The opinion of the court was delivered by: Harold Baer, Jr., District Judge*fn1
THIS DOCUMENT RELATES TO All Actions
Plaintiffs Ronald Counsell, Clayton Antonio Leamons, John Zipay, Jr., and Ernest Shepherd (collectively "The Counsell Group" or "Lead Plaintiffs") bring this putative federal securities class action against Xethanol Corporation ("Xethanol" or the "Company"), Christopher D'Arnaud-Taylor ("Taylor"), Jeffrey S. Langberg ("Langberg"), and Lawrence S. Bellone ("Bellone") ("Individual Defendants") (collectively, "Defendants"). Plaintiffs allege violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5 issued thereunder by the Securities Exchange Commission.
Defendants now move to dismiss Plaintiffs' Amended Consolidated Class Action Complaint ("Am. Compl." or "Amended Complaint") pursuant to Fed. R. Civ. P. 12(b)(6) and Fed. R. Civ. P. 9(b). For the reasons set forth below, Defendants' Motion to Dismiss is DENIED.*fn2
On March 14, 2007, I appointed Ronald Counsell, Clayton Antonio Leamons, John Zipay, Jr., and Ernest Shepherd as Lead Plaintiffs. Lead Plaintiffs aver that they purchased the common stock of Xethanol at artificially inflated prices between January 31, 2006 and August 7, 2006 (the "Class Period") and were damaged as a result thereof.
The underlying facts are set forth in detail in my prior opinion dismissing a related derivative action, In re Xethanol Derivative Litigation, 06-CV-15536 (HB), for failure to make a demand on the Board. Therefore, I present only an abbreviated factual background here.
Defendant Xethanol Corporation is a Delaware corporation with its principal place of business in New York, New York. Defendant Taylor was Chairman, Chief Executive Officer and President of the Company throughout the Class Period. Defendant Langberg was, during the Class Period, a member of the Board of Directors. Defendant Bellone was Chief Financial Officer during the Class Period, a position that he has held since April 5, 2005.
Xethanol was incorporated in Delaware on January 24, 2000 to capitalize on the growing market for ethanol, a clean burning and renewable fuel that is a primary gasoline additive. While ethanol is traditionally produced from corn, Xethanol's business strategy isto produce ethanol from biomass (generally post-industrial food or paper production waste). Investors focused on this distinction because biomass, unlike corn, has zero or negative cost. According to Plaintiffs, Defendants stated that the Company would follow a three-stage business model during the purported class period, January 31st through August 8th of 2006: (1) self-sustain on revenues produced from traditional corn ethanol production, (2) raise money from public and private investors, and (3) commercialize biomass ethanol production.
Plaintiffs allege violations pursuant to Sections 10(b) of the Exchange Act and Rule 10b-5. Specifically, the Amended Complaint states that during the Class Period, Defendants knowingly or recklessly pursued and brought to fruition "a plan, scheme, and course of conduct which was intended to and, . . .did: (i) artificially inflate the price of Company shares; (ii) enable defendants to register for sale with the SEC millions of shares of Company stock held by insiders and/or defendants and also allow defendants to raise over $45 million through the private sale of equity, each while in possession of material adverse non-public information about Xethanol; (iii) enable certain insiders, including defendants Taylor and Langberg, to liquidate millions of dollars of their personally held Xethanol shares, also while in possession of material adverse non public information about the Company; and (iv) cause investors to purchase or acquire shares of Xethanol stock at artificially-inflated prices." Am. Compl. ¶ 179. Further, Plaintiffs allege that the Individual Defendants acted as controlling persons pursuant to Section 20(a) of the Exchange Act "[b]y virtue of their high-level positions, and their ownership and contractual rights, participation in and/or awareness of the Company's operations and/or intimate knowledge of the false financial statements filed by the Company with the SEC and disseminated to the investing public [and] had the power to influence and control and did influence and control, directly or indirectly, the decision-making of the Company, including the content and dissemination of the various statements which Lead Plaintiffs contend are false and misleading." Id. ¶ 191.
A court must accept all well pled factual allegations in the complaint as true. Tellabs, Inc. v. Makor Issues & Rights, Ltd., 127 S.Ct. 2499 (2007) (citation omitted). Until recently, courts frequently applied the standard set forth in Conley v. Gibson that dismissal is inappropriate "unless it appears beyond a doubt that plaintiff can prove no set of facts in support of his claim which would entitle him to relief." 355 U.S. 41, 45-46 (1957). However, it appears that this standard has been further nuanced and now, for a plaintiff to survive a motion to dismiss, he must provide "the grounds upon which his claim rests through factual allegations sufficient 'to raise a right to relief above the speculative level on the assumption that all the allegations in the complaint are true (even if doubtful in fact)." Bell Atlantic v. Twombly, 127 S.Ct.1955, 1964-65 (2007); Iqbal v. Hasty, 490 F.3d 143, 157-58 (2d Cir. 2007) (holding that although a universal standard of heightened fact pleading is not required, courts should employ a "flexible plausibility standard" which "obliges a pleader to amplify [his] claim with some factual allegations in those contexts where such amplification is needed to render the claim plausible") (emphasis in original).
A. Violations of Section 10(b) of the Exchange Act ...