Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_15-cv-01478/USCOURTS-casd-3_15-cv-01478-0/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

HAROLD ENG, individually and on 

behalf of all others similarly situated ,

Plaintiff,

v.

EDISON INTERNATIONAL, et al.,

Defendants.

Case No.: 15CV1478 BEN (KSC)

ORDER GRANTING MOTION TO 

DISMISS

[Docket No. 23]

Defendants Edison International, Southern California Edison’s (“SCE”)1 parent 

company, Theodore F. Craver, Jr., William James Scilacci, and Ron Litzinger have filed a 

Motion to Dismiss Plaintiff’s Amended Complaint. (Docket No. 23.) The crux of the 

Amended Complaint for securities fraud is that Defendants’ favorable statements about a 

2014 settlement allocating the costs of shutting down the San Onofre Nuclear Generating 

Station (“SONGS”) failed to disclose that reportable ex parte communications related to 

the settlement had occurred between SCE and the California Public Utility Commission 

(“CPUC”) and had not been reported. The Motion raises three primary issues: (1) whether 

Defendants’ statements were materially false or misleading; (2) whether the Amended 

Complaint sufficiently alleges scienter; and (3) whether the Amended Complaint 

sufficiently pleads loss causation. The Court finds Plaintiff has alleged materially

 

1 The Court refers to Defendant as SCE throughout.

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misleading statements, but has not sufficiently pled scienter or loss causation. The Court 

GRANTS the motion to dismiss, but gives Plaintiff leave to file an amended pleading. 

BACKGROUND2

I. SONGS Settlement

SCE is a partial owner of SONGS. In January 2012, following installation of two 

replacement steam generators, one of the new steam generator tubes leaked. SONGS was 

shut down. The CPUC initiated an investigation, Order Instituting Investigation (OII), in 

October 2012. (AC ¶ 35.) Part of the investigation focused on how to allocate the costs of 

the outage and eventual shut down as between SCE, San Diego Gas & Electric 

(“SDG&E”), and consumers. 

A settlement was reached between SCE, SDG&E, The Utility Reform Network 

(“TURN”), and the Office of Ratepayer Advocates (“ORA”) in March 2014.3 Over the 

course of the next few months, SCE made numerous public statements about the 

settlement.4 On March 20, 2014, SCE filed a Form 8-K with the SEC announcing the

settlement. On March 27, 2014, SCE made a number of statements regarding the 

settlement. SCE issued a press release formally announcing that a settlement had been 

reached and indicated that “[i]f implemented, the Settlement Agreement will constitute a 

complete and final resolution of the [OII] and related proceedings regarding” SONGS. 

(AC ¶ 63.) The same day, SCE held a conference call in which Craver, Edison’s Chief 

Executive Officer, stated that the settlement “resolves all matters related to the [OII] 

 

2 The Court is not making any findings of fact, but rather, summarizing the relevant 

allegations of the Amended Complaint for purposes of evaluating Defendants’ Motion to 

Dismiss. 

3 ORA and TURN are consumer advocacy groups.

4 The Court highlights those statements emphasized by the parties in briefing the Motion, 

but notes the Amended Complaint includes additional statements. The Court has 

considered all the statements identified in the Amended Complaint even if not 

specifically discussed or noted. 

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involving” SONGS. (AC ¶ 64.) On the same call, Litzinger, President of SCE at the time, 

in responding to an inquiry from an analyst about CPUC’s involvement in the settlement, 

stated that the CPUC commissioners “were not involved [in the settlement process] other 

than encouraging settlement publically.” (AC ¶ 65.) Similarly, at a May 28, 2014 

conference, Craver indicated that the settlement was primarily negotiated with consumer 

groups. (AC ¶ 78.)

The CPUC Administrative Law Judge (“ALJ”) overseeing the investigation held an 

evidentiary hearing on May 14, 2014 on the settlement that included the parties to the 

settlement, objectors, CPUC President Michael Peevey, and other commissioners. In 

response to a question from an objector about his communications with commissioners, 

Litzinger stated that “[t]he only ex parte communication [he] had with Commissioners was 

following the Phase I Proposed Decision. And it was noticed.” (AC ¶ 76.) Similar to its 

public statements at the time the settlement was reached, SCE’s Form 10-Qs, filed on April 

29, 2014, July 31, 2014, and October 28, 2014, state that implementing the settlement “will 

constitute a complete and final resolution of the CPUC’s OII and related proceedings 

regarding” SONGS shut down and settlement. (AC ¶¶ 80, 88.) On October 28, 2014, 

during a conference call, Craver, when asked about ex parte communications with 

reference to recent issues at PG&E, stated that SCE was making sure personnel were aware 

of expected proper conduct, they had a compliance program and training, and were 

redoubling efforts on awareness. (AC ¶ 89.) 

Following the parties’ approval of a modification recommended by the CPUC, the 

amended settlement was approved by the CPUC on November 20, 2014. SCE issued a 

press release the same day describing the settlement as “resolving all issues regarding the 

public utility commission investigation.” (AC ¶ 93.) 

II. CPUC Investigation and Unreported Ex Parte Communications

Peevey’s home was searched on January 27, 2015. Notes about the settlement were 

found in a desk drawer, although the contents were not disclosed to the CPUC and public 

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until April 2015. (AC ¶ 98.) On February 2, 2015, SCE adopted a broader reporting policy 

regarding ex parte communications with CPUC decisionmakers. (AC ¶ 99.) On February 

9, 2015, SCE filed a notice of ex parte communication for a communication that took place 

on March 26, 2013 at an industry conference in Warsaw, Poland at a meeting that included

SCE Vice President of External Relations Stephen Pickett, Peevey, and Edward Randolph, 

CPUC Director of Energy. (AC ¶ 100.) Pickett claimed at the time it was a one-sided 

communication in which he only listened to Peevey, took notes that Peevey kept, and did 

not engage. (AC ¶ 49; Pl.’s Opp’n Mot. to Dismiss, Ex. A.) SCE claimed in the Notice, 

that based on new information from Pickett, he may have crossed into a substantive 

communication in reacting to at least one of Peevey’s comments. (Defs.’ Req. for Judicial 

Notice (“RJN”), Ex. 2.) 

SCE’s February 24, 2015 Form 10-K reiterated the prior statements about the 

settlement resolving issues regarding SONGS. (AC ¶ 106.) It also disclosed the late-filed 

notice of ex parte communication as to the Warsaw meeting, noted the involved executive 

and CPUC president were retired, and acknowledged the Alliance for Nuclear 

Responsibility’s (“A4NR”) request for CPUC to open an investigation of the ex parte 

communications. (AC ¶ 106.) The same day Craver characterized the CPUC rules on ex 

parte communications as being geared to disclosure to provide equal access to decision 

makers, not prohibiting communications entirely, and stated “fundamentally, when we 

have proceedings before the Commission, we follow the rules.” (AC ¶ 107.) 

On April 15, 2015, the CPUC ordered SCE to turn over all documents related to the 

settlement between March 2013 and November 2014. (AC ¶ 110.) On April 17, 2015, 

ORA sought return of $648 million to customers and TURN indicated it would urge the 

CPUC to assess the maximum sanction against SCE and apply it to reducing customer 

rates. (AC ¶ 111.) Documents were produced on April 29, 2015 and included an April 1, 

2013 memo detailing “Elements of a SONGS Deal” from Pickett to Craver, Litzinger, and 

Scilacci, Edison’s Chief Financial Officer. (AC ¶ 48.) Plaintiff also alleges that other 

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emails from 2013 and 2014 reflect a general knowledge at SCE of employee contacts with 

the CPUC that were not reported as ex parte communications. 

On June 24, 2015, TURN called for the 2014 Settlement to be overturned or 

reopened. On August 5, 2015, the ALJ issued a lengthy Order to Show Cause why not to 

impose sanctions for SCE’s unreported reportable ex parte communications with the 

CPUC. (AC ¶ 117; RJN, Ex. 7.) The Order discussed SCE’s conduct and identified ten 

violations of the CPUC’s rules on ex parte communications. (AC ¶ 117.) This was 

followed by issuance of a proposed ruling and a final decision by the CPUC on December 

3, 2015 to sanction SCE $16.7 million for failing to report eight reportable ex parte 

communications. (AC ¶ 117-19.) 

Most of the fine, $16.5 million, was for the March 26, 2013 communication at the 

Warsaw conference. (AC ¶ 120.) However, there were additional unreported reportable

ex parte communications, including a dinner on March 27, 2013 in Warsaw, a May 2013 

email to five commissioners concerning SCE’s conduct during steam generator design, a 

communication about employee severance packages related to the shutdown in June 2013, 

a September 2013 lunch including Litzinger and Peevey on cost recovery for SONGS, and 

a November 2013 dinner including Craver and Peevey discussing Craver’s efforts to bring 

Mitsubishi into SONGS negotiations. (AC ¶¶ 47, 51.) The CPUC characterized “SCE’s 

series of acts and omissions [as] gross negligence.” (AC ¶ 119.) 

After briefing and oral argument on this Motion, the CPUC “reopened the record to 

review the 2014 Settlement Agreement against [the CPUC’s] standards for approving 

settlements . . . in light of the [CPUC’s] December 2015 Decision fining [SCE] for failing 

to disclose ex parte communications relevant to this proceeding.” (Order Reopening 

Record (Docket No. 33, Ex. A).)

Plaintiff does not dispute that under the CPUC’s rules, communications between an 

interested party, like SCE, and a CPUC decisionmaker are not entirely prohibited. 

Procedural inquiries about scheduling, filing deadlines and the like are not required to be 

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reported. However, if they are substantive, they must be reported. Additionally, as 

explained in both the ALJ’s August 5, 2015 Order and the CPUC’s December 3, 2015 

decision, one-way communications by a decisionmaker to a party are not reportable ex 

parte communications, but might become reportable depending on the response from the 

party. (RJN, Ex. 7 at 276; Ex. 9 at 323.)

DISCUSSION

The Amended Complaint claims violations of Section 10(b) and 20(a) of the 

Exchange Act of 1934 and Securities and Exchange Commission (SEC) Rule 10b-5.5 To 

state a securities fraud claim, a plaintiff must plead: (1) a material misrepresentation or 

omission by the defendant; (2) scienter; (3) a connection between the misrepresentation or 

omission and the purchase and sale of a security; (4) reliance upon the misrepresentation 

 

5 Section 10(b) of the Exchange Act makes it unlawful to:

use or employ, in connection with the purchase or sale of any security 

registered on a national securities exchange or any security not so 

registered . . . any manipulative or deceptive device or contrivance in 

contravention of such rules and regulations as the [SEC] may prescribe 

as necessary or appropriate in the public interest or for the protection of 

investors. 

15 U.S.C. § 78j(b). Pursuant to that section, the SEC promulgated Rule 10b-5, which 

makes it unlawful to “make any untrue statement of a material fact or to omit to state a 

material fact necessary in order to make the statements made, in light of the circumstance 

under which they were made, not misleading.” 17 C.F.R. § 240.10b-5(b). 

Section 20(a) of the Exchange Act, 15 U.S.C. § 78t(a), states that a person who:

directly or indirectly, controls any person liable under any provision of 

this chapter or of any rule or regulation thereunder shall also be liable 

jointly and severally with and to the same extent as such controlled 

person to any person to whom such a controlled person is liable . . . 

unless the controlling person acted in good faith and did not directly or 

indirectly induce the act or acts constituting the violation or cause of 

action. 

Section 20(a) claims may be dismissed summarily if, as here, the plaintiff fails to 

adequately plead a primary violation of Section 10(b). Zucco Partners, LLC v. Digimarc 

Corp., 552 F.3d 981, 990 (9th Cir. 2009).

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or omission; (5) economic loss; and (6) loss causation. Reese v. Malone, 747 F.3d 557, 

567 (9th Cir. 2014). 

All factual allegations are accepted as true and “courts must consider the complaint 

in its entirety, as well as other sources courts ordinarily examine when ruling on Rule 

12(b)(6) motions to dismiss, in particular, documents incorporated into the complaint by 

reference, and matters of which a court may take judicial notice.” Tellabs, Inc. v. Makor 

Issues & Rights, Ltd., 551 U.S. 308, 322 (2007).6

Securities fraud claims are subject to the heightened pleading requirements of 

Federal Rule of Civil Procedure 9(b) and the Private Securities Litigation Reform Act of 

1995 (PSLRA).7 In re VeriFone Holdings, Inc. Sec. Litig., 704 F.3d 694, 701 (9th Cir. 

2012). Under Rule 9(b), plaintiffs must “state with particularity the circumstances 

constituting fraud.” Id. “In passing [the PSLRA], Congress ‘significantly altered pleading 

requirements in securities fraud cases by . . . requiring that a complaint plead with 

particularity both falsity and scienter.’” In re NVIDIA Corp. Sec. Litig., 768 F.3d 1046, 

1052 (9th Cir. 2014) (quoting Zucco Partners, 552 F.3d at 990-91). “A plaintiff must ‘state 

with particularity both the facts constituting the alleged violation, and the facts evidencing 

scienter, i.e., the defendant’s intention to deceive, manipulate, or defraud.’” Tellabs, 551 

U.S. at 313 (describing these pleading requirements as “among the control measures 

Congress included in the PSLRA.”). 

Defendants argue that the Amended Complaint fails to sufficiently allege any 

materially false or misleading statements, scienter, or loss causation. The Court finds 

 

6 The Court grants Defendants’ Request for Judicial Notice as to all documents relied on 

or referred to in the Amended Complaint. 

7 The Court’s analysis of the sufficiency of the Amended Complaint, particularly under 

this higher pleading standard, is not intended to suggest SCE’s failures with regard to 

reporting its communications with its regulator or the CPUC’s conduct should be 

excused. Rather, the Court is simply trying to decipher whether the Amended Complaint 

sufficiently pleads securities fraud. 

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Plaintiff has sufficiently alleged misleading statements, but has failed to sufficiently plead 

scienter or loss causation.

III. Materially False or Misleading Statements

“The complaint must plead specific facts indicating why any alleged 

misrepresentation was false or any omission rendered a representation misleading.” Lloyd 

v. CVB Fin. Corp., 811 F.3d 1200, 1206 (9th Cir. 2016). Plaintiff identifies numerous 

statements that were allegedly false or misleading, including statements about the 

settlement being a complete and final resolution of the OII, claims that the CPUC was not 

involved in arriving at the settlement, a statement that SCE was in compliance with the 

rules on ex parte communications, and Litzinger’s testimony before the CPUC in which he 

claimed that he had not engaged in any unreported reportable ex parte communications. 

Plaintiff argues that Defendants statements were false or at least misleading because SCE

had engaged in unreported reportable ex parte communications with the CPUC concerning 

the settlement in violation of CPUC rules. Defendants argue the statements about the 

settlement were true — settlement was reached and it did provide a final resolution — and 

at worst, the statements were no more than incomplete and the statements about compliance 

with the CPUC’s ex parte rules, including Litzinger’s testimony, were too vague or 

impromptu to be material. 

As to the statements that the settlement was a complete and final resolution of 

matters related to the OII, the Court agrees that these statements alone were not false. 

However, Plaintiff’s allegations may be sufficient if the omitted information —unreported 

ex parte communications with the CPUC about that settlement — made the statements 

misleading. Brody v. Transitional Hosps. Corp, 280 F.3d 997, 1006 (9th Cir. 2002) (“[A] 

statement that is literally true can be misleading and thus actionable under the securities 

laws.”) However, the Ninth Circuit has “expressly declined to require a rule of 

completeness for securities disclosures because ‘no matter how detailed and accurate 

disclosure statements are, there are likely to be additional details that could have been 

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disclosed but were not.’” Police and Ret. Sys. of St. Louis v. Intuitive Surgical, Inc., 759 

F.3d 1051, 1061 (9th Cir. 2014) (quoting Brody, 280 F.3d at 1006). “In practical terms, ‘to 

be actionable under the securities laws, an omission must be misleading, . . . it must 

affirmatively create an impression of a state of affairs that differs in a material way from 

the one that actually exists.” Id. (quoting Brody, 280 F.3d at 1006). 

Plaintiff alleges the undisclosed ex parte communications significantly increased the 

likelihood that the settlement would be overturned. And, there are specific allegations to 

support this. Plaintiff alleges that on June 24, 2015, one of the parties to the settlement, 

TURN, changed its position from seeking sanctions for the violations to “formally ask[ing] 

the CPUC to overturn its prior ruling and reject the current settlement.” (AC ¶¶ 112-13.) 

Additionally, as noted above, the CPUC has “reopened the record” to review the settlement 

“in light . . . of the December 2015 Decision fining [SCE] for failing to disclose ex parte 

communications relevant to [the OII].” (Order Reopening Record (Docket No. 33, Ex. 

A).). 

Just identifying some undisclosed piece of information that might bear on a 

statement made is not sufficient. But here, particularly in light of SCE’s statements of 

compliance with the ex parte rules and the affirmative statements that the CPUC was not 

involved in coming up with the settlement, Plaintiff has sufficiently alleged that SCE

“create[d] an impression of a state of affairs that differ[ed] in a material way from the one 

that actually exist[ed].” Intuitive Surgical, 759 F.3d at 1061 (quoting Brody, 280 F.3d at 

1006). That the parties reached a settlement was true, but in reality, Defendants had 

engaged in what were later found to be improper8ex parte communications with a CPUC 

decisionmaker in coming up with that settlement that may place the settlement in jeopardy. 

 

8 The Court may refer to the unreported ex parte communications that the CPUC found 

should have been reported as improper because they were improper in that they should 

have been reported, but were not. However, as the Court has noted, not all ex parte 

communications between a decisionmaker and a party are improper. 

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Nor can the Court find at this stage that these omissions were not material. In 

considering materiality, the Court must decide “whether a reasonable investor would have 

viewed the nondisclosed information, ‘as having significantly altered the total mix of 

information made available.’” Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27, 44

(2011) (quoting Basic Inc. v. Levinson, 485 U.S. 224, 232 (1988)). Taking Plaintiff’s 

allegations as true, the Court can draw a plausible inference that a reasonable investor 

would have viewed Defendants’ violations of the CPUC rules on ex parte communications,

in communications about the settlement, as altering the “total mix of information 

available,” particularly given the allegations that analysts were specifically asking about 

SCE’s compliance with the CPUC’s ex parte rules. Id.; see also Reese, 747 F.3d at 571 

(“Facts demonstrating public interest in the withheld information support its materiality.”). 

Additionally, “[d]etermining materiality in securities fraud cases ‘should ordinarily be left 

to the trier of fact’ . . . because it depends on determining a hypothetical investor’s reaction 

to the alleged misstatements.” SEC v. Phan, 500 F.3d 895, 908 (9th Cir. 2007) (quoting In 

re Apple Computer Sec. Litig., 886 F.2d 1109, 1113 (9th Cir. 1989)); see also Basic, 485 

U.S. at 236 (“The determination of materiality requires delicate assessments of the 

inferences a ‘reasonable shareholder’ would draw from a given set of facts and the 

significance of those inferences to him.”). 

Defendants argue SCE’s general statements of compliance with the CPUC’s rules 

on ex parte communications are too vague to be material and no reasonable investor would 

rely on Litzinger’s statement at the hearing that his only ex parte communication was 

noticed. As previously noted, these statements of rules compliance bear on Defendants’ 

failure to disclose the violations when making positive statements about the settlement. 

However, the Court agrees that, independently, Defendants’ general statements describing 

its internal efforts to ensure compliance with the ex parte rules (having a compliance 

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program and training),

9

and its statement that fundamentally it complies with the rules,

10

in context, are too vague to be material. Rather, these statements are comparable to 

statements of corporate optimism or inactionable puffery. 

///

 

9 The full text from the Amended Complaint quotes Craver as stating:

So, we’re certainly trying to make sure that all of our personnel know 

what’s expected of them, in terms of proper conduct with the PUC. We 

have a compliance program. We have training. We have redoubled 

efforts along those things, just to make sure that that’s very present in 

everyone’s mind. But beyond that, really we’re pretty much in business 

as usual.

10 The full text from the Amended Complaint quotes Craver as stating the following on 

February 24, 2015, in response to a question from an analyst about how attention to ex 

parte communications prompted by issues at PG&E were impacting business with the 

CPUC:

Yes, in terms of affecting the business, I would say it doesn’t really 

have a significant effect on the business. This is a fairly arcane area. 

But I would just say, generally speaking, the ex parte rules, particularly 

on matters like the San Onofre matter, the OII, that’s really designed to 

provide equal access to all parties to the proceeding with equal time. 

So it’s I think one of the misconceptions is in something like SONGS 

OII that you are precluded from having conversations. You’re not. It’s 

just the rules are designed to make sure that if we have conversations 

with decision-makers, that those are noticed, that those – that we 

include in there how much time we spent with which decision-maker, 

so that all the other parties have equal access, equal amount of time. 

That’s the whole concept behind it. 

So I don’t see any of this as hurting the ability to do business. It’s 

complicated and cumbersome, and sometimes kind of difficult on the 

interpretation of some of the specific provisions. But, fundamentally, 

when we have proceedings before the Commission, we follow the rules. 

We go about doing the business the way it’s really set up to do it. 

There’s plenty of opportunity in all of those proceedings for all parties 

to be heard. That’s the point of having these things before the 

Commission. So I don’t see any big element there.

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IV. Scienter

Failing to disclose that unreported ex parte communications about a SONGS 

settlement had occurred while at the same time making favorable statements about the 

resolution provided by the settlement, does not alone establish Defendants’ scienter

because Defendants may not have even known there were ex parte communications at the 

time. Additionally, while the Court does not condone the violations, every rule violation 

does not give rise to securities fraud.11 The question here is whether Plaintiff has pled a 

compelling and cogent inference, at least as compelling as possible alternatives, that in 

2014,12 when making positive statements about the settlement, Defendants were 

deliberately reckless in not disclosing that reportable ex parte communications had 

occurred and were not reported. See Tellabs, 551 U.S. at 324. “The statement, ‘the storm 

is passing and it will be sunny tomorrow,’ when it in fact continues to snow the next day, 

may be bad forecasting, but it is not necessarily a lie. Without more, it does not raise a 

strong inference of intentional or deliberately reckless falsity or deception.” Ronconi, 253 

F.3d at 433. 

Although the Court could permissibly or reasonably infer that Defendants should 

have known that the March 26, 2013 meeting included an ex parte communication that 

 

11 Defendants focus heavily on the CPUC’s decision characterizing Defendants’ conduct 

as grossly negligent because “[n]egligence, even gross negligence, does not rise to the 

level of the nefarious mental state necessary to constitute securities fraud.” DSMA 

Global Value Fund v. Altris Software, Inc., 288 F.3d 385, 391 (9th Cir. 2002). As the 

parties both acknowledge, this Court is not bound by the CPUC’s characterization of 

SCE’s conduct as grossly negligent, regardless of the great length and depth of that 

analysis. 

12 Any scienter had to exist in 2014 when the allegedly misleading statements about the 

settlement were made. “[T]he complaint must contain allegations of specific 

‘contemporaneous statements or conditions’ that demonstrate the intentional or the 

deliberately reckless false or misleading nature of the statements when made.” Ronconi 

v. Larkin, 253 F.3d 423, 432 (9th Cir. 2001) (emphasis added). 

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should have been reported, that inference is not cogent or compelling and is not strong in 

light of other explanations. Tellabs, 551 U.S. at 324 (explaining that the required strong 

inference of scienter must be more that merely “reasonable” or “permissible — it must be 

cogent and compelling, thus strong in light of other explanations.”). 

Plaintiff has not “stated with particularity facts giving rise to a strong inference that

[D]efendant[s] acted with the required state of mind.” In re VeriFone Holdings, Inc. Sec.

Litig., 704 F.3d at 701. Scienter is “a mental state embracing intent to deceive, manipulate, 

or defraud.” Reese, 747 F.3d at 568 (citing Ernst & Ernst v. Hochfelder, 425 U.S. 185, 

193 n.12 (1976)). Although a plaintiff “need not prove its case at the outset, [plaintiff] 

has to provide a narrative of fraud—facts which, if true, substantiate an explanation at 

least as plausible as a nonfraudulent alternative.” ESG Capital Partners, LP v. Stratos, —

F.3d —, 2016 WL 3672051, *7 (9th Cir. July 11, 2016) (emphasis added). 

The allegations of the Amended Complaint collectively do not support an inference 

that Defendants acted intentionally to hide unreported ex parte communications. 

However, in this circuit,13 scienter may be satisfied by “a strong inference of, at a 

minimum, deliberate recklessness.” In re NVIDIA Corp. Sec. Litig., 768 F.3d at 1053. 

“An actor is deliberately reckless if he had reasonable grounds to believe material facts 

existed that were misstated or omitted, but nonetheless failed to obtain and disclose such 

facts although he could have done so without extraordinary effort.” Reese, 747 F.3d at 569 

(quoting In re Oracle Corp. Sec. Litig., 627 F.3d 376, 390 (9th Cir. 2010)). However, 

“recklessness only satisfies scienter under § 10(b) to the extent that it reflects some degree 

of intentional or conscious misconduct.” In re NVIDIA Corp. Sec. Litig., 768 F.3d at 1053 

(emphasis added). 

 

13 The Supreme Court has “not decided whether recklessness suffices to fulfill the scienter 

requirement.” Matrixx Initiatives, 563 U.S. at 48 (noting the defendant did not challenge 

the Court of Appeals determination that deliberate recklessness may satisfy the scienter 

requirement). 

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Plaintiff primarily focuses on the March 26, 2013 Warsaw meeting that is the basis 

for $16.5 million of the total $16.7 million CPUC fine, although the Court has considered 

all the allegations of the Amended Complaint. Tellabs, 551 U.S. at 323 (“The relevant 

inquiry is “whether all of the facts alleged, taken collectively, give rise to a strong inference 

of scienter, not whether any individual allegation, scrutinized in isolation, meets that 

standard.”).

14 Plaintiff argues that Defendants knew or were deliberately reckless in not 

knowing Pickett’s meeting with Peevey included an unreported reportable ex parte 

communication. Plaintiff alleges Defendants knew the meetings happened, knew SONGS 

was a topic at the meetings, and Litzinger had suspicions about whether Pickett did more 

than just listen in the meetings as claimed. In support, Plaintiff primarily relies on the 

following: a request from Pickett to Defendants that his notes from the March 26, 2013 

meeting be used to create a term sheet for settlement negotiations; an email Pickett sent to 

a SCE executive on March 27, 2013 saying “sitting next to Peevey at dinner in Warsaw 

working . . . SONGS;” and an April 11, 2013 email from Litzinger to Defendants in which 

he expressed concerns about whether Pickett had been silent at the meetings, i.e. not 

engaged, as Pickett claimed. 

These allegations support a strong inference that Defendants knew Pickett and 

Peevey met, but not that they knew it was a more than a one-way communication from 

Peevey to Pickett. As previously explained, communications with CPUC decisionmakers 

were not entirely prohibited and a one-way communication in which Peevey spoke and 

 

14 The Court analyzes some of the allegations as they are summarized, however, the Court 

considers them collectively, along with allegations that may not be specifically 

addressed, in determining whether Plaintiff has adequately pled scienter. The Court also 

notes that the Amended Complaint fails to particularly plead allegations supporting a 

strong inference Defendants knew about or were deliberately reckless in not knowing 

about the other seven unreported ex parte communications identified as violations by the 

CPUC or knew that they were reportable in 2014 when making positive statements about 

the settlement. 

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Pickett did not respond or engage, as he claimed, would not have been reportable. And, 

the email Plaintiff relies on to allege Litzinger had concerns about Pickett explains 

Litzinger did follow up on the concern that Pickett might have engaged. The email, sent 

to Craver and Scilacci, describes Litzinger meeting with Pickett “face to face,” and 

“press[ing] him as to whether his two previous meeting[s], [March 26 and 27, 2013] were 

listen only.” (Pl.’s Opp’n to Mot. to Dismiss, Ex. A (“April 11, 2013 email”).) It also 

reports that Pickett “said he did not engage.” Litzinger also explains that he told Pickett 

“there can be no discussion with the CPUC on settlement that is not sanctioned by us [and] 

we are in listen mode only.” (Id.) The Court is not excusing Pickett misleading or lying 

to Litzinger about his level of engagement or Defendants’ decision to take him at his word. 

The CPUC has addressed these failures. But the allegations, even in conjunction with 

hindsight, do not reflect intentional or conscious misconduct by Defendants. The Court 

cannot find Defendants not knowing this meeting included a reportable ex parte 

communication, particularly when Pickett specifically denied as much, is any more an 

indicator of scienter than an accountant not following Generally Acceptable Accounting 

Principles in auditing financial statements. See DSM Global Value Fund, 288 F.3d at 390 

(“[M]ere allegations that an accountant negligently failed to closely review files or follow 

GAAP cannot raise a strong inference of scienter.”). 

Plaintiff also asserts that the February 9, 2015 Notice itself establishes Defendants’

scienter because it admits the March 26, 2013 meeting should have been reported. Plaintiff 

argues that Defendants’ knowledge of the meeting could only be based on the same 

information Defendants had in 2014 because there had yet to be a CPUC decision finding 

it reportable. Essentially, Defendants knew then, including 2014, what they stated in the 

2015 Notice because nothing new could have prompted the Notice. Not only is this 

conclusory and without factual support, but it also conflicts with the allegations of the 

Amended Complaint and documents Plaintiff relies on. The Notice states that it is “based 

on information received from Mr. Pickett last week” and goes on to state that “while Mr. 

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Pickett does not recall exactly what he communicated to Mr. Peevey, it now appears that 

he may have crossed into a substantive communication.” (RJN, Ex. 1 (emphasis added).) 

The Notice also goes on to state “[w]hile SCE believes that it is not clear cut whether Rule 

8.4 requires this meeting to be reported, SCE provides this notice.” (Id.) Even assuming 

everything was static and nothing else could impact Defendants’ view of the meeting, the 

Notice itself suggests that Defendants were not even convinced when reporting it that it 

was a reportable communication. In this respect, the Notice itself does not establish 

Defendants knew it was reportable in 2014.

Plaintiff also argues the timing of the February 9, 2015 Notice is suspicions. As 

previously noted, SCE’s February 9, 2015 Notice asserts that the disclosure was being 

made late because of additional information received a week before from Pickett. 

However, Plaintiff alleges SCE had implemented a new more restrictive policy on ex parte 

communications that prohibited any private meetings with CPUC decisionmakers (like 

Peevey’s meeting with Pickett) and in the days leading up to the February 9, 2015 Notice, 

Peevey’s house was searched as part of an Attorney General investigation.15 Plaintiff 

additionally alleges Defendants were motivated to hide the unreported reportable 

communications to quickly reach a settlement resolving the OII to avoid hurting SCE’s 

position in the arbitration with Mitsubishi over the defective steam tubes. 

Finally, Plaintiff alleges that Defendants stock sales support scienter because Craver 

and Scilacci sold significant shares16 shortly after the first announcement of the settlement 

and Litzinger did the same about a month later. “If insiders owning much of a company’s 

stock make rosy characterizations of company performance to the market while 

 

15 Notes similar to Pickett’s were found in that search, although those notes were not 

disclosed until after the February 9, 2015 Notice.

16 Defendants accurately note the Amended Complaint lacks allegations of the total 

number of shares sold or the percentages of their shares sold as would be needed to assess 

whether the sales were a significant portion of Defendants’ holdings.

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simultaneously selling off all their stock for no apparent reason, their sales may support 

inferences both that their rosy characterizations are false and that they knew it.” Ronconi, 

253 F.3d at 434-35. However, “insider trading is suspicious only when it is dramatically 

out of line with prior trading practices at times calculated to maximize the personal benefit 

from undisclosed inside information.” Id. at 435 (emphasis in original). These sales were 

not beneficial to the Defendants. The basis for inferring scienter from sales is that it shows 

the seller knew about and took advantage of the false or misleading statements. The 

inference makes no sense when there is no benefit to a defendant in the sales. Here, the 

share price rose for eight months after they sold their shares. The price did eventually fall, 

but it only fell to approximately the same price they sold at eight months before. As the 

Ninth Circuit has explained in rejecting similar allegations as a basis for scienter, “selling 

stock for $54, [here $56], when the price subsequently rises to $74, [here $69], and then 

sinks to $49, [here $56], does not support an inference of knowing falsehood.” Id. Selling 

stock “at about what the stock was worth after the bad news was public, not when they 

might have gained market advantage from as yet undisclosed bad news” does not support 

scienter. Id. 

From the allegations of the Amended Complaint, the Court can infer that Defendants

knew a meeting took place in Warsaw, Litzinger had some concerns about it at the time, 

he followed up to verify Pickett did not engage, and Defendants did not pursue it further 

despite reservations. Defendants had a motive not to pursue it further and, in hindsight, 

Defendants should not have accepted Pickett’s version of events and investigated further 

at the time. However, the Court cannot find that when making statements about the 

settlement in 2014 Defendants had reason to believe a reportable ex parte communication 

occurred or that Defendants had anything more than motive and opportunity. “To allege 

a ‘strong inference of deliberate recklessness,’ [plaintiff] ‘must state facts that come closer 

to demonstrating intent, as opposed to mere motive and opportunity.’” DSAM Global 

Value Fund, 288 F.3d at 389. 

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Additionally, any malicious inference the Court could draw from the allegations is 

not as compelling as a number of innocent inferences that could be drawn. “A court must 

compare the malicious and innocent inferences cognizable from the facts pled in the 

complaint, and only allow the complaint to survive a motion to dismiss if the malicious 

inference is at least as compelling as any opposing innocent inference.” Zucco Partners, 

552 F.3d at 991. There are a number of competing inferences the Court can permissibly 

draw from these allegations, but the nefarious one Plaintiff seeks is not as compelling as 

the alternatives. 

The Court could permissibly infer that despite suspicions that Pickett crossed the 

line at the Warsaw meeting (engaged in a reportable ex parte communication), Defendants 

chose to ignore it as long as possible in hopes the settlement would proceed without 

disruption. When it became clear communications with decisionmakers were going to 

come under greater scrutiny because Peevey’s conduct was under investigation, 

Defendants came up with a new policy, applied it to an old communication, and vaguely 

relied on new information from Pickett to disclose it. However, there are numerous 

problems with it that undermine its strength, particularly in comparison to the nonfraudulent alternatives. 

The Court could also infer that Litzinger had doubts about whether Pickett was silent 

at the meeting with Peevey as Pickett claimed. After following up and pressing Pickett, he 

was satisfied and decided not to investigate it further. As ex parte communications with 

the CPUC began to garner more public attention and Peevey’s conduct came under greater 

scrutiny, SCE created a stronger policy on ex parte communications, revisited the meeting 

with Pickett, and reported it. 

The Court could also easily infer from these allegations that Defendants never 

believed that the meeting in Warsaw involved an ex parte communication, particularly after 

Pickett denied it, but eventually reported it out of caution as greater public scrutiny of ex 

parte communications arose. Or, perhaps Pickett lied and kept doing so until faced with

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the possibility that it might come out in the investigation of Peevey and disclosed it to 

Defendants only the week before it was reported. Under any of these more compelling 

inferences, there is no intentional or conscious misconduct by Defendants in not disclosing 

the unreported ex parte communications in 2014. Plaintiff has failed to plead scienter.

V. Loss Causation

To sufficiently plead loss causation, Plaintiff must “allege that the decline in the 

defendant’s stock price was proximately caused by a revelation of fraudulent activity rather 

than by changing market conditions, changing investor expectations, or other unrelated 

factors.” Loos v. Immersion Corp., 762 F.3d 880, 887 (9th Cir. 2014). “In other words, 

the plaintiff must plausibly allege that the defendant’s fraud was revealed to the market 

and caused the resulting losses.” Id. Here, Plaintiff must allege that the stock price 

declined when the unreported reportable ex parte communications were revealed. 

“[T]he announcement of an investigation, ‘standing alone and without any 

subsequent disclosure of actual wrongdoing, does not reveal to the market the pertinent 

truth of anything and therefore does not qualify as a corrective disclosure.’” Id. at 890 n.3 

(quoting Meyer v. Greene, 710 F.3d 1189, 1201 n.13 (11th Cir. 2013)). Announcements 

of investigations cannot serve as the basis for loss causation because it is only “notice of a 

potential for future disclosure of fraudulent conduct.” Id. at 890. However, “the 

announcement of an investigation can ‘form the basis for a viable loss causation theory’ if 

the complaint also alleges a subsequent corrective disclosure by the defendant.” Lloyd, 

811 F.3d at 1206. “[T]he ultimate issue is whether the defendant’s misstatement, as 

opposed to some other fact, foreseeably caused the plaintiff’s loss.” Id. at 1206. 

Defendants challenge the sufficiency of Plaintiff’s loss causation allegations in two

respects. First, Defendants argue Plaintiff cannot rely on the CPUC’s investigation as a 

revelation of fraudulent activity. Defendants argue that the disclosures Plaintiff has to rely 

on (because they are the only disclosures followed by a price drop) were part of an 

investigation revealing only the potential for future disclosure of fraudulent conduct and 

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there is no subsequent corrective disclosure that resulted in a price drop. Second, 

Defendants argue there can be no loss causation because the stock price did not drop in 

response to the disclosures that actually revealed the unreported reportable ex parte 

communications — SCE’s February 9, 2015 Notice, the ALJ’s August 5, 2015 decision 

describing SCE’s violations, or the CPUC decision finding eight violations and fining SCE 

$16.7 million. Defendants also note that the most significant disclosure, the ALJ August 

5, 2015 decision was followed by a share price increase. 

Plaintiff counters that the alleged corrective disclosures here did not just reveal an 

investigation, but rather revealed facts regarding Defendants’ misleading statements. 

Plaintiff relies on the following: (1) A4NR’s February 10, 2015 request for sanctions 

against SCE (price dropped 2% on February 11); (2) California Assemblyman’s March 19, 

2015 letter requesting the CPUC order SCE to produce documents (price dropped .99% on 

March 20, 2015; (3) ALJ’s April 14, 2015 order directing SCE to produce documents (price 

dropped .79%); (4) ORA and TURN’s April 17, 2015 announcement they were seeking 

fines (price dropped .99%); (5) SCE’s April 29, 2015 production of documents (price 

dropped 1.73% on April 30; and (6) TURN’s June 24, 2015 request that the CPUC reopen

the settlement (price dropped 2.71%). 

Plaintiff argues these requests for more information, further disclosure, or sanctions,

were more than an announcement of an investigation. For example, Plaintiff asserts that 

the market did not understand the significance of the February 9, 2015 Notice disclosing 

the March 26, 2013 ex parte communication until A4NR filed a request for sanctions and 

later when SCE ordered the production of documents. In essence, the requests made as 

part of the investigation helped the market understand the significance of previously 

disclosed information. Assuming these disclosures were more than disclosures revealing 

only the potential for fraud, rather than fraud, the Court still cannot put blinders on and see 

only the disclosures Plaintiff picks to the exclusion of others. The Court also cannot ignore 

that the market did not react negatively to the ALJ’s August 5, 2015 Order identifying 

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SCE’s violations and the CPUC’s decision finding eight ex parte violations and fining SCE 

$16.7 million. This is significant in two respects. First, to the extent the filings Plaintiff 

relies on are part of an investigation that only reveals the potential for fraud, there is no 

“subsequent corrective disclosure” to the investigation that results in a price drop as 

required to support a “viable loss causation theory.” Lloyd, 811 F.3d at 1206. Second, in 

combination with the lack of a reaction to the February 9 Notice, it reflects that the stock 

price did not drop on “a revelation of fraudulent activity.” Loos, 762 F.3d at 887. 

Even if the Court finds these five disclosures disclosed more than just the potential 

for fraud and disclosed new information not previously disclosed, even when combined 

with the April 29, 2015 production of documents that suggested SCE executives knew 

about the Warsaw meeting, it is not sufficient. It does not makes sense that the market 

would react to these requests, but have no negative reaction, or a positive one, to the actual 

disclosure of the facts that Plaintiff alleges support fraud — unreported ex parte 

communications about the settlement occurred and were not disclosed. Plaintiff has failed 

to sufficiently plead loss causation.

CONCLUSION

Defendants’ Motion to Dismiss is GRANTED. Plaintiff shall have 21 days from 

the date this Order is filed to file a First Amended Complaint. 

IT IS SO ORDERED.

Dated: September 14, 2016

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