Pomerantz Scores Significant Victory in Arconic Securities Litigation

Pomerantz won a significant victory for investors in Arconic, Inc. when Chief Judge Hornak of the Western District of Pennsylvania sustained the majority of plaintiffs’ claims in a securities class action that arose from the deadliest UK fire in more than a century. Plaintiffs alleged that during the class period, Arconic’s stock price was artificially inflated by the company’s misstatements about the safety of the insulating panels that were later implicated in the Grenfell Tower fire in London that killed 71 people in June 2017.  The tragic events have been the subject of significant press and television coverage.

Defendants successfully moved to dismiss the first amended complaint. Pomerantz filed a second amended complaint (“SAC”) with amplified and new factual allegations, convincing Judge Hornak to not only change his mind on many of the claims he had previously dismissed, but to make new law in plaintiffs’ favor on a number of significant issues.

While the majority of courts find that risk disclosure statements are inactionable, Judge Hornak sustained a risk disclosure statement that “Arconic believes it has adopted appropriate risk management and compliance programs to address and reduce those risks.” The court similarly found many value-based and safety statements to be false and misleading because “the new context provided by the [Second Amended Complaint] gives vitality” to those claims.

The court also found that statements made in brochures and on the company’s website were false and misleading because they satisfied the “in connection with” requirement. The court “considered it a particularly close question” but concluded that “the SAC drives a plausible inference that the online statements and brochure statements were alleged misrepresentations upon which reasonable investors would rely. Thus, Plaintiffs have adequately shown that the online statements and brochure statements were made “in connection with” the purchase or sale of a security.”     

Another hotly contested issue was loss causation, because the Third Circuit has not adopted (or rejected) the materialization of risk theory. The court applied it to find that the second amended complaint adequately plead loss causation under exactly that theory, finding that “[b]ecause Plaintiffs have adequately alleged facts that would trigger the materialization of risk theory, the court concludes that the SAC sufficiently pleads the loss causation element.”

A barrier to the pleading of scienter was the fact that the individuals whom plaintiffs argued possessed scienter worked at the French subsidiary of the US company. Here, the court imputed the scienter of employees of the company’s French subsidiary to the corporation despite the fact that the Third Circuit has not yet adopted the corporate scienter approach.

Pomerantz Partner Emma Gilmore, who leads Pomerantz’s litigation of the case, stated, “We are gratified that the court found that the amplified and new allegations in the second amended complaint transform the context in which defendants’ alleged misrepresentations were made. Its decision sets important new precedents in favor of investors.”

The case is Howard v. Arconic et al., No 2:17-cv-01057 (W.D. Pa.)