Silsby v. Icahn
17 F. Supp. 3d 348
S.D.N.Y.2014Background
- Dynegy, Inc. (public) undertook a multi-step refinancing/restructuring in 2011; first-step transfers completed in August 2011 and a subsequent CoalCo transfer occurred Sept. 1, 2011 (undertaking issued instead of cash).
- Dynegy Holdings (a wholly owned subsidiary) later filed Chapter 11 (Nov. 7, 2011); a court-appointed examiner reported March 9, 2012 that the CoalCo transfer could be a fraudulent conveyance though the examiner found no objective evidence of intent to defraud creditors as to public disclosures.
- Plaintiffs (class of Dynegy investors) sued individual Dynegy officers/directors and shareholder Carl Icahn alleging omissions in public statements from July 10, 2011 – March 9, 2012 in violation of §10(b) and Rule 10b‑5 and control‑person liability under §20(a).
- Core omissions alleged: failure to disclose (1) that Dynegy Holdings was insolvent or nearly insolvent at the transfer, (2) that the CoalCo transfer was intended to delay/hinder creditors, and (3) that the undertaking’s present value was substantially less than $1.25 billion.
- Court considered Rule 12(b)(6) dismissal under Rule 9(b) and the PSLRA, accepted complaint facts as true, took judicial notice of SEC filings, and dismissed the complaint for failure to plead actionable omissions and a strong inference of scienter; §20(a) claims dismissed as derivative.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether July–Aug 2011 statements were misleading for failing to disclose the planned CoalCo transfer | Plaintiffs: Dynegy had already decided to do the CoalCo transfer, so earlier disclosures were incomplete/half‑truths | Defendants: public disclosures repeatedly warned these were initial steps and further transfers (including equity transfers) were possible; no duty to disclose a contingency not yet adopted by the board | Court: Disclosure language was broad and repeatedly warned of further transfers; no actionable omission alleged for July–Aug statements |
| Whether statements failed to disclose Dynegy Holdings’ insolvency | Plaintiffs: Dynegy should have characterized Dynegy Holdings as insolvent | Defendants: Insolvency is a characterization; Dynegy provided the underlying financial data and had no duty to label it "insolvent" | Court: No duty to use the term when underlying financial facts were disclosed; plaintiffs did not plead what factual data was misstated |
| Whether defendants omitted that the CoalCo transfer was meant to delay/hinder creditors | Plaintiffs: Transfer intended to delay/hinder creditors and that intent should have been disclosed | Defendants: No obligation to accuse oneself of wrongdoing; allegations not pressed in opposition | Court: No duty to confess wrongdoing; claim abandoned by plaintiffs and otherwise not actionable |
| Whether the undertaking was misvalued/omitted present‑value info and whether scienter was pleaded | Plaintiffs: Representing a $1.25B "fair value" without performing valuation was misleading; defendants knew/avoided valuation | Defendants: They disclosed the undertaking’s terms and documents; no duty to perform a present‑value valuation; valuation was later performed and disclosed in March 2012 | Court: Even assuming a close question for Sept./Nov. disclosures, plaintiffs failed to plead scienter with particularity; March 2012 disclosed present‑value so no omission then; overall scienter inference was weaker than benign inferences |
Key Cases Cited
- McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184 (2d Cir. 2007) (Rule 12(b)(6) standards on allegations and inferences)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility standard for complaints)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (legal conclusions not entitled to assumption of truth)
- ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87 (2d Cir. 2007) (Rule 9(b) pleading requirements for securities fraud)
- Basic, Inc. v. Levinson, 485 U.S. 224 (1988) (materiality standard for omitted facts altering ‘total mix’)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007) (standard for weighing competing scienter inferences under the PSLRA)
- Kalnit v. Eichler, 264 F.3d 131 (2d Cir. 2001) (motive-and-opportunity requires concrete personal benefit)
- ECA & Local 134 IBEW Joint Pension Trust of Chi. v. JP Morgan Chase Co., 553 F.3d 187 (2d Cir. 2009) (must plead intent to defraud plaintiffs, not some other group)
- Chill v. Gen. Elec. Co., 101 F.3d 263 (2d Cir. 1996) (recklessness standard for securities fraud)
- Novak v. Kasaks, 216 F.3d 300 (2d Cir. 2000) (knowledge/access to contrary facts to plead scienter)