396 F.Supp.3d 283
S.D.N.Y.2019Background
- Cemex, S.A.B. de C.V., a Mexico-organized multinational, announced and developed a cement plant in Maceo, Colombia (Maceo Plant) beginning in 2012–2014; Cemex operates in Colombia through subsidiaries including Cemex Latam and Cemex Colombia.
- Cemex disclosed in 2016 that an internal audit found approximately $20 million in "irregular payments" by Cemex Colombia in connection with acquiring Maceo Plant assets; Cemex characterized the payments as violations of internal policies and potentially Colombian law, and announced SEC and DOJ subpoenas and a subsequent material weakness in internal controls.
- Plaintiffs (shareholders) sued Cemex and two officers under Sections 10(b) and 20(a), alleging failure to disclose a bribery scheme, misleading statements about growth drivers, false statements about ethics/anti-bribery policies, and misstatements about internal controls and financials.
- The Amended Complaint relied on confidential witnesses, the termination/resignation of several Cemex Latam executives, and company disclosures to plead falsity and scienter.
- The district court considered Rule 12(b)(6) and the PSLRA/Rule 9(b) heightened pleading standards and dismissed the §10(b) and §20(a) claims for failure to plead actionable misstatements (except limited litigation-related statements) and failure to plead a strong inference of scienter, but granted leave to amend.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Cemex omitted material facts about alleged bribery in disclosures about the Maceo litigation | Omitted bribery rendered litigation disclosures misleading because wrongdoing bore on enforceability of asset transfers | Disclosures described litigation facts and "irregular payments"; no duty to disclose uncharged wrongdoing absent direct nexus | Court: Omission re: litigation disclosures actionable (direct nexus); other categories not actionable |
| Whether broad statements about source of growth imposed duty to disclose bribery | Growth statements put causes of success at issue, triggering duty to disclose improper practices | Statements were generic and aspirational; no specific factual basis tying growth to bribery | Court: Not actionable—too generic to trigger disclosure duty |
| Whether ethics/anti-bribery and integrity statements were actionable | Plaintiffs: statements created impression of compliance and were misleading | Defendants: statements constitute puffery/aspirational Code language, not verifiable facts | Court: Not actionable—puffery/inapposite for §10(b) liability |
| Whether plaintiffs pleaded scienter for Cemex and individual defendants | Plaintiffs: terminations/resignation, confidential witnesses, red flags, executives' access to information show recklessness/intent | Defendants: allegations too speculative, witnesses not shown to have informed senior management, subsidiary scienter not imputable to parent | Court: Scienter not adequately pleaded; subsidiary officers' scienter not imputed; resignations and CWs insufficient |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (plaintiffs need factual allegations, not legal conclusions)
- Bell Atlantic v. Twombly, 550 U.S. 544 (2007) (complaint must plead plausible entitlement to relief)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007) (PSLRA scienter standard: inference must be cogent and at least as compelling as opposing inferences)
- Basic Inc. v. Levinson, 485 U.S. 224 (1988) (duty to disclose when statements would be misleading without omitted facts)
- Kalnit v. Eichler, 264 F.3d 131 (2d Cir. 2001) (recklessness definition and scienter pleading guidance)
- Teamsters Local 445 Freight Div. Pension Fund v. Dynex Capital, Inc., 531 F.3d 190 (2d Cir. 2008) (corporate scienter imputed only where someone acting for corporation had requisite intent)
- Singh v. Cigna Corp., 918 F.3d 57 (2d Cir. 2019) (generalized statements about integrity are non-actionable puffery)
- Rombach v. Chang, 355 F.3d 164 (2d Cir. 2004) (fraud-based misstatements must be false when made)
- City of Pontiac Policemen's & Firemen's Ret. Sys. v. UBS AG, 752 F.3d 173 (2d Cir. 2014) (limitations on duty to disclose uncharged wrongdoing)