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IN RE INTERPOOL

August 16, 2005.

IN RE INTERPOOL, INC. SECURITIES LITIGATION.


The opinion of the court was delivered by: STANLEY CHESLER, Magistrate Judge

[EDITOR'S NOTE: This case is unpublished as indicated by the issuing court.] OPINION

This matter comes before the Court on Defendants' Interpool, Inc., Raoul J. Witteveen, Mitchell I. Gordon, William Geoghan, and Martin Tuchman (collectively, the "Defendants") motions to dismiss Plaintiffs' consolidated amended class action complaint (the "complaint") [docket numbers 25, 21, 26, 28, and 31, respectively]. The Court, having considered the papers submitted by the parties, for the reasons set forth below and for good cause shown, will grant Defendants' motions to dismiss.

BACKGROUND:

  In light of the fact that Defendants' motions are made pursuant to Federal Rule of Civil Procedure 12(b)(6), the Court "must accept as true the facts as alleged in the [complaint] and any reasonable inferences that can be drawn therefrom." In re Campbell Soup Co. Secs. Litig., 145 F. Supp. 2d 574, 579 (D.N.J. 2001) (citing Nami v. Fauver, 82 F.3d 63, 65 (3d Cir. 1996). The following facts gleaned from Plaintiffs' complaint*fn1 and opposition brief*fn2 therefore do not represent findings of fact by the Court.

  I. Background on Interpool:

  Founded in 1968, Interpool is now one of the world's leading suppliers of equipment and services to the transportation industry and is primarily engaged in the leasing of containers and chassis (i.e., trailers for transport). (See ¶ 33). The Company primarily conducts this business through two subsidiaries. The first subsidiary, Interpool Limited, engages in the long-term leasing of freight containers. (See id.). The second subsidiary, Trac Lease, Inc., leases chassis to shipping lines, railroads and trucking firms and operates pools in the United States that allow shippers to share and trade available chassis.*fn3 (See id.). "In addition to the Company's container and chassis leasing operations, during the Class Period the Company also derived revenues from Interpool's computer leasing segment." (Id.). Interpool became a publicly-owned company in 1993, trading on the New York Stock Exchange under the symbol "IPX."

  In February 1998, Interpool entered into an "investment banking" consulting agreement with Atlas Capital Partners, LLC ("Atlas Capital"), a private equity investment and consulting firm. (See ¶¶ 18, 34). At the time, the President of Atlas Capital was Defendant Mitchell I. Gordon. (See ¶ 18). Mr. Gordon also served as a director of Interpool. (See id.).

  In April 1998, just a few months after this deal was cut, Interpool began to embark on a series of acquisitions that greatly expanded the scope of the Company's operations and added to the complexity of its financial reporting procedures and controls. (See ¶ 34; see also ¶¶ 35-37) (describing the various complex acquisitions that Interpool made starting in April 1998). For example, "Interpool acquired a 50% common equity interest in Container Applications International, Inc. (`CAI')," a company that "owns and leases its own fleet of containers and also manages, for a fee, containers owned by Interpool and other third parties." (¶ 35). Likewise, in "May 1999, the Company acquired a 51% interest in Personal Computer Rentals, Inc. (`PCR'), a privately-held lessor of computers and related equipment for approximately $6.7 million." (¶ 36).

  II. Individual Defendants:

  The individual Defendants who are alleged to have committed fraud upon Interpool's investors include the following:

  A. Martin Tuchman ("Tuchman"):

  Mr. Tuchman was Interpool's Chairman of the Board of Directors and Chief Executive Officer during the Class Period. (See ¶ 16). He is Interpool Limited's Chairman of the Board of Directors, Chief Executive Officer, director and co-founder. (See id.). He was also Trac Lease's director since June 1987, President from June 1987 through January 1994 and currently its Chairman and Chief Executive Officer. (See id.). Additionally, Tuchman has served as President and Chief Operating Officer of Interpool since October 2003. (See ¶ 16).

  B. Raoul J. Witteveen ("Witteveen"):

  Mr. Witteveen was Interpool's President, Chief Operating Officer and a director of the Company who also served as Chief Financial Officer from 1993 to 2000. (See ¶ 17). He was Interpool Limited's President, Chief Financial Officer and a director since 1988 who also served as Chief Financial Officer from 1988 to 2000. (See id.). From 1982 to 1986, Witteveen served in a variety of management capacities at Thyssen-Bornemisza N.V., the former parent of Interpool Limited. (See ¶ 17). Additionally, he was Trac Lease's co-founder and Chief Financial Officer, Vice President and a director of Trac Lease since June 1987. (See id.).

  C. Mitchell I. Gordon ("Gordon"):

  Mr. Gordon was Interpool's director since 1998 and Chief Financial Officer and Executive Vice President of the Company since October 2000. (See ¶ 18).

  D. William Geoghan ("Geoghan"):

  Mr. Geoghan was Interpool's Senior Vice President and Principal Accounting Officer. (See ¶ 19).

  III. Overview of Interpool's Allegedly False Statements:

  Plaintiffs contend that the Defendants repeatedly made "untrue statement[s] of a material fact" and omitted "material fact[s] necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading." 17 C.F.R. § 240.10b-5(b). (Pl. Opp. 7).

  The allegedly false statements made by the Defendants that allegedly artificially inflated Interpool stock in violation of Rule 10b-5 can be categorized into three groups. First, the Defendants allegedly repeatedly made false statements in Interpool's annual Form 10-Ks and quarterly Form 10-Qs filed with the SEC that contained the Company's financial statements.*fn4 Second, the Defendants allegedly made false statements in press releases that preceded the filing of these SEC Forms and announced the Company's quarterly and annual financial results that would be filed in the SEC Forms. Third, CEO Tuchman, speaking on behalf of himself and the Company, allegedly repeatedly made false statements in public conferences related to the announcement of these results. (Pl. Opp. 8).

  IV. Allegedly False Statements Made by Defendants:

  At the beginning of the Class Period, the Defendants reported for fiscal year 1998 revenues of $182.3 million with a net income for Interpool of $37.6 million, or $1.31 of earnings per share. (¶ 40). In addition, the Company's total stockholders' equity was reported to be $283.2 million. (Id.). Finally, as part of the Company's assets, "Interpool reported direct financing leases of $356.4 million and leasing equipment net of depreciation and amortization of $736.1 million, which together represented more than 80% of the Company's reported assets at December 31, 1998." (Id.).

  Plaintiffs allege that all of these financial numbers were false and that the Defendants knew or, at the very least, recklessly ignored that fact. Plaintiffs contend that these financial numbers constitute fraud for the following reasons, as explained in paragraph 42 of the Complaint: (a) Interpool lacked adequate internal controls and was therefore unable to ascertain the true financial condition of the Company;

 
(b) certain leases that had been accounted for as operating leases should have been accounted for as direct finance leases. In addition, revenue related to leases classified as finance leases had been materially understated;
(c) the Company lacked any documentation for an interest rate swap designed to hedge interest rate fluctuations for a chassis securitization facility and was therefore required to treat changes in the fair market of the swap as gains or losses in the Company's income statement, as a result of Interpool's improper hedge accounting for the swap the Company's earnings were materially overstated;
(d) that reserves established for residual guaranties under certain financings were materially overstated;
(e) income earned on intercompany transactions with Interpool's subsidiary CAI had not been eliminated resulting in a material overstatement of the Company's earnings;
(f) receivables related to Interpool's trailer fleet had been materially overstated;
(g) deferred tax asset valuation allowances related to the realization of Interpool's net operating losses and other tax assets were materially understated;
(h) the net book value of certain containers, acquired from an investment partnership in December 1996, was materially overstated;
(i) the earnings were materially misstated relating to certain intercompany accounts with foreign subsidiaries that had not been reconciled at December 31, 2000 and 2001;
(j) the earnings were materially overstated based on improper accounting for an insurance claim for a defaulted lease, which also materially overstated receivables due from an insurance carrier and, ...

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