Anderson v. Spirit AeroSystems Holdings

FILED
United States Court of
PUBLISH Appeals
Tenth Circuit
UNITED STATES COURT OF APPEALS
July 5, 2016
FOR THE TENTH CIRCUIT Elisabeth A. Shumaker
_________________________________ Clerk of Court

WAYNE E. ANDERSON,
individually and on behalf of all
others similarly situated,

Plaintiff,

and

INTERNATIONAL ASSOCIATION
OF MACHINISTS AND
AEROSPACE WORKERS,
DISTRICT 9 PENSION AND
WELFARE TRUSTS; ARKANSAS
TEACHERS RETIREMENT
SYSTEM,

Lead Plaintiffs-Appellants,

v. No. 15-3142

SPIRIT AEROSYSTEMS
HOLDINGS, INC.; JEFFREY L.
TURNER; PHILIP D. ANDERSON;
ALEXANDER K. KUMMANT;
TERRY J. GEORGE,

Defendants-Appellees.
_________________________________

Appeal from the United States District Court
for the District of Kansas
(D.C. No. 2:13-CV-02261-EFM-TJJ)
_________________________________
Steven F. Hubachek, Robbins Geller Rudman & Dowd, LLP, San Diego,
California (Brian O. O’Mara, Phong L. Tran, Austin P. Brane, Robbins
Geller Rudman & Dowd LLP, San Diego, California, Norman Siegel and
Steve Six, Stueve Siegel Hanson LLP, Kansas City, Missouri, Blair A.
Nicholas and Benjamin Galdston, Bernstein Litowitz Berger & Grossmann
LLP, San Diego, California, with him on the briefs) for Plaintiffs-
Appellants.

Phillip A. Geraci, Kaye Scholer, LLP, New York, New York (Jeffrey A.
Fuisz, Aaron F. Miner, and Lindsay Moilanen, Kaye Scholer LLP, New
York, New York, James D. Oliver and Toby Crouse, Foulston Siefkin LLP,
Overland Park, Kansas, with him on the brief) for Defendants-Appellees.
_________________________________

Before TYMKOVICH, Chief Judge, LUCERO, and BACHARACH,
Circuit Judges.
_________________________________

BACHARACH, Circuit Judge.
_________________________________

Spirit AeroSystems, Inc. agreed to supply parts for three types of

aircraft manufactured by Gulfstream Aerospace Corporation and The

Boeing Company. These aircraft were the Gulfstream G280 and G650 and

the Boeing 787. For these aircraft, Spirit managed production of the parts

through three projects. Each project encountered production delays and

cost overruns, and Spirit periodically reported to the public about the

projects’ progress. In these reports, Spirit acknowledged risks but

expressed confidence about its ability to meet production deadlines and

ultimately break even on the projects. Eventually, however, Spirit

announced on October 25, 2012, that it expected to lose hundreds of

2
millions of dollars on the three projects. Spirit’s stock price fell roughly

30 percent following the announcement.

The plaintiffs brought this action on behalf of a class of individuals

and organizations that had owned or obtained Spirit stock between

November 3, 2011, and October 24, 2012. (We refer to this period as the

“class period.”) The named defendants are Spirit and four of its executives:

1. Mr. Jeffrey Turner, the chief executive officer, the president,
and a director 1

2. Mr. Philip Anderson, the chief financial officer

3. Mr. Alexander Kummant, the senior vice president of
Oklahoma operations

4. Mr. Terry George, the vice president overseeing the Boeing 787
project

According to the plaintiffs, Spirit and these executives misrepresented and

failed to disclose the projects’ cost overruns and production delays,

violating § 10(b) of the Securities Exchange Act of 1934 and the Securities

and Exchange Commission’s Rule 10b-5. 15 U.S.C. § 78j(b); 17 C.F.R.

§ 240.10b-5. 2

1
Mr. Turner has since resigned from his employment at Spirit.
2
The plaintiffs also alleged that the four executives had violated
§ 20(a) of the Securities Exchange Act of 1934, which creates liability for
“control persons.” 15 U.S.C. § 78t(a). The district court dismissed the
control-person claims, and the plaintiffs did not challenge this ruling in
their opening brief in the appeal. Instead, the plaintiffs waited until their
reply brief to challenge dismissal of the § 20(a) claims. This was too late.

3
 The defendants moved to dismiss the complaint, arguing that the

plaintiffs had failed to allege facts showing

 misrepresentations or omissions that were (1) false or
misleading and (2) material and

 the defendants’ scienter.

The district court granted the motion to dismiss, concluding in part that the

plaintiffs had failed to allege facts showing scienter. 3

The plaintiffs appeal. We affirm because the plaintiffs have not

alleged facts creating a cogent and compelling inference of scienter.

I. The Plaintiffs’ Pleading Burden on Scienter

For the plaintiffs’ claims under § 10(b) and Rule 10b-5, scienter is an

essential element. In re Zagg, Inc. Sec. Litig., 797 F.3d 1194, 1200 (10th

Cir. 2015). 4 Scienter consists of “‘a mental state embracing intent to

The plaintiffs waived this challenge by waiting to make it in their reply
brief. Reedy v. Werholtz, 660 F.3d 1270, 1274 (10th Cir. 2011). Therefore,
we do not consider the plaintiffs’ § 20(a) claims.
3
The district court assumed that the plaintiffs had pleaded false and
misleading statements, but the court concluded that the defendants had not
made any material misrepresentations or omissions. We need not address
these assumptions or conclusions.
4
The plaintiffs must also show that

1. the defendants made material misrepresentations or omissions,

2. a connection existed between the defendants’
misrepresentations or omissions and the purchase or sale of a
security,

4
deceive, manipulate, or defraud,’ or recklessness.” Adams v. Kinder-

Morgan, Inc., 340 F.3d 1083, 1105 (10th Cir. 2003) (quoting City of

Philadelphia v. Fleming Cos., 264 F.3d 1245, 1259 (10th Cir. 2001)).

Conduct is considered reckless only if the defendants (1) acted in “an

extreme departure from the standards of ordinary care” and (2) presented

“a danger of misleading buyers or sellers” that was

 known to the defendants or

 so obvious that the defendants must have been aware of the
danger.

In re Level 3 Commc’ns, Inc. Sec. Litig., 667 F.3d 1331, 1343 n.12 (10th

Cir. 2012) (quoting City of Philadelphia v. Fleming Cos., 264 F.3d 1245,

1260 (10th Cir. 2001)).

For scienter, the Private Securities Litigation Reform Act of 1995

creates a heightened duty for the plaintiffs to “state with particularity facts

giving rise to a strong inference that the defendant[s] acted with the

3. the plaintiffs relied on the defendants’ misrepresentations or
omissions,

4. the plaintiffs suffered economic loss, and

5. the defendants’ misrepresentations or omissions caused the
plaintiffs’ loss.

Halliburton Co. v. Erica P. John Fund, Inc., __ U.S. __, 134 S. Ct. 2398,
2407 (2014). We address only the element of scienter.

5
required state of mind.” 15 U.S.C. § 78u-4(b)(2)(A); see also In re Zagg,

797 F.3d at 1201-02 (discussing the heightened duty).

We consider this statutory duty through de novo review of the

dismissal. In re Gold Res. Corp. Sec. Litig., 776 F.3d 1103, 1108 (10th Cir.

2015). In conducting de novo review, we accept the complaint’s factual

allegations as true. Dronsejko v. Thornton, 632 F.3d 658, 666 (10th Cir.

2011). We then assess these allegations holistically and consider “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.” In re Zagg, 797 F.3d at 1201-02 (emphasis in

original) (quoting Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S.

308, 323 (2007)).

To assess the strength of an inference of scienter, we compare the

“inferences urged by the plaintiff[s]” with “competing inferences

rationally drawn from the facts alleged.” Tellabs, 551 U.S. at 314. An

inference of fraudulent intent must be more than “‘reasonable’ or

‘permissible’—it must be cogent and compelling.” Id. at 324. Thus, the

complaint suffices “only if a reasonable person would deem the inference

of scienter cogent and at least as compelling as any opposing inference one

could draw from the facts alleged.” Id.

With this standard in mind, we consider whether the plaintiffs

adequately pleaded scienter. We conclude that they did not.

6
II. The Existence of Conflicting Inferences of Innocence and Scienter

The plaintiffs urge the following inference of the defendants’

scienter:

The defendants knew throughout the class period that the three
projects were behind schedule and were generating so much in
additional costs that a loss would be inevitable. Accordingly,
the defendants knew throughout the class period that Spirit
would need to announce a forward loss 5 on the projects.
Nonetheless, the defendants waited to announce the forward
loss until October 2012.

The defendants argue that an innocent inference is more compelling even if

we credit the allegations in the complaint:

Despite scheduling setbacks and cost overruns, the defendants
were optimistic that the three projects would meet the original
cost forecasts. Near-term cost forecasts were not met, but the
defendants expected revenues to exceed the total costs,
avoiding the need for a forward loss. Spirit eventually realized
that a future loss was likely and promptly announced a forward
loss on the three projects.

Our task is to determine whether the inference arising from the

plaintiffs’ scienter allegations is cogent and compelling when compared to

the defendants’ suggested inference. In our view, the plaintiffs’ scienter

inference is not cogent and compelling.

Spirit’s executives knew that Spirit had encountered problems in

containing costs and meeting production deadlines. And we can assume
5
The plaintiffs allege that a “forward-loss charge” is an accounting
term meaning that past production costs plus estimated future production
costs will exceed the total revenues estimated on a given contract.
Appellants’ App’x, vol. I at 27, 91-92.

7
(without deciding) that Spirit did not adequately communicate these

problems to the public.

But why didn’t Spirit adequately communicate these problems? The

plaintiffs allege that the Spirit executives intentionally misrepresented or

recklessly ignored economic realities. That is possible, but it is also

possible that the Spirit executives were overly optimistic and failed to give

adequate weight to financial red flags. With these dual possibilities, the

plaintiffs supply little reason to suspect malevolence over benign

optimism. See In re Level 3 Commc’ns, Inc. Sec. Litig., 667 F.3d 1331,

1345 (10th Cir. 2012) (holding that the plaintiffs’ scienter allegations,

which were based on inconsistency between the defendants’ progress

reports and internal reports, were inadequate because “the strongest

inference we can draw is that defendants were negligent in failing to put

together the pieces”); see also Plumbers & Pipefitters Local Union 719

Pension Fund v. Zimmer Holdings, Inc., 679 F.3d 952, 955 (7th Cir. 2012)

(“Knowing of ‘problems,’ which are common, differs from [specifically]

knowing that a facility must be closed and some of its products recalled.”).

To establish scienter, the plaintiffs rely on

 the Spirit executives’ motive to lie,

 information supplied by corroborating witnesses,

 the Spirit executives’ alleged involvement in the three
projects as part of the company’s “core operations,”

8
  a duty to disclose production delays and cost overruns,

 Spirit’s implementation of a recovery plan,

 admissions by the chief executive officer,

 Spirit’s disclosures of risk,

 Spirit’s purported accounting violations, and

 the size of the announced forward loss.

Together, these allegations do not create a cogent, compelling inference of

scienter.

III. The Existence of a Potential Motive to Lie

The plaintiffs do not argue that the defendants had a particularized

motive for committing securities fraud. The district court viewed the

absence of a particularized motive as a factor mitigating against an

inference of scienter. The court’s consideration of this factor was proper.

The plaintiffs need not show that the defendants acted with a

particular motive. See Nakkhumpun v. Taylor, 782 F.3d 1142, 1152 (10th

Cir. 2015) (“[S]cienter allegations may suffice even without a motive.”).

But “[t]he absence of a motive allegation . . . is ‘relevant.’” In re Level 3

Commc’ns, Inc. Sec. Litig., 667 F.3d 1331, 1347 (10th Cir. 2012).

On appeal, the plaintiffs argue that the defendants were “motivated

to mislead in order to buy time in the hope that a difficult financial

situation ‘would right itself.’” Appellants’ Opening Br. at 69. This

argument was not preserved and is invalid.

9
 The plaintiffs did not raise this argument in district court, so this

argument is forfeited. See Richison v. Ernest Grp., Inc., 634 F.3d 1123,

1128 (10th Cir. 2011) (“[I]f [a] theory . . . wasn’t raised before the district

court, we usually hold it forfeited.”). Ordinarily we can consider forfeited

arguments under the plain-error standard. Id. But the plaintiffs do not

argue plain error in the appeal. As a result, this argument has been waived.

Id.

Even if this argument had been preserved, it would not have cured

the plaintiffs’ failure to adequately plead scienter. At most, the plaintiffs’

argument suggests a generalized corporate motive; but that would not

contribute to an inference of scienter. See Level 3 Commc’ns, 667 F.3d at

1346 (“[G]eneral motives for management to further the interests of the

corporation fail to raise an inference of scienter.”); City of Philadelphia v.

Fleming Cos., 264 F.3d 1245, 1269 (10th Cir. 2001) (“[G]eneralized

motives shared by all companies and which are not specifically and

uniquely related to [the defendants] in particular, are unavailing.”). Thus,

the plaintiffs failed to allege facts indicating a motive for securities fraud,

which mitigates an inference of scienter from the plaintiffs’ other factual

allegations.

IV. Information Furnished by Corroborating Witnesses

The plaintiffs contend that corroborating witness accounts show that

the defendants knew long before October 2012 that the projects’ costs

10
would surpass revenues. We accept the truth of the witnesses’ accounts as

pleaded in the complaint and do not assess the witnesses’ credibility. See

Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007) (we

accept factual allegations in the complaint as true); Nakkhumpun v. Taylor,

782 F.3d 1142, 1152 (10th Cir. 2015) (in reviewing the grant of a motion

to dismiss, we do not assess witness credibility).

To raise an inference of scienter, the plaintiffs point to two types of

information supplied by corroborating witnesses:

1. generalized descriptions of internal meetings, cost reports,
delays, and mismanagement and

2. statements indicating that one of the defendants, Mr. George,
personally directed unrealistic cost projections.

The generalized descriptions of internal meetings, cost reports,

delays, and mismanagement do not contribute to a cogent, compelling

inference of scienter. The factual allegations regarding Mr. George suggest

that he had a culpable intent, but the plaintiffs do not tie Mr. George’s

potentially culpable state of mind to any public disclosures.

A. Generalized Descriptions of Internal Meetings, Cost
Reports, Delays, and Mismanagement

The plaintiffs contend that Spirit’s chief executive officer and chief

financial officer must have known long before October 2012 that Spirit

would lose hundreds of millions of dollars on the three projects. For this

11
contention, the plaintiffs point to information supplied by corroborating

witnesses about

 internal meetings,

 cost reports,

 production delays, and

 mismanagement.

The witnesses’ accounts do not support a scienter inference.

First, the plaintiffs point to an internal meeting that Spirit’s chief

executive officer and chief financial officer led in mid-2011, when they

allegedly admitted that one of the Gulfstream projects was “behind

schedule and over budget.” Appellants’ Opening Br. at 55.

This admission indicates that the two executives knew in mid-2011

that production was behind schedule and that costs exceeded projections

for one of the projects. But this meeting had taken place months before the

class period began, as well as before the executives’ public disclosures.

The plaintiffs do not identify any particularized account showing that the

two executives knew during the class period that their progress reports

were inaccurate. 6 See Wolfe v. Aspenbio Pharma, Inc., 587 F. App’x 493,

6
The corroborating witness’s account of the mid-2011 meeting
pertained to only one of the three projects. Thus, even if this statement had
shown that the two executives knew about cost overruns and production
difficulties for this project, the statement would not have shown knowledge
of problems on the other two projects.

12
498 (10th Cir. 2014) (unpublished) (concluding that a defendant’s remarks

about a company’s problems, made months before a class period, would not

establish scienter during the class period). 7

Second, the plaintiffs point to the collective accounts of ten

corroborating witnesses who furnished information about

1. an internal business group that monitored the three projects’
losses, as well as a 2011 cost-study report prepared by this
group,

2. quarterly reports comparing the projects’ actual costs to
forecasted costs, and

3. Spirit’s ongoing production delays and mismanagement.

But these accounts do not contribute to a cogent and compelling inference

of scienter for three reasons:

1. The witnesses’ accounts do not allege that the four Spirit
executives actually received the internal business group’s cost-
study report or the group’s regular reports regarding the
projects’ losses.

2. The witness accounts do not adequately describe the contents
of the quarterly reports allegedly sent to the Spirit executives.

3. General accounts of mismanagement and delay do not imply
that the four Spirit executives knew that the projects would fall
short of long-term cost forecasts.

7
Although Wolfe is not binding, we may consider it for its persuasive
value. See United States v. Austin, 426 F.3d 1266, 1274 (10th Cir. 2005)
(stating that an unpublished opinion “ha[d] some persuasive value”).

13
 First, Corroborating Witness #5 referred to a 2011 cost-study report

prepared by an internal business group. This report had stated that Spirit

could not meet cost-reduction goals. Appellants’ App’x, vol. I at 122. In

addition, Corroborating Witness #5 stated that the business group had

regularly reported losses on the Gulfstream projects. Id. at 121-22. But the

account by Corroborating Witness #5 does not establish the executives’

knowledge because

 four levels of management hierarchy separated Corroborating
Witness #5 from the chief executive officer 8 and

 the witness’s allegations do not establish that the four Spirit
executives actually had seen the 2011 cost-study report or were
aware of the regularly reported losses on the Gulfstream
projects.

Second, Corroborating Witness #10 contributed to the preparation of

quarterly cost reports on the three projects that were ultimately furnished

to Mr. Anderson and Mr. Turner. Id. at 134-35. To create an inference of

scienter based on these quarterly cost reports, the plaintiffs must

adequately describe the content of the reports provided to Mr. Anderson

and Mr. Turner. See Lipton v. Pathogenesis Corp., 284 F.3d 1027, 1036

(9th Cir. 2002) (“[N]egative characterizations of reports relied on by

8
Corroborating Witness #5 reported to the director of supply chain
management, Tulsa contracts and sourcing, who reported to an individual
that “oversaw operations,” who reported to the vice president of operations
for Spirit’s Tulsa facility, who reported to the chief executive officer.
Appellants’ App’x, vol. I at 40 n.9; id. at 110-11.

14
insiders, without specific reference to the contents of those reports, are

insufficient to meet the heightened pleading requirements of the [Private

Securities Litigation Reform Act].”). The plaintiffs have not identified the

content of the quarterly cost reports. Instead, the plaintiffs rely on

Corroborating Witness #10’s role in contributing data on procurement costs

used to generate these reports. But the content of the resulting quarterly

cost reports is unknown because (1) they went through numerous layers of

revision before reaching Mr. Turner and Mr. Anderson, and (2)

Corroborating Witness #10 did not purport to know how the procurement

costs affected the cost forecasts for the Boeing 787 project.

Corroborating Witness #10 participated in the reporting of

procurement costs, but these reports went through numerous layers of

revision before any of the data would have been seen by Mr. Turner or Mr.

Anderson. For example, Corroborating Witness #10 furnished reports on

procurement costs to Supply Chain Management, which approved or

disapproved the report and submitted a report on procurement costs to a

Supply Chain Director. If approved, the report was sent to the Controller

of Spirit’s Tulsa Facility, who reported to vice presidents in the Tulsa

Facility. The vice presidents provided the eventual report on procurement

costs to the Finance Group, which incorporated forecasts on internal costs

such as labor and processing. The Finance Group then provided the

consolidated report to Tulsa’s Vice President of Operations (Mr. Chris

15
Collins). If approved, the report was forwarded to Wichita Management,

which would “provide feedback” and in “some circumstances” request

Corroborating Witness #10’s group to provide supporting documentation

for particular costs. Appellants’ App’x, vol. I at 136. Once Wichita

Management agreed with the report, it would be sent to Mr. Turner and Mr.

Anderson.

16
17
 Corroborating Witness #10 was able to see only a part of the cost

reports’ data, which purportedly showed “cost overruns” and “changes

after changes” to engineering designs on the Boeing 787 project. See

Appellants’ App’x, vol. I at 136-37. This data involved procurement costs.

But the quarterly cost reports contained another important set of data that

Corroborating Witness #10 does not allege to have seen: Spirit’s forecasts

on internal costs. Id. at 135.

Spirit’s Finance Group consolidated the information supplied by

Corroborating Witness #10’s group with forecasts on internal costs. There

is nothing in the complaint to indicate that Corroborating Witness #10

would have had information about the consolidation process. Id.; see also

id. at 135 (alleging that Corroborating Witness #10’s group was

“responsible for preparing the procurement costs”). Thus, the complaint

sheds little light on what Mr. Turner and Mr. Anderson would have seen if

they had read the quarterly cost reports. 9

9
Through requests for feedback, Corroborating Witness #10 may have
learned about some questions involving specific costs, but this witness did
not

 say whether the requests for feedback were ever accompanied
by information about forecasts or internal costs,

 purport to know the contents of the eventual reports submitted
to Wichita Management, or

18
 But even if we assume that Mr. Turner and Mr. Anderson were aware

of overruns on procurement costs, we have no information from

Corroborating Witness #10 on what the internal costs were or how the

overruns on procurement costs would have affected the total project costs.

In these circumstances, Corroborating Witness #10’s alleged knowledge of

overruns on procurement costs would not contribute to an inference of

scienter.

Third, the plaintiffs rely on general reports of delay and

mismanagement of the Gulfstream projects. Appellants’ Opening Br. at 55-

56. To the plaintiffs, these reports suggest that the Spirit executives must

have long known that Spirit would need to take a substantial forward loss

on the projects. But this inference does not follow from anything that the

corroborating witnesses alleged.

Only one of the corroborating witnesses worked closely with any of

the four Spirit executives, and this witness spoke only of general corporate

mismanagement; the witness did not address whether the executives could

 say whether any requests for feedback had been received during
the class period.

In these circumstances, Corroborating Witness #10’s allegations add little
to an inference of scienter. See Lipton v. Pathogenesis Corp., 284 F.3d
1027, 1036 (9th Cir. 2002) (holding that a plaintiff alleging securities
fraud by relying on a company’s internal reporting must do more than
identify certain “negative” reports).

19
have known that Spirit would be unable to meet long-term cost forecasts.

See Appellants’ App’x, vol. I at 112 (observing a general “lack of cohesive

team environment, [lack of] consistent quality control standards and [lack

of] updated technology”); id. (noting broad concerns that contractors

would steal tools, “creat[ing] tool shortages” that lead to delays and

additional costs); id. at 113 (“Because the Gulfstream program became so

delayed, Spirit had to use a special Russian aircraft to fly the parts to the

customer’s destination at a cost of almost $1 million each time . . . .”). 10

The other corroborating witnesses were further removed from the

defendants. See, e.g., id. at 113, 116-17, 123, 127 (four corroborating

witnesses who had no alleged reporting relationship to the defendants); id.

at 129, 132 (two corroborating witnesses who were separated from the

chief executive officer by at least four levels of management within

Spirit’s hierarchy). 11 As relatively low-level employees, these witnesses

could not provide evidence bearing on the executives’ mental states. See

Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981, 998 (9th Cir. 2009)

(“[G]eneralized claims about corporate knowledge are not sufficient to

10
These accounts are from Corroborating Witness #1, who reported to
the vice president of operations for Spirit’s Tulsa facility, who in turn
reported to the chief executive officer. Appellants’ App’x, vol. I at 111.
11
The factual allegations of the remaining witness, Corroborating
Witness #3, are addressed in Part IV(B) below.

20
create a strong inference of scienter, since they fail to establish that the

witness reporting them has reliable personal knowledge of the defendants’

mental state.”); see also In re Cabletron Sys., Inc., 311 F.3d 11, 31 (1st

Cir. 2002) (requiring a corroborating witness to provide a “level of

specific detail” about what the defendants must have known to create an

inference of scienter).

The accounts by corroborating witnesses do not contribute to an

inference of scienter. These witnesses were too far removed from the four

Spirit executives and did not provide sufficiently particularized accounts

of what the Spirit executives must have known.

B. Information Furnished by Corroborating Witness #3 about
Mr. George’s Culpability on the Boeing 787 Project

For scienter, the plaintiffs rely in part on Corroborating Witness #3’s

account to establish that Mr. George (the vice president overseeing Spirit’s

Boeing 787 project) “personally directed the reporting of inaccurate

projected costs [for the Boeing 787 project]. . . , rejecting cost figures

generated by Spirit’s functional managers.” Appellants’ Opening Br. at 56.

This account creates a potentially plausible inference of Mr. George’s

scienter, but one could also infer from Corroborating Witness #3’s account

that Mr. George was simply too optimistic about Spirit’s ability to control

costs on the Boeing 787 project. This inference of innocence is more

compelling than an inference of Mr. George’s scienter.

21
 The plaintiffs point to five public statements that Mr. George made

about the Boeing 787 project at an investor conference in March 2012:

1. Over a fifteen-month period, Mr. George periodically met with
Boeing to ensure that Spirit’s production was on track.

2. In these periodic meetings, Boeing held Spirit accountable to
ensure a reduction in costs.

3. Spirit would likely be able to reduce marginal costs for
additional units on the Boeing 787 project.

4. Spirit was on plan, and Mr. George expected a profit on the
project’s “first [b]lock” of units.

5. Mr. George was not concerned with Spirit’s ability to obtain
parts for the project.

Id. at 51, 55 (emphasis omitted). According to the plaintiffs, these

statements were knowingly false and misleading based on Corroborating

Witness #3’s interactions with Mr. George.

Corroborating Witness #3 worked in Spirit’s finance department and

consulted with Mr. George about cost forecasts for the Boeing 787 project.

Id. at 38 n.5. Mr. George relied on Corroborating Witness #3 to forecast

costs by collecting projections from various “Functional Managers.” Id. at

115. After reviewing these forecasts, Mr. George allegedly said that the

cost projections were too high and ordered Corroborating Witness #3 to

predict the project’s future costs at a level that Corroborating Witness #3

regarded as unachievable. Id. at 115-16. When Corroborating Witness #3

balked, Mr. George allegedly threatened to find managers who “could

22
achieve the forecasts.” Id. at 116. Later, as Spirit was about to fall short of

Mr. George’s required forecast, Spirit allegedly tried to “off-load some of

the work to an offshore vendor.” Id.

From Corroborating Witness #3’s account, we can reasonably infer

that Mr. George was too optimistic about Spirit’s ability to reduce costs on

the Boeing 787 project. But there is nothing in Corroborating Witness #3’s

account to suggest that Mr. George knew that his statements at the March

2012 investor conference were false or misleading.

Corroborating Witness #3’s account has two fundamental gaps:

1. This account does not suggest that Mr. George believed his
cost-control efforts were unrealistic or that he wished to
intentionally mislead investors.

2. Corroborating Witness #3 does not say when the confrontation
with Mr. George took place; we can only guess that the
confrontation might have preceded Mr. George’s remarks at the
investor conference. 12

12
The plaintiffs do not argue that any inference as to Mr. George’s
scienter must be imputed to the other Spirit executives—Mr. Turner, Mr.
Anderson, or Mr. Kummant. For example, the plaintiffs do not allege any
particularized facts to establish a relationship between Mr. George and the
other executives. According to the complaint, Mr. George was Spirit’s vice
president for the 787 Boeing project. And the complaint alleges that Mr.
George directed use of certain cost figures over the protests of
Corroborating Witness #3. But we do not know if Mr. George acted at the
direction of another Spirit executive or if Mr. George told other executives
that he had authorized use of “inaccurate” cost figures. Thus, even if we
inferred scienter as to Mr. George, we could not impute Mr. George’s
scienter to Mr. Turner, Mr. Anderson, or Mr. Kummant.

23
In light of these gaps, we cannot plausibly infer from Corroborating

Witness #3’s account that Mr. George knowingly or recklessly misled

attendees at the March 2012 investor conference. 13

V. The Executives’ Alleged Involvement in Spirit’s “Core
Operations”

The plaintiffs allege that Mr. Turner, Mr. Anderson, Mr. Kummant,

and Mr. George were “top executives” who “personally monitored” the

progress of the three projects. 14 Appellants’ Opening Br. at 61. Based on

this involvement, the plaintiffs ask us to infer that the four Spirit

executives must have known that the projects would not meet long-run cost

forecasts. The allegations in the complaint do not support this inference.

We cannot infer scienter based only on a defendant’s position in a

company or involvement with a particular project. See, e.g., City of

Philadelphia v. Fleming Cos., 264 F.3d 1245, 1264 (10th Cir. 2001)

13
This analysis assumes, without deciding, that Mr. George’s
statements were material. The district court concluded that the statements
were not material, characterizing them as commercial puffery. See
Grossman v. Novell, Inc., 120 F.3d 1112, 1121-22 (10th Cir. 1997). We do
not address that conclusion.
14
The parties dispute whether the three projects represented the “core”
of Spirit’s business. Compare Appellants’ Opening Br. at 61
(characterizing the three projects as “crucial” to Spirit’s business), with
Appellees’ Resp. Br. at 54 n.23 (downplaying the importance of the three
projects, stating that they “account[ed] for less than 20% of Spirit’s
revenue”). We assume, without deciding, that the three projects involved a
core part of Spirit’s business.

24
(concluding that “the mere fact” that defendants “occupied senior positions

in the company” was inadequate for an inference of scienter).

The executives’ positions at Spirit would help establish whether they

should have known that particular cost projections were unrealistic. But

additional particularized facts are necessary for an inference of scienter.

See S. Ferry LP, No. 2 v. Killinger, 542 F.3d 776, 784 (9th Cir. 2008)

(“Where a complaint relies on allegations that management had an

important role in the company but does not contain additional detailed

allegations about the defendants’ actual exposure to information, it will

usually fall short of the [securities laws’ pleading] standard.”).

The plaintiffs do not allege additional particularized facts. According

to the plaintiffs, the four Spirit executives

 “were intimately involved in Spirit’s key [Boeing] and
Gulfstream projects,”

 “were intensely focused on productivity and efficiency
improvements,”

 were “proactive,”

 provided assurances of personal “vigilance” regarding the
three projects,

 made on-site visits to Spirit’s factory floors, and

 reviewed detailed cost analyses.

Appellants’ Opening Br. at 61. For these characterizations, the plaintiffs

rely on Paragraphs 54, 69, 70, 75, 76, 79, 80, 92, and 107 of the complaint.

Id.; Appellants’ Reply Br. at 21. Of these paragraphs, only Paragraph 69

25
refers to an executive’s direct involvement in the projects: the chief

financial officer, Mr. Anderson, said that he had spent a lot of time in

Spirit’s Tulsa facility, “making sure the changes [to production processes

were] taking hold.” Appellants’ App’x, vol. I at 45-46. The plaintiffs do

not cite any allegations in the complaint stating that one of the four Spirit

executives actually reviewed the underlying cost data for the Gulfstream

and Boeing projects.

We assume, for the sake of argument, that the plaintiffs’ allegations

create an inference that the four executives were briefed on the underlying

cost data while attending meetings where the three projects were discussed.

But mere attendance at meetings does not contribute to an inference of

scienter. See MHC Mut. Conversion Fund, L.P. v. Sandler O’Neill &

Partners, L.P., 761 F.3d 1109, 1122 (10th Cir. 2014) (“[N]othing in the

defendants’ routine attendance at . . . meetings serves to suggest a ‘cogent’

and ‘compelling’ inference of scienter.”); In re Level 3 Commc’ns, Inc.

Sec. Litig., 667 F.3d 1331, 1344 (10th Cir. 2012) (concluding that the fact

that the defendants “monitored [a contested program] through regular

meetings and reports” was insufficient to draw a “strong inference” of the

defendants’ scienter).

Based on the plaintiffs’ allegations of the defendants’ involvement in

Spirit’s core operations, we can infer only that the four executives were

overly optimistic about Spirit’s ability to achieve the forecasted production

26
schedules and cost reductions. The plaintiffs have not provided a good

reason to believe that the executives knew that the projects were unlikely

to meet forecasts.

VI. A Duty to Disclose Production Delays and Cost Overruns

The plaintiffs also allege scienter based on the defendants’ purported

duty to disclose production delays and cost overruns. In our view,

however, this duty would not support an inference of scienter here.

Liability for securities fraud requires the making of a material

misrepresentation. Geman v. SEC, 334 F.3d 1183, 1192 (10th Cir. 2003).

This requirement may be satisfied when the defendant remains silent while

owing a duty to investors to correct their misperceptions. Id. But even if a

defendant incurs a duty to speak, liability under the securities laws

requires scienter. Id. To establish scienter, the plaintiffs must establish

that a scienter inference is more cogent and compelling than an inference

that the defendants had “not believe[d] they had a continuing duty to

disclose information.” Minneapolis Firefighters’ Relief Ass’n v. MEMC

Elec. Materials, Inc., 641 F.3d 1023, 1030 (8th Cir. 2011); see also Dirks

v. SEC, 463 U.S. 646, 663 n.23 (1983) (distinguishing fraudulent intent

from fraudulent conduct).

The plaintiffs do not explain why the existence of a duty to disclose

supports an inference that the defendants (1) knew that they needed to

disclose more or (2) were reckless in failing to disclose more. As a result,

27
the defendants’ alleged duty to disclose does not support an inference of

scienter in this case.

VII. The Plaintiffs’ Remaining Factual Allegations

The plaintiffs also point to

 Spirit’s recovery plan for the Boeing 787 project,

 statements by the chief executive officer after Spirit
announced the forward loss,

 Spirit’s disclosures about risks,

 Spirit’s purported accounting violations, and

 the magnitude of the forward-loss announcement on the
three projects.

The plaintiffs argue that in light of the magnitude of the loss that Spirit

ultimately sustained, Spirit must have had scienter when each of these

occurrences took place. These arguments amount to allegations of “fraud

by hindsight,” which does not constitute securities fraud. See In re Level 3

Commc’ns, Inc. Sec. Litig., 667 F.3d 1331, 1347 (10th Cir. 2012) (“[The]

defendants’ hindsight review . . . . contributes nothing to an inference of

scienter.”).

A. Spirit’s July 2012 Recovery Plan

According to the plaintiffs, Spirit adopted a “recovery plan” in July

2012 to put the Boeing 787 project back on schedule. The plaintiffs argue

that the existence of this plan shows that Spirit executives knew that their

28
subsequent representations about the Boeing 787 project were false or

misleading.

Between implementing the recovery plan in July 2012 and

announcing a forward loss on the Boeing 787 project in October 2012,

Spirit executives issued multiple public statements on the status on the

project. The plaintiffs argue that these statements in August and September

2012, summarized below, materially misrepresented the project’s progress:

August 2, 2012

 Spirit is “focused on continued reliability, capability, and
teamwork to align the business for long-term value
creation.”

 Spirit continues to see progress as the Boeing and Spirit
teams are focused on identifying and implementing
improvements on cost and production for the Boeing 787
project.

 Spirit continues to improve its unit-cost performance as
planned.

Appellants’ App’x, vol. I at 70-71.

August 7, 2012

 Spirit anticipates that it will continue to make efficiency
gains on the Boeing 787 project. Id. at 73-74.

September 12, 2012

 Spirit is doing reasonably well in meeting the Boeing 787
plan.

 The project plan for the Boeing 787 “looks okay.”

Id. at 74.

29
 September 13, 2012

 Spirit is seeing improvement on all of the component
parts for the Boeing 787 project.

 Spirit continues to be optimistic that it can reduce
marginal costs for the Boeing 787 project.

Id. at 75.

The plaintiffs argue that the Spirit executives knew that these

statements were false or misleading because a recovery plan was already

underway to bring the delivery schedule up to date with initial forecasts

for the Boeing 787 project. Id. at 79. Spirit later reported that it had

learned, when implementing the recovery plan, that future costs would

increase dramatically if Spirit were to adhere to the required delivery

schedule.

We may assume, without deciding, that the statements in August and

September 2012 were materially false or misleading. To infer scienter,

however, we must compare the parties’ dual explanations for Spirit’s

overly optimistic reports on the status of the Boeing 787 project. The

plaintiffs attribute the statements to the executives’ recklessness or intent

to mislead investors; the defendants attribute the statements to an honest

belief that Spirit’s recovery plan would reduce costs and accelerate

production. The plaintiffs provide little reason to question the executives’

explanation.

30
 The eventual announcement of a forward loss suggests that Spirit had

placed too much confidence in the recovery plan. But the same can always

be said when a company delays announcement of a forward loss based on

remedial efforts to increase profitability or production.

We addressed an analogous issue in In re Zagg, Inc. Sec. Litig., 797

F.3d 1194 (10th Cir. 2015). There, a corporation allegedly failed to

disclose that a chief executive officer had pledged approximately half of

his shares in the corporation as collateral in a personal margin account.

797 F.3d at 1198-99. The chief executive officer was eventually forced to

resign, and the corporation adopted a corrective policy restricting

executives’ pledges of corporate shares. Id. at 1199. The plaintiffs argued

that adoption of the policy showed that the corporation had a fraudulent

intent. Id. at 1203, 1205. We rejected this argument, concluding that the

new policy showed only that the corporation had “identified a better way

of doing things moving forward.” Id. at 1205.

In re Zagg is instructive. Spirit’s July 2012 recovery plan shows that

Spirit identified an interim step to reduce costs and expedite production on

the Boeing 787 project. The plaintiffs suggest that Spirit executives wanted

to mislead investors. That is possible, but the plaintiffs’ theory

presupposes that Spirit executives knew that the recovery plan could not

accomplish the plan’s stated objectives. There is nothing in the complaint

to support that logical leap. The stronger inference is that the Spirit

31
executives thought that they had “identified a better way of doing things.”

Id. As a result, we regard the defendants’ “innocent inference” as more

cogent and compelling than the plaintiffs’ “scienter inference.”

B. The Chief Executive Officer’s Statements Explaining the
Forward Loss

After Spirit announced the forward loss, Spirit’s chief executive

officer explained the forward loss on the three projects by stating that

 the projects had progressed too slowly to meet initial cost
targets,

 project costs had exceeded initial forecasts, “particularly
in [the] supply chain,”

 the complexity in growth at Spirit’s Tulsa facility had
contributed to increased costs,

 Spirit had delayed implementation of some measures
designed to reduce costs for the Boeing 787 project, and

 cost-reduction efforts for the three projects had not met
projections.

Appellants’ App’x, vol. I at 81-82. The chief executive officer added that

 he had underestimated the “organizational learning”
necessary for Spirit to meet initial projections of the
projects’ learning curves,

 Spirit could not meet cost projections for some of the
projects, and

 Spirit had incurred extra costs because of production
delays for required component parts on the Boeing 787
project.

Id. at 81-83.

32
 The plaintiffs argue that these statements show that Spirit recklessly

ignored production delays and cost overruns. This argument is not

supported by what the chief executive officer said. He acknowledged that

Spirit had mistakenly projected Spirit’s ability to improve efficiency and

that Spirit ultimately learned that it could not meet projections. But the

chief executive officer did not suggest that Spirit executives had

knowingly or recklessly misevaluated earlier data. His statements simply

show that Spirit ultimately learned that it could not meet the company’s

forecasts.

The plaintiffs allege that

 a disconnect existed between the chief executive officer’s
statements on August 7, 2012, and Spirit’s forward-loss
announcement on October 25, 2012, and

 this disconnect showed an intent to deceive investors.

On August 7, 2012, the chief executive officer stated that Spirit was

meeting its cost estimates for the Boeing 787 project and would continue to

do so. Id. at 73-74. Over two months later, Spirit announced a forward loss

on the Boeing 787 project, and the chief executive officer acknowledged

that (1) Spirit could no longer meet its cost estimates and (2) Spirit had

recently fallen behind on production for the wing components on the

Boeing 787 project. Id. at 80-82.

The plaintiffs argue that the October acknowledgments prove that the

August prediction had been designed to mislead investors. We disagree:

33
The statements were made over two months apart, and the complaint does

not allege that the chief executive officer was aware in August 2012 that

Spirit was not meeting its cost estimates. See La. Sch. Emps.’ Ret. Sys. v.

Ernst & Young, LLP, 622 F.3d 471, 484-85 (6th Cir. 2010) (holding that

statements made after the end of the class period, recognizing that “there

was a problem,” did not contribute to an inference of scienter because the

statements did not provide a sufficient basis to assume that the defendant

had known that events would turn out badly simply because they eventually

did).

In our view, the chief executive officer’s statements suggest an

honest mistake in predicting Spirit’s future production and costs, not an

inference of scienter.

C. Spirit’s Disclosures of Risks

Throughout the class period, Spirit warned investors about risks from

the three projects:

November 2011

 Spirit’s 10-Q for the quarter ending September 29, 2011,
stated that the three projects posed a significant risk of
forward-loss charges based on cost pressures throughout
2011. Spirit explained that the next twelve to eighteen
months would be critical, with a significant risk of
forward-loss charges.

February 2012

 Spirit’s 10-K for the fiscal year ending December 31,
2011, acknowledged a significant risk of forward-loss

34
 charges, which depended on Spirit’s market forecast,
ability to perform, achievement of forecasted cost
reductions, and ability to successfully resolve claims.

 Spirit’s chief executive officer reported that the
“production side” of one Gulfstream project was
“disturbed” and “over the cost forecast.”

May 2012

 Spirit’s 10-Q for the quarter ending on March 29, 2012,
stated that the three projects posed a risk of forward-loss
charges based on existing cost pressures. Spirit explained
that the next year would again be critical, with a
significant risk that Spirit would need to recognize
forward-losses.

August 2012

 Spirit’s 10-Q for the quarter ending on June 28, 2012,
stated that the three projects “continue[d] to pose a risk
of additional charges [or] forward-loss.”

 Spirit’s chief executive officer stated that the Gulfstream
projects were “risky.”

The plaintiffs argue that these warnings suggest a culpable mental state

because the four executives must have known that the risks had already

materialized: “the more a defendant speaks about a topic, the likelier it is

that [the defendant] knows about the topic.” Appellants’ Opening Br. at 65.

We disagree.

Ordinarily, a defendant’s warnings weaken an inference of scienter.

Ezra Charitable Tr. v. Tyco Int’l, Ltd., 466 F.3d 1, 8 (1st Cir. 2006). The

plaintiffs argue the opposite, relying solely on Reese v. Malone, 747 F.3d

557 (9th Cir. 2014). In Reese, a group of shareholders sued BP for

35
securities fraud after one of BP’s pipelines leaked 200,000 gallons of oil

onto the Alaskan tundra. Id. at 563. The plaintiffs alleged that BP had

made false and misleading statements about company practices in an

annual report post-dating the spill. Id. The Ninth Circuit Court of Appeals

held that the plaintiffs’ allegations of scienter were sufficient, in part

because the attention given to the spill in the annual report underscored the

importance of the oil spill to BP management. Id. at 579-80. But the court

did not suggest that the mere existence of warnings established knowledge

by BP management that the statements were untrue. Instead, the court

inferred that the company knew that the statements were untrue because (1)

BP was not in compliance when publishing the false report and (2) the spill

had been prominently discussed in the report. Id.

Throughout the class period, Spirit was working on multiple projects

and warned of the risks that many of them posed. For example, during the

class period, Spirit warned about a significant risk of additional forward-

loss charges on the Sikorsky CH-53K helicopter project and a possibility

of significant cost growth and technical problems for the Airbus A350

XWB project. These warnings would not have suggested that the Sikorsky

or Airbus projects were particularly important to Spirit executives or that

Spirit executives knew that the risks on these programs were certain to

result in a forward loss. Instead, the warnings simply reflected an

awareness of risks that led Spirit to discuss the risks in its public filings.

36
The same is true of the filings expressing potential risks for the Gulfstream

and Boeing projects involved here.

D. Alleged Accounting Violations

The plaintiffs argue that Spirit violated generally accepted

accounting principles and internal accounting policies by delaying

announcement of the forward loss. We disagree, for this argument is

simply another variation of “fraud by hindsight.”

Even if we assume that Spirit had violated established accounting

principles or internal policies, these violations would not have been

enough to state a valid cause of action. City of Philadelphia v. Fleming

Cos., 264 F.3d 1245, 1261 (10th Cir. 2001). “Only where such allegations

are coupled with evidence that the violations or irregularities were the

result of the defendant’s fraudulent intent to mislead investors may they be

sufficient to state a claim.” Id.

No such evidence exists here, and the plaintiffs do not identify

particularized facts showing that the Spirit executives had known, before

Spirit publicly announced the forward loss, that the three projects would

fall behind forecasts on cost or production.

The defendants’ purported accounting violations are based on “fraud

by hindsight”; and even if we assume the existence of accounting

violations, the plaintiffs have not alleged facts indicating the executives’

knowledge, fraudulent intent, or recklessness.

37
 E. The Magnitude of the Forward Loss

In October 2012, Spirit announced a forward loss of $434.6 million

on the three projects. 15 The plaintiffs argue that because the forward loss

was so large, the executives must have known long before October 2012

that Spirit would incur a loss. But this argument relies on hindsight review

based on the size of Spirit’s eventual loss and does not include

particularized allegations that the four executives knew before October

2012 that Spirit would lose money on the three projects.

The loss of $434.6 million was undoubtedly significant. And the

three projects were presumably large enough to capture the attention of the

four Spirit executives. No one suggests otherwise. For scienter, however,

the question is whether these executives (1) had known that their public

disclosures were too encouraging or (2) had recklessly failed to heed red

flags from potentially problematic reports. The size of the loss does not

suggest that the four executives knew or recklessly disregarded the risks

that Spirit was eventually going to lose money on the three projects.

* * *

To create a cogent, compelling inference of scienter, the plaintiffs

point to a motive to lie, corroborating witnesses’ accounts, the defendants’

15
Spirit announced a total forward loss of $590 million. But that figure
included expected losses on other Spirit projects not involved in this
appeal.

38
involvement in Spirit’s “core operations,” a duty to disclose, the adoption

of a recovery plan, statements by the chief executive officer, disclosures of

risks, accounting violations, and the size of the eventual forward loss. But

even when these allegations are considered together, they do not create a

cogent, compelling inference of scienter.

As a result, we affirm the dismissal.

39
15-3142, Anderson v. Spirit Aerosystems Holdings, Inc.

LUCERO, J. concurring in part and dissenting in part.

The majority analyzes whether defendants recklessly made false statements

regarding Spirit’s projected ability to meet cost targets. However, plaintiffs’ argument

does not rest solely on future-looking statements. Rather, they contend that the

defendants made false statements about then-present facts. In my view, plaintiffs have

adequately alleged scienter and materiality as to statements made by Jeffrey Turner and

Philip Anderson regarding the existing performance of Spirit’s 787 program.

Accordingly, I concur in part and respectfully dissent in part.

To plead a claim for violation of the Securities Exchange Act of 1934 § 10(b),

plaintiffs must allege five elements, of which the parties focus only on the first and third:

(1) the defendant made an untrue or misleading statement of material fact,
or failed to state a material fact necessary to make statements not
misleading; (2) the statement complained of was made in connection with
the purchase or sale of securities; (3) the defendant acted with scienter, that
is, with intent to defraud or recklessness; (4) the plaintiff relied on the
misleading statements; and (5) the plaintiff suffered damages as a result of
his reliance.

In re Zagg, Inc. Sec. Litig., 797 F.3d 1194, 1200 (10th Cir. 2015) (quotation and

emphasis omitted). To apply these factors, I think it helpful to first determine which

statements plaintiffs have adequately alleged were false before analyzing whether the

defendants acted with scienter as to those statements.

To demonstrate that the defendant made an untrue or misleading statement of

material fact, a plaintiff must allege specific facts that contradict the defendant’s

statements. See Adams v. Kinder-Morgan, Inc., 340 F.3d 1083, 1097 (10th Cir. 2003).
Moreover, the statement must be shown to be false when it was made. See Grossman v.

Novell, Inc., 120 F.3d 1112, 1124 (10th Cir. 1997). Plaintiffs may not rely on a

subsequent event triggering a drop in stock price “to say that the later, sobering

revelations make the earlier, cheerier statement a falsehood.” Id. (quotation omitted).

Relatedly, forward-looking statements coupled with meaningful cautionary statements

are not actionable because a reasonable investor simply cannot suppose that the future is

settled or is not subject to multiple possible outcomes. Id. at 1120.

The matter before us concerns two distinct categories of statements—those

projecting future performance, and those reflecting past performance. Plaintiffs argue, in

essence, that the defendants stated both “we will be on budget” and “we are on budget.”

These two statements differ markedly for purposes of a securities fraud claim. Yet the

majority opinion focuses its scienter analysis exclusively on the former. For example, the

majority agrees with defendants that their public statements reflected “an honest belief

that Spirit’s recovery plan would reduce costs and accelerate production.” (Majority Op.

30.) The majority thus attributes the executives’ statements to “benign optimism,” (id. at

8), and “mistaken[] project[ions],” (id. at 33), about future performance. Therefore, the

majority concludes the fact that the company “ultimately learned that it could not meet

the company’s forecasts” did not demonstrate that the optimistic statements regarding

those forecasts were recklessly false at the time they were made. (Id.)

I agree in large measure. To the extent the plaintiffs argue that the company knew

or should have known it would be unable to meet future cost forecasts, these forward

looking statements—although later proven overly optimistic—are not actionable because

2

they reflected opinion rather than fact, and were not demonstrably false. See In re Level

3 Commc’ns, Inc. Sec. Litig., 667 F.3d 1331, 1340 (10th Cir. 2012). I also agree with the

majority that plaintiffs have not stated a claim as to defendants Alexander Kummant and

Terry George. Further, I concur in the majority’s dismissal of the claims based on

defendants’ statements regarding two of the Spirit programs at issue: the Gulfstream

G280 and G650.

But I must part ways with the majority with respect to the portion of plaintiffs’

claim based on false statements made by Turner and Anderson regarding the then-current

performance of Spirit’s 787 project. Plaintiffs have alleged specific statements by these

two individuals indicating that the 787 program was on budget, and alleged particular

facts showing they knew such claims to be false at the time they were made. These

contentions do not rely on any prediction as to future costs. Rather, they show that

executives inaccurately depicted the project’s performance in meeting cost forecasts up to

the time the statements were made. I would hold that these statements are actionable.

As the complaint explains, Spirit adopted a contract accounting method with

respect to the 787 program. It reported a profit rate for the program based on actual

historical costs plus future estimated costs. Because the company predicted it would

benefit from a “learning curve” as the project progressed, the average cost per unit was

expected to decrease as the total number of units produced increased. Thus, a downward-

sloping “cost curve” was used to describe the average cost per unit over the course of the

program.

3

 According to confidential witness number ten (“CW10”), project leaders prepared

Estimate at Completion (“EAC”) reports each quarter. The EAC reports compared

procurement costs actually incurred against forecast procurement costs. In other words,

these reports showed whether the project’s external expenses were on the cost curve and

thus meeting expectations to that point or above the cost curve and thus over budget.

CW10 was responsible for the EAC reports for every product delivered from Spirit’s

Tulsa facility, including the 787. He described that the EACs he prepared for the 787

program during 2011 and 2012 showed cost overruns relative to forecasts because “costs

were much higher than expected.” CW10 also stated that the EAC reports were

distributed to Anderson and Turner.1 At the pleading stage, CW10’s statements are

sufficient to demonstrate that: (1) Spirit reviewed actual versus forecast costs on a

quarter-by-quarter basis; (2) the 787 program was not meeting quarterly forecasts; and (3)

Turner and Anderson received the quarterly reports indicating the 787 program was not

tracking the forecast cost curve.

Despite receiving this information, Turner and Anderson repeatedly informed

investors that 787 program costs were declining as planned. On a November 3, 2011

conference call, Turner stated that Spirit was “tracking per plan to identify and implement

cost improvements” on the 787 project. On the same call, Anderson stated that “the

1
The majority suggests that CW10 lacked knowledge of the details of the final
reports delivered to Turner and Anderson, in part because the EACs went through
“numerous layers of revision” before landing on Turner’s and Anderson’s desks.
(Majority Op. 15.) But if objections to the EACs’ contents arose during review, CW10’s
team was called upon to provide evidence to support the reported costs. Thus, CW10
was aware of changes requested at higher levels, including Wichita management, the
final layer before Turner and Anderson received the reports.  
4

curves” for the project were “on plan.” In March 2012, Anderson stated at an investor

conference that the program was “very much on plan and where we expected to be.”

After releasing the company’s first quarter 2012 results, Turner again told investors that

the company “continue[s] to track per plan to identify and implement cost improvements”

on the 787 project, and Anderson stated that the project was “on plan as of the end of the

first quarter here in 2012.” On August 2, 2012, Turner publicly stated that “we continue

to improve our unit cost performance, as planned.” And on August 7, 2012, Turner

discussed with investors the 787’s cost curve, stating that the company expected to

“continue to track that curve” and the 787 project was “going to keep coming down the

curve.”

Plaintiffs have alleged specific facts demonstrating that these statements were

false at the time they were made. Turner’s final statement, in particular, cannot be

dismissed as mere optimism. He specifically identified the 787 cost curve and stated that

company expected to “continue” to track it. Thus, he assured investors that Spirit had

been and was presently on the curve. Spirit’s internal reports indicated that the 787

program was not in fact on the planned cost curve.2 And as revealed in subsequent

2
The majority concludes that the complaint lacks sufficient detail about the EACs’
contents and CW10’s knowledge of, and the final reports’ descriptions of, total costs.
(Majority Op. 19.) As described infra, because Turner and Anderson stated that the 787
project was proceeding in line with the projected cost curve, the question before us is
whether a reasonable person would deem the inference of scienter as to actual cost
overruns “at least as compelling as any opposing inference.” Tellabs, Inc. v. Makor
Issues & Rights, Ltd., 551 U.S. 308, 324 (2007). To conclude that the final reports
delivered to Turner and Anderson did not show overruns in total costs requires an
inference that the internal costs were under budget by an amount equal to or greater than
the overruns in procurement costs, and that in the third quarter of 2012 internal costs
5

Securities and Exchange Commission filings, Spirit implemented a cost recovery plan in

late July 2012 to attempt to bring the 787 program back in line with forecasts. That the

company had just implemented a program to attempt to regain the curve renders the

statement that it was going to “continue to track that curve” demonstrably false.

Having established falsity, the plaintiffs must demonstrate materiality. A

statement is material “if a reasonable investor would consider it important in determining

whether to buy or sell stock.” Level 3, 667 F.3d at 1339 (quotation omitted). We

distinguish between statements that are “material and those that are mere puffing not

capable of objective verification.” Id. (quotation and ellipses omitted). Defendants do

not contest that statements as to a project’s progress along cost projections would have

been considered important by traders. However, the district court determined that none

of the statements alleged in the complaint are capable of objective verification. I

disagree.

Through its EAC process, Spirit internally measured whether the projects were

meeting quarter-by-quarter cost forecasts. Whether the projects were “on track” or “on

plan” was objectively verifiable each quarter. And Spirit’s argument that executives’

statements did not communicate anything about timing, costs, or other objective metrics

is unconvincing. Unlike the “broad claims . . . regarding integration efforts and the

customer experience” identified in Level 3 as immaterial, 667 F.3d at 1340, Turner and

spiked causing projected forward losses. That inference would not be compelling. Far
more compelling is the proposition that the final reports indicated overruns in both
internal and procurement costs. Thus, the EACs sufficiently compel the inference that
Turner and Anderson knew actual costs exceeded forecast costs on the 787 project.
6

Anderson specifically identified the 787’s cost curve and unit costs as being presently in

line with projections. And analysts understood the statements to mean that the company

was operating with costs “at or below projected levels.” Read in context, this inference is

even more compelling. In August 2012 Turner stated both that the 787 program would

“continue to track that curve,” and that the Gulfstream G280 and G650 projects were

“very close to meeting the curves that we placed but are not quite meeting them yet.”

These statements are not vague assurances about probable performance, they are

objectively verifiable claims about a very specific internal measurement. Accord id.

(statements that a project was “ahead of plan” and “under budget” had a “basis in

objective and verifiable fact”).

Finally, the plaintiffs must show that “the defendant acted with scienter, that is,

with intent to defraud or recklessness.” In re Zagg, 797 F.3d at 1200 (quotation and

emphasis omitted). To plead scienter, plaintiffs must allege particularized facts that give

rise to a strong inference that defendants acted intentionally or recklessly to mislead

investors. 15 U.S.C. § 78u-4(b)(2); Kinder-Morgan, 340 F.3d at 1105. Recklessness is

“conduct that is an extreme departure from the standards of ordinary care, and which

presents a danger of misleading buyers or sellers that is either known to the defendant or

is so obvious that the actor must have been aware of it.” City of Philadelphia v. Fleming

Cos., 264 F.3d 1245, 1260 (10th Cir. 2001) (quotations omitted). “[D]ivergence between

internal reports and external statements on the same subject and disregard of the most

current factual information before making statements can be factors supporting scienter.”

Level 3, 667 F.3d at 1345 (quotations omitted). And plaintiffs must show that “a

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reasonable person would deem the inference of scienter cogent and at least as compelling

as any opposing inference.” Tellabs, 551 U.S. at 324 (2007). But the inference that the

defendant acted with scienter does not need to be irrefutable. Level 3, 667 F.3d at 1343.

CW10 stated that the quarterly cost reports for each project—which incorporated

the EACs during 2011 and 2012 showing cost overruns for the 787 program—were

distributed to Turner and Anderson. Thus, taking the facts in the complaint as true, these

defendants received quarterly reports demonstrating that the 787 project was not meeting

the forecast cost curve. They nevertheless repeatedly informed investors that the project

was proceeding along the cost curve as planned. Even assuming Turner and Anderson

failed to read those reports and did not have actual knowledge of the cost overruns, it

would be an extreme departure from the standards of ordinary care to leave project

reports unopened while simultaneously assuring investors that the projects were on plan.

The far more likely inference is that Turner and Anderson did review the reports before

making the relevant statements. In that case, they intentionally lied to investors about the

status of the 787 project.

This inference is further bolstered by the fact that the 787 program was important

to Spirit’s overall bottom line. See Reese v. Malone, 747 F.3d 557, 575 (9th Cir. 2014)

(alleged false statements concerning core operations contribute to an inference of

scienter). Although Spirit maintains that the core of its business was its manufacturing

operations for existing Boeing models, the company acknowledged in February of 2012

that a “significant” portion of future revenues would be derived from new development

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programs, “most notably the [Boeing] 787.” That project was expected to provide twenty

percent of total revenue by 2014.

Although not dispositive, several other factors contribute to the inference of

scienter as well. We have previously explained that the “magnitude of the alleged

falsity” strengthens the inference of scienter. Kinder-Morgan, 340 F.3d at 1106. Spirit’s

cost overruns on the 787 project resulted in forward-losses of $184 million,

approximately one quarter of reported earnings across 2010-2011. Although the “desire

to protect one’s own position” is not alone a sufficient basis to infer scienter, it was

certainly present here. See Pirraglia v. Novell, Inc., 339 F.3d 1182, 1191 (10th Cir.

2003). By misleading investors about the status of the 787 project, Anderson and Turner

sought to obtain additional time to correct their failures on that project. Individuals

frequently attempt to “conceal[] bad news in the hope that it will be overtaken by good

news . . . like embezzling in the hope that winning at the track will enable the embezzled

funds to be replaced before they are discovered to be missing.” Makor Issues & Rights,

Ltd. v. Tellabs Inc., 513 F.3d 702, 710 (7th Cir. 2008).

Considering “all the allegations holistically,” Tellabs, 551 U.S. at 326, I conclude

the plaintiffs have demonstrated falsity, materiality, and scienter as to statements made by

Turner and Anderson regarding the progress of the 787 project. The parties do not argue

the remaining prongs of the § 10(b) test, and the district court did not consider them.

Thus, I would reverse in part the district court’s dismissal for failure to state a claim, and

remand for further proceedings.

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