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
5