In re Tenaris S.A. Sec. Litig.

493 F.Supp.3d 143

IN RE TENARIS S.A. SECURITIES LITIGATION

18-cv-7059 (RJD) (SJB)

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

Signed October 9, 2020

Kara M. Wolke, Jason L. Krajcer, and Melissa C. Wright from Glancy Prongay & Murray LLP, for plaintiffs Jeffrey Sanders and Starr Sanders.

MEMORANDUM & ORDER

DEARIE, District Judge

This is a purported class action securities fraud suit brought under Sections 10(b) and 20(a) of the Securities Exchange Act ("Exchange Act") by Plaintiffs Jeffrey Sanders and Starr Sanders (collectively, "Plaintiffs") against Defendants Tenaris S.A. ("Tenaris"), Paolo Rocca, Edgardo Carlos, Techint Holdings S.a. r.l. ("Techint"), and San Faustin S.A. ("San Faustin") (collectively, "Defendants"). Plaintiffs allege materially misleading statements and omissions in certain Tenaris public filings made during the purported class period and publicly disclosed employee codes that are referenced in the class period filings. Plaintiffs claim that all Defendants are liable under § 10(b) and that Rocca, Carlos, Techint, and San Faustin are also liable under § 20(a) as "control persons." Defendants move to dismiss under Fed. R. Civ. P. 12(b)(6) for failure to state a claim, and San Faustin and Techint also move to dismiss under Fed. R. Civ. P. 12(b)(2) for lack of personal jurisdiction. For the reasons set forth below, San Faustin's and Techint's motions to dismiss for lack of personal jurisdiction are DENIED; San Faustin's, Techint's, and Carlos's motions to dismiss for failure to state a claim are GRANTED; Rocca's motions to dismiss are DENIED; and Tenaris's motion to dismiss is DENIED.

BACKGROUND

Plaintiffs bring this suit on behalf of a purported class of fellow investors who acquired American Depository Shares of Tenaris during the class period of May 1, 2014 through December 5, 2018. Amended Complaint, Dkt. No 36, ("Amended Complaint") ¶¶ 1, 24. Defendants are corporations and executives within the so-called "Techint Group."¹ This case arises out of the downturn in Tenaris's stock price that followed the 2018 disclosure of information implicating Techint Group executives in a decade-old scheme to bribe Argentine government officials. Amended Complaint ¶¶ 11, 143-146.

I. The Argentine Bribery Scheme

According to the Amended Complaint, late in 2005 and again in 2006, at meetings attended by Rocca, Argentine President Nestor Kirchner, First Lady Cristina Kirchner, Argentine cabinet ministers, and sub-cabinet aides, Rocca sought the Argentine government's help in convincing Venezuelan President Hugo Chavez not to nationalize the Venezuelan assets of SIDOR, a Tenaris subsidiary. Id. ¶¶ 77-78. After the 2006 meeting, an Argentine Planning Ministry aide was dispatched to tell Techint Group executives to "fork it over" if they wanted the Argentine government's help. Id. ¶ 78. One year later, in February 2007, a Planning Ministry aide personally asked Rocca and Techint director Luiz Betnaza to "increase Techint Group's financial support for the Argentine government." Id. ¶ 79. After another solicitation from the Planning Ministry aide, Betnaza began passing bribes to the Kirchners via the Planning Ministry aide in $100,0000 installments totaling $600,000 to $700,000. Id. ¶ 80.

On April 9, 2008, Venezuela announced its intention to nationalize SIDOR's Venezuelan assets. Id. ¶ 82. But negotiations between Venezuelan officials and Techint Group executives over SIDOR's valuation continued for months. Id. ¶ 87. During these negotiations, Techint executive Hector Zabaleta allegedly paid at least $1 million to Argentine officials in exchange for further efforts to lobby Venezuelan officials. Id. ¶¶ 94-95.

This bribery scheme remained out of public view for about a decade until 2018 when it burst into the open as part of the sprawling corruption allegations known as "The Notebooks Case." Faced with these accusations, Rocca allegedly admitted to Argentine investigators that Techint Group executives bribed Argentine officials but denied contemporaneously knowing that bribery was afoot. Id. ¶ 100. On November 27, 2018, the press reported that an Argentine judge charged Rocca with graft and bribery. Id. ¶ 14. After news of the charges against Rocca broke, Tenaris stock fell approximately 10 percent in one day. Id. ¶ 15. The following month, Tenaris stock fell another 5 percent after the press reported that Argentine prosecutors requested that Rocca be detained. Id. ¶¶ 16-17. However, in April 2019, an Argentine court "revoke[d]" the charges against Rocca for insufficient evidence but called on prosecutors to continue their investigation. Declaration of Brendan P. Cullen, Dkt. No. 55, ("Cullen Declaration"), Exhibit 1.

II. Uzbekistan Bribery Scheme

In 2011, the Securities and Exchange Commission ("SEC") alleged that from 2006 to 2009, a period that overlaps with the Argentine bribery scheme, Tenaris engaged in bribery in Uzbekistan. Amended Complaint ¶¶ 56-57. The SEC and Tenaris entered into a deferred prosecution agreement ("SEC DPA") regarding the Uzbekistan bribery scheme, the terms of which were in effect from May 2011 to May 2013. Id. ¶ 60; Cullen Declaration, Exhibit 2. Under the SEC DPA, Tenaris agreed to pay a $5.4 million fine; annually review its corporate code of conduct; require senior directors and officers to annually certify compliance with the code of conduct; and, conduct anti-corruption compliance training. Cullen Declaration, Exhibit 2.

III. Alleged Misstatements and Omissions

During the purported class period, Tenaris filed five annual SEC Form 20-Fs.² Plaintiffs claim that certain statements and omissions in Tenaris's class period Form 20-Fs, its Code of Conduct, and its Code of Ethics are rendered materially misleading by the 2018 disclosures in The Notebooks Case. Specifically, Plaintiffs allege falsities in (1) the Sarbanes-Oxley Act Certification portion of the Form 20-Fs ("SOX Certifications"), Amended Complaint ¶ 107; (2) Tenaris's Code of Conduct, Code of Ethics, and the references to each code in the Form 20-Fs, id. ¶¶ 101-04, 109; and (3) the "risk factor disclosure" portion of the Form 20-Fs, id. ¶ 111. Plaintiffs also allege that the Form 20-Fs omit (1) that bribes were paid to Argentine officials; (2) that bribery violates the law and exposes Tenaris to adverse legal consequences; (3) that the bribery heightened the risk to Tenaris's operations, financial performance, and share price; and (4) the lack of internal controls that allowed the bribery scheme to flourish. Id. ¶¶ 106, 110.

DISCUSSION

I. Personal Jurisdiction Over The Parent Defendants

San Faustin and Techint (collectively, "Parent Defendants") seek dismissal under Rule 12(b)(2) for lack of personal jurisdiction. Plaintiffs need only make "legally sufficient allegations of jurisdiction, including an averment of facts that, if credited, would suffice to establish jurisdiction." See Charles Schwab Corp. v. Bank of America Corp., 883 F.3d 68, 81 (2d Cir. 2018). Because the Exchange Act "permits the exercise of personal jurisdiction to the limit of the Due Process Clause of the Fifth Amendment," S.E.C. v. Unifund SAL, 910 F.2d 1028, 1033 (2d Cir. 1990) ; see 15 U.S.C. § 78aa, "the sole question here is whether due process permits the exercise of jurisdiction" over the Parent Defendants, see DoubleLine Capital LP v. Construtora Norberto Odebrecht, S.A., 413 F. Supp. 3d 187, 217 (S.D.N.Y. 2019).

Plaintiffs submit that the Parent Defendants are subject to the Court's personal jurisdiction under the "alter ego" theory, which permits the Court to exercise personal jurisdiction when a corporation is an alter ego of a corporation that would be subject to personal jurisdiction in that Court. See Transfield ER Cape Ltd. v. Indus. Carriers, Inc., 571 F.3d 221, 224 (2d Cir. 2009) (citing Patin v. Thoroughbred Power Boats, 294 F.3d 640, 653 (5th Cir. 2002) ); Wm. Passalacqua Builders, Inc. v. Resnick Developers South, Inc., 933 F.2d 131, 143 (2d Cir. 1991) ("alter egos are treated as one entity for jurisdictional purposes"). The Parent Defendants counter first with the threshold objection that the alter ego theory of personal jurisdiction violates due process, despite the Second Circuit's clear recognition that it does not. See In re Commodity Exchange Inc., 213 F. Supp. 3d 631, 680 (S.D.N.Y. 2016) (quoting Transfield ER Cape Ltd., 571 F.3d at 224 ). They contend that the recent Supreme Court decisions in Walden v. Fiore, 571 U.S. 277, 284, 134 S.Ct. 1115, 188 L.Ed.2d 12 (2014), and Daimler AG v. Bauman, 571 U.S. 117, 134 S.Ct. 746, 187 L.Ed.2d 624 (2014), stripped courts of the right to exercise personal jurisdiction based on an alter ego relationship.

The key passage the Parent Defendants highlight in Walden is: "For a state to exercise jurisdiction consistent with due process, the defendant's suit-related conduct must create a substantial connection with the forum State ... [T]he relationship must arise out of contacts that the defendant himself creates with the forum State." Walden, 571 U.S. at 284, 134 S.Ct. 1115 (emphasis in original). The Parent Defendants argue that this rule sounded the death knell for the alter ego theory of personal jurisdiction.

The Parent Defendants’ interpretation of Walden is incorrect. The Supreme Court was emphasizing that a personal jurisdiction analysis requires courts to evaluate the forum contacts that the "defendant himself creates" as distinguished from the Ninth Circuit's inappropriate focus on the forum contacts the plaintiff creates. This is far afield from voiding the alter ego theory of personal jurisdiction and is nothing more than a reaffirmation of well-established personal jurisdiction law. On the contrary, the alter ego theory of personal jurisdiction is consistent with the directive to evaluate the contacts the "defendant himself creates." For in an alter ego relationship, as the Court is about to explain more fully, the Parent Defendants are the "real actor[s]" behind their subordinate entity....