Pirnik v. Fiat Chrysler Automobiles N.V. et al

Filing 121

OPINION AND ORDER: For the reasons stated above, Defendants' motion to dismiss Plaintiffs emissions-related claims is GRANTED, but Plaintiffs are granted leave to amend those claims; and Plaintiffs' motion for judicial notice is DENIED. Within one week of the date of this Opinion and Order, Plaintiffs shall inform the Court whether they intend to amend their emissions-related claims. Plaintiffs will not be given any further opportunity to amend the Complaint to address the issue s raised by the instant motion. If Plaintiffs choose to amend the Complaint, they must do so within two weeks of the date of this Opinion and Order. FCA will have three weeks from the filing of any amended complaint to answer or file a new motion t o dismiss. In the meantime, the stay with respect to Plaintiffs' class certification motion shall remain in effect. If, however, Plaintiffs decline to amend the Complaint again, then FCA's opposition to the class certification motion shall be due within two weeks of Plaintiffs letter regarding amendment. The Clerk of Court is directed to terminate Docket Nos. 91, 100, and 116, and as further set forth in this order. (Signed by Judge Jesse M. Furman on 8/1/2017) (ap)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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:
VICTOR PIRNIK,
:
:
Plaintiff,
:
:
-v:
:
FIAT CHRYSLER AUTOMOBILES, N.V., et al.,
:
:
Defendants.
:
:
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08/1/2017

15-CV-7199 (JMF)
OPINION AND ORDER

JESSE M. FURMAN, United States District Judge:
Plaintiffs in this putative securities fraud class action — brought pursuant to Sections
10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C. §§
78(b), 78(t)(a), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240 — are investors in
Defendant Fiat Chrysler Automobiles, N.V. (“FCA NV”), a global car company. Plaintiffs
initially alleged that FCA NV and several officers of its largest subsidiary, FCA U.S.
(collectively with FCA NV, “FCA”), made false and misleading statements regarding FCA’s
substantial compliance with applicable safety regulations and recall reserve estimates. In an
earlier opinion, familiarity with which is assumed, the Court granted Defendants’ motion to
dismiss the claims regarding the recall reserve estimates, but allowed Plaintiffs’ claims with
respect to safety regulation compliance to proceed. See Pirnik v. Fiat Chrysler Automobiles,
N.V., 15-CV-7199 (JMF), 2016 WL 5818590, at *4, *10-11 (S.D.N.Y. Oct. 5, 2016). Thereafter,
Plaintiffs amended their complaint, adding claims that Defendants made false and misleading
statements regarding FCA’s compliance with certain federal and state emissions regulations.
Defendants now move, pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, to

dismiss those new claims. (Docket No. 91) For the reasons that follow, the motion is granted,
but Plaintiffs are granted leave to amend.
BACKGROUND
The Court laid out the general background of this action in its prior opinion, see Pirnik,
2016 WL 5818590, at *1-4, and will not rehash it here. A few months after the Court’s earlier
decision, on January 12, 2017, the United States Environmental Protection Agency (“EPA”) and
the California Air Resources Board (“CARB”) issued Notices of Violation to FCA for failing to
disclose certain engine management software that could alter the emissions output in light-duty
model year 2014, 2015, and 2016 Jeep Grand Cherokees and Dodge Ram 1500 trucks with 3.0
liter diesel engines. (Docket No. 69 (“Third Am. Compl.”) ¶ 29). On this news, FCA’s stock
dropped $1.35 per share, closing roughly twelve percent below its opening price that day. (Id.
¶ 319). Soon thereafter, Plaintiffs sought and were granted leave to amend their complaint to
incorporate allegations regarding FCA’s purportedly material misrepresentations regarding
compliance with emissions regulations. (See Docket Nos. 61, 62). The operative complaint (the
“Complaint”) now alleges that throughout the class period — October 14, 2014, through
February 6, 2017 — FCA NV; Sergio Marchionne, the Chief Executive Officer of FCA NV and
US; and other individual Defendants repeatedly misled investors as to FCA’s compliance with
applicable emissions regulations for diesel vehicles. (See Third Am. Compl. ¶¶ 193-223, 24243, 279-82, 302-324). As noted, Defendants now move to dismiss those claims, arguing that the
Complaint contains insufficient particularized facts to support a strong inference that Defendants
acted with the necessary intent to defraud its investors. (Docket No. 92 (“FCA Mem.”), at 1-4).

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APPLICABLE LEGAL STANDARDS
“In reviewing a motion to dismiss pursuant to Rule 12(b)(6), the Court must accept the
factual allegations set forth in the complaint as true and draw all reasonable inferences in favor
of the plaintiff.” Cohen v. Avanade, Inc., 874 F. Supp. 2d 315, 319-20 (S.D.N.Y. 2012) (citing
Holmes v. Grubman, 568 F.3d 329, 335 (2d Cir. 2009)). The Court will not dismiss any claims
pursuant to Rule 12(b)(6) unless the plaintiff has failed to plead sufficient facts to state a claim to
relief that is facially plausible, see Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007), that is,
one that contains “factual content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged,” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
Because they allege securities fraud, Plaintiffs here must also satisfy the heightened pleading
requirements of both Rule 9(b), which requires that the circumstances constituting fraud be
“state[d] with particularity,” Fed. R. Civ. P. 9(b), and the Private Securities Litigation Reform
Act (“PSLRA”), 15 U.S.C. § 78u-4(b), which requires that scienter — that is, a “defendant’s
intention to deceive, manipulate, or defraud” — also be pleaded with particularity, Tellabs, Inc.
v. Makor Issues & Rights, Ltd., 551 U.S. 308, 313 (2007) (internal quotation marks omitted).
To satisfy Rule 9(b), a plaintiff “must ‘(1) specify the statements that the plaintiff
contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were
made, and (4) explain why the statements were fraudulent.’” Anschutz Corp. v. Merrill Lynch &
Co., 690 F.3d 98, 108 (2d Cir. 2012) (quoting Rombach v. Chang, 355 F.3d 164, 170 (2d Cir.
2004)). To satisfy the PSLRA, a complaint must, “‘with respect to each act or omission alleged
to [constitute securities fraud], state with particularity facts giving rise to a strong inference that
the defendant acted with the required state of mind.’” ATSI Commc’ns, Inc. v. Shaar Fund, Ltd.,
493 F.3d 87, 99 (2d Cir. 2007) (quoting 15 U.S.C. § 78u-4(b)(2)(A)). A plaintiff may do so by

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alleging facts “(1) showing that the defendants had both motive and opportunity to commit the
fraud or (2) constituting strong circumstantial evidence of conscious misbehavior or
recklessness.” Id. For an inference of scienter to be “strong,” a reasonable person must “deem
[it] cogent and at least as compelling as any opposing inference one could draw from the facts
alleged.” Tellabs, 551 U.S. at 324.
DISCUSSION
Defendants move to dismiss the new emissions-related claims on the ground that
Plaintiffs fail to allege with particularity facts giving rise to a strong inference of scienter.
Notably, although the Complaint could be read to include allegations that Defendants had both
the motive and opportunity to commit the alleged fraud (see FCA Mem. 11-12 (citing
examples)), Plaintiffs do not respond to Defendants’ arguments regarding the adequacy of those
allegations. That is for good reason, as Plaintiffs fail to allege that any of the Defendants sold
shares of FCA stock during the class period. See Pirnik, 2016 WL 5818590, at *6 n.3; see also
Rombach v. Chang, 355 F.3d 164, 177 (2d Cir. 2004). To prevail, therefore, Plaintiffs must
allege either actual intent or “conscious recklessness — i.e., a state of mind approximating actual
intent, and not merely a heightened form of negligence.” Stratte-McClure v. Morgan Stanley,
776 F.3d 94, 106 (2d Cir. 2015).
Plaintiffs fail to do so. On the whole, their allegations boil down to general claims about
the importance of certain diesel-engine vehicles to the company, the unremarkable fact that
Marchionne received regular reports regarding emissions tests and that the company had audited
its vehicles for emissions compliance, FCA’s awareness that other automobile manufacturers

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were facing regulatory scrutiny for using illegal “defeat devices,” 1 and vague statements by
confidential witnesses that emissions reports were “forwarded up” through “senior” management
to reach Marchionne. (See, e.g., Docket No. 96 (“Pls.’ Opp’n”), at 2-3). Conspicuously absent,
however, are any allegations that FCA officials or Marchionne ever received test results, reports,
or other communications indicating that FCA vehicles were not in compliance with relevant
emissions regulations prior to the EPA’s and CARB’s notices on January 12, 2017. That dooms
Plaintiffs’ case for scienter here. See, e.g., Teamsters Local 445 Freight Div. Pension Fund v.
Dynex Capital Inc., 531 F.3d 190, 196 (2d Cir. 2008) (dismissing claims where the plaintiffs
failed to “specifically identif[y] any reports or statements that would have come to light in a
reasonable investigation and that would have demonstrated the falsity of the allegedly misleading
statements” (internal quotation marks and citation omitted)); Plumbers & Steamfitters Local 773
Pension Fund v. Canadian Imperial Bank of Commerce, 694 F. Supp. 2d 287, 299 (S.D.N.Y.
2010) (dismissing claims where the complaint made “no reference to internal CIBC documents
or confidential sources discrediting [the d]efendants’ assertions” and the plaintiffs “should, but

A “defeat device” is any software that allows a vehicle to “cheat” an emissions test — for
example, by turning off the engine’s emissions controls after the EPA’s testing cycle has finished
(i.e., running those controls for only 22 minutes when the emissions test is known to be capped at
20 minutes). (See Third Am. Compl. ¶ 27; FCA Mem 3-4). Notably, failure to disclose the
existence of emissions-regulating software can violate regulations even if the software does not
qualify as a “defeat device,” as an automaker must disclose any “element of design which senses
temperature, vehicle speed, engine RPM, transmission gear, manifold vacuum, or any other
parameter for the purpose of activating, modulating, delaying, or deactivating the operation of
any part of the emission control system” to receive a certificate of conformity to sell that vehicle
in the United States. 40 C.F.R. § 86.1803-01. Such software is not considered a defeat device if
it falls within certain enumerated exceptions (including, for example, to “protect[] the vehicle
against damage”), id. §§ 86.1803-01, 86.1809-10, and is then permissible if it is disclosed, see id.
§§ 86.1844-01(d)(11). As of this motion, no regulatory body has definitively found that FCA
vehicles were using illegal “defeat devices.” The January 2017 Notices of Violation alleged only
that FCA’s undisclosed software “may” constitute “defeat devices,” subject to further
investigation. (Docket No. 93, Ex. 4 at 6; id., Ex. 5 at 2).
1

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[did] not, provide specific instances in which [the d]efendants received information that was
contrary to their public declarations”); Steinberg v. Ericsson LM Telephone Co., No. 07-CV9615 (RPP), 2008 WL 5170640, at *13 (S.D.N.Y. Dec. 10, 2008) (dismissing claims where the
complaint stated only “generically” that adverse information “was contained in various 'internal
corporate documents, conversations and connections with other corporate officers and
employees, attendance at management and Board of Directors meetings and committees thereof,
and via reports’ and ‘internal non-public reports’ provided to [d]efendants”); cf. Pirnik, 2016 WL
5818590, at *2, *7 (denying Defendants’ motion to dismiss Plaintiffs’ safety-regulation-related
allegations in part based on letters from the National Highway Traffic Safety Administration
(“NHTSA”) expressing concerns with respect to certain FCA recalls, as Defendants assured
investors regarding FCA’s safety-related compliance and accountability despite “knowledge of
the company’s noncompliance with respect to at least some recalls”).
Plaintiffs point to multiple purported misrepresentations — made in FCA’s securities
filings and during earnings calls with shareholders — dating from the beginning of the class
period in October 2014 through April 2016. (See, e.g., Third Am. Compl. ¶¶ 242-44, 279-82,
302-317, 387-88). But, even on a generous read, the earliest allegation that FCA might have
known that it was not in compliance with the emissions regulations at issue is a May 23, 2016
report (the “Report”) published by Germany’s Transportation Ministry following its
investigation of Volkswagen for that company’s widespread use of defeat devices (see id. ¶¶ 2728) and excerpts from several news articles examining the implications of that report. (Id. ¶
313). According to Plaintiffs, the Report concluded there was “sufficient evidence of an
impermissible defeat device.” (Id. ¶ 27). In fact, however, that conclusion applied only to
Volkswagen; with respect to other car manufacturers, including FCA, the report expressed some

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“doubts regarding” the devices used to control emissions, but stated that “further investigation[]”
was required. German Federal Ministry of Transport and Digital Infrastructure, Report by the
“Volkswagen” Commission of Inquiry (May 23, 2016), http://www.bmvi.de/SharedDocs
/EN/publications/bericht-untersuchungskommission-volkswagen.html?nn=188294. 2 Specific to
FCA, the Report found that the four vehicle models studied all “complied” with emissions
regulations during cold tests, but exhibited variations under warmer temperatures — findings
that FCA “substantiated” as “necessary to protect the engine from damage,” which could make
such variances permissible. See, e.g., id. at 78 (Fiat Ducato 3.0); id. at 90 (Jeep Cherokee 2.0).
The Complaint also points to “some evidence” in the Report that “some” FCA models would
switch off emissions controls after twenty-two minutes (i.e, only two minutes after the end of the
standard EPA twenty-minute emissions test), but the Report ultimately concluded: “As matters
stand at present, the field investigations do not indicate any further defeat devices [beyond
Volkswagen] that are based on a test cycle recognition.” Id. at 18. 3
Thus, the Report is far from conclusive and provides little or no support for Plaintiffs’
claim that Marchionne and other FCA officials “must have known” that FCA cars had illegal

Because Plaintiffs rely heavily on the Report, the Court is free to consider it in its
entirety. See Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2002) (stating that,
when considering a motion to dismiss, a district court may “consider” a document “where the
complaint relies heavily upon its terms and effect” as that “renders the document integral to the
complaint” (internal quotation marks omitted)); Lombardi v. Whitman, 485 F.3d 73, 75-76 (2d
Cir. 2007) (considering the entire contents of a publicly available EPA report that was
“invoke[d]” in the complaint to evaluate whether statements were misleading).

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The Report does state that “[a]ll manufacturers use defeat devices per the definition set
forth in Article 3 of the Regulation (EC) No. 715/2007,” but the European definition of “defeat
device” (some of which are lawful and some of which are not) appears to be different than the
definition of that term in the United States. Id. at 119. Additionally, the Report specifically
notes that “[t]he allegation of the use of illegal defeat devices in some 3.0-litre engine models,
brought forward in the US, has not been confirmed in this form.” Id. (emphasis added).
3

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defeat devices. See, e.g., Sinay v. CNOOC Ltd., 554 F. App’x 40, 42 (2d Cir. 2014) (holding that
the plaintiffs “had not sufficiently pleaded scienter based on allegations that [the defendant]
‘must have known’ that its statements to investors were false”); Wyche v. Advanced Drainage
Sys., Inc., 15-CV-5955 (KPF), 2017 WL 971805, at * (S.D.N.Y. Mar. 10, 2017) (“[T]o the extent
that [p]laintiff is alleging [d]efendants had access to facts indicating that their representation of
the Company’s finances was false, his allegation fails. Plaintiff has not identified
contemporaneous facts, reports, or statements to which [d]efendants had access and which
contained information contrary to the information [d]efendants conveyed to the public.”). What
is more, the Report did not discuss Jeep Grand Cherokees and Dodge Ram 1500 trucks with 3.0
liter diesel engines — the two kinds of vehicles that were the subjects of the Notices of Violation
from the EPA and CARB. And even if the Report were sufficient to establish that FCA, as of
May 2016, knew or should have known that some of its vehicles were using defeat devices, the
only allegation in the Complaint regarding statements made by FCA after that date is the
remarkably vague allegation that, during a July 27, 2016 earnings call, “Marchionne discussed in
depth his opinions concerning the emissions regulations in Europe.” (Third Am. Compl. ¶ 390).
Such conclusory allegations are insufficient to meet Rule 9(b)’s particularity standard.
Plaintiffs’ confidential witness allegations do not get them across the goal line either.
Confidential Witness 1 merely observed that emissions tests “are super important” to ensure
proper certification by the EPA, while Confidential Witness 2 noted that there is “a difficult
balancing act” between “emissions, fuel economy and engine performance” and cited pressuring
from FCA officials to continually improve performance. (Third Am. Compl. ¶¶ 358, 364).
Confidential Witness 2 also stated that he or she was “not surprised” that FCA was being
investigated for potential defeat devices because “all auto manufacturers have to cheat.” (Id.

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¶ 370). But “confidential source allegations must show that individual defendants actually
possessed the knowledge highlighting the falsity of public statements; conclusory statements that
defendants ‘were aware’ of certain information, and mere allegations that defendants ‘would
have’ or ‘should have’ had such knowledge is insufficient.” Glaser v. The9, Ltd., 772 F. Supp.
2d 573, 591 (S.D.N.Y. 2011) (emphasis added); see also Local No. 38 Intern. Broth. of Elec.
Workers Pension Fund v. Am. Exp. Co., 724 F. Supp. 2d 447, 461 (S.D.N.Y. 2010) (“Notably,
these [confidential witness] allegations do not establish what specific contradictory information
the Individual Defendants received or when they received it . . . . Indeed, if ‘detailed’ reports
were circulated regularly among AMEX’s senior management, CW12 should be able to identify
the names and contents of these documents, or recount specific meetings at which the Individual
Defendants actually received contradictory information. Here again, bland assertions that they
‘would have received’ such information offer nothing concrete and are not allegations of fact.”).
Neither of Plaintiffs’ confidential witnesses alleges that Marchionne reviewed tests or reports
that actually revealed the vehicles at issue were using impermissible defeat devices.
Ultimately, aside from the January 2017 Notices of Violations (which, again, are not
necessarily as damning as Plaintiffs suggest, as the EPA found only that “one or more” of the
undisclosed devices “may be defeat devices” and that “further investigation” was necessary
(Docket No. 93 (“Levy Decl.”), Ex. 4, at 6 (emphasis added))), there are no allegations in the
Complaint inconsistent with the alternative inference proffered by FCA: that the company, in
good faith, believed these 104,000 vehicles (which constituted less than one percent of its global
sales) were in compliance with the law. FCA’s disclosure of software other than the devices for
which the company is now being prosecuted (see Docket 106 (taking judicial notice of the May
23, 2017 prosecution initiated by the Department of Justice against FCA for the alleged use of

9

defeat devices)) provides some common sense support for Plaintiffs’ argument. But it is no less
(and arguably more) plausible to think that FCA believed itself to be in compliance — as it
consistently represented — given the myriad of harsh consequences, financial and otherwise, the
company knew it would suffer if the devices were found to be illegal. See Tellabs, 551 U.S. at
324 (defining a “strong” inference of scienter as “at least as compelling as any opposing
inference one could draw from the facts”). Without any allegations that Marchionne or other
FCA officials received contradictory information or knew that the devices were not in
compliance prior to statements made during the class period, Plaintiffs’ allegations must be
dismissed. Cf., e.g. Vancouver Alumni Asset Holdings Inc. v. Daimler AG, No. 16-CV-2942
(SJO), 2017 WL 2378369, *16 (C.D. Cal. May 31, 2017) (“[T]he Complaint alleges not only that
these defendants were in a position to receive information about BlueTEC’s inability to produce
consistent ‘clean diesel’ emissions, but also that they in fact did receive such information, and
thus made knowing material misrepresentations to investors.”); In re Volkswagen ‘Clean Diesel’
Mktg. Sales Practices & Prods. Liab., 2017 WL 66281, at *12 (N.D. Cal. Jan. 4, 2017) (finding
that a complaint adequately pleaded scienter where it alleged, inter alia, that the CEO “received
multiple memoranda . . . regarding the Company’s unlawful use of defeat-device software”; an
“internal whistleblower warned [executives] that the Company was illegally manipulating
reported emissions data”; and the software manufacturer “warned [Volkswagen’s] top executives
. . . that the Company’s intended use for its emissions-regulating software was illegal”).
Accordingly, Defendants’ motion to dismiss must be and is GRANTED.
That said, the Court concludes — with some misgivings — that Plaintiffs should be given
a chance to amend their emissions-related claims. It is true that Plaintiffs have amended their
complaint three times already. (Docket Nos. 28, 38 & 69). It is true, also, that giving Plaintiffs

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another opportunity to amend will cause delay, as the Court had stayed briefing of Plaintiff’s
motion for class certification pending a determination of whether the emissions-related claims
would proceed. (Docket No. 111). 4 But “where [a] complaint is deficient under Rule 9(b), leave
to amend is usually afforded.” Official Publ’ns, Inc. v. Kable News Co., 884 F.2d 664, 669 (2d
Cir. 1989) (internal quotation marks omitted). Additionally, the operative complaint is the first
in which Plaintiffs included their emissions-related claims. Thus, Defendants’ motion — and
this ruling — are the first time that Plaintiffs have been confronted with the deficiencies in those
claims. And while Plaintiffs were granted an opportunity to amend in response to Defendants’
motion to dismiss the earlier claims — and, even more significantly, warned that they would not
be granted another opportunity to do so if they declined — Plaintiffs were given no such
opportunity and warning here. (Docket No. 34). Thus, this is not a case in which there has been
“repeated failure to cure deficiencies by amendments previously allowed.” In re Eaton Vance
Mut. Funds Fee Litig., 403 F. Supp. 2d 310, 319 (S.D.N.Y. 2005), aff’d sub nom. Bellikoff v.
Eaton Vance Corp., 481 F.3d 110 (2d Cir. 2007); see also Sanchez v. ASA Coll., Inc., 14-CV5006 (JMF), 2015 WL 3540836, at *13-14 (S.D.N.Y. June 5, 2015) (granting leave to amend to
address Rule 9(b) deficiencies even where the defendant’s motion to dismiss an earlier complaint
had raised the issue).
Additionally, the Court is not prepared to say on the current record that amendment
would be futile. See, e.g., Loreley Fin. (Jersey) No. 3 Ltd. v. Wells Fargo Sec., LLC, 797 F.3d

Additionally, Defendants suggest that this Court’s decision on whether Plaintiffs’
emissions-related claims can go forward may affect whether the case is transferred by the
Judicial Panel on Multidistrict Litigation to a multidistrict litigation proceeding in the Northern
District of California relating to emissions-related claims about certain of FCA’s diesel vehicles.
(Docket No. 107). Whether that suggestion is accurate or not, granting Plaintiffs leave to amend
will obviously defer resolution of that issue too.
4

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160, 190 (2d Cir. 2015) (holding that a district court may deny leave to amend a complaint on the
ground that amendment would be futile). Perhaps most relevant on that score, on June 20, 2017,
Plaintiffs filed a motion asking the Court to take judicial notice of a June 16, 2017 Reuters news
report titled “U.S. EPA Suspected Fiat Chrysler of Using ‘Defeat Device’ in 2015.” (Docket No.
117 (“Pls.’ Mot. Judicial Notice”); see also Docket No. 118, Ex. A (“Reuters Report”)). The
Court plainly cannot take judicial notice of the content of the Reuters Report, let alone rely on
judicial notice to deny Defendants’ motion to dismiss — substantially for the reasons stated by
Defendants in their opposition memorandum of law. (Docket No. 120). But in light of the
Reuters Report (and unspecified “additional facts that have emerged since the filing of the
[Complaint]”), Plaintiffs may be able to allege in an amended complaint additional facts with
respect to their emissions-related claims that are sufficient to clear the scienter bar. (Pls.’ Mot.
Judicial Notice 3). In particular, the Reuters Report references a January 2016 email to FCA
from Byron Bunker, Director of the EPA’s Transportation and Air Quality compliance division,
noting that “the EPA had told [FCA] officials at a November 2015 meeting that at least one
auxiliary emissions control device on the car maker’s vehicles appeared to violate the agency’s
regulations.” (Reuters Report 2). According to the Reuters Report, Mike Dahl, head of vehicle
safety and regulatory compliance for FCA U.S., responded that the company was “working
diligently and understood the EPA’s concerns” — even though Bunker’s January 2016 email
indicated that he was “very concerned about the unacceptably slow pace” of FCA’s efforts to
explain its high emissions from certain vehicles. (Id.).
Adding these allegations to the Complaint, without more, might not be enough to nudge
Plaintiffs’ claims across the threshold of validity. After all, the Reuters Report does not include
certain key facts — for instance, which car models the EPA identified as potentially utilizing a

12

defeat device and which FCA officials were at the November 2015 meeting. But if Plaintiffs are
able to elaborate on the Reuters Report’s findings — with their unspecified “additional facts” or
otherwise — those new allegations may be specific enough to show that FCA had “knowledge of
facts or access to information contradicting [its] public statements,” such that it “knew or, more
importantly, should have known that [it was] misrepresenting material facts.” Novak v. Kasaks,
216 F.3d 300, 308 (2d Cir. 2008). Indeed, if Plaintiffs can allege that the EPA gave notice to
high-level FCA officials that the vehicles at issue had unlawful defeat devices (or undisclosed
software that the company was required to disclose), their allegations would be much like those
that the Court found sufficient with respect to Plaintiffs’ allegations regarding compliance with
safety-related regulations. See Pirnik, 2016 WL 5818590, at *2, *6-7 (finding letters from
NHTSA to high-level FCA officials expressing concerns with respect to certain FCA recalls
adequately established scienter where the officials continued to assure investors regarding FCA’s
safety-related compliance and accountability despite “knowledge of the company’s
noncompliance with respect to at least some recalls”). To the extent Defendants argue that
amendment would be futile because the initiation of a formal regulatory investigation — and, by
extension, the informal expression of concern by an agency, as is the case here — does not
require disclosure under the relevant securities laws (see Docket No. 120, at 2-3), the cases it
relies on are largely inapposite because Plaintiffs allege securities fraud based on affirmative
misrepresentations of compliance, not based on the failure to disclose ongoing government
investigations. See Pirnik, 2016 WL 5818590, at *7 n.4 (discussing and declining to rely on the
same cases for similar reasons). Accordingly, amendment would not necessarily be futile.

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CONCLUSION
For the reasons stated above, Defendants’ motion to dismiss Plaintiffs’ emissions-related
claims is GRANTED, but Plaintiffs are granted leave to amend those claims; and Plaintiffs’
motion for judicial notice is DENIED.
Within one week of the date of this Opinion and Order, Plaintiffs shall inform the Court
whether they intend to amend their emissions-related claims. Plaintiffs will not be given any
further opportunity to amend the Complaint to address the issues raised by the instant motion.
If Plaintiffs choose to amend the Complaint, they must do so within two weeks of the
date of this Opinion and Order. FCA will have three weeks from the filing of any amended
complaint to answer or file a new motion to dismiss. In the meantime, the stay with respect to
Plaintiffs’ class certification motion shall remain in effect. If, however, Plaintiffs decline to
amend the Complaint again, then FCA’s opposition to the class certification motion shall be due
within two weeks of Plaintiffs’ letter regarding amendment.
The Clerk of Court is directed to terminate Docket Nos. 91, 100, and 116.

SO ORDERED.
Date: August 1, 2017
New York, New York

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