Murphy v. Precision Castparts Corp.
| Decision Date | 03 July 2020 |
| Docket Number | Case No. 3:16-cv-00521-SB |
| Parties | KEVIN MURPHY, Individually and On Behalf of All Others Similarly Situated, Plaintiff, v. PRECISION CASTPARTS CORP., MARK DONEGAN, and SHAWN R. HAGEL, Defendants. |
| Court | U.S. District Court — District of Oregon |
KEVIN MURPHY,
Individually and On Behalf of All Others Similarly Situated, Plaintiff,
v.
PRECISION CASTPARTS CORP., MARK DONEGAN,
and SHAWN R. HAGEL, Defendants.
Case No. 3:16-cv-00521-SB
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF OREGON
July 3, 2020
OPINION AND ORDER
[REDACTED VERSION]
BECKERMAN, U.S. Magistrate Judge.
AMF Pensionsförsäkring AB and the Oklahoma Firefighters Pension and Retirement System (hereinafter, "Lead Plaintiffs") filed an Amended Class Action Complaint for Violation of the Federal Securities Laws on behalf of all persons or entities who purchased or otherwise acquired the publicly traded securities of Precision Castparts Corporation ("PCC") between May 9, 2013 and January 15, 2015 (hereinafter, the "Class Period"), seeking remedies under the Securities Exchange Act of 1934 ("Exchange Act"), as amended by the Private Securities Litigation Reform Act of 1995 ("PSLRA"). Lead Plaintiffs allege that PCC, PCC's Chairman and Chief Executive Officer ("CEO") Mark Donegan ("Donegan"), and PCC's Executive Vice
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President and Chief Financial Officer ("CFO") Shawn Hagel ("Hagel") (collectively, "Defendants"), violated Sections 10(b) and 20(a) of the Exchange Act and Securities and Exchange Commission ("SEC") Rule 10b-5 promulgated thereunder.
Lead Plaintiffs and Defendants filed cross motions for summary judgment pursuant to FED. R. CIV. P. 56. The Court has jurisdiction over this matter under 28 U.S.C. § 1331, and all remaining parties have consented to the jurisdiction of a U.S. Magistrate Judge pursuant to 28 U.S.C. § 636. For the reasons discussed below, the Court denies Lead Plaintiffs' motion for partial summary judgment, grants in part and denies in part Defendants' motion for summary judgment, and denies Defendants' motion to exclude the expert testimony of Chad Coffman.
Lead Plaintiffs allege that Defendants made forty-four statements during the Class Period that were materially false and misleading, primarily with respect to PCC's earnings guidance for Fiscal Year 2016 ("FY16"). Lead Plaintiffs' theory of liability is that Defendants always knew that the FY16 earnings guidance was unattainable because their financial projections were based on unrealistic assumptions, and Defendants knew throughout the Class Period that PCC was failing to achieve the organic growth necessary to meet the target in part because PCC's practice of pulling in sales to earlier quarters was unsustainable and a large customer was continuing to destock its inventory. Lead Plaintiffs allege that Defendants nevertheless made statements throughout the Class Period misrepresenting that PCC was achieving anticipated benchmarks en route to its FY16 target, which created an impression of a state of affairs materially different from the one that existed.
In denying Defendants' motion to dismiss earlier in this case, the Court held that the PSLRA's Safe Harbor for forward-looking statements does not protect all of Defendants'
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statements because not all of the statements were forward-looking in their entirety. The Court now concludes that the Safe Harbor protects twenty-two of the forty-four statements, and four additional statements are not actionable because they are vague statements of puffery.
Of the remaining eighteen statements, all are Donegan's unscripted oral statements, which absolves Hagel of liability. However, there are disputed issues of material fact regarding whether Donegan's statements were materially false and misleading, whether he knew his statements were false and misleading, and whether his statements caused economic loss to class members. Those are questions a jury must resolve, and therefore the Court denies the cross motions for summary judgment with respect to those eighteen statements.
I. PCC
PCC is an Oregon corporation headquartered in Portland. (Defs.' Mot. Summ. J. Ex. 4 at 1.) Operating approximately 160 plants, PCC is a leading supplier of metals and parts for the aerospace, energy, military, and general industrial sectors. (Decl. of Mark Donegan ("Donegan Decl.") ¶¶ 27-29, ECF No. 237.)
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II. CHALLENGED STATEMENTS
In January 2013, PCC announced an earnings per share ("EPS") target of $15.50-$16.50 for its 2016 fiscal year (the "Target" or "FY16 Target" or "FY16 Framework"). (Defs.' Ex. 39 at 19.)2
Throughout the Class Period, PCC issued earnings releases at the end of every quarter and hosted a webcast ("Earnings Call"), during which Donegan reviewed PowerPoint slides presenting key metrics and significant quarterly developments and answered questions from analysts. (Defs.' Mot. Summ. J. at 7) (citing Defs.' Exs. 21-29; 39-47.) Donegan's statements during these calls and at investor conferences, along with PCC's press releases during the Class Period, are the subject of this action and described below. See App. 1 to Defs.' Reply ("App. 1") (listing all forty-four statements) (the "Challenged Statements" or "Statements").
| No.3 | Date | Challenged Statements | Forum | Speaker |
| 1. | 5/9/2013 | In our fourth quarter, we started to realize the solid benefits of a long-term plan for continued profitable growth. [. . .] We have focused on and have been diligent in acquiring the right assets over the last few years, and now those acquisitions have started to deliver on the value we anticipated. Our fourth quarter performance is only an initial data point on a long continuum for improved sales and earnings | Press Release | PCC |
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| No.3 | Date | Challenged Statements | Forum | Speaker |
| performance in the future. (App. 1 at 1; First Am. Compl. ("FAC") ¶ 122.) | ||||
| 2. | 5/9/2013 | [W]hat we've tried to do [with our EPS target of $15.50 to $16.50 by fiscal year 2016] is tell you that what we do is we think of the business, we think of that number, we think of the opportunities in pieces. And what I mean by that is if I get a business where growth isn't growing at mid- or mid- to high-single digits, you know what, I should expect to see a better performance out of the operations. (App. 1 at 1; FAC ¶ 125.) | Earnings Call | Donegan |
| 3. (Pls.' No. 1)4 | 5/9/2013 | What I would say is, we tend to be pretty linear-thinking type of people. So I think that you will kind of move around that. But I don't think we're going to set ourselves up to have some giant run towards the end, that's just not our mentality. So what I drive this business to is if the organic growth slows, I better see a lot more operationally. If the organic growth picks up and I get - and these platforms come in, I'm going to drive the living hell out of you to make sure that you're - you may not be getting as much, but you better be getting a subsequent drop- through on the volume drop-through we get. But again, I would say, in total, we tend to be more linear in thinking and I wouldn't - my mentality wouldn't allow me to say I'm going to be marginal, marginal and then, make this huge run towards the end. (App 1. at 1-2; FAC ¶ 125.) | Earnings Call | Donegan |
| 4. | 5/9/2013 | [Robert Spingarn (Credit Suisse analyst):] I'd like to go back to the long- term question [. . .] with your trajectory toward your guidance. I'm going to | Earnings Call | Donegan |
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| No.3 | Date | Challenged Statements | Forum | Speaker |
| throw out a couple of numbers but hopefully, you can help me here. To get from here to there, and I'm taking the midpoint of the guidance you've given, so $16 in fiscal '16. It's about a 3.5% sequential earnings growth rate from here to there by quarter. But it seems to me not so much that it's back-end loaded, but maybe it's a little front-end loaded with the combination of the Timet synergies in the near term, next several quarters, and the 787 doubling in rate. So is it truly linear or is it front-end loaded with back-end conservatism? [Answer:] Well, I think it's a valid question. I think that directionally your math is very appropriate. What I would say, and if I think of our processes - so we tend to look at casting or forging, whatever it is, and you obviously look at any metric or any model and you plot a straight line. You do see ups and downs to that. But directionally, they average, kind of, out at that particular number. [. . .] I do think you see ups and downs. And when you get something like a 787 kicking in or whatever it is, it may move up above that, and when you get a stall into Q2 because of outages and European shutdowns, it may go a little bit below that. (App. 1 at 2-3; FAC ¶ 126.) | ||||
| 5. | 5/9/2013 | [Joe Nadol (JP Morgan analyst):] So Mark, your organic growth, I know there's a lot of moving parts here, particularly the third-party sales of your metal businesses that - because pricing was down this quarter. But the organic growth, overall, was about kind of flattish this quarter and pretty flattish for the year. Just - and I know there's the press issue looking backwards, there's the selling prices of the metal and increased intercompany sales. But | Earnings Call | Donegan |
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| No.3 | Date | Challenged Statements | Forum | Speaker |
| putting all that together and looking forward, when do you think that reaccelerates, at least back into the mid single digits? [Answer:] [. . .] [I]f I look at it, if you kind of say what we said where you got 787 rates coming through, you got the 737 rates coming through, I think you start getting to the back half of this year is when I think you start seeing kind of those type of numbers that you were asking about. (App. 1 at 3; FAC ¶ 127.) | ||||
| 6. | 5/9/2013 | [Joe Nadol (JP Morgan analyst):] When I look at, sort of, the yearon-year or what your [organic] growth rates were a year ago. I mean, you were pretty much up or down 2% every quarter this past year. Prior year was higher than that. So I know you don't want to overpromise, but do you see it picking up a little more near term? [Answer:] [T]here's nothing wrong with your logic. But again, when you start saying - it tends to be when you start saying into the mid, kind of, surrounding the mid, you need to get that 787. But I |
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