Sears, Lampert win dismissal of Kmart fraud suit

New York City A federal appeals court ruled Tuesday that Sears Holdings Corp. is not liable to former Kmart Holding Corp. shareholders who accused it of trying to drive down Kmart's stock price to let executives buy shares cheaply.

The ruling by the U.S. Second Circuit Court of Appeals in Manhattan affirmed a lower court's findings in favor of Sears, chairman Edward Lampert and one-time Kmart CEO Julian Day.

Lampert got a controlling stake in Kmart and became chairman when the retailer emerged from bankruptcy in 2003. Kmart then bought the former Sears Roebuck & Co in 2005 to create Hoffman Estates, Illinois-based Sears Holdings.

In the class-action lawsuit, the plaintiffs alleged that Kmart deliberately understated the value of its real estate assets by several billion dollars, to give Lampert and Day a chance to acquire Kmart shares at less than their true worth.

They said that when Kmart then sold some of the real estate to Home Depot and Sears Roebuck, its shares soared, giving it more ammunition to buy Sears.

The plaintiffs contended that because they were not told what the real estate was really worth, they sold their Kmart shares at artificially low prices.

In Tuesday's ruling, the appeals court said the plaintiffs failed to show that Lampert and Day intended to deceive or defraud them.

The lead plaintiffs in the case are the Plumbers and Pipefitters National Pension Fund, the Mississippi Public Employees' Retirement System, and an individual, Fred Campo.