Case Information
‐ ‐ cv Advanced Drainage Sys., et al. UNITED STATES COURT OF APPEALS THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER FILED ON OR AFTER JANUARY IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION “SUMMARY ORDER”). A PARTY CITING TO A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.
At stated term United States Appeals for Second Circuit, held at Thurgood Marshall United States Courthouse, Foley Square, City New York, th day October, two thousand seventeen.
PRESENT: RAYMOND J. LOHIER, JR.,
CHRISTOPHER F. DRONEY,
Circuit Judges,
JED S. RAKOFF, Judge. * ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ CHRISTOPHER WYCHE, INDIVIDUALLY, ON BEHALF OF ALL OTHERS SIMILARLY
SITUATED,
Plaintiff ‐ Appellant , No. ‐ cv
ADVANCED DRAINAGE SYSTEMS, INC.,
JOSEPH A. CHLAPATY, MARK B. STURGEON, Defendants Appellees .
‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ * Judge Jed S. Rakoff, United States Southern New York, sitting designation.
FOR APPELLANT: J ACOB A. G OLDBERG , The Rosen Law Firm P.A., Jenkintown, PA. APPELLEES: J OSEPH C. W EINSTEIN (Victor Genecin, Sean L. McGrane, brief ), Squire Patton Boggs (US) LLP, New York, NY, and Cleveland, OH, for Advanced Drainage Systems, Inc. Robert A. Scher, Bryan B. House, Foley & Lardner LLP, New York, NY, and Milwaukee, WI, for Joseph A. Chlapaty.
Peter J. Pizzi, Walsh Pizzi O’Reilly Falanga LLP, New York, NY, Roger P. Sugarman, Kegler Brown Hill + Ritter, Columbus, OH, for Mark B. Sturgeon.
Appeal from a judgment of United States District Court for Southern of New York (Katherine Polk Failla, Judge ). UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND DECREED judgment of AFFIRMED.
Christopher appeals judgment (Failla, J.) dismissing his against Advanced Drainage Systems, (“ADS”) and two its employees, Joseph A. Chlapaty Mark B. Sturgeon (collectively, “Defendants”), violations Sections 20(a) Securities Exchange Act assume parties’ familiarity record prior proceedings, refer only necessary explain our *3 decision to affirm.
With respect to Wyche’s claims under Section 10(b) Rule 10b only question we are asked to consider whether Wyche has adequately alleged Defendants acted with scienter. Wyche’s securities fraud are subject to heightened pleading requirements Rule Federal Rules Civil Procedure Private Securities Litigation Reform Act (“PSLRA”), U.S.C. § 78u 4(b), “require[] plaintiffs to state with particularity both facts constituting violation, facts evidencing scienter, i.e., defendant’s intention to deceive, manipulate, defraud,” Tellabs, Makor Issues & Rights, Ltd., U.S. (2007) (quotation marks omitted); see ECA & Local IBEW Joint Pension Tr. Chi. JP Morgan Chase Co., first alleges Defendants had motive to engage fraudulent accounting practices because ADS would breached financial covenants with its lenders had it complied with Generally Accepted Accounting Principles (“GAAP”). Assuming without deciding motivation comply with debt covenants sufficient support allegation scienter, does plead this *4 allegation adequate particularity—for example, indicating that default was imminent inevitable.
The also correctly rejected second argument, individual defendants were motivated to inflate stock prices bonuses tied to preliminary financial performance. Bonus compensation not type “concrete and personal” benefit upon finding motive to commit securities fraud can be based. Kalnit Eichler, 2001). That Chlapaty Sturgeon allegedly returned their bonuses does not persuade us otherwise. also motive can be inferred Sturgeon’s sale
shares between May May While motive may be “sufficiently pleaded where [a] plaintiff alleged defendants misrepresented corporate performance inflate stock prices while they sold their own shares,” id., defendant’s stock sales “unusual” such allegation, Acito IMCERA Grp., The correctly concluded Sturgeon’s sales were unusual because, alleged, percentage shares sold was small, timing was suspicious, no other insiders sold stock.
In the absence of showing of motive, “it still possible plead scienter by identifying circumstances” indicative of “conscious misbehavior” or recklessness on part the defendant, “though the strength of the circumstantial allegations correspondingly greater.” Kalnit, 264 F.3d at (quotation marks omitted); see In re Carter Wallace, Sec. Litig., 39–40 that allegations conscious misbehavior or recklessness insufficient an inference scienter that “at least as compelling as any opposing inference one could draw alleged.” Tellabs, U.S. at First, did allege any former employee communicated any relevant accounting concerns an individual defendant, or an individual defendant requested any former employees engage fraudulent conduct on behalf. Second, GAAP violations, govern calculation inventory costs classification equipment transportation leases either “operating” “capital” leases, do suggest requisite “fraudulent intent.” Novak Kasaks, 2000) (quotation marks omitted).
*6 Substantially the reasons provided the Court, allegations in insufficient impute corporate scienter. “When defendant a corporate entity, . . . pleaded create a strong inference someone whose intent could imputed corporation acted requisite scienter.” Teamsters Local Freight Div. Pension Fund v. Dynex Capital F.3d (2d Cir. 2008).
Finally, Wyche’s derivative claim under Section 20(a) fails because he has stated a primary violation under Section Rule 10b ‐ See ATSI Commc’ns, Shaar Fund, Ltd., 2007). considered remaining arguments conclude they
are without merit. For foregoing reasons, judgment AFFIRMED. THE COURT:
Catherine O’Hagan Wolfe, Clerk uncovered well founded evidence fraud, this creates compelling inference scienter. has forfeited this argument because he did raise it Court. Bogle Assegai Connecticut,
[2] For first time appeal, argues investigation conducted Deloitte