On May 19, 2023, Judge Victor Marrero of the United States District Court for the Southern District of New York granted a motion to dismiss a putative securities class action against a solar equipment manufacturing company (the "Company") alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act (the "Exchange Act") and Sections 11 and 12(a)(2) of the Securities Act (the "Securities Act"). Plymouth Cnty. Ret. Ass'n v. Array Techs., Inc., No. 21-cv-04390 (S.D.N.Y. May 19, 2023). Plaintiffs alleged that the Company failed to warn investors about the impact rising steel prices would have on its business and misled investors about its business prospects in filings associated with the Company's October 2020 initial public offering ("IPO") and subsequent secondary public offerings ("SPOs"). The Court dismissed the complaint in its entirety with leave to amend.
The Company manufactures equipment that allows solar panels to move throughout the day to optimize exposure to the sun. The equipment is made mainly of steel. The Company conducted several public offerings in 2020 and 2021. In early 2020, at the beginning of the COVID-19 pandemic, demand for steel fell sharply, causing steel mills to reduce production or cease operations. As the economy reopened in late 2020, demand for steel rebounded. However, months of decreased production and supply chain disruptions caused the price of steel to rise. Approximately six weeks after the close of an SPO in March 2021, the Company allegedly disclosed that steel costs made up roughly 50% of its cost of goods and advised that, because steel prices were not stabilizing, the Company would be withdrawing its prior guidance.
Plaintiffs challenged several statements made in the Company's IPO Registration Statement and Prospectus, as well as statements made by Company executives in earnings calls and press releases, alleging the Company did not "timely disclos[e] the impact of the increases in steel and freight costs on the Company's margins and business prospects." Plaintiffs also alleged that the Company made false statements regarding the Company's ability to reduce costs through supply chain management.
The Court first dismissed plaintiffs' Exchange Act claims, pointing to plaintiffs' failure to plead falsity with sufficient specificity under Rule 9(b). The Court emphasized that plaintiffs' generic allegations of falsity for at least fifteen of the statements failed to satisfy Rule 9(b)'s requirement that a plaintiff "demonstrate with specificity why and how" every statement is false or misleading. Although the Court found sufficient reason to dismiss the complaint on Rule 9(b) grounds alone, the Court also held that many of the Company's statements were non-actionable as "mere corporate puffery" or were true when they were made. For example, the Court noted that the alleged misstatements about the Company's ability to reduce costs were "backwards looking, describing [the Company]'s past performance with accuracy." According to the Court, plaintiffs' "argument collapses to merely a quarrel with [the Company's] inability to accurately predict the future. Such arguments do not pass muster as sufficient to sustain claims of fraud." Finally, the Court held that several of the Company's statements constituted forward-looking statements protected under the Private Securities Litigation Reform Act ("PSLRA").
Although plaintiffs' Securities Act claims were not subject to Rule 9(b)'s heightened pleading standard, those claims also were dismissed because "the Court found that the statements were also insufficiently false or misleading or were otherwise protected."
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