130 F. Supp. 3d 809
S.D.N.Y.2015Background
- A123 Systems manufactured lithium-ion batteries and contracted to supply batteries to Fisker Automotive for the Fisker Karma; Plaintiffs are purchasers of A123 securities (class period Feb 28, 2011–Oct 16, 2012).
- Plaintiffs allege Defendants made false/misleading statements about (1) the quality/validation of A123’s batteries (later found defective: coolant/electrolyte leaks) and (2) A123’s business prospects tied to Fisker, which Plaintiffs claim was effectively insolvent and unable to pay for batteries.
- Allegations of Defendants’ knowledge derive mainly from Defendant Forcier’s prior Fisker board membership and attendance at an earlier board meeting; Plaintiffs claim some internal A123 statements and employee reports signaled battery problems and reduced Fisker orders.
- Plaintiffs assert additional claims alleging GAAP/accounting violations (failure to recognize other-than-temporary impairment of Fisker investment and inventory impairments).
- Defendants moved to dismiss under Rules 12(b)(6), 9(b), and the PSLRA; the court considered pleading particularity and the requirement to plead scienter with a strong inference.
- Court dismissed the Amended Complaint in full for failure to plead falsity, particularity, and a strong inference of scienter; Section 20(a) control-person claim dismissed as derivative.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether res judicata bars the suit | Earlier Massachusetts putative class action dismissal binds absent class members | Lead-plaintiff appointment under PSLRA makes parties identical | Denied — pre-certification dismissal does not bind absent class members |
| Sufficiency under Rule 9(b) / PSLRA as to battery defect statements | Defendants misrepresented validation and battery quality; management knew of prototype problems | Compl. fails to identify specific false statements or factual falsity supporting alleged statements | Dismissed — no particularized allegations showing identified statements were false |
| Scienter re: Fisker-related business statements | Defendants knew Fisker was effectively insolvent (via Forcier) and misled investors about revenue prospects | Allegations are speculative; stock sales not suspicious; reasonable nonculpable inferences exist | Dismissed — no strong inference of scienter (motive/opportunity or conscious recklessness) |
| Accounting/GAAP claims (OTTI and inventory impairment) | A123 should have recognized OTTI or inventory impairment given Fisker’s problems | Accounting judgments are opinions; no facts showing defendants did not genuinely believe their assessments | Dismissed — plaintiffs failed to plead objective and subjective falsity and scienter |
Key Cases Cited
- Day v. Moscow, 955 F.2d 807 (2d Cir.) (court may take notice of its records to decide res judicata on 12(b)(6))
- TechnoMarine SA v. Giftports, Inc., 758 F.3d 493 (2d Cir. 2014) (elements of res judicata)
- Smith v. Bayer Corp., 564 U.S. 299 (U.S. 2011) (pre-certification class actions do not bind nonparties)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (U.S. 2007) (standard for pleading a "strong inference" of scienter)
- Dura Pharm., Inc. v. Broudo, 544 U.S. 336 (U.S. 2005) (elements of a securities fraud claim include loss causation and economic loss)
- ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87 (2d Cir. 2007) (Rule 9(b) and securities pleading requirements)
- Kalnit v. Eichler, 264 F.3d 131 (2d Cir. 2001) (recklessness standard; circumstantial evidence of conscious misbehavior)
- Novak v. Kasaks, 216 F.3d 300 (2d Cir. 2000) (GAAP allegations alone insufficient; must plead corresponding fraudulent intent)
- Fait v. Regions Fin. Corp., 655 F.3d 105 (2d Cir. 2011) (accounting judgments are opinions; pleading both objective and subjective falsity required)