In re Plug Power Sec. Litig.

OPINION & ORDER

EDGARDO RAMOS, U.S.D.J.

Lead plaintiff Manfred Schumacher brings this federal securities class action against Plug Power Inc. (“Plug Power” or “the Company”), a company that develops fuel cell technology, and two of its officers, Andrew Marsh and Paul B. Middleton. Schumacher seeks remedies under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”), and Rule 10b-5 promulgated thereunder. He brings this action on behalf of purchasers of Plug Power's common stock between November 9, 2020 and March 16, 2021 (the “Class Period”).^[1] Doc. 98 ¶ 4.^[2]

Before the Court is Defendants' motion to dismiss Schumacher's Second Amended Complaint (“SAC”) with prejudice pursuant to the Federal Rules of Civil Procedure 9(b) and 12(b)(6) and the Private Securities Litigation Reform Act of 1955, 15 U.S.C. § 78u (the “PSLRA”). Doc. 103.

For the reasons set forth below, Defendants' motion to dismiss is GRANTED.

I. BACKGROUND

The facts underlying this case are more fully set out in the Court's Opinion and Order in In re Plug Power, Inc. Sec. Litig., No. 21 Civ. 2004 (ER), 2022 WL 4631892

(S.D.N.Y. Sept. 29, 2022) (“In re Plug Power I”), familiarity with which is assumed. For present purposes, the Court provides an abbreviated summary. ie SAC alleges that throughout the Class Period, Defendants issued false and misleading financial information by misclassifying costs related to fuel delivery as research and development expenses. Defendants allegedly made these false statements in order to secure financing from the Company's secondary public offerings, attract a partnership opportunity for the Company, and so that Marsh and Middleton could sell their shares at an inflated price. Additionally, Defendants allegedly issued false and misleading financial information regarding a transaction with Amazon.

A. Factual Background

The following facts are based on the allegations in the SAC, which the Court accepts as true for purposes of the instant motion. See, e.g., Koch v. Christie's Int'l PLC, 699 F.3d 141, 145 (2d Cir. 2012).

I. The Parties

Andrew Marsh is the Company's Chief Executive Officer, President, and a member of its board of directors. ¶ 31. Marsh has served as the CEO since April 2008, including throughout the entirety of the Class Period. Id. Paul B. Middleton is the Company's Chief Financial Officer. ¶ 32. Middleton has been the CFO since 2014, including throughout the Class Period. Id. Middleton signed the Company's Form 10-Ks for the fiscal years (“FY”) 2016-2019; Form 10-Q for the third quarter (“Q3”) of FY2020; and letters to the shareholders dated November 9, 2020 and February 25, 2021, which reported Plug Power's financial results for the Q3 and Q4 of FY2020, respectively. ¶ 32.

The individual defendants had authority to issue the Company's SEC filings and public statements. ¶ 33. Furthermore, they were provided with the filings and statements

prior to, or shortly after, their issuance and had the ability to prevent their issuance or cause them to be corrected. Id.

2. Plug Power S Hydrogen Fuel Cell Business

Plug Power develops and sells hydrogen fuel cell products that replace conventional batteries in equipment and vehicles powered by electricity, like forklifts, for some of the world's largest retail distribution and manufacturing businesses, including Amazon, Walmart, and Home Depot. ¶¶ 5, 37. In 2018 Amazon and Walmart were, together, 67% of the Company's revenue; and in 2019 were 50% of the Company's revenue. ¶ 51. In 2020 Amazon alone accounted for 332.4% of the Company's total consolidated revenue, due to its costs to revenue.^[3] ¶ 349. The Company has become the largest buyer of liquid hydrogen. ¶ 36.

Until the early 2010s, many of Plug Power's customers would purchase the Company's fuel cells directly or arrange for lease financing through a separate financial partner. ¶ 38. However, in 2014, Plug Power's larger customers, such as Walmart and Volkswagen, appear to have demanded that the Company offer operating leases itself, thereby allowing the customers to keep the equipment off of their respective balance sheets. Id. Without a large enough balance sheet of its own to support this, Plug Power was forced to enter into sale/leaseback agreements with a number of financial institutions, such as M&T Bank and Wells Fargo, to facilitate these customer leases. Id. In these arrangements, Plug Power essentially sold certain fuel cell systems and hydrogen

infrastructure to financial institutions, who then leased the equipment back to Plug Power, who then leased the equipment under lease agreements to its customers. ¶ 39.

Plug Power's ability to compete in the fuel cell industry relies heavily on its ability to raise capital and consistently bring its products and technology to the market. ¶ 68. Soon after Plug Power began to provide operating-type sale/leaseback deals to customers, this type of lease became a dominant source of revenue for the Company. ¶ 39. The Company's partners financing the sale/leaseback agreements required the Company to maintain high cash balances in restricted accounts securing the Company's finance obligations in full. ¶ 40. Because the Company is a capital-intensive business, a lack of liquidity drove the Company to seek external financing over the course of 2016. ¶¶ 14, 40.

3. New A llegations

a. Amazon Warrant Waiver

On April 4, 2017, the Company disclosed to the SEC that it entered into a transaction agreement with Amazon (the “Amazon Transaction Agreement,” or the “Agreement”). ¶ 42. Pursuant to this Agreement, the Company agreed to issue Amazon warrants to acquire up to 55,286,696 shares of the Company's common stock (the “Amazon Warrant Shares”). Id.; see also Doc. 105-5 at 3 (April 4, 2017 Form 8-K).

The first tranche of 5.82 million Amazon Warrant Shares vested upon the execution of the Amazon Transaction Agreement. ¶ 44. The second tranche of 29,098,260 Amazon Warrant Shares was set to vest in four installments of 7,274,565 shares each time Amazon made an aggregate of $50 million in payments for goods and services to Plug Power, up to payments totaling $200 million in the aggregate. Id. The exercise price for the first and second tranches of Amazon Warrant Shares was set at

$1.1893 per share. Id. For the third tranche, the exercise price was to be determined once the second tranche vested. ¶ 45. The measurement date was also to be determined at that time. Id. Once Amazon made payments to Plug Power totaling $200 million, the third tranche of 20,368,784 Amazon Warrant Shares would vest in eight installments of 2,546,098 shares each time Amazon made an aggregate of $50 million in payments for goods and services to Plug Power, up to payments totaling $400 million in the aggregate. ¶ 44. Under the Agreement, the Warrant may be waived only with the written consent of the Company and the Warrant holder, Amazon. Doc. 105-5 at 71.

According to Plug Power internal documents, on October 20, 2020, Plug Power's Board of Directors convened and discussed the status of customer warrants, including “the status of the Amazon warrants and discussions with KPMG^[4] and Deloitte^[5] regarding the same.” ¶ 91. On November 2, 2020, Amazon entered the third tranche and the fair value of its over 20 million shares were estimated to be 909.5% greater than previous tranches. ¶ 156. The exercise price for the third tranche was set at $13.81, compared to $1.1893 for the first and second tranches. Id. Middleton stated that the increase in stock price and resulting increase in the value of the third tranche of warrants was unexpected. Id.

According to a Plug Power conference call held on November 6, 2020, Marsh and Middleton provided the Board with an update related to the status of the Amazon Warrant Shares, including shares vested and unvested, exercise price for vested shares, and the fact that the Warrant permitted cashless exercise. ¶ 93. Marsh advised the Board that

“due to the rapid pace of business expansion with Amazon and the rate of vesting of outstanding warrants to date” he recommended the Company “accelerate the remaining tranches of outstanding but unvested warrants.” Doc. 105-19 at 2 (November 6, 2020 Board of Directors Conference Call). He also advised the Board that “he and Management had engaged in extensive discussions with [] [their] accountant, KPMG, as well as the Company's tax advisor, Deloitte.” Id. The Board approved the resolution and directed the Company to execute the Warrant Waiver whereby “the Company [would] waiv[e] all remaining Vesting Events under the Warrant to Purchase Common Stock issued by the Company to Amazon on April 4, 2017 with respect to 55,286,696 shares of the .. Warrant, resulting in the vesting of an additional 20,368,784 shares of the Company's Common Stock under the Warrant.” Id. at 3.

At the time of Plug Power's Q3 earnings release on November 9, 2020, Marsh was in discussions with Amazon to immediately vest the entirety of the third tranche of the Amazon Warrant Shares “to avoid Plug Power perpetually incurring debilitating warrant costs to revenue.” ¶ 94. The SAC alleges that at the time, Defendants knew, but did not disclose, that the Amazon Transaction Agreement was no longer a tenable arrangement for Plug Power. ¶ 98. Due to the massive costs, Schumacher alleges that Defendants “knew that they had no choice but to waive the vesting conditions” for the outstanding Amazon Warrant Shares and incur hundreds of millions in revenue costs by the end of the Q4 of FY2020. ¶ 99.

Ultimately, on December 31, 2020, the Company waived the remaining vesting conditions (the “Warrant Waiver”), as reported on the Company's January 5, 2021 Form 8-K. ¶¶ 130, 297; see also Doc. 105-22 (January 5,...