Inter-Local Pension Fund Gcc/ibt v. General Electric Company
445 F. App'x 368
2d Cir.2011Background
- Appellants filed a securities class action against GE, CEO Immelt, and CFO Sherin under the Exchange Act Section 10(b) and Section 20(a).
- The district court dismissed the complaint under Fed. R. Civ. P. 12(b)(6) for failure to plead a plausible 10b-5 claim.
- The complaint alleged misstatements and omissions about GE's quarterly earnings prospects.
- The court reviews Rule 12(b)(6) dismissals de novo and accepts factual allegations as true.
- The court found no strong inference of scienter; no concrete motive; insufficient circumstantial evidence; and post hoc statements did not establish scienter.
- Because no primary 10b-5 violation was pled, control-person liability under Section 20(a) also failed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did the complaint plead strong inference of scienter? | Plaintiff argues motive or conscious misbehavior sufficient for scienter. | GE argues no motive and insufficient evidence of scienter. | No strong inference of scienter; complaint fails. |
| Is there adequate motive or circumstantial evidence of fraud? | Plaintiff asserts compensation-linked motive and access to information implied fraud. | Defendant contends motive is too generic; circumstantial evidence is weak. | Motive and circumstantial evidence inadequate. |
| Does the post hoc statement about risks establish scienter? | Plaintiff claims awareness of risks contradicts statements. | Sherin's risk awareness is too generalized and not linked to statements; not inconsistent. | Not enough to create strong inference of scienter. |
| Does the complaint state a viable Rule 10b-5 claim? | Plaintiff contends misstatements existed and were material. | No plausible misstatements with scienter under PSLRA. | No viable 10b-5 claim. |
| Does the failure of a primary 10b-5 claim warrant dismissal of Section 20(a) claim? | If primary claim survives, 20(a) may. | ||
| Without primary violation, 20(a) fails. | 20(a) claim fails. |
Key Cases Cited
- Slayton v. American Express Co., 604 F.3d 758 (2d Cir. 2010) (pleading scienter under PSLRA requires cogent inference)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (Supreme Court 2007) (strong inference standard for scienter; competing inferences considered)
- Ernst & Ernst v. Hochfelder, 425 U.S. 185 (U.S. 1976) (requires intentional deception for scienter)
- Shields v. Citytrust Bancorp, Inc., 25 F.3d 1124 (2d Cir. 1994) (motive must be concrete; generalized motives insufficient)
- Novak v. Kasaks, 216 F.3d 300 (2d Cir. 2000) (no concrete benefits shown; requires concrete motive)
- ECA & Local 134 IBEW Joint Pension Trust of Chicago v. JP Morgan Chase Co., 553 F.3d 187 (2d Cir. 2009) (requires strong inference of scienter; access to information not enough)
- ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87 (2d Cir. 2007) (circumstantial evidence must show knowing misrepresentation)