City of Pontiac General Employees' Retirement System v. Lockheed Martin Corp.
875 F. Supp. 2d 359
S.D.N.Y.2012Background
- This securities class action is brought on behalf of Pontiac Retirement System for purchases of Lockheed Martin stock during 4/21/2009–7/21/2009.
- Plaintiffs allege Defendants—Lockheed Martin and executives Stevens, Tanner, and Gooden—made false and misleading statements about IS & GS performance and withheld material adverse facts.
- Allegations include underbidding bids, Red programs, inflated backlog, and overstated 2009 projections for IS & GS.
- Defendants moved to dismiss under Fed. R. Civ. P. 12(b)(6) and PSLRA pleading standards; the court applied Iqbal/Tellabs standards.
- Court denied dismissal of Count I (securities fraud) but dismissed Counts II–III (control person liability).
- Key public disclosures include a 4/21/2009 Q1 press release, 4/23/2009 10-Q, 5/28/2009 Stevens remarks, and 7/21/2009 Q2 results with IS & GS revisions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Pleadings for Count I sufficient? | Plaintiff asserts falsity and materiality of IS & GS statements; alleges scienter via confidential witnesses. | Defendants invoke PSLRA safe harbor and bespeaks caution; some statements were forward-looking or puffery. | Count I plausibly pled; safe harbor not dispositive; group pleading allowed for Gooden. |
| Materiality of IS & GS statements? | IS & GS material misstatements significantly altered total mix of information. | IS & GS solely one division; changes were modest and discounted by cautionary language. | Materiality plausibly alleged given qualitative factors and share-price reaction. |
| Scienter for Gooden? | CW testimony shows Gooden knew/overlooked falsity and actively influenced bids/backlog. | Testimony equivocal; no direct proof Gooden knew; motive absent. | Strong circumstantial evidence of conscious misbehavior by Gooden; scienter adequately pled. |
| Core operations doctrine imputing to Stevens/Tanner? | Those officers should have known IS & GS issues; core-operations supports imputing scienter. | Doctrine limited post-PSLRA; no direct facts tying them to specific misstatements. | Imputations plus specific statements show Stevens and Tanner acted with scienter; tie resolved in plaintiff's favor on Tellabs standards. |
| Counts II–III must be dismissed? | Group pleading and core-operations theory support control-liability claims. | No plausible alternative theory; primary violators identified; PSLRA pleading requirements not met for control. | Counts II and III dismissed; only Count I survives. |
Key Cases Cited
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (U.S. 2007) (strong inference standard for scienter; balance inferences)
- Matrixx Initiatives, Inc. v. Siracusano, 131 S. Ct. 1309 (U.S. 2011) (materiality context; not a fixed percent)
- Celestica, Inc. v. Celestica, 455 Fed. Appx. 10 (2d Cir. 2011) (confidential witnesses support scienter; materiality context)
- Tellabs II (Makor Issues & Rights, Ltd. v. Tellabs, Inc.), 513 F.3d 702 (7th Cir. 2008) (tie-breaking scienter inference)
- In re Wachovia Equity Securities Litig., 753 F. Supp. 2d 326 (S.D.N.Y. 2011) (core operations and scienter discussion in PSLRA era)