United States District Court, S.D. New York
CITY OF TAYLOR GENERAL EMPLOYEES RETIREMENT SYSTEM, Individually and on Behalf of All Others Similarly Situated, Plaintiff, -
- MAGNA INTERNATIONAL INC., FRANK STRONACH, DONALD J. WALKER, and VINCENT J. GALIFI, Defendants
Decided August 22, 2013.
[Copyrighted Material Omitted]
[Copyrighted Material Omitted]
For Boilermaker-Blacksmith National Pension Trust, Lead Plaintiff: David Avi Rosenfeld, Robbins Geller Rudman & Dowd LLP(LI), Melville, NY; William John Geddish, Robbins Geller Rudman & Dowd LLP, Melville, NY.
For City of Taylor General Employees Retirement System, Individually and on Behalf of All Others Similarly Situated, Plaintiff: David Avi Rosenfeld, LEAD ATTORNEY, Joseph Frank Russello, Robbins Geller Rudman & Dowd LLP(LI), Melville, NY; Michael VanOverbeke, VanOverbeke Michaud & Timmony, Detroit, MI.
For Magna International Inc., Donald J. Walker, Vincent J. Galifi, Defendants: Andrew W. Stern, LEAD ATTORNEY, Danny Cameron Moxley, James Ormerod Heyworth, V, Nicholas Primer Crowell, Sidley Austin LLP (NY), New York, NY.
For Frank Stronach, Defendant: Jay B. Kasner, LEAD ATTORNEY, Skadden, Arps, Slate, Meagher & Flom LLP (NYC), New York, NY; Rachel Jacobs Barnett, Skadden, Arps, Slate, Meagher & Flom LLP, New York, NY.
MEMORANDUM AND ORDER
NAOMI REICE BUCHWALD, UNITED STATES DISTRICT JUDGE.
An actionable securities fraud claim requires more than a frustrated investor. Nevertheless, that is all we have here. Lead plaintiff Boilermaker-Blacksmith National Pension Trust (" plaintiff" ) filed this putative class action on behalf of all persons and entities that purchased the common stock of global automotive supplier Magna International Inc. (" Magna" or the " Company" ) between August 6, 2010 and August 5, 2011, inclusive (the putative " class period" ).
Throughout the class period, Magna repeatedly warned its investors that four of the Company's European facilities were experiencing operational inefficiencies, and that such problems would take a number of years to resolve. In spite of these disclosures, plaintiff maintains that Magna and the individual defendants (collectively, " defendants" ) " downplayed" the magnitude of problems facing the four European facilities and simultaneously sold Magna stock into an artificially-inflated market. According to plaintiff, this conduct violated sections 10(b), 20(a), and 20A of the Securities Exchange Act of 1934 (the " Exchange Act" ), 15 U.S.C. § § 78j(b), 78t(a), 78t-1(a), and Rule 10b-5 thereunder, 17 C.F.R. § 240.10b-5.
In the motions before the Court, defendants seek dismissal of plaintiff's amended complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. As detailed below, we find that the amended complaint fails to allege any material misstatements or omissions, does not adequately allege scienter, and, indeed, borders on the absurd. For those reasons and more, we grant defendants' motions and dismiss the amended complaint with prejudice.
I. The Defendants
Magna is " one of the largest and most diversified" automotive suppliers in the world. AC ¶ 9. The Company designs, develops, and manufactures automotive systems, including, but not limited to, interior systems, exterior systems, seating systems, closure systems, metal body and chassis systems, mirror systems, roof systems, electronic systems, and powertrain systems. Id. ¶ 26. Magna also engineers
and assembles complete vehicles, primarily for sale to original equipment manufacturers of cars and light trucks. Id.; Stern Decl. Ex. A, at 1. At all relevant times, the Company's common stock traded on both the New York Stock Exchange and the Toronto Stock Exchange. AC ¶ 9.
Magna segments its operations on a geographic basis between North America, Europe, and " Rest of World" (including Asia, South America, and Africa). Id. As of December 2011, the Company employed 108,000 individuals in 286 manufacturing operations and 88 product development, engineering, and sales centers worldwide. Stern Decl. Ex. A, at " Global Operations." As relevant here, the Company's European operations consisted of 39,500 employees across 104 manufacturing and assembly facilities and 38 engineering, product development, and sales centers. Id.
Defendant Donald J. Walker (" Walker" ) is the Chief Executive Officer of Magna, AC ¶ 11, and defendant Vincent J. Galifi (" Galifi" ) is the Chief Financial Officer, id. ¶ 12. Defendant Frank Stronach (" Stronach" ) is the founder and former Chairman of the Company. Id. ¶ 10. Historically, Stronach retained approximately 66 percent of the voting rights attached to Magna's securities. Id. ¶ 10(a). Starting in March 2010, however, Stronach began discussing the possibility of relinquishing his voting control " in furtherance of [a] planned exit" from the Company. Id. ¶ 50; see also Kasner Decl. Ex. C, at 7. On August 31, 2010, Magna completed a restructuring transaction that reduced Stronach's voting interest to 7.4 percent. AC ¶ 10(a). Approximately eight months later, Stronach resigned from his position as Chairman. Id. ¶ 10.
II. The Alleged Securities Fraud
Throughout the putative class period, defendants revealed the existence of " operational inefficiencies" in a small segment of the Company's 286 manufacturing and assembly facilities. See infra Section II(A)(2)(i). Specifically, defendants disclosed that four of the Company's European facilities -- each of which produced interior and exterior automotive systems -- were experiencing production problems that would take a number of years to resolve. Id. On May 4, 2011, Magna reported that the four interior/exterior facilities sustained losses of approximately $50 million during the first quarter of 2011, AC ¶ 126, and on August 5, 2011, the Company revealed that the same underperforming units generated losses of approximately $60 million during the second quarter of 2011, id. ¶ 153.
Despite these disclosures, plaintiff maintains that defendants violated section 10(b) of the Exchange Act and Rule 10b-5 thereunder. Id. ¶ ¶ 188-93. As detailed in Section II(A)(2), infra, plaintiff alleges that defendants misleadingly " downplayed" and/or " shifted the focus away from" the severity of problems facing the four interior/exterior facilities. Id. ¶ ¶ 2, 94, 188-93. Plaintiff submits that, as a result of these alleged misrepresentations and omissions, Magna's common stock traded at artificially inflated prices, id. ¶ 174, reaching $59.99 per share in January 2011, id. ¶ 2.
Plaintiff also asserts claims against the individual defendants pursuant to section 20A of the Exchange Act. Id. ¶ ¶ 198-203. During the 12-month class period, Stronach sold approximately $907 million of his personally held Magna shares " in connection with his exit from the Company." Id.
¶ 3. Meanwhile, Walker and other non-party executives exercised employee stock options, see Stern Decl. Exs. T-Z, with Walker receiving approximately $7.4 million in net proceeds, see Stern Decl. Ex. Y. Plaintiff maintains that, at the time these transactions occurred, the individual defendants possessed material, non-public information concerning the alleged magnitude of problems facing the interior/exterior units. AC ¶ 199. According to plaintiff, when the " truth" about these problems emerged, the Company's stock price plummeted to $39.42 per share on August 5, 2011, the last day of the putative class period. Id. ¶ 3.
III. Procedural History
On May 4, 2012, City of Taylor General Employees Retirement System filed the initial complaint in this action and published notice of the lawsuit to all putative class members in accordance with the Private Securities Litigation Reform Act of 1995 (the " PSLRA" ), Pub. L. No. 104-67, 109 Stat. 737 (codified as amended in scattered sections of Title 15 U.S.C.). See 15 U.S.C. § 78u-4(a)(3)(A)(i). On July 31, 2012, we granted plaintiff's motion to be appointed as lead plaintiff and approved its selection of Robbins Geller Rudman & Dowd LLP as lead counsel. See id. § 78u-4(a)(3)(B)(i). On October 1, 2012, plaintiff filed the amended complaint. On January 11, 2013, defendants moved to dismiss the amended complaint. Briefing was completed on March 12, 2013.
I. Pleading Standards
To survive a motion to dismiss, the pleadings must include " enough facts to state a claim for relief that is plausible on its face." Bell A. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). Where a plaintiff has not " nudged [its] claims across the line from conceivable to plausible," dismissal is appropriate. Id. In applying these standards, we accept as true all factual allegations in the pleadings and draw all reasonable inferences in the non-moving party's favor. Anderson News, L.L.C. v. Am. Media, Inc., 680 F.3d 162, 185 (2d Cir. 2012). However, " we give no effect to assertions of law or to legal conclusions couched as factual allegations." Id. (internal quotation marks and alterations omitted).
A complaint alleging securities fraud must satisfy the heightened pleading standards of Rule 9(b) of the Federal Rules of Civil Procedure (" Rule 9(b)" ) and the PSLRA. Kleinman, 706 F.3d at 152. To satisfy Rule 9(b), " the plaintiff must (1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent." Anschutz Corp. v. Merrill Lynch & Co., 690 F.3d 98, 108 (2d Cir. 2012) (internal quotation marks omitted); see also Kleinman, 706 F.3d at 152 (" The circumstances constituting fraud must be stated with particularity." (internal quotation marks and alteration omitted)).
" The PSLRA expanded on the Rule 9(b) standard, requiring that securities fraud complaints specify each misleading statement; that they set forth the facts on
which a belief that a statement is misleading was formed; and that they state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind."
Anschutz, 690 F.3d at 108 (internal quotation marks and alterations omitted) (citing Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 345, 125 S.Ct. 1627, 161 L.Ed.2d 577 (2005)).
II. Section 10(b) of the Exchange Act and Rule 10b-5
Section 10(b) of the Exchange Act makes it unlawful for any person " [t]o use or employ, in connection with the purchase or sale of any security . . . any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the [U.S. Securities and Exchange Commission] may prescribe." 15 U.S.C. § 78j(b). Rule 10b-5 implements section 10(b) by making it unlawful to, among other things, " make any untrue statement of a material fact or to omit to state a material fact 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).
To sustain a private cause of action under section 10(b) and Rule 10b-5, a plaintiff must adequately plead: " (1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a connection between the misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss causation." Levitt v. J.P. Morgan Sec., Inc., 710 F.3d 454, 465 (2d Cir. 2013) (quoting Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, 552 U.S. 148, 157, 128 S.Ct. 761, 169 L.Ed.2d 627 (2008)) (internal quotation marks omitted). Analyzing those factors here, we find that plaintiff has not sufficiently alleged any actionable misrepresentations or omissions, see infra Section II(A), or particularized facts giving rise to a strong inference of scienter, see infra Section II(B).
A. Plaintiff Has Failed to Allege Any Actionable Misrepresentations or Omissions
1. Legal Standards
Under the PSLRA, a securities fraud complaint must " specify each statement alleged to have been misleading" and the " reasons why" that statement was misleading. 15 U.S.C. § 78u-4(b)(1). " [A]s long as the public statements are consistent with reasonably available data, corporate officials need not present an overly gloomy or cautious picture of current performance and future prospects." Novak v. Kasaks, 216 F.3d 300, 309 (2d Cir. 2000). Moreover, expressions of hope, opinion, or belief about future performance generally do not give rise to violations of the federal securities laws. Rombach v. Chang, 355 F.3d 164, 174 (2d Cir. 2004). However, such statements may be actionable " 'if they are worded as guarantees or are supported by specific statements of fact, or if the speaker does not genuinely or reasonably believe them.'" In re Citigroup Inc. Sec. Litig., 753 F.Supp.2d 206, 248 (S.D.N.Y. 2010) (quoting In re Int'l Bus. Machs. Corp. Sec. Litig., 163 F.3d 102, 107 (2d Cir. 1998)).
Section 10(b) and Rule 10b-5(b) " do not create an affirmative duty to disclose any and all material information."
Kleinman, 706 F.3d at 152 (quoting Matrixx Initiatives, Inc. v. Siracusano,
__ U.S. __, 131 S.Ct. 1309, 1321, 179 L.Ed.2d 398 (2011)) (internal quotation marks omitted); see also Resnik v. Swartz, 303 F.3d 147, 154 (2d Cir. 2002) (noting that information need not be disclosed " simply because it may be relevant or of interest to a reasonable investor" ). Rather,
" [d]isclosure is required only when necessary to make statements made, in the light of the circumstances under which they were made, not misleading." Kleinman, 706 F.3d at 153 (quoting Matrixx, 131 S.Ct. at 1321) (internal quotation marks and ellipsis omitted).
2. Plaintiff's Allegations