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Scott v. General Motors Co.

United States District Court, S.D. New York

September 4, 2014

GEORGE G. SCOTT, Individually and on Behalf of all Others similarly situated, Plaintiffs,
v.
GENERAL MOTORS COMPANY et al., Defendants

As Amended September 15, 2014.

Page 388

For George Scott, Individually and on Behalf of All Others Similarly Situated, Plaintiff: David A. Straite, Kaplan Fox & Kilsheimer, LLP, New York, NY; Katharine M. Ryan, Ryan & Maniskas, LLP, Wayne, PA; Michele S. Carino, Ralph Nicholas Sianni, Stewarts Law U.S. LLP, New York, NY; Richard A. Maniskas, Schiffrin & Barroway L.L.P., Radnor, PA.

For Teamsters Local 710 Pension Fund, Movant: Andrea Yoon Lee, Robbins Geller Rudman & Dowd LLP, Melville, NY; Brian O. O'Mara, PRO HAC VICE, Robbins Geller Rudman & Dowd LLP (SANDIEGO), San Diego, CA; David Avi Rosenfeld, Mario Alba, Jr, Samuel Howard Rudman, Robbins Geller Rudman & Dowd LLP(LI), Melville, NY.

For General Motors Company, Edward E. Whitacre, Christopher P. Liddell, Nick S. Cyprus, Daniel F. Akerson, David Bonderman, Erroll B. Davis, Jr., Stephen J. Girsky, E. Neville Isdell, Robert D. Krebs, Philip A. Laskaway, Defendants: Robert J. Kopecky, LEAD ATTORNEY, PRO HAC VICE, Kirkland & Ellis LLP (IL), Chicago, IL; Diana M Watral, PRO HAC VICE, Kirkland & Ellis, LLP, Chicago, IL; Lauren Oland Casazza, Kirkland & Ellis LLP (NYC), New York, NY.

For Morgan Stanley & Co. Incorporated, J.P. Morgan Securiries LLC., Citigroup Global Markets Inc., Barclays Capital Inc., Credit Suisse Securities (USA) LLC., Deutsche Bank Securities Inc., Goldman Sachs & Co., RBC Capital Markets Corporation, Banco Bradesco BBI S.A., CIBC World Markets Corp., Commerz Markets LLC., Merril Lynch, Pierce, Fenner & Smith Incorporated, Defendants: William G. McGuinness, LEAD ATTORNEY, Fried, Frank, Harris, Shriver & Jacobson LLP, New York, NY; Israel David, Samuel Pianko Groner, Fried, Frank, Harris, Shriver & Jacobson, New York, NY.

AMENDED MEMORANDUM OPINION AND ORDER[1]

Page 389

LAURA TAYLOR SWAIN, United States District Judge.

In this putative class action alleging violations of sections 11, 12(a)(2), and 15 of the Securities Act of 1933 (the " '33 Act" ), Plaintiffs assert claims for alleged material misstatements in the registration statement and other filings made in conjunction with the initial public offering of defendant, General Motors Company (" GM" ). By order dated November 21, 2012, the Court appointed Teamsters Local 710 Pension Fund to serve as Lead Plaintiff.[2] Defendants move to dismiss the Amended Class Action Complaint (the " Amended Complaint" ) pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief may be granted.

This Court has jurisdiction of this action pursuant to 28 U.S.C. § 1331.

The Court has carefully considered the submissions of the parties. For the following reasons, Defendants' motion is granted in its entirety, and the Amended Complaint is dismissed with prejudice.

Background

The following facts are taken from the Amended Complaint (docket entry no. 54), the documents incorporated by reference therein, and other documents of which the Court may take judicial notice. Plaintiffs' factual allegations are taken as true for the purposes of this motion practice.

GM is a large United States-based automotive company that has operations and sales around the world. (Am. Compl. at ¶ 48.) GM is the successor company to General Motors Corporation (" Old GM" ), which filed a bankruptcy petition on June 10, 2009. (Id. at ¶ 4.)

Between December 2008 and its bankruptcy filing, Old GM was the recipient of billions of dollars in government financing, funded through the United States Department of the Treasury. (Id. at ¶ 3.) Old GM had significant problems controlling its dealer inventories of vehicles; specifically, Old GM failed to " adequately control its inventory levels, especially with its line of pickup trucks." (Id. at ¶ 3.) Old GM's dealer inventory levels often exceeded industry standards. (Id.) As a condition of government funding, Old GM was required to create a Viability Plan, which called for " reducing Old GM's indebtedness and certain retiree healthcare obligations, and extended shutdowns of certain North American manufacturing facilities in order to reduce dealer inventory." (Id. (internal quotation marks omitted).) Notwithstanding these efforts, Old GM was unable to become profitable or to service its debt obligations. (Id. at ¶ 4.)

On July 10, 2009, with financing partially provided by the U.S. Treasury, GM acquired substantially all the assets and assumed certain liabilities of Old GM. (Id. at ¶ 57.) GM announced that it would continue to operate under the Viability Plan when it emerged from bankruptcy as Old GM's successor entity. (Id. at ¶ 4.)

When Old GM emerged from bankruptcy as GM, the Treasury Department held a 60.8 % ownership interest. In 2010, GM announced that it would sell shares to the public in an initial offering (the " IPO" ). (Am. Compl. at ¶ 58.) Prior to that offering,

Page 390

GM made periodic filings with the Securities and Exchange Commission (the " SEC" ), and monthly reports of its production, sales and dealer inventories in Form 8-K filings. GM filed a Registration Statement with the SEC in August 2010 and amended the statement several times on SEC Forms S-1/A, the last amendment being filed on November 17, 2010. (Am. Compl. at ¶ 58.) On November 18, 2010, the Prospectus for the IPO, a part of the Registration Statement, became effective. (Id. at ¶ 59.)

On November 18, 2010, in connection with the IPO, the Treasury Department and other shareholders sold 478 million shares of common stock at $33 per share, totaling $15.7 billion in proceeds. (Id. at ¶ 60.) None of the common stock was sold by GM. GM sold an additional 87 million shares of Series B preferred stock concurrently with the IPO for $50 per share, raising $4.35 billion. (Id. at ¶ 61.)

On June 29, 2012, plaintiff George Scott filed a complaint, alleging that defendants GM, the individual members of GM's board of directors, including defendants Whitacre, Liddell, Cyprus, Akerson, Bonderman, Davis, Girsky, Isdell, Krebs, and Laskaway (together, the " Individual Defendants" ), and Morgan Stanley & Co. Inc., J.P. Morgan Securiries LLC, Citigroup Global Markets Inc., Barclays Capital Inc., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., Goldman Sachs & Co., RBC Capital Markets Corp., Banco Bradesco BBI S.A., CIBC World Markets Corp., and Commerz Markets LLC (together, the " Underwriters" ),[3] committed violations of the '33 Act. Lead Plaintiff filed the Amended Complaint on February 1, 2013. Defendants moved to dismiss the Amended Complaint on April 2, 2013. (Docket entry nos. 57 and 61.) At a hearing on April 12, 2013, Lead Plaintiff declined to seek leave to further amend the complaint in light of the pending motion to dismiss, stating: " [w]e do intend to stand on our complaint." (April 12 Tr. at 3:1-3.)

The Amended Complaint alleges that GM, the Individual Defendants, and the Underwriters violated Sections 11 and 15 of the '33 Act by making material misstatements in the Registration Statement pursuant to which shares of GM common stock were sold to the public in the IPO.[4] (Am. Compl. at ¶ 6.) Lead Plaintiff alleges that Defendants made material misstatements when they stated that they would reduce inventory levels while they were purposefully increasing dealer inventories in an effort to increase reported revenues to shareholders. (Id.)

Lead Plaintiff alleges that GM's " channel stuffing," which it defines as " a practice whereby excess inventory is 'sold' to dealerships so that the manufacturer, in this case GM, can record those sales on its books, creating the false appearance of revenues, even while those cars remain unsold on dealer lots." (Am. Compl. at ΒΆ 66.) Because the vehicles " stuffed" into a dealership do not increase the demand for a company's vehicles, the company may recognize less revenue during future periods as a result of the increased dealer inventory that must be sold before new ...


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