future operations, including plans or objectives relating to the
products or services of the issuer;
(C) a statement of future economic performance, including any
such statement contained in a discussion and analysis of
financial condition by the management or in the results of
operations included pursuant to the rules and regulations of the
Commission;
(D) any statement of the assumptions underlying or relating to
any statem ent described in sub paragraph (A), (B), o r (C);
(E) any report issued by an outside reviewer retained by an
issuer, to the extent that the report assesses a forward-looking
statement made by the issuer; or
(F) a statement containing a projection or estimate of such other
items as may be specified by rule or regulation of the
Comm ission.
15 U.S.C. § 78 u-5(i)(1).
statements,”4 whether that statement was material and
accompanied by meaningful cautionary statements. See 15
U.S.C. 78u-5(c). First, for “forward-looking statements” that
are accompanied by meaningful cautionary language, the first
prong of the safe harbor provided for in the PSLRA makes the
state of mind irrelevant. See 15 U.S.C. § 78u-5(c)(1)(A); see
also Harris v. Ivax Corp., 182 F.3d 799, 803 (11th Cir. 1999).
In other words, if the statement qualifies as “forward-looking”
and is accompanied by sufficient cautionary language, a
defendant’s statement is protected regardless of the actual
state of mind. Second, under the second prong of the safe
harbor provision of the PSLRA, in the case of “forward-
looking statements” that are not accompanied by meaningful
cautionary language, actual knowledge of their false or
misleading nature is required. See 15 U.S.C. § 78u-
14 Miller, et al. v. Champion
Enterprises, et al.
No. 01-1955
5(c)(1)(B); see also Helwig v. Vencor, Inc., 251 F.3d 540, 552
(6th Cir. 2001) (en banc). Finally, for statements of present
or historical fact, the state of mind required is recklessness.
Vencor, 251 F.3d at 552. Recklessness is defined as “highly
unreasonable conduct which is an extreme departure from the
standards of ordinary care. While the danger need not be
known, it must at least be so obvious that any reasonable man
would have known of it.” Mansbach v. Prescott, Ball &
Turben, 598 F.2d 1017, 1025 (6th Cir. 1979).
We have previously held that certain factors are usually
relevant to scienter in securities fraud actions:
(1) insider trading at a suspicious time or in an unusual
amount; (2) divergence between internal reports and
external statements on the same subject; (3) closeness in
time of an allegedly fraudulent statement or omission and
the later disclosure of inconsistent information;
(4) evidence of bribery by a top company official;
(5) existence of an ancillary lawsuit charging fraud by a
company and the company’s quick settlement of that
suit; (6) disregard of the most current factual information
before making statements; (7) disclosure of accounting
information in such a way that its negative implications
could only be understood by someone with a high degree
of sophistication; (8) the personal interest of certain
directors in not informing disinterested directors of an
impending sale of stock; and (9) the self-interested
motivation of defendants in the form of saving their
salaries or jobs.
Vencor, 251 F.3d at 552. In this appeal, factors one, two, and
six are at issue.
As stated previously, a plaintiff must “state with
particularity facts giving rise to a strong inference that the
defendant acted with the required state of mind.” 15 U.S.C.

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Enterprises, et al.
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§ 78u-4(b)(2). In Vencor, we provided a definitive
explanation of the meaning of a “strong inference”:
Inferences must be reasonable and strong—but not
irrefutable. “Strong inferences” nonetheless involve
deductive reasoning; their strength depends on how
closely a conclusion of misconduct follows from a
plaintiff’s proposition of fact. Plaintiffs need not
foreclose all other characterizations of fact, as the task of
weighing contrary accounts is reserved for the fact
finder. Rather, the “strong inference” requirement means
that plaintiffs are entitled only to the most plausible of
competing inferences.
251 F.3d at 553. Thus, if certain factors are not met in the
complaint—factual particularity and the most plausible of
competing inferences—“the court shall, on the motion of any
defendant, dismiss the complaint.” 15 U.S.C. § 78u-
4(b)(3)(A).
C. Scienter was Pleaded with Sufficiently Particular Facts
One factor on which the district court based its dismissal of
the CAC was a failure by the plaintiff to plead scienter with
sufficient particularity. Specifically, the district court went
through the complaint paragraph by paragraph, analyzing
each of the factual allegations and attempting to connect these
allegations with the allegations of scienter to determine if
they were sufficiently well pleaded so as to satisfy the
requirements of the heightened pleading requirements of the
PSLRA. Ultimately, the district court concluded that the
plaintiff “‘failed to craft a Complaint in such a way that a
reader can, without undue effort, divine why each alleged
statement was false or misleading.’” R.40, Opinion (April 9,
2001) (granting motion to dismiss consolidated amended
class action complaint) (quoting Wenger v. Lumisys, Inc., 2 F.
Supp. 2d 1231, 1243 (N.D. Cal. 1998)).
16 Miller, et al. v. Champion
Enterprises, et al.
No. 01-1955
5Plaintiff makes no argument that the allegations of scienter, or even
the underlying facts, alleged in paragraphs 64, 66, and 67 , are sufficient
to support a securities fraud claim, and we will not address them here.
6The content of these paragraphs will be set forth in the subsequent
footnotes.
The plaintiff takes issue with the district court’s finding that
he was unable to draft an adequate complaint. He argues that
the district court erred in the method it used to analyze the
CAC, characterizing the district court’s standard of review as
requiring that each paragraph contain all the elements
necessary to state a securities fraud claim. This standard,
plaintiff argues, is unsupported by either the PSLRA or the
Federal Rules of Civil Procedure, and therefore the district
court’s judgment should be reversed.
Plaintiff is correct in his contention that nothing in the
PSLRA or the Federal Rules of Civil Procedure supports a
method of analysis that would require all the elements of a
securities fraud claim to be stated in each paragraph of a
complaint. However, nowhere in its 39-page opinion did the
district court purport to be applying such a standard. We
assume, therefore, that the plaintiff must be asserting that
such a method, as a practical matter, was the one used by the
district court, not that the district court explicitly held that
such a method was the one to be applied.
There is some merit to this characterization of the district
court’s opinion. The district court approached the CAC in a
highly systematic—and somewhat rigid—manner and
overlooked some of plaintiff’s attempts to connect its factual
allegations and allegations of scienter. Plaintiff alleged some
kind of scienter in paragraphs 4, 39-40, 47-48, 64, 66-67,5 69,
70, 73-75, and 82.6 Many of these allegations were general
and therefore insufficient to meet the particularity

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No. 01-1955 Miller, et al. v. Champion
Enterprises, et al.
17
7¶ 69 alleges: “D efendants’ false representations and material
omissions were made with scienter [emphasis in original] in that
defendants knew or recklessly disregarded [emphasis added] that the
public documents and statements issued or disseminated by Champion
were materially false or m isleading.”
¶ 70 alleges: “defendants are liable fo r those false forward-looking
statements because at the time each of those forward-loo king statements
was made, the particular speaker knew that the particular forward-looking
statement was false or misleading, and/or the forward-looking statement
was authorized and/or approved by an executive officer of Champion who
knew that those statements were false when made” (emphasis added).
¶ 73 alleges: “they knowingly and/or recklessly mad e and /or failed to
correct public representations which were or had become materially false
and misleading regarding Champion’s financial results and operations . . .
the defendants caus[ed] Champion to publish public statements which
they knew, or were reckless in not knowing, were materially false and
misleading” (emphasis added).
¶ 74 alleges: “D efendant Yo ung . . . control[led] the content of the
aforesaid statements . . . and/or . . . fail[ed] to corre ct those statements in
a timely manner once he knew or was reckless in not knowing that those
statements were no longer true or accurate” (emphasis added).
¶ 75 alleges: “Defendant Young had actual knowledge of the facts
making the material statements false and misleading, or acted with
reckless disregard for the truth in that he failed to ascertain and to
disclose such facts, even though sam e were availab le to him” (emphasis
added).
¶ 82 alleges: “Defendant Young’s position made him p rivy to and
provided him with actual knowledge of the material facts concealed from
lead plaintiffs and the Class” (emphasis added).
8¶ 48 alleges: “As a result, Champion kno wing ly or recklessly
increased its risk of being required to purchase overvalued , unsold
invento ry.” The other allegations of scienter in ¶ 48 are simply assertions
that the defendants knew of or recklessly disregarded other “improper
requirements of the PSLRA. See ¶¶ 69, 70, 73-75, 82.7
Moreover, other allegations of scienter were not asserted in
relation to a statement or omission of a material fact, but
rather with respect to Champion’s substantive actions
throughout the underlying situation, and thus do not allege
scienter sufficient as a basis for a securities fraud action. See
¶ 48.8 However, some of the allegations of scienter are, albeit
18 Miller, et al. v. Champion
Enterprises, et al.
No. 01-1955
conduct” by Parker Homes, b ut the plaintiff does not allege any facts to
support the inference that the defendants knew of or recklessly
disregarded this conduct. Plaintiff alleges: “Plaintiffs are informed and
believe that Champion knew of or recklessly disregarded other improper
conduct in which Parker Homes engag ed in an effort to show false profits.
. . . Champion knew or recklessly disregarded the likelihood that Parker
Ho mes’s severe cash shortage co uld result in violations of its trust
agreements . . . . Champion knew or recklessly disregarded that Parker
Homes was ad ding additional costs to the invoice price of homes for non-
existent furniture . . .” (emphasis added).
9¶ 4 alleges: “Plaintiff’s contend that defendants ma terially
overstated Champio n’s earnings, revenues, and p rospects by . . .
(b) [k]now ingly or recklessly failing to accrue [an $1 8 million dollar loss
on money lent to Parker Homes] in light of the fact that Champion was
fully aware [that the parent comp anies of Parker Home s filed for
bankruptcy, as shown by a statement that implies that Champion knew of
the parent companies’ financial difficulties] . . . (d)[k] now ingly or
recklessly failing to disclose that the anticipated loss upon resale of
repurchased inventory was only one component of the $33.6 million
charge aga inst earnings taken in the third quarter of 1999 [as shown by a
statement by Young that implies that 85 percent of the charge would be
the result of resale losses, while Champ ion’s 1999 Form 10-K shows that
more than 50 percent o f the charge was attributable to loans, advances,
and discounts to Parker Homes] . . . (f) [k] now ingly or recklessly
concealing that Parker H ome s was no t going to obtain deb tor-in-
possession financing [as shown by two statements by officers of
Champion stating that they were unaware of whether Parker Homes
would obtain financing, while a later statement implied that Champion
was nego tiating to buy Parker Homes during the time period the earlier
statements were made]” (emphasis added).
¶ 39 alleges: “In light of the following facts known to defenda nts,
[defendants earlier statements that they were monitoring inventory levels,
did not voluntarily rep urchase inventory, and that only o ne or two of their
dealers had gone bankrupt] were materially false, misleading and
incomplete, [(1) because] Champion was awa re [that Parker Homes had
extreme amounts of excess inventory] b ecause it was unable to ship [new
invento ry] to Parker Homes until additional financing was in place [as
loosely, tied to the alleged false or misleading statements or
to omissions of material facts listed in the complaint. See
¶¶ 4, 39-40, 47.9

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No. 01-1955 Miller, et al. v. Champion
Enterprises, et al.
19
shown by a statement in Ted Parker’s complaint in another lawsuit, as
well as other submissions in that lawsuit], [(2) because Parker Homes
parent companies had already declared bankrup tcy before these
statements were made, a fact which Champion must have be en aware of,
and (3) because Champion had lent Parker H omes $2.25 million and
$350,000 as working ca pital in order to save it from bankruptcy, and were
in negotiations to purchase all of Parker Ho mes’s assets, as shown by
statements in Ted Parker’s complaint in another lawsuit and other
documents]” (emphasis added).
¶ 40 alleges: “Champion knew both that Holding Com panies and
Parker Homes had filed Chapter 11 p etitions and that C hampion would
soon purchase substantially all of the assets of Parker Homes [as shown
in the above paragraphs, but Champion still failed to accrue an $18
million loss in their second quarter financial statements as required by
GAA P]” (emphasis added).
¶ 47 alleges: “In light of the following facts known to Champion,
[Champion’s representations (1) that its second quarter was ‘ano ther all-
time record quarter,’ (2) that it had a ‘strong balance sheet’ and ‘superior
returns on shareholder equity,’ (3) that it had record sales perfo rmance in
the first half of 1999, (4) that Parker Homes bankruptcy was
‘unanticipated ,’ (5) that it hoped that Parker Home s could ‘continue to
ope rate through Chapter 11 and eventually come out o f it,’ (6) that it kept
‘close tabs on the contingent liability’ it has with each of its retailers and
had been ‘watching Parker Homes inventory turn,’ (7) that it didn’t know
if Parker H ome s would ob tain debtor in possession financing, and (8) that
the charge it would take because of Parker Homes’s bankruptcy was
primarily ‘for the discounting that is anticipated in the reselling of the
homes and for the removal and reloc ation costs associated with the
repurchase of the homes’] were materially false, misleading and
incom plete [as shown by (1) the notes of counsel in another lawsuit that
Champion aware that Parker Homes was in severe financial difficulty and
might need to file for Chapter 11, (2) submissions in the bankruptcy
proceeding that Champion wo uld rep urchase all of P arker Homes’s
invento ry, including that which they were not obligated to repurchase, and
provide post-b ankruptcy-petition financing to Parker H ome s, and
(3) agreements between Champion and Parker Homes which gave Parker
Hom es strong incentives to have excess inventory]” (emphasis added).
The SASC did not remedy any of the shortcomings of the
CAC with respect to pleading scienter with sufficient
particularity. The SASC adds more facts, but it does not link
these facts with the allegations of scienter any more than the
20 Miller, et al. v. Champion
Enterprises, et al.
No. 01-1955
CAC does. In fact, the SASC simply reiterates the scienter
allegations of the CAC.
Although we understand the district court’s frustration with
the complaint, as the CAC does not link the factual
allegations with defendant’s purported scienter in a
particularly cogent manner, we nevertheless find that the
complaint is not so inadequate in this respect that it merits
dismissal. The plaintiff did not simply make “conclusory
allegations of recklessness, intention, or misconduct.” Burns
v. Prudential Sec., 116 F. Supp. 2d 917, 925 (N.D. Ohio
2000). However, as indicated below, we further conclude that
the district court was correct in holding that the CAC did not
contain allegations sufficient to state a claim under the
heightened pleading requirements of the PSLRA.
D. The CAC Did Not Contain Allegations Sufficient to
State a Claim
In order for a complaint to be adequate, it must contain
allegations sufficient to state a claim. Under the PSLRA and
our prior caselaw, these allegations must give rise to a strong
inference—the most probable of competing inferences—that
the defendants made false or misleading statements with the
required state of mind. See 15 U.S.C. § 78u-4(b)(2); Vencor,
251 F.3d at 553. Plaintiff alleged six separate
communications that he contends were false or misleading:
(1) Young’s letter to Champion shareholders on July 8, 1999;
(2) Champion’s press release on July 21, 1999;
(3) Champion’s conference call on July 21, 1999;
(4) Champion’s press release on July 30, 1999;
(5) Champion’s conference call on July 30, 1999; and
(6) Champion’s second quarter Form 10-Q which was filed
with the SEC on August 9, 1999. Some of these
communications fall within the safe harbor for “forward-
looking statements” provided by the PSLRA, while the others
do not give rise to a strong inference that Champion or Young
acted with sufficient scienter to survive a Rule 12(b)(6)

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Enterprises, et al.
21
motion dismiss under the heightened pleading requirements
of the PSLRA.
1. The July 8, 1999, Letter to Shareholders
The July 8, 1999, Letter to Shareholders was forward-
looking and fell within the safe harbor provision because it
was accompanied by meaningful cautionary language. The
letter, written by Young to Champion’s shareholders, stated
in pertinent part:
As we start the second half of the year, we know that
you are as concerned as we are regarding the
performance of Champion Enterprises stock compared
with the overall market. Housing stocks in general have
under performed the markets in 1999, and we are no
exception. Given the continuation of outstanding
earnings growth and the successful implementation of
our retail strategy, we challenge ourselves as to what we
can do to enhance our stock value in a market dominated
by Internet and the Dow Jones Nifty 50 stocks . . . .
Some of our competitors have reported problems with
meeting earnings estimates. Champion recently
announced that we were comfortable with consensus
earnings estimates of $0.59 per share for the second
quarter, which would be a 13 percent increase compared
to last year.
J.A. at 1045-46. The district court found that these statements
were forward-looking and accompanied by sufficient
cautionary language, and therefore protected under the safe
harbor provisions of the PSLRA.
Plaintiff alleges that the statements with regard to
Champion’s earnings estimates were materially misleading
given that Champion and Walter Young knew of Parker
Homes’s poor financial condition and the probability of its
22 Miller, et al. v. Champion
Enterprises, et al.
No. 01-1955
10In addition, we note that Champion did actually have earnings of
$0.59 per share in the second quarter as announced on July 21, 1999,
therefore undermining the notion that these statements were either false
bankruptcy which would adversely impact Champion.
Plaintiff further alleges that the statements are not subject to
the PSLRA’s safe harbor provision, because they are not
forward-looking and lack meaningful cautionary language.
Specifically, plaintiff argues that the word “continuation”
refers to the present state of affairs, and that cautionary
language referring to business downturns and possible
inventory excesses is insufficient disclosure since Champion
did not disclose the nature of its loans to Parker Homes. He
also contends that the district court misapplied the holding in
Ivax in finding that the statements were forward-looking.
In Ivax, the plaintiff sued Ivax Corporation for securities
fraud and alleged that Ivax had made false or misleading
statements concerning its financial outlook. 182 F.3d at 802.
Ivax moved to dismiss the claims based on the safe harbor
provision and heightened pleading requirements of the
PSLRA. Id. The district court dismissed the action, and on
appeal the Eleventh Circuit affirmed the judgment of the
district court. Id. at 802, 808. In reaching this conclusion, the
Eleventh Circuit held that in certain situations, mixed
statements of present fact and future prediction must be
treated as wholly forward-looking. Id. at 805-07.
We find plaintiff’s arguments with regard to the July 8,
1999, Letter to Shareholders to be unpersuasive. The
statements by Walter Young in his letter to Champion
shareholders appear to be classically forward-looking. The
statements speak of earnings “estimates,” of “challenging”
themselves to “enhance” their stock value. These are all
statements that imply projections or objectives, falling
squarely within the definition of “forward-looking
statements” found in 15 U.S.C. § 78u-5(i)(1).10 The phrase

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No. 01-1955 Miller, et al. v. Champion
Enterprises, et al.
23
or misleading. Plaintiff argues that these earnings were nevertheless
misleading because Champ ion actually should have taken a loss during
the second quarter d ue to P arker Homes’s probab le bankruptcy. This will
be discussed in greater length later in this opinion.
11Plaintiff’s reliance on In re B oeing Sec. Lit., 40 F. Supp. 2d 1160,
1169 (W .D. W ash. 19 98) is unavailing. The portion of that opinion
quoted by the plaintiff relates back to statements by the defendant in that
case that are almost exclusively statements of present or historical fact and
certainly do not provide the basis for any future projections, unlike the
statements at issue here.
“given the continuation of outstanding earnings growth and
the successful implementation of our retail strategy,” although
certainly implying some present circumstances, also is the
basis for the later “forward-looking statements,” thus
qualifying as an “assumption underlying” a “forward-looking
statement” found in 15 U.S.C. § 78u-5(i)(1)(D).11 See Ivax,
182 F.3d at 804-805 (the phrase “[r]eorders are expected to
improve as customer inventories are depleted” was found to
be a “forward-looking statement” under the “assumptions
underlying” definition in 15 U.S.C. § 78u-5(i)(1)(D)).
Furthermore, the July 8 letter does not contain a mixed
statement of present fact and future prediction similar to that
discussed in Ivax, and therefore we do not need to address
plaintiff’s argument in this regard. Given these facts, we
conclude that the statements are forward-looking for the
purposes of the PSLRA.
However, in order to be protected by the safe harbor
provisions of the PSLRA, these statements must also have
been accompanied by meaningful cautionary langauge. We
conclude, as did the district court, that the statements were
accompanied by meaningful cautionary language. The July 8
letter cited Champion’s risk disclosures in its 1998 Form 10-
K, which included a risk related to inventory levels of
manufactured housing retailers. Additionally, the letter itself
contained warnings that “housing stocks in general have
24 Miller, et al. v. Champion
Enterprises, et al.
No. 01-1955
underperformed the markets in 1999,” and that “in certain
regions we see too many retail locations, suggesting an over
supply of retail inventory of homes in that region.” Plaintiff
argues that Champion should also have disclosed the nature
of their loans to Parker Homes. This goes too far. Champion
disclosed the exact risk that occurred in this situation: excess
retailer inventory that could lead to negative economic effects
on Champion. Champion is not required to detail every facet
or extent of that risk to have adequately disclosed the nature
of the risk.
Accordingly, since we conclude that the statements in
Walter Young’s July 8 Letter to Shareholders were both
forward-looking within the meaning of the PSLRA, and that
they were accompanied by meaningful cautionary language,
the statements are subject to the safe harbor provisions of the
PSLRA and are therefore not actionable. No investigation of
defendant’s state of mind is required. See 15 U.S.C. § 78u-
5(c)(1)(A); see also Ivax, 182 F.3d at 803.
2. The July 21, 1999, Press Release
The July 21, 1999, press release was not a forward-looking
statement and was therefore not protected under the safe
harbor provisions of the PSLRA. We nevertheless hold that
the plaintiff failed to state a claim regarding the July 21,
1999, press release. The press release in question announced
that Champion’s second quarter “earnings per share [] grew
13 percent to $0.59 from $0.52 last year.” In the CAC,
plaintiff quoted nearly all of the July 21 press release, much
of which consists of statements that would qualify as forward-
looking under the PSLRA. The district court, applying a test
found in Ivax for mixed statements of present fact and future
prediction, found the whole press release to be forward-
looking. It also found that the July 21 press release was
accompanied by meaningful cautionary language, and
therefore concluded that the statements fit into the statutory
safe harbor of the PSLRA and were not actionable.

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No. 01-1955 Miller, et al. v. Champion
Enterprises, et al.
25
12This figure is made up of $10.4 million in discounts under the
Bonus Program and $ 7.2 million in outstanding loans to Parker Homes
unde r the Revolving Lo an Agreem ent.
Plaintiff contends that he took issue solely with the
earnings figure included in the July 21 press release, and
therefore argues that this is not a “forward-looking statement”
protected by the PSLRA’s safe harbor provision.
Specifically, he argues that the district court misapplied Ivax
in concluding that the entire press release should be treated as
a “forward-looking statement.” Plaintiff avers that the
earnings figure given in the July 21 press release (and
repeated in the August 9, 1999, Form 10-Q filed with the
SEC) was recklessly misstated, because, under generally
accepted accounting principles (“GAAP”), Champion was
required to accrue a loss of approximately $18 million12 in
the second quarter of 1999 due to the probability of Parker
Homes’s bankruptcy, about which the defendants knew or
should have known.
We agree with the plaintiff that the earnings figure
statement in the July 21 press release is a statement of present
or historical fact, and therefore not subject to the safe harbor
provision of the PSLRA. We also agree with the plaintiff that
the mixed scenario described in Ivax does not apply to this
situation, and therefore that the district court erred in so
holding. The mixed statement discussed in Ivax was a list of
factors that would influence Ivax’s third quarter results. The
court there held that:
The mixed nature of this statement raises the question
whether the safe harbor benefits the entire statement or
only parts of it. Of course, if any of the individual
sentences describing known facts (such as the customer’s
bankruptcy) were allegedly false, we could easily
conclude that that smaller, non-forward-looking
statement falls outside the safe harbor. But the allegation
26 Miller, et al. v. Champion
Enterprises, et al.
No. 01-1955
here is that the list as a whole misleads anyone reading
it for an explanation of Ivax’s projections, because the
list omits the expectation of a goodwill writedown. If the
allegation is that the whole list is misleading, then it
makes no sense to slice the list into separate sentences.
Rather, the list becomes a “statement” in the statutory
sense, and a basis of liability, as a unit. It must therefore
be either forward-looking or not forward-looking in its
entirety.
182 F.3d at 806. The court in Ivax concluded that a list must
be treated as a whole when the allegation was that the list
itself misled investors by omitting certain relevant factors.
The statement at issue here is not a list, nor is the argument
that the earnings figure is misleading based on an omission
from a list. The earnings figure is easily separable from the
“forward-looking statements” contained in the press release,
and is not given merely as an “assumption underlying” future
projections. It therefore is not protected under the safe harbor
provisions of the PSLRA, and the district court erred in so
holding.
The question still remains whether the earnings figure was
fraudulently misstated, which is dependent on whether the
defendants recklessly failed to accrue an $18 million loss
because of the possibility of Parker Homes’s bankruptcy. For
the reasons given below in discussing Champion’s identical
earning figure given in the August 9, 1999, Form 10-Q,there
was no such reckless failure, and the plaintiff therefore failed
to state a claim regarding the July 21, 1999, press release.
3. The July 21, 1999, Conference Call
The July 21, 1999, conference call contained a number of
statements, some of which were forward-looking and some
that were not, but because we find that none of the statements
were made with sufficient scienter to amount to recklessness,
we hold that the plaintiff failed to state a claim regarding

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No. 01-1955 Miller, et al. v. Champion
Enterprises, et al.
27
these statements. Champion held a conference call following
the July 21, 1999, press release. Plaintiff asserts that several
statements—or groups of statements on the same
topic—made during this conference call were misleading to
investors and were made with either recklessness or actual
knowledge of their falsity. The first statement he cites is
identical to one found in the July 21 press release:
While our retail traffic remains healthy and we continue
to keep our inventory levels under tight control, the
biggest short-term challenge we face is to improve the
industry’s retail inventory excesses. Even though we
anticipate that our retail sales should be strong for the
remainder of the year, we expect that industry wholesale
shipments could be down until this temporary adjustment
is completed.
J.A. at 54. Plaintiff also cites some statements by Walter
Young during the conference call, in which Young stated that
Champion was “watching” and “managing” the inventory of
its independent retailers. The final statements on this topic
that plaintiff alleges were misleading are as follows:
The overall industry outlook, the overall retail demand
seems to be holding up very well. The positive impact of
this overall demand impact is somewhat dissipated due
to the growth in the number of retail outlets in the
industry, which has outpaced the overall industry growth,
over the last year or so. Therefore, total industry
inventory has probably increased maybe a month or so,
somewhere around 20,000 homes, industry wide.
J.A. at 397. The above statement was given by Walter Young
at the opening of the conference call, and in response to a
follow-up question on the topic, Young answered as follows:
Again, there aren’t any industry numbers as to turns that
are really valid. So, it’s—the Census Bureau comes out
28 Miller, et al. v. Champion
Enterprises, et al.
No. 01-1955
13The phrase “greed overcame logic” was only alleged in the SASC,
as is the evidence that Champion “forced” Parker Homes to take more
inventory than needed.
with some. There’s plus or minus on that. So, the turn
appears—and it changes because of the seasonal time of
year. The industry turn has dropped below 2.5 time
turns, from everything that we can see. So, it has gone
down. That’s why we think there may be a month of
inventory, which would be about 20,000 homes in the
industry, that should be excess and should be flushed
through. Now, our inventory turns from our own
organization . . . are somewhere a little under three times
turn. . . . Our independents are about at the industry
number, the best we can see, overall, that[’s] the 3,500
independent retailers we sell to.
Id. at 400. Plaintiff argues that, given that Champion knew of
Parker Homes’s excess inventory, these statements were false
because Champion was not actually keeping inventory under
“tight control.” He cites as evidence of the falsity of Young’s
statement three facts: “(1) [Champion’s] forcing [Parker
Homes] to take more inventory than it needed; (2) 100 other
retailers supplied by Champion went bankrupt in 1999; and
(3) Young’s admissions that there was too much industry
expansion because manufacturers got “carried away” when
“greed overcame logic.”13 Pl. Br. at 41. Additionally,
plaintiff contends that the statements are not forward-looking.
The district court found that the statements were forward-
looking, in part because of its overly broad interpretation of
mixed statements of present or historical fact and future
projection under Ivax. The district court also held that the
statements lacked meaningful cautionary language, and
therefore were not protected under the first prong of the
PSLRA’s safe harbor provision, where scienter is not even
considered. Nevertheless, because the statements were

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No. 01-1955 Miller, et al. v. Champion
Enterprises, et al.
29
14The first quoted section (from the press release) seems to state that
Champion was keeping its own inventory under tight control, as opposed
to that of independent retailers who would be the probable recipients of
“industry wholesale shipments.”
forward-looking, under the second prong the PSLRA’s safe
harbor provision they would only be actionable if they were
made with actual knowledge as to their falsity. The district
court did not reach this question, however, because it found
that the plaintiff had not sufficiently alleged scienter with
regard to any of the allegedly false statements in the CAC.
As discussed earlier, the district court erred in so finding.
We are not persuaded by the plaintiff’s arguments with
respect to these statements. The statements are forward-
looking in some respects, but they also contain numerous
statements of present or historical fact, not all of which are
simply assumptions underlying future projections. But even
under a recklessness standard, Walter Young and Champion
were not misleading. Certainly Champion and Walter Young
professed to be monitoring inventory levels, both for their
own retail stores and for their independent retailers.14
However, Young also explicitly stated that there was excess
inventory in the market, partially due to the growth of
retailers in the industry outpacing that of the overall industry
growth. In other words, Champion and Young acknowledged
that there was excess inventory in the market, and that there
was an excess of retailers in the market as well.
The evidence that the plaintiff cites to support his
contentions is unavailing. He asserts that Champion was
“forcing [Parker Homes] to take more inventory than it
needed.” Pl. Br. at 41. We first note that the only real
evidence of this is found in SASC, which, for reasons that
will be discussed later in this opinion, the district court
properly denied plaintiff’s motion to file. But even if we
were to consider this evidence, it does not show that Young
30 Miller, et al. v. Champion
Enterprises, et al.
No. 01-1955
was speaking with such reckless disregard for the truth that
his statements amount to “highly unreasonable conduct which
is an extreme departure from the standards of ordinary care.”
Mansbach, 598 F.2d at 1025. Young admitted in the
statements themselves that there was excess inventory in the
market. The fact that he underestimated the true extent of the
excess—which it is doubtful that he knew or should have
been aware of—does not mean that he was reckless when he
stated that there was an inventory excess or when he said that
they were “managing” and “watching” the inventory.
The next statement that the plaintiff says was misleading
from the July 21, 1999, conference call was Young’s response
to a question of whether Champion was voluntarily
repurchasing inventory from weaker retail dealers. As
plaintiff alleged in paragraph 38 of the CAC, “CEO Young
responded that he could not be ‘adamant enough’ that
Champion made no voluntary repurchases and that
repurchases were limited to Champion’s repurchase
obligations to third party floor finance lenders when a retailer
when bankrupt.” When asked if any of the dealers had gone
bankrupt, Young responded: “I think one or two out of 3,500
across the country. There have been some. But . . . under the
repurchase obligation . . . out of 70,000 homes that we build
a year, I think we took back 100-110 homes last year . . . .”
Id.
The plaintiff, defendants, and the district court all agree that
these are statements of present or historical fact, and therefore
not entitled to protection under the safe harbor provision of
the PSLRA. The district court did not discuss these
statements further, however, finding that they were not
sufficiently linked to allegations of scienter. Plaintiff
contends that these statements were reckless and misleading
given that in August, Champion chose to repurchase an
additional $10 million of Parker Homes inventory beyond the
$69 million which it was obligated to purchase, that the day
after the conference call Parker Homes filed for bankruptcy,

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No. 01-1955 Miller, et al. v. Champion
Enterprises, et al.
31
and that approximately 100 other retailers supplied by
Champion also declared bankruptcy sometime in 1999.
The evidence does not support a strong inference that
Young’s statements with regard to repurchases were
recklessly made. Simply because Champion later made a
business judgment that it should voluntarily repurchase
inventory does not make it reckless to state that Champion
does not make such repurchases as a general matter. Even if
the negotiations to purchase Parker Homes inventory were
ongoing at this point, the plaintiff has not asserted facts that
show Champion knew or should have known that the end
result of such negotiations was that Champion would
voluntarily repurchase inventory it was not obligated to. It is
plausible to argue as the plaintiff does, but these facts do not
give rise to a strong inference of recklessness by Young or
Champion.
The statements with regard to bankruptcies raise a more
difficult question. There is no contention by the plaintiff that
the actual statement made by Young was materially
inaccurate when made. Rather, plaintiff asserts that
defendants recklessly minimized the risk of potential
bankruptcies by referring to statistics from 1998. We agree
with the plaintiff that it was somewhat disingenuous of the
defendants to refer to the previous year’s statistics given the
possibility that Parker Homes would go bankrupt the next
day, resulting in a far larger negative impact on Champion
than that referred to from the 1998 figures. Nevertheless,
many of the plaintiff’s allegations also show that Champion
was under the impression that it had reached a deal that would
keep Parker Homes out of bankruptcy. Champion and Young
were placed in the difficult position of either disclosing that
Parker Homes might go bankrupt the next day, which would
lead to a significant drop in Champion’s stock price that day
and potentially harm their ability to finalize the deal to keep
Parker Homes out of bankruptcy (and if they did keep Parker
Homes out of bankruptcy, have Champion’s stock price shoot
32 Miller, et al. v. Champion
Enterprises, et al.
No. 01-1955
back up the next day), or not disclosing the Parker Homes
situation, which, if it blew up in their faces (as it did), could
lead to significant negative consequences, as well as open
them up to suits. Given the circumstances, it is difficult to
say that the defendants’ statements were “an extreme
departure from the standards of ordinary care.” Mansbach,
598 F.2d at 1025. Faced with a tough decision, defendants
made a choice that ultimately proved to be erroneous, but
there is no “strong inference” of recklessness.
Plaintiff’s claim regarding 100 other retailers that allegedly
went bankrupt in 1999 does not make these statements
reckless. There is no indication that any of these other dealers
had gone bankrupt as of July 21, 1999; if anything, the facts
asserted seem to imply the opposite. What this allegation
does seem to show is that 100 other businesses in the
manufactured housing industry also had not yet realized the
extent to which retail inventory had outpaced industry and
market growth. Champion and Parker Homes, along with 100
other dealers, seem to have been caught off guard by an
unexpected decline in the manufactured homes market. This
does not support a strong inference of recklessness by the
defendants in making these statements.
Plaintiff, citing Vencor, also alleges that defendants, since
they chose to issue a press release and hold a conference call
on July 21, were obligated to tell the truth about Parker
Homes’s possible bankruptcy and give full disclosure. In
Vencor, this court stated that “with regard to future events,
uncertain figures, and other so-called soft information, a
company may choose silence or speech elaborated by the
factual basis as then known—but it may not choose
half-truths.” 251 F.3d at 561. The plaintiff’s assertion goes
beyond the Vencor requirement. Just because defendants
issued a press release and held a conference call to discuss
their second quarter earnings does not mean that they chose
to speak on any situation that could possibly affect their
financial condition. Such a rule would require almost

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33
unlimited disclosure on any conceivable topic related to an
issuer’s financial condition whenever an issuer released any
kind of financial data. Additionally, the other topics
discussed during the conference call were not things that
defendants chose to discuss. They were asked questions by
investors about repurchase obligations and bankruptcies,
which it appears they endeavored to answer truthfully as to
the current state of affairs. Furthermore, they studiously
avoided speaking about future events. Vencor does not
require more disclosure in such a situation.
In short, we find that these asserted facts do not imply
reckless conduct on the part of Champion or Walter Young.
They may not have been as careful as they could have been,
but the asserted facts do not give rise to a strong inference
that the defendants, in making these statements, displayed
highly unreasonable conduct which is an extreme departure
from the standards of ordinary care. See 15 U.S.C. § 78u-
4(b)(2); Mansbach, 598 F.2d at 1025.
4. The July 30, 1999, Press Release and Conference Call
The July 30, 1999, press release and conference call
contained a number of statements, all of which were
statements of present or historical fact, but since we find that
none of the statements were made with sufficient scienter to
amount to recklessness, we hold that the plaintiff failed to
state a claim regarding these statements. Champion issued a
press release on July 30, 1999, in which it stated that the
Parker Homes bankruptcy was “not anticipated.” Young
reiterated this point in a conference call later that day:
We are the virtual exclusive supplier to Ted Parker
Homes. This Chapter 11 filing, which we totally—was
unanticipated by us . . . . [W]e are certainly supporting
Ted Parker Home Sales in its Chapter 11 situation that it
has taken on, we will support it as a supplier and as a
creditor where we are, and we certainly hope that they
34 Miller, et al. v. Champion
Enterprises, et al.
No. 01-1955
can continue to operate through Chapter 11 and
eventually come out of it.
J.A. at 62-63, 429-30. Following these statements Young
went on to describe Champion’s plans to use its own retail
organization to move into the void left by Parker Homes’s
bankruptcy, as well as to sell the inventory that it would be
obligated to repurchase. Among the numerous questions
during the teleconference, one questioner asked whether
Champion could explain the kind of financial information that
Champion received regularly from large independent retailers,
including Parker Homes, to which Champion responded:
[Chief Financial Officer Stegmayer:] [T]hat information
varies depending on the relationship and retailer. . . .
Financial information does not necessarily have to be
provided by them, and then there’s always the question
of reliability on private financial statements. What we
do, instead, is we try to track inventory to inventory
turns, and monitor our liability with our retailer in that
form, and we keep close tabs on the contingent liability
we have with each of our retailers . . . .
[Young:] . . . We had all impression the financials were
going well. You know, we don’t have an operational
understanding here, but this organization continued to
grow and expand, and with its new ownership here we
had all impressions that it was valid regardless of the
financial statements . . . .
J.A. at 432-33.
Walter Young and another Champion employee also
responded to a question dealing with the circumstances
leading up to Parker Homes’s bankruptcy:
[Young:] We have been working with Ted Parker over
the years and part of his expansion working with him,

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15To another question, Young explained that “it was a unique retail
mod el. [Parker H ome s] believed in high inventories and selling . . . .”
J.A. at 441.
and positive [sic]. But we never—I mean, we have not
really been getting operating statements or the financial
aspects, so let me—we have been watching their
inventory turn which is, with their unique operation,15
always [unintelligible]. We have, over the, you know,
over the last few—with the change of management it
[sic] . . . .
[Chief Operating Officer Surles:] . . . [W]e had obviously
been watching their inventories, and they have been a
high expansion company, but as recent as a couple of
months, the management had come to us and informed us
that they were going into an inventory reduction mode
and it might affect some of our plants, and so we
suddenly reduced production at our Maxton, North
Carolina, plant to compensate for that, and even though
we’re not—weren’t excited about the profits and loss
there, we were excited about their attitude in reducing
inventories, and so we felt comfortable.
J.A. at 440. When asked if this occurred in approximately
May or April, Young responded: “Mmm–hmm. And so that’s
why it so surprised us of the decision to go Chapter 11.” Id.
Young was then asked about Champion’s discussions with
Parker Homes since the Chapter 11 filing, to which Young
responded: “With the decision to go Chapter 11 we’ve had
ongoing discussions and to add the color background to them
I don’t think would be productive, probably not legal . . . .”
Id.
Another Champion employee, when asked about Parker
Homes’s future and Chapter 11, answered: “[W]e can’t speak
for them and [debtor-in-possession] financing, whatever, they
36 Miller, et al. v. Champion
Enterprises, et al.
No. 01-1955
might be preparing, we’re not inside on that track. I mean,
we’re sitting here as outside creditors as any other creditor
would be, so we really don’t know.”
In response to a later question asking whether Champion
had any plans to buy Parker Homes out of bankruptcy, Young
answered that
we’ve considered all options as far as the way to do it
that led us to this announcement today. And, you know,
we’ve bought many good retailers . . . but when it went
to Chapter 11 it changes the nature of things, okay? . . .
Now I have to say in going forward, you know, if Ted
Parker Sales goes to another—we’ll always consider all
options at all time[s] . . . okay?
J.A. at 436. Finally, when asked whether Champion’s plan
with respect to Parker Homes might change if Parker Homes
filed a Chapter 7 petition, Young responded:
Well, that’s some of the issue. It is in Chapter 11, and
we do not know, so we’re flying blind too. That’s why
the nature of this thing and rather than—you know, we’ll
be flexible whatever happens. . . . And as you say, there
is a difference as to having Chapter 11 or the various
chapters, but we’re flexible to react to whatever
accordingly.
J.A. at 446.
The district court found that the statement in the July 30,
1999, press release that Parker Homes’s bankruptcy was “not
anticipated” was a statement of present or historical fact, and
therefore that the scienter required was recklessness. The
district also found, applying Ivax, that the general import of
the July 30, 1999, conference call was forward-looking,
although there was not meaningful cautionary language, and
therefore all the statements in that conference call required the

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37
scienter of actual knowledge. The district court did not look
further into the issue, however, as it found that scienter was
not sufficiently alleged in the CAC. As stated previously, the
district court erred both in its application of Ivax and in
concluding that scienter was not sufficiently alleged in the
CAC.
Plaintiff alleges that these statements were at least
recklessly false or misleading in several ways. First, plaintiff
contends that the statements characterized Parker Homes’s
bankruptcy filing as unanticipated and indicated that
Champion was unaware of Parker Homes’s financial
situation, when in fact Champion had been making strenuous
efforts to save Parker Homes from bankruptcy. He also
claims that these statements were at least recklessly
misleading in that they imply that Champion was uninformed
about Parker Homes’s reorganization plans, when Champion
was in fact engaged in discussions with Parker Homes and the
bankruptcy court to buy out Parker Homes. Lastly, plaintiff
asserts that these statements rejected suggestions that
Champion purchase a large number of Parker Homes’s sales
lots, when in fact it had plans to do so and in fact did later
purchase them.
Once again, we find these arguments, although plausible, to
be insufficient to support a strong inference of recklessness by
the defendants. Young’s statements about Parker Homes’s
bankruptcy were statements of present or historical fact, and
therefore recklessness with respect to their misleading nature
is required. These comments were perhaps misleading, but
the evidence does not support a strong inference of
recklessness by the defendants with regard to their misleading
nature. The bankruptcy certainly was not entirely
unanticipated, yet there is also a fairly strong indication that
Champion thought it had struck a deal to prevent the Chapter
11 filing. This will be discussed more in the next section.
38 Miller, et al. v. Champion
Enterprises, et al.
No. 01-1955
As to the statements with regard to Parker Homes’s
financial situation, they also are statements of present or
historical fact, and therefore recklessness is the state of mind
required. These statements could also be somewhat
misleading, but they are not so obviously misleading as to be
reckless. The asserted facts are apparently consistent with the
defendants’ belief that Parker Homes was financially sound,
at least up until a few months before the bankruptcy.
Ostensibly, the defendants thought that although Parker
Homes had a unique business plan that called for higher
inventory, it was still in decent shape financially, especially
considering that it had just recently been purchased by new
owners that invested heavily in the company. A potential
investor in Champion could have, however, interpreted these
statements to mean that the defendants believed that Parker
Homes’s financial situation was good all the way up to the
bankruptcy declaration, when the defendants knew that Parker
Homes was, at a minimum, suffering some financial
difficulties such that it needed some emergency funding, even
if only temporarily. Although this is a plausible
understanding of those statements, it is no more compelling
than the previous interpretation advanced above. Therefore,
plaintiff’s allegations with regard to those statements do not
raise the strong inference of recklessness required by the
PSLRA.
Plaintiff also does not adequately assert that the defendants
were knowingly or recklessly misleading in their statements
concerning their present contacts and future plans with Parker
Homes in bankruptcy. Some of these statements are of
present or historical fact, while other are forward-looking, and
therefore different standards apply. Plaintiff’s argument is
unconvincing regardless of the standard applied, as the
evidence does not show that the statements were made even
recklessly. Young explicitly stated in the conference call that
Champion was engaging in ongoing discussions with Parker
Homes now that it was in Chapter 11. Admittedly, Young
and another Champion employee also stated that Champion

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39
was “not inside on that track” and “flying blind,” but these
statements must be taken in light of the other comments
confirming that they were engaging in discussions with
Parker Homes since the Chapter 11 filing. Additionally,
although Champion employees had stated that Champion
currently had other plans for how it was going to relate to
Parker Homes and how it was going to handle the
repurchased inventory, the employees also stated very
explicitly that they were “flexible” and would consider “all
options” with respect to Parker Homes. However, the
employees didn’t want to say too much because they were
unsure of how the Chapter 11 filing would affect all these
issues. These statements by the defendants are not
significantly misleading, much less made with a reckless
disregard for the truth.
Under the heightened pleading requirements of the PSLRA,
only allegations that give rise to strong inference of scienter
will survive a motion to dismiss. 15 U.S.C. § 78u-4(b)(2).
The allegations advanced by the plaintiff in this case do not
give a sufficiently strong inference of recklessness with
regard to the July 30, 1999, statements discussed above to
survive such a motion.
Plaintiff also asserts that defendants were recklessly
misleading in the July 30 conference call when they made
statements about the nature of the $33.6 million charge
Champion planned to take during the third quarter of 1999.
Specifically, plaintiff takes issue with the following
statement:
On the component question, the pre-tax is 33.6 million.
And in there—here, I’m not going to break it apart for
you and I’ll tell you why. Primarily it’s because of the
discounting when we’re required to take the homes back,
what we may have to sell them for, and I don’t want to
say any percentage. We had to make that assumption
obviously, what that is, because I don’t want to negotiate
40 Miller, et al. v. Champion
Enterprises, et al.
No. 01-1955
with potential retailers of what those prices might be and
it can only be worse. But that’s, by far, the majority of
this charge . . . . The other piece of it, the plant closing,
is some of the costs of the opening of our retail, some of
the actual physical moving is—you know, the physical
moving of relocating these homes and, again, since
they’re environmental, but that’s probably less than 15
percent of this total charge.
J.A. at 431. Plaintiff argues that this statement was recklessly
misleading because it represents that the majority of the
charge was related to future discounts necessary to resell the
homes, when defendants actually knew that a large percentage
of the charge was to write-off secret loans and undisclosed
discounts.
We begin our analysis with whether this statement qualifies
for protection under the safe harbor provision of the PSLRA.
This statement is not forward-looking, as it is describing the
components of a present charge that Champion has decided to
take due to Parker Homes’s bankruptcy. Even if some of the
components are somewhat uncertain and dependent on future
events, it nevertheless describes Champion’s present
calculation. Therefore, the scienter required with regard to
this statement is recklessness.
Plaintiff’s argument with respect to the statement about the
$33.6 million charge is unavailing. Although Vencor requires
that when an issuer reveals information it has no duty to
disclose, it cannot give half-truths, in this case Walter Young
explicitly and repeatedly stated that he was not revealing all
the details of the charge. In other words, Young’s statement
was not recklessly misleading, because he told the investors
that he was not “going to break it apart” and he didn’t “want
to say any percentage,” but instead only gave them a rough
sketch. Although the statement might have been somewhat
misleading, it was not so obviously so as to be reckless.
Accordingly, we find that these facts do not give rise to the

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41
strong inference of recklessness that the PSLRA requires. See
15 U.S.C. § 78u-4(b)(2).
5. The August 9, 1999, Form 10-Q
The August 9, 1999, Form 10-Q did not recklessly violate
generally accepted accounting principles (“GAAP”), and
therefore we hold that the plaintiff failed to state a claim
regarding this filing. The plaintiff contends that Champion’s
second quarter Form 10-Q recklessly violated GAAP because
Champion was required by those accounting principles to
accrue at least $18 million as a loss on the outstanding loans
and volume discounts owed by Parker Homes to Champion.
He further avers that the footnote disclosure that Champion
did make was insufficient under GAAP. The district court
dismissed this claim because it insufficiently alleged scienter,
because the court found that Champion was not required to
accrue the loss in the second quarter, and because the footnote
disclosure satisfied GAAP.
Plaintiff bases his argument on Financial Accounting
Standard (“FAS”) No. 5, which requires a company to accrue
an estimated loss if two conditions are met:
a. Information available prior to the issuance of the
financial statements indicates that it is probable that
an asset had been impaired or a liability had been
incurred at the date of the financial statements. It is
implicit in this condition that it must be probable
that one or more future events will occur confirming
the fact of the loss.
b. The amount of the loss can be reasonably estimated.
J.A. at 60. The “date of the financial statements” is the last
day of the accounting period for which the financial
statements are presented, which in this case was the end of the
second quarter: July 3, 1999. Plaintiff’s argument is that,
42 Miller, et al. v. Champion
Enterprises, et al.
No. 01-1955
16In fact, muc h of the p laintiff’s argum ent in this case depends upon
probab ility: the pro bab ility of the bankrup tcy, as well as the probability,
after the bankruptcy, that Champion would be able to buy all of Parker
Ho mes’s assets during the bankruptcy proceedings. The plaintiff is aided
by hindsight, which reveals that the probability of both these events was
high, but this was not nearly as certain in advance. In substance,
therefore, the plaintiff wishes for the court to accept that Champ ion’s
attemp ts to prevent Parker Homes from having to enter into Chapter 11
were almost certainly doomed to fail, while likewise asserting that
Champion’s negotiation with Parker Homes to purchase its assets in the
bankruptcy court proceedings were a fait accom pli. Thus, according to the
plaintiff, defendants were reckless because they did not properly weigh
the probability that these things would occur.
given the probability of Parker Homes’s bankruptcy and
defendants’ knowledge thereof prior to July 3, 1999,
Champion was required to accrue at least $18 million in
probable losses due to Parker Homes’s bankruptcy on its
second quarter Form 10-Q released on August 9, 1999.
In order for us to judge the merits of the plaintiff’s claim,
we need to be able to answer two questions with regard to
“probability.” First, we need to know what the word
“probable” means in FAS No. 5. In other words, we need to
know how probable the contingency needs to be for a
company to be required to accrue a loss in the financial
statements. There is no guidance in the record on how to
answer this question. Second, we need to know how probable
Parker Homes’s bankruptcy actually was, a contingency that
is hard to assess after the fact.16
It is difficult now, in retrospect, to assert that these
probabilities were such that it was reckless for the defendants
to decide not to disclose more information or to accrue the
$18 million loss in the second quarter of 1999. It is certainly
a plausible inference that it was reckless. But the opposite is
also a plausible inference—that defendants thought they had
avoided the bankruptcy, were not sure if they would be able
to purchase Parker Homes’s assets in the bankruptcy

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43
17The detailed allegations surrounding this loan are found only in the
SASC.
proceedings, and in general were not aware of the economic
downturn that was about to hit the manufactured housing
market. After the Holding Companies declared bankruptcy
on June 28, 1999, Champion engaged in discussions with GE
Partners and Ardhouse to continue to provide funding to
Parker Homes. These discussions resulted in a Letter of
Intent on July 15, 1999, in which GE Partners and Champion
agreed to provide the funding. Pursuant to this Letter of
Intent, Champion made an unsecured loan of $350,000 to
Parker Homes on July 16, 1999. Furthermore, as Ted Parker
alleged in his complaint against GE Partners and Ardhouse,
At the time such bankruptcy proceedings were filed, T.
Parker had conducted telephone negotiations with senior
management at GE [Partners] to help structure a
continued operating plan for [Parker Homes]. T. Parker
had agree to transfer . . . a significant portion of his stock
in [Parker Homes] to the Defendants and Champion for
their input of additional capital into [Parker Homes],
which would have allowed the continued operation of
[Parker Homes]. T. Parker and Champion believed that
such an agreement was in place and then learned the next
day that the Defendants had unnecessarily and with
improper motivation placed [Parker Homes] into
bankruptcy.
J.A. at 106. It is at least plausible based on these facts that
the defendants had good reason to believe that the loans to
Parker Homes were not impaired because they had come to an
agreement whereby Parker Homes would be able to avoid
Chapter 11. It also appears implausible that defendants would
have continued to advance unsecured loans of $2.25 million17
and $350,000 to Parker Homes if they had known that Parker
Homes was going to file a Chapter 11 petition.
44 Miller, et al. v. Champion
Enterprises, et al.
No. 01-1955
Additionally, when it did become clear that the loans and
discount money were impaired—after Parker Homes was put
into bankruptcy—Champion did take the proper steps under
GAAP. Since the bankruptcy occurred after the closing of the
second quarter on July 3, 1999, and the defendants ostensibly
had good reasons to think—at least until after July 3—that
they would be able to prevent Parker Homes’s bankruptcy,
they were arguably not required to accrue the loss during the
second quarter. Instead, Champion followed the instructions
in GAAP and FAS No. 5 which provide that, if information
becomes available indicating that it is probable that an asset
became impaired after the date of the financial
statements—July 3, 1999—but before the statements were
filed on August 9, 1999, the financial statements should
disclose the nature and estimated amount of the loss, but the
loss should not be accrued in those financial statements. This
is what Champion did in its August 9, 1999, Form 10-Q,
footnote 11.
Both outcomes in this situation—bankruptcy or avoidance
of bankruptcy—appear to be somewhat probable, and FAS
No. 5 does not specify the level of probability required to
accrue a loss. Given two fairly plausible explanations of the
facts, we find it difficult to say that plaintiff’s facts give rise
to a strong inference of scienter, that plaintiff’s explanation
is the “most plausible of competing inferences.” Vencor, 251
F.3d at 553. We also find it difficult to say that, given the
level of knowledge that defendants had of Parker Homes’s
financial situation, Champion’s actions in not accruing the
$18 million loss in the second quarter of 1999 were an
“extreme departure from the standards of ordinary care.”
Mansbach, 598 F.2d at 1025.
Plaintiff’s reliance on the similarities between the passage
of the Balanced Budget Act in Vencor and Parker Homes’s
bankruptcy in this case is misplaced. In Vencor, the passage
of the Balanced Budget Act was a contingency outside the
defendants’ control that was virtually certain to have a

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Enterprises, et al.
45
18This motion has been variously described as a motion to amend
and as motion for leave to file an amended compla int. They are in
substance the same motion.
negative impact on the defendants. See 251 F.3d at 556-58.
Therefore, we held that there was a strong inference that
defendants were reckless when they released favorable
earnings projections after they knew that the Balanced Budget
Act was going to have a negative impact on those earnings,
and did not give adequate disclaimers about the possible
effects of the Act. Id. at 566. In this case, the contingency
that could have a negative impact on defendants was not
outside defendants’ control, and it appears at least plausible
that defendants reasonably believed that they had prevented
that contingency from taking place. Vencor is also
distinguishable from the present case in that there is no
indication in the present case that the defendants profited
from their allegedly misleading statements. Unlike the
defendants in Vencor, there is no allegation in the present case
that the defendants undertook any insider trading—or any
other means to profit—that might have led them to attempt to
conceal Parker Homes’s bankruptcy during this period. Cf.
Vencor, 251 F.3d at 558.
In short, we do not believe that the plaintiff has pleaded
sufficient facts to give rise to the strong inference of scienter
that is required under the PSLRA. See 15 U.S.C. § 78u-
4(b)(2). The evidence does not show that defendants acted
with an extreme disregard for the standard of ordinary care in
making these statements. See Mansbach, 598 F.2d at 1025.
E. The District Court Did Not Err in Denying Plaintiff’s
Motion for Leave to File the SASC18
The district court moreover did not err in denying the
plaintiff’s motion for leave to file the SASC. The district
court denied plaintiff leave to file the SASC on two grounds.
46 Miller, et al. v. Champion
Enterprises, et al.
No. 01-1955
First, the district court held that the amendments provided in
the SASC were futile. Second, the district court held that
allowing the repeated filing of amended complaints would
frustrate the purpose of the PSLRA.
As a general matter, leave to amend “should be freely given
when justice so requires.” Fed. R. Civ. P. 15(a). And “[i]n
the securities litigation context, leave to amend is particularly
appropriate where the complaint does not allege fraud with
particularity.” Morse, 290 F.3d at 800. Denial of leave to
amend may nonetheless be appropriate “where there is ‘undue
delay, bad faith or dilatory motive on the part of the movant,
repeated failure to cure deficiencies by amendments
previously allowed, undue prejudice to the opposing party by
virtue of allowance of the amendment, futility of the
amendment, etc.’” Id. (quoting Foman v. Davis, 371 U.S.
178, 182 (1962)).
The district court held that amendment of the CAC with the
SASC would be futile because the SASC did not better link
the allegations of scienter with any specific misstatements or
omissions. We have already stated that the district court erred
in so holding. As we stated in Morse, “[i]n the securities
litigation context, leave to amend is particularly appropriate
where the complaint does not allege fraud with particularity.”
290 F.3d at 800. However, we nonetheless agree with the
district court that the facts alleged in the SASC do not give
rise to the strong inference of scienter required under the
PSLRA, and therefore are futile. See Morse, 290 F.3d at 800.
The additional facts alleged in the SASC strengthen the
inference that the defendants had some indication that Parker
Homes had surplus inventory and was going through some
financial difficulties in the spring of 1999. The SASC also
alleges that the defendants knew that Parker Homes’s
bankruptcy was likely because Ted Parker had sent out
notices of default on Parker Homes’s sales lot lease
agreements, which were Parker Homes’s only unencumbered
asset. However, as the plaintiff also alleged, the defendants

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Enterprises, et al.
47
expressly disclosed that they believed there was excess
inventory in the market as well as their knowledge that Parker
Homes had excess inventory, which the defendants believed
to be due to Parker Homes’s unique business plan. As the
facts alleged by the plaintiff also imply, there is at least a
plausible inference that the defendants believed they had
averted the Parker Homes bankruptcy. The additional
allegations in the SASC thus do not give rise to the strong
inference of recklessness required under the PSLRA, and are
therefore futile.
The district court also correctly held that allowing repeated
filing of amended complaints would frustrate the purpose of
the PSLRA. To come to this conclusion, the district court
first had to decide whether the PSLRA restricts Rule 15(a) of
the Federal Rules of Civil Procedure. Rule 15(a) provides
that “[a] party may amend the party’s pleading only by leave
of court or by written consent of the adverse party; and leave
should be freely given when justice so requires.” The
PSLRA, on the other hand, states that “[i]n any private action
arising under this chapter, the court shall, on the motion of
any defendant, dismiss the complaint if the [pleading]
requirements . . . are not met.” 15 U.S.C. § 78u-4(b)(3)(A).
The district court found that the purpose of the PSLRA’s
heightened pleading requirements and stay of discovery were
to prevent “harassing strike suits filed the moment a
company’s stock price falls,” and concluded that the PSLRA
“could not achieve this purpose if plaintiffs were allowed to
amend and amend until they got it right.” Since the plaintiff
failed to meet the pleading requirements, the district court
concluded that in order to enforce the purpose of the PSLRA,
it must dismiss the CAC with prejudice.
Plaintiff cites several district court opinions that allowed for
repeated amendments to complaints despite motions to
dismiss by the defendants. See In re Livent, Inc. Noteholders
Sec. Lit., 174 F. Supp. 2d 144, 148 (S.D.N.Y. 2001) (third
amended complaint); McNamara v. Bre-X Minerals, Ltd., 197
48 Miller, et al. v. Champion
Enterprises, et al.
No. 01-1955
F. Supp. 2d 622 (E.D. Tex. 2001) (fourth amended
complaint); Chu v. Sabratek Corp., 100 F. Supp. 2d 827, 844
& n.14 (N.D. Ill. 2000) (sixth amended complaint); In re
Southern Pac. Funding Corp. Sec. Lit., 83 F. Supp. 2d 1172,
1174 (D. Or. 1999) (fourth amended complaint). He also
cites a Third Circuit case that allowed amendment despite the
PSLRA, even after the final judgment:
Although we are reluctant to allow amendment of a
pleading at this stage of the proceedings, the plaintiffs
were precluded from engaging in discovery in the
District Court. Without discovery, plaintiffs had no way
to obtain the meeting minutes other than by
happenstance. We will not add to the strict discovery
restrictions in the Private Securities Litigation Reform
Act (“PSLRA”) by narrowly construing Rule 15 in this
case, even at this late stage in the litigation. Given the
high burdens the PSLRA placed on plaintiffs, justice and
fairness require that the plaintiffs before us be allowed an
opportunity to amend their complaint to include
allegations relating to the newly discovered Board
meeting minutes.
Werner v. Werner, 267 F.3d 288, 297 (3d Cir. 2001). Werner
is the most persuasive authority for requiring the district court
to allow an amended pleading.
While the Werner opinion had not been issued at the time
of the district court’s denial of the motion to permit an
amended complaint, the district court nonetheless responded
to a similar argument by plaintiff:
In this case, it appears that plaintiffs are contending that
since discovery procedures are not available to them, that
a court must be lenient in allowing amendments to
pleadings. Contending that Rule 15 permits this, they
purposely seek to circumvent the [PSLRA’s] strict
requirements preventing discovery. But this is precisely

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No. 01-1955 Miller, et al. v. Champion
Enterprises, et al.
49
the device that Congress intended to be used, i.e., to
prevent suits in which a foundation for the suit can not be
pleaded.
The stay of discovery and the heightened pleading
standards are separate and distinct, yet complimentary
mechanisms. The stay of discovery operates to prevent
plaintiffs with baseless claims from squeezing a nuisance
settlement from an innocent defendant. The pleading
requirement is more than simply a line the plaintiffs must
cross to set to discovery; it is the heart of the [PSLRA].
This stringent requirement operates to discourage
baseless suits altogether. It evinces Congress’s
acknowledgment of the burden an allegation of securities
fraud places on the innocent defendant even without
discovery. The [PSLRA] requires a uniform pleading
standard; this standard is meaningless if judges on a case-
by-case basis grant leave to amend numerous times.
Since Werner was decided, the Third Circuit has specifically
endorsed this reasoning, quoting with approval District Judge
Reed’s reliance upon the district court’s opinion in this case:
The PSLRA’s stay of discovery procedures was intended
by Congress to protect innocent defendants from having
to pay nuisance settlements in securities fraud actions in
which a foundation for the suit cannot be pleaded; rather
than lead to the conclusion that plaintiffs should receive
more leniency in amending their pleadings, the stay of
discovery procedures adopted in conjunction with the
heightened pleading standards under the PSLRA is a
reflection of the objective of Congress “to provide a filter
at the earliest stage (the pleading stage) to screen out
lawsuits that have no factual basis.” [Champion Enters.,
145 F.Supp.2d] at 874 (quoting Selected Bill Provisions
of the Conference Report to H.R. 1058/§ 240, 141 Cong.
Rec. § 19152 (daily ed. Dec. 22, 1995)). This objective
would be thwarted if, considering the history of this case,
50 Miller, et al. v. Champion
Enterprises, et al.
No. 01-1955
19This appears to be due to some discrepancy on the standard of
review applied to the denial of a motion to amend between the Third and
the Sixth Circuits.
plaintiffs were liberally permitted leave to amend again;
this is particularly true where, as here, there is a stark
absence of any suggestion by the plaintiffs that they have
developed any facts since the action was commenced
which would, if true, cure the defects in the pleadings
under the heightened requirements of the PSLRA.
In re Nahc, Inc. Sec. Litig., 306 F.3d 1314, 1332-333 (3d Cir.
2002) (quoting In re Nahc, Inc. Sec. Litig., No. 00-4020, 2001
U.S. Dist. LEXIS 16754, at *81-82 (E.D. Pa. Oct. 17, 2001)).
While it is true that the Third Circuit was reviewing its
district court’s decision only for abuse of discretion,19 it is
clear that it was giving its approval to the district court’s legal
interpretation of the PSLRA, an interpretation that is subject
to de novo review.
Plaintiff also contended during oral argument that our
recent holding in Morse, 290 F.3d 795, requires a reversal of
the district court’s decision denying plaintiff further leave to
amend his complaint. In Morse we held that, despite the
plaintiffs’ “gamesmanship” in failing to amend their
complaint, the plaintiffs’ actions did not amount to bad faith
and the delay alone did not justify denial of leave to amend.
290 F.3d at 800. Additionally, in that case it did not appear
that the defendants would be prejudiced by allowing further
amendment. Id. at 800-01. Notably however, in Morse there
was no discussion of the heightened pleading requirements of
the PSLRA, or even of the PSLRA generally. In light of
those requirements, we think it is correct to interpret the
PSLRA as restricting the ability of plaintiffs to amend their
complaint, and thus as limiting the scope of Rule 15(a) of the
Federal Rules of Civil Procedure. Morse is also
distinguishable from the present case in that there was no

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No. 01-1955 Miller, et al. v. Champion
Enterprises, et al.
51
finding in that case that amendment would be futile, while in
this case allowing the plaintiff to file the SASC would not
overcome the inadequacies of the CAC. We therefore find
that our holding in Morse does not dispose of the issue at
hand.
We agree with the district court that the purpose of the
PSLRA would be frustrated if district courts were required to
allow repeated amendments to complaints filed under the
PSLRA. We also agree, although on other grounds, that the
proposed amendments in the SASC would be futile. The
district court was within its discretion in refusing the plaintiff
leave to file the SASC, and in light of our holding that filing
of the SASC would be futile—although on alternative
grounds than those found by the district court—we AFFIRM
the judgment of the district court dismissing this case.
CONCLUSION
For the foregoing reasons, we AFFIRM the judgment of the
district court dismissing this case.

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