Background
Steamfitters Local 449 Pension & Retirement Security Funds sued SunPower Corporation and its former officers for securities fraud under Section ten of the Securities Exchange Act of nineteen thirty-four and SEC Rule ten b five. The plaintiff alleged that risk factor statements issued in August and November two thousand and twenty-one were misleading because they omitted information about over-torqued screw nuts that created a fire risk. The district court dismissed the complaint, finding the plaintiff failed to plausibly allege that SunPower knew of the defect when the statements were made.
The court’s reasoning
The Ninth Circuit reviewed the case de novo and affirmed the district court’s dismissal. The court explained that risk disclosures can give rise to liability only when they warn that risks could occur when, in fact, those risks had already materialized. The court held that a risk materializes only when a defendant knows of the defect. Citing precedent including In re Facebook Inc. Securities Litigation and In re Alphabet Inc. Securities Litigation, the court found that the plaintiff’s arguments were foreclosed because they did not plausibly allege that SunPower knew of the over-torquing defect at the time the statements were issued. The court also rejected the plaintiff’s arguments regarding the distinction between defects and the district court’s citation of complaint paragraphs, noting these errors did not support reversal.
What it means going forward
The decision reinforces the requirement in the Ninth Circuit that plaintiffs in securities fraud cases must plead specific facts showing a defendant’s contemporaneous knowledge of a defect to establish that risk disclosure statements were false or misleading.