Court Opinion

ID: 5139397
Source: CourtListenerOpinion
Date Created: 2021-12-21 21:01:15.618408+00
Date Added: 2024-06-11T08:24:17.208309
License: Public Domain

NOT FOR PUBLICATION                        FILED
                     UNITED STATES COURT OF APPEALS                      DEC 21 2021
                                                                      MOLLY C. DWYER, CLERK
                                                                       U.S. COURT OF APPEALS
                              FOR THE NINTH CIRCUIT

NATIONAL ELEVATOR INDUSTRY                      No.    21-15050
PENSION FUND, Lead Plaintiff,
                                                D.C. No. 5:18-cv-02706-LHK
                Plaintiff-Appellant,

and                                             MEMORANDUM*

DAVID KIPLING; BRISTOL COUNTY
RETIREMENT SYSTEM,

                Plaintiffs,

 v.

FLEX LTD.; et al.,

                Defendants-Appellees.

                     Appeal from the United States District Court
                       for the Northern District of California
                       Lucy H. Koh, District Judge, Presiding

                      Argued and Submitted December 8, 2021
                             San Francisco, California

Before: WARDLAW, BRESS, and BUMATAY, Circuit Judges.

      National Elevator Industry Pension Fund (National Elevator) appeals the

      *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
dismissal of its class action claims against Flex Ltd. (Flex). National Elevator

alleges that Flex and its officers gave false and misleading information about its

project with Nike and, thus, violated §§ 10(b) and 20(a) of the Securities Exchange

Act of 1934 and Rule 10b-5. See 15 U.S.C. §§ 78j(b), 78t(a); 17 C.F.R. § 240.10b-

5.

      Federal securities fraud class actions must meet the “higher, exacting pleading

standards of Federal Rule of Civil Procedure 9(b) and the Private Securities

Litigation Reform Act (PSLRA).” Or. Pub. Emps. Ret. Fund v. Apollo Grp. Inc.,

774 F.3d 598, 604 (9th Cir. 2014). Under Rule 9(b), a plaintiff must include “an

account of the time, place, and specific content of the false representations” at issue.

Swartz v. KPMG LLP, 476 F.3d 756, 764 (9th Cir. 2007) (simplified). The “PSLRA

imposes additional specific pleading requirements, including requiring plaintiffs to

state with particularity both the facts constituting the alleged violation and the facts

evidencing scienter.” In re Rigel Pharm., Inc. Sec. Litig., 697 F.3d 869, 876 (9th

Cir. 2012). We review the district court’s dismissal de novo, Zucco Partners, LLC

v. Digimarc Corp., 552 F.3d 981, 989 (9th Cir. 2009), and affirm.

      1. The district court properly held that four of National Elevator’s confidential

witnesses were insufficiently reliable.        See Zucco Partners, 552 F.3d at 995

(plaintiffs must establish confidential witnesses’ reliability and personal knowledge

with sufficient particularity). The four confidential witnesses at issue had no routine

                                           2
interaction with the Nike project nor any firsthand knowledge of facts contradicting

Flex’s executives’ public statements. See In re Quality Sys., Inc. Sec. Litig., 865

F.3d 1130, 1137–39 (9th Cir. 2017) (confidential witnesses found reliable when they

knew firsthand that the executives were “continuous[ly] reforecasting” and “aware

of real time data that contradicted their public statements”). To be credited as

reliable, a witness must be in a position to personally know the information alleged.

See Zucco, 552 F.3d at 996. We thus agree that these four confidential witnesses do

not meet Zucco’s test for reliability.

      2.   More importantly, the confidential witness statements that National

Elevator relies on do not demonstrate that Flex’s public statements were false. On

the contrary, the confidential witness statements describe operational difficulties

without directly contradicting Flex’s statements about profitability or successes

surrounding the Nike project. Without more, National Elevator’s allegations about

“serious operational problems” in a new business “do not meet the level of

specificity required by the PSLRA and our caselaw interpreting it.” Ronconi v.

Larkin, 253 F.3d 423, 434 (9th Cir. 2001). Indeed, while the confidential witnesses

reported instances of unexpected problems and delays, none of them made

statements directly at odds with Flex’s public projections on profitability. Moreover,

Flex’s public statements on profitability were tempered by disclosures of increased

costs for the Nike project. Thus, the confidential witnesses’ statements do not show

                                          3
that Flex’s projections were false.      National Elevator also asserts that Flex’s

statements about operational and performance successes were false. As the district

court noted, the confidential witnesses’ reports of operational problems do not

foreclose that Flex experienced some successes on the Nike project. See Metzler

Inv. GMBH v. Corinthian Colls., Inc., 540 F.3d 1049, 1071 (9th Cir. 2008) (holding

that the PSLRA requires a “clearer explication of why a statement is false” rather

than a vague allegation of a false “overarching impression”). Without pleading the

falsity of a statement about operational successes or profitability with sufficient

particularity, National Elevator’s claims fail.1

      3. The district court also properly held that statements related to Flex’s

profitability projections are forward-looking statements subject to the PSLRA’s

“safe harbor.” Under the PSLRA’s safe harbor provision, 15 U.S.C. § 78u-5(c)(1),

statements are not actionable if (1) “they were identified as forward-looking

statements and accompanied by meaningful cautionary language;” or (2) the plaintiff

does not allege with particularity that the “projections were made with actual

knowledge that they were materially false or misleading.” In re Cutera Sec. Litig.,

      1
         The district court also held that certain statements that National Elevator
relied on were nonactionable statements of corporate optimism. We agree.
“[G]eneralized, vague, and unspecific” corporate statements constitute “mere
puffery,” which no reasonable consumer could rely on. Glen Holly Entm’t, Inc. v.
Tektronix, Inc., 352 F.3d 367, 379 (9th Cir. 2003) (simplified). The statements that
the district court dismissed on this basis were merely optimistic, vague statements
not actionable under federal securities law.

                                           4
610 F.3d 1103, 1112 (9th Cir. 2010) (emphasis in original). “A forward-looking

statement is any statement regarding (1) financial projections, (2) plans and

objectives of management for future operations, (3) future economic performance,

or (4) the assumptions underlying or related to any of these issues.” No. 84

Employer-Teamster Joint Council Pension Tr. Fund v. Am. W. Holding Corp., 320

F.3d 920, 936 (9th Cir. 2003) (simplified). Flex’s projections of profitability fall

into the category of forward-looking statements. For example, statements that “[w]e

cross into profits in the last quarter, next year, in Q4 of fiscal 2018,” and “Flex has

a clear line of sight and conviction around hitting profitability and sustaining

profitability from that point forward” are nonactionable forward-looking statements.

See Wochos v. Tesla, Inc., 985 F.3d 1180, 1195 (9th Cir. 2021) (holding that a

statement that “we remain . . . on track to achieve a 5,000 unit week by the end of

the year” is a nonactionable, forward-looking statement).2

      AFFIRMED.

      2
         Because we affirm the district court based on the unreliability of the
confidential witnesses, the lack of falsity in Flex’s statements, and the PSLRA’s safe
harbor, we do not reach whether National Elevator also failed to adequately plead
scienter. See In re Daou Sys., Inc., 411 F.3d 1006, 1014–15 (9th Cir. 2005) (holding
that scienter is an element of § 10(b) claim).

                                          5