Howard v. Arconic Inc.
| Decision Date | 23 June 2021 |
| Docket Number | 2:17-cv-1057 |
| Parties | MARTIN HOWARD, Plaintiff, v. ARCONIC INC., ET AL., Defendants. |
| Court | U.S. District Court — Western District of Pennsylvania |
This Court previously granted Defendants' motion to dismiss Plaintiffs' First Amended Complaint and dismissed the First Amended Complaint in its entirety and without prejudice with leave to amend. (ECF Nos. 106, 107.) Plaintiffs seized the opportunity to amend and filed a Second Amended Complaint, which Defendants have again moved to dismiss in its entirety.
Because the Court concludes that the Second Amended Complaint cures some, but not all, of the "three related and fundamental flaws" that were fatal to the First Amended Complaint (see ECF No. 106, at 10), the Court will deny in part, and grant in part, Defendants' pending Motion to Dismiss at ECF No. 111. In sum, the claims against Mr. Kleinfeld at Counts III and IV and the claims against the Individual Defendants and Arconic at Count II will be dismissed with prejudice. The claims against Arconic at Count III and against all Defendants at Count I survive Defendants' motion to dismiss, but only to the extent described below.
The Court previously discussed the events prompting the filing of this lawsuit, as alleged in the First Amended Complaint ("FAC") at ECF No. 61. (See ECF No. 106, at 2-8.) The Court need not repeat this factual history, most of which is re-pleaded in the Second Amended Complaint ("SAC") at ECF No. 108, and which is, at this point, familiar to all parties and to the Court.1
But here is a brief recap: Arconic, Inc. is a global company engaged in "the engineering and manufacturing of aluminum and other lightweight metals." (SAC ¶ 18.) Arconic manufactured and sold an aluminum composite product called Reynobond PE, which is applied as an exterior wall cladding. (Id. ¶ 2.) In 2017, a fire broke out at the Grenfell Tower in London, England, leading to the death of 71 people and injuries to more than 70 others. (Id. ¶ 5.) The Grenfell Tower's exterior cladding system included Reynobond PE, and it was reported that the Reynobond PE contributed to the fire's rapid spread. (Id. ¶¶ 5-8.) Plaintiffs filed a federal securities class action against Defendants, alleging claims under the Securities Exchange Act of 1934 and the Securities Act of 1933. (Id. ¶¶ 3-4.) Besides Arconic, Defendants include Klaus Kleinfeld, the Company's former Chief Executive Officer and Chairman of its Board of Directors; current and former officers and directors of Arconic who signed the Registration for the Preferred Offering (those individuals, together with Kleinfeld, the "Individual Defendants"); and investment banking firms that acted as underwriters for the Preferred Offering (together, the "Underwriter Defendants"). (Id. ¶¶ 19-25.)
In April 2018, Plaintiffs filed the FAC. (ECF No. 61.) Defendants moved to dismiss the FAC. (ECF No. 71.) After full briefing and oral argument, this Court issued an 82-page Opinion, dismissing the FAC without prejudice and giving Plaintiffs the chance to file another amended Complaint to the extent that doing so would not be futile. (ECF Nos. 106, 107.) Plaintiffs filed the SAC, and Defendants again moved to dismiss. (ECF Nos. 108, 111.) The matter is now fully briefed, including supplemental briefing on relevant legal developments in the Third Circuit. (ECF Nos. 112, 115, 118, 126, 128, 129.)
This Court dismissed Plaintiffs' FAC centrally based on "three related and fundamental flaws": (1) that Plaintiffs did not "adequately and plausibly allege[] that Reynobond PE was being or had been sold for inappropriate end uses other than on the Grenfell Tower"; (2) that Plaintiffs failed to "adequately and plausibly allege that Kleinfeld or any other Arconic executive knew that Reynobond PE was allegedly being sold for improper end uses"; and (3) that "as pleaded, the [FAC did] not plausibly show that a failure to inform investors of this single sale to an end user who wound up using the product unsafely provides a basis for a securities law claim." (ECF No. 106, at 8-11.) These factual gaps caused the Court to conclude that the FAC did not sufficiently allege the requisite levels of materiality and scienter sufficient to support the securities law claims that Plaintiffs sought to advance.
In the SAC, Plaintiffs put forth new allegations that cure some but not all of these flaws. The new allegations fall into two main categories: (1) Plaintiffs allege that Arconic regularly sold Reynobond PE for use on high-rise buildings around the world and tracked the specifications for each construction project to which it supplied Reynobond PE panels; and (2) Plaintiffs allege with more specificity that Arconic managers tasked with certifying Reynobond products knew and concealed the fact that Reynobond PE failed to meet safety standards necessary for the cladding to meet government guidelines.
Plaintiffs allege that, on top of the sale of Reynobond PE for use in the Grenfell Tower, Arconic sold Reynobond PE for use in many other high-rise buildings, including: multiple high-rise student housing buildings in Newcastle and Nottingham, England; a high-rise student resident hall in Edinburgh, Scotland; multiple high-rise housing buildings in Camden, England; 14 high-rise blocks around the United Kingdom; Clements Court tower in London, England; CastlemainTower in London, England; Horatia House in Portsmouth, England; the 32-story Marriott Waterfront Hotel in Baltimore, Maryland; a 24-meter building that houses the office of the Chancellor of the California State University System in Long Beach, California; a 26-meter terminal at the Dallas/Fort Worth International Airport; a 20-meter clinic of the University of Texas Southwestern Medical Center; the 52-meter Cleveland Browns stadium; River East Center's hotel and condominium building; and the Gordon B. Isnor Manor in Halifax, Canada. (Id. ¶¶ 49, 51-57, 60, 63, 69, 73-78.) Plaintiffs allege that approximately 230 high-rises in the U.K. are clad with Reynobond PE. (Id. ¶ 170.) Plaintiffs also allege that these sales were occurring as early as 2006. (Id. ¶ 56.)
According to a confidential witness, certain members of Arconic's management knew that Arconic had a practice of systematically selling Reynobond PE for use in high-rise buildings. (Id. ¶ 158.) Plaintiffs also allege that Mr. Claude Schmidt, the general manager of the French facility where the Reynobond PE products were manufactured for use in the U.K. and parts of Europe, knew from sales and production reports and an internal tracking database that the Reynobond PE panels were regularly being sold for use in high-rise projects. (Id. ¶¶ 160-65.)
The SAC also pleads in more detail facts that Plaintiffs say show that Arconic concealed downgraded safety reports about the Reynobond PE product. Here is what the SAC alleges in those regards.
Plaintiffs cite an expert report prepared in connection with the Grenfell Tower investigation in the U.K. that revealed Reynobond PE received downgraded safety ratings. (Id. ¶ 120.) The expert report allegedly shows that Arconic hid the downgraded ratings from the contractor and architects of the Grenfell Tower refurbishment, and from the British Board of Agrément ("BBA"),the entity that certifies buildings under the U.K. building regulations. (Id. ¶¶ 120-31.) In 2008, Reynobond PE had been certified as Class 0 under the U.K. building regulations, which meant that the product had the highest rating for preventing the spread of flames and heat. (Id. ¶¶ 116-18, 120-21.) But, from October 2011 through 2015, the Scientific and Technical Centre for Building ("CSTB"), which uses the Euroclass standard to classify building products based on their level of combustibility and their fire resistances, had rated Reynobond PE as Euroclass E on its scale of A1 to F, with A1 being the highest fire rating and F being the lowest. (Id. ¶¶ 111, 120.) The Euroclass E ratings made the Reynobond PE product ineligible for a Class 0 rating, yet Plaintiffs say that Arconic knowingly continued to claim that Reynobond PE had a Class 0 rating and continued to rely on a factually incorrect safety certification. (Id. ¶¶ 115-16, 118-21, 131.)
According to a confidential witness, two members of what Plaintiffs contend were among Arconic's top management knew about these Reynobond PE fire test results. (Id. ¶ 154.) Mr. Claude Wehrle, Arconic's Technical Manager at the French facility, was responsible for the certification of Arconic's Reynobond PE products. (Id. ¶ 133.) Plaintiffs allege that although Mr. Wehrle's direct employer was an Arconic subsidiary, he nonetheless was the designated Arconic representative involved in corresponding with the CSTB and was also responsible for communicating with the BBA about the certification of Arconic's Reynobond PE products. (Id. ¶¶ 133-34.) Under his direction, the Technology Department of the French facility submitted and received results of the fire tests and coordinated the submission of Reynobond PE panels for testing. (Id. ¶¶ 154-55.) In addition, when a Reynobond PE panel received poor test results, the Department reported the results to Mr. Schmidt. (Id. ¶ 154.)
Plaintiffs allege that Arconic concealed from the BBA the test results performed by the CSTB. (Id. ¶ 134.) Despite Arconic's contractual obligation to inform BBA that it had received aEuroclass E rating, the BBA never received that information. (Id. ¶¶ 117-18, 127.) The BBA continued to maintain its 2008 rating certification of Reynobond PE, which showed that the PE products were rated Class 0 and Euroclass B. (Id. ¶ 134.) Arconic also allegedly misrepresented on its website that Reynobond PE had a Class 0 rating. (Id. ¶ 135.) According to the SAC, the Arconic website stated...
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