Heck v. Orion Grp. Holdings, Inc.

• Decision Date: 19 June 2020
• Docket Number: Civil Action No. H-19-1337
• Citation: 468 F.Supp.3d 828
• Parties: John HECK, Individually and On Behalf if All Others Similarly Situated, Lead Plaintiff, v. ORION GROUP HOLDINGS, INC., Mark R. Stauffer, Christopher J. DeAlmeida, and Robert L. Tabb, Defendants.
• Court: U.S. District Court — Southern District of Texas

468 F.Supp.3d 828

John HECK, Individually and On Behalf if All Others Similarly Situated, Lead Plaintiff,

v.ORION GROUP HOLDINGS, INC., Mark R. Stauffer, Christopher J. DeAlmeida, and Robert L. Tabb, Defendants.

Civil Action No. H-19-1337

United States District Court, S.D. Texas, Houston Division.

Signed June 19, 2020

Ex Kano Shirden Sams, II, Lesley F Portnoy, Lionel Z. Glancy, Robert V. Prongay, Glancy Prongay & Murray LLP, Los Angeles, CA, Joe Kendall, Kendall Law Group, PLLC, Dallas, TX, Alexander Negus Breckinridge, V, Jones Walker LLP, New Orleans, LA, for Lead Plaintiff.

James Madison Ardoin, III, Jimmy Ardoin & Associates, PLLC, Lara Denise Pringle, Jones Walker LLP, Houston, TX, Thomas Eamon Slattery, Robert B. Bieck, Jr., Jones Walker LLP, New Orleans, LA, for Defendants.

MEMORANDUM OPINION AND ORDER

SIM LAKE, SENIOR UNITED STATES DISTRICT JUDGE

This action is brought against Orion Group Holdings, Inc. ("Orion"), Orion's Chief Executive Officer ("CEO"), Mark R. Stauffer ("Stauffer"), Orion's former Chief Financial Officer ("CFO"), Christopher J. DeAlmeida ("DeAlmeida"), and Orion's current CFO, Robert L. Tabb ("Tabb"), for alleged violations of §§ 10(b) and 20(a) of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. §§ 78j(b) and 78t(a), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5, during a proposed class period beginning on March 13, 2018, and ending on March 26, 2019.¹ Pending before the court are Defendants' Motion to Dismiss Amended Complaint or in the Alternative, Motion for More Definite Statement ("Defendant's Motion to Dismiss") (Docket Entry No. 24), and Plaintiffs' Opposition to Defendants' Motion to Dismiss Amended Complaint or in the Alternative Motion for More Definite Statement ("Plaintiffs' Opposition" and "Plaintiff's Request to Amend") (Docket Entry No. 26), in which plaintiff argues that "the Court should deny Defendants' Motion. Alternatively, if the Court grants any portion of the Motion, Plaintiff respectfully requests leave to amend."² Also before the court are Defendants' Reply to Plaintiff's Opposition to Their Motion to Dismiss ("Defendants' Reply") (Docket Entry No. 31), and Plaintiff's Sur-Reply in Response to Defendants' Reply in Support of Defendants' Motion to Dismiss Amended Complaint or in the Alternative, Motion for More Definite Statement ("Plaintiff's Sur-Reply") (Docket Entry No. 32). For the reasons stated below, the Defendants' Motion to Dismiss will be granted, and Plaintiff's Request to Amend will be denied.

I. Procedural History and Alleged Facts

John Heck ("Heck") initiated this action on April 11, 2019, by filing a Class Action Complaint for Violations of the Federal Securities Laws (Docket Entry No. 1) asserting claims for violations of § 10(b) and § 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder. On July 15, 2019, the court signed an Order (Docket Entry No. 15) granting the Motion of John Heck for Appointment as Lead Plaintiff and Approval of Counsel (Docket Entry No. 7). Pursuant to the July 15, 2019, Order Heck was appointed Lead Plaintiff, Glancy Prongay & Murray LLP was appointed as Lead Counsel for the class, and Kendall Law Group, PLLC was appointed as Liaison Counsel for the class. On November 4, 2019, Lead Plaintiff filed the ACAC (Docket Entry No. 23).

The ACAC alleges that Orion is a speciality construction company with two segments, marine and concrete, operating in the United States, Canada, and the Caribbean Basin, that Orion's "marine segment services include marine transportation facility construction, marine pipeline construction, and dredging of waterways, channels, and ports,"³ and that "[the Company's concrete segment provides turnkey concrete construction services across the light commercial, structural, and other associated business areas."⁴ The ACAC alleges that Orion is "incorporated under the laws of Delaware with its principal executive offices located in Houston, Texas, [and that its] common stock trades on the New York Stock Exchange (‘NYSE’)."⁵ The ACAC alleges that Stauffer served as Orion's CEO "at all relevant times,"⁶ DeAlmeida served as Orion's CFO from February 2014 until his resignation on November 2, 2018,⁷ and that Tabb "is the CFO of the Company, having previously served as interim CFO since November 2, 2018."⁸ The ACAC alleges that

[d]efendants Stauffer, DeAlmeida, and Tabb, (collectively the "Individual Defendants"), because of their positions with the Company, possessed the power and authority to control the contents of the Company's reports to the SEC[, i.e., the Securities Exchange Commission], press releases and presentations to securities analysts, money and portfolio managers and institutional investors, i.e., the market. The Individual Defendants were provided with copies of the Company's reports and press releases alleged herein to be misleading prior to, or shortly after, their issuance and had the ability and opportunity to prevent their issuance or cause them to be corrected. Because of their positions and access to material non-public information available to them, the Individual Defendants knew that the adverse facts specified herein had not been disclosed to, and were being concealed from, the public, and that the positive representations which were being made were then materially false and/or misleading. The Individual Defendants are liable for the false statements pleaded herein.⁹

The ACAC alleges that "[t]he Class Period begins on March 13, 2018. On that day, the Company filed its annual report on Form 10-K for the period ended December 31, 2017 (‘the 2017 10-K’)."¹⁰ The ACAC alleges that the 2017 10-K contained statements about Orion's goodwill, allowance for doubtful accounts, debt service, internal controls over financial reporting ("ICFR"), and certifications signed pursuant to the Sarbanes-Oxley Act of 2002 ("SOX").¹¹ The ACAC alleges that

[t]he above statements identified in ¶¶ 22-27 [of the ACAC] were materially false and/or misleading, and failed to disclose material adverse facts about the Company's business, operations, and prospects. Specifically, contrary to Defendants' representations, among others, that: (1) Orion's goodwill was not impaired; (2) there existed no doubtful accounts that required the recording of an allowance; (3) the Company was in compliance with all financial covenants and expected to meet its future internal liquidity and working capital needs; (4) its estimates on construction projects and reserves on certain customer disputed accounts receivable [ ] were reasonable; and (5) Orion disclosed any material changes to the Company's internal control over financial reporting as well as any fraud, the accounts of former Orion employees – as well as the Company's subsequent admissions – demonstrate the false and misleading nature of Defendants' statements, and that Defendants made such statements with scienter.¹²

The ACAC alleges that two confidential witnesses, both former employees who left Orion in March 2018, have provided information supporting the allegations of falsity regarding Orion's 2017 10-K.¹³ Based on information provided by the confidential witnesses, the ACAC asserts that

[d]efendants failed to disclose to investors: (1) that the Company had overstated goodwill in certain periods; (2) that the Company had overstated accounts receivable in certain periods; (3) that the Company lacked effective internal control over financial reporting, including over goodwill impairment testing and allowance for doubtful accounts; (4) that, as a result, the required adjustments would materially impact the Company's financial results; and (5) that, as a result of the foregoing, Defendants' positive statements about the Company's business, operations, and prospects were materially misleading and/or lacked a reasonable basis.¹⁴

The ACAC alleges that on May 3, 2018, "the Company issued a press release announcing the Company's financial results for the first quarter of 2018,"¹⁵ which quoted Stauffer as stating that

[d]uring the first quarter, we had solid execution with continued strong market drivers... While weather patterns impacted production in our Concrete segment, our Marine segment experienced solid execution. Overall, we remain pleased with the end market drivers across our business, and continue to expect 2018 will see improvements over 2017.¹⁶

The ACAC alleges that in a Research Update dated May 3, 2018, Stonegate Capital Markets ("Stonegate") stated that "Orion reported good results in Q1F18,"¹⁷ and that "[o]n May 4, 2018, the Company filed its quarterly report on Form 10-Q with the SEC for the period ended March 31, 2018,"¹⁸ which in pertinent part stated

[a]t March 31, 2018, goodwill totaled $69.5 million, of which $33.8 million relates to the marine segment and $35.7 million relates to the concrete segment

.... [G]oodwill is reviewed at a reporting unit level for impairment annually as of October 31st or whenever circumstances arise that indicate a possible impairment might exist. Test of impairment requires a two-step process to be performed to analyze whether or not goodwill has been impaired. The first step of this test, used to identify potential impairment, compares the estimated fair value of a reporting unit with its carrying amount. The second step, if necessary, quantifies the impairment. No indicators of goodwill impairment were identified during the three months ended March 31, 2018.¹⁹

The ACAC alleges that

the Company's Form 10-Q filed with the SEC on May 4, 2018[,] also contained signed certifications pursuant to the SOX by the Individual Defendants stating that the financial information contained in the Form 10-Q was accurate and disclosed any material changes to the Company's internal control over financial reporting as well as "[a]ny fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting."²⁰

The ACAC...