Dempsey v. Vieau et al

Filing 89

MEMORANDUM OPINION AND ORDER: For the foregoing reasons, Plaintiffs' motion for relief from the judgment under Federal Rules of Civil Procedure 59 and 60 is granted. Plaintiffs' motion for leave to amend their pleading is denied. The Cler k of Court is requested to reinstate the judgment dismissing the Amended Complaint, and reclose the case. This Memorandum Opinion and Order resolves docket entry no. 79. (As further set forth in this Order.) (Signed by Judge Laura Taylor Swain on 6/15/2016) (cf)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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RICHARD DEMPSEY, individually and on
behalf of all others similarly situated,
Plaintiff,
-v-

No. 13 CV 6883-LTS

DAVID P. VIEAU, et al.,
Defendants.
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MEMORANDUM OPINION AND ORDER
A lead plaintiff was appointed on January 13, 2014, in this putative class action
alleging violations of the federal securities laws, and lead counsel filed an Amended Complaint
(docket entry no. 41 (“AC”)) on March 27, 2014. On September 8, 2015, this Court granted
Defendants’ motion to dismiss the AC in its entirety, with prejudice, and ordered the Clerk of
Court to close the case. (Docket entry no. 77.) On October 6, 2015, Plaintiff commenced the
instant motion practice seeking relief from the Court’s Judgment to reopen the case, and leave to
file a Second Amended Complaint. (Docket entry no. 80-1, Proposed Second Amended
Complaint (“PSAC”).) The Court has considered carefully the parties’ submissions and, for the
following reasons, the motion for relief from the judgment is granted, the motion for leave to
amend is denied, and the judgment is reinstated accordingly.

BACKGROUND
The Court assumes the parties’ familiarity with the underlying facts of this case,
which are set forth in greater detail in the prior Memorandum Opinion and Order. See Dempsey
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v. Vieau, 2015 WL 5231339 (S.D.N.Y. Sept. 8, 2015) (Swain, J.). In brief, Plaintiff alleges that
Defendants, executives of A123 Systems, Inc. (“A123”), violated the federal securities laws by
making material misstatements or omissions relating to A123’s production of electric car
batteries for a car manufacturer, Fisker Automotive, Inc. (“Fisker”). Plaintiff alleges that A123
mislead investors as to (1) the manufacture and testing of A123’s batteries, which were
ultimately determined to be defective; and (2) the financial health of Fisker and its related ability
to purchase and pay for A123’s batteries. (See generally AC ¶¶ 2-4.)
By its Memorandum Opinion and Order dated September 8, 2015, this Court
granted Defendants’ motion to dismiss and requested that the Clerk of Court close this case.
(Docket entry no. 77.) The same day, the Clerk entered judgment in favor of Defendants.
(Docket entry no. 78.) In dismissing the case, the Court specifically identified the reasons the
AC failed to state a claim. First, the AC failed “to identify any allegedly false statements
concerning the validation program or the functioning of the batteries.” Dempsey, 2015 WL
5231339, at *5. Second, the AC’s allegations regarding Defendants’ knowledge about the
financial health of Fisker “rest[ed] on . . . unsupported assumptions” and rendered A123's
statements about Fisker’s health “more consistent with lack of insight into Fisker’s financial
affairs than with conscious misbehavior or recklessness.” Id. at *6. Finally, the Court found that
Plaintiff failed to state a viable claim based on statements of opinion because he had not alleged
that A123’s statements of opinion were knowingly false at the time the statements were made,
citing Fait v. Regions Fin. Corp., 655 F.3d 105, 110 (2d Cir. 2011), and Omnicare, Inc. v.
Laborers Dist. Council Const. Indus. Pension Fund, 135 S. Ct. 1318 (2015).

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DISCUSSION
“Once judgment is entered the filing of an amended complaint is not permissible
until judgment is set aside or vacated pursuant to Federal Rule of Civil Procedure 59(e) or
60(b).” National Petrochemical Co. of Iran v. M/T Stolt Sheaf, 930 F.2d 240, 244 (2d Cir.
1991). Here, Plaintiffs are entitled to an opportunity to move for leave to amend their complaint
in an attempt to cure the defects in the Amended Complaint, which was dismissed by this Court
for failure to state a claim. See Loreley Financing (Jersey) No. 3 Ltd. v. Wells Fargo Sec., LLC,
797 F.3d 160, 189-90 (2d Cir. 2015). Plaintiff’s motion to modify the judgment is therefore
granted to the extent of permitting Plaintiff’s instant motion for leave to amend the AC.
However, for the reasons set forth below, Plaintiff’s motion for leave to amend is denied on the
basis of futility.
Federal Rule of Civil Procedure 15 provides that “leave to amend shall be freely
given when justice so requires.” Fed. R. Civ. P. 15(a); see also Foman v. Davis, 371 U.S. 178,
182 (1962). The Second Circuit has held that “absent evidence of undue delay, bad faith or
dilatory motive on the part of the movant, undue prejudice to the opposing party, or futility, Rule
15’s mandate must be obeyed.” Monahan v. New York City Dep’t of Corrections, 214 F.3d 275,
283 (2d Cir. 2000). “The party opposing a motion to amend bears the burden of establishing that
an amendment would be futile . . . . A proposed amendment to a pleading would be futile if it
could not withstand a motion to dismiss pursuant to Rule 12(b)(6)” of the Federal Rules of Civil
Procedure. Ballard v. Parkstone Energy, LLC, 06 CV 13099, 2008 WL 4298572, at *3
(S.D.N.Y. Sept. 19, 2008) (internal quotation marks and citations omitted). “To survive a
motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a
claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)
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(quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). The court must accept as
true all well-pleaded factual allegations and must draw all reasonable inferences in favor of the
plaintiff. See Erickson v. Pardus, 551 U.S. 89, 94 (2007).
The Court previously concluded that the allegations of the AC were insufficient to
state a claim under Rule 12(b)(6) and the standard set forth in Twombly and Iqbal. In the PSAC,
Plaintiff does not identify any new material facts that were not pleaded in the AC or proffered in
connection with the prior motion practice. Indeed, Plaintiff acknowledges that his new
allegations amount to “more clearly explaining why the challenged battery statements are false
and misleading,” (docket entry no. 81 (Defendant’s Memorandum of Law in Support), at 2) and
“fine tuning Lead Plaintiff’s scienter allegations” (id. at 3). The Court’s careful review of the
changes made in Plaintiff’s PSAC demonstrates that Plaintiff is doing nothing more than
presenting additional legal conclusions in his amended pleading, drawn from a slightly revised
set of facts that, as discussed in greater detail below, does not cure any deficiency identified by
the Court in its prior opinion dismissing the AC. Because Plaintiffs have not demonstrated that
the PSAC would state a claim, leave to amend would be futile.
As to the alleged battery defects, the PSAC contains additional arguments as to
why A123’s validation plan was underfunded and improperly designed, but does not allege new
facts that demonstrate the falsity of Defendants’ statements. The PSAC highlights Vieau’s
March 8, 2012, statements about how a different validation plan than the one A123 actually used
might have uncovered problems with the batteries sooner, and Plaintiffs repeatedly return to this
statement in their briefing on the instant motion. (PSAC at ¶ 217.) This statement is, however,
simply a post hoc acknowledgment that A123 might have conducted better testing, and does not
demonstrate that A123’s prior statements were false when made. Rather, it highlights the degree
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to which Plaintiff’s allegations concern possible mismanagement, at most. Mismanagement is
not actionable under the federal securities laws. As this Court’s prior opinion concluded, the
allegedly false statements “concern the features and intended functions of the batteries,” and
Plaintiff’s allegations do not “identify any allegedly false statements concerning the validation
program or the functioning of the batteries.” Dempsey, 2015 WL 5231339, at *5. The PSAC
does not remedy this failing.
Similarly, as to Fisker’s financial health, this Court previously held that Plaintiff
failed to plead facts sufficient to address conscious misbehavior or recklessness; rather,
Plaintiff’s theories depended on a long and attenuated series of unsupported inferences. Id. at
*6. The PSAC contains no new allegations of facts that remedy the unsupported nature of
Plaintiff’s conclusions. By Plaintiff’s own admission, the PSAC merely attempts to change the
emphasis given to the facts alleged in the AC. The PSAC’s purportedly new allegations about
Defendants’ alleged awareness of Fisker’s financial health are all matters that were of record in
connection with the prior motion practice and addressed by this Court’s prior opinion and order.
(Compare PSAC ¶¶ 4, 63, 88-90, 146, 309-10; with Dempsey, 2015 WL 5231339, at *6-7.)
Indeed, Plaintiff repeatedly cites paragraphs of the PSAC that are wholly unchanged from the
AC in arguing for leave to amend. (See and compare PSAC ¶¶ 75-100, with AC ¶¶ 74-99.) The
PSAC proffers no allegations warranting a change in the Court’s conclusion that Plaintiff’s
allegations concerning Defendants’ awareness of Fisker’s financial issues are insufficient to
support the requisite inference of scienter in light of the Defendants’ simultaneous awareness of
the possibility that Fisker would obtain additional funding from alternative sources.
Plaintiff’s remaining basis for seeking leave to amend rests on his allegations
about the timeliness of Defendants’ write-downs of A123’s battery inventory and its investment
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in Fisker stock. In the September 8, 2015, decision, the Court held that Plaintiff’s falsity
allegation was unavailing because Plaintiff had failed to demonstrate that Defendants did not
believe that the allegedly false statements of opinion were true at the time the statements were
made. Plaintiff now argues that his allegations are viable under Omnicare, which held that an
“opinion statement will mislead its audience” if the circumstances are such that a reasonable
investor would “understand [the] opinion statement to convey facts about how the speaker has
formed the opinion,” when “the real facts are otherwise, but not provided.” 135 S. Ct. at 1328.
Plaintiff’s allegations that A123 unreasonably failed to write down its investments do not,
however, state such a claim. Omnicare holds clearly that “a statement of opinion is not
misleading just because external facts show the opinion to be incorrect.” Id. Rather, a statement
is actionable if it “omits material facts about the [speaker’s] inquiry into or knowledge
concerning a statement of opinion, and if those facts conflict with what a reasonable investor
would take from the statement itself.” Id. at 1329 (emphasis added). But a statement of opinion
“is not necessarily misleading when an issuer knows, but fails to disclose, some fact cutting the
other way.” Id. at 1329. This holding is fatal to Plaintiff’s theory: A123’s failure to disclose
every fact upon which its accounting judgments were based is not an actionable omission under
Omnicare, so long as there was in fact an accounting judgment underlying the statement at issue.
Plaintiff’s disagreement with the accounting conclusions in question, bolstered by a showing that
there were “some fact[s] cutting the other way,” is insufficient to plead an actionable omission
under Omnicare. See id. The PSAC, like the AC, therefore fails to state a claim under Omnicare
based on A123’s accounting statements.
Because the PSAC does not cure any of the pleading defects previously identified
by the Court, leave to amend would be futile and is therefore denied.
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CONCLUSION
For the foregoing reasons, Plaintiffs’ motion for relief from the judgment under
Federal Rules of Civil Procedure 59 and 60 is granted. Plaintiffs’ motion for leave to amend
their pleading is denied. The Clerk of Court is requested to reinstate the judgment dismissing the
Amended Complaint, and reclose the case.
This Memorandum Opinion and Order resolves docket entry no. 79.
SO ORDERED.
Dated: New York, New York
June 15, 2016
/s/ Laura Taylor Swain
LAURA TAYLOR SWAIN
United States District Judge

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