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Costas v. Ormat Technologies Inc.

United States District Court, D. Nevada

December 6, 2019

MAC COSTAS, et al., Plaintiffs,
ORMAT TECHNOLOGIES, INC., et al., Defendants.


          ROBERT C. JONES United States District Judge.

         Plaintiffs file this class action suit[1] against Defendants Ormat Technologies, Inc. (“Defendant” or “Ormat”), Isaac Angel, and Doron Blachar, alleging violations of Rules 10b-5 and 20(a) of the Securities Exchange Act of 1934 (“SEA”) and of Israeli securities law. Defendant Ormat files this motion to dismiss. For the following reasons, Defendant Ormat's motion to dismiss is denied and the case will proceed.


         In 2015, Ormat released a new strategic plan indicating its desire to “expand and accelerate growth through acquisitions and other investments, both domestically and globally.” (ECF No. 52 at ¶ 47.) Pursuant to the new plan, Ormat acquired the domestic company Viridity Energy, Inc. in 2017 and finalized a Power Purchase Agreement (“PPA”) with the Southern California Public Power Authority (“SCPPA”). As a result of those endeavors, Ormat re-evaluated its previous position of completely investing foreign earnings abroad, resulting in the need to perform calculations regarding tax repatriations to the United States. In March 2017, Ormat filed a Form 10-K with the Securities Exchange Commission (“SEC”) disclosing the discovery of a material weakness in its internal controls for financial reporting. In May 2018, Ormat issued a press release announcing it would have to delay the filing of its 2018 1Q 10-Q due to errors in the previous consolidated financial statements. Several days later, Ormat announced that the errors discovered would require a restatement of several prior financial reports from 2017. Concurrent with these announcements, Ormat's stock price fell a total of $4 per share, from $56.35 to $52.35. In June 2018, Ormat filed amended versions of the 2017 2Q 10-Q, 2017 3Q 10-Q, and 2017 10-K.

         On May 11, 2018, Plaintiff Mac Costas filed the original complaint against Defendants, alleging violations of Rules 10b-5 and 20(a). Following the addition of several interested parties, Plaintiff Phoenix Insurance Company Ltd. was appointed Lead Plaintiff for the proposed class and the class period was designated as August 8, 2017 to May 15, 2018, both dates inclusive. Lead Plaintiff then filed an amended consolidated complaint on May 13, 2019, incorporating the previous claims and adding a claim for violations of Israeli securities laws, to which Ormat filed the present motion to dismiss.


         1. General Pleading Standard

         Fed. R. Civ. P. 8(a)(2) requires that a complaint contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” In interpreting this Rule, the Supreme Court has noted that “the pleading standard Rule 8 announces does not require ‘detailed factual allegations,' but demands more than . . . ‘labels and conclusions' or ‘formulaic recitations of the elements of a cause of action.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007)). “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 570). Plausibility is satisfied where the pleaded factual content “allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678. Plausibility does not require a demonstration of probability, but “asks for more than a sheer possibility.” Id.

         Finally, “the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions.” Id. Consequently, while the Court “accept[s] all material allegations in the complaint as true and construe[d] . . . in the light most favorable to” the nonmoving party, NL Indus. v. Kaplan, 792 F.2d 896, 898 (9th Cir. 1986), it is not required to “accept as true allegations that contradict matters properly subject to judicial notice or by exhibit.” Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001). Nor is it required to accept “allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences.” Id.

         2. Securities Fraud Standard

         In a private securities action alleging fraud under Rule 10b-5, a plaintiff must plead “(1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a connection between the misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss causation.” Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S. 148, 157 (2008). Securities actions alleging fraud are subject to the heightened standard of Fed.R.Civ.P. 9(b), which requires that a plaintiff “must state with particularity the circumstances constituting fraud or mistake.” Rule 9(b) also provides that, due to the inherent difficulty in determining a person's state of mind absent discovery, “[m]alice, intent, knowledge, and other conditions of a person's mind may be alleged generally.” However, in 1995, Congress passed the Private Securities Litigation Reform Act (“PSLRA”), requiring that:

[T]he complaint . . . specify each statement alleged to have been misleading, the reason or reasons why the statement is misleading, and, if an allegation regarding the statement or omission is made on information and belief . . . state with particularity all facts on which that belief is formed . . . [and, ] with respect to each act or omission alleged to violate this chapter, state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.

15 U.S.C. § 78u-4(b). As a result, the Court applies a heightened pleading standard above that of Rule 9(b).


         1. Rule 10b-5 Claims

         Given the heightened pleading standard, the Court finds it more efficient to arrange the analysis by statement in controversy rather than by element.[2] However, with respect to scienter specifically, the Ninth Circuit applies:

[A] dual inquiry: first, we will determine whether any of the plaintiff's allegations, standing alone, are sufficient to create a strong inference of scienter; second, if no individual allegations are sufficient, we will conduct a “holistic” review of the same allegations to determine whether the insufficient allegations combine to create a strong inference of intentional conduct or deliberate recklessness.

Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981, 992 (9th Cir. 2009). Accordingly, the Court will include a holistic analysis of scienter following the review of individual statements, should it be necessary.

         a. Sarbanes-Oxley Certifications

         Defendant contends that Sarbanes-Oxley certifications “are not independently actionable under Section 10(b) of the Exchange Act.” (ECF No. 59 at 6:19-25) (citing In re Silicon Storage Tech., Inc. Sec. Litig., No. C-05-0295 PJH, 2007 WL 760535, at *17 (N.D. Cal. Mar. 9, 2007)).) In re Silicon Storage found that:

[W]ith regard to both the statement regarding inventory valuations and the statement regarding compliance with GAAP, the court notes that there is nothing in either the 1934 Securities Exchange Act or the Sarbanes-Oxley Act and implementing regulations that authorizes plaintiffs to base a claim for securities fraud on an alleged misstatement in a Sarbanes-Oxley certification.

2007 WL 760535 at *17. The Court respectfully disagrees. 15 U.S.C. § 78r(a) (“Section ...

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