Doshi v. General Cable Corporation et al

Filing 128

MEMORANDUM OPINION & ORDER: 1) Plf's motion to alter and amend the judgment and for leave to amend 123 is DENIED; and 2) Defs' motion for hearing 126 is DENIED. Signed by Judge William O. Bertelsman on 5/12/2015.(ECO)cc: COR

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
NORTHERN DIVISION AT COVINGTON
CONSOLIDATED CIVIL ACTION NO. 2:14-cv-22 (WOB-CJS)
SATISH DOSHI, Individually
And on behalf of all other
Persons similarly situated
and
CITY OF LIVONIA EMPLOYEES’
RETIREMENT SYSTEM, Individually
And on behalf of all others
Similarly situated

PLAINTIFFS

VS.
GENERAL CABLE CORPORATION;
GREGORY B. KENNY; and
BRIAN J. ROBINSON

DEFENDANTS

MEMORANDUM OPINION AND ORDER
This

securities

fraud

action

is

before

the

Court

on

Lead

Plaintiff City of Livonia Employees’ Retirement System’s motion to
alter or amend the judgment and for leave to file an amended complaint
(Doc. 123).

The Court dismissed this action with prejudice on January

27, 2015, pursuant to Federal Rule of Civil Procedure 12(b)(6) and the
Private Securities Litigation Reform Act (PSLRA), 15 U.S.C. § 78u–
4(b)(3)(a), because Plaintiff’s complaint failed to adequately plead
scienter.

See

Doc.

121,

Opinion

and

Order;

Doc.

122,

Judgment.

Defendant General Cable Corporation and Individual Defendants Gregory
B. Kenny and Brian J. Robinson, General Cable executives, oppose this
motion (Doc. 125) and move the Court for oral argument on the matter
(Doc. 126).

Having reviewed the parties’ filings and concluded
argument

on

this

motion

is

unnecessary,

the

Court

now

that oral
issues

the

following Memorandum Opinion and Order.
I. Factual and Procedural Background
Because the facts underlying this action are set forth in detail
in the Court’s January 27, 2015 Opinion and Order (Doc. 121), the
Court need not restate them here.

The Court, however, notes the

timeline of events relevant to this motion.
Plaintiff filed the Corrected Consolidated Complaint (Doc. 97) on
June 24, 2014.
July 18, 2014.

Defendants filed their motion to dismiss (Doc. 98) on
The parties completed briefing of that motion on

September 11, 2014.

On October 16, 2014, Plaintiff filed a notice of

recent authority (Doc. 107) regarding the Sixth Circuit’s October 10,
2014 decision in In re Omnicare, Inc. Securities Litigation, 769 F.3d
455 (6th Cir. 2014), which discussed standards relevant to corporate
scienter.

Defendants responded to this notice on October 20, 2014

(Doc. 108).

The Court heard oral argument nearly three months later

on January 7, 2015.
on January 27, 2015.

The Court issued its Opinion and entered Judgment
Plaintiff timely filed the motion sub judice ––

its first request for leave to amend the complaint —— on February 24,
2015.
II. Analysis
A. Legal Standards
Plaintiff moves this Court under Federal Rules of Civil Procedure
15(a) and 59(e) to amend the judgment to dismiss the case without
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prejudice so that Plaintiff may file the proposed amended complaint
tendered with its motion.
After the time for amending a complaint as a matter of course has
lapsed, a party may amend a pleading “only with the opposing party’s
written consent or the court’s leave.”

Fed. R. Civ. P. 15(a)(2).

Courts “should freely give leave when justice so requires.”

Id.

But,

a court may properly deny leave to amend where there is “undue delay,
bad faith or dilatory motive on the part of the movant, repeated
failure to cure deficiencies by amendments previously allowed, undue
prejudice

to

the

opposing

party

by

virtue

amendment, futility of the amendment, etc.’”

of

allowance

of

the

Foman v. Davis, 371 U.S.

178, 182 (1962).
Because

Plaintiff

seeks

leave

to

amend

after

the

entry

of

judgment, however, “[i]nstead of meeting only the modest requirements
of Rule 15,” Plaintiff first “must meet the requirements for reopening
a case established by Rule[] 59[.]”

Leisure Caviar, LLC v. U.S. Fish

& Wildlife Serv., 616 F.3d 612, 616 (6th Cir. 2010).

A court may

grant a Rule 59(e) motion if there is “(1) a clear error of law; (2)
newly discovered evidence; (3) an intervening change in controlling
law; or (4) a need to prevent manifest injustice.”

Intera Corp. v.

Henderson, 428 F.3d 605, 620 (6th Cir. 2005).
The Court has “considerable discretion” in deciding whether to
grant such a motion, Leisure Caviar, 616 F.3d at 615, and to do so is
an “extraordinary” remedy.

See 12 James Wm. Moore et al., Moore’s

Federal Practice ¶ 59.30[4] (3d ed. 2014).
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B. Application
Plaintiff asserts that three of the four circumstances warranting
alteration of the judgment are implicated here: a clear error of law,
newly discovered evidence, and a need to prevent manifest injustice.1
The Court examines each in turn.
1. Clear Error
Plaintiff argues that the Court erred in denying Plaintiff the
opportunity to amend on the complaint’s first review without “any
justification,”

Doc.

Plaintiff

asserts

“den[ying]

also

Plaintiff

123-1,
that

the

Mot.
the

to

Alter

Court

mandated

or

committed

opportunity

pleading failures] through amendment.”2

Amend

to

J.,

clear

at

10.

error

by

address

[fact-

Id. at 7.

1

Notably, Plaintiff does not formally assert in its motion that there has
been an intervening change in the controlling law, despite protesting several
times about its lack of opportunity to set forth its allegations against
Defendants with the benefit of Omnicare.
See, e.g., Doc. 123-1, Mot. to
Alter or Amend J., at 8 (“Although the Court addressed the Omnicare analysis
in its Order, Plaintiff never had the opportunity to plead to that standard
or to benefit from the Sixth Circuit’s guidance on this key scienter
issue.”).
Plaintiff may have elected this seemingly inconsistent position because City
of Monroe Employees Retirement System v. Bridgestone Corp., 399 F.3d 651 (6th
Cir. 2005) –– the leading Sixth Circuit case on corporate scienter prior to
Omnicare –– applied a broader standard, allowing attribution to the
corporation of “knowledge of a corporate officer or agent acting within the
scope of [his] authority.”
City of Monroe Emps.’ Ret. Sys. v. Bridgestone
Corp., 399 F.3d 651, 689 (6th Cir. 2005) (alteration in original).
Thus,
Plaintiff could have advanced the same corporate scienter arguments regarding
Mathias Sandoval, a senior officer of General Cable, under either City of
Monroe or Omnicare.
2

Under this banner, Plaintiff also devotes substantial attention to
explaining how the Court erred in characterizing various factual allegations
and applying the law to the complaint. However, Plaintiff has not asked the
Court to vacate the complaint’s dismissal; Plaintiff’s request is merely to
amend the judgment such that the dismissal be without prejudice.
In any event, Sixth Circuit precedent is clear that a Rule 59(e) motion “is
not an opportunity to re-argue a case.”
Sault Ste. Marie Tribe of Chippewa

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a. Denial of Leave to Amend Without Justification
Although Plaintiff correctly states that “outright refusal” to
grant leave to amend “without any justifying reason . . . is abuse of
discretion,” Foman, 371 U.S. at 182, the circumstances of this case do
not implicate that standard.
At

the

time

the

Court

entered

requesting leave to amend before it.

judgment,

it

had

no

motion

Although Plaintiff’s counsel

suggested at oral argument that Plaintiff might wish to amend its
complaint,

see

Doc.

124,

January

7,

2015

Oral

Arg.

Tr.,

at

35,

Plaintiff did not file a subsequent motion requesting leave to do so.
The comments by counsel during the hearing, standing alone, do
not constitute a proper request for leave to amend in light of Sixth
Circuit precedent holding that requests outside of formal motions to
amend are procedurally insufficient.

See, e.g., Kuyat v. BioMimetic

Therapeutics, Inc., 747 F.3d 435, 444 (6th Cir. 2014) (“A ‘request for
leave

to

memorandum

amend
in

almost

as

opposition

an
to

aside,

the

to

the

defendant’s

district
motion

to

court

in

dismiss

a
is

. . . not a motion to amend.’” (quoting La. Sch. Emps.’ Ret. Sys. v.
Ernst & Young, LLP, 622 F.3d 471, 486 (6th Cir. 2010)));

PR Diamonds,

Inc. v. Chandler, 364 F.3d 671, 699 (6th Cir. 2004), abrogated on
other grounds by Matrixx Initiatives, Inc. v. Siracusano, 131 S. Ct.
Indians v. Engler, 146 F.3d 367, 374 (6th Cir. 1998); accord Leisure Caviar,
616 F.3d at 616 (“A plaintiff cannot use a Rule 59 motion (or for that matter
a post-judgment Rule 15 motion) ‘to raise arguments which could, and should,
have been made before judgment issued.’” (quoting Sault Ste. Marie, 146 F.3d
at 374)).
Because the proper forum for expressing disagreement with the
Court’s substantive reasoning is an appeal on the merits, the Court need not
address each of Plaintiff’s allegations of substantive errors to rule on the
instant motion.

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1309 (2011), as recognized in Frank v. Dana Corp., 646 F.3d 954 (6th
Cir. 2011) (finding procedurally improper plaintiff’s one-line request
for leave to amend at the end of its brief opposing defendants’ motion
to dismiss); Beaver Cnty. Ret. Bd. v. LCA-Vision Inc., No. 1:07-CV750,

2009

WL

3720651,

at

*2

(S.D.

Ohio

Nov.

5,

2009)

(finding

deficient a request to amend in a footnote in plaintiff’s response to
defendants’ motion to dismiss).
Without a proper motion requesting leave to amend, the Court had
no

reason

because

to

the

dismissed.

justify
PSLRA
15

its

dismissal

mandates

U.S.C.

that

of

the

deficient

§ 78u–4(b)(3);

action

with

complaints

accord

Miller

prejudice

“shall”
v.

be

Champion

Enters., Inc., 346 F.3d 660, 690 (6th Cir. 2003) (finding proper the
district court’s dismissal with prejudice of a complaint that failed
to meet the PSLRA pleading requirements).
b. Denial of the “Mandated” Opportunity to Amend
There is no rule in our Circuit requiring the Court to grant
leave to amend a complaint on first review –– especially where leave
has not been requested.

See Tucker v. Middleburg-Legacy Place, LLC,

539 F.3d 545, 551–52 (6th Cir. 2008) (“No abuse of discretion occurs
when a district court denies a party leave to amend where such leave
was never sought.”).
holds

that

the

Moreover, the prevailing Sixth Circuit precedent

PSLRA

restricts

the

otherwise

applied to requests for leave to amend.

“liberal”

standards

See Kuyat, 747 F.3d at 445

(“The usual liberal standards under Rule 15 do not apply to cases
governed by the PSLRA.”); Miller, 346 F.3d at 692 (“[W]e think it is
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correct

to

interpret

the

PSLRA

as

restricting

the

ability

of

plaintiffs to amend their complaint, and thus as limiting the scope of
Rule 15(a).”).

The PSLRA’s stringent pleading standards exist to

“screen out lawsuits having no factual basis.”
at 700.

PR Diamonds, 364 F.3d

Because the Sixth Circuit has stated on numerous occasions

that a liberal amendment policy would frustrate that purpose, the
Court did not commit clear legal error in dismissing the case with
prejudice.3
2. Newly Discovered Evidence
Next, Plaintiff argues that the Court should reopen the case and
allow amendment to incorporate newly discovered evidence related to
General Cable’s “failed internal controls.”
or

Amend

J.,

at

25.

In

particular,

Doc. 123-1, Mot. to Alter

Plaintiff

references

General

Cable’s August 1, 2014 Form 10-Q, which disclosed potential Foreign
Corrupt Practices Act (FCPA) liability, and General Cable’s September
22, 2014 SEC Form 8-K, which also reported possible FCPA violations.
Id. at 23-24.
“To constitute ‘newly discovered evidence,’ the evidence must
have

been

previously

unavailable.”

GenCorp,

Underwriters, 178 F.3d 804, 834 (6th Cir. 1999).
documents

were

released

plainly

show,

3

this

Inc.

v.

Am.

Int’l

As the dates these

evidence

was

publicly

To the extent that Plaintiff argues that Miller stands for the proposition
that “repeated amendments” frustrate the PSLRA’s purpose, the Court notes
that Miller in no way stated that its application was confined only to review
of a plaintiff’s second or third request to amend.
Instead, “whether a
plaintiff has failed to cure pleading deficiencies by amendments previously
allowed is but one factor for consideration.” Beaver Cnty., 2009 WL 3720651,
at *8.

-7-

available more than three months before the Court entered judgment and
therefore cannot constitute newly discovered evidence.
3. Manifest Injustice
Finally, Plaintiff asserts that failing to allow amendment “would
be manifestly unjust” in light of the Court’s “clear error,” the new
evidence to be considered, and the preference for deciding cases “on
their merits” rather than pleading technicalities.

Doc. 123-1, Mot.

to Alter or Amend J., at 25-26.
The manifest injustice ground for grant of a Rule 59 motion is a
“catch-all provision,” but not one “meant to allow a disappointed
litigant

to

attempt

to

persuade

the

Court

to

change

its

mind.”

Lonardo v. Travelers Indem. Co., 706 F. Supp. 2d 766, 809 (N.D. Ohio
2010) (citing GenCorp, 178 F.3d at 834).
Rule

59(e)

specific

motion

analysis

Evaluating whether denying a

would

result

in

that

falls

squarely

authority of the Court.”

manifest

injustice

within

the

is

“a

fact-

discretionary

Id.

As previously discussed, the Court disagrees with Plaintiff’s
assertion that it committed “clear error” and concluded that Plaintiff
has not presented any “newly discovered evidence.”
third

point,

otherwise

the

liberal

Court

reemphasizes

standards

for

the

As to Plaintiff’s

PSLRA’s

amendment

of

restrictions

pleadings.

on

Most

important, however, the Court finds that denying Plaintiff’s request
for leave to amend would not produce a manifest injustice because the
proposed amended complaint would be futile.

-8-

a. Futility of the Proposed Amended Complaint
A court need not permit amendment of a complaint if the amendment
would be futile.
¶ 15.15[3]

(3d

3 James Wm. Moore et al., Moore’s Federal Practice

ed.

2014).

“An

amendment

is

futile

if

it

merely

restates the same facts as the original complaint in different terms,
reasserts a claim on which the court previously ruled, . . . or could
not withstand a motion to dismiss.”

Id.

The Court has carefully

reviewed the Proposed Amended Complaint (Doc. 122-3) and concludes
that it fails to meet the heightened pleadings standards of the PSLRA
because,

like

supporting

a

the

first

strong

complaint,

inference

of

it

lacks

scienter

particularized
with

respect

facts

to

any

defendant.
Although

the

Court

has

assessed

the

amended

complaint

“holistically” as it is required to do, see Tellabs, Inc. v. Makor
Issues & Rights, Ltd., 551 U.S. 308, 326 (2007), for purposes of this
opinion, the Court notes that the amendments focus on the following
areas and analyzes each in turn.
i. Internal Controls Deficiencies
First, Plaintiff attempts to bolster the inference of scienter by
alleging
controls

additional
and

certifications
Plaintiff

the

facts
falsity

attesting

emphasizes

regarding

to

General

of
the

the

deficiency

of

Sarbanes-Oxley

and

sufficiency

those

Cable’s

2014

of

admission

internal

other

SEC

controls.

that

it

had

discovered potential liability related to violations of the Foreign
Corrupt Practices Act as evidence of deficient internal controls.
-9-

See

Doc.

122-3,

question
inadequate

Proposed

is

not

--

Amended

whether

General

Complaint,

General

Cable

has

¶¶ 69-74.

Cable’s
freely

But

internal

admitted

the

controls

that

fact.

key
were
The

question relevant to scienter is whether Defendants knew or should
have known that the internal controls were inadequate at the time
false statements were made.

To that question, Plaintiff has only

offered conclusory statements and speculation.

See, e.g., id. ¶ 71

(“Had the defendants properly used the COSO framework as they claimed,
they would have known about the accounting errors alleged herein on a
timely basis.”).
ii. Bill-and-hold Transactions
The amended complaint also attempts to paint General Cable’s
recognition of revenue from bill-and-hold transactions as a “red flag”
that Defendants ignored, suggesting recklessness.
complaint

merely

restates

facts

previously

But the amended
pleaded

and

adds

information about SEC guidelines regarding bill-and-hold transactions.
See id. ¶¶ 25-27.
suggesting

that

It stops short of alleging particularized facts
Defendants

knew

or

should

have

known

these

transactions failed to comply with the applicable guidelines when they
were approved.
iii. “Clawback” Policy and Incentive Compensation
The amended complaint alleges that Defendants Kenny and Robinson
were motivated to conceal financial misconduct to avoid being forced
to return incentive compensation under the “clawback” policy General
Cable implemented in January 2012.

See id. ¶¶ 103-08.

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But there are

no allegations from which to infer that Kenny and Robinson knew of
misconduct and concealed it.

Instead, the facts alleged strongly

support the opposite inference: that Kenny and Robinson disclosed the
accounting

problems

as

soon

as

they

became

aware

of

them.

More

specific allegations of Kenny and Robinson’s incentive compensation,
see id. ¶ 107, do not bolster scienter because the amended complaint
still

lacks

facts

showing

that

the

inflated

stock

price

actually

affected their incentive compensation.
The

amended

complaint

alleges

that

motivated to conceal accounting problems.4

Sandoval

was

See id. ¶ 109.

similarly
Although

the Court recognizes that Sandoval’s state of mind is “probative” of
corporate

scienter,

see

Omnicare,

769

F.3d

at

476,

the

fact

that

General Cable “forced” Sandoval to resign, see Doc. 122-3, Proposed
Amended

Complaint,

¶¶ 75-84,

and

demanded

the

return

of

prior

incentive compensation cuts against imputing Sandoval’s state of mind
––

whatever

General

it

Cable’s

might
swift

have
and

been

––

severe

to

the

discipline

corporation.
of

Sandoval

Instead,
strongly

suggests that the corporation lacked intent to defraud.5

4

The amended complaint cures a deficiency in the original complaint by
directly alleging facts related to the clawback policy and the resignation
and other conduct of Mathias Sandoval.
These facts were previously before
the Court only through briefing related to Defendants’ motion to dismiss.
See Doc. 103, Plaintiff’s Resp. in Opp. to Mot. to Dismiss, at 8, 10, 11, 16—
19, 22-23.
In fact, the original complaint mentions Sandoval by name only
once. See Doc. 97, Corrected Consolidated Complaint, ¶ 4.
5

The complaint also references a statement by Confidential Witness 5 that
Sandoval resigned in lieu of being fired – which also weakens Plaintiff’s
preferred inference. See Doc. 122-3, Proposed Amended Complaint, ¶ 77.

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iv. Sandoval’s Conduct
Finally, the amended complaint emphasizes Sandoval’s conduct and
the corporation’s “shielding” of the ROW group from scrutiny.
majority

of

these

“new”

allegations

are

simply

But the

restatements

modifications of allegations in the first complaint.

or

For example,

paragraphs 90-94 again take issue with General Cable’s failure to
integrate

the

Phelps

control structure.

Dodge

subsidiary

into

the

corporate

internal

But, as the Court explained in its January 27,

2015 Opinion, this strategic decision –– though perhaps unwise in
hindsight –– does not support an inference of scienter.

See Doc. 121,

Opinion and Order, at 21.
The facts in the proposed amended complaint that are truly new
lack particularity.

For instance, the complaint baldly alleges a

“culture of corruption,” Doc. 122-3, Proposed Amended Complaint, ¶ 10,
in the ROW group but offers no other details.

Likewise, the complaint

makes allegations about a January 2012 conference call where Sandoval
and other ROW leaders “discussed the missing inventory and the theft.”
Id. ¶ 77.

But Plaintiff states no specific facts about what was

discussed or what came of the meeting.
The Court’s role is not to engage in a guessing game as to what
was said in order to infer scienter.

Instead, the facts pleaded must

give rise to an inference of scienter that is “cogent and at least as
compelling as any opposing inference one could draw from the facts
alleged.” Matrixx Initiatives, Inc. v. Siracusano, 131 S. Ct. 1309,
1324 (2011).

The only strong inference the Court can draw from the
-12-

amended complaint’s allegations about the inventory control problems
and the ROW leaders’ awareness of them is that the accounting system
had

significant

admitted.

problems

––

problems

to

which

Defendants

have

The amended complaint does not provide sufficient facts

from which to infer that any of the Defendants acted with intent to
defraud.

Thus, the Court concludes that permitting amendment would be

futile.
III. Conclusion
Because

Plaintiff

has

not

convinced

that

Court

that

it

is

entitled to relief under Rule 59, the Court declines its request to
alter the judgment and for leave to amend the complaint.
Having

reviewed

this

matter,

and

the

Court

being

otherwise

sufficiently advised, IT IS ORDERED that
(1)

Plaintiff’s motion to alter or amend the judgment and for
leave to amend

(2)

(Doc. 123) be, and hereby is, DENIED; and

Defendants’ motion for a hearing (Doc. 126) be, and hereby
is, DENIED.

This 12th day of May, 2015.

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