21

- 839

- cv Salim v. Mobile TeleSystems PJSC

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, 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 NO TATION “ SUMMARY ORDER ” ). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

At a stated term of the United States Court of Appeals for the Second Circuit, 1 held at the Thurgood Marshall United States Courthous e, 40 Foley Square, in the 2 City of New York, on the 3 1 s t day of M a r c h , two thousand twenty

- two

. 3 4 PRESENT: DENNY CHIN
, 5 RAYMOND J. LOHIER, JR., 6 JOSEPH F. BIANCO
, 7 Circuit Judges

. 8

------------------------------------------------------------------ 9 SHAYAN SALIM, INDIVIDUALLY 10 AND ON BEHALF OF ALL 11 OTHERS SIMILARLY SITUATED, 12 13 Plaintiff

- Appellant
, 14
15 HUNNEWELL PARTNERS (UK) 16 LLP, 17 18 Movant

- Appellant
, 19

v. No. 21

- 839

- cv 20 21 MOBILE TELESYSTEMS PJSC, ANDREI A. 222 DUB OV SKOV, ALEXEY V. KORNYA, ANDREY 1 KAYMENSKY
, 2 3 Defendant s

- Appellees

. 4

------------------------------------------------------------------ 5 FOR PLAINTIFF

- APPELLANT & 6 MOVANT

- APPELLANT : L AURENCE M. R OSEN , The 7 Rosen Law Firm P.A., New 8 York, NY 9
10 FOR DEFENDANTS

- APPELLEES : R OMAN M ARTINEZ , Latham & 11 Watkins LLP, Washington, 12 D.C. (Andrew B. Clubok, 13 Latham & Watkins LLP, 14 Washington, D.C.; Samir 15 Deger

- Sen, Jeff G. Hammel, 16 Kevin McDonough, Alex 17 Ehmke, Latham & Watkins 18 LL P, New York, NY, on the 19 brief ) 20
Appeal from a judgment of the United States District Court for the Eastern 21

District of New York ( Ann M. Donnelly
, Judge ). 22

UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, 23

AND DECREED that the judgment of the D istrict C ourt is AFFIRMED

. 24

Plaintiff

- Appellant Shayan Salim and Movant

- Appellant Hunnewell 25

Partners (UK) LLP (collectively, “ Appellants ”) appeal from the March 3 , 2021 26

judgment of the United States District Court for the Eastern District of New York 273 ( Donnelly
, J. ) dismissing their federal securities law claims against D efendants

1

Appellees Mobile TeleSystems PJSC, Andrei A. Dub ov skov, Alexey V. Kornya, 2

and Andrey Kamensky (collectively, “ MTS ”). Appellants alleged violations of 3

§§ 10(b) and 20(a) of the Securities Exchange Act of 1934 ( Exchange Act ) and the 4

corresponding rule of the Securities and Exchange Commission (SEC) , 17 C.F.R. § 5

240.10b

- 5. The District Court dismissed Appellants’ Second Amended 6

Complaint (“SAC”) pursuant to Federal Rule of Civil Procedure 12(b)(6) after 7

concluding that Appellants had failed to allege any actionable misstatements or 8

omissions and any facts establishing a stro ng inference of scienter. We assume 9

the parties’ familiarity with the underlying facts and the record of prior 10

proceedings, to which we refer only as necessary to explain our decision to 11

affirm. 12

According to the SAC
, between 2004 and 2012 MTS and some of its 13

executives conspired to pay over $420 million in illegal bribes to an Uzbek 14

official in order to enter and maintain their place in the Uzbek 15

telecommunications market. In 201 4 the United States Department of Justi ce and 16

the SEC began investigating MTS’s former operations in Uzbekistan for 174 violations of the Foreign Corrupt Practices Act (FCPA)

. As most relevant to this 1

appeal, MTS disclosed the existence of the government investigation s in its 2

public filings with t he SEC
, but it neither estimated nor record ed on its 3

consolidated books and records a reserve for its liability associated with the 4

investigation s until just over three months before it entered into a d eferred 5

p rosecution a greement with the Government . Appellants also alleged that 6

MTS’s decision not to estimate or record a reserve for the liability violat ed its 7

obligations under Generally Accepted Accounting Principles and the 8

International Financial Reporting Standards . Appellant s further claim ed that 9

MTS omitted material information from its publicly filed financial statements, 10

including the docket number s of two civil forfeiture complaint s that referenced 11

MTS’s bribes , and that MTS misrepresented the status of the investigation s and 12

the nature of its cooperation with the Government

. 13

Like the District Court, we conclude that these allegations fail to state a 14

claim for violations of §§ 10(b) and 20(a) of the Exchange Act and Rule 10b

- 5. 15

Our analysis begins and ends with the requirement that a complaint claiming 16

violations of §§ 10(b) and 20(a) of the Exchange Act m ust “state with particular ity 175 facts giving rise to a strong inference that the defendant[s] acted with ” scienter. 1

15 U.S.C. § 78u

- 4(b)(2) (A)

. “[T] o qualify as ‘ a strong inference,’ the inference of 2

scienter must be ‘ more than merely plausibly or reasonable

— it must be cogent 3

and at least as compelling as any opposing inference of nonfraudulent intent. ’ ” 4

ECA, Loc. 1 34 IBEW Joint Pension Tr. of Chi

. v. JP Morgan Chase Co. , 553 F.3d 5

187, 198 (2d Cir. 2009) (quoting Tellabs, Inc. v. Makor Issues & Rts., Ltd. , 551 U.S. 6

308, 314 (2007) ). “ In order to plead scienter adequately, ” a plaintiff must plead 7

“ (1) that defendants had the motive and opportunity to commit fraud, or (2) 8

strong circumstantial evidence of conscious misbehavior or recklessness.” Id. 9

Absent facts establishing motive or opportunity, the circumstantial evidence of 10

conscious misbehavior must show “highly unreasonable ” behavior that evinces 11

“an extreme departure from the standards of ordinary care.” Kalnit v. Eichler
, 12

264 F.3d 131, 142 (2d Cir. 2001) (quotation marks omitted). 13

Here, i n connection with the ir claim that Appellees acted with scienter, 14

Appellants rely exclusively on their allegations that MTS knowingly or recklessly 15

misrepresented key facts in its finan cial statements. We agree with the District 16

Court that the facts alleged in the S AC fail to establish MTS’s conscious 176 misbehavior

. B are allegations of accounting violations fail to state a claim under 1

§§ 10(b) and 20(a) absent allegations of “corresponding fraudulent intent.” 2

Novak v. Kasaks , 216 F.3d 300, 309 (2d Cir. 2000) ( quotation marks omitted ). 3

While Appellants urge us to conclude that scienter can be inferred here because 4

MTS executives are alleged to have known facts that contradict ed their public 5

statements, the SAC is devoid of any factual allegations that with particularity 6

establish that MTS executives knew that they could reasonably estimate their 7

potential liability arising from th e government investigation s but opted not to do 8

so. At most, the SAC plausibly alleges that MTS executives ought to have known 9

what the accounting standards called for under the circumstances. See ECA , 553 10

F.3d at 198. 11

Furthermore, Appellants ’ claim that the Appellees acted with scienter is 12

contradicted by the uncontested fact that MTS timely disclos ed the existence of 13

the government investigations and of the 2015 civil forfeiture complaint that 14

referenced MTS’s bribes, and other facts that woul d inform investors about the 15

potential for liability stemming from the company’s operations in Uzbekistan

. 16

All of those disclosures support the more reasonable inference that MTS 177 executives did not seek to conceal the company’s potential liability under the 1

FCPA . Appellants’ theory of scienter is thus not nearly as compelling as 2

opposing inferences of nonfraudulent intent

. S ee Tellabs , 551 U.S. at 314

. 1 3

We have considered Appellants’ remaining arguments and conclude that 4

they are without merit. For the foregoing reasons, the judgment of the District 5

Court is AFFIRMED. 6

FOR THE COURT: 7 Catherine O ’ Hagan Wolfe, Clerk of Court 8 9 10

1 Because the SAC did not adequately allege a primary violation

— as relevant here, a viable claim under § 10(b)

— the District Court correctly dismissed the § 20(a) claim as well. See Carpenters Pension Tr. Fund of St. Louis v. Barclays PLC , 750 F.3d 227, 236 (2d Cir. 2014).