United States District Court, S.D. New York
RAYMOND THOMAS and WILLIAM PORTER, individually and on behalf of all others similarly situated, Plaintiffs,
SHILOH INDUSTRIES, INC., RAMZI HERMIZ, and THOMAS M. DUGAN, Defendants.
OPINION & ORDER
KIMBA M. WOOD UNITED STATES DISTRICT JUDGE.
Plaintiff Raymond Thomas and Plaintiff William Porter
(“Plaintiffs”) bring this putative class action
against Shiloh Industries (“Shiloh”) and two of
its individual directors, Ramzi Hermiz and Thomas M. Dugan
(“Individual Defendants”; collectively,
assert claims under Section 10(b) and Rule 10b-5 of the
Securities Exchange Act of 1934 (the “Exchange
Act”), and Section 20(a) of the Exchange Act. Corrected
Amended Complaint (“CAC”) ¶¶ 126-36,
137-140. Plaintiffs allege that Defendants perpetrated an
accounting fraud at Shiloh's manufacturing facility in
Wellington, Ohio. Plaintiffs contend that as a result, this
fraudulent accounting artificially inflated Shiloh's net
income. After management was alerted to potential accounting
misconduct, Shiloh launched an internal investigation.
Subsequently, in late 2015, Shiloh issued a restatement of
its financial results for the first two fiscal quarters of
2015, caused by this accounting discrepancy at the Wellington
facility. Plaintiffs allege that when this purported fraud
was revealed, Shiloh's stock price plummeted.
have moved to dismiss the CAC under Rule 9(b) of the Federal
Rules of Civil Procedure and the Private Securities
Litigation Reform Act (“PSLRA”). For the reasons
stated below, because Plaintiffs fail to state with
particularity facts giving rise to scienter, Defendants'
motion is GRANTED in its entirety.
facts stated here, alleged in the Corrected Amended
Complaint, are assumed to be true for the purpose of this
motion. See, e.g., Witt v. Vill. of Mamaroneck,
N.Y., 639 F. App'x 44, 45 (2d Cir. 2016). Plaintiffs
represent a class of all purchasers of Shiloh securities
between January 12, 2015, and September 14, 2015 (the
“Class Period”), who are seeking remedies under
the Exchange Act. CAC ¶ 1. Defendant Shiloh,
incorporated in Delaware with its principal offices located
in Ohio, is a supplier of lightweighting equipment to various
automotive and commercial vehicle industries. Id.
¶ 35. Lightweighting enables manufacturers to build
vehicles in a more cost and weight efficient manner. Shiloh
also provides noise, vibration, and harshness solutions to
manufacturers. Id. Shiloh maintains twenty-one
manufacturing facilities, and is headquartered in Valley
City, Ohio. Id. ¶ 15.
securities are actively traded on the NASDAQ Global Market.
Id. ¶ 113. Defendant Ramzi Hermiz has been
President and CEO of Shiloh since 2012. Defendant Thomas
Dugan was Vice President of Finance and Treasurer “at
all relevant times.” Id. ¶ 29.
Allegations in the Complaint
allege that Defendants intentionally perpetrated the fraud of
which Plaintiffs complain. Id. ¶ 6. They claim
that Defendants effected this alleged fraud by allowing
misallocated steel surcharges on the balance sheet to remain
uncorrected, which had the effect of understating the cost of
goods sold and inflating inventory. Id. ¶ 7-8.
Plaintiffs further allege that Defendants touted their
financial success to investors for the first and second
quarters of 2015, id. ¶ 9, but that on
September 9, 2015, Shiloh revealed that it was conducting an
internal investigation into the accounting at its Wellington
facility. Id. ¶ 10. Specifically, Shiloh
indicated that there was a potential issue regarding
accounting for inventoried costs. Id. ¶ 16.
Plaintiffs claim that this disclosure, as well as the
Company's report to the SEC amending its financial
results for the fiscal year 2014 and the first and second
quarters of 2015, caused Shiloh's stock price to fall.
Id. ¶¶ 11-14. The amended report, called
the Restatement, “confirmed that the Company
understated cost of sales, overstated gross margin, and
overstated net income for Q1 2015 and Q2 2015.”
Id. ¶ 13.
seek compensatory damages for the injuries sustained as a
result of Defendants' alleged wrongdoing. Id. p.
Rule 9b and PSLRA
survive a motion to dismiss a complaint alleging securities
fraud, the complaint must satisfy the heightened pleading
requirements of Rule 9(b) of the Federal Rules of Civil
Procedure and the PSLRA.
complaint alleging fraud “must state with particularity
the circumstances constituting fraud, ” or otherwise
face dismissal. Fed.R.Civ.P. 9(b). See also Ganino v.
Citizens Utils. Co., 228 F.3d 154, 168 (2d Cir. 2000);
Chill v. Gen. Elec. Co., 101 F.3d 263, 267 (2d Cir.
1996). Rule 9(b) also allows that “[m]alice, intent,
knowledge, and other conditions of a person's mind may be
alleged generally, ” but per the PSLRA, the plaintiff
must also allege facts that support a strong inference of
fraudulent intent. 15 U.S.C. § 78u-4(b)(2);
Ganino, 228 F.3d at 169; Acito v. FMCERA Grp.,
Inc., 47 F.3d 47, 52 (2d Cir. 1995).
Rule 10b-5 and Section 10(b)
state a claim for securities fraud under section 10(b) and
Rule 10b-5, Plaintiffs must allege (1) a material
misrepresentation or omission; (2) scienter; (3) connection
with the purchase or sale of a security; (4) reliance; (5)
economic loss; and (6) loss causation. In re China Mobile
Games & Entm't Grp., Ltd. Sec. Litig., 2016 WL
922711, *3 (Mar. 7, 2016) (Wood, J.).
claims arise from the series of accounting misstatements that
took place at Shiloh's Wellington facility. Defendants do
not dispute that these misstatements occurred. Defendants
informed investors in September of 2015 that an ongoing
internal investigation would prevent Shiloh from timely
filing its quarterly financial statements to the SEC, as
required. Defendants admit that the misstatements on the
balance sheet reflected an understatement of the cost of
sales by $1.7 million in the first fiscal quarter of 2015 and
$1.1 million in the second quarter, which overstated the