City of Dearborn Heights Act 345 Police & Fire Retirement System v. Chicago Bridge & Iron Company N.V. et al

Filing 306

OPINION AND ORDER re: 292 LETTER MOTION for Oral Argument addressed to Judge Lorna G. Schofield from Amy Pharr Hefley dated October 20, 2020. filed by Westley S. Stockton, Chicago Bridge & Iron Company N.V., Philip K. Asherman, Ron ald A. Ballschmiede, 252 MOTION for Summary Judgment on all of Plaintiffs Claims. filed by Westley S. Stockton, Chicago Bridge & Iron Company N.V., Philip K. Asherman, Ronald A. Ballschmiede. For the reasons stated above, Defendants&# 039; motion for summary judgment is granted as to the Safety Statement. Defendants' motion is denied for the remaining Challenged Statements. Defendants' motion for oral argument is denied as moot. The Clerk of Court is respectfully directed to close the docket entries at Numbers 252 and 292. (As further set forth in this Order.) (Signed by Judge Lorna G. Schofield on 8/23/2021) (cf)

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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-------------------------------------------------------------X
:
IN RE CHICAGO BRIDGE & IRON
:
COMPANY N.V. SECURITIES LITIGATION. :
-------------------------------------------------------------X

17 Civ. 1580 (LGS)
OPINION AND ORDER

LORNA G. SCHOFIELD, District Judge:
In this consolidated securities fraud class action, Plaintiffs ALSAR Ltd. Partnership,
Ironworkers Local 40, 361 and 417 Union Security Funds and Iron Workers Local 580 Joint
Funds, individually and on behalf of all other persons similarly situated, bring this class action
against Defendants Chicago Bridge & Iron Company N.V. (“CBI”), Philip K. Asherman, Ronald
A. Ballschmiede and Westley S. Stockton, alleging Defendants’ statements in relation to a
corporate acquisition violated § 10(b) and § 20(a) of the Securities Exchange Act of 1934.
Defendants move for summary judgment, claiming no reasonable jury could find that 16 of their
challenged statements were (1) false or misleading or (2) made with scienter. For the reasons
stated below, the motion is denied as to all but Defendant Asherman’s statement on CBI’s safety
practices.
I.

BACKGROUND
This background summary construes disputed facts, as required, in favor of Plaintiffs, the

non-moving parties. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986); accord Soto
v. Gaudett, 862 F.3d 148, 157 (2d Cir. 2017).
A. Factual Background
CBI is a global engineering, procurement and construction company, which provides
conceptual design, technology, engineering, procurement and other services to customers in the
energy infrastructure market worldwide. At all relevant times, Defendant Asherman was CBI’s
Chief Executive Officer (“CEO”), Defendant Ballschmiede was its Chief Financial Officer

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(“CFO”) and Defendant Stockton was its Chief Accounting Officer (collectively, the “Individual
Defendants”).
In July 2012, CBI purchased the Shaw Group (“Shaw”) for approximately $3.3 billion
(the “Shaw Acquisition”). The sale closed in February 2013. One of Shaw’s subsidiaries was the
lead contractor for the construction of nuclear power plants in Waynesboro, Georgia, and
Jenkinsville, South Carolina (collectively, the “Nuclear Projects”). Both plants were to use
AP1000 nuclear reactors newly developed by Westinghouse Electric Corporation
(“Westinghouse”). Westinghouse and the Shaw subsidiary were parties to a Consortium
Agreement whereby each was responsible for certain aspects of the Nuclear Projects. The
consortium in turn contracted with the owners of the Nuclear Projects. Prior to and after CBI’s
acquisition of Shaw, the Nuclear Projects experienced delays and cost overruns. CBI had
disputes with both Westinghouse and the owners about CBI’s entitlement to payment on the
resulting claims and unapproved change orders (“UCOs”).
Following the Shaw acquisition, Defendants made a series of disclosures to investors
between June 11, 2014, and February 4, 2015, regarding the Nuclear Projects, which lowered the
price of CBI stock. In October 2015, CBI sold Shaw’s nuclear operations to Westinghouse. That
sale included CBI’s agreement not to pursue UCOs and claims against Westinghouse.
B. Procedural Background
Various plaintiffs filed claims that Defendants made material misrepresentations
regarding losses in CBI’s nuclear business, which in turn led to investor losses during the Class
Period -- October 30, 2013, through June 23, 2015. The matters were consolidated into this
action. Judge Scheindlin was appointed special master and recommended certifying a class of
investors. Her report and recommendation was adopted and the class was certified.
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The Consolidated Amended Complaint makes broad allegations of Defendants’
misrepresentations, but generally alleges that Defendants manipulated the purchase price
accounting and financial reporting for the nuclear business to inflate financial results, refused to
write down goodwill even though they knew the business was failing, and falsely touted progress
in the Nuclear Projects. In the present motion, Defendants claim that 16 statements (the
“Challenged Statements”) were not false and misleading and not made with scienter:
1. CBI’s Q3 2013 10-Q stated that (a) contract revenue included CBI’s best estimate for
recovery amounts under existing contractual disputes and CBI did not believe any
pending disputes would have a material adverse effect on CBI’s financial position, (b) for
the nine-month period ending September 2013, no indicators of goodwill impairment
existed and so CBI recorded no goodwill impairment charge and (c) CBI’s Q3 interim
financial statements were prepared in accordance with GAAP.
2. In CBI’s Q4 2014 Earnings Release, Asherman stated CBI had “relentless focus and
commitment to safety.”
3. In CBI’s Q4 2014 Earnings Call, Asherman stated that the Nuclear Projects made good
progress during the quarter.
4. CBI’s 2013 10-K stated (a) that no goodwill impairment was recorded for 2013, “as the
fair value of each of the reporting units acquired in 2013 exceeded their respective net
book value and the fair value of all other reporting units significantly exceeded their
respective net book value” and (b) that CBI’s 2013 financial statements were prepared in
accordance with GAAP.
5. CBI’s Q1 2014 10-Q stated that (a) revenue had increased 30% compared with the prior
year period, (b) that during the three months ending March 31, 2014, no impairment of
CBI’s goodwill was noted or recorded for 2014 and (c) that CBI’s Q1 interim financial
statements were prepared in accordance with GAAP.
6. CBI’s Q1 2014 Earnings Release stated that its “revenue and earnings . . . remain solid.”
7. On CBI’s Q1 2014 Earnings Call, Asherman stated that progress was being made on the
Nuclear Projects.
8. CBI’s Q2 2014 10-Q stated that (a) during the six months ending June 30, 2014, no
goodwill impairment was identified or recorded and (b) that CBI’s Q2 interim financial
statements were prepared in accordance with GAAP.
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9. On CBI’s Q2 2014 Earnings Call, Asherman stated that CBI continued to move projects
forward at levels that delivered “growth in revenue and income from operations.”
10. On CBI’s Q2 2014 Earnings Call, Asherman stated that extensions to the Nuclear
Projects’ schedules would not affect CBI’s profitability.
11. CBI’s Q3 2014 10-Q stated that (a) during the nine months ending September 30, 2014,
no goodwill impairment was identified or recorded and (b) that CBI’s Q3 interim financial
statements were prepared in accordance with GAAP.
12. On CBI’s Q3, 2014 Earnings Call, (a) Ballschmiede said that delays in the Nuclear
Projects had caused CBI to record additional revenue from change order claims of $200
million, and that other increased costs were also recoverable under CBI’s contractual
arrangements, and (b) Asherman said that CBI anticipated contractual recovery from
design changes and that (c) CBI’s module production facility was on track to meet project
deadlines.
13. At CBI’s 2014 Investor Day Conference, Asherman acknowledged “challenges with
schedule, driven by regulatory changes in the design,” but that CBI was still “at a point of
building [the nuclear] projects, and we’re very confident that they’ll end as they’re
supposed to” and that CBI expected “more economies of scale as we go forward in the
job.”
14. CBI’s 2014 10-K stated that (a) no goodwill impairment was recorded because “the fair
value of each of our reporting units exceeded their respective net book values” and (b)
CBI’s 2014 financial statements were prepared in accordance with GAAP.
15. On CBI’s Q4 2014 Earnings Call, Asherman stated that (a) “[i]n virtually every case
[involving investor concerns as to cost overruns on the Nuclear Projects], CB&I has
contractual entitlement for these costs,” (b) CBI had been working with all parties to
resolve project issues and was getting “some traction” in settling cost disputes and (c) the
outstanding liability for contract disputes was “somewhere around $247 million, which
you can assume would be split in half by the two consortium partners.”
16. CBI’s Q1 2015 10-Q stated that (a) the fair value of each of the reporting units impacted
by a CBI operating group realignment exceeded their respective net book values, and
accordingly no impairment charge was necessary as a result of the realignment, and
during the first quarter no indicators of goodwill impairment were identified in any
reporting group and (b) CBI’s Q1 interim financial statements were prepared in
accordance with GAAP.
The Challenged Statements can be divided into the following general groups:
1. Statements that no indicators of goodwill impairment were identified, and thus that no
goodwill impairment was recorded in CBI’s periodic financial reports (“Goodwill
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Impairment Statements”).
2. Statements regarding the value of assets and liabilities acquired in the Shaw Acquisition,
resulting in retroactive adjustments to goodwill (“Purchase Price Accounting
Statements”).
3. Statements regarding revenues and liabilities based on estimated contractual recoveries
for disputes related to the Nuclear Projects, including recovery for UCOs (“Claim
Revenue Statements”).
4. Statements that CBI’s financial reports were prepared in accordance with GAAP (“GAAP
Statements”).
5. Asherman’s and CBI’s statements that the Nuclear Projects were making good progress
and were on track to deliver revenue growth (“Progress Statements”).
6. Asherman’s statement that CBI had “relentless focus and commitment to safety” (“Safety
Statement”).
C. Bankruptcy Proceeding
After this case commenced, CBI was acquired by a separate entity, which itself entered
bankruptcy proceedings in the Southern District of Texas. See In re McDermott Int’l Inc., No.
20-30336 (Bankr. S.D. Tex.). A Chapter 11 Plan (the “Bankruptcy Plan”) became effective on
June 30, 2020. Defendants were permitted to file an amended Answer raising two affirmative
defenses arising from the Bankruptcy Plan: (1) that Plaintiffs’ securities fraud claims against CBI
are “Class 14 Interests” under the Bankruptcy Plan, which do not receive any distribution or,
alternatively, that Plaintiffs’ claims against CBI are subordinated by the Bankruptcy Plan
pursuant to Bankruptcy Code Section 510(b) and (2) that Plaintiffs’ claims against the Individual
Defendants are subject to releases, except to the extent Plaintiffs claim the Individual Defendants
engaged in intentional fraud. Defendants also sought declaratory relief on these defenses in the
bankruptcy proceeding and sought an order requiring Plaintiffs to withdraw their claims in this
proceeding. On June 23, 2021, the bankruptcy court held that (1) because Plaintiffs’ claims are
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Class 14 Interests and subject to Section 510(b), Plaintiffs may continue to prosecute their claims
against CBI as a nominal defendant solely to recover against any available insurance proceeds
and (2) Plaintiffs’ claims against the Individual Defendants are barred except to the extent those
claims involve allegations that the Individual Defendants’ actions constituted actual fraud. The
§ 10(b) and Rule 10b-5 securities fraud claim is not barred as it is a claim of actual fraud
requiring proof of scienter, which is discussed below. The § 20(a) claim is not barred because it
also is a claim of actual fraud and requires proof “that the defendant was, in some meaningful
sense, a culpable participant in the controlled person’s fraud.” Carpenters Pension Tr. Fund of
St. Louis v. Barclays PLC, 750 F.3d 227, 236 (2d Cir. 2014) (quoting ATSI Commc’ns, Inc. v.
Shaar Fund, Ltd., 493 F.3d 87, 108 (2d Cir. 2007)).
II.

STANDARD
A. Summary Judgment
Summary judgment is proper where the record establishes that “there is no genuine

dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R.
Civ. P. 56(a). A genuine dispute exists “if the evidence is such that a reasonable jury could return
a verdict for the nonmoving party.” Fireman’s Fund Ins. Co. v. Great Am. Ins. Co. of New York,
822 F.3d 620, 631 n.12 (2d Cir. 2016) (quoting Anderson, 477 U.S. at 248 (1986)). The movant
bears the initial burden of demonstrating the absence of a genuine dispute of material fact. Fed.
R. Civ. P. 56(c)(1); Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Victory v. Pataki, 814
F.3d 47, 58-59 (2d Cir. 2016), as amended (Feb. 24, 2016). Courts must construe the evidence
and draw all reasonable inferences in the non-moving party’s favor. See Wright v. New York
State Dep’t of Corr., 831 F.3d 64, 71-72 (2d Cir. 2016). “[O]nly disputes over facts that might
affect the outcome of the suit under the governing law will properly preclude the entry of
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summary judgment.” Pippins v. KMPG, LLP, 759 F.3d 235, 252 (2d Cir. 2014) (quoting
Anderson, 477 U.S. at 248).
B. Securities Fraud Under Section 10(b) and Rule 10b-5
In order to prevail on a claim of securities fraud under § 10(b) and Rule 10b-5, a plaintiff
must prove (1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a
connection between the misrepresentation or omission and the purchase or sale of a security; (4)
reliance upon the misrepresentation or omission; (5) economic loss and (6) loss causation. Singh
v. Cigna Corp., 918 F.3d 57, 62 (2d Cir. 2019); accord In Re Perrigo Company PLC Sec. Litig.,
No. 19 Civ. 70, 2021 WL 3005657, at *4 (S.D.N.Y. July 15, 2021). Only the issues of
misrepresentation/omission and scienter are at issue in the present motion.
1. Material Misrepresentations and Omissions
Rule 10b-5 prohibits persons from (1) making “any untrue statement of a material fact”
and (2) from “omit[ting] to state a material fact necessary in order to make [ ] statements made,
in the light of the circumstances under which they were made, not misleading” in connection
with the purchase or sale of any security. 17 C.F.R. § 240.10b-5(b). “[B]oth statements of fact
and those of opinion [are] actionable when such statements would be misleading without the
contextualization of material facts.” Abramson v. Newlink Genetics Corp., 965 F.3d 165, 174 (2d
Cir. 2020). A statement of opinion may be challenged in two ways: (1) by showing that the
“statement of opinion contained one or more embedded factual statements that can be proven
false” or (2) by showing that the “statement of opinion, without providing critical context,
implied facts that can be proven false.” Id. (citing Omnicare, Inc. v. Laborers Dist. Council
Const. Industry Pension Fund, 575 U.S. 175, 187 n.4 (2015)). The second inquiry is analyzed
from the perspective of a reasonable investor, taking into account (1) the customs and practices of
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the relevant industry, (2) whether the opinion was expressed in a formal statement, such as a
regulatory filing, or in an off-the-cuff manner and (3) that investors understand that opinions rest
on the weighing of competing facts, and thus that a single fact cutting the other way does not
render an opinion false. Id. Finally, “[g]eneric, indefinite statements of corporate optimism
typically are not actionable,” and corporate officials need not “present an overly gloomy or
cautious picture of current performance and future prospects” as reasonable investors do not
“place substantial reliance on generalizations regarding a company’s health or the strength of a
company’s product.” Id. at 173-74. Instead, “puffery” by corporate officials -- such as
statements that performance is “encouraging” or an “improvement” -- is actionable only when
the speaker “knew that the contrary was true.” Id. at 174.
A false statement or omission is material “if there is a substantial likelihood that a
reasonable person would consider it important in deciding whether to buy or sell shares of stock.”
In re Mindbody, Inc. Sec. Litig., 489 F. Supp. 3d 188, 202 (S.D.N.Y. 2020) (quoting Operating
Loc. 649 Annuity Tr. Fund v. Smith Barney Fund Mgmt. LLC, 595 F.3d 86, 92-93 (2d Cir. 2010)).
Materiality is an “inherently fact-specific finding,” Litwin v. Blackstone Grp., L.P., 634 F.3d 706,
716 (2d Cir. 2011), that “generally should be presented to a jury,” Veleron Holding, B.V. v.
Morgan Stanley, 117 F. Supp. 3d 404, 430 (S.D.N.Y. 2015) (quoting Press v. Chemical Inv. Servs.
Corp., 166 F.3d 529, 538 (2d Cir. 1999)). See also TSC Indus., Inc. v. Northway, Inc., 426 U.S.
438, 450 (1976) (stating that at summary judgment, the “determination [of materiality] requires
delicate assessments of the inferences a ‘reasonable shareholder’ would draw from a given set of
facts and the significance of those inferences to him, and these assessments are peculiarly ones
for the trier of fact.”).

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2. Scienter
“A false statement was made with the requisite scienter if it was made with the intent to
deceive, manipulate, or defraud.” Sec. & Exch. Comm’n v. Frohling, 851 F.3d 132, 136 (2d Cir.
2016) (internal quotation marks omitted). “Scienter may be established through a showing of
reckless disregard for the truth, that is, conduct which is highly unreasonable and which
represents an extreme departure from the standards of ordinary care.” Id. at 136 (internal
quotation marks and alterations omitted). “[C]ourts should be ‘lenient in allowing scienter issues
to withstand summary judgment based on fairly tenuous inferences,’ because such issues are
‘appropriate for resolution by the trier of fact.’” Gruber v. Gilbertson, No. 16 Civ. 9727, 2021
WL 2482109, at *12 (S.D.N.Y. June 17, 2021) (quoting In re DDAVP Direct Purchaser Antitrust
Litig., 585 F.3d 677, 693 (2d Cir. 2009)).
III.

DISCUSSION
A. Statements of Opinion
Defendants argue that the Challenged Statements were statements of opinion, and thus

must be evaluated under the Omnicare standard, which looks for (1) embedded false factual
statements or (2) lack of context suggesting an untruth, evaluated from the perspective of a
reasonable investor. Abramson, 965 F.3d at 174. “By increasing the ability of plaintiffs to plead
material omissions with respect to statements of opinion as described above, Omnicare reduced
the significance of district courts’ classification of statements as those of fact or opinion.” Id. at
176. In this case, regardless of whether the Challenged Statements are assessed as a misstatement
of fact or opinion, a reasonable jury could find that all but one of them provided inadequate

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context, with the effect of suggesting facts starkly at odds with much of the record evidence.
B. Goodwill Statements 1
GAAP required CBI to ascertain the fair value of all of Shaw’s tangible and intangible
assets and liabilities as of the closing date, allocate the $3.3 billion purchase price to them, and
record the excess of purchase price over the fair value as goodwill. GAAP requires that this
goodwill figure be updated following an initial acquisition if new information about facts and
circumstances that existed at the time of acquisition caused a change in the calculation of
goodwill. GAAP also requires that goodwill be tested for impairment on an annual basis and
between annual tests in the event changed circumstances would reduce the fair value of a
reporting business unit below that recorded in a company’s accounts.
The goodwill recorded by CBI in connection with the Shaw Acquisition was $2.5 billion
on February 13, 2013, and rose to approximately $3.3 billion by the end of 2013 -- roughly equal
to the price CBI paid for Shaw. Following CBI’s sale of its nuclear business to Westinghouse,
CBI determined that $191 million of goodwill was allocable to the Nuclear Projects.

1

Plaintiffs rely in part on the reports of their experts, Harris Devor and William Purcell. In their
reply brief, Defendants raise a hearsay objection to Plaintiff’s reliance on documents not in the
record except that they are referenced by Plaintiff’s experts. This objection is unavailing. First,
Federal Rule of Evidence 703 permits disclosure to a jury of otherwise inadmissible documents
relied upon by an expert if experts in the field would reasonably rely on those kinds of facts or
data, and if their probative value outweighs any prejudicial effect. Second, this Opinion and
Order relies on the expert opinions in the record, documents in the record and CBI’s public
filings, which are in the record, and of which the Court in any event may take judicial notice. See
In re Pareteum Sec. Litig., No. 19 Civ. 9767, 2021 WL 3540779, at *2 n.1 (S.D.N.Y. Aug. 11,
2021) (citing In re Morgan Stanley Info. Fund Sec. Litig, 592 F.3d 347, 354 n.5 (2d Cir. 2010)).
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1. Misrepresentation or Omission
Plaintiffs argue that CBI organized its financial reporting units in a manner that “avoided
reporting goodwill impairments during the Class Period.” Defendants do not dispute that, rather
than making disclosures regarding goodwill for its Nuclear unit -- which included the Shaw
acquisition -- CBI made disclosures for its Power unit, of which the Nuclear unit was one
component. Defendants acknowledge that this choice of reporting unit allowed CBI to avoid
recording estimated negative cash flows from the Nuclear Projects in regulatory filings, so long
as they were exceeded by the estimated positive cash flows from the rest of the Power unit. This
in turn enabled CBI to avoid recording goodwill impairments that would have revealed
significant deterioration in the Nuclear Projects.
The record shows that Defendants were aware of issues with the Nuclear Projects with
potentially significant effects on the goodwill recorded for the Shaw Acquisition, including (1)
delays and dysfunction on the Nuclear Projects acquired from Shaw and (2) that Shaw’s nuclear
build business was declining in value during the year after it was acquired. A reasonable jury
evaluating this evidence could conclude that Defendants’ choice of reporting unit, coupled with
evidence of goodwill impairments associated with Defendants’ nuclear business, hid material
context about the nuclear business and its goodwill from investors and thus made the Goodwill
Statements misrepresentations for purposes of Rule 10b-5.
In response, Defendants claim they were permitted to merge reporting units in this
manner pursuant to GAAP. Even if true, this argument is unpersuasive. “GAAP itself recognizes
that technical compliance with particular GAAP rules may lead to misleading financial
statements, and imposes an overall requirement that the statements as a whole accurately reflect
the financial status of the company.” United States v. Ebbers, 458 F.3d 110, 126 (2d Cir. 2006);
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accord In re Signet Jewelers Ltd. Sec. Litig., No. 16 Civ. 6728, 2019 WL 3001084, at *14
(S.D.N.Y. July 10, 2019); In re Lehman Bros. Sec. & Erisa Litig., 799 F. Supp. 2d 258, 279
(S.D.N.Y. 2011). Defendants also argue that CBI’s external auditors reviewed its disclosures and
deemed them reasonable, and that the SEC closed an investigation into CBI’s accounting
practices after noting that it had not reached any conclusion as to the propriety of those practices.
These arguments at most show that a material dispute of fact exists as to whether the Goodwill
Statements were in fact misstatements and whether Defendants acted with scienter, considering
the countervailing evidence that: (1) CBI reported no goodwill impairments during the Class
Period despite evidence of potential impairments; (2) CBI’s accounting during the Class Period
increased the goodwill resulting from the Shaw Acquisition to the price CBI paid for Shaw,
indicating that Shaw’s other net assets had essentially no value and (3) following CBI’s sale of its
nuclear build business at a $1 billion loss, it significantly wrote down the goodwill associated
with the Nuclear Projects. A reasonable jury evaluating this evidence could conclude that the
Goodwill Statements were misleading.
2. Scienter
A reasonable jury could find the Goodwill Statements were made with a reckless
disregard for the truth. As described above, CBI elected to merge accounting for its Nuclear unit
into the Power unit -- and thus avoid disclosing any goodwill impairment related to the Nuclear
Projects -- despite those projects suffering from numerous business and regulatory problems.
Mindful that scienter issues are best addressed by the finder of fact, Defendants are denied
summary judgment on this issue.

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C. Purchase Price Accounting Statements
During the Class Period, Defendants made repeated adjustments to CBI’s purchase price
accounting for Shaw, which consisted of increasing the assumed costs to complete the Nuclear
Projects, which was offset by a corresponding increase to goodwill, an asset. This accounting
treatment meant that CBI did not record the estimated cost increases as expenses, which would
have reduced earnings in CBI’s current income statement. Plaintiffs argue this adjustment
effectively allowed CBI to utilize a “cookie jar” reserve of goodwill that was used to offset costs
and artificially inflate CBI’s profitability during the Class Period.
1. Misrepresentation or Omission
The record shows that, between the first and fourth quarter of 2013, CBI recorded
purchase price adjustments (“PPAs”) that reallocated the Shaw purchase price between goodwill
and other assets and liabilities. Specifically, CBI revised the value of liabilities acquired in the
Shaw Acquisition by recording PPAs that approximately doubled the amount of liabilities for
contracts related to the Nuclear Projects, from $1.1 billion to $2.3 billion. These increased
liabilities reduced the net assets (exclusive of goodwill) that CBI acquired from Shaw to close to
zero, resulting in an $847 million increase to goodwill from the Shaw acquisition to a total of
$3.3 billion -- approximately equal to the price CBI paid for Shaw. CBI’s financial statements
did not explain why the estimate of liability to complete the Nuclear Projects more than doubled
from the time of the acquisition over the course of a year. By recording the increased costs
associated with the contracts as PPAs rather than expenses, CBI was representing that, per the
requirements of GAAP, the PPAs were made based on new information obtained about the facts
and circumstances that existed at the time of the acquisition.

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A dispute of material fact exists as to whether this representation was true. Based on the
evidence construed in favor of Plaintiffs, a reasonable jury could conclude that (1) the Nuclear
Projects had negative cash flows, which could reduce income and profitability, but PPAs
provided an avenue to book certain costs in a way that would not reduce income and profitability
and (2) CBI’s 2013 PPAs arose from new information about negative facts and circumstances that
did not exist at the time of the acquisition. In light of this evidence, a reasonable jury could
conclude that the Purchase Price Accounting Statements and associated GAAP Statements were
false and could mislead investors about (1) the current performance and outlook for the contracts
related to the Nuclear Projects and (2) CBI’s profitability.
In response, Defendants observe that no purchase as complex as the Shaw Acquisition is
fully and accurately valued at closing, which is why GAAP permits PPAs for a period following
the acquisition. This argument does not eliminate the above factual dispute regarding whether
CBI accurately stated that its PPAs were proper under purchase accounting rules.
2. Scienter
As with the Goodwill Statements, the Purchase Price Accounting Statements and
associated GAAP Statements were made despite internal indications that they were (1) based on
inaccurate or incomplete information or (2) did not adequately capture Shaw’s value at the time
of acquisition, but instead reflected post-acquisition activity not attributable to the claimed
goodwill increase under purchase accounting rules. A reasonable jury could find that these
statements were made with a reckless disregard for the truth. Defendants are denied summary
judgment on this issue.

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D. Claim Revenue Statements
1. Misrepresentation or Omission
A reasonable jury could conclude that Defendants’ statements regarding expected revenue
from contractual disputes -- primarily with Westinghouse and the owners of the Nuclear Projects
-- misled investors. Defendants consistently represented that their best estimates of anticipated
contract revenue would not create any material adverse effect on CBI’s financial position, and
provided specific projections of estimated unrecoverable contract revenue. At the same time,
record evidence suggests that (1) CBI did not expect significant recovery from Westinghouse due
to the strained nature of the relationship between the parties and the degree of cost overruns on
the Nuclear Projects and (2) CBI eventually considered ceasing work, pursuing litigation against
Westinghouse and transferring ownership of the Nuclear Projects due to continued nonpayment
of contractual revenue. A reasonable jury evaluating this evidence could conclude that the Claim
Revenue Statements, by omitting this context, suggested that recovery was far more likely than it
actually was.
In response, Defendants correctly note that corporate statements need not disclose every
adverse fact, and that corporate statements should not be judged with the benefit of hindsight.
This argument is unpersuasive due to the stark difference between the Claim Revenue Statements
and Defendants’ internal assessment of the likelihood of recovering claim revenue.
2. Scienter
As with the Goodwill and Purchase Price Accounting Statements, the Claim Revenue
Statements were made despite internal indications that estimated contractual recoveries would be
(1) much lower than projected and (2) significantly more difficult to obtain than represented. A
reasonable jury could find that these statements were made with a reckless disregard for the truth,
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and Defendants are denied summary judgment on this issue.
E. GAAP Statements
Under SEC rules, “financial statements which are not prepared in accordance with GAAP
are presumptively misleading or inaccurate.” Indiana Pub. Ret. Sys. v. SAIC, Inc., 818 F.3d 85,
93 (2d Cir. 2016) (quoting 17 C.F.R. § 210.4-01(a)(1)); accord Perrigo, 2021 WL 3005657, at
*5. However, compliance with GAAP does not equate to no securities fraud -- statements can be
false even if Defendants did not run afoul of GAAP. Ebbers, 458 F.3d at 126 (2d Cir. 2006);
accord In re Signet, 2019 WL 3001084, at *14. The parties’ arguments regarding the GAAP
Statements largely turn on whether CBI’s accounting methods in relation to the Goodwill and
Purchase Price Accounting Statements were misleading by virtue of being noncompliant with
GAAP. Because, as discussed above, factual issues preclude finding the Goodwill Statements
were true and made without scienter regardless of whether those statements were GAAPcompliant, this Opinion and Order does not address whether Defendants complied with GAAP
with respect to the Goodwill Statements. As described above, factual disputes preclude summary
judgment on whether the GAAP Statements were true with regard to the Purchase Price
Accounting Statements.
F. Progress Statements
1. Misrepresentation or Omission
A reasonable jury could conclude that the Progress Statements misled reasonable
investors. Defendants consistently stated that the Nuclear Projects were making good progress
and on track, and that delays and cost overruns would not impact CBI’s revenue and profitability
estimates. There is sufficient record evidence to the contrary for a reasonable jury to conclude
that the Progress Statements, by omitting context regarding significant issues on the Nuclear
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Projects, misled investors. As described above, the record contains evidence from which a
reasonable jury could conclude that (1) there were significant delays and logistical issues on the
Nuclear Projects; (2) cash flows and revenues from the Nuclear Projects were poor and (3) CBI
was unlikely to recover projected cost overruns from contractual disputes. In light of those
record issues, a reasonable jury could find the Progress Statements misleading.
2. Scienter
As with the other Challenged Statements, the stark difference between the content of the
Progress Statements and the potentially contradictory record facts would permit a reasonable jury
to conclude that the Progress Statements were made with reckless disregard for the truth.
Defendants are denied summary judgment on this issue.
G. Safety Statement
The Safety Statement -- that CBI had a “relentless focus and commitment to safety” -- is
non-actionable puffery. Generic aspirational statements of this type are “quintessential
examples” of puffery on which no reasonable investor would rely. See, e.g., Ong v. Chipotle
Mexican Grill, Inc., 294 F. Supp. 3d 199, 232 (S.D.N.Y. 2018) (holding that defendant’s
statement that it was “committed to serving safe, high quality food to [its] customers” to be
puffery).
In response, Plaintiffs note that Asherman possessed information discussing safety issues
with the Nuclear Projects, including letters from employees, a notice of noncompliance from the
Nuclear Regulatory Commission and two consultants’ assessments raising safety issues. That
safety issues existed on the Nuclear Projects does not render Asherman’s general statement
regarding CBI’s focus on safety anything other than puffery. Because no reasonable jury could
find an investor would have found the Safety Statement anything but puffery, summary judgment
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is granted to Defendants on this issue.
IV.

CONCLUSION
For the reasons stated above, Defendants’ motion for summary judgment is granted as to

the Safety Statement. Defendants’ motion is denied for the remaining Challenged Statements.
Defendants’ motion for oral argument is denied as moot. The Clerk of Court is respectfully
directed to close the docket entries at Numbers 252 and 292.
Dated: August 23, 2021
New York, New York

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