Lin et al v. Ecotality, Inc et al

Filing 70

ORDER by Judge Samuel Conti granting 60 Motion to Dismiss. Plaintiffs may file an amended complaint as specified in this Order within thirty (30) days. (sclc1, COURT STAFF) (Filed on 9/16/2014)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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IN RE ECOTALITY, INC.
SECURITIES LITIGATION

United States District Court

For the Northern District of California

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This Document Relates To:

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ALL ACTIONS

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I.

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) Master File No. 13-03791-SC
)
) ORDER GRANTING MOTION TO
) DISMISS
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INTRODUCTION
Now before the Court is Defendants H. Ravi Brar, Susie

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Herrmann, Enrique Santacana, Kevin Cameron, and Andrew Tang's

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(collectively "Defendants") motion to dismiss.

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Plaintiffs bring this putative class action against Defendants and

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ECOtality, Inc. ("ECOtality") for making allegedly misleading

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statements that caused them to buy overvalued ECOtality stock.

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motion is fully briefed.1

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Court finds this matter appropriate for disposition without oral

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argument.

For the reasons set forth below, Defendants' motion is

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GRANTED.

Some of Plaintiffs' claims are DISMISSED WITH PREJUDICE,

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while others are DISMISSED WITH LEAVE TO AMEND, as specified below.

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1

ECF No. 60.

The

Pursuant to Civil Local Rule 7-1(b), the

ECF Nos. 61 ("Opp'n"); 65 ("Reply").

1 II.

BACKGROUND

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At the motion to dismiss stage, the Court assumes the truth of

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Plaintiffs' well-pleaded factual allegations, so these facts come

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from Plaintiffs' Consolidated Amended Complaint ("CAC").

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52.

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charging systems.

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the Department of Energy's ("DOE") Vehicle Technologies program.

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In 2009, ECOtality received a $100.2 million grant from DOE to

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deploy EV chargers and analyze their usage (known as the "EV

ECF No.

ECOtality designed, built, and sold electric vehicle ("EV")
Id. ¶ 2.

Most of ECOtality's revenues came via

United States District Court

For the Northern District of California

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Project").

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arrangement with DOE, ECOtality was required to deploy 13,200 EV

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chargers by September 2013 and to complete its data analysis by

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December 21, 2013.

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Pursuant to a 2012 modification to ECOtality's

Id. ¶ 3.

Plaintiffs allege that between April 16, 2013 and August 9,

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2013 (the "Class Period"), Defendants made a number of false or

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misleading statements about ECOtality's progress on the EV Project

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and the company's business prospects.

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April 15, 2013, ECOtality issued a press release, held a conference

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call, and filed its fiscal year ("FY") 2012 Form 10-K with the

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Securities and Exchange Commission ("SEC").

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allege that a number of the statements made in the press release,

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conference call, and 10-K were false or misleading.

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also allege that Defendants made false or misleading statements

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during a May 15 conference call and in a number of other SEC

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filings.

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statements to be false or misleading at the time they were made.

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Id. ¶¶ 5-6, 8, 11-14.

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of problems with its business, including its inability to complete

After trading had closed on

Id. ¶¶ 69.

Plaintiffs

Plaintiffs

Plaintiffs further allege that Defendants knew these

In August 2013, ECOtality revealed a number

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the EV Project, the suspension of DOE payments, ECOtality's failure

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to sell enough EV chargers to support its operations, and

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technological problems with its EV chargers.

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ECOtality's stock price suffered a precipitous drop on August 12.

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Id. ¶ 21.

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mid-September.

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Id. ¶¶ 20, 157-62.

ECOtality and its subsidiaries filed for bankruptcy in
Id. ¶ 22.

Plaintiffs were ECOtality shareholders.

They purport to

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represent a class "of all persons who purchased ECOtality common

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stock during the Class Period and were damaged thereby."

Id. ¶

United States District Court

For the Northern District of California

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163.

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August 9, 2013.

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during the Class Period: Mr. Brar was the Chief Executive Officer

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("CEO"), President, and a director; Ms. Herrmann was the Chief

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Financial Officer ("CFO"); and Messrs. Santacana, Cameron, and Tang

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were directors.

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Herrmann under sections 10(b) (for making false or misleading

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statements that caused Plaintiffs to buy overvalued ECOtality

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stock) and 20(a) (for control person liability) of the Securities

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Exchange Act of 1934 (the "Exchange Act").

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claims against all five defendants under sections 11 (for including

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false or misleading information in a registration statement) and 15

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(for control person liability) of the Securities Act of 1933 (the

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"Securities Act").

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The alleged Class Period extends from April 16, 2013 to
Defendants were ECOtality officers or directors

Plaintiffs bring claims against Mr. Brar and Ms.

They bring additional

Id. ¶¶ 1, 172-95.

Defendants move to dismiss Plaintiffs' complaint pursuant to

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Federal Rule of Procedure 12(b)(6) for failure to state a claim.

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Mot. at 10-11.

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plead falsity; (2) Defendants' statements are protected by a safe

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harbor provision; (3) Defendants' statements were inactionable

Defendants contend that (1) Plaintiffs fail to

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corporate optimism; (4) Plaintiffs fail to plead that Defendants

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acted with deliberate recklessness or engaged in conscious

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misconduct; (5) Plaintiffs fail to plead loss causation because

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they did not identify a "corrective disclosure" that revealed

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alleged fraud; and (6) Plaintiffs fail to plead facts tracing their

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shares to the operative registration statement.

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8 III.

LEGAL STANDARD

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A.

United States District Court

For the Northern District of California

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Motion to Dismiss

A motion to dismiss under Federal Rule of Civil Procedure

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12(b)(6) "tests the legal sufficiency of a claim."

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Block, 250 F.3d 729, 732 (9th Cir. 2001).

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on the lack of a cognizable legal theory or the absence of

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sufficient facts alleged under a cognizable legal theory."

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Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir.

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1988).

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should assume their veracity and then determine whether they

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plausibly give rise to an entitlement to relief."

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Iqbal, 556 U.S. 662, 679 (2009).

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must accept as true all of the allegations contained in a complaint

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is inapplicable to legal conclusions.

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elements of a cause of action, supported by mere conclusory

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statements, do not suffice."

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Twombly, 550 U.S. 544, 555 (2007)).

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complaint must be both "sufficiently detailed to give fair notice

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to the opposing party of the nature of the claim so that the party

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may effectively defend against it" and "sufficiently plausible"

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such that "it is not unfair to require the opposing party to be

Navarro v.

"Dismissal can be based

"When there are well-pleaded factual allegations, a court

Ashcroft v.

However, "the tenet that a court

Threadbare recitals of the

Id. (citing Bell Atl. Corp. v.

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The allegations made in a

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subjected to the expense of discovery."

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1202, 1216 (9th Cir. 2011).

Starr v. Baca, 652 F.3d

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B.

Section 10(b) and Rule 10(b)(5)

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Section 10(b) of the Exchange Act makes it unlawful "[t]o use

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or employ, in connection with the purchase or sale of any security

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registered on a national securities exchange . . . any manipulative

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or deceptive device or contrivance in contravention of such rules

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and regulations as the [Securities and Exchange] Commission may

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prescribe . . . ."

15 U.S.C. § 78j(b).

One such rule prescribed

United States District Court

For the Northern District of California

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by the SEC is Rule 10b-5.

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employ any device, scheme, or artifice to defraud; (b) make an

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untrue statement of material fact or omit a material fact necessary

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to make a statement not misleading; or (c) engage in an act,

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practice, or course of business which operates as a fraud or deceit

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in connection with the purchase or sale of any security.

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§ 240.10b–5.

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subsections of Rule 10b-5.

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Section 10(b) or Rule 10b–5, Plaintiffs must plead five elements:

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"(1) a material misrepresentation or omission of fact, (2)

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scienter, (3) a connection with the purchase or sale of a security,

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(4) transaction and loss causation, and (5) economic loss."

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Daou Sys., 411 F.3d 1006, 1014 (9th Cir. 2005).

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Rule 10b-5 makes it unlawful to (a)

17 C.F.R.

Plaintiffs allege that defendants violated all three
CAC ¶ 174.

To establish a violation of

In re

Plaintiffs must also meet the heightened pleading standards of

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Federal Rule of Civil Procedure 9(b) and the Private Securities

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Litigation Reform Act of 1995 ("PSLRA"), 15 U.S.C. § 78u–4.

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PSLRA requires plaintiffs to "specify each statement alleged to

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have been misleading [and] the reason or reasons why the statement

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is misleading."

15 U.S.C. § 78u–4(b)(1).

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Additionally, the

The

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complaint must "state with particularity facts giving rise to a

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strong inference that the defendant acted with the required state

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of mind."

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establishing securities fraud is the knowing, intentional, or

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deliberately reckless disclosure of false or misleading statements.

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See Daou, 411 F.3d at 1014–15.

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scienter naturally results in a stricter standard for pleading

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falsity, because falsity and scienter in private securities fraud

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cases are generally strongly inferred from the same set of facts,

Id. § 78u–4(b)(2).

The "required state of mind" for

"The stricter standard for pleading

United States District Court

For the Northern District of California

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and the two requirements may be combined into a unitary inquiry

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under the PSLRA."

Id. at 1015 (internal quotation marks omitted).

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IV.

DISCUSSION
Plaintiffs' CAC is hardly a model of clarity or concision.

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Rather, it is a redundant and repetitive tangle of verbosity.

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Defendants argue that "Plaintiffs' Complaint collects a series of

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lengthy quotes from ECOtality's public statements and applies bold

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font to paragraphs of text, without specifically identifying which

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statements Plaintiffs claim to be false."

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Defendants point out that many judges have rejected, or at least

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criticized, similar pleading tactics in securities class actions.

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See id.; Wenger v. Lumisys, Inc., 2 F. Supp. 2d 1231, 1244 (N.D.

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Cal. 1998) (collecting cases in which "courts have repeatedly

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lamented plaintiffs' counsels' tendency to place the burden [] on

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the reader to sort out the statements and match them with the

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corresponding adverse facts to solve the 'puzzle' of interpreting

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Plaintiffs' claims.") (citations and internal quotation marks

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omitted).

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Mot. at 11 n.9.

Defendants are correct with respect to large sections of the

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CAC.

Paragraphs 69-111 suffer from precisely the problem

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Defendants identify.

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sections of a press release and conference call transcript.

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highlight certain portions of those documents with bold and italic

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type.

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alleged deficiencies.

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of the allegedly misleading statements with contradictory facts

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known to defendants at the time.

In those paragraphs, Plaintiffs quote long
They

The quotations are followed by paragraphs describing various
However, not a single sentence connects any

The Court will not attempt to

United States District Court

For the Northern District of California

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divine Plaintiffs' intentions by trying to match potentially

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misleading statements with the alleged problems facing ECOtality.

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Therefore, any allegations contained only in those paragraphs are

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insufficient to state a claim.
Paragraphs 112-153 do a slightly better job of connecting the

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dots.

Those paragraphs explain that Plaintiffs make three primary

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allegations:

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(1) Defendants issued a series of statements suggesting that

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ECOtality was "on track" to complete DOE's EV project when, in

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fact, Defendants knew that ECOtality was behind schedule and

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unable to complete the project;

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(2) Defendants said that a new product, the Minit-Charger 12

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("Minit-Charger"), would be released in 2013 when, in fact,

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they knew it would not be; and

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(3) Defendants said that ECOtality was making progress in

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shifting its business from one funded by DOE's EV Project to

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one funded by private sector sales when, in fact, they knew

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that no such progress was being made.

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///

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Plaintiffs add an allegation that Defendants' cautionary language

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was inadequate because it warned in hypothetical terms of problems

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that were already occurring.

CAC ¶¶ 150-53.

Those claims are pleaded sufficiently in the CAC for the Court

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to assess them.

Plaintiffs apparently allege that a number of

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other statements were also misleading, but the Court will not

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attempt to make Plaintiffs' case for them by isolating allegedly

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misleading statements and matching them to contrary facts.

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specified at the end of this Order, Plaintiffs may amend their

United States District Court

For the Northern District of California

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complaint if they intend to pursue claims based on any other

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As

allegedly misleading statements.
Defendants make a number of arguments for dismissal that apply

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to the claims the Court was able to identify from the CAC.

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Defendants have also submitted a request for judicial notice.

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Court analyzes the request for judicial notice first, and then

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discusses each argument for dismissal in turn.

The

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A.

Request for Judicial Notice

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Defendants have requested judicial notice of twenty exhibits.

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Defendants argue that judicial notice is proper because the

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documents were either incorporated by reference into the CAC, or

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are not subject to reasonable dispute and can be accurately and

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readily determined from sources whose accuracy cannot be

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questioned.

ECF No. 60-2 ("RJN") at 2-3.

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Plaintiffs agree that Exhibits 1-5, 11-15, and 17-19 are

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incorporated by reference into the CAC and that judicial notice is

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therefore proper.

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///

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///

ECF No. 63 ("RNJ Response") at 1.

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The Court

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takes judicial notice of these documents, but does not necessarily

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assume their truth.2

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Plaintiffs also have no objection to Exhibits 6-10 or Exhibit

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20, because they are SEC filings of the sort that courts routinely

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take notice of in securities fraud cases.

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therefore takes notice of those documents as well.

Id. at 2.

The Court

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Plaintiffs' only objection is to Exhibit 16, a proxy statement

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filed with the SEC listing percentage ownership of ECOtality shares

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by individual or entity.

Plaintiffs argue that Exhibit 16 is

United States District Court

For the Northern District of California

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irrelevant because they bring no claims of insider sales.

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Defendants argue that Exhibit 16 is relevant because it indicates

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that they did not sell their stock prior to ECOtality's precipitous

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decline.

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indicates a lack of scienter, and that courts have routinely taken

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notice of similar filings in other cases.

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at 3-4.

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defendants allegedly sold their shares prior to a major decrease in

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value in order to profit from an artificially inflated share price.

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See Gaylinn v. 3Com Corp., 185 F. Supp. 2d 1054, 1058 (N.D. Cal.

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2000); Copperstone v. TCSI Corp., C 97-3495 SBA, 1999 WL 33295869,

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at *2 (N.D. Cal. Jan. 19, 1999).

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Id.

Defendants claim that that failure to sell their stock

ECF No. 65 ("RJN Reply")

In most of the cases Defendants cite, however, the

Judicial notice of the

Defendants urge the Court to consider all documents incorporated
into the CAC for their truth in their entirety. They point to
several cases holding that the contents of documents incorporated
by reference into a complaint are presumed to be true. However,
were the Court to assume the truth of all documents incorporated by
reference into the CAC, that would mean assuming the truth of all
of Defendants' allegedly false or misleading statements. That
cannot be the intended result of the cases Defendants cite, or it
would be impossible ever to successfully plead a fraud claim. See
Gammel v. Hewlett-Packard Co., 905 F. Supp. 2d 1052, 1061-62 (C.D.
Cal. 2012) (explaining the difference between judicial notice and
incorporation by reference, and considering documents incorporated
by reference, but not for the truth of the matters they assert).
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defendants' holdings in those cases was, therefore requested by the

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plaintiffs.

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oppose judicial notice of the exhibit.

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That is not alleged here, and Plaintiffs in fact

Nonetheless, Defendants correctly point out that some courts

evidence against scienter.

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886 F.2d 1109, 1117 (9th Cir. 1989); In re Downey Sec. Litig., CV

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08-3261-JFW(RZX), 2009 WL 2767670, at *13-14 (C.D. Cal. Aug. 21,

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2009) ("In this case, any inference of scienter is negated by the

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United States District Court

have treated a lack of significant stock sales by defendants as

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For the Northern District of California

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complete lack of stock sales by the Individual Defendants during

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the class period.").

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consider their evidence as part of a competing inference of

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scienter under Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551

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U.S. 308, 314 (2007).

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an opportunity to provide competing evidence at the pleadings

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stage.

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inferences rationally drawn from the facts alleged."

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added).

Plaintiffs do not allege any facts regarding Defendants'

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shares.

Plaintiffs do not assert any claims related to Defendants'

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shares in ECOtality, nor do they put those shares at issue (as the

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plaintiffs did in the cases Defendants cite).

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heightened pleading standards in securities fraud cases, it is

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still inappropriate for the Court to consider contrary evidence

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from Defendants at this stage.

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for judicial notice is DENIED with respect to Exhibit 16.

See In re Apple Computer Sec. Litig.,

Therefore, they argue, the Court should

However, Tellabs does not grant defendants

That case held only that courts must consider "competing
Id. (emphasis

Despite the

Accordingly, Defendants' request

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B.

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The PSLRA includes a safe harbor provision for a statement

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PSLRA Safe Harbor

that is "identified as a forward-looking statement, and is

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accompanied by meaningful cautionary statements."

15 U.S.C. § 78u-

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5(c)(1)(A)(i).

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include financial projections, statements of plans and objectives

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for future operations, and statements of future economic

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performance.

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safe harbor provision, even if made with actual knowledge that they

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are false or misleading.

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1103, 1111-13 (9th Cir. 2010).

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future expectations and performance" are forward-looking and

As defined by statute, forward-looking statements

Id. § 78u-5(i).

Such statements are protected by the

See In re Cutera Sec. Litig., 610 F.3d
Generally, "statements related to

United States District Court

For the Northern District of California

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protected by the safe harbor provision.

Police Ret. Sys. v.

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Intuitive Surgical, Inc., 12-16430, 2014 WL 3451566, at *5 (9th

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Cir. July 16, 2014).
Some of Defendants' statements were undoubtedly forward-

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looking.

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that "[w]e'll begin deliveries of the Minit-Charger 12 by Q3 of

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this year" was not forward looking "because Brar said '[w]e'll

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begin deliveries' (not we expect to begin deliveries)."

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18.

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difference; both "we will begin deliveries" and "we expect to begin

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deliveries" are forward-looking statements whose truth cannot be

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determined at the time they are made.

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forward-looking statement and is inactionable.

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For example, Plaintiffs argue that Defendants' statement

Opp'n at

Plaintiffs do not explain why there is any meaningful

This is an example of a

Several more of the statements Plaintiffs highlight are also

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forward-looking.

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forward-looking:

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For example, the following statements are both

1. "[W]e expect the steps we have implemented in Q1 to

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leverage and expand our network and put us in a position

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to benefit from future growth in usage and subscription

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fees; and that will provide us with recurring and

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predictable revenue streams."

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CAC ¶ 123.

2. "[W]ith our network and growth strategy, . . .

we should

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be able to capture a reasonable share of this market over

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time."

Id. ¶ 124.

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These statements resemble statements the Ninth Circuit has

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classified as forward-looking.

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held that statements regarding a company's relevance to a growing

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economic sector, and corresponding expectations regarding the

In a recent case, the Ninth Circuit

United States District Court

For the Northern District of California

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company's growth, were forward-looking.

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2014 WL 3451566 at *5.

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See Intuitive Surgical,

A number of other allegedly misleading statements include

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Defendants' claims that ECOtality was "on track" or "on schedule"

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to complete certain projects or commitments.

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include:

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Such statements

1. Mr. Brar's statement in the May 15, 2013 press release

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that "[w]e are on track to complete the commitments under

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the EV Project by the end of this year."

CAC ¶ 122;

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2. The statement in ECOtality's 1Q13 Form 10-Q that "[t]he

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EV Project is scheduled for completion at the end of

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2013."

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Id. ¶ 129; and

3. Mr. Brar's statement that "[w]e are on track to begin

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delivery in the third quarter to satisfy our healthy

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pipeline of interest in [the Minit-Charger]."

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In one sense, these statements are predictions that ECOtality will

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meet certain goals or schedules.

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interpreted as statements about ECOtality's present status, and in

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that sense the truth of the statements does not depend on any

Id. ¶ 127.

However, they could also be

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future condition.

The Ninth Circuit recently declined to "resolve

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whether the safe harbor covers non-forward-looking portions of

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forward-looking statements . . . ."

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3451566, at *5.

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statements qualify as forward-looking.

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Techs., Inc., 776 F. Supp. 2d 1191, 1198-99 (D. Nev. 2011) ("The

7

authority on whether statements that a company is 'on track' are

8

forward-looking statements is split . . . .").

9

judges have indicated that such statements may or may not be

Intuitive Surgical, 2014 WL

Other courts have disagreed as to whether similar

United States District Court

For the Northern District of California

10

forward-looking.

11

See Szymborski v. Ormat

In this District,

Judge Wilken dealt with the issue in In re Secure

Computing Corp. Securities Litigation:

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Defendants' statements that Secure was on track to meet
analysts' earnings expectations . . . were, in part,
projections that Secure would have quarterly earnings
that were consistent with analysts' reported estimates.
Plaintiffs, however, argue that these statements are
actionable regardless of whether Secure ultimately met
those
expectations,
because
the
statements
were
misrepresentations about current business conditions. By
stating that Secure was on track to meet expectations,
Defendants represented that a reasonable person who knew
what Defendants knew at the time the statements were made
could reasonably conclude that Secure was likely to meet
analysts' expectations.
Considered as statements of
current business conditions, these statements were not
forward-looking.
For purposes of this order, the Court
accepts Plaintiffs' representation that they are alleging
that
Defendants
misrepresented
current
business
conditions rather than alleging that the forward-looking
aspects
of
Defendants'
statements
were
false
or
misleading when made.

23

120 F. Supp. 2d 810, 818 (N.D. Cal. 2000).

Judge Walker reached a

24

similar conclusion in In re Copper Mountain Securities Litigation:

25
26
27
28

The truth of such statements [including a statement that
the company was "on track" to meet future goals], in
large part, depends upon the occurrence of future events
(such as the possibility that the CLECs would curtail
future business). But to the extent that such statements
rested upon a characterization of the present state of

13

1
2

the company, such statements are not properly considered
forward-looking. . . .
311 F. Supp. 2d 857, 880 (N.D. Cal. 2004).

3

These holdings appear consistent with First Circuit precedent

4

regarding statements "composed of elements that refer to estimates

5

of future possibilities and elements that refer to present facts."

6

In re Stone & Webster, Inc., Sec. Litig., 414 F.3d 187, 212 (1st

7

Cir. 2005).

8

"has on hand and has access to sufficient sources of funds to meet

9

its anticipated operating, dividend and capital expenditure needs."

Stone & Webster involved a statement that the Company

United States District Court

For the Northern District of California

10

Id. at 207.

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asserts that the Company has present access to funds sufficient to

12

meet anticipated future needs."

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As the First Circuit pointed out, "the statement

Id. at 212 (emphasis in original).

The Third Circuit, by contrast, has held that statements that

14

a company is "on track" or "positioned for" something "when read in

15

context, cannot meaningfully be distinguished from the future

16

projection of which they are a part."

17

v. Avaya, Inc., 564 F.3d 242, 255 (3d Cir. 2009).

18

district court has read Avaya as a split from Secure Computing.

19

See Szymborski, 776 F. Supp. 2d at 1198-99.

20

disagreement is not necessarily so stark; none of these cases

21

created hard and fast rules, and all three cases (either explicitly

22

or implicitly) emphasized the importance of the context of the

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statements.

24

Institutional Investors Grp.
At least one

However, the

The Court is inclined to follow the other judges in this

25

District, but the standard they have developed is mostly unhelpful.

26

Secure Computing and Copper Mountain hold that these types of

27

statements are not forward-looking to the extent that they describe

28

current business conditions or rest upon a characterization of the

14

1

present state of the company.

2

projection, or forward-looking statement must be based on current

3

conditions, unless it is totally divorced from reality.

4

obviously not the intention of Congress to subject every such

5

statement to liability.

6

context is critical to determining whether statements are forward-

7

looking.

8

To some extent, every prediction,

It was

What the case law agrees upon is that

Of the statements at issue in this case, Mr. Brar's assertions

United States District Court

that ECOtality was "on track" or "scheduled" to complete the EV

10
For the Northern District of California

9

Project by the end of 2013 is the least likely to be considered

11

forward-looking.

12

projections, though they were arguably objectives for future

13

operations.

14

statement in Secure Computing, as statements regarding current

15

business conditions.

16

these statements were forward-looking.

17

Court finds that Plaintiffs have failed to adequately plead falsity

18

or scienter with respect to those statements.

19

based on ECOtality's assertions that it was on track to finish the

20

EV project fail regardless of application of the safe harbor.

21

Those statements certainly were not financial

However, the statements might be construed, like the

Ultimately, the Court need not decide whether
As described below, the

Plaintiffs' claims

Defendants' statements regarding the release of the Minit-

22

Charger are quintessentially forward-looking.

23

used similar language -- again, a statement that ECOtality was "on

24

track" -- these statements fit precisely within the definition of

25

forward-looking statements in the statute.

26

a forward-looking statement is, among other things, "a statement of

27

the plans and objectives of management for future operations,

28

including plans or objectives relating to the products or services

15

Though Defendants

The PSLRA explains that

1

of the issuer."

15 U.S.C. § 78u-5(i)(1)(B).

2

statement makes its forward-looking nature even clearer.

3

before stating that ECOtality was on track to begin delivery of the

4

Minit-Charger in 3Q13, Mr. Brar said, "We see opportunity for

5

substantial growth in the industrial fast-charging market, and the

6

launch of our Minit-Charger 12 represents our new focus in this

7

market."

8

ECOtality's plans relating to the future release of a product.

9

Court finds that Defendants' statements regarding ECOtality's plans

CAC ¶ 127.

The context of the
Just

Mr. Brar was undoubtedly discussing

United States District Court

For the Northern District of California

10

for the release of the Minit-Charger were forward-looking as

11

The

defined by the PSLRA safe harbor.
Simply because the statements were forward-looking, however,

12
13

does not necessarily mean they are entitled to protection. The

14

statute requires that forward-looking statements be accompanied by

15

meaningful cautionary language.

16

releases, and SEC filings at issue in this case all included some

17

cautionary language.

18

language was inadequate on its face.

19

disclaimers that accompanied the conference calls and press

20

releases were very similar to language the Ninth Circuit has

21

approved.

22

Woodring Decl. Ex. 13 at 1, and Woodring Decl. Ex. 19 at 7, with

23

Intuitive Surgical, 2014 WL 3451566, at *6.

24

filings also included cautionary language and sections identifying

25

specific risk factors that might cause forward-looking statements

26

to be inaccurate.

27

Decl. Ex. 18 at 4, 8.

28

///

The conference calls, press

Plaintiffs do not claim that the cautionary
Indeed, the cautionary

Compare ECF No. 60-3 ("Woodring Decl.") Ex. 2 at 2,

ECOtality's SEC

See Woodring Decl. Ex. 3 at 3, 8-15; Woodring

16

1

Instead, Plaintiffs argue that Defendants' cautionary language

2

was defective because of what Defendants knew at the time.

3

arguments come in two flavors, but they share common critical

4

elements.

5

not meaningful because defendants knew that the forward-looking

6

statements were false, but that the cautionary language did not

7

explain that knowledge.

8

that the cautionary language warned of potential future problems

9

that Defendants knew were already occurring.

United States District Court

For the Northern District of California

10

These

First, Plaintiffs argue that the cautionary language was

See Opp'n at 19.

Second, Plaintiffs argue

See id. at 20.

The first argument is based on a case that the undersigned

11

decided in 2008.

12

Supp. 2d 1185, 1191 (N.D. Cal. 2008) (Conti, J.) (holding that,

13

when a forward-looking statement is made with actual knowledge that

14

it is false, accompanying cautionary language can only be

15

meaningful if it articulates the reasons why the forward-looking

16

statement is false) (citing In re SeeBeyond Tech. Corp. Sec.

17

Litig., 266 F.Supp.2d 1150, 1165 (C.D. Cal. 2003)).

18

predates Cutera, and Defendants argue that Rosenbaum is no longer

19

good law after Cutera.

20

See Rosenbaum Capital, LLC v. McNulty, 549 F.

Rosenbaum

See Reply at 4.

One of the primary issues decided in Cutera was whether the

21

two safe harbor provisions -- 15 U.S.C. Sections 78u-5(c)(1)(A) and

22

(B) -- should be read conjunctively or disjunctively.

23

(A) provides safe harbor for forward-looking statements accompanied

24

by meaningful cautionary language, and subsection (B) provides safe

25

harbor for statements made without actual knowledge that they were

26

false or misleading.

27

sufficiently strong inference of actual knowledge would overcome a

28

claim of safe harbor protection even for statements identified as

Subsection

The Cutera plaintiffs argued that "a

17

Cutera, 610 F.3d at 1112.

3

that argument, holding that "subsections (A) and (B) and their

4

subpoints each offer safe harbors for different categories of

5

forward-looking statements."

6

important ramification: "Under subsection (A)(i), . . . if a

7

forward-looking statement is identified as such and accompanied by

8

meaningful cautionary statements, then the state of mind of the

9

individual making the statement is irrelevant, and the statement is

10

United States District Court

forward-looking and accompanied by meaningful cautionary language."

2

For the Northern District of California

1

not actionable regardless of the plaintiff's showing of scienter."

11

Id. at 1112.

12

to inquire into the speaker's state of mind to determine whether

13

the cautionary language is meaningful.

14

cautionary language requirement appears in Subsection (A)(i), to

15

which the Ninth Circuit has held the speaker's state of mind is

16

irrelevant.

17

Cutera, and Defendants are correct that neither remains good law.

18

The Ninth Circuit unequivocally rejected

Id. at 1113.

This holding had a very

Rosenbaum and SeeBeyond, however, require the Court

But the meaningful

Rosenbaum and SeeBeyond were therefore abrogated by

Plaintiffs' second argument fares no better.

Plaintiffs argue

19

that cautionary language is not meaningful if it warns of future

20

possibilities that Defendants know are already occurring.

21

example, Plaintiffs argue that, when projecting the 3Q13 release of

22

the Minit-Charger, Defendants warned of potential problems that

23

could derail the product's release.

24

language was defective because Defendants knew that the problems of

25

which they warned were, in fact, already occurring and would

26

therefore delay the release date.

27

different terms, this is essentially the same argument as before:

28

Defendants knew their statements were misleading, and therefore the

18

For

But, Plaintiffs argue, that

Though couched in slightly

1

cautionary language could not be meaningful unless it explained why

2

the statement was misleading.

3

apply such a standard to the cautionary language requires inquiring

4

into the speaker's state of mind.

5

Once again, determining whether to

In support of their arguments, Plaintiffs cite two Ninth

6

Circuit cases.

7

Litigation, 948 F.2d 507 (9th Cir. 1991), was decided before the

8

PSLRA was enacted.

9

Technology, Inc., 527 F.3d 982, 985 (9th Cir. 2008), predates

The first, In re Convergent Technologies Securities

The second, Berson v. Applied Signal

United States District Court

For the Northern District of California

10

Cutera and is inapposite.

11

action against Applied Signal Technologies ("AST").

12

customers were almost exclusively federal government agencies, and

13

its contracts permitted government customers to issue "stop-work

14

orders" for up to 90 days.

15

AST immediately ceased to earn money on stopped orders and that

16

stopped orders were often canceled.

17

canceled contracts.

18

stopped work as part of its "backlog" (work the company had

19

contracted to do but had not yet performed), even though the

20

stopped work was unlikely ever to be performed.

21

SEC filings included warnings that potential changes in delivery

22

schedules and order cancellations rendered the "backlog at any

23

particular date . . . not necessarily representative of actual

24

sales to be expected . . . ."

25

Berson involved was a securities class
AST's

The plaintiff shareholders alleged that

AST never got paid for

The plaintiffs alleged that AST counted

Id. at 984.

AST's

Id. at 985-86.

The Ninth Circuit held that AST's definition of "backlog" was

26

misleading.

27

interpret the warning to mean that stopped work was not included in

28

the backlog.

The Court determined that it was reasonable to

The Court did mention that the warning regarding

19

1

changes and cancellations of deliveries "speaks entirely of as-yet-

2

unrealized risks and contingencies. Nothing alerts the reader that

3

some of these risks may already have come to fruition . . . ."

4

at 986.

5

the statements were misleading, not a discussion of the adequacy of

6

cautionary language for a forward-looking statement.

7

Circuit held that the statements were not forward-looking, and

8

therefore not protected by the safe harbor, without analyzing the

9

adequacy of the accompanying cautionary language.

Id.

However, that sentence appears in a discussion of whether

The Ninth

Id. at 990.

United States District Court

For the Northern District of California

10

Given Cutera's blanket prohibition on analyzing the speaker's state

11

of mind when applying Section 78u-5(c)(1)(A), the Court finds that

12

Defendants' cautionary language was meaningful.

13

Court finds that Defendants' statements regarding the future

14

release of the Minit-Charger were protected by the PSLRA safe

15

harbor as forward-looking statements.

16

to those statements are DISMISSED WITH PREJUDICE.

Accordingly, the

Plaintiffs' claims related

17

C.

Corporate Optimism

18

Corporate optimism, or "puffery," is not actionable under the

19

PSLRA.

"When valuing corporations, . . . investors do not rely on

20

vague statements of optimism like 'good,' 'well-regarded,' or other

21

feel good monikers.

22

hardly amounts to a securities violation.

23

investors, and most amateur investors as well, know how to devalue

24

the optimism of corporate executives."

25

(9th Cir. 2010) (citations and some internal quotations omitted).

26

As a result, the a court in this District has held (and the Ninth

27

Circuit has affirmed) that statements including "[w]e're doing well

28

and I think we have a great future," "[b]usiness will be good this

This mildly optimistic, subjective assessment

20

Indeed, professional

Cutera, 610 F.3d at 1111

1

year . . . [w]e expect the second half of fiscal 1992 to be

2

stronger than the first half, and the latter part of the second

3

half to be stronger than the first ...," "[e]verything is clicking

4

[for the 1990s] . . . [n]ew products are coming in a wave, not in a

5

trickle . . . [o]ld products are doing very well" and that "I am

6

optimistic about Syntex's performance during this decade" are

7

inactionable corporate optimism.

8

855 F. Supp. 1086, 1095 (N.D. Cal. 1994) aff'd, 95 F.3d 922 (9th

9

Cir. 1996).

In re Syntex Corp. Sec. Litig.,

United States District Court

For the Northern District of California

10

Many of Defendants' statements regarding the transition from

11

the EV Project to private sector sales are inactionable corporate

12

optimism.

Those statements include:

13

1. "We are making progress in shifting our business from one

14

primarily dependent on the EV Project to a company with a

15

diversified product and services offering."

16

Decl. Ex. 14 at 7;

Woodring

2. "[E]ach of our 3 complementary product and service

17
18

offerings represent a growth opportunity, a significant

19

growth opportunity."

Woodring Decl. Ex. 13 at 4.

3. "The EV Project has provided us with a solid foundation

20

to build upon."

21

Id. at 1;

4. "As the EV Project winds down, we have turned our

22
23

attention to our next stage of growth and are taking

24

important steps to meeting our aggressive internal

25

objectives to cultivate a long-term, healthy and

26

profitable business."

5. "[A] clear growing market opportunity exists."

27
28

Id. at 2;

///

21

Id. at 3;

6. "[W]e continue to grow our Blink network and have

1
2

demonstrated some solid progress with our recent sales

3

initiatives."

Id.;

7. "[W]e're making progress on shifting our business to one

4
5

with a significant concentration of revenue in one

6

project to a well-diversified business."

Id. at 4;

8. "We are still in the early stages of building out a

7
8

nationwide network, but are very encouraged by our early

9

success and are well positioned to monetize the growth

United States District Court

For the Northern District of California

10

trajectory of the EV industry."

11

Woodring Decl. Ex. 2 at

4; and
9. "Blink's robust market presence, combined with the

12
13

increasing penetration of plug-in EVs, well positions the

14

company for continued growth."

15

5.

Woodring Decl. Ex. 19 at

16

These are the statements on which Plaintiffs rely to support their

17

claim that Defendants falsely represented progress in shifting

18

their business from the EV Project to more diverse sources.

19

CAC ¶ 139.

20

"significant growth opportunity," "solid foundation," "important

21

steps," "healthy and profitable business," "clear growing market

22

opportunity," and "solid progress."

23

of vaguely optimistic statements that are inactionable under the

24

PSLRA.

25

reasonable investor to rely on them. . . .

26

nothing more than 'puffing,' which reasonable investors know do not

27

guarantee future success."

28

///

See

All of them include statements like "making progress,"

These are precisely the sort

The Court finds that they are "too vague to have caused a
These statements are

Syntex, 855 F. Supp. at 1095.

22

1

A Second Circuit case is almost directly on point.

Rombach v.

2

Chang was a securities class action against the officers and

3

directors of Family Golf Centers, Inc. ("Family Golf").

4

16 (2d Cir. 2004).

5

secondary public offering were also named as defendants.

6

1998, Family Golf acquired three other companies.

7

Family Golf issued a number of press releases indicating that the

8

acquisitions were "progressing smoothly."

9

Second Circuit upheld a dismissal of the complaint with prejudice

355 F.3d

The underwriters and managers of Family Golf's
During

Id. at 167.

Id. at 168, 172-74.

United States District Court

For the Northern District of California

10

for several reasons, including that "expressions of puffery and

11

corporate optimism do not give rise to securities violations."

12

The

at 174.

13

Id.

Like the statements that Family Golf's mergers were

14

"progressing smoothly," Defendants' vague assertions that ECOtality

15

was "making progress" were expressions of puffery and corporate

16

optimism.

17

support their claim that ECOtality falsely or misleadingly

18

represented its transition from the EV Project are similar to

19

statements that the Ninth and Second Circuits have held

20

insufficient to give rise to securities fraud.

21

Court finds that those statements are not actionable.

22

claims that rely upon those statements are DISMISSED WITH

23

PREJUDICE.

All of the statements upon which Plaintiffs rely to

Therefore, the
Plaintiffs'

24

D.

Falsity and Scienter

25

Defendants argue that Plaintiffs have failed to plead facts

26

(1) suggesting that Defendants' statements were false when made or

27

(2) giving rise to a strong inference that any defendant acted with

28

scienter.

As discussed above, the falsity and scienter elements

23

1

are often collapsed into a single inquiry.

2

1015.

3

See Daou, 411 F.3d at

here.

The Court deems it appropriate to discuss them together

4

The PSLRA requires a complaint to "state with particularity

5

facts giving rise to a strong inference that the defendant acted

6

with the required state of mind."

7

the Supreme Court further explained how strong that inference must

8

be:

10

United States District Court

In Tellabs,

The inference that the defendant acted with scienter need
not be irrefutable . . . or even the 'most plausible of
competing inferences.' . . .
Yet the inference of
scienter must be more than merely 'reasonable' or
'permissible' -- it must be cogent and compelling, thus
strong in light of other explanations. A complaint will
survive, we hold, only if a reasonable person would deem
the inference of scienter cogent and at least as
compelling as any opposing inference one could draw from
the facts alleged.

9
For the Northern District of California

15 U.S.C. § 78u-4.

11
12
13
14

Tellabs, 551 U.S. at 324 (2007) (internal quotation marks and

15

citations omitted).

16

pleading standard: "the complaint must contain allegations of

17

specific contemporaneous statements or conditions that demonstrate

18

the intentional or the deliberately reckless false or misleading

19

nature of the statements when made."

20

423, 432 (9th Cir. 2001) (internal quotations omitted).

21

words, the defendant's knowledge or deliberately reckless

22

disclosure of false or misleading information must be at least as

23

compelling as any other inference that can be drawn from the facts

24

in the CAC.

25

Court must "assess all the allegations holistically," and that

26

"[t]he inquiry . . . is whether all of the facts alleged, taken

27

collectively, give rise to a strong inference of scienter, not

28

///

The Ninth Circuit has also elucidated the

Ronconi v. Larkin, 253 F.3d
In other

The Supreme Court has further emphasized that the

24

1

whether any individual allegation, scrutinized in isolation, meets

2

that standard."

3

Tellabs, 551 U.S. 308, 322-23, 326.

Because the other Section 10(b) claims are dismissed for other

4

reasons, the Court discusses these elements only with respect to

5

claims arising out of Defendants' statements regarding completion

6

of the EV Project.

7

ECOtality was on track to complete the EV project when, in fact,

8

Defendants knew that ECOtality was far behind schedule and would be

9

unable to complete the project on time.

United States District Court

For the Northern District of California

10

Plaintiffs allege that Defendants claimed

The key statements from

Defendants were:

11

1. Mr. Brar's statement during an April 15, 2013 conference

12

call that "[w]e believe that we are well on our way to

13

completing the EV project by summer of 2013 and achieving

14

our goal of over 13,000 chargers deployed by the middle

15

of the year."

16

CAC ¶ 70; Opp'n at 7; and

2. Mr. Brar's statement from the May 15, 2013 press release

17

that "We are on track to complete the commitments under

18

the EV Project by the end of this year . . . ."

19

122; Opp'n at 7.

20

CAC ¶

Plaintiffs' claim that ECOtality was not, in fact, on track

21

to complete the project is based almost entirely on two DOE

22

reports, one from July 2013 (Woodring Decl. Ex. 1 ("July DOE

23

Rpt.")), and one from October 2013 (Woodring Decl. Ex. 4 ("October

24

DOE Rpt.")).

25

point out that the October DOE report noted that "as early as May

26

2013, Department officials concluded that Ecotality would be unable

27

to complete installations on schedule and would not achieve the

28

required data collection milestones."

See Opp'n at 7-8; CAC ¶¶ 72-84.

25

First, Plaintiffs

October DOE Rpt. at 4.

1

There are numerous problems with relying on that report to

2

demonstrate Defendants' scienter.

3

October and merely notes DOE conclusions from "as early as" May.

4

Plaintiffs fail to mention that the same DOE report states that DOE

5

"became aware that Ecotality was not on track to meet its September

6

2013 milestone for completing charging station installations" on

7

May 21.

8

as to who reached that conclusion, or how it was reached.

9

Additionally, DOE reached that conclusion after both of Mr. Brar's

October DOE Rpt. at 3.

First, the report is from

There is, however, no indication

United States District Court

For the Northern District of California

10

allegedly misleading statements.

Second, there is no indication

11

that Defendants were aware of those findings on either April 15 or

12

May 15.

13

agreed with DOE's findings or whether DOE's findings were

14

communicated to ECOtality at that time.

15

report provides as to when the findings were communicated to

16

ECOtality is that "in June 2013, the Department notified Ecotality

17

that it would be required to complete a corrective action

18

plan . . . ."

19

ECOtality in June, again after both allegedly misleading

20

statements.

21

ECOtality would be unable to complete the EV project on time was

22

based on the deadline that existed in May 2013.

23

acknowledge that, at that time, the deadline for installations was

24

September 2013.

25

ECOtality would be unable to complete installations by September

26

cannot be said to contradict Mr. Brar's May 15 statement that

27

ECOtality would finish the project by the end of the year.

28

///

The report does not state that ECOtality's employees

Id.

The only information the

DOE therefore communicated its concerns to

Third and finally, the DOE report's finding that

CAC ¶ 74.

Plaintiffs

Therefore, DOE's determination that

26

1

Remarkably, Plaintiffs allege that "[t]he fact that the DOE

2

concluded by May 2013 that ECOtality would not complete

3

installations on schedule and would not achieve required data

4

collection milestones establishes that defendants knew this

5

undisclosed adverse information on April 15, 2013."

6

However, Plaintiffs provide no facts whatsoever to corroborate that

7

allegation.

8

general allegations regarding Defendants' access to the documents

9

ECOtality submitted to DOE.

CAC ¶ 81.

The only supporting facts that Plaintiffs include are

But whether or not ECOtality had

United States District Court

For the Northern District of California

10

access to the underlying facts, there is nothing to indicate that

11

anyone at ECOtality had reached any sort of conclusion that on-time

12

completion of the EV Project was impossible.

13

As a result, Plaintiffs have not pleaded facts sufficient to

14

raise a strong inference of scienter with respect to either

15

statement.

16

rather than DOE's, opinion that ECOtality was behind schedule is

17

that DOE "would have learned of these problems from reports

18

ECOtality was required to provide and from periodic compliance

19

audits."

20

even assuming Defendants communicated the underlying problems to

21

DOE, there is no indication that Defendants reached a similar

22

conclusion.

23

whatsoever on Defendants' state of mind on April 15 or May 15.

24

With respect to the May press release, the DOE report concluded

25

that ECOtality was behind schedule to meet the September

26

installation deadline, but Mr. Brar said that ECOtality was on

27

track to finish the project by the end of the year.

28

only DOE report expressing these concerns was from October -- after

The only fact Plaintiffs allege regarding Defendants',

Id.

That fact fails to raise any inference of scienter;

Moreover, a DOE conclusion from May 21 has no bearing

27

Finally, the

1

ECOtality's bankruptcy -- and therefore had the benefit of

2

hindsight.

3

ECOtality was behind schedule in May or how that conclusion was

4

reached.

5

any inference, much less a strong inference, that

6

knowingly or recklessly made false or misleading statements.3

There is no discussion at all of who decided that

The October DOE report therefore cannot be said to raise
Defendants

Plaintiffs also repeatedly point to a line from the October

7
8

DOE report indicating that ECOtality was "drastically behind

9

schedule."

See CAC ¶¶ 5, 73, 74, 81, 98, 115, 134, 141; Opp'n at

United States District Court

For the Northern District of California

10

2, 5, 8, 14, 19, 21, 22.

11

discussing ECOtality's projections from January and July of 2013.

12

According to the January projections, ECOtality would complete all

13

residential stations and all but 32 commercial installations by

14

August 2013 -- at least a month before the late September deadline.

15

It was not until July 2013 that ECOtality submitted information to

16

DOE that allowed DOE to decide that ECOtality was "drastically

17

3

18
19
20
21
22
23
24
25
26
27
28

However, that line appears in a paragraph

Plaintiffs also argue that Defendants' scienter can be inferred
through the "core operations" doctrine. Plaintiffs' argument is
based on Reese v. Malone. 747 F.3d 557, 569 ("It may also be
reasonable to conclude that high-ranking corporate officers have
knowledge of the critical core operation of their companies."); see
Opp'n at 14-15. While the EV Project was indisputably one of
ECOtality's core operations, Plaintiffs have not pleaded facts
sufficient to demonstrate that anyone at ECOtality knew that the
project was so beleaguered that it would be impossible to complete
on time. Thus it would be unreasonable to impute that knowledge to
ECOtality's officers and directors. Additionally, the Ninth
Circuit has clarified that "[w]here a complaint relies on
allegations that management had an important role in the company
but does not contain additional detailed allegations about the
defendants' actual exposure to information, it will usually fall
short of the PSLRA standard." S. Ferry LP v. Killinger, 542 F.3d
776, 784 (9th Cir. 2008). Plaintiffs do not plead such detailed
allegations; their only claim is that Defendants "had access to the
quarterly EV Project progress reports . . . ." Opp'n at 14. Not
only does this allegation of "access" fall short of the actual
exposure requirement, but Plaintiffs fail to plead facts
demonstrating that ECOtality possessed any contradictory
information to which Defendants could be exposed.
28

1

behind schedule."

2

was that "the planned increase in installation rates had not

3

materialized."

4

demonstrates that anyone at ECOtality knew the EV Project was

5

behind schedule until July.

6

well have reasonably relied on an anticipated increase in

7

installation rates when he made those statements in April and May.

8
9

October DOE Rpt. at 5.

Id.

Even then, the problem

Therefore, nothing in the October DOE report

Based on these facts, Mr. Brar might

Perhaps more importantly, the July DOE report (still after the
allegedly misleading statements were made, but nonetheless closer

United States District Court

For the Northern District of California

10

to the "specific contemporaneous statements or conditions" the

11

Ninth Circuit prefers) includes some suggestions that ECOtality may

12

have been on schedule.

13

install 8,000 residential chargers and 5,000 commercial chargers.

14

The July report states that "[t]he Ecotality project . . . has

15

successfully deployed . . . 12,000 chargers (over 90 percent of

16

planned deployments)" and that "Ecotality had significantly

17

exceeded the residential participation goals in the project."

18

DOE Rpt. at 9, 19.

19

already completed its residential charger deployments, and had

20

deployed 12,000 of the 13,000 total units the EV Project required.

21

ECOtality's Corrective Action Plan, submitted to DOE on July 9,

22

2013, states that ECOtality had deployed 4,000 of the target 5,000

23

commercial chargers.

24

chargers per month, which put ECOtality on pace to complete the

25

installations by November 2013.

26

Additionally, the Corrective Action Plan stated that ECOtality had

27

deployed 104 of 200 DC Level 2 charging units, and was continuing

28

to do so at a rate of 25 per month.

The EV project called for ECOtality to

July

In other words, by July 2013, ECOtality had

ECOtality's deployment rate was about 200

Woodring Decl. Ex. 5 ("CAP") at 1.

29

Id.

ECOtality estimated that

1

it would be 20 units short of the project goal by September, but at

2

that rate would complete installations by November.

3

alleged by Plaintiffs demonstrate that, as late as July 2013,

4

ECOtality apparently believed it was still on target to complete

5

installation of the commercial chargers before the end of 2013.

6

The facts alleged therefore strongly suggest that Mr. Brar may have

7

been entirely truthful when he said ECOtality was "on track" to

8

complete the project by the end of the year.

Thus the facts

The Supreme Court has held that "[t]he strength of an

9

United States District Court

For the Northern District of California

10

inference cannot be decided in a vacuum. The inquiry is inherently

11

comparative: How likely is it that one conclusion, as compared to

12

others, follows from the underlying facts?"

13

323.

14

Defendants reasonably believed that ECOtality was on track to

15

finish the EV Project is much stronger than the inference that they

16

knew, or recklessly failed to know, that it was not.

17

facts Plaintiffs plead cannot be said to raise an inference of

18

scienter at all.

19

plead facts giving rise to a strong inference that, in April or May

20

of 2013, Defendants knew, or recklessly failed to know, that

21

ECOtality was not on track to complete the EV project.

22

the Court finds that Plaintiffs have failed to plead facts

23

sufficient to demonstrate falsity; they have failed to plead that,

24

on April 15 or May 15, ECOtality was in a position that rendered it

25

impossible to complete the project on schedule.

26

Defendants' motion is GRANTED with respect to the statements

27

regarding on-schedule completion of the EV Project.

28

///

Tellabs, 551 U.S. at

Based on the fact before the Court, the inference that

Indeed, the

The Court finds that Plaintiffs have failed to

30

Moreover,

Accordingly,

Plaintiffs'

1

claims arising from those statements are DISMISSED WITH LEAVE TO

2

AMEND.

3

E.

The Section 11 Claim

4

When a company makes a public offering, it must file a set of

5

documents, known as a registration statement, with SEC.

Section 11

6

of the Securities Act creates a private remedy for a purchaser of a

7

security if any part of the registration statement, "when such part

8

became effective, contained an untrue statement of a material fact

9

or omitted to state a material fact required to be stated therein

United States District Court

For the Northern District of California

10

or necessary to make the statements therein not misleading . . . ."

11

15 U.S.C. § 77k(a).

12

demonstrate (1) that the registration statement contained an

13

omission or misrepresentation, and (2) that the omission or

14

misrepresentation was material, that is, it would have misled a

15

reasonable investor about the nature of his or her investment.

16

scienter is required for liability under § 11; defendants will be

17

liable for innocent or negligent material misstatements or

18

omissions."

19

(citations omitted).

20

a plaintiff must be able to trace his shares back to the relevant

21

offering, though he need not actually purchase shares during that

22

offering.

23

1106 (9th Cir. 2013).

24

"The plaintiff in a § 11 claim must

No

Kaplan v. Rose, 49 F.3d 1363, 1371 (9th Cir. 1994)
To have standing to bring a Section 11 claim,

In re Century Aluminum Co. Sec. Litig., 729 F.3d 1104,

Section 11 claims are frequently not fraud claims.

When they

25

are not fraud claims, they are not held to the heightened pleading

26

standards of Rule 9(b).

27

of Rule 9(b) apply to claims brought under Section 11 when . . .

28

they are grounded in fraud."

However, "the particularity requirements

In re Stac Elecs. Sec. Litig., 89

31

1

F.3d 1399, 1404-05 (9th Cir. 1996).

2

against a particular defendant alleges a unified course of

3

fraudulent conduct, it is 'grounded in fraud,' and Rule 9(b)

4

applies to the whole of that complaint."

5

USA, 317 F.3d 1097, 1108 (9th Cir. 2003).

6

Where "the entire complaint

Vess v. Ciba-Geigy Corp.

ECOtality filed a Form S-3 Registration Statement in

7

accordance with the sale of 5.1 million shares of stock to a group

8

of investors on June 12, 2013.

9

referenced the risk warnings from ECOtality's 2012 Form 10-K.

The registration statement
CAC

United States District Court

For the Northern District of California

10

¶¶ 150-51.

11

that the risk warnings in the 2012 Form 10-K were defective.

12

Accordingly, they argue, the registration statement was inaccurate

13

and misleading because it incorporated by reference defective risk

14

warnings and omitted material facts necessary to make the

15

registration statement not misleading.

16

respond that (1) Plaintiffs' Section 11 claims should be held to

17

the Rule 9(b) pleading standards, and (2) Plaintiffs cannot trace

18

their shares of ECOtality securities to the registration statement.

19

Mot. at 28-29.

20
21
22
23
24
25

For the reasons discussed previously, plaintiffs allege

Id. ¶¶ 152-53.

Defendants

In their discussion of the Section 11 claim, Plaintiffs' CAC
includes a disclaimer to the effect that
[The Section 11 claim] does not sound in fraud. All of
the preceding allegations of fraud or fraudulent conduct
and/or motive are specifically excluded from this Count.
Plaintiffs do not allege that the Officer Defendants or
the Director Defendants had scienter or fraudulent
intent, which are not elements of a §11 claim.

26

CAC ¶ 180.

The Second Circuit rejected similar disclaimers in

27

Rombach, holding that Plaintiffs' assertion that their Section 11

28

claims "do[ ] not sound in fraud" did not matter because "the

32

1

wording and imputations of the complaint are classically associated

2

with fraud."

3

Litig., 89 F.3d at 1405 n.2).

355 F.3d at 172 (citing In re Stac Elecs. Secs.

It is abundantly clear that Plaintiffs allege a unified course

4
5

of fraudulent conduct.

Indeed, Plaintiffs' Section 11 claim is

6

predicated on the fact that Defendants incorporated the allegedly

7

fraudulent Form 10-K into the registration statement.

8

Plaintiffs essentially incorporated their fraud claims into their

9

Section 11 claim.

Thus,

Therefore, Plaintiffs' Section 11 claim is

United States District Court

For the Northern District of California

10

subject to the Rule 9(b) pleading standards.

But Plaintiffs

11

explicitly decline to allege that Defendants had fraudulent intent

12

with respect to the registration statement.

13

claim is DISMISSED for that reason.

Plaintiffs' Section 11

14

Additionally, Plaintiffs do not plead any facts sufficient to

15

demonstrate that their shares are traceable to the allegedly false

16

or misleading registration statement.

17

this argument, except to admit that "the allegations may not be

18

sufficient to establish that plaintiffs Joseph W. Vale and Jonathan

19

W. Diamond purchased stock traceable to the July 9, 2013

20

Registration Statement . . . ."

21

Diamond are two of the five named plaintiffs in this case, CAC ¶¶

22

26-30, but they are the only two whose shares Plaintiffs allege are

23

traceable to the registration statement, id. ¶¶ 183, 186.

24

Plaintiffs have therefore also failed to plead facts sufficient to

25

confer standing for their Section 11 claim.

26

well, this claim is DISMISSED WITH PREJUDICE.

27

///

28

///

Plaintiffs do not respond to

Opp'n at 30 n.6.

33

Mr. Vale and Mr.

For that reason as

1

V.

2
3

CONCLUSION
For the reasons set forth above, Defendants' motion to dismiss

is GRANTED.

It is hereby ORDERED that:

4

1. Plaintiffs' claims based on Defendants' statements that

5

ECOtality was on track to complete the EV Project are

6

DISMISSED WITH LEAVE TO AMEND because Plaintiffs failed to

7

adequately plead falsity or scienter.

8

additional facts to establish those elements, they may amend

9

their complaint to do so.

United States District Court

For the Northern District of California

10

If Plaintiffs can plead

2. Plaintiffs' claims based on Defendants' predictions about the

11

release date of the Minit-Charger are DISMISSED WITH PREJUDICE

12

because those statements were forward-looking and protected by

13

the PSLRA safe harbor.

14

3. Plaintiffs' claims based on Defendants' statements regarding

15

ECOtality's transition away from the EV Project are DISMISSED

16

WITH PREJUDICE because those statements were inactionable

17

corporate optimism.

18

4. To the extent that Plaintiffs bring additional claims based on

19

allegedly false or misleading statements not specifically

20

discussed in this Order, Plaintiffs failed to explain why

21

those statements were false with the requisite particularity.

22

Any such claims are DISMISSED WITH LEAVE TO AMEND.

23

5. Plaintiffs' Section 11 claims are DISMISSED WITH PREJUDICE

24

because they are grounded in fraud but failed to meet the Rule

25

9(b) pleading standards and because Plaintiffs failed to plead

26

facts sufficient to demonstrate that their shares are

27

traceable to the relevant registration statement.

28

///

34

1

Plaintiffs may file an amended complaint that addresses the

2

concerns identified above within thirty (30) days of the signature

3

date of this Order.

4

of all claims in this action with prejudice.

Failure to do so may result in the dismissal

5
6

IT IS SO ORDERED.

7
8
9

Dated: September

, 2014
UNITED STATES DISTRICT JUDGE

United States District Court

For the Northern District of California

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