A class of Honeywell shareholders said the company made misleading statements and omissions regarding liabilities from its acquisition of Bendix Friction Materials, which used asbestos to manufacture automobile brakes.
The class adequately alleged scienter, the U.S. District Court for the District of New Jersey said, and showed that they suffered losses as a result of corrective disclosures regarding the value of liabilities.
Honeywell’s 2017 Securities and Exchange Commission filings estimated the value of asbestos-related bodily injury claims that would be asserted against Bendix over the next five years, the complaint said. The filings estimated the liabilities to be $616 million.
In 2018, following extensive correspondence with the SEC regarding Honeywell’s measurement of the liabilities, the company announced it would revise it’s Bendix liabilities to reflect projections through 2059. The revised report showed the total liability as $1.693 billion.
The company knew or could have estimated the value of all future Bendix liabilities initially, the would-be class alleged, but wanted to keep the full amount concealed. Honeywell failed to tell investors about correspondence with the SEC, and planned to spin off two divisions into independent companies to take on 90% of the liability, protecting Honeywell’s stock price, the complaint alleges.
The proposed class can proceed with claims of Exchange Act violations, the court decided, denying Honeywell’s motion to dismiss.
The revision involved a large sum and wasn’t based on any new information, the judges said, and the company used a different time horizon for other asbestos liability predictions.
Honeywell admitted it had made the incorrect judgment due to what the data would have otherwise indicated if it hadn’t been truncated at five years, which comes close to admitting manipulative intent, Judge William J. Martini wrote for the court.
Kahn Swick & Foti LLP represents the proposed class. Tompkins, McGuire, Wachenfeld & Barry LLP represent Honeywell.
The case is Kanefsky v. Honeywell Int’l Inc., D.N.J., No. 2:18-cv-15536, 5/18/20.