Northern District Of California Dismisses Securities Fraud Action Because Of Lack Of Facts Showing Statements Were Misleading When Made
01/09/2017On December 29, 2016, Judge Haywood S. Gilliam of the United States District Court for the Northern District of California dismissed a putative securities class action against Solazyme, Inc. (“Solazyme”), certain of its officers and directors, and the underwriters of two of its securities offerings. Norfolk Cty. Ret. Sys. v. Solazyme, Inc., et al., No. 15-cv-02938 (N.D. Ca. Dec. 29, 2016). Plaintiffs, investors who allegedly purchased Solazyme securities traceable to public offerings of notes and common stock that were both made on March 27, 2014, claimed that defendants made false statements about Solazyme’s oil production facility in Moema, Brazil (the “Moema Facility”), in violation of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 (“Securities Act”) and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”). The Court granted defendants’ motion to dismiss, in part, because plaintiffs failed to plead with particularity that the challenged statements were false or misleading at the time they were made.
According to plaintiffs, Solazyme, a manufacturer of specialty oil products, planned to expand its operations through the construction of the Moema Facility. Plaintiffs allege that defendants made a series of false and misleading statements in Solazyme’s offering documents and other public disclosures about the construction and production capacity of the plant. The trust was allegedly revealed to the market when Solazyme disclosed in an earnings press release and related conference call on November 5, 2014 that there would be diminished production capacity at the Moema Facility because of operational challenges. Plaintiffs allege that these disclosures caused a decline in the price of Solazyme’s securities.
As a threshold matter, the Court ruled that plaintiffs’ Securities Act claims must satisfy the heightened pleading standard of Rule 9(b) of the Federal Rules of Civil Procedure. Even though plaintiffs attempted to disclaim allegations of fraud for their Securities Act claims, the Court ruled that these claims relied on the same underlying allegations as plaintiffs’ Exchange Act claims. As the Court explained, “plaintiff’s nominal efforts to disclaim allegations of fraud with respect to [the Securities Act] are unconvincing where the gravamen of the complaint is fraud and no effort is made to show any other basis for the claims.”
The Court next evaluated the allegedly false and misleading statements and ruled that plaintiffs failed to allege contemporaneous facts that would establish a contradiction between the allegedly misleading statements and the facts that existed and were known to defendants at the time the statements were made.
Lastly, the Court held that plaintiffs lacked standing to bring their claim under Section 11 of the Securities Act because they failed to plead that they purchased any notes at all and failed to plead that they purchased their stock directly in the stock offering at issue or that their stock purchases could be traced back to that offering. Plaintiffs also lacked standing to bring their claim under Section 12(a)(2) of the Securities Act against the underwriter defendants because they failed to plead that they purchased their stock directly from the underwriters.