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Thomas v. Shiloh Industries, Inc.

United States District Court, S.D. New York

July 7, 2017

RAYMOND THOMAS and WILLIAM PORTER, individually and on behalf of all others similarly situated, Plaintiffs,

          OPINION & ORDER


         On March 23, 2017, this Court issued an Opinion and Order granting the Defendants' motion to dismiss Plaintiffs' Corrected Amended Complaint ("CAC") (Doc. No. 38). Plaintiffs now move for reconsideration of the Court's decision pursuant to Federal Rule of Civil Procedure 59(e) and Local Civil Rule 6.3. For the foregoing reasons, Plaintiffs' motion is GRANTED in part and DENIED in part. Plaintiffs are granted limited leave to amend their complaint, as set forth below.

         I. BACKGROUND

         On September 21, 2015, Plaintiffs brought this putative class action against Shiloh Industries ("Shiloh") and two of its individual directors, Ramzi Hermiz and Thomas M. Dugan ("Individual Defendants"; collectively, "Defendants"). Plaintiffs asserted 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. Shiloh Industries manufactures and distributes equipment used to build automobiles. CAC ¶ 2. During the class period, Ramzi Hermiz served as the president and CEO of Shiloh Industries. Id. ¶ 28. Thomas Dugan served as the company's treasurer and vice president of finance. Id. ¶ 29.

         Plaintiffs alleged that Defendants perpetrated an accounting fraud at Shiloh's manufacturing facility in Wellington, Ohio, and that this fraudulent accounting artificially inflated Shiloh's net income. Id. ¶¶ 3-8. When Shiloh publicly revealed the alleged fraud, its stock price plummeted. Defendants moved to dismiss the Complaint under Rule 9(b) of the Federal Rules of Civil Procedure and the Private Securities Litigation Reform Act (PSLRA), on the ground that Plaintiffs failed to state with particularity facts sufficient to allege scienter on the part of both the Individual Defendants and Shiloh Industries as a corporation.

         Plaintiffs proffered two separate theories of scienter. First, they argued that Individual Defendants Hermiz and Dugan were aware of, or recklessly disregarded, evidence of the fraudulent accounting. Id. ¶¶ 18, 30, 58-59. Plaintiffs argued that the employee who committed the accounting fraud at the company's Wellington Facility, the Wellington Controller, "was under immense pressure to hit impossible targets, " and the Individual Defendants turned a blind eye to, or perhaps even implicitly encouraged, his behavior, so long as he met the company's financial objectives. Id. ¶¶ 17-19, 52-56, 69.

         Second, Plaintiffs alleged that the Company itself acted with scienter. Plaintiffs noted that "[t]he Wellington Controller furnished the false and misleading accounting entries to Defendants with the knowledge that they would be incorporated into Shiloh's publicly filed financial statements." (Mem. in Opp'n to Mot. to Dismiss, 24). Plaintiffs argued that because the Wellington Controller acted as an agent of Shiloh, his scienter could be imputed to the company, resulting in a violation of the Exchange Act on the part of the Defendant Shiloh Industries.

         In order to allege scienter on the part of the Individual Defendants, Plaintiffs had to plead either (1) that defendants had the motive and opportunity to commit fraud, or (2) strong circumstantial evidence of conscious misbehavior or recklessness. ECA & Local 134 IBEW Joint Pension Tr. of Chi. V. JP Morgan Chase Co., 553 F.3d 187, 198 (2d Cir. 2009). Plaintiffs did not offer evidence that the Individual Defendants had a motive to defraud investors. Instead, they offered circumstantial evidence that the Individual Defendants either knew of, or recklessly disregarded, the accounting fraud. This evidence included: (1) the confidential witness allegations concerning the Individual Defendants' access and attention to the accounting misstatements; (2) the suspicious circumstances surrounding the resignations of the Wellington Controller and his direct boss, the Group Controller, and Defendant Dugan's being relieved of his accounting responsibilities by the company's Audit Committee; (3) the manner in which Defendants responded to the fraud; (4) the importance of the Wellington Facility to Shiloh's profitability; (5) the magnitude of the fraud; and (6) the Sarbanes-Oxley certifications signed by the Individual Defendants. (Mem. in Opp'n, 7-8).

         Guided by the Supreme Court's decision in Tellabs, this Court viewed Plaintiffs' separate scienter allegations holistically. See Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 323 (2007). The Court then granted Defendants' motion to dismiss on the ground that Plaintiffs failed to adequately allege scienter on the part of Defendants Ramzi and Dugan. (O & O, 12-13). After holding that Plaintiffs had failed to adequately plead scienter on the part of the Individual Defendants, the Court did not address whether the Wellington Controller's scienter could be imputed to the corporation. Plaintiffs do not presently contest the Court's previous ruling with respect to the Individual Defendants. Rather, Plaintiffs now ask the Court to consider whether they have sufficiently plead scienter on the part of Defendant Shiloh Industries.


         "[R]econsideration of a previous order is an extraordinary remedy to be employed sparingly in the interests of finality and conservation of scarce judicial resources." In re Health Mgmt. Sys., Inc. Sec. Litig., 113 F.Supp.2d 613, 614 (S.D.N.Y. 2000) (Berman, J.) (internal quotation marks omitted). To prevail on a motion for reconsideration, "the moving party must demonstrate controlling law or factual matters put before the court on the underlying motion that the movant believes the court overlooked and that might reasonably be expected to alter the court's decision." Montanile v. Nafl Broad Co., 216 F.Supp.2d 341, 342 (S.D.N.Y. 2002) (Marrero, J). "A motion for reconsideration may not be used to advance new facts, issues, or arguments not previously presented to the Court, nor may it be used as a vehicle for relitigating issues already decided by the Court." Davidson v. Scully, 172 F.Supp.2d 458, 461 (S.D.N.Y. 2001) (Leisure, J.). The standard is "strict in order to dissuade repetitive arguments on issues that have already been considered fully by the court." Travelers Ins. Co. v. Buffalo Reinsurance Co., 739 F.Supp. 209, 211 (S.D.N.Y. 1990) (Cannella, J.) (quoting Caleb & Co., 624 F.Supp. 747, 748 (S.D.N.Y 1985) (Sweet, J.).

         Because the Court did not address Plaintiffs' corporate scienter claim in its March 23, 2017 Opinion and Order, Plaintiffs do not file this motion to advance new facts or in the hope of relitigating issues already decided. The Court will thus now consider whether Plaintiffs have adequately plead scienter on the part of Shiloh Industries.


         Standard for Finding ...

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