559 F.Supp.3d 286
S.D.N.Y.2021Background
- Abengoa S.A. completed a U.S. ADS offering on October 17, 2013, using a Form F-1/Prospectus that touted strong liquidity and described a percentage-of-completion accounting policy for construction contracts.
- In September–November 2014 Abengoa issued Greenfield bonds and then reclassified them as “non-recourse” debt in November 2014, which—when disclosed—caused a near-50% drop in ADS price after investors learned the company had excluded those amounts from its corporate leverage ratio.
- Between 2013–2015 Abengoa continued public statements emphasizing sound liquidity and improving leverage; by August 3, 2015 it announced a €650 million capital increase and asset divestitures, triggering further stock declines and, later, insolvency proceedings and bankruptcy filings in late 2015–2016.
- Plaintiffs rely on seven confidential witnesses, KPMG and other post‑period investigations, and a Spanish regulatory sanction of Abengoa’s auditor to allege a dual-accounting scheme at subsidiaries (inflated SAP margins vs. internal Excel figures), fabricated cost provisions, and transfers of unrelated losses to boost revenue and bonuses.
- Procedural posture: Lead plaintiffs moved for leave to file a Proposed Third Amended Complaint (PTAC) asserting Securities Act (Sections 11 and 15) and Exchange Act (Section 10(b)/Rule 10b-5 and Section 20(a)) claims on behalf of ADS purchasers from Oct. 17, 2013 to Aug. 3, 2015. The Court granted leave in part and denied in part.
- Disposition summary: Court permitted most amendments against Abengoa and the Underwriter Defendants (except Banco Santander), allowed Securities Act claims against Sanchez Ortega, but held Exchange Act claims (Section 10b-5 and Section 20(a)) against Sanchez Ortega futile and dismissed them with prejudice.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Leave to amend under Rule 15 (undue delay/bad faith/prejudice) | Plaintiffs sought to add factual allegations uncovered or clarified by later Spanish court orders, confidential witnesses, and forensic reports; moved promptly after Court identified deficiencies. | Defendants argued plaintiffs unduly delayed and that amendment would unfairly prejudice defendants by adding old allegations and expanding discovery burden. | Court: Grant in part. No undue delay or bad faith; no undue prejudice because claims/scope largely same and discovery had not begun. Leave granted as to Abengoa and underwriters (except Banco Santander). |
| Futility re: scienter for Sanchez Ortega under Section 10(b)/Rule 10b-5 | Plaintiffs rely on confidential witnesses, core-operations inference (subsidiaries made up ~60% of sales), resignations, SOX certifications, and post‑period reports to allege recklessness/conscious misbehavior. | Sanchez Ortega argues plaintiffs fail to plead motive, direct awareness, or specific facts tying him to the alleged fraud; Spanish criminal proceedings are investigatory and not probative; CWs do not show he had actual knowledge. | Court: Denied amendment as futile. Plaintiffs did not plead a strong inference of scienter for Sanchez Ortega; Exchange Act claims (10b-5) against him dismissed with prejudice. |
| Section 20(a) control-person liability against Sanchez Ortega | Plaintiffs assert control as CEO and a culpable participant in alleged fraud. | Sanchez Ortega says plaintiffs failed to plead underlying scienter and culpable participation. | Court: Dismissed Section 20(a) claims against Sanchez Ortega as futile because scienter for controlling person not adequately pleaded. |
| Securities Act (Sections 11 & 15) claims against Sanchez Ortega | Plaintiffs allege misstatements/omissions in the Registration Statement about liquidity and accounting that render the registration statement false. | Sanchez Ortega argued futility only via scienter arguments. | Court: Allowed Securities Act claims to proceed because Sections 11 and 15 claims do not require scienter; leave to amend granted as to these claims. |
Key Cases Cited
- Loreley Financing (Jersey) No. 3 Ltd. v. Wells Fargo Secs., LLC, 797 F.3d 160 (2d Cir. 2015) (plaintiff may amend after district court explains deficiencies)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007) (scienter must be plead such that inference is at least as compelling as any opposing inference)
- Dura Pharm., Inc. v. Broudo, 544 U.S. 336 (2005) (elements of a Rule 10b-5 claim include material misrepresentation, scienter, connection to purchase/sale, reliance, and loss)
- ECA & Local 134 IBEW Joint Pension Tr. v. JP Morgan Chase Co., 553 F.3d 187 (2d Cir. 2009) (PSLRA and Rule 9(b) heightened pleading standards apply to securities fraud)
- Kalnit v. Eichler, 264 F.3d 131 (2d Cir. 2001) (motive-and-opportunity and recklessness standards for scienter)
- Pangburn v. Culbertson, 200 F.3d 65 (2d Cir. 1999) (amendment may be denied as futile when no set of facts would save the claim)
- Agerbrink v. Model Serv. LLC, 155 F. Supp. 3d 448 (S.D.N.Y. 2016) (Rule 15 standard and undue prejudice analysis)
- Francisco v. Abengoa, S.A., 481 F. Supp. 3d 179 (S.D.N.Y. 2020) (court’s prior opinion dismissing Second Amended Complaint and identifying deficiencies)