In re Everyware Global, Inc. Securities Litigation
175 F. Supp. 3d 837
| S.D. Ohio | 2016Background
- EveryWare Global (formed by Monomoy merging Oneida and Anchor Hocking) went public via a merger with ROI in May 2013; Monomoy received ~$90M cash and ~15 million shares and retained majority control.
- EveryWare issued 2013 revenue and adjusted-EBITDA projections (e.g., $457M revenue, $61.1M EBITDA) and an investor presentation valuing the company; those projections were incorporated into a Registration Statement for a September 2013 Secondary Offering.
- Plaintiffs (purchasers of EveryWare securities Sept. 2013–May 2014) allege a pump-and-dump scheme: defendants (Monomoy, certain officers, underwriters, directors, and accounting officer) misrepresented EveryWare’s financial health, concealed that it was effectively decapitalized and running out of cash, used accounting maneuvers (capitalizing $5.9M factory costs), and sold shares in the Secondary Offering.
- After the Secondary Offering, EveryWare’s results worsened (Q3 and year-end 2013 downward revisions, massive Q1 2014 loss, covenant default), stock collapsed, and the company later filed bankruptcy; plaintiffs brought Securities Act and Exchange Act claims in a class action.
- The district court considered motions to dismiss under Rule 12(b)(6) (and Rule 9(b)/PSLRA where relevant), addressing Section 10(b)/10b-5, Section 20(a), Sections 11 and 12(a)(2), and control-person claims under Sections 15 and 20(a).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether defendants made materially false or misleading statements under Section 10(b)/Rule 10b-5 | Projections, valuation statements, and “we are on track” statements were false/misleading because management knew the company was decapitalized, selling below cost, and hiding factory costs | Projections were forward-looking (PSLRA safe harbor); valuation disclosures were transparent; present-tense “on track” statements lacked particularized facts showing defendants knew they were false | Dismissed: plaintiffs failed to plead actionable misstatements for 10(b) (safe harbor and lack of particularized falsity) |
| Whether plaintiffs pleaded scienter for Section 10(b) claims | Facts and confidential witnesses show management knew of insolvency, accounting issues, inventory cuts, and motive (job preservation; Monomoy sales) | Allegations are vague, lack direct communications to executives, insiders largely didn’t sell (or sold little), Monomoy later invested more, and competing innocent inferences are stronger | Dismissed: scienter not plausibly alleged (Tellabs holistic test; Helwig factors weigh against scienter) |
| Whether plaintiffs have standing and timely Section 11 and 12(a)(2) claims | Purchases on the offering date (through broker) are traceable to the Secondary Offering; timeliness is factual and Plaintiffs conducted investigation after disclosures | Traceability is implausible without stronger factual allegations; claims against newly added defendants are time-barred from corrective disclosures (Oct 30, 2013 / Mar 31, 2014) | Standing: Section 11 and Section 12(a)(2) claims survive pleading stage for most defendants (plaintiffs plausibly pleaded traceability and broker-agent purchase); timeliness: not decided on 12(b)(6) because factual inquiry required |
| Whether Item 303 / Registration Statement omissions (decapitalization, inventory/operations cuts, accounting treatment) state claims under Sections 11 and 12(a)(2) | Registration Statement omitted material trends/uncertainties and failed to disclose accounting irregularities; CWs corroborate company-wide problems | Allegations about accounting and inventory shortages are vague, lack particularity on what was known when, and many items were disclosed (merger terms, debt levels); business judgments (pricing, product-line exits) are not fraud | Dismissed: plaintiffs failed to plead concrete, nonconclusory omissions or accounting improprieties sufficient under Sections 11/12(a)(2) against the moving defendants |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading must state plausible claim, not mere legal conclusions)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility standard for complaints)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007) (holistic Tellabs test for strong inference of scienter)
- Dura Pharm., Inc. v. Broudo, 544 U.S. 336 (2005) (loss causation and elements of securities fraud)
- Omnicare, Inc. v. Laborers Dist. Council, 135 S. Ct. 1318 (2015) (opinion statements and when omission of underlying facts can be actionable)
- Helwig v. Vencor, 251 F.3d 540 (6th Cir. 2001) (list of factors relevant to scienter analysis)
- Konkol v. Diebold, Inc., 590 F.3d 390 (6th Cir. 2009) (limits of confidential witness allegations for scienter)
- PR Diamonds, Inc. v. Chandler, 364 F.3d 671 (6th Cir. 2004) (requirement to show concrete benefits for inferring motive)
- In re Century Aluminum Co. Sec. Litig., 729 F.3d 1104 (9th Cir. 2013) (heightened pleading discussion for traceability in Section 11 cases)