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Parmelee v. Santander Consumer USA Holdings Inc.

United States District Court, N.D. Texas, Dallas Division

January 3, 2018

CYNTHIA A. PARMELEE, Individually And on Behalf of All Others Similarly Situated, Plaintiffs,



         Before the Court is Defendants' Motion to Dismiss the Amended Complaint and Supporting Brief (Doc. No. 44). The Court carefully considered Defendants' Motion to Dismiss the Amended Complaint and Supporting Brief (Doc. No. 44), Lead Plaintiffs' Opposition to Defendants' Motion to Dismiss (Doc. No. 49), Defendants' Reply Brief in Further Support of Their Motion to Dismiss the Amended Complaint, and the applicable law. Because Plaintiffs have met the heightened pleading standard for scienter against Defendants Santander, Thomas Dundon, Jason Kulas, and Jennifer Davis and have adequately pleaded loss causation, the Court DENIES the Defendants' motion as to those defendants. But because Plaintiffs did not meet the heightened pleading standard for scienter as to Defendant Ismail Dawood, the Court GRANTS Defendants' motion only as to Dawood and DISMISSES all claims against Dawood.

         I. Background

         Defendant Santander Consumer USA Holdings, Inc., (“Santander”) is a consumer finance company that provides vehicle finance and unsecured consumer lending. Lead Plaintiffs Cynthia Parmelee and Kelly Baxley (collectively “Parmelee” or “Plaintiffs”) purchased Santander securities. Parmelee brought this class action suit on behalf of all individuals or entities that purchased Santander securities between February 3, 2015 and March 15, 2016, inclusive (“Class Period”).

         The Court “accept[s] all factual allegations in this complaint as true, ” as is proper in a Rule 12(b)(6) motion to dismiss a Section 10(b) action. Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 324 (2007). Parmelee alleged the following:

         On February 3, 2015, Santander released its financial information for the fourth quarter of 2014 and for the 2014 fiscal year, showing strong profitability. That day, Santander released this information through its Form 8-K filing with the Securities and Exchange Commission (“SEC”), its press release issued that morning, and through a conference call with investors discussing the company's earnings. Based on this information, stock prices continued to rise for the following two weeks, ultimately increasing 20% above the $18.63 stock price that immediately preceded the Class Period.

         On April 28, 2015, Santander released the financial results for the first quarter of 2015, again showing positive financial results. The stock price continued to climb, reaching a peak price of $26.83 on June 22, 2015. Two weeks later, Defendant Thomas G. Dundon (“Dundon”), Santander's CEO at the time of these events, resigned after the peak stock price and cashed out his entire 10% ownership of Santander at a high trading price of $24.01. The new CEO, Defendant Jason Kulas (“Kulas”), reassured investors Dundon's resignation was not related to any problems with Santander's finances. Nonetheless, the stock price dropped following Dundon's departure. Kulas and Defendant Jennifer Davis (“Davis”), interim CFO of Santander from July 2015 to December 2015, also sold Santander stock during the Class Period. However, Defendant Ismail Dawood (“Dawood”), CFO of Santander after Davis, had no stock in Santander to sell.

         In October 2015, Santander released its financial results for the third quarter of 2015. These financial results showed an increase in Troubled Debt Restructurings (“TDRs”) and a corresponding decrease in the financial returns. After the release of this information, Santander's stock price fell by 15.6%.

         On February 29, 2016, Santander announced it would not file its 2015 annual report on time. Santander also announced it received an open comment letter from the SEC regarding credit loss allowance, TDR impairment, and disclosures during the third quarter of 2015 and the 2014 fiscal year. Two weeks later, Santander stated it was changing its methodology for estimating credit loss allowance and would be correcting prior fiscal periods based on this new methodology. In response to this announcement, Santander's stock price dropped 16%.

         On March 31, 2016, Santander filed its Form 10-K with the SEC for the 2015 fiscal year and included restated financial results for the 2011-2015 fiscal years. These restated financial results showed Santander had incorrectly estimated its credit loss allowance for certain investments, incorrectly applied loss emergence period to a portfolio instead of applying it only to loans not considered TDRs, and failed to classify certain loans as TDRs. Six months later, Santander announced for the second time that it would be restating financial statements and disclosures for the 2013, 2014, and 2015 financial years and for certain quarters in 2014, 2015, and 2016. This second set of financial restatements allegedly corrected accounting methodology and other accounting errors.

         Plaintiffs filed this class action under 15 U.S.C. § 74u-4 of the Private Securities Litigation Reform Act (“PSLRA”) alleging Santander violated federal securities laws during the Class Period by fraudulently overstating its net income resulting in an artificial inflation of Santander's stock price. Plaintiffs further allege that then-CEO Defendant Dundon took advantage of this inflated stock price by negotiating the buyout of his 10% ownership in Santander during the time period when stock prices were allegedly artificially inflated.

         II. Legal Standard

         In considering a Rule 12(b)(6) motion, a court must determine whether the plaintiff has sufficiently stated claims upon which relief may be granted. Fed.R.Civ.P. 12(b)(6). The court must view all facts in the light most favorable to the plaintiff. Oliver v. Scott, 276 F.3d 736, 744 (5th Cir. 2002). A well-pleaded complaint must allege facts upon which the claims are based and not a conclusory recitation of the elements of a cause of action. Bell Atlantic Corp. v. Twombly, 550 U.S. 554, 555 (2007). A complaint must state sufficient facts such that the “claim has facial plausibility” and is not merely “possible.” Aschcroft v. Iqbal, 556 U.S. 662, 678 (2009). Certain claims or elements, however, require a plaintiff to meet a heightened pleading standard, such as pleading scienter in a securities fraud claim. Lormand v. U.S. Unwired, Inc., 565 F.3d 228, 252 (5th Cir. 2009).

         To successfully plead scienter in a securities fraud claim, a plaintiff must allege sufficient facts to support a “‘strong inference' of scienter.” Tellabs, Inc., 551 U.S. at 324. The court looks to “whether all of the facts alleged, taken collectively, give rise to a strong inference of scienter, not whether any individual allegation, scrutinized in isolation, meets that standard.” Id. at 323. In making this determination, the court “must consider the complaint in its entirety, as well as other sources courts ordinarily examine when ruling on Rule 12(b)(6) motions to dismiss, in particular documents incorporated into the complaint by reference, and matters of which a court may take judicial notice.” Id. at 322. The plaintiff has met the heightened pleading standard when “a reasonable person would deem the plausible inference of scienter cogent and at least as strong as any opposing inference one could draw.” Lormand, 565 ...

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