Eng v. Edison Int'l

ORDER GRANTING MOTION TO DISMISS THIRD AMENDED COMPLAINT

Pending before the Court is the Motion to Dismiss Plaintiff's Third Amended Complaint ("TAC") filed by Defendants Edison International, Southern California Edison's ("SCE")¹ parent company, Theodore F. Craver, Jr., William James Scilacci, and Ron Litzinger. (Docket No. 58.) The motion is fully briefed. For the reasons that follow, Defendants' motion is GRANTED, and the Third Amended Complaint is DISMISSED.

Page 2

Plaintiff's Third Amended Complaint contains largely the same factual allegations as the First and Second Amended Complaints (Docket Nos. 20, 36), which the Court addressed in detail in its September 14, 2016 Order and May 5, 2017 Order, and now incorporates by reference. (See Docket No. 35 at pp. 2-6, Docket No. 54 at pp. 2-5.) New allegations will be discussed where relevant to the Court's analysis of Defendants' motion to dismiss.

Under Federal Rule of Civil Procedure 12(b)(6), dismissal is appropriate if, taking all factual allegations as true, the complaint fails to state a plausible claim for relief on its face. Fed. R. Civ. P. 12(b)(6); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556-57 (2007); Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (requiring plaintiff to plead factual content that provides "more than a sheer possibility that a defendant has acted unlawfully"). "A claim is facially plausible 'when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.'" Zixiang Li v. Kerry, 710 F.3d 995, 999 (9th Cir. 2013) (quoting Iqbal, 556 U.S. at 678). "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Iqbal, 556 U.S. at 678.

All factual allegations are accepted as true and "courts 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." Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007).²

Page 3

The TAC claims violations of Section 10(b) and 20(a) of the Exchange Act of 1934 and Securities and Exchange Commission (SEC) Rule 10b-5. To state a securities fraud claim, a plaintiff must plead: (1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a connection between the misrepresentation or omission and the purchase and sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss causation. Webb v. Solarcity Corp., No. 16-16440, 2018 WL 1189422, at *4 (9th Cir. Mar. 8, 2018) (citing Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27, 37-38 (2011)).

Additionally, securities fraud claims are subject to the heightened pleading requirements of Federal Rule of Civil Procedure 9(b) and the Private Securities Litigation Reform Act of 1995 (PSLRA). In re VeriFone Holdings, Inc. Sec. Litig., 704 F.3d 694, 701 (9th Cir. 2012). Under Rule 9(b), plaintiffs must "state with particularity the circumstances constituting fraud." Id. "Rule 9(b) applies to all elements of a securities fraud action, including loss causation." Oregon Pub. Employees Ret. Fund v. Apollo Grp. Inc., 774 F.3d 598, 605 (9th Cir. 2014).

The Court must assume the truth of the facts presented in a plaintiff's complaint and construe inferences from them in the light most favorable to the nonmoving party when reviewing a motion to dismiss under Rule 12(b)(6). Erickson v. Pardus, 551 U.S. 89, 94 (2007).

The Court previously dismissed Plaintiff's Second Amended Complaint for failing to sufficiently allege the loss causation element. (See Docket No. 54.) Defendants' Motion to Dismiss argues dismissal is appropriate because the TAC's allegations regarding loss causation are even weaker than in the Second Amended Complaint. The Court agrees.

A. Loss Causation

To sufficiently plead loss causation, a plaintiff must plausibly allege a causal connection between a defendant's fraud and the economic loss damages for which

Page 4

recovery is sought. Mineworkers' Pension Scheme v. First Solar Inc. ("First Solar"), 881 F.3d 750, 753 (9th Cir. 2018) ("Because loss causation is simply a variant of proximate cause, the ultimate issue is whether the defendant's misstatement, as opposed to some other fact, foreseeably caused the plaintiff's loss.") (quoting Lloyd v. CVB Fin. Corp., 811 F.3d 1200, 1210 (9th Cir. 2016)).

After briefing on this motion concluded, Plaintiff filed a notice of supplemental authority regarding the Ninth Circuit's recent decision in First Solar. (Docket No. 62.) Plaintiff asserts First Solar "is pertinent because it rejects singular application of the bright-line loss causation test argued by defendants in this matter." (Id. at p. 1.) He also complains that "this Court has previously accepted defendants' standard of loss causation, which is not the correct standard under First Solar." (Id. at p. 2) (citation omitted.) Plaintiff's reliance on First Solar is misplaced.

It is true that this Court has analyzed Plaintiff's prior pleadings to determine whether it sufficiently pleaded loss causation as causally connected to a revelation of fraud on the market. That is because Plaintiff himself advanced this sole theory of loss causation in both the Amended Complaint and Second Amended Complaint. (See Docket No. 20 ¶¶ 121-127 ("As the falsity of defendants' statements and the omitted facts were revealed, Edison's stock price fell as the artificial inflation dissipated"); Docket No. 36 ¶¶ 142-148 (same)). Notably, under First Solar, the Court's analysis was appropriate. First Solar, 881 F.3d at 753-54 ("Revelation of fraud in the marketplace is simply one of the 'infinite variety' of causation theories a plaintiff might allege to satisfy proximate cause. . . . When plaintiffs plead a causation theory based on market revelation of the fraud, this court naturally evaluates whether plaintiffs have pleaded or proved the facts relevant to their theory.") (internal citations omitted and emphasis added).

Turning to the operative TAC, however, in addition to re-alleging its market revelation of fraud theory, Plaintiff for the first time raises a new theory of loss causation: that the SCE's stock price decline resulted from "the materialization of the risk that ORA and TURN would seek to unwind the SONGS settlement." (TAC ¶ 125.) Under the

Page 5

"materialization of the risk" approach, a plaintiff can establish loss causation by showing that "'misstatements and omissions concealed the price-volatility risk (or some other risk) that materialized and played some part in diminishing the market value' of a security." Nuveen Mun. High Income Opportunity Fund v. City of Alameda, Cal., 730 F.3d 1111, 1120 (9th Cir. 2013) (quoting Lentell v. Merrill Lynch & Co., Inc., 396 F.3d 161, 176-77 (2d Cir. 2005)).

The "materialization of the risk" approach has not been adopted by the Ninth Circuit, although it has been applied by some district courts in the Ninth Circuit. Nuveen, 730 F.3d at 1122 n.5 (citations omitted). The Court finds it need not determine the applicability of this approach because Plaintiff has again failed to plausibly establish that the alleged partial disclosures were a substantial cause of his alleged loss. See In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1057 (9th Cir. 2008) ("So long as the complaint alleges facts that, if taken as true, plausibly establish loss causation, a Rule 12(b)(6) dismissal is inappropriate.") (emphasis added).

It is not sufficient to simply allege a defendant's stock price declined; the decline in stock price must be "statistically significant."³ In re REMEC Inc. Sec. Litig., 702 F. Supp. 2d 1202, 1266 (S.D. Cal. 2010) (citing Metzler Inv. GMBH v. Corinthian Colls., Inc., 540 F.3d 1049, 1063 (9th Cir. 2008)); see also Dura Pharm., Inc. v. Broudo, 544 U.S. 336, 346-47 (2005) (finding plaintiffs' purchase price inflation allegation insufficient on its own where the complaint "fail[ed] to claim that Dura's share price fell significantly after the truth became known") (emphasis added); Lloyd, 811 F.3d at 1210

Page 6

(finding amended complaint adequately pleaded loss causation where it alleged the corrective disclosure "caused [the] stock price to drop precipitously") (emphasis added); In re Novatel Wireless Sec. Litig., 830 F. Supp. 2d 996, 1019 (S.D. Cal. 2011) ("the decline in stock price caused by the revelation of that truth must be statistically significant"). "[W]hether a drop in a stock's price is statistically significant will vary depending on the average trading range for that particular stock." Greenberg v. Crossroads Sys., Inc., 364 F.3d 657, 665 n.9 (5th Cir. 2004). For example, "[a] drop of 10% for...