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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1 2 3 4 5 IN THE UNITED STATES DISTRICT COURT 6 FOR THE NORTHERN DISTRICT OF CALIFORNIA 7 8 IN RE ECOTALITY, INC. SECURITIES LITIGATION United States District Court For the Northern District of California 9 10 11 This Document Relates To: 12 ALL ACTIONS 13 14 15 16 I. 17 ) Master File No. 13-03791-SC ) ) ORDER GRANTING MOTION TO ) DISMISS ) ) ) ) ) ) ) ) ) INTRODUCTION Now before the Court is Defendants H. Ravi Brar, Susie 18 Herrmann, Enrique Santacana, Kevin Cameron, and Andrew Tang's 19 (collectively "Defendants") motion to dismiss. 20 Plaintiffs bring this putative class action against Defendants and 21 ECOtality, Inc. ("ECOtality") for making allegedly misleading 22 statements that caused them to buy overvalued ECOtality stock. 23 motion is fully briefed.1 24 Court finds this matter appropriate for disposition without oral 25 argument. For the reasons set forth below, Defendants' motion is 26 GRANTED. Some of Plaintiffs' claims are DISMISSED WITH PREJUDICE, 27 while others are DISMISSED WITH LEAVE TO AMEND, as specified below. 28 1 ECF No. 60. The Pursuant to Civil Local Rule 7-1(b), the ECF Nos. 61 ("Opp'n"); 65 ("Reply"). 1 II. BACKGROUND 2 At the motion to dismiss stage, the Court assumes the truth of 3 Plaintiffs' well-pleaded factual allegations, so these facts come 4 from Plaintiffs' Consolidated Amended Complaint ("CAC"). 5 52. 6 charging systems. 7 the Department of Energy's ("DOE") Vehicle Technologies program. 8 In 2009, ECOtality received a $100.2 million grant from DOE to 9 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 10 Project"). 11 arrangement with DOE, ECOtality was required to deploy 13,200 EV 12 chargers by September 2013 and to complete its data analysis by 13 December 21, 2013. 14 Pursuant to a 2012 modification to ECOtality's Id. ¶ 3. Plaintiffs allege that between April 16, 2013 and August 9, 15 2013 (the "Class Period"), Defendants made a number of false or 16 misleading statements about ECOtality's progress on the EV Project 17 and the company's business prospects. 18 April 15, 2013, ECOtality issued a press release, held a conference 19 call, and filed its fiscal year ("FY") 2012 Form 10-K with the 20 Securities and Exchange Commission ("SEC"). 21 allege that a number of the statements made in the press release, 22 conference call, and 10-K were false or misleading. 23 also allege that Defendants made false or misleading statements 24 during a May 15 conference call and in a number of other SEC 25 filings. 26 statements to be false or misleading at the time they were made. 27 Id. ¶¶ 5-6, 8, 11-14. 28 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 2 1 the EV Project, the suspension of DOE payments, ECOtality's failure 2 to sell enough EV chargers to support its operations, and 3 technological problems with its EV chargers. 4 ECOtality's stock price suffered a precipitous drop on August 12. 5 Id. ¶ 21. 6 mid-September. 7 Id. ¶¶ 20, 157-62. ECOtality and its subsidiaries filed for bankruptcy in Id. ¶ 22. Plaintiffs were ECOtality shareholders. They purport to 8 represent a class "of all persons who purchased ECOtality common 9 stock during the Class Period and were damaged thereby." Id. ¶ United States District Court For the Northern District of California 10 163. 11 August 9, 2013. 12 during the Class Period: Mr. Brar was the Chief Executive Officer 13 ("CEO"), President, and a director; Ms. Herrmann was the Chief 14 Financial Officer ("CFO"); and Messrs. Santacana, Cameron, and Tang 15 were directors. 16 Herrmann under sections 10(b) (for making false or misleading 17 statements that caused Plaintiffs to buy overvalued ECOtality 18 stock) and 20(a) (for control person liability) of the Securities 19 Exchange Act of 1934 (the "Exchange Act"). 20 claims against all five defendants under sections 11 (for including 21 false or misleading information in a registration statement) and 15 22 (for control person liability) of the Securities Act of 1933 (the 23 "Securities Act"). 24 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 25 Federal Rule of Procedure 12(b)(6) for failure to state a claim. 26 Mot. at 10-11. 27 plead falsity; (2) Defendants' statements are protected by a safe 28 harbor provision; (3) Defendants' statements were inactionable Defendants contend that (1) Plaintiffs fail to 3 1 corporate optimism; (4) Plaintiffs fail to plead that Defendants 2 acted with deliberate recklessness or engaged in conscious 3 misconduct; (5) Plaintiffs fail to plead loss causation because 4 they did not identify a "corrective disclosure" that revealed 5 alleged fraud; and (6) Plaintiffs fail to plead facts tracing their 6 shares to the operative registration statement. 7 8 III. LEGAL STANDARD 9 A. United States District Court For the Northern District of California 10 Motion to Dismiss A motion to dismiss under Federal Rule of Civil Procedure 11 12(b)(6) "tests the legal sufficiency of a claim." 12 Block, 250 F.3d 729, 732 (9th Cir. 2001). 13 on the lack of a cognizable legal theory or the absence of 14 sufficient facts alleged under a cognizable legal theory." 15 Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 16 1988). 17 should assume their veracity and then determine whether they 18 plausibly give rise to an entitlement to relief." 19 Iqbal, 556 U.S. 662, 679 (2009). 20 must accept as true all of the allegations contained in a complaint 21 is inapplicable to legal conclusions. 22 elements of a cause of action, supported by mere conclusory 23 statements, do not suffice." 24 Twombly, 550 U.S. 544, 555 (2007)). 25 complaint must be both "sufficiently detailed to give fair notice 26 to the opposing party of the nature of the claim so that the party 27 may effectively defend against it" and "sufficiently plausible" 28 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. 4 The allegations made in a 1 subjected to the expense of discovery." 2 1202, 1216 (9th Cir. 2011). Starr v. Baca, 652 F.3d 3 B. Section 10(b) and Rule 10(b)(5) 4 Section 10(b) of the Exchange Act makes it unlawful "[t]o use 5 or employ, in connection with the purchase or sale of any security 6 registered on a national securities exchange . . . any manipulative 7 or deceptive device or contrivance in contravention of such rules 8 and regulations as the [Securities and Exchange] Commission may 9 prescribe . . . ." 15 U.S.C. § 78j(b). One such rule prescribed United States District Court For the Northern District of California 10 by the SEC is Rule 10b-5. 11 employ any device, scheme, or artifice to defraud; (b) make an 12 untrue statement of material fact or omit a material fact necessary 13 to make a statement not misleading; or (c) engage in an act, 14 practice, or course of business which operates as a fraud or deceit 15 in connection with the purchase or sale of any security. 16 § 240.10b–5. 17 subsections of Rule 10b-5. 18 Section 10(b) or Rule 10b–5, Plaintiffs must plead five elements: 19 "(1) a material misrepresentation or omission of fact, (2) 20 scienter, (3) a connection with the purchase or sale of a security, 21 (4) transaction and loss causation, and (5) economic loss." 22 Daou Sys., 411 F.3d 1006, 1014 (9th Cir. 2005). 23 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 24 Federal Rule of Civil Procedure 9(b) and the Private Securities 25 Litigation Reform Act of 1995 ("PSLRA"), 15 U.S.C. § 78u–4. 26 PSLRA requires plaintiffs to "specify each statement alleged to 27 have been misleading [and] the reason or reasons why the statement 28 is misleading." 15 U.S.C. § 78u–4(b)(1). 5 Additionally, the The 1 complaint must "state with particularity facts giving rise to a 2 strong inference that the defendant acted with the required state 3 of mind." 4 establishing securities fraud is the knowing, intentional, or 5 deliberately reckless disclosure of false or misleading statements. 6 See Daou, 411 F.3d at 1014–15. 7 scienter naturally results in a stricter standard for pleading 8 falsity, because falsity and scienter in private securities fraud 9 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 10 and the two requirements may be combined into a unitary inquiry 11 under the PSLRA." Id. at 1015 (internal quotation marks omitted). 12 13 14 IV. DISCUSSION Plaintiffs' CAC is hardly a model of clarity or concision. 15 Rather, it is a redundant and repetitive tangle of verbosity. 16 Defendants argue that "Plaintiffs' Complaint collects a series of 17 lengthy quotes from ECOtality's public statements and applies bold 18 font to paragraphs of text, without specifically identifying which 19 statements Plaintiffs claim to be false." 20 Defendants point out that many judges have rejected, or at least 21 criticized, similar pleading tactics in securities class actions. 22 See id.; Wenger v. Lumisys, Inc., 2 F. Supp. 2d 1231, 1244 (N.D. 23 Cal. 1998) (collecting cases in which "courts have repeatedly 24 lamented plaintiffs' counsels' tendency to place the burden [] on 25 the reader to sort out the statements and match them with the 26 corresponding adverse facts to solve the 'puzzle' of interpreting 27 Plaintiffs' claims.") (citations and internal quotation marks 28 omitted). 6 Mot. at 11 n.9. Defendants are correct with respect to large sections of the 1 2 CAC. Paragraphs 69-111 suffer from precisely the problem 3 Defendants identify. 4 sections of a press release and conference call transcript. 5 highlight certain portions of those documents with bold and italic 6 type. 7 alleged deficiencies. 8 of the allegedly misleading statements with contradictory facts 9 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 10 divine Plaintiffs' intentions by trying to match potentially 11 misleading statements with the alleged problems facing ECOtality. 12 Therefore, any allegations contained only in those paragraphs are 13 insufficient to state a claim. Paragraphs 112-153 do a slightly better job of connecting the 14 15 dots. Those paragraphs explain that Plaintiffs make three primary 16 allegations: 17 (1) Defendants issued a series of statements suggesting that 18 ECOtality was "on track" to complete DOE's EV project when, in 19 fact, Defendants knew that ECOtality was behind schedule and 20 unable to complete the project; 21 (2) Defendants said that a new product, the Minit-Charger 12 22 ("Minit-Charger"), would be released in 2013 when, in fact, 23 they knew it would not be; and 24 (3) Defendants said that ECOtality was making progress in 25 shifting its business from one funded by DOE's EV Project to 26 one funded by private sector sales when, in fact, they knew 27 that no such progress was being made. 28 /// 7 1 Plaintiffs add an allegation that Defendants' cautionary language 2 was inadequate because it warned in hypothetical terms of problems 3 that were already occurring. CAC ¶¶ 150-53. Those claims are pleaded sufficiently in the CAC for the Court 4 5 to assess them. Plaintiffs apparently allege that a number of 6 other statements were also misleading, but the Court will not 7 attempt to make Plaintiffs' case for them by isolating allegedly 8 misleading statements and matching them to contrary facts. 9 specified at the end of this Order, Plaintiffs may amend their United States District Court For the Northern District of California 10 complaint if they intend to pursue claims based on any other 11 As allegedly misleading statements. Defendants make a number of arguments for dismissal that apply 12 13 to the claims the Court was able to identify from the CAC. 14 Defendants have also submitted a request for judicial notice. 15 Court analyzes the request for judicial notice first, and then 16 discusses each argument for dismissal in turn. The 17 A. Request for Judicial Notice 18 Defendants have requested judicial notice of twenty exhibits. 19 Defendants argue that judicial notice is proper because the 20 documents were either incorporated by reference into the CAC, or 21 are not subject to reasonable dispute and can be accurately and 22 readily determined from sources whose accuracy cannot be 23 questioned. ECF No. 60-2 ("RJN") at 2-3. 24 Plaintiffs agree that Exhibits 1-5, 11-15, and 17-19 are 25 incorporated by reference into the CAC and that judicial notice is 26 therefore proper. 27 /// 28 /// ECF No. 63 ("RNJ Response") at 1. 8 The Court 1 takes judicial notice of these documents, but does not necessarily 2 assume their truth.2 3 Plaintiffs also have no objection to Exhibits 6-10 or Exhibit 4 20, because they are SEC filings of the sort that courts routinely 5 take notice of in securities fraud cases. 6 therefore takes notice of those documents as well. Id. at 2. The Court 7 Plaintiffs' only objection is to Exhibit 16, a proxy statement 8 filed with the SEC listing percentage ownership of ECOtality shares 9 by individual or entity. Plaintiffs argue that Exhibit 16 is United States District Court For the Northern District of California 10 irrelevant because they bring no claims of insider sales. 11 Defendants argue that Exhibit 16 is relevant because it indicates 12 that they did not sell their stock prior to ECOtality's precipitous 13 decline. 14 indicates a lack of scienter, and that courts have routinely taken 15 notice of similar filings in other cases. 16 at 3-4. 17 defendants allegedly sold their shares prior to a major decrease in 18 value in order to profit from an artificially inflated share price. 19 See Gaylinn v. 3Com Corp., 185 F. Supp. 2d 1054, 1058 (N.D. Cal. 20 2000); Copperstone v. TCSI Corp., C 97-3495 SBA, 1999 WL 33295869, 21 at *2 (N.D. Cal. Jan. 19, 1999). 22 2 23 24 25 26 27 28 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). 9 1 defendants' holdings in those cases was, therefore requested by the 2 plaintiffs. 3 oppose judicial notice of the exhibit. 4 That is not alleged here, and Plaintiffs in fact Nonetheless, Defendants correctly point out that some courts evidence against scienter. 7 886 F.2d 1109, 1117 (9th Cir. 1989); In re Downey Sec. Litig., CV 8 08-3261-JFW(RZX), 2009 WL 2767670, at *13-14 (C.D. Cal. Aug. 21, 9 2009) ("In this case, any inference of scienter is negated by the 10 United States District Court have treated a lack of significant stock sales by defendants as 6 For the Northern District of California 5 complete lack of stock sales by the Individual Defendants during 11 the class period."). 12 consider their evidence as part of a competing inference of 13 scienter under Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 14 U.S. 308, 314 (2007). 15 an opportunity to provide competing evidence at the pleadings 16 stage. 17 inferences rationally drawn from the facts alleged." 18 added). Plaintiffs do not allege any facts regarding Defendants' 19 shares. Plaintiffs do not assert any claims related to Defendants' 20 shares in ECOtality, nor do they put those shares at issue (as the 21 plaintiffs did in the cases Defendants cite). 22 heightened pleading standards in securities fraud cases, it is 23 still inappropriate for the Court to consider contrary evidence 24 from Defendants at this stage. 25 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 26 B. 27 The PSLRA includes a safe harbor provision for a statement 28 PSLRA Safe Harbor that is "identified as a forward-looking statement, and is 10 1 accompanied by meaningful cautionary statements." 15 U.S.C. § 78u- 2 5(c)(1)(A)(i). 3 include financial projections, statements of plans and objectives 4 for future operations, and statements of future economic 5 performance. 6 safe harbor provision, even if made with actual knowledge that they 7 are false or misleading. 8 1103, 1111-13 (9th Cir. 2010). 9 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 10 protected by the safe harbor provision. Police Ret. Sys. v. 11 Intuitive Surgical, Inc., 12-16430, 2014 WL 3451566, at *5 (9th 12 Cir. July 16, 2014). Some of Defendants' statements were undoubtedly forward- 13 14 looking. 15 that "[w]e'll begin deliveries of the Minit-Charger 12 by Q3 of 16 this year" was not forward looking "because Brar said '[w]e'll 17 begin deliveries' (not we expect to begin deliveries)." 18 18. 19 difference; both "we will begin deliveries" and "we expect to begin 20 deliveries" are forward-looking statements whose truth cannot be 21 determined at the time they are made. 22 forward-looking statement and is inactionable. 23 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 24 forward-looking. 25 forward-looking: 26 For example, the following statements are both 1. "[W]e expect the steps we have implemented in Q1 to 27 leverage and expand our network and put us in a position 28 to benefit from future growth in usage and subscription 11 1 fees; and that will provide us with recurring and 2 predictable revenue streams." 3 CAC ¶ 123. 2. "[W]ith our network and growth strategy, . . . we should 4 be able to capture a reasonable share of this market over 5 time." Id. ¶ 124. 6 These statements resemble statements the Ninth Circuit has 7 classified as forward-looking. 8 held that statements regarding a company's relevance to a growing 9 economic sector, and corresponding expectations regarding the In a recent case, the Ninth Circuit United States District Court For the Northern District of California 10 company's growth, were forward-looking. 11 2014 WL 3451566 at *5. 12 See Intuitive Surgical, A number of other allegedly misleading statements include 13 Defendants' claims that ECOtality was "on track" or "on schedule" 14 to complete certain projects or commitments. 15 include: 16 Such statements 1. Mr. Brar's statement in the May 15, 2013 press release 17 that "[w]e are on track to complete the commitments under 18 the EV Project by the end of this year." CAC ¶ 122; 19 2. The statement in ECOtality's 1Q13 Form 10-Q that "[t]he 20 EV Project is scheduled for completion at the end of 21 2013." 22 Id. ¶ 129; and 3. Mr. Brar's statement that "[w]e are on track to begin 23 delivery in the third quarter to satisfy our healthy 24 pipeline of interest in [the Minit-Charger]." 25 In one sense, these statements are predictions that ECOtality will 26 meet certain goals or schedules. 27 interpreted as statements about ECOtality's present status, and in 28 that sense the truth of the statements does not depend on any Id. ¶ 127. However, they could also be 12 1 future condition. The Ninth Circuit recently declined to "resolve 2 whether the safe harbor covers non-forward-looking portions of 3 forward-looking statements . . . ." 4 3451566, at *5. 5 statements qualify as forward-looking. 6 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: 12 13 14 15 16 17 18 19 20 21 22 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. 11 asserts that the Company has present access to funds sufficient to 12 meet anticipated future needs." 13 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 23 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 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 35

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