In Re Tower Automotive Securities Litigation

535 F. Supp. 2d 445, 2008 U.S. Dist. LEXIS 16056, 2008 WL 591083

• Court: District Court, S.D. New York
• Decided: February 27, 2008
• Docket: 05 Civ.1926(RWS)
• Status: Published

Opinion

Memorandum Opinion & Order

SWEET, District Judge.

Defendants Anthony A. Barone (“Bar-one”), Dugald K. Campbell (“Campbell”), Christopher Hatto (“Hatto”), S.A. Johnson (“Johnson”), Kathleen Ligocki (“Ligocki”), James A. Mallak (“Mallak”), Scott D. Rued (“Rued”), and Ernest T. Thomas (“Thomas”), collectively “Defendants,” have moved pursuant to Fed.R.Civ.P. 9(b) and 12(c) for judgment on the pleadings in this matter. For the reasons discussed below, the motion will be denied.

Background

By an opinion dated April 14, 2007, In re Tower Auto. Sec. Litig., 483 F.Supp.2d 327 (S.D.N.Y.2007) (the “April 14 Opinion”), the Court granted in part and denied in part Defendants’ previous motion to dismiss the Complaint in this action. The April Up Opinion, familiarity with which is assumed, discussed the facts as alleged in the Complaint at length, and they will not be repeated here. Left standing after the April 14- Opinion were three securities fraud claims against Defendants alleging material misstatements with regard to: (1) “cost savings and synergies” in the acquisitions of Tower Automotive, Inc. (“Tower”); (2) the magnitude of Tower’s early pay programs; and (3) that Tower had “secured a solution” to its fiscal woes.

Discussion

The instant motion was spurred by the Supreme Court’s recent decision in Tellabs, Inc. v. Makor Issues & Rights, Ltd., — U.S. -, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007), issued after the April Up Opinion, which addressed the proper standard for alleging scienter, a necessary element of each of the remaining claims.

Defendants argue that the Tellabs standard is stricter than that applied in the April 14 Opinion. Specifically, Tellabs requires that courts take into account plausible non-culpable inferences; to establish scienter, the inference of fraud must be “cogent” and “at least as compelling as an opposing, [non-culpable] inference.... ” Tellabs, 127 S.Ct. at 2510. Instead, Defendants argue, the April Up Opinion merely determined whether the inference of scien-ter was plausible, the same standard rejected in Tellabs. 1

With regard to the issue of “cost savings and synergies,” the April Up Opinion found that

Ligocki’s comments upon becoming CEO [that “the culture of decentralization has prevented Tower from really leveraging economies of scale” and “[i]n-sufficient focus was given to post merger integration”] and after Tower’s bankruptcy filing [that Tower “had been run where each plant acted like its own $100-million to $300-million unit,” and “[a]ll plants should have been integrated earlier as they were bought”] provided some evidence that Tower executives knew or should have known that Tower had not achieved the claimed cost sav ings, despite coming more than two and a half years later.

April H Opinion, at 338.

As found in the April II Opinion, at 338, Plaintiffs adequately alleged that cost savings and synergies had not in fact occurred. The above statements, taken in concert with substantiating allegations by confidential witnesses cited in the April U Opinion, establish an inference of fraudulent intent at least as compelling as any opposing non-fraudulent inference. See Tellabs, 127 S.Ct. at 2510.

On the issue of the magnitude of Tower’s early pay programs, the April U Opinion found that

a confidential witness who was formerly Executive Vice President of Tower (“CW-4”), stated that the factoring arrangements were Tower’s “life blood” and were routinely discussed at Board meetings, which CW-4 attended. (ComplJf 5760). Failure to give such a vital contributor to the company’s liquidity more than a passing mention in its public statements for a period of years certainly gives rise to an inference of “conscious misbehavior or recklessness,” especially where there is no question of defendants’ knowledge.

April 14 Opinion, at 339-40 (quoting Kalnit v. Eichler, 264 F.3d 131, 138-39 (2d Cir.2001)).

The April 14 Opinion went on to conclude that “Plaintiffs allege facts that form a sufficient basis for their contention that Tower’s statements and (especially) omissions were misleading_” Id. at 339.

Tower has argued that it was not under a duty to disclose the existence or magnitude of the early pay programs. However, “undisclosed information is material if there is ‘a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the total mix of information available.’ ” In re Time Warner Sec. Litig., 9 F.3d 259, 267-268 (2d Cir.1993) (quoting TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449, 96 S.Ct. 2126, 48 L.Ed.2d 757 (1976)). Plaintiffs adequately alleged such materiality and the intentional failure to adequately disclose such Information. Accordingly, the fraudulent inference drawn from Tower’s omissions meets the Tellabs standard.

Finally, the Complaint also adequately alleged scienter with regard to the statement that Tower had “secured a solution” to its cash flow. See April H Opinion, at 341-42. Taking the facts alleged in the Complaint as true, Tower was merely in the process of attempting to secure a solution. (See Compl. ¶¶ 149-58). Tower’s current position appears to be that the non-fraudulent inference of inadvertent misstatement in its 8-K filing (or, at a minimum, poor wording) is more compelling than the strong Inference of fraudulent intent found in the April II Opinion. While this argument is “plausible,” it is no more so than the fraudulent inference previously found. April II Opinion, at 341.

For the foregoing reasons, the motion is denied.

It is so ordered.

1 . Defendants have also advanced additional issues previously decided in the April 1.4 Opinion regarding allegations of reliance, materiality and loss causation. Defendants have presented no justification for ignoring Local Civil Rule 6.3’s requirement that a "motion ior reconsideration or reargument of a court order determining a motion shall be served within ten (10) days after the entry of the court’s determination of the original motion.” Accordingly, this opinion shall only address the issue of scienter.