Anderson v. Spirit AeroSystems Holdings, Inc.
827 F.3d 1229
| 10th Cir. | 2016Background
- Spirit AeroSystems supplied parts for Gulfstream G280/G650 and Boeing 787; three projects experienced delays and cost overruns, and Spirit periodically reported progress to investors.
- Class period: Nov 3, 2011–Oct 24, 2012; plaintiffs alleged Spirit and four executives made false/misleading statements or omissions about project status, violating §10(b) and Rule 10b-5.
- On Oct 25, 2012 Spirit announced a forward-loss expectation (hundreds of millions), and its stock fell ~30%.
- Plaintiffs relied on internal reports and ten confidential corroborating witnesses alleging known overruns, executives’ involvement in core operations, a July 2012 recovery plan, and post hoc admissions.
- District court dismissed for failure to plead scienter with particularity; Tenth Circuit reviewed de novo and assumed falsity/materiality but focused on whether the complaint alleged a cogent and compelling inference of scienter.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether plaintiffs pleaded scienter under PSLRA (strong inference) | Executives knew projects were doomed and delayed announcing forward losses to conceal reality | More plausible inference: executives were optimistic and believed recovery efforts could work; no intent or recklessness shown | Affirmed dismissal — plaintiffs failed to plead a cogent, compelling inference of scienter |
| Sufficiency of corroborating witness allegations | CWs showed internal EACs, cost reports, meetings, and that at least one VP directed use of unrealistically low cost projections | CWs were low-level or too remote; reports underwent layers of revision; contents as to executives unknown | CW allegations insufficiently particularized to show executives knew the forecasts were false |
| Inference from executives’ positions/core involvement | Senior roles and project oversight mean they must have known about overruns | Position alone is insufficient; need particularized facts about exposure to specific adverse information | Positions and attendance at meetings did not create a strong inference of scienter |
| Use of post hoc facts (recovery plan, risk disclosures, magnitude of loss, accounting allegations) | Large loss, recovery plan, later admissions, and risk warnings show recklessness or knowledge | These are hindsight; warnings weaken scienter inference; remedial measures show attempt to fix not intent to deceive | Court treated these as “fraud by hindsight” and not sufficient to plead scienter |
Key Cases Cited
- In re Zagg, Inc. Sec. Litig., 797 F.3d 1194 (10th Cir. 2015) (discussing PSLRA heightened pleading and holistic scienter analysis)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007) (standard for comparing competing inferences and requiring an inference of scienter be cogent and compelling)
- In re Level 3 Commc’ns, Inc. Sec. Litig., 667 F.3d 1331 (10th Cir. 2012) (recklessness standard and limits on allegations based on internal report–external statement divergence)
- Adams v. Kinder-Morgan, Inc., 340 F.3d 1083 (10th Cir. 2003) (recklessness defined as extreme departure from ordinary care)
- City of Philadelphia v. Fleming Cos., 264 F.3d 1245 (10th Cir. 2001) (senior status alone insufficient to infer scienter)
- Halliburton Co. v. Erica P. John Fund, Inc., 134 S. Ct. 2398 (2014) (listing elements of §10(b) claim)