United States District Court, N.D. Texas, Dallas Division
MARGARET BUDDE, Lead Plaintiff, and DANIEL REAM, Individually and on Behalf of All Others Similarly Situated, Plaintiffs,
GLOBAL POWER EQUIPMENT GROUP, INC.; RAYMOND K. GUBA; LUIS MANUEL RAMIREZ; and DAVID L. WILLIS, Defendants.
MEMORANDUM OPINION AND ORDER
BARBARA M. G. LYNN CHIEF JUDGE
the Court is Defendants' Motion to Dismiss the Second
Amended Class Action Complaint. (ECF No. 81). For the reasons
stated below, the Motion is GRANTED.
Factual and Procedural Background
Global Power Equipment Group, Inc. (“Global
Power”) is a public corporation that provides equipment
and services to the energy industry. (2d. Am. Compl. ¶
3, ECF No. 76). In 2015, Global Power announced that some of
its prior financial reports were inaccurate. (Id.
¶¶ 53, 55, 61, 67). On May 15, 2017, Global Power
issued a restatement that corrected several reports and
identified causes for the errors. (Id. ¶ 77).
Most relevant here, Global Power acknowledged that it
prematurely recognized revenues in its Electrical Solutions
(“ES”) segment, had deficiencies in internal
control over financial reporting, and incorrectly accounted
for goodwill upon the sale of a subsidiary company, Deltak.
(Id. at Ex. Y).
Budde and Daniel Ream, on behalf of all persons who acquired
Global Power stock between September 7, 2011, and May 6,
2015, filed a class action lawsuit against Global Power and
some of its former officers-Raymond K. Guba, Luis Manuel
Ramirez, and David L. Willis. Guba was Global Power's
Senior Vice President and CFO from November 2013 to September
2015. (2d. Am. Compl. ¶ 31). Ramirez was the President
and CEO from July 2012 to March 2015. (Id. ¶
29). Willis was the CFO from January 2008 to November 2013.
(Id. ¶ 34). Plaintiffs assert that Defendants
issued false and misleading financial reports in violation of
Sections 10(b) and 20(a) of the Securities Exchange Act of
1934, 15 U.S.C. §§ 78j(b), 78t(a). Defendants move
to dismiss for failure to state a claim.
pleading must contain “a short and plain statement of
the claim showing that the pleader is entitled to
relief.” Fed.R.Civ.P. 8(a)(2). The pleading standard
Rule 8 announces does not require “detailed factual
allegations, ” but it does demand more than an
unadorned accusation devoid of factual support. Ashcroft
v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell
Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). To
survive a motion to dismiss, a complaint must contain
sufficient factual matter to state a claim for relief that is
plausible on its face. Twombly, 550 U.S. at 570. The
Court must accept all of the plaintiff's factual
allegations as true, but it is not bound to accept as true
“a legal conclusion couched as a factual
allegation.” Id. at 555. Where the facts do
not permit the Court to infer more than the mere possibility
of misconduct, the complaint has stopped short of showing
that the pleader is plausibly entitled to relief.
Iqbal, 556 U.S. at 678.
state a claim under Section 10(b), Plaintiffs must plead: (1)
a material misrepresentation or omission, (2) scienter, (3) a
connection with the purchase or sale of a security, (4)
reliance, (5) economic loss, and (6) loss causation. See
Dura Pharm., Inc. v. Broudo, 544 U.S. 336, 341 (2005)
(citing 15 U.S.C. 78j(b)). To adequately plead scienter,
Plaintiffs must meet the heightened standard required under
the Private Securities Litigation Reform Act
(“PSLRA”), 15 U.S.C. § 78u-4(b)(2). The
PSLRA instructs Plaintiffs to “state with particularity
facts giving rise to a strong inference” that each
Defendant acted with scienter, i.e., with “intent to
deceive, manipulate, or defraud or [with] severe
recklessness.” Id.; Owens v. Jastrow,
789 F.3d 529, 535 (5th Cir. 2015) (citation omitted). Severe
recklessness is limited to those “highly unreasonable .
. . misrepresentations that involve not merely simple or even
inexcusable negligence, but an extreme departure from the
standard of ordinary care.” Jastrow, 789 F.3d
at 535 (citation omitted). Scienter must exist at the time
the misrepresentation occurred. See Magruder v.
Halliburton Co., 2009 WL 854656, at *8 (N.D. Tex. Mar.
qualify as “strong, ” the inference of scienter
must be “more than merely plausible or reasonable-it
must be cogent and at least as compelling as any opposing
inference of nonfraudulent intent.” See Tellabs,
Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308,
314 (2007). This requires the Court to “engage in a
comparative evaluation, ” weighing “not only
inferences urged by [Plaintiffs] . . . but also competing
inferences rationally drawn from the facts alleged.”
Id. Conclusory allegations are not sufficient.
See Indiana Elec. Workers' Pension Tr. Fund IBEW v.
Shaw Grp., Inc., 537 F.3d 527, 538-39 (5th Cir. 2008)
(“[G]eneral allegations and conclusory statements, such
as stating [defendants] knew . . . adverse material”
cannot support a strong inference of scienter.). Overall, the
Court must “assess all the allegations holistically,
” not each in isolation. Tellabs, 551 U.S. at
Plaintiffs' allegations are from confidential sources.
The Court must discount allegations from confidential
sources. See Shaw Grp., 537 F.3d at 535
(“[J]udges [must] weigh the strength of plaintiffs'
favored inference in comparison to other possible inferences;
anonymity frustrates that process.”) (citation
omitted). Confidential sources must also be described
“with sufficient particularity to support the
probability that a person in the position occupied by the
source . . . would possess the information
pleaded.” Id. (citation omitted).
Analysis of Plaintiffs' Section 10(b) Claim
argue that Plaintiffs have failed to adequately plead
scienter and loss causation. The Court addresses each in
corporation, Global Power is deemed to have scienter if the
officer that made the misrepresentation has scienter. See
Southland Sec. Corp. v. INSpire Ins. Sols., Inc., 365
F.3d 353, 366 (5th Cir. 2004). The Court accordingly analyzes
the sufficiency of allegations against each of the officer
Defendants-Guba, Ramirez, and Willis-who made the
misrepresentations at issue.
Raymond K. Guba and Luis Manuel Ramirez
mere publication of inaccurate accounting figures, without
more, does not establish scienter. See Shaw Grp.,
537 F.3d at 534 (citation omitted). Plaintiffs must show that
Defendants knew that they were publishing materially false
information or were severely reckless in publishing such
information.See Abrams v. Baker Hughes Inc.,
292 F.3d 424, 432 (5th Cir. 2002). In particular, Plaintiffs
must allege what facts each Defendant knew-such as specific
accounting or internal control problem-in addition to when
and how they learned these facts to support a strong
inference of scienter. See Magruder, 2009 WL 854656,
at *9, *14 n.121. Plaintiffs allege that Guba and Ramirez
knew or ...