N. Port Firefighters' Pension-Local Option Plan v. Fushi Copperweld, Inc.
| Decision Date | 07 March 2013 |
| Docket Number | Case No. 3:11–cv–00595. |
| Citation | 929 F.Supp.2d 740 |
| Parties | NORTH PORT FIREFIGHTERS' PENSION–LOCAL OPTION PLAN, Individually and on Behalf of All Others Similarly situated, Plaintiff, Lakeland Employees Pension Plan, Individually and on Behalf of All Others Similarly Situated, Lead Plaintiff, v. FUSHI COPPERWELD, INC., et al., Defendants. |
| Court | U.S. District Court — Middle District of Tennessee |
OPINION TEXT STARTS HERE
Danielle S. Myers, Darren J. Robbins, Robert R. Henssler, Jr., Robbins Geller Rudman & Dowd LLP, David C. Walton, San Diego, CA, David W. Garrison, Douglas S. Johnston, Jr., George Edward Barrett, Timothy L. Miles, Barrett Johnston, LLC, Nashville, TN, David A. Rosenfeld, Samuel H. Rudman, Melville, NY, Dennis J. Herman, San Francisco, CA, Pedro A. Herrera, Robert Sugarman, Sugarman & Susskind, Coral Gables, FL, for Plaintiff.
John M. Scannapieco, Baker, Donelson, Bearman, Caldwell & Berkowitz, PC, Nashville, TN, Eugene R. Licker, Jonathan N. Strauss, New York, NY, for Defendants.
Plaintiffs, North Port Firefighters' Pension–Local Option Plan (“North Port”) and City of Lakeland Employees Pension Plan, filed this action under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (“1934 Act”), 15 U.S.C. § 78a et seq. (2010), and Rule 10(b) promulgated thereunder, 17 C.F.R. § 240.10b–5 (2010), on behalf of themselves and a class of shareholders against the Defendants, Fushi Copperweld, Inc. (“Fushi”) and the following Fushi corporate officers: Li Fu, Joseph J. Longever, Craig H. Studwell, and Wenbing Christopher Wang. In earlier proceedings, the Court appointed City of Lakeland Employees Pension Plan (“Lakeland Employees”) as the Lead Plaintiff. Lakeland Employees then filed an amended complaint. (Docket Entry No. 57, Amended Complaint). Plaintiffs assert jurisdiction under 15 U.S.C. § 78aa of the 1934 Act.
In sum, Plaintiffs allege that from August 14, 2007 to May 4, 2011, when Plaintiffs purchased or held Fushi stock, the Defendants engaged in a scheme to portray Fushi as more financially successful than its actual financial condition. Defendants allegedly disseminated or approved false statements about Fushi's financial condition and acquisitions. Plaintiffs alternately allege that the Defendants deliberately disregarded false statements about Fushi to investors. Plaintiffs also allege that the Defendants' alleged misrepresentations and failures to disclose material facts rendered the Defendants' earlier statements about Fushi's finances false. Plaintiffs' specific assertions are that the Defendants' fraudulent scheme and course of business included the improper use of derivatives to inflate artificially Fushi's net income. In addition, Plaintiffs allege that the Defendants improperly treated unqualified acquisitions as “bargain purchases” and such improper accounting treatment deceived the investing public about Fushi's business by artificially inflating the price of Fushi's stock. Plaintiffs allege these improper practices violated Generally Accepted Accounting Principles (“GAAP”). Defendants also allegedly failed to disclose that the Defendant Fu had ownership interests in these acquisitions. These statements and omissions caused Plaintiffs to purchase Fushi's securities at inflated prices. Plaintiffs assert that subsequent disclosures about the accounting violations involving Fushi's derivatives and acquisitions led to the collapse of Fushi's stock price, damaging the Plaintiffs. Plaintiffs seek a declaration of this action as a proper class action pursuant to Fed.R.Civ.P. 23, class damages, reasonable costs and attorney's fees, and injunctive or other equitable relief.
Before the Court is the Defendants' motion to dismiss (Docket Entry No. 65), contending, in essence, that Plaintiffs fail to state a claim under Sections 10(b) or 20(a) of the 1934 Act or Rule 10b–5 thereunder. In sum, Defendants' specific contentions are that:
(1) Plaintiffs' 10(b) claims against Defendants do not satisfy the pleading requirements of Fed.R.Civ.P. 8(a)(2) and 9(b) or the Private Securities Litigation Reform Act (“PSLRA”) for failure to allege any material misstatement of fact;
(2) Plaintiffs' factual allegations do not support a strong inference of scienter in Fushi's accounting errors;
(3) Plaintiffs' allegations of reckless disregard are not entitled to a presumption of truth for scienter purposes;
(4) Plaintiffs' allegations of confidential witnesses and insider trading do not support a strong inference of scienter;
(5) Plaintiffs' allegations of motive and opportunity fail to meet the PLSRA's pleading requirements;
(6) Plaintiffs fail to plead facts of loss causation;
(7) Plaintiffs' failure to plead viable Section 10(b) claims requires a dismissal of Plaintiffs' Section 20(a) claims; and
(8) Plaintiffs fail to plead control person liability under Section 20(a) as to any of the individual defendants.
(Docket Entry No. 69, Defendants Memorandum in Support of Motion to Dismiss).
In their response, Plaintiffs assert, in sum: (1) that their complaint adequately pleads that Defendants made false, misleading, and material misstatements and omissions about Fushi's financial condition; (2) that under the applicable law, the totality of circumstances gives rise to a strong inference of scienter; and (3) that Plaintiffs' sufficiently plead loss causation. (Docket Entry No. 76, Plaintiffs' Memorandum in Opposition to Defendants' Motion to Dismiss). The Court set oral argument that was reset upon the parties' request.
Based upon the amended complaint and the parties' submissions and applying the holistic approach, the Court concludes, in sum, that Plaintiffs' amended complaint states plausible securities claims given Plaintiffs' factual allegations of the Defendants' admitted improper use of a SWAP to inflate the value of Fushi stock, the Defendants' admitted improper accounting treatment of bargain acquisitions, the Defendants' failure to disclose the Defendant Fushi's ownership interests in those acquisitions and insiders' false statements about the Defendants' financial practices.
According to Plaintiffs' amended complaint,1 Plaintiffs purchased Fushi shares during the Class Period from August 14, 2007 through May 4, 2011.2 (Docket Entry No. 57, Amended Complaint at ¶ 16). Plaintiffs allege that all persons who purchased or otherwise acquired Fushi securities during the Class Period were injured by the Defendants' false statements about Fushi's financial condition. This purported class excludes Defendants, Fushi's officers and directors, members of the individual Defendants' immediate families and any...
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