Francisco v. Abengoa, S.A.

559 F.Supp.3d 286

Michael FRANCISCO, individually and on behalf of all others similarly situated, Plaintiff,

v.ABENGOA, S.A., Santiago Seage, Manuel Sanchez Ortega, Barbara Zubiria, and Ignacio Garcia Alvear, Defendants.

15 Civ. 6279 (ER)

United States District Court, S.D. New York.

Signed September 10, 2021

Adam M. Apton, Nicholas Ian Porritt, Levi & Korsinsky, LLP, New York, NY, for Plaintiff Jesse and Arlette Sherman.

Adam M. Apton, Levi & Korsinsky, LLP, New York, NY, for Plaintiff Michael Francisco.

Jeremy Alan Lieberman, Joseph Alexander Hood, II, Pomerantz LLP, New York, NY, for Plaintiff Daniel LaMoureaux.

Richard Francis Hans, Jr., Jeffrey David Rotenberg, Marc Aaron Silverman, DLA Piper US LLP, New York, NY, for Defendant Abengoa, S.A.

Joseph S. Allerhand, Stephen Alan Radin, Weil, Gotshal & Manges LLP, New York, NY, for Defendant Manuel Sanchez Ortega.

Richard A. Rosen, Paul Weiss, Edward Charles Robinson, DOJ-USAO, New York, NY, for Defendants Canaccord Genuity Inc., HSBC Securities (USA) Inc., Societe Generale.

Richard A. Rosen, Paul Weiss, New York, NY, for Defendant Merrill Lynch International.

OPINION & ORDER

Ramos, D.J.:

Lead Plaintiffs Jesse and Arlette Sherman and Plaintiff PAMCAH-UA Local 675 Pension Fund ("Local 675 Pension Fund," and together with Lead Plaintiffs, "Plaintiffs"), bring this federal securities class action against Abengoa S.A. ("Abengoa"); Manuel Sanchez Ortega, Abengoa's former chief executive officer; Christopher Hansmeyer, the duly authorized representative for Abengoa in the United States; and HSBC Securities (USA) Inc., Banco Santander S.A. ("Banco Santander"), Canaccord Genuity Inc., Merrill Lynch International, and Société Générale, investment banks that served as underwriters for Abengoa's United States offering (collectively, the "Underwriter Defendants"). In their Proposed Third Amended Complaint ("PTAC"), Plaintiffs seek to pursue remedies under Sections 11 and 15 of the Securities Act of 1933 (the "Securities Act"), as well as under Section 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5, promulgated thereunder. Plaintiffs bring their claims on behalf of purchasers of Abengoa American Depositary Shares ("ADSs")¹ between October 17, 2013 and August 3, 2015 (the "Class Period").

Pending before the Court is Plaintiffs’ motion for leave to file the PTAC. Doc. 142. For the following reasons, Plaintiffs’ motion is GRANTED in part and DENIED in part.

I. BACKGROUND

A. Factual Background

The Court assumes familiarity with the parties and its prior opinion in this matter, Francisco v. Abengoa, S.A. , 481 F. Supp. 3d 179 (S.D.N.Y. 2020).

Abengoa, founded in 1941, is an engineering and clean technology company headquartered in Spain. Doc. 144-1 ¶ 24. Sanchez Ortega served as Abengoa's CEO from March 2010 until his resignation on May 19, 2015, and Hansmeyer was its duly authorized representative in the United States. Id. ¶¶ 25, 27.

This action relates to Abengoa's October 17, 2013 public offering on the NASDAQ Global Select Market (the "NASDAQ") for €517.5 million, which Underwriter Defendants underwrote, and to the subsequent series of events culminating in the company's filing for insolvency and bankruptcy. Id. ¶¶ 28, 162–72. Lead Plaintiffs Jesse and Arlette Sherman and Local 675 Pension Fund purchased Abengoa ADSs during the Class Period. Id. ¶ 23. Specifically, the Shermans began trading Abengoa ADSs beginning November 18, 2014, Doc. 7-1, and Local 675 Pension Fund first purchased Abengoa ADSs on April 6, 2015, Doc. 12-1.

The following facts are taken from the PTAC and are assumed to be true for purposes of the instant motion.

1. The Offering

On October 4, 2013, in preparation for the offering, Abengoa filed a Registration Statement with the Securities and Exchange Commission ("SEC") on Form F-1, offering U.S. investors Class B shares in the form of ADSs, each of which represented the right to receive five Class B shares. Doc. 144-1 ¶ 123. Underwriter Defendants helped to draft and disseminate the Registration Statement. Id. ¶ 28. Non-party Barbara Zubiría Furest—who served as Abengoa's co-chief financial officer and executive vice president of capital markets and investor relationships from January 2011 until her resignation, which was announced on January 19, 2015—signed the Registration Statement. Id. ¶ 36.

At the time of the offering, Abengoa was comprised of 532 subsidiaries, 17 associates, and 34 joint ventures, and was operating in over 70 countries. Id. ¶ 53. Abengoa used two types of debt: recourse debt and non-recourse debt. See id. ¶¶ 274–76, 335–36; see also Abengoa , 481 F. Supp. 3d at 188. Recourse debt—also referred to as "corporate debt"—was guaranteed by Abengoa. Doc. 144-1 ¶¶ 246, 274–76; see also Abengoa , 481 F. Supp. 3d at 188. Non-recourse debt, which was used to finance specific projects, was guaranteed by the assets and cash flows of companies formed to carry out those projects. Doc. 144-1 ¶¶ 246, 274–76; see also Abengoa , 481 F. Supp. 3d at 188. In other words, non-recourse debt was not secured by Abengoa in the event of a default. See Doc. 144-1 ¶¶ 276, 353, 355; see also Abengoa , 481 F. Supp. 3d at 188.

Abengoa's recourse debt was subject to a debt ratio covenant with its lenders. Doc. 144-1 ¶¶ 12, 143, 335–36, 353; see also Abengoa , 481 F. Supp. 3d at 188. Under that covenant, Abengoa was required to maintain a "leverage" ratio of debt-to-earnings before interest, taxes, depreciation, and amortization ("EBITDA") below 3.0x until December 30, 2014, and below 2.5x thereafter. Doc. 144-1 ¶¶ 59, 143, 227; see also Abengoa , 481 F. Supp. 3d at 188.

The Registration Statement made representations about Abengoa's cash flow and liquidity, its debt usage and financing for long-term projects, and its accounting policies. Doc. 144-1 ¶¶ 196–203, 219–221, 226. The Registration Statement contained the following language regarding its operations for financing construction projects:

We have successfully grown our business while seeking to enforce strict financial discipline to maintain our strong liquidity position. As of June 20, 2013, we had cash and cash equivalents and short-term financial investments of €3,222 million, which we believe are sufficient to satisfy our short-term liquidity needs. This strong cash position also assists in bidding for large projects.

Id. ¶ 130 (emphases omitted). It also contained the following statement regarding Abengoa's "percentage-of-completion" accounting policy:

Revenue from construction contracts is recognized using the percentage-of-completion method for contracts whose outcome can be reliably estimated and it is probable that they will be profitable. When the outcome of a construction contract cannot be reliably estimated, revenue is recognized only to the extent it is probable that contract costs incurred will be recoverable.

As described in Note 2.26.b) to our Annual Consolidated Financial Statements and our Interim Consolidated Financial Statements, the percentage of completion is determined at the date of every consolidated statement of financial position based on the actual costs incurred as a percentage of total estimated costs for the entire contract.

Revenue recognition using the percentage-of-completion method involves the use of estimates of certain key elements of the construction contracts, such as total estimate contract costs, allowances or provisions related to the contract, period of execution of the contract and recoverability of the claims. We have established, over the years, a robust project management and control system, with periodic monitoring of each project. This system is based on the long-track experience of the Group in constructing complex infrastructures and installations. As far as practicable, we apply past experience in estimating the main elements of construction contracts and rely on objective data such as physical inspections or third parties [sic] confirmations. Nevertheless, given the highly tailored characteristics of the construction contracts, most of the estimates are unique to the specific facts and circumstances of each contract.

When the outcome of a construction contract can be reliably estimated and it is probable that it will be profitable, revenue from the contract is recognized over the term of the contract. When it is probable that the costs of the project will be greater than its revenue, expected loss is recognized immediately as an expense. To determine the appropriate amount of revenue to be recognized in any period, the percentage of completion method is applied. The percentage of completion method considers, at the date of the Statement of Financial Position, the actual costs incurred as a percentage of total estimated costs for the entire contract. Costs incurred in the period which relate to future project activities are not included when determining the percentage of completion. Prepayments and certain other assets are recognized as inventories, depending on their specific nature.

Id. ¶ 197 (emphases omitted).

On October 16, 2013, Abengoa filed a Prospectus with the SEC, which formed part of the Registration Statement. Id. ¶ 125. According to the Prospectus, Abengoa was offering to the public 250,000,000 Class B shares at €1.80 per share (or $12.18 per ADS). Id. On October 17, 2013, Abengoa went public in the United States and began selling its ADSs on the NASDAQ exchange. See id. ¶ 126. Abengoa realized €517.5 million in gross proceeds—or roughly $703.8 million—from the offering. Id. ¶ 127. In the Registration Statement, Abengoa represented that it intended to use those proceeds to repay €347 million in corporate debt maturities due in 2013 and 2014. Id. ¶ 128.

2. Positive Financial Reports

After the offering, Abengoa made several reports of positive financial results. On November 11, 2013, Abengoa reported its financial results for the nine months ending September 30, 2013. Id. ¶ 227. It reported that its EBITDA had risen 29%...