Murphy v. Precision Castparts Corp.

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF OREGON

KEVIN MURPHY, Individually and On Case No. 3:16-cv-00521-SB

Behalf of All Others Similarly Situated,

OPINION AND ORDER

Plaintiff,

v.

PRECISION CASTPARTS CORP., MARK

DONEGAN, and SHAWN R. HAGEL,

Defendants.

BECKERMAN, U.S. Magistrate Judge.

AMF Pensionsförsäkring AB and the Oklahoma Firefighters Pension and Retirement

System (hereinafter, “Lead Plaintiffs”) filed an Amended Class Action Complaint for Violation

of the Federal Securities Laws on behalf of all persons or entities who purchased or otherwise

acquired the publicly traded securities of Precision Castparts Corporation (“PCC”) between May

9, 2013 and January 15, 2015 (hereinafter, the “Class Period”), seeking remedies under the

Securities Exchange Act of 1934 (“Exchange Act”), as amended by the Private Securities

Litigation Reform Act of 1995 (“PSLRA”). Lead Plaintiffs allege that PCC, PCC’s Chairman

and Chief Executive Officer (“CEO”) Mark Donegan (“Donegan”), and PCC’s Executive Vice

President and Chief Financial Officer (“CFO”) Shawn Hagel (“Hagel”) (together, “Defendants”)

violated Sections 10(b) and 20(a) of the Exchange Act and Securities and Exchange Commission

(“SEC”) Rule 10b-5 promulgated thereunder.

Lead Plaintiffs and Defendants filed cross motions for summary judgment pursuant to

FED. R. CIV. P. 56. On July 3, 2020, the Court denied Lead Plaintiffs’ motion for partial summary

judgment, and granted in part and denied in part Defendants’ motion for summary judgment.

(ECF No. 308) (the “July 3, 2020 Opinion”).1 On October 5, 2020, the Court denied Defendants’

motion for reconsideration of the Court’s July 3, 2020 Opinion. (ECF No. 316.)

Currently before the Court is Defendants’ second motion for reconsideration of the

Court’s July 3, 2020 Opinion, in light of the Ninth Circuit’s recent opinion in Wochos v. Tesla,

Inc., 985 F.3d 1180 (9th Cir. 2021). (ECF No. 319.) The Court has jurisdiction over this matter

under 28 U.S.C. § 1331, and all parties have consented to the jurisdiction of a U.S. Magistrate

Judge pursuant to 28 U.S.C. § 636. For the reasons discussed below, the Court grants

Defendants’ motion for reconsideration, and enters summary judgment for Defendants on all

remaining counts.

BACKGROUND

Lead Plaintiffs allege that Defendants made forty-four statements during the Class Period

that were materially false and misleading, primarily with respect to PCC’s earnings guidance for

Fiscal Year 2016 (“FY16”). Lead Plaintiffs’ theory of liability is that Defendants always knew

the FY16 earnings guidance was unattainable because their financial projections were based on

unrealistic assumptions, and Defendants knew throughout the Class Period that PCC was failing

1 In that opinion, the Court granted summary judgment for Hagel on all of Lead

Plaintiffs’ claims against her, and therefore only PCC and Donegan remain as defendants. (July

3, 2020 Opinion at 75-79.)

to achieve the organic growth necessary to meet the target, in part because PCC’s practice of

pulling in sales to earlier quarters was unsustainable and a large customer was continuing to

destock its inventory. Lead Plaintiffs allege that Defendants nevertheless made statements

throughout the Class Period misrepresenting that PCC was achieving anticipated benchmarks en

route to its FY16 target, which created an impression of a state of affairs materially different

from the one that existed.

In its July 3, 2020 Opinion, the Court granted Defendants’ motion for summary judgment

with respect to twenty-six of the alleged misstatements. See July 3, 2020 Opinion at 55, 62

(entering summary judgment with respect to Statements 1-7, 10, 13-14, 16-17, 20-21, 27, 29-33,

35, 38, 40-41, and 43-44). However, the Court denied the motion with respect to eighteen of the

challenged statements. See July 3, 2020 Opinion at 51-53, 57 (denying summary judgment with

respect to Statements 8-9, 11-12, 15, 18-19, 22-26, 28, 34, 36-37, 39, and 42). Defendants now

move the Court to reconsider its opinion in light of the Ninth Circuit’s opinion in Tesla.

DISCUSSION

I. LEGAL STANDARDS

“Although the Federal Rules of Civil Procedure do not expressly authorize a motion for

reconsideration, ‘[a] district court has the inherent power to reconsider and modify its

interlocutory orders prior to the entry of judgment.’” Am. Med. Response Nw., Inc. v. ACE Am.

Ins. Co., 31 F. Supp. 3d 1087, 1091 (D. Or. 2014) (quoting Smith v. Massachusetts, 543 U.S.

462, 475 (2005)); see also Coultas v. Payne, No. 3:11-cv-00045-AC, 2016 WL 4385835, at *4

(D. Or. Aug. 15, 2016) (granting motion for reconsideration of motion for summary judgment in

light of intervening, controlling case law); FED. R. CIV. P. 54(b) (“[A]ny order or other decision,

however designated, that adjudicates fewer than all the claims or the rights and liabilities of

fewer than all the parties does not end the action as to any of the claims or parties and may be

revised at any time before the entry of a judgment adjudicating all the claims and all the parties’

rights and liabilities.”).

II. ANALYSIS

Defendants argue that the Ninth Circuit’s Tesla opinion requires the Court to reconsider

its July 3, 2020 Opinion with respect to its analysis of the PSLRA’s Safe Harbor for forward-

looking statements and the falsity element of Section 10(b) of the Exchange Act.

A. The Ninth Circuit’s Tesla Opinion

In Tesla, the plaintiffs alleged that Tesla, its Chairman and Chief Executive Officer Elon

Musk (“Musk”), and another officer misled the market about Tesla’s progress in producing its

Model 3 in 2017. The plaintiffs alleged that fifteen of the defendants’ public statements about

Tesla’s goal of manufacturing 5,000 vehicles per week by the end of 2017 were materially false

and misleading because the defendants knew that the projected level of production was

unattainable. The Ninth Circuit affirmed the district court’s dismissal of the second amended

complaint without leave to amend, holding that the plaintiffs “failed to plead sufficient facts to

avoid the PSLRA’s safe harbor or to establish falsity.” Tesla, 985 F.3d at 1190; see also id. at

1196.

Specifically, the Ninth Circuit found that the following statements were not actionable:

“[Tesla is] not really seeing any significant change that needs to occur with Model 3” to reach its

target; “it’s coming in as expected”; “it’s getting pretty close to the bull’s-eye”; “I’m not aware

of anything that would affect our prior statements about volume target”; “I don’t know anything

that would prevent us from [meeting our target]”; “there are no issues”; “preparations at our

production facilities are progressing [to meet our target]”; “we are on-track for start of Model 3

production”; and “we continue to remain on track.” Id. at 1190-91. The plaintiffs alleged that

Musk knew long before he made these statements that producing 5,000 vehicles a week in 2017

was unattainable, in part because the plant’s director of manufacturing had informed Musk that

there was “zero chance that the plant would be able to produce 5,000 Model 3s per week by the

end of 2017.” Id. at 1186.

The Ninth Circuit applied its opinion in In re Quality Systems, Inc. Securities Litigation,

865 F.3d 1130 (9th Cir. 2017), to analyze Musk’s “mixed” statements. The Ninth Circuit held in

Quality Systems that “the PSLRA’s safe harbor does not apply in an all-or-nothing fashion,

because some statements about the future may combine non-actionable forward-looking

statements with separable—and actionable—non-forward looking statements.” Tesla, 985 F.3d at

1190 (citing Quality Sys., 865 F.3d at 1142). “In the context of such ‘mixed’ statements, only the

forward-looking aspects could be immunized from liability, because the safe harbor is not

‘designed to protect [issuers] when they make a materially false or misleading statement about

current or past facts, and combine that statement with a forward-looking statement.’” Id. at 1190

(quoting Quality Sys., 865 F.3d at 1141-42).

The Ninth Circuit first addressed whether the Safe Harbor protects Musk’s statements

that Tesla remained “on track” to reach its target:

Because any announced ‘objective’ for ‘future operations’ necessarily reflects an

implicit assertion that the goal is achievable based on current circumstances, an

unadorned statement that a company is ‘on track’ to achieve an announced

objective, or a simple statement that a company knows of no issues that would

make a goal impossible to achieve, are merely alternative ways of declaring or

reaffirming the objective itself.

Id. at 1192 (“The statutory safe harbor would cease to exist if it could be defeated simply by

showing that a statement has the sort of features that are inherent in any forward-looking

statement.”). Thus, it is now clear that the Safe Harbor protects statements that a company

remains “on track” to meets its target. Cf. July 3, 2020 Opinion at 50 (“[C]ourts are split on

whether such ‘on track’ statements are forward-looking.”) (collecting cases).

The Ninth Circuit next examined whether “Plaintiffs have sufficiently pleaded that any of

the challenged . . . statements went beyond the mere declaration of the year-end goal in a way

that includes a non-forward looking statement.” Tesla, 985 F.3d at 1192. “In this regard, we

reiterate that it is not enough to plead that a challenged statement rests on subsidiary premises

about how various future events will play out over the timeframe defined by the forward-looking

statement.” Id. The Ninth Circuit noted that “‘statements of the assumptions underlying or

relating’ to a declared objective are also deemed to be forward-looking statements.” Id. (citing 15

U.S.C. § 78u-5(i)(1)(D)). However, “[i]n contrast to such ‘assumptions’ about future events, a

concrete factual assertion about a specific present or past circumstances goes beyond the

assertion of a future goal, and beyond the articulation of predicate assumptions, because it

describes specific, concrete circumstances that have already occurred.” Id. at 1192. “Such

statements are therefore not forward-looking, and—unlike ‘on track’ assertions—they do not rest

on the sort of features that are intrinsic to all forward-looking statements.” Id.

The Ninth Circuit provided examples of a concrete factual assertion about specific

present or past circumstances: “[W]hile one cannot declare a goal without implicitly or explicitly

stating that it is achievable, one can readily announce an objective without stating, for example,

that the reason why it is achievable is because production of relevant units actually rose 76%

over the last quarter or because the company has actually hit certain intermediate benchmarks.”

Id. (emphasis added). “If such factual assertions are made and are false, then they are outside the

safe harbor and potentially actionable.” Id.

The Ninth Circuit concluded that the Tesla plaintiffs had not pleaded any such actionable

statements. Id. at 1192, 1195-96. The Ninth Circuit found that Tesla’s reaffirmations of its year-

end goal, and its statements that it remained “on track” to achieve the goal “are forward-looking

for the same reasons that Tesla’s original projections and assumptions in May are.” Id. at 1195.

The Ninth Circuit also found that Tesla’s statement that its “‘preparedness at this time’ would

allow it to achieve its year-end goal does not go beyond what is inherent in declaring any

forward-looking objective.” Id. at 1196. The Ninth Circuit explained that “[s]uch a generic

statement does not include the sort of ‘concrete description’ about the facts concerning the ‘past

and present state’ of production that [the Ninth Circuit] confronted in Quality Systems[.]” Id.

The Ninth Circuit also found that the Tesla plaintiffs failed adequately to plead falsity

with respect to Tesla’s vague statements about its “great progress” on production, finding that

such a statement would be an actionable false statement only if Tesla had been “making no

progress at all.” Id.

B. Donegan’s FY16 Target Statements

The Court agrees with Defendants that Musk’s non-actionable statements in Tesla (e.g.,

“it’s coming in as expected”; “getting pretty close to the bull’s-eye”; “there are no issues”;

“preparations are progressing”; “we are on-track”) are indistinguishable from Donegan’s FY16

target statements here (e.g., “we’re on that slope”; “we’re pretty much on that drum beat”; “we

hover around that line”; “the framework . . . is all intact”; “nothing has gone negative”; “we’ve

been able to stay on that continuum”; and “there is no change to the . . . framework we laid out”).

Specifically, although this Court previously held that the Safe Harbor does not protect Donegan’s

“on the line” statements because they contained facts about PCC’s current circumstances, it is

clear from the Ninth Circuit’s reasoning in Tesla that Donegan’s relatively generic statements do

not include sufficiently “concrete descriptions” of present facts to fall outside the protection of

the Safe Harbor.2 Tesla, 985 F.3d at 1196.

2 In contrast, the Ninth Circuit held in Quality Systems, on which this Court relied in its

July 3, 2020 Opinion, that the defendants’ statements such as “there is nothing drying up and

In addition, Donegan’s statements here about PCC’s current circumstances are just as

vague as Musk’s statements in Tesla, and thus under the Ninth Circuit’s reasoning in Tesla these

statements are too vague to be actionable.3 Id. at 1196. For example, the Ninth Circuit held that

Musk’s statement about Tesla making “great progress” cannot be false unless Tesla had been

“making no progress at all.” Id. Similarly, under Tesla’s reasoning, Donegan’s statements that

“the framework is intact” cannot be false unless there was no longer any part of the framework

intact. In addition, Donegan’s statements about being on or near the “line” or “slope” cannot be

false unless he was clear regarding the specifics of the line or slope to which he was referring.

Lead Plaintiffs argue that the Ninth Circuit held in Tesla that a company’s statement that

it “has actually hit certain intermediate benchmarks” is sufficiently concrete and specific to

qualify as a “concrete factual assertion[] about a specific present or past circumstance.” (Lead

Pls.’ Opp’n at 2.) Indeed, this Court held in its July 3, 2020 Opinion that a statement about

hitting incremental benchmarks en route to a target articulates a present fact about the company’s

circumstances. See July 3, 2020 Opinion at 51 (“The statements at issue here more forcefully

suggest that PCC is currently positioned right where it anticipated it would be when it issued the

there is nothing slowing down,” “our pipeline is deep,” “our categories . . . are strong,” and “our

fundamentals haven’t changed” (Quality Sys., 865 F.3d at 1143) “provided a concrete description

of the past and present state of the [defendants’] pipeline” and were therefore actionable. Id. at

1144; see also id. at 1142 (discussing a statement that sales are “still going strong” as an

actionable misstatement if the speaker knew that sales were about to collapse) (citing Makor

Issues & Rights, Ltd. v. Tellabs, Inc., 513 F.3d 702, 705 (7th Cir. 2008)).

3 The Court also agrees with Defendants that under Tesla, Statement 19 is too vague to be

actionable. See July 3, 2020 Opinion at 16-17 (“We are a linear-thinking group of people. We’re

financially driven. Everything we do breaks down to a financial model. Let there be no mistake.

It breaks itself down to the core components. So it’s not a hope and a prayer. . . . So our mindset

is going to be linear. You’re going to see different movements. I didn’t shirk when we didn’t get

the acceleration from—because of the destocking. You know what, we pull the other levers. We

got cost takeout. We’ve got these acquisitions. I know all the levers that are there.”).

guidance, i.e., that it had achieved an incremental benchmark.”) (citing Cutler v. Kirchner, 696

F. App’x 809, 814 (9th Cir. 2017)). However, this Court reads Tesla to instruct that a company

must disclose that it reached a specific benchmark for the statement to be actionable, not that it

reached an undisclosed or non-specific benchmark. The Court bases that conclusion on the Ninth

Circuit’s inclusion of an example of such a concrete statement—“production of relevant units

actually rose 76% over the last quarter”—and on Tesla’s holding that Musk’s benchmark-like

statements (e.g., “it’s coming in as expected”) were too vague to be actionable.

As in Tesla, where the plaintiffs alleged that Musk knew Tesla’s announced target was

close to impossible to attain but continued to make statements that Tesla was progressing toward

the target, here the plaintiffs have presented evidence that suggests Donegan knew the

announced target was close to impossible to attain but continued to make statements that PCC

was progressing toward its target. In light of Tesla, Defendants’ statements that remain at issue

here were not sufficiently concrete to qualify as “a concrete factual assertion about a specific

present or past circumstances,” nor specific enough for Lead Plaintiffs to establish falsity. Tesla,

985 F.3d at 1192. Accordingly, the Court reconsiders its prior opinion, and grants Defendants’

motion for summary judgment on Lead Plaintiffs’ remaining FY16 statements (Statements 11,

15, 22, 24, 26, 28, 34, 36, and 39; and Statement 19).

C. Donegan’s Other Statements

Defendants argue that the Court should enter summary judgment on all of the remaining

statements that do not fall under the FY16 target category because Lead Plaintiffs’ loss causation

evidence identified corrective disclosure events only with respect to alleged misrepresentations

regarding the FY16 target. (Defs.’ Mot. for Reconsideration at 9; Defs.’ Reply at 11.) Lead

Plaintiffs appear to accept that they have not established loss causation with respect to these

other statements.4 See Lead Pls.’ Opp’n at 25 (“Defendants’ arguments that the Court should

reconsider its conclusions with respect to loss causation is premised on their erroneous argument

that Tesla compels the Court to revisit its rulings with respect to the Safe Harbor. As shown here,

those arguments fail, and so there is no basis to reconsider the Court’s finding that genuine

disputes exist with respect to loss causation and damages.”).

In its July 3, 2020 Opinion, the Court denied Defendants’ Daubert motion with respect to

Lead Plaintiffs’ loss causation expert, Chad Coffman, holding that:

Although the Court agrees with Defendants that Coffman’s opinion does not fit

squarely with Lead Plaintiffs’ theories specific to pull-in sales and destocking

standing alone, his opinion is consistent with Lead Plaintiffs’ primary theory of

liability that Defendants falsely assured investors that PCC was hitting

benchmarks along the way to reaching the FY16 Target while omitting material

information about PCC’s organic growth, reliance on pull-in sales, and the impact

of destocking.

(July 3, 2020 Opinion at 73.) In other words, Coffman’s opinion established loss causation with

respect to Lead Plaintiffs’ primary theory of liability on the FY16 target statements, but did not

establish loss causation for the other challenged statements relating to destocking if those

statements were to stand alone. Now that the Court has entered summary judgment with respect

to the FY16 target statements, Lead Plaintiffs have failed to establish loss causation with respect

to any of the remaining statements. Accordingly, the Court enters summary judgment for

Defendants with respect to all of the remaining statements at issue (Statements 8-9, 12, 18, 23,

25, 37, and 42).

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4 Lead Counsel also acknowledged at oral argument that the Lead Plaintiffs’ expert report

does not support a loss causation finding with respect to statements other than those addressing

the FY16 target. (See 4/21/21 Tr. at 37-38.)

CONCLUSION

For the reasons set forth above, the Court GRANTS Defendants’ Motion for

Reconsideration of the Court’s July 3, 2020 Opinion and Order (ECF No. 319), reconsiders its

opinion in light of the Ninth Circuit’s opinion in Tesla, and enters summary judgment for

Defendants on all of Lead Plaintiffs’ remaining claims.

IT IS SO ORDERED.

DATED this 24th day of May, 2021.

HON. STACIE F. BECKERMAN

United States Magistrate Judge