225 F. Supp. 3d 210
S.D.N.Y.2016Background
- LP Partners purchased Mobileye shares in 2003 and sold them in July 2013 in response to a tender offer (the Offer) by Driving Momentum B.V. for $33,036 per share; LP Partners sold all shares for $508,258.86.
- Offer documents required sellers to acknowledge forfeiture of future appreciation and stated Mobileye had not decided whether to pursue an IPO.
- Before tendering, LP Partners’ general partner Larry Joseph called Mobileye CFO Ofer Maharshak (May 23, 2013). Maharshak told Joseph Mobileye was not then considering an IPO and that an IPO or financing might be evaluated in about six years; Joseph relied on that statement and recommended selling.
- Press coverage contemporaneous with the Offer quoted Mobileye founders describing the Offer as a step toward an IPO; Mobileye completed an IPO in March–August 2014 that valued the company in the billions and later completed a secondary offering in 2015.
- LP Partners sued for fraud, negligent misrepresentation, and unjust enrichment, alleging Mobileye misrepresented its IPO plans to induce sales; Mobileye moved to dismiss.
- The Court denied the motion to dismiss, holding the amended complaint adequately pleaded misrepresentation, scienter (circumstantial), reasonable reliance, causation, negligent misrepresentation, and allowed the unjust enrichment claim to proceed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Mobileye made a material misrepresentation / fraudulent statement about IPO plans | Maharshak told LP Partners there was no near-term IPO; Mobileye in fact had formed intent to go public and used the Offer to facilitate it | Statements about future IPO were opinions/forward-looking and consistent with Offer docs; news articles don’t prove Mobileye’s contemporaneous intent | Court: Allegations that Maharshak misrepresented near-term IPO plans are sufficient at pleading stage; factual intent is for trial |
| Whether scienter (intent/fraud) pleaded with requisite particularity under Rule 9(b) | Circumstantial facts (founders’ later press statements, timing of IPO, Offer purpose) support a strong inference that Mobileye intended to induce sales to facilitate IPO | Alleged scheme is economically irrational (insiders would not sell undervalued shares); press reports don’t show Mobileye’s state of mind | Court: Complaint alleges plausible circumstantial evidence of conscious misbehavior and motive; scienter adequately pleaded for now |
| Whether LP Partners reasonably relied and whether reliance was barred by Offer disclaimers | Reliance on Maharshak was reasonable because he was a designated contact in Offer materials and LP Partners expressly sought guidance about IPO timing | Offer documents disclaimed reliance on representations and warned sellers forfeited future appreciation; right to force an IPO within 18 months made oral reliance unreasonable | Court: Reliance is fact-intensive; designation of Maharshak and allegations that facts were within Mobileye’s exclusive knowledge make reliance plausible at pleading stage |
| Whether proximate causation and damages alleged; and unjust enrichment claim | LP Partners alleges it would have held shares to obtain IPO price; lost difference between Offer price and IPO value; Mobileye and insiders were enriched by successful IPO | LP Partners cannot show Offer price was below true contemporaneous value; DM (not Mobileye) purchased shares so Mobileye not enriched | Court: Allegations that misrepresentations caused sale and economic loss survive dismissal; unjust enrichment claim relies on same facts and is allowed to proceed |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (pleading standard for plausible claims)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (plausibility pleading standard)
- United States ex rel. Ladas v. Exelis, Inc., 824 F.3d 16 (Rule 9(b) particulars for fraud)
- Wexner v. First Manhattan Co., 902 F.2d 169 (pleading on information and belief)
- Shields v. Citytrust Bancorp, Inc., 25 F.3d 1124 (scienter may be alleged generally but must be plausible)
- Loreley Financing (Jersey) No. 3 Ltd. v. Wells Fargo Secs., LLC, 797 F.3d 160 (strong inference of fraud standard)
- Cohen v. S.A.C. Trading Corp., 711 F.3d 353 (scienter pleading)
- Kimmell v. Schaefer, 89 N.Y.2d 257 (elements and special-relationship test for negligent misrepresentation)
- LBBW Luxemburg S.A. v. Wells Fargo Sec. LLC, 10 F. Supp. 3d 504 (applying New York negligent misrepresentation law)
- In re Initial Public Offering Sec. Litig., 383 F. Supp. 2d 566 (court’s role on motion to dismiss)
- Spool v. World Child Int’l Adoption Agency, 520 F.3d 178 (accept well-pleaded facts on motion to dismiss)
- Chambers v. Time Warner, Inc., 282 F.3d 147 (inferences and pleading)
- Press v. Chemical Investment Services Corp., 166 F.3d 529 (intent generally a question of fact)
- Dodds v. Cigna Securities, Inc., 12 F.3d 346 (oral statements contradicted by offering materials context)
- Brown v. E.F. Hutton Group, Inc., 991 F.2d 1020 (reliance vs. offering materials context)
- Suez Equity Investors, L.P. v. Toronto-Dominion Bank, 250 F.3d 87 (tension between oral statements and written agreement may be unresolved on pleadings)
- In re Eugenia VI Venture Holdings, Ltd. Litig., 649 F. Supp. 2d 105 (reasonableness of reliance is fact-intensive)