Court Opinion

ID: 613817
Source: CourtListenerOpinion
Date Created: 2011-09-19 14:54:45+00
Date Added: 2024-06-11T17:50:26.923515
License: Public Domain

10-3477
     Inter-Local Pension Fund GCC/IBT v. General Electric Company

                          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 NOTATION “SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST
     SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

 1            At a stated term of the United States Court of Appeals
 2       for the Second Circuit, held at the Daniel Patrick Moynihan
 3       United States Courthouse, 500 Pearl Street, in the City of
 4       New York, on the 19th day of September, two thousand eleven.
 5
 6       PRESENT: DENNIS JACOBS,
 7                              Chief Judge,
 8                ROBERT A. KATZMANN,
 9                DEBRA ANN LIVINGSTON,
10                              Circuit Judges.
11
12       - - - - - - - - - - - - - - - - - - - -X
13      INTER-LOCAL PENSION FUND GCC/IBT,
14      MACOMB COUNTY EMPLOYEES’ RETIREMENT
15      SYSTEM,
16
17                   Plaintiffs-Appellants,
18
19      SUSAN W. COYNE, on behalf of herself and all others
20      similarly situated, THOMAS A. COYNE, on behalf of himself
21      and all others similarly situated, AMALYE CALVERT, on behalf
22      of herself and all others similarly situated,
23
24                   Plaintiffs,
25
26                   -v.-                                               10-3477
27

                                                 1
 1   GENERAL ELECTRIC COMPANY, JEFFREY R.
 2   IMMELT, KEITH S. SHERIN,
 3
 4            Defendants-Appellees.
 5
 6
 7   - - - - - - - - - - - - - - - - - - - -X
 8
 9   FOR APPELLANTS:   Susan K. Alexander (Andrew J. Brown, Brian
10                     O. O’Mara, Robbins Geller Rudman & Dowd
11                     LLP, San Diego, CA, on the brief)
12                     Robbins Geller Rudman & Dowd LLP
13                     San Francisco, CA
14
15   FOR APPELLEES:    Greg A. Danilow (Paul Dutka, Gregory
16                     Silbert, on the brief),
17                     Weil, Gotshal & Manges LLP
18                     New York, NY
19
20
21        Appeal from a judgment of the United States District
22   Court for the District of Connecticut (Underhill, J.)
23   granting Appellees’ motion to dismiss and dismissing
24   Appellants’ complaint.
25
26        UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED
27   AND DECREED that the district court’s judgment is AFFIRMED.
28
29        Plaintiffs appeal from an order dismissing their
30   securities fraud class action against the General Electric
31   Company (“GE” or the “Company”), its Chief Executive Officer
32   Jeffrey Immelt, and its Chief Financial Officer Keith Sherin
33   under Federal Rule of Civil Procedure 12(b)(6). We assume
34   the parties’ familiarity with the underlying facts, the
35   procedural history, and the issues presented for review.
36
37        We review de novo a district court’s dismissal of a
38   complaint under Federal Rule of Civil Procedure 12(b)(6).
39   Teamsters Local 445 Freight Div. Pension Fund v. Dynex
40   Capital Inc., 531 F.3d 190, 194 (2d Cir. 2008). We must
41   “accept[] all factual allegations as true and draw[] all
42   reasonable inferences in favor of the plaintiff.” ECA &
43   Local 134 IBEW Joint Pension Trust of Chi. v. JP Morgan
44   Chase Co., 553 F.3d 187, 196 (2d Cir. 2009). “To survive a

                                  2
 1   motion to dismiss, a complaint must plead enough facts to
 2   state a claim to relief that is plausible on its face.” Id.
 3   (internal quotation marks omitted).
 4
 5        The complaint alleges violations of Section 10(b) of
 6   the Securities Exchange Act of 1934 (the “Exchange Act”), 15
 7   U.S.C. § 78j(b), Rule 10b-5 promulgated thereunder, 17
 8   C.F.R. § 240.10b-5, and Section 20(a) of the Exchange Act,
 9   15 U.S.C. § 78t(a). “[T]o state a claim under Rule 10b-5, a
10   plaintiff must allege that, in connection with the purchase
11   or sale of securities, the defendant made material
12   misstatements or omissions of material fact, with scienter,
13   and that the plaintiff’s reliance on the defendant’s actions
14   caused injury to the plaintiff.” Slayton v. Am. Express
15   Co., 604 F.3d 758, 765 (2d Cir. 2010). Moreover, a
16   complaint alleging a 10b-5 violation is subject to the
17   heightened pleading requirements of the Private Securities
18   Litigation Reform Act (“PSLRA”), which requires, inter alia,
19   that the complaint “state with particularity facts giving
20   rise to a strong inference that the defendant acted with the
21   required state of mind.” 15 U.S.C. § 78u-4(b)(2). In
22   determining whether a complaint adequately pleads scienter
23   under the PSLRA, we must consider “plausible nonculpable
24   explanations for the defendant’s conduct” and a complaint
25   “will survive . . . only if a reasonable person would deem
26   the inference of scienter cogent and at least as compelling
27   as any opposing inference one could draw from the facts
28   alleged.” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551
29   U.S. 308, 324 (2007).
30
31        We conclude that the complaint does not plead facts
32   giving rise to a strong inference of scienter. The required
33   state of mind in a 10b-5 action is “an intent to deceive,
34   manipulate or defraud.” Ernst & Ernst v. Hochfelder, 425
35   U.S. 185, 191 n.7 (1976). Scienter can be established
36   “either (a) by alleging facts to show that defendants had
37   both motive and opportunity to commit fraud, or (b) by
38   alleging facts that constitute strong circumstantial
39   evidence of conscious misbehavior or recklessness.” Shields
40   v. Citytrust Bancorp, Inc., 25 F.3d 1124, 1128 (2d Cir.
41   1994). “[T]he absence of a motive allegation is not fatal,”
42   Tellabs, 551 U.S. at 325; but unless a complaint alleges
43   facts supporting a motive to commit fraud, the

                                  3
 1   circumstantial evidence of scienter must be “correspondingly
 2   greater.” ECA, 553 F.3d at 198-99.
 3
 4        The complaint pleads no facts to suggest that any of
 5   the Appellees had a motive to commit fraud. It is alleged
 6   that Appellees received performance-based compensation tied
 7   to the Company’s stock price and that Appellee Immelt had
 8   underperformed relative to his predecessor, Jack Welch, and
 9   may have felt pressure to generate greater returns for
10   shareholders. These allegations are legally insufficient to
11   establish motive for scienter purposes. See id. at 198
12   (“Motives that are common to most corporate officers, such
13   as the desire for the corporation to appear profitable and
14   the desire to keep stock prices high to increase officer
15   compensation, do not constitute ‘motive’ for purposes of
16   this inquiry.”). The complete absence of any motive to
17   commit fraud on the part of Appellees is underscored by the
18   fact that their alleged misstatements concerning the
19   Company’s quarterly earnings prospects were made no more
20   than a few weeks before GE would inevitably be required to
21   report its quarterly earnings to the market. “It is hard to
22   see what benefits accrue from a short respite from an
23   inevitable day of reckoning.” Shields, 25 F.3d at 1130.
24   The complaint simply does not allege any facts to suggest
25   that Appellees “benefitted in a concrete and personal way
26   from the purported fraud . . . .” Novak v. Kasaks, 216 F.3d
27   300, 311 (2d Cir. 2000).
28
29        Having failed to establish any cognizable motive to
30   commit securities fraud, we conclude that Appellants’
31   circumstantial evidence of fraud does not give rise to the
32   strong inference of scienter required by the PSLRA. There
33   are several vague and general averments that Appellees
34   Immelt and Sherin had access to internal corporate documents
35   and data during the class period, including real-time
36   customer and sales information. Although a strong inference
37   of scienter may arise when a complaint alleges that
38   defendants “knew facts or had access to information
39   suggesting that their public statements were not accurate,”
40   id. at 311, such an allegation must “specifically identify
41   the reports or statements containing this information.” Id.
42   at 309. Appellants have not alleged any facts indicating
43   that the content of the reports or data to which Appellees
44   were privy was inconsistent with their statements in the

                                  4
 1   class period. Appellants also argue scienter based on one
 2   post hoc statement by Appellee Sherin acknowledging that
 3   Appellees knew the Company faced risks in March of 2008.
 4   But Appellees’ awareness of general unspecified market risk
 5   does not contradict any of their public statements about the
 6   Company’s financial prospects. Even if Appellee Sherin’s
 7   statement is taken to refer to more particular risks to the
 8   Company’s business operations, Appellants have failed to
 9   allege that Appellees were aware of those risks at the time
10   of their public statements that month about the Company’s
11   financial prospects such that their statements were not
12   “consistent with reasonably available data.” Id. Sherin’s
13   statement therefore does not create the strong inference of
14   scienter required by the PSLRA. See id. at 308-09. Because
15   the complaint does not adequately plead scienter, it fails
16   to state a plausible claim for relief based on a violation
17   of Rule 10b-5. Since the complaint does not allege a
18   primary violation of the securities laws, it also fails to
19   state a claim for control person liability under Section
20   20(a) of the Exchange Act. See ATSI Commc’ns, Inc. v. Shaar
21   Fund, Ltd., 493 F.3d 87, 108 (2d Cir. 2007).
22
23        For the foregoing reasons, the judgment of the district
24   court is hereby AFFIRMED.
25
26
27                              FOR THE COURT:
28                              CATHERINE O’HAGAN WOLFE, CLERK
29

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