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In re Fisker Automotive Holdings, Inc. Shareholder Litigation

United States District Court, D. Delaware

February 7, 2017

IN RE FISKER AUTOMOTIVE HOLDINGS, INC. SHAREHOLDER LITIGATION

          MEMORANDUM

         At Wilmington this 7th day of February, 2017, having reviewed defendants' motions to dismiss (D.I. 158; D.I. 160), plaintiffs' motion to strike certain references (D.I. 183), and the responses thereto; the court issues its decision based on the following reasoning:

         1. By an order dated June 30, 2014, the court consolidated three securities fraud lawsuits filed against defendants Henrik Fisker ("Fisker"), Bernhard Koehler, Joe DaMour, Peter McDonnell ("McDonnell"), Kleiner Perkins Caufield & Byers LLC, Ray Lane, Keith Daubenspeck, Richard Li Tzar Kai ("Li"), and Ace Strength, Ltd. ("Ace Strength"), (collectively "defendants").[1] (D.I. 23) On October 15, 2015, the court granted in part and denied in part defendants' motions to dismiss plaintiffs' amended consolidated complaint.[2] Specifically, the court granted the motions as to the claim for violations of the Securities Act of 1933 (the "Securities Act"), and denied the motions with respect to the claim for violations of the Securities Exchange Act of 1934 (the "Exchange Act").[3] (D.I. 81, 82) On May 16, 2016, the court granted plaintiffs' unopposed motion for leave to file a second amended complaint ("SAC") adding a claim of common law fraud. (D.I. 144) The SAC was filed the same day.[4] (D.I. 145)

         2. Judicial notice.

         As an initial matter, plaintiffs oppose defendants' request for judicial notice as to the two "schedule of exceptions" documents, [5] as neither is cited or referred to in the SAC. (D.I. 183) The SAC cites to "all of the offering materials including Prospectuses/Private Placement Memoranda and other offering documents made available to purchasers of Fisker Automotive Securities." (D.I. 145 at ¶ 129) There is no real dispute that these two schedule of exceptions documents are part of the offering documents, and plaintiffs do not contest their authenticity. Indeed, plaintiffs requested and received judicial notice of a similar "schedule of exceptions" document, [6]"because [it] is included in the offering materials cited in the Complaint." (D.I. 54 at 2, 81 at 46 n.40) The court concludes that the documents (including the two in dispute) are referenced in the complaint. (D.I. 162, 163) Accordingly, the court takes judicial notice of such documents as needed for the present motions. Pension Benefit Guar. Corp. v. White Consol. Indus., Inc., 998 F.2d 1192, 1196 (3d Cir. 2006) ("[A] court may consider an undisputedly authentic document that a defendant attaches as an exhibit to a motion to dismiss if the plaintiff's claims are based on the document."). Plaintiffs' motion to strike the references to such documents is denied. (D.I. 183)

         3. Standard of Review.

         A motion filed under Federal Rule of Civil Procedure 12(b)(6) tests the sufficiency of a complaint's factual allegations. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007); Kost v. Kozakiewicz, 1 F.3d 176, 183 (3d Cir. 1993). A complaint must contain "a short and plain statement of the claim showing that the pleader is entitled to relief, in order to give the defendant fair notice of what the . . . claim is and the grounds upon which it rests." Twombly, 550 U.S. at 545 (internal quotation marks omitted) (interpreting Fed.R.Civ.P. 8(a)). Consistent with the Supreme Court's rulings in Twombly and Ashcroft v. Iqbal, 556 U.S. 662 (2009), the Third Circuit requires a three-part analysis when reviewing a Rule 12(b)(6) motion. Connelly v. Lane Const. Corp., 809 F.3d 780, 787 (3d. Cir. 2016). In the first step, the court "must tak[e] note of the elements a plaintiff must plead to state a claim." Next, the court "should identify allegations that, because they are no more than conclusions, are not entitled to the assumption of truth." Lastly, "[w]hen there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement for relief." Id. (citations omitted).

         4. Under Twombly and Iqbal, the complaint must sufficiently show that the pleader has a plausible claim. McDermott v. Clondalkin Grp., 2016 WL 2893844, at *3 (3d Cir. May 18, 2016). Although "an exposition of [the] legal argument" is unnecessary, Skinner v. Switzer, 562 U.S. 521 (2011), a complaint should provide reasonable notice under the circumstances. Id. at 530. A filed pleading must be "to the best of the person's knowledge, information, and belief, formed after an inquiry reasonable under the circumstances, " such that "the factual contents have evidentiary support, or if so identified, will likely have evidentiary support after a reasonable opportunity for further investigation or discovery." Anderson v. Bd. of Sch. Directors of Millcreek Twp. Sch. Dist, 574 F.App'x 169, 174 (3d Cir. 2014) (quoting Fed.R.Civ.P. 11(b)). So long as plaintiffs do not use "boilerplate and conclusory allegations" and "accompany their legal theory with factual allegations that make their theoretically viable claim plausible, " the Third Circuit has held "pleading upon information and belief [to be] permissible where it can be shown that the requisite factual information is peculiarly within the defendant's knowledge or control." McDermott, 2016 WL 2893844, at *4 (quotation marks, citation, and emphasis omitted).

         5. As part of the analysis, a court must accept all well-pleaded factual allegations in the complaint as true, and view them in the light most favorable to the plaintiff. See Erickson v. Pardus, 551 U.S. 89, 94 (2007); Christopher v. Harbury, 536 U.S. 403, 406 (2002); Phillips v. Cnty. of Allegheny, 515 F.3d 224, 231 (3d Cir. 2008). In this regard, a court may consider the pleadings, public record, orders, exhibits attached to the complaint, and documents incorporated into the complaint by reference. Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007); Oshiver v. Levin, Fishbein, Sedran & Berman, 38 F.3d 1380, 1384-85 n.2 (3d Cir. 1994). The court's analysis is a context-specific task requiring the court "to draw on its judicial experience and common sense." Iqbal, 556 U.S. at 663-64.

         6. Analysis.[7]

         To prevail on a claim of common law fraud, plaintiffs are

required to show that: (1) the defendant falsely represented or omitted facts that the defendant had a duty to disclose; (2) the defendant knew or believed that the representation was false or made the representation with a reckless indifference to the truth; (3) the defendant intended to induce the plaintiff to act or refrain from acting; (4) the plaintiff acted in justifiable reliance on the representation; and (5) the plaintiff was injured by its reliance.

DCV Holdings, Inc. v. ConAgra, Inc., 889 A.2d 954, 958 (Del. 2005); see also Stephenson v. Capano Dev., Inc., 462 A.2d 1069, 1074 (Del. 1983).[8]

         7. On December 8, 2011, Fisker Automotive's Board of Directors unanimously approved a 40% "pay to play" capital call imposed on all Fisker Automotive investors (the "December 2011 Capital Call"). On December 15, 2011, Fisker Automotive made available to plaintiffs and other investors offering documents associated with the December 2011 Capital Call. (D.I. 145 at ¶ 79) Plaintiffs allege that, on the same day, during a conference call with investors, Fisker responded to a question concerning battery fires by stating that it 'is not a risk for us, we have a different chemistry[, a] liquid cooled battery.'" (Id. at ¶ 88) Fisker Automotive's December 21, 2011 Schedule of Exceptions disclosed the recall "of the approximate 50 vehicles that may be affected by this issue." (D.I. 162, ex. F at 28) On December 21, 2011, the National Highway Traffic Safety Commission acknowledged (through a "non-public letter" to Fisker Automotive) a safety recall campaign "of 239 Fisker Karmas due [to] a battery problem that could cause a fire." (D.I. 145 at ¶ 90) On December 29, 2011, the day after the first deadline to invest in the December 2011 Capital Call, Fisker Automotive publicly announced its recall of 239 Fisker Karmas due to the battery fire issue. (Id. at ¶ 91) On December 30, 2011, an article[9] reported that "Fisker spokesman Roger Ormisher said customers were alerted of the faulty batteries last week" (Id. at ¶ 92) (D.I. 34, ex. A)

         8. The ATVM Loan[10] contained a "Key Personnel" covenant requiring Fisker to be "responsible for the management of the borrower." Plaintiffs allege that Fisker Automotive failed to disclose (in connection with the March 2012 Capital Call and September 2012 Capital Call offerings) that Fisker's resignation as CEO and from the day-to-day management of Fisker Automotive in February 2012 caused Fisker Automotive to be in default of the Key Personnel covenant. (D.I. 145 at ΒΆΒΆ 100, 154) In certain of the offering documents, Fisker Automotive disclosed that if it "were to lose the services of Henrik ...


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