Touchstone Strategic Trust et al v. General Electric Company et al

Filing 48

OPINION AND ORDER: re: 23 MOTION to Dismiss the Amended Complaint filed by Keith S. Sherin, Jeffrey S. Bornstein, Jeffrey R. Immelt, General Electric Company. For the reasons stated above, Defendants' motion to dismiss must be and is GRAN TED. That leaves the question of whether Plaintiffs should be granted leave to amend. Although leave to amend should be freely given "when justice so requires," Fed. R. Civ. P. 15(a)(2), it is "within the sound discretion of the distri ct court to grant or deny leave to amend," Broidy Cap. Magmt. LLC v. Benomar, 944 F.3d 436, 447 (2d Cir. 2019) (internal quotation marks omitted). Here, Plaintiffs do not request leave to amend, and the Court declines to grant them leave sua spo nte for several reasons. First and foremost, Plaintiffs were already granted two opportunities to amend - first, in response to the Court's decision in Sjunde, see ECF Nos. 15, 18, and, second, in response to Defendants' initial motion to d ismiss, see ECF No. 23.5 Moreover, when granting Plaintiffs leave to amend in response to Defendants' initial motion to dismiss, the Court expressly cautioned that "Plaintiffs will not be given any further opportunity to amend the complaint to address issues raised by the motion to dismiss." ECF No. 26. In light of that history, Plaintiffs' "failure to fix deficiencies in its previous pleadings is alone sufficient ground to deny leave to amend sua sponte." Transeo S .A.R.L. v. Bessemer Venture Partners VI L.P., 936 F. Supp. 2d 376, 415 (S.D.N.Y. 2013) (citing cases). Finally, Plaintiffs do not request leave to amend for a third time and do not suggest that they are in possession of facts that would cure the prob lems with their claims. See, e.g., Clark v. Kitt, No. 12-CV-8061 (CS), 2014 WL 4054284, at *15 (S.D.N.Y. Aug. 15, 2014) ("A plaintiff need not be given leave to amend if [it] fails to specify how amendment would cure the pleading deficiencies in [its] complaint."). Accordingly, the Court declines to grant Plaintiffs leave to amend sua sponte. See, e.g., Bromfield-Thompson v. Am. Univ. of Antigua, No. 20-3855, 2021 WL 4931953, at *2 (2d Cir. Oct. 22, 2021) (summary order) (finding no ab use of discretion where the plaintiff "did not request leave to amend her complaint a second time in the district court, and the district court clearly warned her that she would forfeit the chance to address any issues raised in the motions to d ismiss if she did not address those issues in her amended complaint."). The Clerk of Court is directed to terminate ECF No. 23 and close this case. SO ORDERED. (Signed by Judge Jesse M. Furman on 9/28/2022) (ama) Transmission to Orders and Judgments Clerk for processing.

Case 1:19-cv-01876-JMF Document 48 Filed 09/28/22 Page 1 of 16

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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:
TOUCHSTONE STRATEGIC TRUST et al.,
:
:
Plaintiffs,
:
:
-v:
:
GENERAL ELECTRIC COMPANY et al.,
:
:
Defendants.
:
:
---------------------------------------------------------------------- X

19-CV-1876 (JMF)
OPINION AND ORDER

JESSE M. FURMAN, United States District Judge:
Plaintiffs, a group of Ohio-based entities, 1 bring claims under Sections 10(b) and 20(a) of
the Securities Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C. §§ 78j(b), 78t(a), and
Securities and Exchange Commission (“SEC”) Rule 10b-5 (“10b-5”), 17 C.F.R. § 240.10b-5;
under the Ohio Securities Act, O.R.C. § 1707.43; and for common law fraud against Defendants
General Electric Company (“GE”) and four of its former executives, Jeffrey R. Immelt, Jeffrey
S. Bornstein, Jamie S. Miller, and Keith S. Sherin. Many of Plaintiffs’ claims mirror those
brought on behalf of a putative class in Sjunde AP-Fonden v. General Electric Co., No. 17-CV8457 (JMF) (S.D.N.Y) (the “Sjunde Class Action”), claims that the Court largely — although not
entirely — dismissed in a pair of earlier rulings. See Sjunde AP-Fonden v. Gen. Elec. Co., 417
F. Supp. 3d 379 (S.D.N.Y. 2019) (“Sjunde I”); Sjunde AP-Fonden v. Gen. Elec. Co., No. 17-CV8457 (JMF), 2021 WL 311003 (S.D.N.Y. Jan. 29, 2021) (“Sjunde II”). Their other claims are
similar to those brought on behalf of a putative class in In re General Electric Securities
1

Plaintiffs are Touchstone Strategic Trust, Touchstone Variable Series Trust, the Western
and Southern Life Insurance Company, Western-Southern Life Assurance Company, Western &
Southern Financial Group, Inc., and Integrity Life Insurance Company.

Case 1:19-cv-01876-JMF Document 48 Filed 09/28/22 Page 2 of 16

Litigation, No. 19-CV-1013 (DLC) (S.D.N.Y), claims that the Honorable Denise L. Cote
dismissed over two years ago, see In re Gen. Elec. Sec. Litig., No. 19-CV-1013 (DLC) 2020 WL
2306434 (S.D.N.Y. May 7, 2020) (“TRS”), aff’d, 844 F. App’x 385 (2d Cir. 2021) (summary
order). Defendants now move, pursuant to Rule 12(b)(6) of the Federal Rules of Civil
Procedure, to dismiss the claims in this case. For the reasons that follow, the motion is
GRANTED.
A WORD ON PLAINTIFFS’ SOURCES
As a threshold matter, the Court must briefly address some of the sources on which
Plaintiffs rely for the allegations in their Complaint. Plaintiffs, who have opted out of putative
class actions in Sjunde and TRS, see Sjunde Class Action, ECF No. 343 (confirming that
Plaintiffs opted-out of the class certified in Sjunde), bring three sets of claims in their Second
Amended Complaint (the “SAC”), ECF No. 33 (“SAC”), most of which the Court or Judge Cote
addressed previously, see Sjunde I, 417 F. Supp. 3d 379, Sjunde II, 2021 WL 311003, TRS, 2020
WL 2306434. 2 Plaintiffs’ claims rest on many of the very same allegations made in the putative
class actions, including information derived from former employee confidential witnesses set
forth in the Sjunde operative complaint, see Sjunde Class Action, ECF No. 191 (“CAC”), that
Plaintiffs here concededly did not interview themselves. SAC ¶¶ 77, 183-84; ECF No. 40 (“Pls.’
Opp’n”), at 6. In an effort to bolster their allegations, Plaintiffs also rely heavily on an Order
memorializing a settlement between the SEC and GE, ECF No. 37-27 (“SEC Order”); see, e.g.,
SAC ¶¶ 4, 9, 12, 16, 19-20, 48, 54, 57, 59-61, 64-65, 66-67, 72, 74-79, 82, 91, 93, 141, 174-81,

2

The Court incorporates by reference the discussion of both the relevant background and
the applicable legal standards in Sjunde I and Sjunde II, and TRS, familiarity with which is
presumed. See Sjunde I, 417 F. Supp. 3d 379, Sjunde II, 2021 WL 311003, TRS, 2020 WL
2306434. The Court discusses allegations relevant to this motion in the discussion that follows.

2

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213, as well as investigative reporting, including articles published in the Wall Street Journal,
ECF No. 37-23, and a book titled Lights Out: Pride, Delusion, and the Fall of General Electric,
ECF No. 37-26; see, e.g., SAC ¶¶ 4-5, 9-11, 13-14, 20, 39, 49-50, 62-65, 68, 70, 73, 103-12,
117-20, 122, 150, 182-83.
The Court recently addressed an overlapping set of claims brought against GE based on
many of the same sources — namely, the confidential witnesses set forth in the Sjunde operative
complaint and the SEC Order. See Amorosa v. Gen. Elec. Co., No. 21-CV-3137 (JMF), 2022
WL 3577838 (S.D.N.Y. Aug. 19, 2022) (“Amorosa”). As the Court explained there, “[c]ourts
‘generally do not consider averments taken directly from uncorroborated allegations embedded
in a complaint in another action or parroted allegations for which counsel has not conducted
independent investigation.’” Id. at 1 (quoting N. Collier Fire Control & Rescue Dist. Firefighter
Pension Plan & Plymouth Cnty. Ret. Ass’n v. MDC Partners, Inc., No. 15-CV-6034 (RJS), 2016
WL 5794774, at *8 (S.D.N.Y. Sept. 30, 2016)). More specifically, the Court noted that “‘[w]hen
citing alleged confidential witnesses in a complaint, the certification means that counsel has
spoken with these confidential witnesses and knows who they are.’” Id. (quoting In re Lehman
Bros. Sec. & Erisa Litig., No. 09-MD-2017 (LAK), 2013 WL 3989066, at *4 (S.D.N.Y. July 31,
2013)). Thus, reliance on “the statements of confidential witnesses in another complaint . . . is
impermissible, particularly in light of counsel’s personal non-delegable responsibility under Rule
11 [of the Federal Rules of Civil Procedure] to validate the truth and legal reasonableness of the
papers filed.” Id. (cleaned up). This reasoning applies in equal force to the Complaint here.
In Amorosa, the Court found that reliance on the SEC Order was also problematic. As
the Court noted, “the Second Circuit has held that ‘portions of [an] SEC order quoted in [a]
complaint are in the nature of allegations “upon information and belief,” which cannot ordinarily

3

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form the basis of a fraud claim.’” Id. at *2 (quoting Loreley Fin. (Jersey) No. 3 Ltd. v. Wells
Fargo Sec., LLC, 797 F.3d 160, 180 (2d Cir. 2015)). Moreover, “the Second Circuit has
cautioned that ‘a consent judgment between a federal agency and a private corporation which is
not the result of an actual adjudication of any of the issues’ — such as the SEC Order in this
case, which includes a proviso that GE neither admits nor denies the SEC’s allegations —
‘cannot be used as evidence in subsequent litigation between that corporation and another
party.’” Id. (quoting Lipsky v. Commonwealth United Corp., 551 F.2d 887, 893 (2d Cir. 1976))
(citation omitted). Thus, “[a]lthough there is no absolute rule barring a private plaintiff from
relying on government pleadings and proceedings in order to meet the requirements of Rule 9(b)
of the Federal Rules of Civil Procedure and the Private Securities Litigation Reform Act of 1995
(‘PSLRA’), a court must be mindful of the limitations of such records.” Id. (cleaned up). Once
again, these observations apply in equal force to Plaintiffs reliance on the SEC Order here.
Finally, Plaintiffs’ reliance on investigative reporting is not inherently suspect or
problematic. See, e.g., Altimeo Asset Mgmt. v. Qihoo 360 Tech. Co., 19 F.4th 145, 150-51 (2d
Cir. 2021) (relying in part on news reporting to infer that a statement in the defendant company’s
proxy materials was misleading and reversing the district court, which had disregarded the
articles on the ground that they did not provide sufficient details). That said, such allegations
“should be credited only to the extent that other factual allegations would be — if they are
sufficiently particular and detailed to indicate their reliability.” In re Optionable Sec. Litig., 577
F. Supp. 2d 681, 690 (S.D.N.Y. 2008). Put differently, “[c]onclusory allegations of wrongdoing
are no more sufficient if they come from a newspaper article [or book] than from plaintiff’s
counsel.” Id.
With that, the Court will turn to Plaintiffs’ claims.

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DISCUSSION
Plaintiffs’ claims relate to Defendants’ statements or omissions with respect to three
topics. Plaintiffs’ first set of claims, which mirrors claims that were brought in Sjunde, concerns
GE Power’s long term service agreements (“LTSAs”), and, in particular, GE’s use of factoring
or deferred monetization. SAC ¶¶ 52-100; ECF No. 40 (“Pls.’ Opp’n), at 2, 13-25; see also
Sjunde I, 417 F. Supp. 3d at 387-89, 404-14. Their second set of claims, which also mirrors
claims that were brought in Sjunde, concerns GE’s long-term care (“LTC”) insurance portfolio.
SAC ¶¶ 149-215; Pls.’ Opp’n 2, 9-13; see also Sjunde I, 417 F. Supp. 2d at 385-87, 392-404.
Their final set of Section 10(b) and Rule 10b-5 claims, which mirror claims that were brought in
TRS, relate to GE’s November 2015 acquisition of Alstom’s Thermal, Renewables and Grid
businesses. SAC ¶¶ 101-148; Pls.’ Opp’n 2, 26-37; see also TRS, 2020 WL 2306434.
The Court will discuss each in turn, followed by Plaintiffs’ claims for scheme liability,
violation of the Ohio Securities Act, and for common law fraud.
A. LTSA-Related Claims
In their first set of claims, Plaintiffs allege that “GE Power executives manipulated LTSA
revenues to create the illusion that revenues were growing organically when they were the result
of adjustments to cost estimates” and, then, “to conceal that there was no real cash coming
through the door[,] . . . dramatically increased their use of factoring.” Pls.’ Opp’n 14; cf. Sjunde
I, 417 F. Supp. 3d at 404-15 (addressing “Plaintiffs’ claims that GE fraudulently engaged in a
variety of ‘unsustainable’ business practices relating to its LTSAs . . . with GE Power customers
in an effort to conceal poor performance following a worldwide downturn in energy equipment
usage”). Plaintiffs contend that Defendants were required, but failed, to disclose its reduction of
cost estimates on its LTSAs, known as “cost adjustments,” as a trend under Item 303 and, more

5

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generally, because the failure to disclose such changes rendered various statements about the
growth of the Power segment false or misleading. See Pls.’ Opp’n 15-16; SAC ¶ 65.
To begin, the Court dismissed similar claims in Sjunde and Amorosa. See Sjunde I, 417
F. Supp. 3d at 407-08 (dismissing the claim of a purported “trend” of “eliminat[ing] the GEsourced labor requirements in LTSAs, thereby raising the profit margin”); Sjunde II, 2021 WL
311003, at *10 (dismissing the claim of a purported “trend” of “GE’s reliance on LTSA
modifications”); Amorosa, 2022 WL 3577838, at *3 (dismissing the claim of a purported trend
of GE’s “reduction of cost estimates on its LTSAs”). Plaintiffs argue that the allegations in the
SAC remedy the “core defect in the [Sjunde] class complaint,” citing to a paragraph of the SAC
that, in turn, cites portions of the SEC Order, see Pls.’ Opp’n 15 (citing SAC ¶ 66, which cites
SEC Order ¶ 6). But the Court previously considered the allegations in the SEC Order, which
was submitted by the parties in connection with the Court’s adjudication of the motion to dismiss
the Sjunde CAC, and concluded that it “d[id] not change [the Court’s] analysis” that the majority
of the allegations in the Sjunde CAC — and, by extension, in Plaintiffs’ SAC here — are
insufficient to state a claim. Sjunde II, 2021 WL 311003, at *14.
In any event, notwithstanding Plaintiffs’ additional allegations with respect to scienter,
see SAC ¶¶ 11, 68, claims based on these statements fail for a simple reason: GE did disclose
that it regularly revised its estimates, including due to cost changes, and disclosed the amount
that these revisions had increased its earnings. See ECF No. 38 (“Defs.’ Mem.”) 16 (citing GE’s
SEC filings); see, e.g., ECF No. 37-13, at 90 (GE’s 2016 10-K, stating that “[r]evenue
recognition on [LTSAs] requires estimates of profits over the multiple-year terms of such
agreements, considering factors such as . . . cost changes” and noting that these “adjustments
increased earnings by $2.2 billion, $1.4 billion and $1.0 billion in 2016, 2015 and 2014,

6

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respectively”). Plaintiffs acknowledge these disclosures, but quarrel with them on the ground
that the “[c]ost estimates [we]re only one of many factors” listed in the disclosures and argue that
“the reader could not have discerned the impact of cost adjustments.” Pls.’ Opp’n 16. But
Plaintiffs do not explain how, if at all, the disclosures are inaccurate or misleading.
Next, Plaintiffs bring claims relating to GE’s use of factoring or deferred monetization in
order to meet certain cash flow targets. Pls.’ Opp’n 20-23; SAC ¶¶ 71-80. In Sjunde I and
Sjunde II, the Court sustained only two claims: those concerning (1) factoring in GE’s 2016
Form 10-K and (2) GE’s failure to provide adequate Item 303 disclosures related to factoring in
its financial statements from 2015 on (as well as corresponding “control person” claims against
Bornstein). See Sjunde II, 2021 WL 311003, at *11, 13-14. Plaintiffs claim that their
corresponding claims should survive too because their SAC is “more detailed” than the Sjunde
CAC. Pls.’ Opp’n 20. But the statements of the former employee confidential witnesses alleged
in the Sjunde CAC were critical to the Court’s rulings, see Sjunde I, 417 F. Supp. 3d at 408-09,
and, as discussed above, Plaintiffs may not rely on those statements. 3 Plaintiffs argue, in the
alternative, that their own factual allegations are sufficient to allege fraud with particularity. See
3

Plaintiffs argue that they corroborated the confidential witness statements with other
sources, but the only other source they point to is the SEC Order, which, as discussed, must be
treated as “in the nature of allegations ‘upon information and belief’ which cannot ordinarily
form the basis of a fraud claim.” Loreley, 797 F.3d at 180; see, e.g, In re UBS AG Sec. Litig,
2012 WL 4471265, at *17 n.17 (“[T]he Court . . . need not consider parroted allegations for
which counsel has not conducted independent investigation.”). In addition, Plaintiffs argue that
“[t]he fact that these statements were sufficiently particular for the Court to rely upon them in
denying Defendants’ motion to dismiss claims [in Sjunde] . . . gives them additional indicia of
reliability.” Pls.’ Opp’n 21. But there is no inherent correlation between particularity and
reliability, and Plaintiffs’ counsel, unlike class counsel in Sjunde, does not, and cannot, vouch for
the credibility of the witnesses. See, e.g., VNB Realty, Inc. v. Bank of Am. Corp., No. 11-CV6805 (DLC), 2013 WL 5179197, at *7 (S.D.N.Y. Sept. 16, 2013) (“By drawing its factual
allegations from the statements of confidential witnesses in [another] complaint, [a plaintiff] is
attempting to rely on the substance of those allegations without being held responsible for
certifying that they are supported by some factual basis.”).

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Pls.’ Opp’n 20. But those allegations are copied from the SEC Order, see id (citing SAC ¶ 76,
which cites SEC Order ¶ 12), and the SEC made no findings regarding scienter and did not bring
any scienter-based claims. See also Amorosa, 2022 WL 3577838, at *4 (considering and
dismissing these same claims based on “the factual allegations contained in the SEC Order”).
In short, Plaintiffs’ LTSA-related claims must be and are dismissed.
B. LTC-Related Claims
Plaintiffs’ next set of claims are based on alleged misrepresentations and omissions
relating to GE’s LTC insurance portfolio. In Sjunde, the Court dismissed claims based on the
same statements — which are indisputably statements of opinion subject to the pleading
standards set forth in Omnicare, Inc. v. Laborers District Council Construction Industry Pension
Fund, 575 U.S. 175 (2015) — finding that the plaintiffs there had not alleged facts sufficient to
establish that Defendants did not believe that their statements about the LTC reserves were true.
Sjunde I, 417 F. Supp. 3d at 396; Sjunde II, 2021 WL 311003, at *10; see Pls.’ Opp’n 9.
Plaintiffs here argue that their formulation of these claims “does not suffer from the same flaws”
because, in contrast to the Sjunde CAC, their SAC (1) incorporates facts derived from the SEC
Order to show scienter, (2) alleges that GE’s deficiency testing showed negative results before it
was manipulated, and (3) alleges that Immelt and Bornstein falsely represented GE’s internal
controls. Pls.’ Opp’n 9. But the Court cannot agree.
First, for the reasons discussed above, the SEC Order provides little or no aid to
Plaintiffs. In fact, the SEC Order is even less helpful to Plaintiffs’ claims with respect to their
LTC reserve-related claims. The SEC Order states that, each year, the unit within GE
responsible for monitoring LTC reserves “engaged in an impairment test . . . to evaluate whether
the reserves GE held in future insurance claims were adequate,” SEC Order ¶ 24, but that “GE

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executives were not informed until the second quarter of 2017 of . . . increasingly optimistic
projections of future liabilities despite higher than expected claims. In addition, GE was not
informed of GE Capital’s . . . use of the roll-forward in 2016,” id. ¶ 41 (emphases added); see
also Pls.’ Opp’n 13. This allegation also undermines Plaintiffs’ second argument, relating to
their allegations that deficiency testing revealed negative results before various assumptions
were changed. Pls.’ Opp’n 9-11. Although Plaintiffs allege that the relevant unit’s management
adopted this “roll-forward” approach, they provide no factual basis to impute that knowledge to
GE, Immelt, Bornstein, or Miller, especially in light of the SEC’s explicit finding that “GE was
not informed of . . . the use of the roll-forward in 2016.” SEC Order ¶ 41. Plaintiffs’ statement
that “[t]he GE Capital executives referenced [in the SEC Order] undoubtably included Sherin,”
Pls.’ Opp’n 12, is “the language of supposition (albeit confident supposition), . . . and does not
suffice” under the PSLRA, see Sjunde II, 2021 WL 311003, at *8.
Finally, Plaintiffs’ claims related to GE’s internal controls, see Pls.’ Opp’n 13, fail for the
same reason. Put simply, the allegations in the SAC do not establish that Immelt or Bornstein
knew, at the time of the certifications, of the alleged internal control deficiencies. See, e.g.,
Woodley v. Wood, No. 20-CV-2357 (ER), 2022 WL 103563, at *8 (S.D.N.Y. Jan. 11, 2022)
(“The fact that a defendant had a duty to review the Company’s internal controls is not a
substitute for specific allegations that he was provided with information that demonstrated the
inadequacy of those internal controls.”); In re Bausch & Lomb, Inc. Sec. Litig., 592 F. Supp. 2d
323, 341 (W.D.N.Y. 2008) (finding no scienter where plaintiffs did not “offer any particularized
allegation[s] of an inference that management’s assessment of internal controls . . . were not
honestly and reasonably believed to be true when made”).
Accordingly, Plaintiffs’ LTC-related claims must be and are also dismissed.

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C. Alstom-Related Claims
Plaintiffs’ final set of Section 10(b) and Rule 10b-5 claims relate to GE’s acquisition of
Alstom’s Thermal, Renewables and Grid business in November 2015. Specifically, Plaintiffs
argue that GE’s $13.5 billion valuation of the Alstom assets was “artificial” because it was
“based on the price that would provide [Alstom’s majority shareholder] an acceptable return on
its investment and not an informed review of the acquired assets,” Pls.’ Opp’n 26; that “no one at
GE believed the Alstom assets acquired were worth” what GE paid, id. at 27; and that the
transaction “resulted in a grossly inflated goodwill . . . that was not adjusted until GE took a $22
billion charge to goodwill . . . on October 30, 2018,” id. Importantly, “[e]stimates of goodwill
depend on management’s determination of the ‘fair value’ of the assets acquired and liabilities
assumed, which are not matters of objective fact.” Fait v. Regions Fin. Corp., 655 F.3d 105, 110
(2d Cir. 2011). Moreover, as Judge Cote explained in TRS, “[b]ecause a wide range of goodwill
values could be compliant with [Generally Accepted Accounting Principles], the plaintiffs must
identify particular facts supporting an inference that GE’s accounting fell outside of that
permissible range.” 2020 WL 2306434, at *14. In addition, the parties agree that “[s]tatements
estimating the fair market value of [the Alstom] assets are opinions, not matters of objective
fact.” In re Gen. Elec. Co. Sec. Litig., 856 F. Supp. 2d 645, 653 (S.D.N.Y. 2012); see Pls.’
Opp’n 29; Defs.’ Mem. 13. To give rise to liability under the securities laws, therefore, Plaintiffs
must plead that (1) “the speaker did not hold the belief she professed,” (2) “the supporting fact
she supplied” for the opinion was untrue, or (3) the speaker has “omit[ted] information whose
omission makes the [opinion] statement misleading to a reasonable investor.” Tongue v. Sanofi,
816 F.3d 199, 210 (2d Cir. 2016) (quoting Omnicare, 575 U.S. at 186, 194).

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Substantially for the reasons provided by Judge Cote in TRS, it is doubtful that
Defendants’ opinion statements related to the Alstom valuation are actionable under the
securities law. See 2020 WL 2306434, at *14 (finding that the plaintiffs “failed to plead that the
defendants made misleading statements in their calculations of GE’s goodwill” because their
“theory ultimately rests entirely on a disagreement about the exercise of judgment”). But even if
they are, Plaintiffs cannot establish scienter. A plaintiff may satisfy the PSLRA’s pleading
requirements for scienter “by 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.” ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 99 (2d
Cir. 2007). Plaintiffs’ attempt to establish scienter pursuant to the first prong fails because the
motives that Plaintiffs suggest — namely, that Defendants wanted “to convince investors that
they were successfully executing the strategic ‘pivot’ away from GE Capital and back to GE’s
industrial roots” and that Immelt wanted “to escape the long shadow of his legendary
predecessor,” Pls.’ Opp’n 32 — are not “motives” for purposes of the scienter inquiry at all, see,
e.g., ECA, Loc. 134 IBEW Joint Pension Tr. of Chicago v. JP Morgan Chase Co., 553 F.3d 187,
199 (2d Cir. 2009) (“Motives that are common to most corporate officers, such as the desire for a
corporation to appear profitable and the desire to keep stock prices high . . . do not constitute
‘motive’ for purposes of this inquiry.”).
Plaintiffs’ attempt to establish scienter pursuant to the second prong fares no better. First,
Plaintiffs rely on various statements, quoted in Lights Out and Immelt’s own memoir, Hot Seat,
to establish that some within GE believed that the Alstom valuation was too high or that the deal
was ill-advised. Pls.’ Opp’n 30; SAC ¶¶ 107-112, 119. Plaintiffs provide no evidence, however,
that the reservations about the transaction or disagreements about accounting judgments credited

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to an unnamed “member of the GE Power deal team” and an unnamed “GE executive,” Pls’
Opp’n 30, represented a consensus view — the allegation that “no one at GE believed” that the
valuation was accurate appears nowhere in the SAC — let alone that Defendants agreed with, or
even knew about, the relevant statements. In fact, Plaintiffs acknowledge that Lights Out, on
which they otherwise rely, reported that Immelt and Bornstein “never heard any serious dissent.”
Pls.’ Opp’n 31. Plaintiffs argue that “‘[s]erious’ is subjective and Lights Out made clear there
was dissent,” id., but they provide no authority for the proposition that internal disagreement
about a transaction constitutes “strong circumstantial evidence” of wrongdoing, ATSI Commc’ns,
Inc., 493 F.3d at 99. Next, Plaintiffs point to an allegation from Immelt’s book, Hot Seat, that
Steve Bolze, the head of GE Power, told Immelt that he thought that GE “should get [Alstom]
for a lower price.” See Pls.’ Opp’n 31; SAC ¶ 119. But the SAC does not allege that Bolze told
Immelt that the valuation was inaccurate or that he thought the deal should not be consummated
at the agreed-upon price. 4 Finally, Plaintiffs allege that “reliance on purported synergies to
justify 50% of GE’s valuation of Alstom further reinforces a strong inference of scienter,” Pls.’
Opp’n 32, but they fail to plausibly allege that Defendants knew or should have known that the
calculation of expected synergies, which is indisputably an exercise in accounting judgment, was
“outside of th[e] permissible range” of values, TRS, 2020 WL 2306434, at *14.

4

Defendants argue that Plaintiffs have incorporated by reference the full text of Hot Seat
in their SAC and quote additional sections of the book that they claim undermine Plaintiffs’
selections. See, e.g., Defs.’ Mem. 30-31. Plaintiffs respond that they “only quoted a small
portion of Immelt’s memoir” and that “‘[l]imited quotations from or reference to documents that
may constitute relevant evidence in a case is not enough to incorporate those documents,
wholesale, into the complaint.’” Pls.’ Opp’n 33 (quoting Sira v. Morton, 380 F.3d 57, 67 (2d
Cir. 2004)); see also, e.g., Jones-Cruz v. Rivera, No. 19-CV-6910 (PGG), 2021 WL 965036, at
*3 (S.D.N.Y. Mar. 14, 2021). As to Hot Seat, the Court agrees with Plaintiffs and therefore does
not consider Defendants’ quotations.

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At bottom, the scienter inquiry is “inherently comparative,” requiring the court to
“consider plausible, nonculpable explanations for the defendant’s conduct, as well as inferences
favoring the plaintiff,” and to permit a claim to proceed “only if a reasonable person would deem
the inference of scienter cogent and at least as compelling as any opposing inference one could
draw from the facts alleged.” Tellabs, Inc. v. Makor Issues & Rights Ltd., 551 U.S. 308, 323-24
(2007); see also Sjunde II, 2021 WL 31100, at *6. Ultimately, Plaintiffs’ claims related to the
Alstom transaction fail as a matter of law because, after consideration of all the evidence
marshaled by Plaintiffs, the alternative inference — that Defendants (however imprudently)
believed the transaction was in GE’s best interest — is more compelling than the inference of
scienter. Accordingly, Plaintiffs’ Alstom-related claims must be and are also dismissed.
D. Other Claims
Given the absence of a “primary violation,” Plaintiffs’ Section 20(a) “control person”
claims against Immelt and Bornstein, SAC ¶¶ 301-07, fail as a matter of law as well, see, e.g.,
Arkansas Pub. Emps. Ret. Sys. v. Bristol-Myers Squibb Co., 28 F.4th 343, 356 (2d Cir. 2022). In
addition, Plaintiffs’ underdeveloped claim for scheme liability fails because the SAC alleges
misstatements and omissions, not “inherently deceptive conduct.” In re AT&T/DirecTV Now
Sec. Litig., 480 F. Supp. 3d 507, 534 (S.D.N.Y. 2020). Plaintiffs argue that the Supreme Court’s
decision in Lorenzo v. SEC, 139 S. Ct. 1094, 1104 (2019), “rejected the assertion that scheme
liability is inapplicable merely because a false or misleading statement is at issue” and made
reliance on the pre-Lorenzo case law that Defendants cite, see Defs.’ Mem. 38-39, improper, see
Pls.’ Opp’n 37-38. Just over two months ago, however, the Second Circuit rejected Plaintiffs’
argument, holding that Lorenzo did not abrogate prior case law holding that “misstatements and
omissions cannot form the ‘sole basis’ for liability under the scheme subsections.” SEC v. Rio

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Tinto plc, 41 F.4th 47, 53 (2d Cir. 2022) (citing Lentell v. Merrill Lynch & Co., 396 F.3d 161 (2d
Cir. 2005)). In so holding, the Second Circuit emphasized that “[p]reserving distinctions
between the subsections assures that private plaintiffs remain subject to the heightened pleading
requirements [of the PSLRA] for Rule 10b-5(b) claims.” Id. at 54. “An overreading of
Lorenzo,” the Court cautioned, “might allow private litigants to repackage their misstatement
claims as scheme liability claims to evade the pleading requirements imposed in
misrepresentation cases.” Id. at 55 (internal quotation marks omitted). In light of the Circuit’s
decision in Rio Tinto, Plaintiffs’ scheme liability claim must be and is dismissed.
That leaves only Plaintiffs’ state-law claims for common law fraud and pursuant to the
Ohio Securities Act, O.R.C. § 1707.43. See SAC ¶¶ 308-20; Pl.’s Opp’n 38-40. Pursuant to
Title 28, United States Code Section 1367, a district court has discretion over whether to exercise
jurisdiction over state-law claims “that are so related to claims in the action within [the] original
jurisdiction that they form part of the same case or controversy under Article III of the United
States Constitution.” 28 U.S.C. § 1367(a). The Supreme Court and the Second Circuit have
made clear, however, that, as a general rule, “when the federal claims are dismissed, the state
claims should be dismissed as well.” In re Merrill Lynch Ltd. P’ships Litig., 154 F.3d 56, 61 (2d
Cir. 1998) (per curiam) (internal quotation marks omitted); see also Bright Kids NYC Inc. v.
Kelly, No. 19-CV-1175 (JMF), 2021 WL 3931876, at *2 (S.D.N.Y. Sept. 2, 2021). Here, there is
no basis to depart from that general rule. That is, given the relatively early stage of the case, the
traditional “values of judicial economy, convenience, fairness, and comity” that the Court must
consider do not counsel in favor of exercising jurisdiction. Carnegie-Mellon Univ. v. Cohill, 484
U.S. 343, 350 (1988). Accordingly, Plaintiffs’ state-law claims are dismissed without prejudice
to refiling them in state court. See 28 U.S.C. § 1367(c); see also, e.g., Banco Safra S.A.-Cayman

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Islands Branch v. Andrade Gutierrez Int’l S.A., No. 16-CV-9997 (JMF), 2018 WL 1276847, at
*5 (S.D.N.Y. Mar. 8, 2018) (dismissing state-law claims under similar circumstances).
CONCLUSION
For the reasons stated above, Defendants’ motion to dismiss must be and is GRANTED.
That leaves the question of whether Plaintiffs should be granted leave to amend. Although leave
to amend should be freely given “when justice so requires,” Fed. R. Civ. P. 15(a)(2), it is “within
the sound discretion of the district court to grant or deny leave to amend,” Broidy Cap. Magmt.
LLC v. Benomar, 944 F.3d 436, 447 (2d Cir. 2019) (internal quotation marks omitted). Here,
Plaintiffs do not request leave to amend, and the Court declines to grant them leave sua sponte
for several reasons. First and foremost, Plaintiffs were already granted two opportunities to
amend — first, in response to the Court’s decision in Sjunde, see ECF Nos. 15, 18, and, second,
in response to Defendants’ initial motion to dismiss, see ECF No. 23. 5 Moreover, when granting
Plaintiffs leave to amend in response to Defendants’ initial motion to dismiss, the Court
expressly cautioned that “Plaintiffs will not be given any further opportunity to amend the
complaint to address issues raised by the motion to dismiss.” ECF No. 26. In light of that
history, Plaintiffs’ “failure to fix deficiencies in its previous pleadings is alone sufficient ground
to deny leave to amend sua sponte.” Transeo S.A.R.L. v. Bessemer Venture Partners VI L.P.,
936 F. Supp. 2d 376, 415 (S.D.N.Y. 2013) (citing cases). Finally, Plaintiffs do not request leave
to amend for a third time and do not suggest that they are in possession of facts that would cure
the problems with their claims. See, e.g., Clark v. Kitt, No. 12-CV-8061 (CS), 2014 WL
4054284, at *15 (S.D.N.Y. Aug. 15, 2014) (“A plaintiff need not be given leave to amend if [it]

5

On top of that, Plaintiffs could have moved for leave to file an amended complaint after
the Court’s decision in Amorosa. They did not.

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fails to specify how amendment would cure the pleading deficiencies in [its] complaint.”).
Accordingly, the Court declines to grant Plaintiffs leave to amend sua sponte. See, e.g.,
Bromfield-Thompson v. Am. Univ. of Antigua, No. 20-3855, 2021 WL 4931953, at *2 (2d Cir.
Oct. 22, 2021) (summary order) (finding no abuse of discretion where the plaintiff “did not
request leave to amend her complaint a second time in the district court, and the district court
clearly warned her that she would forfeit the chance to address any issues raised in the motions
to dismiss if she did not address those issues in her amended complaint.”).
The Clerk of Court is directed to terminate ECF No. 23 and close this case.
SO ORDERED.
Dated: September 28, 2022
New York, New York

__________________________________
JESSE M. FURMAN
United States District Judge

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