Villella et al v. Chemical & Mining Co. of Chile Inc. et al
OPINION AND ORDER re: #42 MOTION to Dismiss Notice of Motion to Dismiss of Defendant Chemical and Mining Company of Chile, Inc.. filed by Chemical & Mining Co. of Chile Inc.: For the reasons set forth above, Defendant's motion to dismiss on grounds of forum non conveniens is DENIED. Defendant's motion to dismiss for failure to state a claim is DENIED in part and GRANTED in part. Specifically, Defendant's motion to dismiss Plaintiffs claims that SQM made material misstatements in its SEC filings regarding its (1) compliance with applicable law, (2) effectiveness of internal controls, and (3) financial reporting and accounting is DENIED. Defendant's motion to dismiss Plaintiffs claims that SQM made material misrepresentations with respect to its statements regarding its code of ethics and its lease negotiations with Corfo is GRANTED. The parties are directed to appear for an initial pre-trial conference on Thursday, April 13, 2017at10:00 AM. The Clerk of Court is respectfully directed to terminate the motions, Docs. 42, 59. ( Initial Conference set for 4/13/2017 at 10:00 AM before Judge Edgardo Ramos.) (Signed by Judge Edgardo Ramos on 3/28/2017) (jwh) Modified on 4/3/2017 (jwh).
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
MEGAN VILLELLA, Individually and on Behalf
of All Others Similarly Situated,
– against –
OPINION AND ORDER
CHEMICAL & MINING CO. OF CHILE INC.,
PATRICIO CONTESSE, PATRICIO DE
SOLMINIHAC, and RICARDO RAMOS,
15 Civ. 2106 (ER)
This action is brought as a putative class action against Chemical and Mining Company
of Chile Inc. (a/k/a Sociedad Química y Minera de Chile S.A.) (“SQM” or “Defendant”) and
individual SQM executives 1 alleging violations of Section 10(b) of the Securities Exchange Act
and Rule 10b-5, promulgated thereunder. Before the Court is Defendant’s motion to dismiss
pursuant to Federal Rule of Civil Procedure 12(b)(6) on the basis of forum non conveniens, or
alternatively, for failure to state a claim.
For the reasons set forth below, Defendant’s motion is DENIED in part and GRANTED
On November 13, 2015, the parties stipulated to the dismissal without prejudice of the individual SQM executives.
I. BACKGROUND 2
A. The Parties
SQM is a producer and worldwide distributor of specialty fertilizers and industrial
chemicals, based in Chile. Corrected Consolidated Complaint for Violation of the Securities
Laws (“Consolidated Complaint”) ¶ 18. SQM’s Series B American Depository Shares
(“shares”) have been listed on the New York Stock Exchange (“NYSE”) since 1993, under the
ticker symbol “SQM.” Id. This class action is brought on behalf of all persons who purchased
SQM’s shares traded on the NYSE between June 30, 2010 and June 18, 2015 (the “Class
Period”). Id. at ¶ 1. Lead Plaintiff, the Council of the Borough of South Tyneside, acting in its
capacity as the Administering Authority of the Tyne and Wear Pension Fund (“Plaintiff”), is
located in South Shields, Tyne and Wear, England. Id. at ¶ 17. Plaintiff alleges that it purchased
a total of 376,521 shares and suffered damages in excess of $4.4 million during the Class Period
as a result of Defendant’s securities violations. Id.
B. Factual Background
On February 24, 2015, the Attorney General of Chile (“AG”) announced an investigation
of a bribery and tax-evasion scandal involving the financial firm Banco Penta, which embroiled
numerous politicians across the country’s political spectrum. Id. at ¶¶ 2, 5. The scheme
involved the creation of fake expense receipts used to lower Banco Penta’s taxable income, all
for the purpose of funding illegal payments to political candidates. Id. Two days later, on
February 26, 2015, SQM issued a press release divulging that an extraordinary Board meeting
The following facts are drawn from allegations contained in the Corrected Consolidated Complaint (“Consolidated
Complaint”) (Doc. 40), which the Court accepts as true for purposes of the instant motion. See Koch v. Christie’s
Int’l PLC, 699 F.3d 141, 145 (2d Cir. 2012). The Court also takes judicial notice of the Deferred Prosecution
Agreement entered into between SQM and the Department of Justice and SQM’s settlement with the SEC on
January 13, 2017. See Sullivan v. Barclays PLC, No. 13 Civ. 2811 (PKC), 2017 WL 685570, at *21 (S.D.N.Y. Feb.
21, 2017) (taking judicial notice of deferred prosecution with Department of Justice).
had been held at the request of SQM’s Chairman to “analyze” this escalating political scandal.
Id. at ¶ 25. The Board resolved at the meeting to establish a special committee (“Ad-Hoc
Committee”) comprised of three SQM Board members and the New York office of the law firm
Shearman & Sterling, to conduct an investigation. Id. at ¶¶ 9 n.1, 25. Around the same time, the
press started to report that SQM was being investigated by the AG for misconduct similar to
Banco Penta’s— using fake invoices and phony services to illegally fund politicians. Id. at ¶ 23.
On March 11, 2015, SQM disclosed that its Board would meet the next day to evaluate a
request from the Public Prosecutor that SQM deliver accounting records and other information in
connection with the investigation into the political contributions scandal. Id. at ¶¶ 26-27. After
the Board meeting on March 12, 2015, SQM issued a press release stating that the Board
resolved (i) to request an independent report with respect to a March 6, 2015 letter from the AG
requesting certain information from SQM, (ii) to schedule another extraordinary Board meeting
on March 16, to analyze the independent report and decide whether to comply with the AG’s
request, (iii) to ratify its willingness to cooperate with the Public Prosecutor’s investigation and
request for information, and (iv) to inform the AG of the Board’s plan in response to his March
6, 2015 letter. Id. at ¶ 27. Four days later, on March 16, SQM issued a subsequent press release
announcing that the Board had unanimously voted to terminate its Chief Executive Officer
(“CEO”) Patricio Contesse, who had attempted to block the Board’s decision to turn the
information over to the IRS. Id. at ¶ 32. The Board subsequently voted to designate Patricio
Solminihac Tampier (“Solminihac”) as the new CEO of SQM. Id.
On March 18 – just two days after the press release – SQM announced that three SQM
Board members from the Canadian stakeholder Potash Corporation of Saskatchewan, Inc.
(“Potash Directors”) – SQM’s largest noncontrolling shareholder – had resigned from the Board.
Id. at ¶¶ 210-11. SQM disclosed in a press release that day that the Potash Directors had
resigned because they could not ensure an adequate investigation of SQM and that their
“emphatic requests” that SQM cooperate fully with the authorities had been rejected by a
majority of the Board. Id. at ¶ 36. Plaintiff alleges that as a result of SQM’s disclosures, as of
March 17, 2015, SQM shares dropped more than 15% from its price on February 25, 2015. Id. at
¶ 11. SQM shares also fell an additional 15% after the Potash Directors’ resignation. Id.
In late March and early April 2015, both the Chilean tax regulatory agency (a/k/a
Servicio de Impuestos Internos) (“SII”) and the securities regulator (Superintendencia de Valores
y Seguros) (“SVS”) initiated criminal proceedings against SQM Board members and
representatives. The five individuals were criminally charged with, among other offenses,
participation in tax fraud and “failure to provide the market with information that could be
relevant for investment decisions” in violation of the Chilean corporations code. Id. at ¶¶ 39, 45.
The charges were brought based on numerous declarations from the recipients of SQM’s
payments, who admitted that they submitted invoices to SQM without having provided services.
Id. at ¶¶ 47, 50, 56. The investigation also led to an admission by SQM’s Chief Financial
Officer (“CFO”) Ricardo Andres Ramos Rodriguez that SQM made 1,000 payments to
companies without any consideration of whether they were based on services rendered. Id. at ¶
57. In September, the SII updated its complaint against Contesse to include allegations that he
authorized the submission of 91 additional false invoices for expenses totaling more than CLP
On December 15, 2015, SQM filed a Form 6-K with the Securities Exchange
Commission (“SEC”) summarizing the findings of the Ad-Hoc Committee’s investigation. The
Committee found that payments were made on invoices that lacked supporting documentation,
that SQM’s books did not accurately reflect questioned transactions and that SQM lacked
sufficient controls over expenses managed by Contesse. Id. at ¶ 75. The Committee also stated
that it found no evidence demonstrating that the payments were made in order to induce a public
official to act or refrain from acting. Id. at ¶ 76. Plaintiff nevertheless claims that the “illegal
acts perpetrated by SQM’s top executives acting on [SQM’s] behalf, extended its sphere of
influence throughout Chile’s political system.” Id. at ¶ 78.
C. The Disclosures
Throughout the Class Period, SQM filed financial reports with the SEC and issued press
releases detailing the company’s financial performance, including its revenue, gross margins, and
earnings per share. Id. at ¶ 80. In its Annual Reports filed during the Class Period, SQM also
made the following representations:
There are currently no material legal or administrative proceedings pending against the
Company with respect to any regulatory matter, except as discussed under ‘Safety, Health
and Environmental Regulations’ below, and we believe that we are in compliance in all
material respects with all applicable statutory and administrative regulations with respect
to our business.
Internal Controls and Procedures
Under the supervision and with the participation of the Company’s management, including
the Company’s Chief Executive Officer and Chief Financial Officer, we evaluated the
effectiveness of the design and operation of our disclosure controls and procedures,
pursuant to Exchange Act Rules 13(a)-15(b), as of the end of the period covered by this
Annual Report. Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer have concluded that the Company’s disclosure controls and procedures
are effective in providing reasonable assurance that material information is made known
to management and that financial and non-financial information is properly recorded,
processed, summarized and reported.
Code of Ethics
We have adopted a Code of Business Conduct that applies to the Chief Executive Officer,
the Chief Financial Officer and the Internal Auditor, as well as, to all our officers and
employees. Our Code adheres to the definition set forth in Item 16B of Form 20-F under
the Exchange Act.
The Annual Reports also assured its shareholders that its financial statements were
prepared in accordance with Chilean Generally Accepted Accounting Principles (“GAAP”) and
reported net and paid income tax pursuant to the U.S. GAAP. See e.g., id. at ¶¶ 86-87.
In its 2014 Annual Report (filed on May 18, 2015), SQM reported a contract dispute with
the Chilean government organization Corporacion de Fomento de la Produccion de Chile
(“Corfo”) which had issued SQM a lease to mine the valuable Salar de Atacama region – the
source of 40% of SQM’s revenue. Id. at ¶¶ 11, 193. SQM explained that any breaches of the
lease were technical and that Corfo was allowed to terminate the agreement only for a material
breach. The disclosure further stated that:
SQM Salar 3 in consultation with external counsel believes that it is likely it will
prevail in the arbitration proceeding. However, an adverse ruling awarding
damages sought by Corfo or permitting early termination of the Lease Agreement
would have a material adverse effect on our business, financial condition, cash
flows and results of operations. We cannot assure you that Corfo will not use this
arbitration proceeding to seek to renegotiate the terms of the Lease Agreement in a
manner that is not favorable to SQM Salar. Although the parties are currently
discussing potential resolutions, we cannot assure you such discussions will be
successful or that Corfo will not take other actions in the future in relation to the
Lease Agreement that are contrary to our interests.
Id. at ¶ 193.
Plaintiff alleges that SQM’s disclosures were materially false and/or misleading, because
they failed to disclose: (i) that money from SQM was illegally channeled to bribe Chilean
politicians and political parties, (ii) that SQM had filed fictitious tax receipts in order to conceal
these bribe payments, (iii) that SQM lacked adequate internal controls over its financial
reporting, and (iv) that, as a result, SQM’s financial statements were materially false and
SQM Salar is a subsidiary of SQM. See Consolidated Complaint ¶ 50 n.15.
misleading and not prepared in accordance with applicable accounting principles. Id. at ¶¶ 2-12.
Plaintiff further claims that SQM’s negotiation with Corfo was “put at risk” at least in part by
SQM’s inadequate corporate governance. Id. at ¶ 11.
On January 13, 2017, SQM agreed to pay a $15 million criminal penalty and $15 million
civil penalty to resolve parallel criminal and civil cases brought by the U.S. Department of
Justice and SEC, respectively. (Doc. 64, Ex. A-E) In the deferred prosecution agreement
(“DPA”) with the Department of Justice, SQM admitted that it “knowingly and willfully failed to
maintain internal accounting controls,” that Contesse authorized and directly paid funds to
Chilean politicians and candidates in violation of “Chilean tax law and/or campaign finance
limits, and caused payments of those funds to be falsely recorded in the SQM’s books and
records.” (Doc. 64, Ex. B) The SEC Order similarly stated that SQM made improper payments
to Chilean politicians and political candidates and that the “payments were not supported by
documentation that those vendors provided services to SQM. Virtually all of the improper
payments” were directed and authorized by a senior SQM executive.” (Doc. 64, Ex. E).
D. Procedural Background
On March 19, 2015 and April 14, 2015, two separate class actions were filed – the
Villella action and the Molinaro action, respectively – seeking damages for violations of Sections
10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5.
(Doc. 1); (No. 15 Civ. 2884, Doc. 1). As required by the Private Securities Litigation Reform
Act (“PSLRA”), 15 U.S.C. §78u-4(a)(3)(A), Villella’s counsel published notice over Globe
Newswire on March 19, 2015, announcing that a securities class action had been filed against
SQM and the individual defendants, and advising SQM shareholders that they had until May 18,
2015 to file a motion for appointment as lead plaintiff. See Decl. Jeremy A. Lieberman Supp.
Villella Mot. for Consol., Appt. as Lead Pl. & Approval of Counsel (Doc. 14, Ex. A).
On May 18, 2015, six motions were filed seeking consolidation of the Villella and
Molinaro Actions, with each movant seeking appointment as lead plaintiff and approval of the
movant’s selected counsel as lead counsel. (Docs. 7-23) On October 14, 2015, the Court issued
an Opinion and Order consolidating the two actions, appointing Tyne and Wear as lead plaintiff,
and approving Tyne and Wear’s selected counsel, Robbins Geller Rudman & Dowd LLP, as lead
counsel. (Doc. 31) Plaintiff filed the Consolidated Complaint on February 9, 2016. (Doc. 40)
The instant motion, which Defendant filed on March 30, 2016, seeks dismissal on two
alternative grounds. (Doc. 42) First, Defendant argues that pursuant to the doctrine of forum
non conveniens, the Consolidated Complaint should be dismissed because the claims can be
addressed more adequately in Chile. Alternatively, Defendant claims that the Consolidated
Complaint should be dismissed for failure to state a claim under the securities laws.
II. Legal Standards
A. Forum Non Conveniens
The doctrine of forum non conveniens allows a court to dismiss an action “even if the
court is a permissible venue with proper jurisdiction over the claim.” LaSala v. Bank of Cyprus
Pub. Co. Ltd., 510 F. Supp. 2d 246, 254 (S.D.N.Y. 2007) (quoting Carey v. Bayerische Hypo–
und Vereinsbank AG, 370 F.3d 234, 237 (2d Cir. 2004)). “A decision to grant or deny a motion
to dismiss a cause of action under the doctrine of forum non conveniens lies wholly within the
broad discretion of the district court.” Scottish Air Int’l, Inc. v. British Caledonian Grp., PLC,
81 F.3d 1224, 1232 (2d Cir. 1996). The Second Circuit has “outlined a three-step process to
guide the exercise of that discretion.” Norex Petroleum Ltd. v. Access Indus., Inc, 416 F.3d 146,
153 (2d. Cir. 2005) (citing Iragorri v. United Tech. Corp., 274 F.3d 65, 73 (2d Cir. 2001) (en
banc)). First, “a court determines the degree of deference properly accorded the plaintiff’s
choice of forum.” Id. Second, “it considers whether the alternative forum proposed by the
defendants is adequate to adjudicate the parties’ dispute.” Id. And third, “a court balances the
private and public interests implicated in the choice of forum.” Id.
B. Rule 12(b)(6)
Under Rule 12(b)(6), a complaint may be dismissed for “failure to state a claim upon
which relief can be granted.” Fed. R. Civ. P. 12(b)(6). When ruling on a motion to dismiss
pursuant to Rule 12(b)(6), the Court must accept all factual allegations in the complaint as true
and draw all reasonable inferences in the plaintiff’s favor. Koch, 699 F.3d at 145. However, the
Court is not required to credit “mere conclusory statements” or “threadbare recitals of the
elements of a cause of action.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 555 (2007)); see also id. at 681 (citing Twombly, 550 U.S. at
551). “To survive a motion to dismiss, a complaint must contain sufficient factual matter . . . to
‘state a claim to relief that is plausible on its face.’” Id. at 678 (quoting Twombly, 550 U.S. at
570). A claim is facially plausible “when the plaintiff pleads factual content that allows the court
to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id.
(citing Twombly, 550 U.S. at 556). If the plaintiff has not “nudged [his] claims across the line
from conceivable to plausible, [the] complaint must be dismissed.” Twombly, 550 U.S. at 570.
Beyond the requirements of Rule 12(b)(6), a complaint alleging securities fraud must
satisfy the heightened pleading requirements of the Federal Rule of Civil Procedure 9(b) and the
Private Securities Litigation Reform Act of 1995 (“PSLRA”) by stating the circumstances
constituting fraud with particularity. See, e.g., ECA & Local 134 IBEW Joint Pension Trust of
Chicago v. JP Morgan Chase Co., 553 F.3d 187, 196 (2d Cir. 2009) (citing Tellabs, Inc. v.
Makor Issues & Rights, Ltd., 551 U.S. 308, 319-20 (2007)). Specifically, Rule 9(b) requires that
a securities fraud claim based on misstatements must identify: (1) the allegedly fraudulent
statements, (2) the speaker, (3) where and when the statements were made, and (4) why the
statements were fraudulent. See, e.g., Anschutz Corp. v. Merrill Lynch & Co., Inc., 690 F.3d 98,
108 (2d Cir. 2012) (citing Rombach v. Chang, 355 F.3d 164, 170 (2d Cir. 2004)). Put another
way, Rule 9(b) “requires that a plaintiff set forth the who, what, when, where and how of the
alleged fraud.” See U.S. ex rel. Kester v. Novartis Pharm. Corp., 23 F. Supp. 3d 242, 251-52
(S.D.N.Y. 2014). Like Rule 9(b), the PSLRA requires that securities fraud complaints
“‘specify’ each misleading statement,” set forth the reasons or factual basis for the plaintiff’s
belief that the statement is misleading, and “state with particularity facts giving rise to a strong
inference that the defendant acted with the required state of mind.” Dura Pharms., Inc. v.
Broudo, 544 U.S. 336, 345 (2005) (quoting 15 U.S.C. §§ 78u–4(b)(1), (2)); see also, e.g.,
Slayton v. Am. Express, Co., 604 F.3d 758, 766 (2d Cir. 2010).
A. Forum Non Conveniens
Degree of Deference to Plaintiff’s Choice of Forum
A defendant who invokes forum non conveniens generally bears “a heavy burden” in
opposing plaintiff’s chosen forum. Sinochem Int’l. Co. Ltd. v. Malaysia Int’l Shipping Corp.,
549 U.S. 422, 430 (2007). When reviewing a forum non conveniens motion, courts start with “a
strong presumption” in favor of the plaintiff’s forum choice. Norex, 416 F.3d at 154 (quoting
Piper Aircraft Co. v. Reyno, 454 U.S. 235, 255 (1981)). In applying this presumption, however,
“‘the degree of deference to be given to a plaintiff’s choice of forum moves on a sliding scale’
depending on the convenience reflected by the given choice.” Palacios, 757 F. Supp. 2d at 352,
(quoting Iragorri v. United Techs. Corp., 274 F.3d 65, 71 (2d Cir. 2001)). The Second Circuit in
Iragorri explained the sliding-scale analysis:
[T]he greater the plaintiff’s or the lawsuit’s bona fide connection to
the United States and to the forum of choice and the more it appears
that considerations of convenience favor the conduct of the lawsuit
in the United States, the more difficult it will be for the defendant to
gain dismissal for forum non conveniens. . . . On the other hand, the
more it appears that the plaintiff’s choice of a U.S. forum was
motivated by forum-shopping reasons . . . the less deference the
plaintiff’s choice commands[.]
Iragorri, 274 F.3d at 71–72. In short, courts give greater deference to a plaintiff’s chosen forum
when that choice is motivated by convenience and give less deference when the plaintiff is
merely seeking a tactical advantage. When applying this sliding-scale analysis, courts are guided
by Iragorri’s convenience and forum shopping factors. Norex, 416 F.3d at 154‒55.
Iragorri’s convenience factors are: “(1) the convenience of the plaintiff’s residence in relation to
the chosen forum, (2) the availability of witnesses or evidence to the forum district, (3) the
defendant’s amenability to suit in the forum district, (4) the availability of appropriate legal
assistance, and (5) other reasons relating to convenience or expense.” Norex, 416 F.3d at 155
(quoting Iragorri, 274 F.3d at 72). Conversely, Iragorri’s forum shopping factors are: “(1)
attempts to win a tactical advantage resulting from local laws that favor the plaintiff’s case, (2)
the habitual generosity of juries in the United States or in the forum district, (3) the plaintiff’s
popularity or the defendant’s unpopularity in the region, or (4) the inconvenience and expense to
the defendant resulting from litigation in that forum.” Norex, 416 F.3d at 155 (quoting Iragorri,
274 F.3d at 72).
Here, the Court finds that some deference should be given to Plaintiff’s choice of forum.
First, Plaintiff is a pension fund located in South Shields, England. Thus, Plaintiff’s “overseas
residence vitiates any presumption that [it] would find the U.S. forum convenient.” Banculescu
v. Compania Sud Americana De Vapores, SA, No. 11 Civ. 2681 (ALC), 2012 WL 5909696, at *6
(S.D.N.Y. Nov. 26, 2012). Though Plaintiff highlights that the majority of the class are U.S.
investors, because Plaintiff is bringing this action in its representative capacity, its chosen forum
is entitled to less weight. See Gilstrap v. Radianz Ltd., 443 F. Supp. 2d 474, 479 (S.D.N.Y.
2006), aff’d, 233 F. App’x 83 (2d Cir. 2007) (“Though the fact that a plaintiff sues as a
representative of a putative class does not mean that his choice of forum is deprived of all
deference, plaintiffs in such cases generally ‘have only a small direct interest in a large
controversy in which there are many potential plaintiffs, usually in many potential
jurisdictions.’”) (quoting DeYoung v. Beddome, 707 F. Supp. 132, 138 (S.D.N.Y. 1989)); see
also Lasker v. UBS Sec. LLC, 614 F. Supp. 2d 345, 358 (E.D.N.Y. 2008) (noting that even
though lead plaintiff resides in the chosen forum, “his choice of forum is given less weight than
if he were an individual plaintiff”). Nevertheless, the Court notes Plaintiff’s contention that the
trip from England to New York is unquestionably shorter, and thus much more convenient, than
the trip from England to Chile.
Second, the availability of witnesses or evidence in the forum district does not strongly
weigh in favor of either party’s choice of forum. Defendant correctly argues that most, if not all,
of the relevant evidence and witnesses are outside of the U.S. – either in Chile or Canada.
Memorandum of Law in Support (“Def. Memo”) (Doc. 42) at 11. Specifically, Contesse and
Ramos are in Chile; and the Potash Directors are in Canada. However, and importantly, SQM’s
Ad-Hoc Committee included U.S. lawyers and engaged U.S. forensic accountants to conduct an
investigation and as a result, more than 3.5 million documents have been collected in the U.S.
Memorandum of Law in Opposition (“Pl. Opp.”) (Doc. 49) at 20. Moreover, though the “core
operative facts” – the illegal financing of electoral campaigns and politicians – occurred in Chile,
the alleged misleading documents were filed with the SEC in the U.S. and relied upon by
investors to purchase ADSs on the NYSE. See DiRienzo v. Philip Servs. Corp., 294 F.3d 21, 28
(2d Cir. 2002) (finding that plaintiffs’ choice of forum in a federal securities fraud case should be
accorded deference where “defendants sought out business opportunities in this country by
registering stock on American exchanges, filing statements with the SEC and conducting the
bulk of its business in the United States).
Third, the consideration of “the defendant’s amenability to the suit in the forum district”
weighs in favor of according deference to Plaintiff. There is no question that Defendant is
subject to jurisdiction in New York because of its listing on the NYSE. Similarly, for the fourth
factor, the fact that Plaintiff brings solely federal securities claims further supports Plaintiff’s
choice of a U.S. forum. See DiRienzo, 294 F.3d at 28 (finding that the U.S.’s “interest in having
[U.S.] courts enforce [U.S.] securities laws” was a “valid reason for litigating in federal court”).
Further, Plaintiff argues that the language barrier significantly influenced its decision to bring the
action in the U.S. Pl. Opp. at 17.
The Court also notes, however, that Plaintiff’s choice of forum may have been, in part,
motivated by tactical reasons. As Plaintiff concedes, Chile does not allow for securities class
actions, Pl. Opp. at 22, thus, Plaintiff’s decision to pursue this action on behalf of a class seems
to indicate that it was trying to take advantage of the U.S.’s class action device. See Gilstrap,
443 F. Supp. 2d at 481 (affording plaintiffs’ choice of forum less deference, in part, because
“some indicia of forum-shopping” was present because plaintiffs admitted that “their decision to
sue here rather than in England was, at least in part, motivated by the availability of contingent
fees and class actions, procedural devices not available in England”).
On balance, the Court finds that some deference should be given to Plaintiff’s choice of
Adequate Alternative Forum
The Court’s deference to Plaintiff’s forum choice does “not necessarily preclude forum
non conveniens dismissal.” Norex, 416 F.3d at 157. Rather, it “simply recalibrate[s] the balance
for purposes of the remaining analysis.” Id. To be successful on a motion to dismiss on forum
non conveniens grounds, “a movant must demonstrate the availability of an adequate alternative
forum.” Id. (citing Pollux, 329 F.3d at 75). In order for an alternative forum to be adequate, it
must satisfy two requirements. First, all defendants must be amenable to service of process in
the alternative forum. Norex, 416 F.3d at 157; Rio Tinto PLC v. Vale S.A., No. 14 Civ. 3042
(RMB), 2014 WL 7191250, at *13 (S.D.N.Y. Dec. 17, 2014) (for an alternative forum to be
adequate, “a court must satisfy itself that the litigation may be conducted elsewhere against all
defendants”) (citing PT United Can Co. v. Crown Cork & Seal Co., 138 F.3d 65, 73 (2d Cir.
1998)) (emphasis added). And second, the alternative forum must permit litigation of the subject
matter of the dispute. Norex, 416 F.3d at 157. However, “‘the availability of an adequate
alternative forum does not depend on the existence of the identical cause of action in the other
forum,’ nor on identical remedies.” Id. (quoting PT United, 138 F.3d at 74).
Plaintiff does not contest that Defendant, a Chilean company, is amenable to service of
process in Chile. Thus, at issue here is solely whether Chile permits litigation “of the subject
matter of the dispute.” Defendant claims that Articles 53 and 55 of the Chilean Securities Law
“together provide for a private right of action for stockholders who claim they have suffered
injury as a result of a company’s false or misleading disclosures.” Def. Memo at 10; Declaration
of Pedro Pablo Vargas (“Vargas Decl.”) (Doc. 45) at ¶ 13. Article 53 provides, in pertinent part,
that “[n]o person shall carry out any transaction or induce or try to induce the purchase or sale of
securities, overseen or not by this law, by means of any action, strategy, mechanism or artifice
that is false or misleading.” Article 55 further provides for a private right of action for those who
have suffered damages as a result of an entity’s violation of Article 53. Id. Though Chile does
not permit class actions, it does not impose restrictions on the number of claimants who can join
a securities suit. Id.
Plaintiff argues that Articles 53 and 55 do not, in fact, provide an adequate remedy for its
losses because the laws only provide for a remedy for fraudulent inducement or fictitious
transactions, which are not alleged here. Pl. Opp. at 18. Plaintiff further contends that
Defendant has not identified (nor can it) any cases in which damages were awarded to
shareholders pursuant to Article 53 for losses caused by misrepresentations or omissions made in
SEC filings. Id. at 19. Plaintiff also notes an official order of the SVS stating that “considering
that the inscription, offering, listing and trading of ADRs is developed abroad, it will be
necessarily regulated by the foreign legislation, so its reach and compliance is beyond the scope
of competence of this Institution.” Declaration of Andres Jana L. (“Jana Decl.”) (Doc. 51) at ¶
18. Though Defendant attempts to qualify the SVS’s order by stating that it only referred to
unsponsored ADSs and described the SVS’s inability to regulate the registration and filing
requirements for unsponsored ADSs, Defendant does not include a copy of the SVS’s order.
The Court finds that Defendant has met its burden to establish that Chile is an adequate
forum, but barely. Though Defendant cites statutes that appear at first blush to apply to
Plaintiff’s claims, Defendant provides no examples of cases – and Plaintiff asserts that there are
none – in which a plaintiff has actually brought suit pursuant to the cited statutes against a
Chilean company for financial statements registered in foreign jurisdictions.
Private and Public Interest Factors
After finding that Chile is an adequate alternative forum, this Court’s inquiry turns to the
balance of private and public interests to determine whether the convenience of the parties and
the ends of justice would best be served by dismissing the action. Kirch v. Liberty Media Corp.,
No. 04 Civ. 667 (NRB), 2006 WL 3247363, at *7 (S.D.N.Y. Nov. 8, 2006). That is, a defendant
must demonstrate that “trial in the chosen forum would establish oppressiveness and vexation to
a defendant out of all proportion to plaintiff’s convenience,” or that litigating in the chosen
forum is inappropriate upon consideration of the public interests. Sinochem, 549 U.S. at 429
(citing Am. Dredging Co. v. Miller, 510 U.S. 443, 447–448 (1994)) (alterations omitted).
Defendants bear the burden of establishing that “the balance of private and public interest factors
tilts heavily in favor of the alternative forum.” USHA (India), Ltd. v. Honeywell Int’l, Inc., 421
F.3d 129, 135 (2d Cir. 2005); PT United., 138 F.3d at 74.
This Court first considers “the private interest factors‒ those which reflect the
convenience with which the parties may litigate here.” Kirch, 2006 WL 3247363, at *7. The
private interest factors include: (1) the relative ease of access to sources of proof, (2) the cost of
obtaining attendance of willing witnesses, (3) availability of compulsory process for attendance
of unwilling witnesses, and (4) all other problems that make the trial of a case easy, expeditious,
and inexpensive. Iragorri, 274 F.3d at 73‒74.
Here, as the Court already noted, most of the relevant documentary evidence and material
witnesses are located in Chile. The invoices and challenged disclosures were prepared in Chile,
and Contesse, presumably the most relevant witness, is under house arrest in Chile. Moreover,
Contesse, the Chilean political candidates, the Potash directors, and other potential witnesses, are
third-party witnesses, and therefore, this Court would not be able to compel their appearance.
However, as Plaintiff argues, witness testimony can be procured through letters rogatory, which
Plaintiff’s expert persuasively explains is not overwhelmingly tedious or oppressive. Jana Decl.
¶¶ 26-28. Further, a significant amount of evidence has already been gathered in the U.S and
SQM’s current employees, including Ramos, can be compelled by this Court.
Next, the Court turns to the public interest factors: “(1) settling local disputes in a local
forum; (2) avoiding the difficulties of applying foreign law; and (3) avoiding the burden on
jurors by having them decide cases that have no impact on their community.” Iragorri, 274 F.3d
Here, though Chile’s interest in this case is significant, the U.S. also has a strong interest
in upholding its federal securities laws. See DiRienzo, 294 F.3d at 28. Second, Defendant
claims that the Court will have to interpret a novel issue of Chilean law because a Chilean court
has not determined whether Contesse’s actions constitute a criminal tax violation. 4 Def. Memo.
at 13. However, Plaintiff alleges strictly federal securities violations – to which SQM has
already admitted. Thus, at this stage, it is unclear to what extent the Court will need to apply or
interpret Chilean law. Third, there is no question that jurors have an interest in ensuring that
financial institutions that are traded on American stock exchanges do not mislead investors.
Thus, the Court finds that the balance of private and public factors do not heavily tilt in favor of
trial in Defendant’s choice of forum.
Accordingly, because the Court finds that Plaintiff’s choice of forum is entitled to some
deference, and the private and public factors do not tilt heavily in favor of Defendant,
Defendant’s motion to dismiss on the basis of forum non conveniens is denied.
Defendant’s expert states that “[p]rominent Chilean lawyers with expertise in civil and criminal tax matters have
stated that the conduct alleged against SQM is not criminal in nature, but rather presents a civil tax matter
concerning the appropriate treatment of tax expense.” Vergara Decl. ¶ 34.
B. Failure to State a Claim
Section 10(b) of the Exchange Act prohibits using or employing, “in connection with the
purchase or sale of any security . . . any manipulative or deceptive device or contrivance,” 15
U.S.C. § 78j(b), while SEC Rule 10b-5 creates liability for a person who makes “any untrue
statement of a material fact or . . . omit[s] to state a material fact . . . in connection with the
purchase or sale of any security.” In re OSG Sec. Litig., 971 F. Supp. 2d 387, 397 (S.D.N.Y.
2013) (quoting 17 C.F.R. § 240.10b-5 (1951)). To state a private civil claim under Section 10(b)
and Rule 10b-5, a plaintiff must plead that: (1) the defendant made a material misrepresentation
or omission, (2) with scienter, i.e., a wrongful state of mind, (3) in connection with the purchase
or sale of a security, and (4) that the plaintiff relied on the misrepresentation or omission, thereby
(5) causing economic loss. Dura, 544 U.S. at 341-42; see also, e.g., Lattanzio v. Deloitte &
Touche LLP, 476 F.3d 147, 153 (2d Cir. 2007); Kalnit v. Eichler, 264 F.3d 131, 138 (2d Cir.
2001). Defendant argues that Plaintiff fails to adequately plead (1) an actionable misstatement or
omission and (2) scienter.
Material Misstatement or Omission
In order to survive a motion to dismiss, Plaintiff must establish that Defendant “made a
statement that was ‘misleading as to a material fact.’” Matrixx Initiatives, Inc. v. Siracusano,
131 S. Ct. 1309, 1318 (2011) (quoting Basic Inc. v. Levinson, 485 U.S. 224, 238 (1988))
(emphasis in original). “A violation of Section 10(b) and Rule 10b-5 premised on misstatements
cannot occur unless an alleged material misstatement was false at the time it was made.” In re
Lululemon Sec. Litig., 14 F. Supp. 3d 553, 571 (S.D.N.Y. 2014), aff’d, 604 Fed. App’x 62 (2d
Cir. 2015) (citing San Leandro Emergency Med. Grp. Profit Sharing Plan v. Philip Morris Cos.,
Inc., 75 F.3d 801, 812-13 (2d Cir. 1996)) (emphasis in original). The Second Circuit has
repeatedly indicated that plaintiffs cannot simply assert that a statement is false—“they must
demonstrate with specificity why . . . that is so.” Rombach, 355 F.3d at 174.
Where the alleged violations of Section 10b and Rule 10b-5 are based on allegations that
the defendant “omitted to state a material fact necessary to make the statement . . . not
misleading; the complaint shall specify each statement alleged to have been misleading, [and] the
reason or reasons why the statement is misleading.” 15 U.S.C. §78u-4(b)(1)(B). “[I]f an
allegation regarding [a] statement or omission is made on information and belief, the complaint
shall state with particularity all facts on which that belief is formed.” Id.
Plaintiff alleges that Defendant made material misstatements with respect to its (1)
compliance with applicable law and effectiveness of internal controls; (2) code of ethics; and (3)
financial reporting and accounting. Plaintiff also claims that Defendant made a material
omission in its statements regarding its lease negotiations with Corfo. The Court will address
each claim in turn.
First, Plaintiff claims that Defendant’s representations that it was in compliance with all
applicable laws and that it had effective internal controls were false when made. Consolidated
Complaint ¶¶ 195-96. In response, Defendant does not contest the statements’ objective falsity
but rather argues that the statements were statements of opinion and that Plaintiff has not
sufficiently alleged that Defendant believed they were false when made. Def. Memo at 15-16.
To bring a fraud claim based on an alleged misstatement in an opinion, a plaintiff must plausibly
assert that “defendants did not [subjectively] believe the statements . . . at the time they made
them.” City of Omaha, Neb. Civilian Employees’ Ret. Sys. v. CBS Corp., 679 F.3d 64, 67 (2d
Cir. 2012) (emphasis added); see also Omnicare, Inc. v. Laborers Dist. Council Const. Indus.
Pension Fund, 135 S. Ct. 1318, 1321 (2015) (holding that a statement of opinion qualifies as an
untrue statement of fact. “if the opinion expressed was not sincerely held”). “A reasonable
investor, upon hearing a statement of opinion from an issuer, ‘expects not just that the issuer
believes the opinion (however irrationally), but that it fairly aligns with the information in the
issuer’s possession at the time.” Tongue v. Sanofi, 816 F.3d 199, 210 (2d Cir. 2016) (quoting
Omnicare, 135 S. Ct. at 1329). Here, the Annual Reports for the fiscal years 2009-2013 stated
that SQM “believe[d]” that it was in compliance with applicable laws and that based upon an
evaluation the CEO and CFO concluded that SQM’s internal controls were adequate.
Consolidated Complaint ¶¶ 82, 103, 125, 147, 172. These statements are indeed statements of
opinion. However, the Court finds that Plaintiff has sufficiently alleged that Defendant knew or
should have known that the statements were false when made.
Plaintiff claims that top SQM executives, including Contesse, the former CEO, and
Ramos, the CFO, should have known of and in many cases authorized the payments of false
invoices throughout the relevant time period. As an initial matter, Plaintiff claims – and the
investigations in Chile allegedly uncovered – that more than $11 million in payments without
sufficient supporting documentation originated from Contesse’s office. See Consolidated
Complaint ¶ 42. The SII investigation also revealed that Contesse had authorized at least 90
false invoices from 2012-2014. Id. at ¶ 63. Plaintiff also alleges that Contesse received an email
in August 2012 regarding contributions to a number of political candidates and asking about
submitting invoices to SQM and that Contesse directed SQM attorney Enrique Olivares to
contribute to those campaigns. Additionally, as part of the SII investigation, Ramos admitted
that SQM made 1,000 payments to political campaigns “without any consideration of whether
they were based on any services rendered.” Id. at ¶ 57. Solminihac, SQM’s current CEO,
further declared that the payments were “ordered and approved by Contesse.” Id. at ¶ 64. These
allegations are sufficient to show that Defendant did not believe its statements regarding
compliance with all relevant regulations and that its disclosure controls were effective in
ensuring that “financial and non-financial information [was] properly recorded . . . and reported.”
The Court also finds that SQM’s statements regarding its legal compliance and the
efficiency of its internal controls are not mere puffery. Def. Memo at 17-18. “It is wellestablished that general statements about reputation, integrity, and compliance with ethical
norms are inactionable puffery, meaning that they are too general to cause a reasonable investor
to rely upon them.” City of Pontiac Policemen’s & Firemen’s Ret. Sys. v. UBS AG, 752 F.3d
173, 183 (2d Cir. 2014). “Puffery is frequently comprised of statements that are explicitly
aspirational, with qualifiers such as ‘aims to,’ ‘wants to,’ and ‘should.’” In re: EZCorp, Inc. Sec.
Litigations, 181 F. Supp. 3d 197, 206 (S.D.N.Y. 2016). Here, SQM’s statements do not
communicate an aspiration or a desire to comply with all relevant laws or implement efficient
controls. The statements in the Annual Reports relay positive assurances that SQM believed it
was in compliance with all applicable laws and regulations and that based on an evaluation, the
CEO and CFO concluded that SQM’s controls were effective. See Pirnik v. Fiat Chrysler
Automobiles, N.V., No. 15 Civ. 7199 (JMF), 2016 WL 5818590, at *5 (S.D.N.Y. Oct. 5, 2016)
(finding “easily” that plaintiff plausibly alleged that defendant’s statements that it was
substantially in compliance with relevant global requirements were actionable); In re BioScrip,
Inc. Sec. Litig., 95 F. Supp. 3d 711, 726-27 (S.D.N.Y. 2015) (holding that the statement that “the
Company believes it is in substantial compliance with all laws, rules and regulations that affects
its business and operations,” was an actionable statement of opinion); see also Omnicare, 135 S.
Ct. at 1326 (“And so too the statement about legal compliance (‘I believe our marketing practices
are lawful’) would falsely describe her own state of mind if she thought her company was
breaking the law.”).
Second, Plaintiff claims that Defendant’s statements regarding its code of ethics were
misleading in that it failed to report or acknowledge that its CEO and CFO were engaging in
illegal activity. Consolidated Complaint ¶ 197. In this regard, the Court finds Plaintiff’s
argument unavailing. Courts have found that a defendant’s mere adoption of a code of ethics,
without statements assuring investors that its employees are in fact in compliance with the code,
is not misleading. Lopez v. Ctpartners Exec. Search Inc., 173 F. Supp. 3d 12, 29 (S.D.N.Y.
2016) (“[A] code of ethics,” he noted, “is inherently aspirational; it simply cannot be that every
time a violation of that code occurs, a company is liable under federal law for having chosen to
adopt the code at all, particularly when the adoption of such a code is effectively mandatory.”)
(quoting Retail Wholesale & Department Store Union Local 338 Retirement Fund v. Hewlett–
Packard Co., 52 F. Supp. 3d 961, 964–66 (N.D. Cal. 2014)). Plaintiff does not allege that SQM
assured its investors that its employees were in fact complying with the adopted code. See In re
PetroChina Co. Ltd. Sec. Litig., 120 F. Supp. 3d 340, 360 (S.D.N.Y. 2015), aff’d (Mar. 21, 2016)
(dismissing claim regarding defendant’s compliance with its code of ethics because “[a]lthough
the Company’s codes of ethics prohibit[ed] bribery and other forms of fraudulent conduct, they
do not claim that PetroChina’s officers are abiding by them”). Accordingly, Plaintiff’s
misrepresentation claim with respect to Defendant’s code of ethics is dismissed.
Third, Plaintiff claims that Defendant’s statements regarding its financial reporting and
accounting statements were false or misleading because they were not prepared in accordance
with U.S. or Chilean GAAP. Consolidated Complaint ¶¶ 86-87. Defendant argues that
Plaintiff’s claim fails because Plaintiff did not adequately identify the financial standards that
were violated. Def. Memo at 20. However, the Consolidated Complaint specifically alleges that
SQM’s purportedly illicit conduct violated “FASB Conceptual Framework for Financial
Reporting; Statement of Financial Accounting Standards (“SFAS”) No. 109 and Accounting for
Income Taxes; International Accounting Standards (“IAS”) No. 1, Presentation of Financial
Statements; and IAS No. 12, Income Taxes” by, among other things, failing to disclose the
amount of taxes payable and tax liabilities. Consolidated Complaint ¶ 199.
Defendant further argues that any inaccuracies in its statements were not material. Def.
Memo at 19. “The materiality of a misstatement depends on whether ‘there is a substantial
likelihood that a reasonable shareholder would consider it important in deciding how to [act].”
Lopez v. Ctpartners Exec. Search Inc., 173 F. Supp. 3d 12, 27 (S.D.N.Y. 2016) (quoting ECA,
553 F.3d at 197). The Second Circuit has cautioned that because materiality is a mixed question
of law and fact, in the context of a Rule 12(b)(6) motion, “‘a complaint may not properly be
dismissed . . . on the ground that the alleged misstatements or omissions are not material unless
they are so obviously unimportant to a reasonable investor that reasonable minds could not differ
on the question of their importance.” Ganino v. Citizens Utilities Co., 228 F.3d 154, 162 (2d Cir.
When assessing materiality, courts must fully analyze “all relevant considerations.”
Litwin v. Blackstone Group, L.P., 634 F.3d 706, 717 (2d Cir. 2011). The SEC’s Staff
Accounting Bulletin (“SAB”) No. 99, provides that “a misstatement related to less than 5% of a
financial statement carries the preliminary assumption of immateriality.” United States Sec. &
Exch. Comm’n v. DiMaria, No. 15 Civ. 7035 (GHW), 2016 WL 4926200, at *6 (S.D.N.Y. Sept.
15, 2016) (citing 64 Fed. Reg. 45150, 45151 (Aug. 19, 1999)). In addition to quantitative
factors, courts are required to consider any relevant qualitative factors. Sufficient qualitative
factors “can turn a quantitatively immaterial statement into a material statement.” IBEW Local
Union No. 58 Pension Trust Fund and Annuity Fund v. The Royal Bank of Scotland Grp., PLC,
783 F.3d 383, 391 (2d Cir. 2015). SAB No. 99 provides a non-exhaustive list of the relevant
qualitative factors a court should consider, including whether the misstatement “affects the
registrant’s compliance with regulatory requirements” or “involves concealment of an unlawful
transaction,” and the “volatility of the price of a registrant’s securities in response” to the
disclosures. See SAB 99, 64 Fed. Reg. at 45152.
Defendant claims that the financial inaccuracies were quantitatively immaterial because
the allegedly $13 million in payments made over the six-year period only understated SQM’s net
income by $2.2 million per year, or about 0.5% of SQM’s average annual income during that
period. Def. Memo at 19. Defendant further asserts that SQM’s $7 million in back taxes
attributable to the same period, resulted in an understatement of tax liability of only $1.2 million
per year, or about 0.8% of SQM’s average annual paid income tax. Id. These losses are
significantly below the 5% threshold. However, even assuming that these calculations are
accurate, the Court finds that the qualitative factors are sufficient to allege materiality at this
Here, Plaintiff alleges that Contesse improperly funneled money to politicians by
authorizing SQM to pay false invoices. SQM’s disclosures of these actions resulted in a
decrease of over 15% in the price of ADSs, from $26.17 per share on February 25, 2015 to
$22.10 on March 17. Consolidated Complaint ¶¶ 204-09. By March 19, 2015, the price for
ADSs had fallen to $17.87 per share. Id. The disclosures also impacted SQM’s reputation.
Plaintiff alleges that companies like Santander and Miller Tabak & Co., LLC issued analyst
reports in which SQM was given an “underperform” rating or stripped of its “Buy” rating due to
the investigations and the resulting issues with corporate governance. Id. at ¶¶ 211-13. Plaintiff
further alleges SQM’s actions violated Chilean tax law and subjected SQM to regulatory
penalties. Id. at ¶ 44. The SVS – Chile’s securities regulator – found that SQM failed to provide
investors “with information that could be relevant for investment decisions” in violation of
securities laws and fined SQM’s directors. Id. at ¶ 8. Additionally, SQM agreed to pay a $15
million penalty to settle the SEC’s charges and a $15.5 million penalty as part of the DPA with
the DOJ regarding its improper payments to Chilean polticians. Taking these allegations as true
– and acknowledging that materiality is generally not an appropriate basis for dismissal at this
stage – the Court finds that Plaintiff has sufficiently alleged materiality.
Lastly, Plaintiff alleges that Defendant misled its investors by “expressing confidence in
its position” in the Corfo arbitration, despite knowing that its illegal payments to politicians
could potentially jeopardize the lease. Consolidated Complaint at ¶¶ 193, 200. Plaintiff claims
that the concealed risk materialized when Corfo rejected the settlement due to “poor corporate
governance.” Id. Challenging Plaintiff’s claim, Defendant argues that its statements were
“forward-looking” and that they were accompanied by meaningful cautionary language and are
thus not actionable. Def. Memo at 20-21.
The PSLRA safe harbor provision provides that no liability attaches to certain forwardlooking statements that are identified as such and “accompanied by meaningful cautionary
language identifying important factors that could cause actual results to differ materially from
those in the forward looking statements.” In re Nokia Oyj (Nokia Corp.) Sec. Litig., 423 F. Supp.
2d 364, 400 (S.D.N.Y. 2006) (citing 15 U.S.C. § 78u–5(c)). The bespeaks caution doctrine,
similarly “refers to the use of cautionary language aimed at warning investors of potential risks
that may occur in the future” and provides that where “no reasonable investor could have been
misled about the nature of the risk when he invested,” a claim for securities fraud fails. Id.
(emphasis in original). “To avail themselves of safe harbor protection under the meaningful
cautionary language prong, defendants must demonstrate that their cautionary language was not
boilerplate and conveyed substantive information.” Slayton, 604 F.3d at 772; see also In re
Nokia Oyj (Nokia Corp.) Sec. Litig., 423 F. Supp. 2d at 400 (explaining that under the bespeaks
caution doctrine, “effective, cautionary language needs to warn of, or directly relate to, the risk
that brought about the plaintiff’s loss”).
Here, Defendant represented that it would “likely . . . prevail in the arbitration
proceeding” with Corfo. It also warned investors that “an adverse ruling awarding damages
sought by Corfo or permitting early termination of the Lease Agreement would have a material
adverse effect on our business, financial condition, cash flows and results of operations.”
Plaintiff alleges that before SQM’s disclosures, the arbitration primarily focused on SQM’s
failure to meet its payment obligations. Plaintiff cites to an analyst’s report which claims that
Corfo ultimately rejected settlement discussions and opted for early termination of the lease (set
to expire in 2030) due to ethical reasons, including “corporate governance, unfair related parties
transactions, unfair transfer prices, lack of disclosure and environmental rules breakage.”
Consolidated Complaint ¶ 217.
The Court finds that Plaintiff has failed to adequately allege that SQM’s statement
regarding the Corfo arbitration is actionable. Defendant’s expression of confidence in the
arbitration is a forward looking statement. The statement is also accompanied by cautionary
language which warned its investors of the risk that settlement discussions would not be
successful and that an adverse ruling might result in early termination of the lease. This
language warned investors of the risk that ultimately transpired – early termination of the lease.
Though Plaintiff argues that SQM failed to disclose the risk that its illicit conduct could
negatively affect the arbitration, it does not allege that SQM’s conduct was in fact the basis for
Corfo’s rejection of the arbitration and the termination of the lease.
Section 10(b) and Rule 10b-5 require plaintiffs to allege a state of mind demonstrating
“an intent to deceive, manipulate or defraud,” also known as scienter. Ganino v. Citizens Utils.
Co., 228 F.3d 154, 168 (2d Cir. 2000) (citing Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193
n.12 (1976)); see also, e.g., In re Philip Servs. Corp. Sec. Litig., 383 F. Supp. 2d 463, 469
(S.D.N.Y. 2004). To satisfy the PSLRA’s pleading requirements for scienter, a plaintiff must
allege facts with particularity that would give rise “to a strong inference that the defendant acted
with the required state of mind.” ECA, 553 F.3d at 198 (quoting 15 U.S.C. § 78u-4(b)(2)(A))
(internal quotation marks omitted). As Supreme Court precedent dictates, a “strong inference”
that a defendant acted with a certain intent is one that is “more than merely plausible or
reasonable—it must be cogent and at least as compelling as any opposing inference of
nonfraudulent intent.” Tellabs, 551 U.S. at 314 (emphasis added). This inquiry goes beyond the
ordinary Rule 9(b) framework and requires courts to consider “not only inferences urged by the
plaintiff . . . but also competing inferences rationally drawn from the facts alleged.” Id.
A plaintiff may establish scienter by alleging facts that either (1) show that the defendant
had both the “motive and opportunity” to commit the alleged fraud, or (2) “constitute strong
circumstantial evidence of conscious misbehavior or recklessness.” ECA, 553 F.3d at 198; see
also Lerner v. Fleet Bank, N.A., 459 F.3d 273, 290-91 (2d Cir. 2006). The relevant inquiry for
the Court “is whether all of the facts alleged, taken collectively, give rise to a strong inference of
scienter, not whether any individual allegation, scrutinized in isolation, meets that standard.” In
re Magnum Hunter Res. Corp. Sec. Litig., 26 F. Supp. 3d 278, 291-92 (S.D.N.Y. June 23, 2014)
(citing Tellabs, 551 U.S. at 322-23) (emphasis original); see also ECA, 553 F.3d at 198; Medis
Inv. Grp. v. Medis Tech., Ltd., 586 F. Supp. 2d 136, 141 (S.D.N.Y. 2008) (“In order to determine
whether a complaint has adequately pleaded scienter, a court should examine all of the facts
alleged collectively or ‘holistically’ (without parsing individual allegations), and take into
account any inference concerning scienter—supporting or opposing—which can be drawn from
the complaint.”), aff’d, 328 Fed. App’x 754 (2d Cir. 2009) (summary order). “According to the
Supreme Court, the critical inquiry is: ‘[w]hen the allegations are accepted as true and taken
collectively, would a reasonable person deem the inference of scienter at least as strong as any
opposing inference?’ If so, then scienter has been adequately pleaded. If not, the case may be
dismissed.” Medis Inv. Grp., 586 F. Supp. 2d at 141 (citing Tellabs, 551 U.S. at 326).
“When the defendant is a corporate entity . . . the pleaded facts must create a strong
inference that someone whose intent could be imputed to the corporation acted with the requisite
scienter.” Teamsters Local 445 Freight Div. Pension Fund v. Dynex Capital Inc., 531 F.3d 190,
195 (2d Cir. 2008). The “most straightforward way to raise such an inference for a corporate
defendant” in most cases is “to plead it for an individual defendant,” however, there may be
some instances where a plaintiff may allege scienter as to a corporate defendant without also
alleging scienter as to an individual defendant. Id.; Vining v. Oppenheimer Holdings Inc., No. 08
Civ. 4435 (LAP), 2010 WL 3825722, at *12 (S.D.N.Y. Sept. 29, 2010) (“[A] plaintiff can raise
an inference of corporate scienter by establishing scienter on behalf of an employee who acted
within the scope of his employment.”) (internal citation omitted). “A strong inference of
corporate scienter may also be appropriate ‘where a corporate statement is so important and
dramatic that it would have been approved by corporate officials sufficiently knowledgeable
about the company to know that the announcement was false.’” In re Gentiva Secs. Litig., 932 F.
Supp. 2d 352, 384 (S.D.N.Y. 2013) (citing Vining, 2010 WL 3825722, at *13).
Defendant argues that Plaintiff has neither alleged a motive nor alleged sufficient facts to
constitute circumstantial evidence of conscious misbehavior or recklessness. Def. Memo at 21.
While the Court agrees that Plaintiff has not alleged motive, the Court finds that taking the facts
as a whole, Plaintiff has adequately alleged facts creating an inference of scienter. With respect
to Defendant’s statements regarding its legal compliance and effectiveness of internal controls,
the Court applies the same reasoning as it did for its finding of subjective falsity. Because the
Court finds that Plaintiff has sufficiently alleged that Defendant knew or should have known that
the statements were false or misleading when made, the Court also finds that Plaintiff has
sufficiently pled scienter with respect to those statements. See Podany v. Robertson Stephens,
Inc., 318 F. Supp. 2d 146 (S.D.N.Y. 2004) (“[I]n false statement of opinion cases . . . the falsity
and scienter requirements are essentially identical”). Moreover, Defendant in the DPA and SEC
order admitted that it knowingly and willfully made misrepresentations in its SEC filings.
Accordingly, Defendant’s motion to dismiss Plaintiff’s claims that Defendant made
material misstatements regarding its compliance with applicable law, effectiveness of internal
controls, and financial reporting and accounting in its SEC filings is denied. The Court grants
Defendant’s motion to dismiss Plaintiff’s claim as to SQM’s statements regarding its code of
ethics and its lease negotiations with Corfo.
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