Vaughn Leroy Meyer v. JinkoSolar Holding Co.
761 F.3d 245
2d Cir.2014Background
- JinkoSolar issued two NYSE ADS offerings in May and November 2010, with the May offering raising $64,185,000.
- The May prospectus described pollution, regulatory compliance efforts, 24-hour environmental monitoring, and penalties for noncompliance.
- A June 2010 EPB report disclosed existing problems at the Zhejiang plant, including improper waste disposal and high fluoride emissions.
- In 2011 the EPB issued notices of high fluoride in waste and fluoride in wastewater, and protests near the plant followed a fish die-off.
- Plaintiffs allege securities violations under the 1933 Act (Sections 11, 12(a)(2)) and the 1934 Act (Section 10(b)), including controlling person liability.
- The district court dismissed the complaint under Rule 12(b)(6); the court found the May statements about abatement equipment and monitoring not misleading, though the 24-hour monitoring issue was close.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did omission of ongoing pollution problems render statements misleading? | Bigin argues failure to disclose ongoing problems made the description misleading. | JinkoSolar argues statements were technically true and not misleading. | Yes; omission rendered the prospectus misleading. |
| Are disclosures about pollution controls and monitoring sufficient when referenced problems existed? | Ongoing problems show controls were failing; disclosures were incomplete. | Disclosures about costs of compliance and general regulation were adequate. | No; material omissions under the circumstances could mislead a reasonable investor. |
| What standard governs materiality and omissions for sections 11, 12(a)(2), and 10(b)? | Omissions must be evaluated for material impact on investor decisions. | Statements must be true and not misleading; other risk disclosures suffice. | Materiality includes undisclosed ongoing violations; dangers were reasonably important to investors. |
Key Cases Cited
- N.J. Carpenters Health Fund v. Royal Bank of Scotland Grp., plc., 709 F.3d 109 (2d Cir. 2013) (court-adopted standard for reviewing Rule 12(b)(6) dismissal and factual inferences)
- Lentell v. Merrill Lynch & Co., 396 F.3d 161 (2d Cir. 2005) (inference-based approach to pleading securities claims)
- In re Time Warner Inc. Sec. Litig., 9 F.3d 259 (2d Cir. 1993) (duty to disclose arises when omissions render prior statements misleading)
- Caiaola v. Citibank, N.A., 295 F.3d 312 (2d Cir. 2002) (duty to be truthful when choosing to speak on a topic)
- In re Morgan Stanley Info. Fund Sec. Litig., 592 F.3d 347 (2d Cir. 2010) (essence of materiality and completeness of disclosures)
- Rombach v. Chang, 355 F.3d 164 (2d Cir. 2004) (cautionary language cannot insulate from liability for if the risk has transpired)
- Shapiro v. UJB Fin. Corp., 964 F.2d 272 (3d Cir. 1992) (duty to disclose risks when disclosures put the issue in play)
- Basic, Inc. v. Levinson, 485 U.S. 224 (U.S. 1988) (risk assessment framework for materiality in securities disclosures)
- Texas Gulf Sulphur Co. v. SEC, 401 F.2d 833 (2d Cir. 1968) (framework for materiality and disclosure duties in securities offerings)