United States District Court, E.D. Michigan, Southern Division
CARL PALAZZOLO and ALBERT FERRANDI, Individually and On Behalf of All Others Similarly Situated, Plaintiffs,
FIAT CHRYSLER AUTOMOBILES N.V., SERGIO MARCHIONNE, RICHARD K. PALMER, and REID BIGLAND, Defendants.
OPINION AND ORDER DENYING DEFENDANTS' MOTION TO
DISMISS THE CONSOLIDATED CLASS ACTION COMPLAINT
V. PARKER U.S. DISTRICT JUDGE
a putative class action securities fraud case, in which
investors in Fiat Chrysler Automobiles N.V.
(“FCA”) common stock are suing FCA and the
following FCA executives: Chief Executive Officer Sergio
Marchionne (“Marchionne”), Chief Financial
Officer Richard K. Palmer (“Palmer”), and Head of
U.S. Sales Reid Bigland (“Bigland”).
Court-appointed Lead Plaintiffs Carl Palazzolo and Albert
Ferrandi filed a Consolidated Class Action Complaint
(“Complaint”) on March 17, 2017. In the
Complaint, Lead Plaintiffs allege that Defendants made
materially false and misleading statements and/or omissions
concerning a streak of increased monthly year-over-year
United States retail sales by FCA during the Class Period
(i.e., November 3, 2014 and July 26, 2016, inclusive), which
Lead Plaintiffs claim was based on “fake” sales.
Lead Plaintiffs further allege that Defendants'
statements or omissions resulted in the artificial inflation
of the price of FCA common stock, which declined when the
truth about FCA's U.S. sales emerged. The matter
presently is before the Court on Defendants' motion to
dismiss, filed pursuant to Rules 9(b) and 12(b)(6) of the
Federal Rules of Civil Procedure and the Private Securities
Litigation Reform Act of 1995 (“PSLRA”), 15
U.S.C. § 78u-4. The parties have fully briefed the
motion. Finding the facts and legal arguments adequately
presented in the parties' briefs, the Court is dispensing
with oral argument pursuant to Eastern District of Michigan
Local Rule 7.1(f). For the following reasons, the Court is
denying the motion.
Standard of Review
motion to dismiss pursuant to Rule 12(b)(6) tests the legal
sufficiency of the complaint. RMI Titanium Co. v.
Westinghouse Elec. Corp., 78 F.3d 1125, 1134 (6th Cir.
1996). Under Federal Rule of Civil Procedure 8(a)(2), a
pleading must contain a “short and plain statement of
the claim showing that the pleader is entitled to
relief.” To survive a motion to dismiss, a complaint
need not contain “detailed factual allegations, ”
but it must contain more than “labels and
conclusions” or “a formulaic recitation of the
elements of a cause of action . . . .” Bell
Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). A
complaint does not “suffice if it tenders ‘naked
assertions' devoid of ‘further factual
enhancement.'” Ashcroft v. Iqbal, 556 U.S.
662, 678 (2009) (quoting Twombly, 550 U.S. at 557).
Supreme Court provided in Iqbal and
Twombly, “[t]o 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.'” Id. (quoting Twombly,
550 U.S. at 570). “A claim has facial plausibility when
the plaintiff pleads factual content that allows the court to
draw the reasonable inference that the defendant is liable
for the misconduct alleged.” Id. (citing
Twombly, 550 U.S. at 556). The plausibility standard
“does not impose a probability requirement at the
pleading stage; it simply calls for enough facts to raise a
reasonable expectation that discovery will reveal evidence of
illegal [conduct].” Twombly, 550 U.S. at 556.
deciding whether the plaintiff has set forth a
“plausible” claim, the court must accept the
factual allegations in the complaint as true. Erickson v.
Pardus, 551 U.S. 89, 94 (2007). This presumption,
however, is not applicable to legal conclusions.
Iqbal, 556 U.S. at 668. Therefore,
“[t]hreadbare recitals of the elements of a cause of
action, supported by mere conclusory statements, do not
suffice.” Id. (citing Twombly, 550
U.S. at 555).
the court may not consider matters outside the pleadings when
deciding a Rule 12(b)(6) motion to dismiss. Weiner v.
Klais & Co., Inc., 108 F.3d 86, 88 (6th Cir. 1997)
(citing Hammond v. Baldwin, 866 F.2d 172, 175 (6th
Cir. 1989)). A court that considers such matters must first
convert the motion to dismiss to one for summary judgment.
See Fed. R. Civ. P 12(d). However, “[w]hen a
court is presented with a Rule 12(b)(6) motion, it may
consider the [c]omplaint and any exhibits attached thereto,
public records, items appearing in the record of the case and
exhibits attached to [the] defendant's motion to dismiss,
so long as they are referred to in the [c]omplaint and are
central to the claims contained therein.” Bassett
v. Nat'l Collegiate Athletic Ass'n, 528 F.3d
426, 430 (6th Cir. 2008).
a securities fraud case, the court may consider the full text
of filings with the United States Securities and Exchange
Commission (“SEC”) when deciding a Rule 12(b)(6)
motion, even if they are not attached to the complaint.
Bovee v. Coopers & Lybrand C.P.A., 272 F.3d 356,
360-61 (6th Cir. 2001). Nevertheless, “[i]t would be
improper for the [c]ourt to rely upon these documents to
determine disputed factual issues” or to “make
any determination as to the truth of any of the facts alleged
or otherwise asserted in the documents themselves.”
In re Unumprovident Corp. Sec. Litig., 396 F.Supp.2d
858, 875-76 (E.D. Tenn. 2005). “Such documents should
be considered only for the purpose of determining what
statements the documents contain, not to prove the truth of
the documents' contents.” In re Direct Gen.
Corp. Sec. Litig., 398 F.Supp.2d 888, 893 (M.D. Tenn.
2005) (citing Lovelace v. Software Spectrum Inc., 78
F.3d 1015, 1018 (5th Cir. 1996)).
fraud is alleged, Rule 9(b)'s pleading requirements also
must be satisfied. Fed.R.Civ.P. 9(b). Under Rule 9(b),
“the circumstances constituting fraud or mistake”
must be “state[d] with particularity[.]”
Fed.R.Civ.P. 9(b). In the Sixth Circuit, this means the
plaintiff must, “at a minimum, … allege the
time, place, and content of the alleged misrepresentation on
which he or she relied; the fraudulent scheme; the fraudulent
intent of the defendants; and the injury resulting from the
fraud.” Coffey v. Foamex LP, 2 F.3d 157,
161-162 (6th Cir. 1993) (internal quotation marks and
heightened pleading requirements apply to claims arising
under the PSLRA. See 15 U.S.C. § 78u-4(b)(1),
(2). The Court discusses those heightened requirements in
detail in Sections III and IV.
Factual and Procedural Background
a worldwide automotive designer, manufacturer, and retailer.
(Compl. ¶ 1.) FCA operates in the United States through
its wholly-owned subsidiary FCA U.S. LLC (“FCA US),
which was formerly known as Chrysler Group LLC
(“Chrysler”). (Id.) FCA operates through
six business segments, with its North America segment
comprising about 90% of FCA's earnings. (Id.
¶ 22.) Chrysler and Fiat S.p.A (“Fiat”)
consolidated after Chrysler experienced extensive financial
difficulties, reorganized, and emerged from bankruptcy in
2009. (Id. ¶ 2.) Marchionne, Chairman and Chief
Executive Officer (“CEO”) of Fiat, began
overseeing the consolidated entity in June 2009.
the Class Period, Marchionne was responsible for the
day-to-day management of FCA and controlled and directed its
business and activities. (Id. ¶ 24.) When he
began overseeing FCA, Marchionne instituted, what has been
referred to as, “a flat organization with him at the
top” in that “all key nerve systems run
directly to [him].” (Id. ¶ 37.) In a July
2, 2015 article, The Detroit News described
Marchionne as being at the “epicenter” of
FCA's management matrix: “everyone is directly or
indirectly connected to Marchionne, who has 38 executives
reporting directly to him as CEO and chief operating officer
of North America ….” (Id. ¶ 38.)
Marchionne supervises each of these executives individually.
(Id. ¶ 39.)
the Class Period, Marchionne certified the periodic financial
reports FCA filed with the SEC and spoke regularly with
investors and securities analysts regarding the company.
(Id. 24.) He also has led FCA's Group Executive
Council, its highest management body. (Id. ¶
November 2009, soon after Marchionne began overseeing FCA, he
and other company executives announced a five-year plan to
increase the company's U.S. retail sales by greater than
50% and its U.S. market share from less than 9% in 2009 to
greater than 13% by 2014. (Id. ¶ 3.) In
February 2010, Chrysler reported its first positive monthly
U.S. sales results in 26 months. (Id. ¶ 4.)
When Chrysler became a wholly-owned subsidiary of FCA in
October 2014, Chrysler had reported year-over-year monthly
U.S. sales growth for fifty-four months. (Id.)
common stock began trading on the New York Stock Exchange on
October 13, 2014. (Id. ¶ 5.) Thereafter,
starting on November 3, 2014, FCA issued a monthly press
release, which was filed with the SEC on Form 6-K, announcing
its U.S. retail sales for the preceding month. (See,
e.g., id. ¶¶ 174, 194, 202, 211, 218, 223,
270, 276, 291.) From November 3, 2014 through June 1, 2016,
these press releases claimed an increase in FCA's U.S.
sales compared to the same month the year earlier and an
extension of FCA US' consecutive sales streak of
year-over-year sales. (Id.) The press releases
routinely included quotes from Bigland about the increased
sales and/or the sales streak. (Id.) Palmer signed
all but one of the press releases. (Id.; see
also id. ¶ 25.)
is and, throughout the Class Period, was FCA's Head of
U.S. Sales, a position he has held since June 2011.
(Id. ¶ 26.) In that position, Bigland has full
responsibility for sales strategy, dealer relations and
operations, order facilitation, incentives and field
operations. (Id.) He reports directly to Marchionne.
(Id.) Bigland became a member of FCA's Group
Executive Council in September 2011 (Id.) During the
Class Period, Bigland regularly spoke with investors and
securities analysts regarding FCA. (Id. ¶ 26.)
FCA's Chief Financial Officer (“CFO”) since
September 2011, also spoke regularly with investors and
securities analysts regarding the company during the Class
Period. (Id. ¶ 25.) In September 2011, Palmer
also became a member of FCA's Group Executive Council.
(Id.) He also has served as CFO of FCA U.S. since
June 2009. (Id.) In that capacity, he is responsible
for all FCA U.S. finance activities. (Id.) Palmer
also sits on the Board of Directors of FCA US. During the
Class Period, Palmer certified FCA's periodic financial
reports filed with the SEC. (Id.)
April 1, 2016 press release, announcing U.S. retail sales for
March 2016, FCA claimed that increased sales for the month
extended its year-over-year monthly sales gains to six full
years. (Id. ¶ 306.) In the next two months'
press releases, FCA did not mention the sales streak but
claimed continued increased year-over-year sales.
(Id. ¶¶ 313, 319.) The streak apparently
reached 75 months by July 2016. (Id. ¶ 6.)
recognizes revenue when it ships vehicles to dealerships, not
when the dealerships in turn sell vehicles to retail
customers. (Id. ¶ 59.) Nevertheless, Defendants
frequently referred to FCA's U.S. retail sales streak in
public statements as evidence of the company's growth and
success. (See, e.g., id. ¶¶ 95, 98, 149,
174, 194, 200, 202, 207, 211, 218, 223, 224, 270, 276, 291.)
Media outlets regularly reported on FCA's consecutive
streak of increased year-over-year monthly U.S. sales, noting
at times that FCA continued to report growth even when its
competitors experienced declining sales and analysts
predicted losses. (See, e.g., id. ¶¶ 49,
54, 79, 81-86, 92, 96, 153.) Lead Plaintiffs allege in the
Complaint that retail sales “provide the investing
public, creditors, and partners in potential acquisitions
with an important indicator of the underlying health of
FCA's business.” (Id. ¶ 60.) A series
of revelations starting in January 2016, however, began to
uncover that FCA's increased year-over-year sales streak
actually ended in September 2013, and that FCA's claimed
increased sales were made possible by “fake”
sales reported by franchised dealerships allegedly at the
encouragement of executives at FCA headquarters. (See,
e.g., Id. ¶ 173.)
specifically, Lead Plaintiffs allege in their Complaint that
FCA officials encouraged and even bribed dealers with factory
cash bonuses, expense reimbursements, and other incentives to
carry out sales for which there was no actual buyer-typically
at the end of the month to meet the month's sales volume
objective. (See, e.g., Id. ¶¶ 10, 105.)
FCA collected retail sales data from dealers through New
Vehicle Delivery Reports (“NVDRs”). (Id.
¶ 63.) A dealer who submitted an NVDR for a new sale
also could cancel the transaction and return the vehicle to
the dealer's unsold inventory. (Id.) Dealerships
would “unwind” the sales before the vehicle
warranty went into effect. (Id. ¶¶ 99,
113, 333.) While “unwound” sales would be
reflected in NVDRs (see id. ...