In re Diebold Nixdorf, Inc. Securities Litigation.
OPINION & ORDER re: 79 MOTION to Dismiss the Consolidated Class Action Complaint filed by Diebold Nixdorf, Incorporated, Andreas W. Mattes, Juergen Wunram, Christopher A. Chapman. For the foregoing reasons, Defendants 9; motion to dismiss [dkt. no. 79] is GRANTED, and the CCAC is DISMISSED without prejudice. Should the class wish to re-plead, Plaintiff may file an amended complaint within thirty days.25 "Plaintiff[ ] will not be given unlimited bites at the apple, however, as [it is] now on notice of the deficiencies in [its] pleadings." Francisco, 481 F. Supp. 3d at 216. The Clerk of the Court shall close the open motion. SO ORDERED. (Signed by Judge Loretta A. Preska on 3/30/2021) (va) Transmission to Orders and Judgments Clerk for processing.
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
IN RE: DIEBOLD NIXDORF, INC.,
OPINION & ORDER
LORETTA A. PRESKA, Senior United States District Judge:
Before the Court is the Rule 12(b)(6) motion to dismiss
filed by Diebold Nixdorf, Inc. (“DN” or “the Company”), its
former CEO Andreas W. Mattes (“Mattes”), its former CFO
Christopher A. Chapman (“Chapman”), and its former COO Jürgen
Lead Plaintiff Indiana Laborers Pension and
Welfare Funds (“Plaintiff”)--on behalf of a putative class of
purchasers of DN’s securities--opposes the motion.2
reasons below, the motion is GRANTED, and the Consolidated Class
Action Complaint (“CCAC”) is DISMISSED without prejudice.
(See Defendants’ Motion to Dismiss, dated Mar. 10, 2020
[dkt. no. 79]; see also Defendants’ Memorandum of Law in Support
of Their Motion to Dismiss the Consolidated Class Action
Complaint (“Defs. Br.”), dated Mar. 10, 2020 [dkt. no. 80];
Defendants’ Reply Memorandum of Law in Further Support of Their
Motion to Dismiss the Consolidated Class Action Complaint, dated
May 15, 2020 [dkt. no. 83]; Declaration of Jeffrey T. Scott
(“Scott Decl.”), dated Mar. 10, 2020 [dkt. no. 81].)
Collectively, the Court will call DN, Mattes, Chapman, and
Wunram “Defendants.” When referring only to Mattes, Chapman,
and Wunram, the Court will use “Individual Defendants.”
(See Opposition to Defendants’ Motion to Dismiss the
Complaint (“Pl. Br.”), dated Apr. 24, 2020 [dkt. no. 82].)
DN “is an international financial and retail technology
company that focuses on the sale, manufacture, installation, and
service of self-service transaction systems (such as ATMs and
currency processing systems), point-of-sale terminals, physical
security products, and software and related services.”3
present action relates, in significant part, to the Company’s
ongoing efforts to transform itself into a “services-led,
software enabled company” and to divert resources away from its
less profitable hardware segments.
(CCAC ¶ 4.)
a. The 2016 Merger with Wincor Nixdorf AG
On November 23, 2015, Diebold, Inc. (“Diebold”) entered
into a merger agreement with one of its primary competitors:
Germany’s Wincor Nixdorf AG (“Wincor”).
(Id. ¶ 5.)
described the Diebold-Wincor merger (“the Merger”) as a deal
that would leave the resulting company “well positioned for
growth in high-value services and software . . . across a
broader customer base.”
(Id. ¶ 6.)
The Merger closed in August
2016, and the combined entity became DN.
(Id. ¶¶ 5, 14.)
Diebold paid $1.8 billion in consideration to acquire a majority
(Consolidated Complaint for Violations of the Federal
Securities Laws (“CCAC”), dated Jan. 10, 2020 [dkt. no. 73],
¶ 2.) For citations to the CCAC, all emphases included therein
are omitted unless otherwise specified.
of Wincor’s shares, and Diebold took on more than $2 billion in
debt to finance the acquisition.
(Id. ¶ 9.)
Leading up to the Merger’s closing, Mattes touted what he
felt would be a smooth fusion of the two companies:
Mattes stated that Diebold and Wincor had undertaken
“a very lengthy diligence process” before agreeing
to merge and the companies would “fit extremely well
together . . . nearly like two pieces of a jigsaw
puzzle.” (Id. ¶ 7.)
When responding to a question regarding the premerger integration process, Mattes noted that there
were “solid teams on both sides” who would make sure
that “when we hit the day X+1 we know exactly who is
going to do what, who’s going to take care of which
account, what’s the product road map, where are the
low hanging fruits and how can we reach these
synergies sooner and faster.” (Id. ¶ 8.)
Mattes told investors that “teams from both
companies have been diligently developing
integration plans and we are confident that we will
hit the ground running.” (Id. ¶ 13.)
At base, Mattes expressed confidence that the Merger would
proceed smoothly and generate the promised synergies for
b. Class Period Events
The designated Class Period runs from February 14, 2017 to
August 1, 2018.
(Id. ¶ 1.)
The Court has separated the
misstatements alleged during the Class Period into loose,
Chapman expressed similar optimism, stating that “[t]he
bug[s] and the kinks in the system, we worked through those in
Q1 .” (CCAC ¶ 14.)
Although the allegations are voluminous,
Plaintiff’s contentions boil down to one theme:
painted an unjustifiably positive picture of the Diebold-Wincor
1. Q4 and FY 2016 Earnings and 2017 Investor Day
On February 14, 2017, DN issued a press release discussing
its financial results for Q4 2016, which was the Company’s first
full quarter following the Merger.
(Id. ¶ 48.)
were optimistic, which Mattes attributed “to our collaborative
teamwork during the first full quarter for our newly combined
He further opined that DN was entering 2017
“leveraging a stronger, fully aligned global sales force and a
solid solutions portfolio with ample opportunity to succeed in
the dynamic financial and retail markets.”
That same day, Mattes and Chapman hosted a conference call
to discuss DN’s earnings, and both discussed the steps that the
Company was taking on integration.
(Id. ¶ 49.)
maintained that DN “continued to make progress” and explained
that the Company’s initial sales integration issues were “all
. . . in the rear-view mirror” because, “for the first time, the
sales team is fully aligned around our goals, quotas, and
(Id. ¶¶ 50, 52 (brackets omitted).)
echoed that sentiment, stating that teams across the Company
were “working very diligently on integration activities and
driving cost synergies,” which would “flow more substantially
through the P&L as we progress in the year.”
(Id. ¶ 51.)
expressed confidence that DN was on track to “deliver cost
synergies of $40 million in 2017.”
(Id. ¶ 53.)
On February 24, 2017, the Company filed its 2016 Form 10-K,
which was signed by Mattes, Chapman, and Wunram.
(Id. ¶ 54.)
The 10-K whistled the same tune regarding DN’s financial
Notably, the 10-K stated that DN was “executing a
multi-year integration program designed to optimize the assets,
business practices, and IT systems of [DN],” which would provide
“an opportunity to realize approximately $160 million of cost
synergies over three years.”
(Id. (brackets omitted).)
K also highlighted the goodwill acquired in the Merger, which it
described as being “primarily the result of anticipated
synergies achieved through increased scale, a streamlined
portfolio of products and solutions, higher utilization of the
service organization, workforce rationalization in overlapping
regions and shared back office resources.”
(Id. ¶ 55.)
Finally, Mattes and Chapman completed certifications, as
required by the Sarbanes-Oxley Act (“SOX”), regarding DN’s
financial statements and internal controls.
(Id. ¶ 56.)
Four days later, the Company issued a press release
introducing its “DN2020” program, i.e., its integration plan.
(Id. ¶ 57.)
That same day, Mattes, Chapman, and Wunram hosted
an Investor Day Conference, at which they explained DN2020 to
(Id. ¶ 58.)
They asserted that DN was already
realizing benefits from the Merger and, indeed, that the “smooth
integration of legacy organizations” was paving the way for up
to $200 million in net savings.
(Id. (brackets omitted).)
Given the measures DN had implemented so far, Wunram wondered
whether the Company’s targets were “aspirational enough.”
Mattes closed the conference by saying the Company’s
integration targets “are a commitment that we will achieve.”
(Id. ¶ 66.)
While their tone was generally optimistic, Mattes, Chapman,
and Wunram also noted that the Merger’s success was not a sure
For example, Mattes said:
[When] we announced this and during the process and as
you have experienced just like we did, doing a deal in
Germany is not a trivial task and you have to go
through quite a process to get it done. People were
pointing out a lot of things that were going wrong;
appreciate all the input. We lightheartedly depicted
them here as alligators, so without going into
everyone [sic] of those alligators, the main message
is we went into this thing eyes wide opened and we’ve
been wrestling down alligators one at a time, still a
few more to go, but we feel very confident about how
we’re going to do this.
(Id. ¶ 59.)
Mattes also emphasized that “60% of all the M&A
deals that are being done fall short of the expectations” and
stressed that DN was “spending a lot of time and energy on the
integration” of Diebold and Wincor.
(Id. ¶ 60.)
Wunram noted that management was “not naive” and was “aware of
the risks” regarding the integration.
(Id. ¶ 63.)
In early March 2017, Diebold issued its preliminary and
final proxy statements.
(Id. ¶¶ 67-68.)
reiterated the Company’s optimism when it came to DN’s
Both statements noted that DN had
“continue[d] to make progress on [the] integration” and that the
“sales team [wa]s fully aligned.”
2. Q1 2017 Earnings and JP Morgan Conference
On May 4, 2017, the Company issued a press release
announcing its Q1 2017 earnings.
(Id. ¶ 71.)
lowered its full-year 2017 revenue guidance to $5 billion (from
$5-$5.1 billion) and its net loss estimation to between $50
million and $75 million (from $30-$55 million).
reported, however, that “[t]he transition to [DN was] complete”
and that the combined entity was prepared to “begin [its] longterm transformation with the DN2020 program.”
(Id. ¶ 71.)
Later that day, Mattes and Chapman hosted DN’s Q1 2017
(Id. ¶ 72.)
Mattes discussed the Company’s
progress on integration, noting that DN was “off to a good
start” and that he was “encouraged by the early progress.”
¶¶ 72, 78.)
He emphasized that DN’s “ability to coordinate
numerous intersecting activities” gave him confidence that the
Company “should be able to exceed . . . cost synergy targets for
Mattes also acknowledged, however, that Q4
2016’s results were “weak,” noting that DN did not “have a
common management tool” and that there were “home-grown issues
(Id. ¶ 79.)
On the same day, DN filed its Q1 2017 10-Q, which touted
DN2020’s strategic benefits for the Company’s financial,
operational, and sales “excellence.”
(Id. ¶¶ 74-75.)
also highlighted various “business drivers of the Company’s
future performance,” which included the “integration of legacy
salesforce, business processes, procurement, and internal IT
systems; and realization of cost synergies, which leverage the
Company’s global scale, reduce overlap and improve operating
(Id. ¶ 76.)
Like DN’s 2016 10-K, Mattes and
Chapman completed SOX-mandated certifications regarding DN’s
financial reporting and internal controls.
(Id. ¶ 77.)
Several weeks later, on May 22, 2017, Mattes discussed
DN2020’s progress with investors and analysts in a presentation
at the JPMorgan Tech, Media, and Telecom Conference.
Mattes, in a variation of his comments on the FY 2016
earnings call, noted that everyone was “singing off the same
He also indicated that DN “track[ed] all of
the[ ] synergies,” that he was “very encouraged of where we
stand,” and that the Company thought it would “have pressure to
increase the synergy realization numbers upwards in this
(Id. ¶ 81.)
3. Q2 2017 Earnings
Yet, on July 5, 2017--approximately two weeks before
announcing its Q2 2017 results--DN issued a press release
lowering its full-year revenue guidance, this time to $4.7–4.8
billion (from $5 billion).
(Id. ¶ 85.)
The Company cited “a
longer customer decision-making process and order-to-revenue
cycle” for why it lowered its forecast.
On the heels of
the news, DN’s shares fell 23% to $21.60 per share.
(Id. ¶ 86.)
Two weeks later, on July 19, 2017, DN issued a press
release announcing its Q2 2017 results.
(Id. ¶ 88.)
release reiterated the Company’s decision to lower its revenue
guidance and indicated that DN was on track to post a net loss
of between $110 million and $125 million for the year.
Notwithstanding that outlook, Mattes opined that, “[a]s we near
the first anniversary of the combination of our two companies, I
am more confident than ever that we are uniquely positioned to
deliver innovative solutions to our customers and long-term
value to our stakeholders.”
Consistent with its quarterly routine, Mattes and Chapman
led DN’s earnings call the same day.
(Id. ¶ 89.)
addressed the downward revisions to DN’s revenue guidance,
indicating that some drivers were (1) slower than expected sales
volume for certain product lines and (2) a “complex timing
challenge” related to its service business. (Id.)
integration front, however, Mattes stated that “we have
completed[,] or are in the process of completing, several
actions which should benefit our P&L by the end of the year,”
and he suggested that the “DN2020 initiatives continue to point
to significant scale benefits for the new company” to the tune
of expected “net savings of $240 million by the end of 2020.”
(Id. ¶ 90.)
Chapman similarly suggested that the integration
and related cost savings were progressing well. (Id. ¶ 91.)
One week later, DN filed its Q2 2017 10-Q, which reiterated
the results from its press release and earnings call.
The 10-Q maintained that through DN2020, i.e., the
Company’s “multi-year integration and transformation program,”
DN hoped to deliver “operating profit of $240 [million] by the
(Id. ¶ 92.)
Like all quarterly filings, Mattes and
Chapman also completed SOX certifications regarding DN’s
financial reporting and internal controls.
(Id. ¶ 95.)
4. Q3 2017 Earnings & Mattes’ Exit
On October 31, 2017, DN issued a press release announcing
its Q3 2017 results and again lowering the Company’s 2017
revenue target to $4.6 billion (down from $4.7-$4.8 billion) and
its net loss expectation to between $130 million and $140
million (down from $110-$125 million).
(Id. ¶ 99.)
Mattes maintained his positivity regarding the Company’s
integration efforts, stating that “[w]e are encouraged to see
our integration and transformation achievements begin to
translate into meaningful cost synergies.”
On the Company’s same-day earnings call, Mattes reiterated
that DN’s “integration and transformation achievements” had
“translate[d] into meaningful cost synergies during the third
quarter” and that the Company was “achieving the integration
milestones, which we established.”
(Id. ¶ 100.)
Mattes’ outlook, reaffirming that the “DN2020 program will
expect to deliver $240 million operating profit impact through
2020” and that DN’s “achievements and outlook on the integration
of DN2020 cost savings remain positive.” (Id. ¶ 101.)
Consistent with its Q2 2017 timing, DN filed its Q3 2017
10-Q one week after its press release.
(Id. ¶ 102.)
which contained similarly worded disclosures as past quarterly
reports, disclosed financial results consistent with those
announced in the press release and earnings call.
(Id. ¶¶ 102-
And, as always, Mattes and Chapman completed SOX
certifications regarding DN’s financial reporting and internal
(Id. ¶ 105.)
DN issued an ad hoc press release on December 13, 2017
announcing that Mattes was stepping down as CEO, effective
(Id. ¶ 108.)
In the interim, Chapman and Wunram
would take over the helm as Co-CEOs.
based on confirmation from a “Company spokesman,” that Mattes
was asked to step down by DN’s Board of Directors due to the
Company’s “poor financial performance following the [M]erger.”
5. Q4 and FY 2017 Earnings
As should now be familiar, on February 13, 2018, DN issued
a press release regarding its Q4 and FY 2017 earnings.
DN reported revenue of $4.6 billion, which was in line
with the amended forecast it announced in Q3 2017, but it also
reported a net loss of $205 million, which exceeded prior
Nevertheless, Wunram announced that “[w]e
are pleased with the pace of our integration efforts, which are
enabling the company to streamline costs, increase productivity
and strengthen our competitiveness.”
On the same day, Wunram and Chapman hosted DN’s quarterly
earnings call to explain the Company’s full-year 2017 results.
(Id. ¶ 110.)
On the call, Wunram reported that DN had made
“significant progress in 2017” regarding its integration
initiatives, stating that DN had already “reduced headcount by
1,300 full-time positions, with a net impact closer to 1,000
He went on to inform that, “[t]hrough our
execution of the DN2020 program, the company realized over $100
million of savings as the result of our integration and
operational excellence programs during 2017 and we expect to
realize at least another $50 million of savings in 2018.”
Chapman also commented on DN’s supply chain, suggesting that DN
had “recently experienced a few growing pains and associated
minor supply chain delays that will impact [its] systems
revenue” but otherwise spoke positively about the integration.
(Id. ¶ 111.)
On February 28, 2018, one week after DN announced the
hiring of Gerrard Schmid (“Schmid”) as its new President and
CEO, the Company filed its 2017 10-K.
(Id. ¶¶ 112-113.)
report offered familiar disclosures regarding the effects of the
Merger, the related goodwill, and certain business drivers for
the combined entity.
(Id. ¶¶ 113-115.)
And like all the
Company’s 10-Qs and 10-Ks, Wunram and Chapman completed SOX
certifications regarding DN’s financial reporting and internal
(Id. ¶¶ 116-117.)
About one month later, DN announced that Wunram was leaving
the Company voluntarily as of May 31, 2018.
(Id. ¶ 121.)
Reportedly, Wunram decided it was time to leave “based on the
advanced integration of Diebold and the former Wincor Nixdorf”
and Schmid’s appointment as CEO.
6. 2018 Events Leading to Stock Price Fall
From there, things at DN began to trend downward.
2, 2018, DN issued a press release announcing disappointing Q1
2018 results and revising its projected full-year net loss
upwards by $30 million.
(Id. ¶ 122.)
On the quarterly earnings
call, new CEO Schmid admitted that DN’s operations were overly
“complex” and that the Company had “a number of inconsistent
processes in different regions . . . which [we]re exacerbated by
a complex IT environment.”
When responding to an analyst
question about the IT environment, Schmid replied that “[t]here
[we]re simply too many manual workarounds needed to run the
business,” which “ha[d] negative implications for our pre-sales
activities, resource planning and supply chain.”
(Id. ¶ 123.)
Schmid elaborated that, “from my vantage point, the combination
of [Diebold and Wincor] in late 2016 was probably one of the
core drivers for the additional complexity in our IT
In response to a different question,
Schmid indicated that DN’s “current operating model still
reflects some elements of legacy norms from the historical 2
(Id. ¶ 124.)
The market responded to Schmid’s more
DN shares fell by 16% to $12.90 per share.
(Id. ¶ 125.)
The following quarter offered little relief.
On August 1,
2018, DN announced that it suffered a $131 million loss during
Q2 2018, $90 million of which was due to a goodwill impairment
related to the Merger.
(Id. ¶ 127.)
The Company also lowered
both its top and bottom-line projections significantly.
On the related earnings call, Schmid again expressed caution,
stating that “it is clear that more action is needed to
fundamentally change the way we operate” given that a “high
degree of complexity . . . permeates our business.”
Schmid indicated that the Company was “focused on
several actions to simplify our operations and rationalize our
cost structure,” including “stabilizing the supply chain,
strengthening our IT environment and investing in new more costeffective product platforms.”
When answering an
analyst’s question, Schmid did not mince words, responding that
the “fundamental reason” for DN’s poor earnings was “the
complexity of our operating model.”
(Id. ¶ 130.)
DN shares plummeted 38% to $7.05 per share.
(Id. ¶ 132.)
c. Post-Class Period Events & This Action
From there, things went from bad to worse.
The day after
announcing its Q2 2018 earnings, DN abandoned DN2020 in favor of
a new integration plan called “DN Now.”
(Id. ¶ 134.)
Company filed its Q2 2018 10-Q on August 6, JP Morgan downgraded
its recommendation on DN’s stock, and DN’s share price fell
another 10% to $6.30 per share.
(Id. ¶¶ 136-137.)
DN “to pursue other opportunities” in October 2018, and by
December 2018 the Company’s share price had fallen to below $3
(Id. ¶¶ 143-144.)
Compounding those issues, on
March 1, 2019, DN disclosed several material weaknesses in its
internal control environment.
(Id. ¶¶ 145-146.)
In response to these events, DN shareholders filed several
lawsuits against the Company and its senior officers, which were
(See Opinion and Order, dated Oct. 30,
2019 [dkt. no. 51], at 1-2.)
After some jockeying among several
of DN’s institutional investors, the Court selected Indiana
Laborers Pension and Welfare Funds as Lead Plaintiff.
Shortly thereafter, an amended consolidated class action
complaint was filed, asserting claims against DN, Mattes,
Chapman, and Wunram.
(See CCAC ¶¶ 185-201.)
Specifically, Plaintiff presses claims for (1) securities
fraud under Section 10(b) of the Securities Exchange Act of 1934
(the “Exchange Act”), 15 U.S.C. § 78j(b), and Rule 10b-5, 17
C.F.R. § 240.10b-5; and (2) “control person” liability under
Section 20(a) of the Exchange Act, 15 U.S.C. § 78t(a).
CCAC ¶¶ 185-201.)
Those claims posit that Defendants made a
variety of misleading statements that masked the true extent of
the Company’s difficulties related to the integration of Diebold
The instant motion to dismiss followed.
a. Fed. R. Civ. P. 12(b)(6), Fed. R. Civ. P. 9(b), & the
Private Securities Litigation Reform Act (“PSLRA”)
To survive a Rule 12(b)(6) motion to dismiss, Plaintiff
must plead sufficient facts “to state a claim to relief that is
plausible on its face.”
544, 570 (2007).
Bell Atl. Corp. v. Twombly, 550 U.S.
“A claim has facial plausibility when the
plaintiff pleads factual content that allows the court to draw
the reasonable inference that the defendant is liable for the
Ashcroft v. Iqbal, 556 U.S. 662, 678
That “standard is not akin to a ‘probability
requirement,’ but it asks for more than a sheer possibility that
a defendant has acted unlawfully.”
F.3d 804, 810 (2d Cir. 2019).
Palin v. N.Y. Times Co., 940
Evaluating “whether a complaint
states a plausible claim for relief” is “a context-specific task
that requires the reviewing court to draw on its judicial
experience and common sense.”
Iqbal, 556 U.S. at 679.
When considering a motion to dismiss, the Court “accept[s]
as true all factual allegations and draw[s] from them all
Dane v. UnitedHealthcare Ins. Co., 974
F.3d 183, 188 (2d Cir. 2020).
It is not required, however, “to
credit conclusory allegations or legal conclusions couched as
Id. (ellipsis omitted).
threadbare recitals of the elements of a cause of action,
supported by mere conclusory statements, do not suffice.”
Nielsen v. Rabin, 746 F.3d 58, 62 (2d Cir. 2014) (cleaned up).
“While legal conclusions can provide the framework of a
complaint, they must be supported by factual allegations.”
Iqbal, 556 U.S. at 679.
“A claim under Section 10(b) . . . sounds in fraud and must
[also] meet the pleading requirements of Rule 9(b) of the
Federal Rules of Civil Procedure and of the PSLRA.”
Pipefitters Nat. Pension Fund v. Orthofix Int’l N.V., 89 F.
Supp. 3d 602, 607 (S.D.N.Y. 2015) (citation omitted).
Rule 9(b) and the PSLRA, the complaint 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.”
ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 99 (2d
Cir. 2007); accord 15 U.S.C. § 78u–4(b)(1)(B).
b. Section 10(b) & Rule 10b-5
To state a claim under Section 10(b) and Rule 10b-5, a
plaintiff must plead six elements: “(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
Halliburton Co. v. Erica P. John Fund, Inc., 573
U.S. 258, 267 (2014).
The first and second are particularly
relevant to this litigation.
1. Material Misrepresentations or Omissions
“To support a claim of securities fraud, the stated or
omitted fact must be material.”
Constr. Laborers Pension Tr.
for S. Cal. v. CBS Corp., 433 F. Supp. 3d 515, 531 (S.D.N.Y.
“An alleged misrepresentation 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
Singh v. Cigna Corp., 918 F.3d 57, 63 (2d Cir. 2019)
(quotation marks omitted).
“In judging whether an alleged
omission was material in light of the information already
disclosed to investors, the [C]ourt considers whether there is a
substantial likelihood that the disclosure of the omitted
material would have been viewed by the reasonable investor as
having significantly altered the total mix of information
already made available.”
Chapman v. Mueller Water Prods., Inc.,
466 F. Supp. 3d 382, 396–97 (S.D.N.Y. 2020) (cleaned up).
“Certain categories of statements are immaterial as a
matter of law, such as ‘puffery,’ opinions, and forward-looking
statements accompanied by adequate cautionary language.”
Barilli v. Sky Solar Holdings, Ltd., 389 F. Supp. 3d 232, 250
“Puffery encompasses statements that are too
general to cause a reasonable investor to rely upon them,” In re
Vivendi, S.A. Sec. Litig., 838 F.3d 223, 245 (2d Cir. 2016)
(cleaned up), such “as a company’s statements of hope, opinion,
or belief about its future performance,” Steamfitters Loc. 449
Pension Plan v. Skechers U.S.A., Inc., 412 F. Supp. 3d 353, 363
(S.D.N.Y. 2019), aff’d, 826 F. App’x 111 (2d Cir. 2020).
Likewise, “a sincere statement of pure opinion is not an untrue
statement of material fact, regardless [of] whether an investor
can ultimately prove the belief wrong.”
Omnicare, Inc. v.
Laborers Dist. Council Const. Indus. Pension Fund, 575 U.S. 175,
186 (2015) (quotation marks omitted).
In that vein, “the Court
of Appeals has repeatedly held to be nonactionable expressions
of corporate optimism.”
In re Bristol-Myers Squibb Sec. Litig.,
312 F. Supp. 2d 549, 557 (S.D.N.Y. 2004).
In addition to materiality, “[a]n alleged statement or
omission must also be false or misleading.”
433 F. Supp. 3d at 531.
“The test for whether a statement is
materially misleading . . . is not whether the statement is
misleading in and of itself, but whether the defendants’
representations, taken together and in context, would have
misled a reasonable investor.”
(quotation marks omitted).
Vivendi, 838 F.3d at 250
In other words, whether a statement
is “misleading,” is “evaluated not only by literal truth, but by
context and manner of presentation.”
Singh, 918 F.3d at 63
Critically, a statement must be contemporaneously
false: “A statement believed to be true when made, but later
shown to be false, is insufficient.”
In re Lululemon Sec.
Litig., 14 F. Supp. 3d 553, 571 (S.D.N.Y. 2014).
the falsity of an opinion, a plaintiff must plead that (1) “the
speaker did not hold the belief she professed,” (2) any
“supporting fact[s] she supplied” with her opinion “were
untrue,” or (3) the speaker omitted facts whose omission makes
the statement misleading to a reasonable investor.5
Moreover, “an omission is actionable under the securities
laws only when the corporation is subject to a duty to disclose
the omitted facts.”
Stratte-McClure v. Morgan Stanley, 776 F.3d
94, 101 (2d Cir. 2015).
Section “10(b) and Rule 10b–5(b) do
not,” however, “create an affirmative duty to disclose any and
all material information”: “Disclosure is required . . . only
when necessary to make statements made, in the light of the
circumstances under which they were made, not misleading.”
Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27, 44 (2011)
“This inquiry, unlike other duty-to-disclose
scenarios, merges with the question of whether the omitted fact
Constr. Laborers, 433 F. Supp. 3d at 531.
Claims under Section 10(b) and Rule 10b-5 must allege “that
the defendant acted with scienter, a mental state embracing
intent to deceive, manipulate, or defraud.”
Tellabs, Inc. v.
Makor Issues & Rights, Ltd., 551 U.S. 308, 319 (2007) (quotation
The PSLRA mandates that a complaint “state with
Omnicare, 575 U.S. at 186; see also Tongue v. Sanofi, 816
F.3d 199, 209-10 (2d Cir. 2016) (applying Omnicare to claims
brought under Section 10(b) and Rule 10b-5).
particularity facts giving rise to a strong inference that the
defendant acted with the required state of mind.”
15 U.S.C. §
Under that standard, “[a] complaint will
survive . . . 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, 551 U.S. at 324.
That necessary inference of scienter,
taking “into account plausible opposing inferences,” “must be
more than merely ‘reasonable’ or ‘permissible’--it must be
cogent and compelling, thus strong in light of other
Id. at 323-24.
For an individual, “the scienter requirement is met where
the complaint alleges facts showing either: 1) a motive and
opportunity to commit the fraud; or 2) strong circumstantial
evidence of conscious misbehavior or recklessness.”
Sys. of Gov’t of the Virgin Is. v. Blanford, 794 F.3d 297, 306
(2d Cir. 2015) (quotation marks omitted).
“Where motive is not
apparent[,] the strength of the circumstantial allegations must
be correspondingly greater.”
Schiro v. Cemex, S.A.B. de C.V.,
396 F. Supp. 3d 283, 300 (S.D.N.Y. 2019).
“the pleaded facts must create a strong inference that someone
whose intent could be imputed to the corporation acted with the
Teamsters Loc. 445 Freight Div. Pension
Fund v. Dynex Cap. Inc., 531 F.3d 190, 195 (2d Cir. 2008).
c. Section 20(a)
Section 20(a) of the Exchange Act provides for what is
commonly known as “control person” liability:
Every person who, directly or indirectly, controls any
person liable under any provision of [the Exchange
Act] or of any rule or regulation thereunder shall
also be liable jointly and severally with and to the
same extent as such controlled person to any person to
whom such controlled person is liable . . . .
15 U.S.C. § 78t(a).
“To establish a prima facie case of control
person liability, a plaintiff must show (1) a primary violation
by the controlled person, (2) control of the primary violator by
the defendant, and (3) that the defendant was, in some
meaningful sense, a culpable participant in the controlled
ATSI, 493 F.3d at 108.
a. Section 10(b) & Rule 10b-5 Claim
Defendants have moved to dismiss Plaintiff’s Section 10(b)
claim on two grounds.
First, Defendants contend that the CCAC
fails to allege any actionable material misrepresentations or
(See Defs. Br. at 12-23.)
Second, Defendants aver
that the CCAC fails to allege facts supporting a strong
inference that Defendants acted with scienter.
(See id. at 23-
The Court agrees with both arguments.
1. Material Misrepresentations or Omissions
Plaintiff points to a myriad of statements made by
Defendants during the Class Period.
(See CCAC ¶¶ 48-147.)
Those statements can be sorted into two buckets.
First, most of
the statements relate to expressions of optimism regarding
DN2020 and the integration of Diebold and Wincor, which the
Court will call the “Integration Statements.”
Plaintiff identifies specific representations related to (1)
DN’s goodwill6 impairment charges; (2) the Company’s disclosures
under Item 303 of Regulation S-K; and (3) the Individual
Defendants’ SOX certifications.
The Court will address each
family of statements separately.
i. The Integration Statements
Although themselves quite voluminous, the Integration
Statements can be further separated into two general silos: (1)
statements of corporate optimism regarding the benefits of the
Merger, DN2020, or the progress of the integration of Diebold
and Wincor; and (2) any remaining statements regarding the thenpresent status of the Company’s integration efforts.
reasons below, neither silo is actionable.
“Goodwill,” as that term is used in the context of
business combinations such as the Merger, has a specialized
meaning. Business combination transactions are frequently
accounted for using the “purchase method.” See United States v.
Winstar Corp., 518 U.S. 839, 848-49 (1996). Under that
approach, the “difference between the cost of an acquired
company and the sum of the fair values of tangible and
identifiable intangible assets less liabilities is recorded as
goodwill.” In re WorldCom, Inc. Sec. Litig., 352 F. Supp. 2d
472, 484 (S.D.N.Y. 2005) (emphasis omitted).
The vast majority of the Integration Statements are
expressions of corporate optimism.
Consider the following
Defendants spoke repeatedly about the Company’s
“aligned” sales force, goals, and quotas.
Defendants also said that “everyone” was using the
“same goal sheet” or “singing off the same hymn
Defendants referenced the Company’s “progress”
regarding DN2020 or the integration of Diebold and
(See, e.g., CCAC ¶ 48 (“We enter the year leveraging a
stronger, fully aligned global sales force . . . .”); id. ¶ 50
(“For the first time, the sales team is fully aligned around our
goals, quotas, and account plans.”); id. ¶ 52 (“Everybody is
aligned. . . . [W]e’ve got everybody on the same goal sheet. We
now have the full domination agreement between the two
Companies, and all the quotas are aligned.”); id. ¶ 61 (“[S]ince
January, everybody is on the same goal sheets.”); id. ¶ 67 (“Our
sales team is fully aligned around our goals, quotas and account
plans.”); id. ¶ 68 (same); id. ¶ 80 (“[E]verybody is singing off
the same hymn sheet.”).)
(See, e.g., id. ¶ 50 (Mattes stated that DN “continue[d]
to make progress” on integration); id. ¶ 53 (“So we have seen
very good progress, we have gotten organized, and the foundation
work is in place.”); id. ¶ 67 (“We continue to make progress on
our integration . . . .”); id. ¶ 68 (same); id. ¶ 72 (“I’m
pleased to report that we’re off to a good start. . . . I’m
encouraged by the early progress and our ability to coordinate
numerous intersecting activities.”); id. ¶ 78 (“With respect to
our DN2020 transformation program, the company is off to a good
start . . . . I’m encouraged by the early progress and our
ability to coordinate numerous intersecting activities.”); id.
¶ 90 (“We are well on our way to reducing redundant stocking
locations globally. . . . We have also made good progress on
integrating the field service organization, which includes
unifying the legacy IT systems and logistics support.”); id.
¶ 109 (“[W]e are pleased with the pace of our integration
efforts, which are enabling the company to streamline costs,
(continued on following page)
Defendants used the term “excellence” to describe
DN2020’s components related to finance, operations,
Defendants expressed “confidence” in their ability
to integrate Diebold and Wincor.10
Defendants stated that IT integration would be a
“major enabler” for recognizing Merger-related
Defendants cited the “collaborative” nature of the
business and the “teamwork” being leveraged to
integrate Diebold and Wincor.12
(continued from previous page)
increase productivity and strengthen our competitiveness.”); id.
¶ 110 (“We made significant progress in 2017.”).)
(See, e.g., id. ¶ 60 (“[W]e’re spending a lot of time and
energy on the integration but that [b]y the same token, making
sure that we drive operational excellence.” (quotation marks
omitted)); id. ¶ 75 (discussing the Company’s pursuits of
“finance excellence,” “operational excellence,” and “sales
excellence”); id. ¶ 92 (same); id. ¶ 102 (same); id. ¶ 113
(See, e.g., id. ¶ 59 (“[W]e went into this thing eyes
wide opened and we’ve been wrestling down alligators one at a
time, still a few more to go, but we feel very confident about
how we’re going to do this.”); id. ¶ 88 (“As we near the first
anniversary of the combination of our two companies, I am more
confident than ever that we are uniquely positioned to deliver
innovative solutions to our customers and long-term value to our
(See, e.g., id. ¶ 63 (“I think the main part of synergy
capture will be in 2017 and 2018, and this goes along also with
IT integration. I will talk in a minute about IT integration.
On the one hand side, IT is a major enabler for getting value
out of the synergies.”); id. ¶ 65 (“IT will be a big enabler for
(See, e.g., id. ¶ 48 (“I’m pleased with our strong free
cash flow performance during the period, which is a testament to
(continued on following page)
These general and vague statements of corporate optimism are
“precisely the type of puffery that [the Second Circuit] and
other circuits have consistently held to be [no]nactionable.”13
(continued from previous page)
our collaborative teamwork during the first full quarter for our
newly combined company.”).)
In re Synchrony Fin. Sec. Litig., 988 F.3d 157, 170 (2d
Cir. 2021); see also, e.g., In re Synchrony Fin. Sec. Litig.,
450 F. Supp. 3d 127, 156 (D. Conn. 2020) (“[N]o reasonable
investor would be misled by Defendants’ statements about their
‘completely aligned’ interests with retail partners, because
these are ‘vague . . . generic statements [that] do not invite
reasonable reliance.”), aff’d in relevant part, rev’d in part on
other grounds, and remanded, 988 F.3d 157 (2d Cir. 2021); In re
Adient plc Sec. Litig., No. 18-CV-9116 (RA), 2020 WL 1644018, at
*19 n.14 (S.D.N.Y. Apr. 2, 2020) (“Statements about Adient’s
progress with respect to certain goals, including it being ‘on
track,’ also constitute [no]nactionable puffery.”); Okla. L.
Enf’t Ret. Sys. v. Telefonaktiebolaget LM Ericsson, No. 18-CV3021 (JMF), 2020 WL 127546, at *7 (S.D.N.Y. Jan. 10, 2020) (“It
is well established that such general statements about . . .
corporate ‘excellence’ and progress, are nonactionable
puffery.”); Haw. Structural Ironworkers Pension Tr. Fund v. AMC
Entm’t Holdings, Inc., 422 F. Supp. 3d 821, 846 (S.D.N.Y. 2019)
(finding that statements that a merger integration was
“‘quick,’ ‘very smooth’ and [showing] ‘great progress’ [we]re so
vague and ill-suited to concrete measurement that they
constitute puffery”); In re Aratana Therapeutics Inc. Sec.
Litig., 315 F. Supp. 3d 737, 757-58 (S.D.N.Y. 2018) (holding
that statements that the company had “made remarkable progress
towards our stated goal of advancing our expanding pipeline
towards commercialization,” was “confident about and prepared
for what lays ahead,” was “‘proud’ to be ‘on track to have these
products reach the market in 2016,’” and was “confident in these
products and our overall commercialization strategy,” were
nonactionable puffery (citations omitted)); Schaffer v. Horizon
Pharma PLC, No. 16-CV-1763 (JMF), 2018 WL 481883, at *9
(S.D.N.Y. Jan. 18, 2018) (“[S]tatements by Defendants extolling
their ‘unique commercial business model,’ noting that the
company was ‘on track,’ and highlighting that prescription
growth was ‘exceeding [their] expectations’ are not actionable
under the securities laws.” (citations omitted)).
Additionally, many of those statements “may also be properly
characterized as opinion[s],” which are similarly nonactionable.
Adient, 2020 WL 1644018, at *19 n.14.
Plaintiff hopes to avoid that conclusion by suggesting that
those puffery and opinion statements are actionable because they
“are couched between statements of fact and offered for
(Pl. Br. at 15.)
Specifically, Plaintiff posits that
Defendants failed to “tell the whole truth” because they did not
disclose the full extent of the Company’s struggles to integrate
Diebold and Wincor, which led to an “illusion that the cost
savings and merger integration targets were proceeding and faced
no undisclosed challenges to the ‘bottom line’ or ‘P&L’
throughout the Class Period.”
(Id. at 15-16.)
Plaintiff suggests that even if many of the Integration
Statements are puffery, Defendants can still “be held liable for
misrepresentations of existing facts.”
(Id. at 17 (quotation
The Court disagrees.
As an initial matter, Plaintiff’s claim regarding the
“half-truth” nature of the puffery Integration Statements “does
not cure their generality, which is what prevents them from
rising to the level of materiality required to form the basis
for assessing a potential investment.”
Ind. Pub. Ret. Sys. v.
SAIC, Inc., 818 F.3d 85, 97–98 (2d Cir. 2016).
even setting that aside, “a corporation is not required to
disclose a fact merely because a reasonable investor would very
much like to know that fact.”
172, 183 (2d Cir. 2014).
Dalberth v. Xerox Corp., 766 F.3d
Rather, DN was only obligated to
disclose additional facts if doing so was necessary to make the
Integration Statements “not misleading.”
Matrixx, 563 U.S. at
Whether the Integration Statements were misleading absent
the additional facts requires considering whether, in light of
Defendants’ other relevant disclosures, those statements “would
have misled a reasonable investor.”
Vivendi, 838 F.3d at 250.
They would not.
Although Defendants may have expressed a rosy outlook
regarding the Merger, the CCAC shows that they also offered
cautionary statements to temper their optimism.
In DN’s 2016 10-K, Defendants disclosed
that “[t]he Company [wa]s executing a multi-year integration
program” that was aimed at providing “an opportunity to realize
approximately $160 [million] of cost synergies over three
(CCAC ¶ 54 (some emphasis omitted).)
Likewise, at the
Company’s 2017 Investor Day, Mattes stated that “doing a deal in
Germany is not a trivial task and you have to go through quite a
process to get it done,” and he emphasized that “60% of all the
M&A deals that are being done fall short of the expectations.”
(Id. ¶¶ 59-60.)
Mattes also used a visual aid depicting
potential problems as “alligators” and stated that “we’ve been
wrestling down alligators one at a time” and that there were
“still a few more to go.”
(Id. ¶ 59.)
the Class Period, DN repeatedly lowered its revenue and net loss
targets and provided explanations for doing so.
99, 122, 127.)
(Id. ¶¶ 71, 85,
Finally, Defendants made several other
cautionary statements regarding DN2020’s ongoing work on the
Company’s quarterly earnings calls, even though those statements
are omitted from the CCAC.14
Plaintiff’s suggestion that the
(See, e.g., Ex. 11 to Scott Decl., dated July 19, 2017
[dkt. no. 81-12], at 7 (Q2 2017 earnings call transcript) (“I
think it’s very fair to say that we underestimated the amount of
distractions tied to the integration, the amount of change that
we introduced to the organization, and also the size of the hole
that we dug ourselves as we exited 2016 and came into
2017 . . . .”); Ex. 13 to Scott Decl., dated Oct. 31, 2017 [dkt.
no. 81-14], at 3 (Q3 2017 earnings call transcript) (“Our
leadership team is actively managing the complexities related to
the transaction and we are achieving the integration milestones
which we established. . . . [But] significant transformational
work remains . . . .”); id. at 5 (quoting Wunram as saying,
“Every integration has its own unique challenges, and ours was
no different. . . . While there is still work ahead of us, the
company has already made many of the difficult and complex
changes to adjust the cost baseline, which is necessary in
integration of our size.”).)
It is proper for the Court to take judicial notice of these
earnings call transcripts--which are quoted and referred to by
the CCAC--and “to consider them in adjudicating the Motion to
Dismiss, examining the documents only to determine what
statements they contain rather than to prove the truth of the
documents’ contents.” Frankfurt-Tr. Inv. Lux. AG v. United
Techs. Corp., 336 F. Supp. 3d 196, 205 (S.D.N.Y. 2018).
Company’s Merger-related reporting was all roses is divorced
from its own pleadings and Defendants’ other public statements.15
Plaintiff’s claims regarding falsity and “half-truths” run
into another problem:
They fail to plead with particularity
that Defendants knew that their statements were misleading when
they were made.
See Lululemon, 14 F. Supp. 3d at 571.
establish contemporaneous falsity, Plaintiff relies principally
on (1) DN’s abandoning of the DN2020 integration plan and (2)
Schmid’s 2018 statements regarding, among other things, DN’s
organizational complexity, supply chain maladies, and IT
(See Pl. Br. at 10-13.)
Those statements do not move
DN’s change in business strategy does not, without more,
render its past disclosures regarding DN2020 misleading.
company may shift gears for any number of reasons, most of which
have nothing to do with fraud.
As for Schmid’s comments, those
statements simply cannot do the work that Plaintiff requires of
Schmid repeatedly used phrases such as “I think” or “from
For the same reason that the Court finds that the
Integration Statements are not misleading, the Court also finds
that further disclosure of the Company’s integration
difficulties would not have “significantly altered the total mix
of information already made available.” Chapman, 466 F. Supp.
3d at 397 (cleaned up).
my vantage point” or “to me,”16 which signal an expression of
opinion, not fact.
See Omnicare, 575 U.S. at 183 (“[A]
statement of fact (‘the coffee is hot’) expresses certainty
about a thing, whereas a statement of opinion (‘I think the
coffee is hot’) does not.”).
That Individual Defendants may
have held different opinions from Schmid regarding the Company’s
integration efforts does not mean that their opinions were false
Critically, Plaintiff points to no data--such as
documents, reports, analyses, etc.--suggesting that Defendants’
statements regarding DN’s integration efforts were false or
misleading when made, let alone that Defendants knew of such
data but made their representations anyway.
For the reasons explained above, Plaintiff has failed to
plead that the Integration Statements constitute “material
misrepresentation[s] or omission[s].”
Halliburton, 573 U.S. at
(See, e.g., CCAC ¶ 123 (“I think at the--from my vantage
point, the combination of the 2 organizations in late 2016 was
probably one of the core drivers for the additional complexity
in our IT environment. I do think it’s important that as part
of my strategic agenda, I look to explore ways to further
standardize and harmonize that platform.”); id. ¶ 128 (“It has
become quite clear to me that complexity is driving higher costs
in the business. . . . . At the end of the day, the complexity
of our operating model effectively has services actions
distributed globally across multiple operating units, which,
quite frankly, I think, is the fundamental reason for--the
reason why we are--where we are today.”).)
Accordingly, those statements, at least as currently
pleaded, are not actionable under Section 10(b) and Rule 10b-5.17
The Other Statements
Undeterred, Plaintiff asserts that statements related to
DN’s goodwill impairment charges, the Company’s Item 303
disclosures, and Individual Defendants’ SOX certifications are
(See Pl. Br. at 19-21.)
First, Plaintiff suggests that “at least by December 2017,
. . . Defendants knew or should have known that the merger
synergies had adversely affected the Company’s merger-related
(Id. at 19-20.)
To support that contention,
however, Plaintiff points only to (1) Schmid’s August 1, 2018
statement explaining why the Company was reporting an impairment
to goodwill associated with it Q2 2018 results, (see CCAC
¶ 131); and (2) a March 1, 2019 disclosure that deficiencies in
the Company’s internal control environment had resulted in
misstatements to, inter alia, goodwill impairment, (see id.
But “after-the-fact allegations that statements in one
report should have been made in earlier reports do not make out
a claim of securities fraud.”
Plumbers & Steamfitters Loc. 773
Pension Fund v. Canadian Imperial Bank of Com., 694 F. Supp. 2d
Given these conclusions, the Court need not address the
parties’ arguments regarding whether the PSLRA’s safe harbor for
forward-looking statements applies to any of the alleged
misrepresentations. (See Defs. Br. at 15-17; Pl. Br. at 13-15.)
287, 301 (S.D.N.Y. 2010) (quotation marks omitted).
Importantly, Plaintiff alleges no concrete facts, known in
December 2017, suggesting that generally accepted accounting
principles (“GAAP”) “so clearly required” DN to impair its
Merger-related goodwill such that the Company’s “failure to take
such a charge was fraudulent.”18
Next, Plaintiff avers that it has pleaded actionable
omissions related to the Company’s required disclosures under
Item 30319 because Defendants did not “disclose the full extent
of the Company’s integration problems.”
id. ¶ 119; Pl. Br. at 20-21.)
(CCAC ¶ 83; see also
That contention fails for the
same reason that Plaintiff’s claims related to the Integration
Defendants were not obligated to disclose every
fact that an investor might want to know about DN’s integration.
See Dalberth, 766 F.3d at 183.
Here, there is no dispute that
the Company “provided disclosures regarding its risks that were
company-specific and related to the direct risks it uniquely
In re Loral Space & Commc’ns Ltd. Sec. Litig., No. 01
Civ. 4388 (JGK), 2004 WL 376442, at *17 (S.D.N.Y. Feb. 27,
2004). That failure is compounded because GAAP requires “that
the value of goodwill should be tested for impairment at least
annually.” City of Omaha v. CBS Corp., No. 08 Civ. 10816 (PKC),
2010 WL 1029290, at *3 (S.D.N.Y. Mar. 16, 2010).
Rule 303 requires disclosure “where a trend, demand,
commitment, event or uncertainty is both presently known to
management and reasonably likely to have material effects on the
registrant’s financial conditions or results of operations.”
Stratte-McClure, 776 F.3d at 101.
Ong v. Chipotle Mexican Grill, Inc., No. 16 Civ. 141
(KPF), 2017 WL 933108, at *11 (S.D.N.Y. Mar. 8, 2017).
Plaintiff simply maintains that Defendants should have disclosed
However, as explained more fully above, Defendants’
failure to paint the fullest picture possible is not actionable,
especially considering the array of other information that was
disclosed to the market.
(See CCAC ¶¶ 71, 85, 99, 122, 127.)
Finally, Plaintiff suggests that Individual Defendants’
allegedly misleading SOX certifications are actionable because
the Company failed to disclose that its existing internal
controls were deficient and needed to be “enhanced,” which
contributed to DN’s “business and operations [being] materially
impaired as a result of the merger.”
(Id. ¶ 69(f)-(g); see also
id. ¶¶ 56, 77, 82(f)-(g), 97(f)-(g), 105, 106(e)-(f), 117,
SOX certifications are “statement[s] of
opinion,” which “contain an important qualification that the
certifying officer’s statements are true based on his or her
In re AmTrust Fin. Servs., Inc. Sec. Litig., No.
17-CV-1545 (LAK), 2019 WL 4257110, at *24 (S.D.N.Y. Sept. 9,
2019) (brackets omitted).
Yet, Plaintiff offers nothing beyond
conjecture to suggest that Individual Defendants knew--at the
time they signed their certifications--of any misrepresentations
in DN’s financial statements or deficiencies in the Company’s
Defendants’ post-Class Period identification
of control deficiencies and misstatements, without more, does
not show otherwise.20
In sum, Plaintiff’s allegations related to DN’s goodwill
impairment charges, the Company’s Item 303 disclosures, and the
Individual Defendants’ SOX certifications fare no better than
Plaintiff’s claims premised on the Integration Statements.
DN undertook a merger that proved to be more complex, and
less lucrative, than its senior executives initially thought it
But Plaintiff cannot leverage Defendants’ general
expressions of corporate optimism about that merger, although
perhaps misguided, to bootstrap a Section 10(b) or Rule 10b-5
See Shields v. Citytrust Bancorp, Inc., 25 F.3d 1124,
1129 (2d Cir. 1994).
Hindsight, although 20/20, cannot be used
to prove securities fraud.
300, 309 (2d Cir. 2000).
See, e.g., Novak v. Kasaks, 216 F.3d
Plaintiff’s Section 10(b) and Rule
10b-5 claims must be dismissed.
Defendants also move to dismiss Plaintiff’s Section 10(b)
and Rule 10b-5 claims because Plaintiff has failed to plead
(See Defs. Br. at 23-30.)
Recall that Plaintiff may
See Francisco v. Abengoa, S.A., 481 F. Supp. 3d 179, 210
(S.D.N.Y. 2020) (“The mere disclosure of adverse information
shortly after a positive statement does not support a finding
that the prior statement was false at the time it was made.”).
show scienter in one of two ways: (1) evidence that Individual
Defendants had “a motive and opportunity to commit the fraud” or
(2) “strong circumstantial evidence of conscious misbehavior or
Blanford, 794 F.3d at 306 (quotation marks
Plaintiff’s allegations fall short under either
theory, especially since, when evaluating scienter, “the [C]ourt
must take into account plausible opposing inferences.”
551 U.S. at 323.
In terms of motive and opportunity, Plaintiff alleges that
Individual Defendants “were motivated to make the alleged false
and misleading statements in order to preserve their executive
positions and personally collect millions of dollars in
compensation and bonuses.”
(CCAC ¶ 158.)
That contention fails
because it is not “concrete” or “personal” to the Individual
Teamsters, 531 F.3d at 196.
Indeed, the Court of
Appeals has “made clear” that “an allegation that defendants
were motivated by a desire to maintain or increase executive
compensation is insufficient [to show scienter] because such a
desire can be imputed to all corporate officers.”
Eichler, 264 F.3d 131, 140 (2d Cir. 2001).
Instead, Plaintiff focuses its arguments on the Individual
Defendants’ purported recklessness, (see Pl. Br at 23-30), which
the Court of Appeals defines as “conduct which is highly
unreasonable and which represents an extreme departure from the
standards of ordinary care.”
Novak, 216 F.3d at 308 (quotation
To satisfy that standard, Plaintiff points to
five families of facts it avers circumstantially evidence
scienter: (1) Individual Defendants’ central role in the
integration, (see Pl. Br at 23-25); (2) Individual Defendants’
departures from DN, (see id. at 25-26); (3) certain post-Class
Period events at the Company, (see id. at 26-27); (4) Individual
Defendants’ SOX certifications, (see id. at 28); and (5)
Individual Defendants’ knowledge of “core operations,” (see id.
None of those allegations gives rise to the required
strong inference of scienter.
Plaintiff relies primarily on Individual Defendants’ senior
management roles to evidence scienter, pointing to their
“responsib[ity] for the companies’ successful integration” and
their “comprehensive understanding of the integration activities
and how those activities would affect the Company’s financial
and operational results.”
(Id. at 23.)
Yet, “Plaintiff must do
more than allege that the Individual Defendants had or should
have had knowledge of certain facts contrary to their public
statements simply by virtue of their high-level positions.”
Lipow v. Net1 UEPS Techs., Inc., 131 F. Supp. 3d 144, 163
To that end, “[w]here scienter is based on a
defendant’s knowledge of and/or access to certain facts, Second
Circuit cases uniformly rely on allegations that  specific
contradictory information was available to the defendants  at
the same time they made their misleading statements.”
2020 WL 1644018, at *27.
On that front, Plaintiff points only to certain “tools”
that Individual Defendants used to track Merger-related
(See Pl. Br. at 23-24.)
plaintiffs contend defendants had access to contrary facts, they
must specifically identify the reports or statements containing
Novak, 216 F.3d at 309.
Plaintiff specifies no information in those tools that runs
counter to Individual Defendants’ statements at the time they
To the contrary, Plaintiff relies only on Schmid’s
later opinions regarding the complexity of DN’s organizational
structure and IT environment and posits that it is “not
plausible that [the Individual] Defendants . . . were unaware”
of those “facts” at the time.
(Pl. Br. at 24-25.)
is not enough.21
Next, Plaintiff invokes Mattes’, Chapman’s, and Wunram’s
departures from the Company.
(See Pl. Br. at 25-26.)
A plaintiff can also show recklessness sufficient to
infer scienter where it “allege[s] facts demonstrating that
defendants failed to review or check information that they had a
duty to monitor, or ignored obvious signs of fraud.” Novak, 216
F.3d at 308. That is inapposite here, because Plaintiff’s
entire scienter theory is predicated on the fact that Individual
Defendants were actively tracking and reviewing the progress of
DN2020 and the integration. (See Pl. Br. at 23-24.)
“Terminations or resignations of corporate executives are
insufficient alone to establish an inference of scienter,”
Woolgar v. Kingstone Cos., Inc., 477 F. Supp. 3d 193, 240
(S.D.N.Y. 2020), because “there are any number of reasons that
an executive might resign, most of which are not related to
fraud,” Das v. Rio Tinto PLC, 332 F. Supp. 3d 786, 815 (S.D.N.Y.
Additional factual allegations linking the termination
or resignation to the alleged fraud are necessary.
477 F. Supp. 3d at 240.
Plaintiff attempts to tie the
departures to fraud by suggesting that the departures were due
to DN’s poor post-Merger results including “tens of millions of
dollars in operational inefficiencies, cost overruns, and
debilitating supply chain problems.”
(Pl. Br. at 25.)
disappointing earnings do not a fraud make--companies fail to
execute on their operational objectives all the time for a
variety of non-fraud-related reasons.
suggests that the Individual Defendants’ leaving DN somehow were
“red flags,” (id. at 26), Plaintiff offers nothing beyond
innuendo to permit the Court to discern anything out-of-theordinary about those departures.
See Adient, 2020 WL 1644018,
Plaintiff next suggests that certain “post-Class Period
events and statements support an inference of scienter.”
Br. at 26 (quotation marks omitted).)
Plaintiff points to two:
(1) “DN’s abandonment of the DN2020 integration program” in
favor of “the new ‘DN Now’ program” and (2) “[t]he Company’s
need to take the massive [M]erger-related goodwill impairments.”
Neither provides Plaintiff any help.
As explained above,
a change in business strategy does not itself show that the old
approach was plagued by fraud.
Although Individual Defendants
may have expressed undue optimism about DN2020’s progress, that
hardly rises to an “extreme departure from the standards of
Kalnit, 264 F.3d at 142.
As for the goodwill
impairment, “allegations of GAAP violations or accounting
irregularities, standing alone, are insufficient to state a
securities fraud claim.”
Novak, 216 F.3d at 309.
Plaintiff offers “no allegations that there were any internal
reports”--or any other documents, analyses, or data for that
matter--“that suggested that the failure to take an impairment
charge earlier was an incorrect application of accounting
principles, much less an error so grievous that it . . . rose to
the level of fraud.”
Int’l Ass’n of Heat v. Int’l Bus. Machs.
Corp., 205 F. Supp. 3d 527, 536 (S.D.N.Y. 2016).
Next, Plaintiff marshals Individual Defendants’ SOX
certifications associated with DN’s 2016 10-K, each of its 2017
10-Qs, and its 2017 10-K.
(See Pl. Br. at 28 (citing CCAC
¶¶ 56, 77, 95, 105, 117, 161.)
As a general matter, however,
SOX certifications “add nothing substantial to the scienter
calculus” because permitting those “certifications to create an
inference of scienter in every case where there was an
accounting error . . . would eviscerate the pleading
requirements for scienter set forth in the PSLRA.”
of Heat, 205 F. Supp. 3d at 536.
To that end, courts in this
circuit have found that a plaintiff “cannot raise an inference
of fraudulent intent based on the signing of a certification
without alleging any facts to show a concomitant awareness of or
recklessness to the materially misleading nature of the
Here, no such allegations were made:
relies only on facts occurring after Individual Defendants
signed their certifications, namely the post-Class Period
disclosures of material weaknesses in DN’s internal controls and
the Company’s August 2018 impairment of goodwill.
Finally, Plaintiff contends that the “core operations
doctrine”23 supports an inference of scienter because Individual
Plumbers, 89 F. Supp. 3d at 615 (emphasis added); cf.
Reilly v. U.S. Physical Therapy, Inc., No. 17 Civ. 2347 (NRB),
2018 WL 3559089, at *19 (S.D.N.Y. July 23, 2018) (“SOX
certifications may be probative of scienter if the complaint
alleges glaring accounting irregularities or other red flags, of
which the certifying defendant had reason to know.” (quotation
“Under the core operations doctrine, a court may infer
that a company and its senior executives have knowledge of
information concerning the core operations of a business, such
(continued on following page)
Defendants’ responsibilities related to the merger undoubtedly
concerned DN’s core operations.
(See Pl. Br. at 27-28.)
assuming that is true, it is of no moment.
implicitly recognizes, (see id. at 27 n.15), “the core
operations theory”--at best--“constitutes supplemental support
for alleging scienter but does not independently establish
In other words, the core operations doctrine can
only be a buoy, not a life raft.
And, as described above,
Plaintiff’s other allegations of scienter do not measure up.
Plaintiff cries foul with this method of analysis, averring
that its allegations must be considered collectively.
Br. at 22.)
Plaintiff is correct that “the [C]ourt’s job is not
to scrutinize each allegation in isolation but to assess all the
Tellabs, 551 U.S. at 326.
Supreme Court’s command does not permit Plaintiff “to combine
inadequate allegations of motive with inadequate allegations of
recklessness . . . to demonstrate scienter.”
Kalnit, 264 F.3d
That makes sense as a matter of elementary arithmetic.
(continued from previous page)
as events affecting a significant source of income.” City of
Omaha Police & Fire Ret. Sys. v. Evoqua Water Techs. Corp., 450
F. Supp. 3d 379, 423 (S.D.N.Y. 2020) (quotation marks omitted).
Lipow, 131 F. Supp. 3d at 163 (quotation marks omitted).
Indeed, “since the enactment of the PSLRA, the Second Circuit
has expressed doubt as to whether the core operation[s] doctrine
has survived.” In re Pretium Res. Inc. Sec. Litig., 256 F.
Supp. 3d 459, 474 (S.D.N.Y. 2017).
After all, “zero plus zero” (plus zero plus zero plus zero)
“cannot equal one.”
Reilly, 2018 WL 3559089, at *19.
In short, Plaintiff’s allegations regarding scienter do not
support a “powerful or cogent” inference that Individual
Defendants harbored thoughts of fraud.
Tellabs, 551 U.S. at
As a result, there is no intent that can be imputed to the
See Teamsters, 531 F.3d at 195.
Plaintiff’s Section 10(b) and Rule 10b-5 claims must be
dismissed on the basis of lack of scienter, too.
b. Section 20(a) Claim
Plaintiff also asserts that Mattes, Chapman, and Wunram are
liable as controlling persons, because all three “controlled” DN
within the meaning of Section 20(a) of the Exchange Act.
Pl. Br. at 30; CCAC ¶ 198.)
But because Plaintiff has “failed
to plead a primary violation” of the Exchange Act by DN,
Plaintiff’s “Section 20(a) claim necessarily fails.”
466 F. Supp. 3d at 414.
For the foregoing reasons, Defendants’ motion to dismiss
[dkt. no. 79] is GRANTED, and the CCAC is DISMISSED without
Should the class wish to re-plead, Plaintiff may
file an amended complaint within thirty days.25
will not be given unlimited bites at the apple, however, as [it
is] now on notice of the deficiencies in [its] pleadings.”
Francisco, 481 F. Supp. 3d at 216.
The Clerk of the Court shall
close the open motion.
March 30, 2021
New York, New York
LORETTA A. PRESKA
Senior United States District Judge
“[U]pon granting a motion to dismiss, the usual practice
in this Circuit is to permit amendment of the complaint.”
Special Situations Fund III QP, L.P. v. Deloitte Touche Tohmatsu
CPA, Ltd., 33 F. Supp. 3d 401, 446–47 (S.D.N.Y. 2014) (quotation
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