Meyer v. JinkoSolar Holding Co., No. 13-616 (2d Cir. 2014)
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Plaintiffs, purchasers of securities issued by JinkoSolar in two public offerings, appealed from the district court's dismissal of their complaint alleging violations of the federal securities laws. JinkoSolar manufactures various solar cells and solar panel products. The court vacated and remanded, concluding that serious pollution problems rendered misleading statements in a prospectus describing prophylactic measures taken to comply with Chinese environmental regulations.
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13-616-cv Vaughn Leroy Meyer v. JinkoSolar Holding Co. 1 UNITED STATES COURT OF APPEALS 2 FOR THE SECOND CIRCUIT 3 August Term, 2013 4 (Argued: September 18, 2013 Decided: July 31, 2014) 5 Docket No. 13-616-cv 6 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 7 8 9 10 11 VAUGHN LEROY MEYER, RICHARD MATKEVICH, ABDULLAH AL MAHMUD, AZRIEL SHUSTERMAN, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, 12 13 14 15 MARCO PETERS, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, Plaintiffs-Appellants, Plaintiff, 16 v. 17 18 19 20 21 JINKOSOLAR HOLDINGS CO., LTD., STEVEN MARKSCHEID, CREDIT SUISSE SECURITIES (USA) LLC, OPPENHEIMER & CO., INC., ROTH CAPITAL PARTNERS, LLC, COLLINS STEWART LLC, 22 23 24 25 26 27 WILLIAM BLAIR & CO., XIANDE LI, KANGPING CHEN, XIANHUA LI, WING KEONG SLEW, HAITAO JIN, ZIBIN LI, LOGGEN ZHANG, 28 B e f o r e: Defendants-Appellees, Defendants.* - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - WINTER, WALKER, and WESLEY, Circuit Judges. 29 * The clerk is instructed to modify the party caption to conform to this opinion. 1 Appeal from an order of the District Court for the 2 Southern District of New York (J. Paul Oetken, Judge) 3 dismissing a complaint alleging violations of the federal 4 securities laws. 5 the ground that the failure to disclose ongoing serious 6 pollution problems rendered misleading statements describing 7 measures taken to comply with Chinese environmental 8 regulations. We vacate the dismissal of the complaint on 9 10 11 12 13 14 15 MICHAEL STEPHEN BIGIN (Uri Seth Ottensoser, Joseph R. Seidman, Jr., Laurence Jesse Hasson, on the brief), Bernstein Liebhard LLP, New York, NY, for PlaintiffsAppellants. 16 17 18 19 20 21 BRIAN H. POLOVOY (Jerome S. Fortinsky, on the brief), Shearman & Sterling LLP, New York, NY, for DefendantsAppellees JinkoSolar Holdings Co., Ltd. and Steven Markscheid. 22 23 24 25 26 27 28 29 WILLIAM J. SUSHON (Bradley J. Butwin, B. Andrew Bednark, on the brief), O Melveny & Meyers LLP, New York, NY, for Defendants-Appellees Credit Suisse Securities (USA) LLC, Oppenheimer & Co., Inc., Roth Capital Partners, LLC, and Collins Stewart LLC. 30 31 WINTER, Circuit Judge: Various purchasers of securities issued by JinkoSolar 32 Holdings Co., Ltd. in two public offerings appeal from Judge 33 Oetken s dismissal of their complaint alleging violations of the 2 1 federal securities laws. 2 disclose ongoing, serious pollution problems rendered misleading 3 statements in a prospectus describing prophylactic measures taken 4 to comply with Chinese environmental regulations. 5 vacate and remand. 6 7 We hold that appellees failure to We therefore BACKGROUND In reviewing a dismissal under Rule 12(b)(6), we view the 8 facts alleged in the complaint as true. 9 Fund v. Royal Bank of Scot. Grp., PLC, 709 F.3d 109, 119 (2d Cir. 10 11 N.J. Carpenters Health 2013). Primarily using facilities in China, JinkoSolar manufactures 12 various photovoltaic products ( PV products ), that is, solar 13 cells and solar panel products. 14 products rapidly increased after its July 2009 acquisition of 15 Zhejiang Sun Valley Energy Application Technology Company, Ltd. 16 ( Sun Valley ). 17 Jiangzi and Zhejiang provinces in China, which are regulated by 18 the Haining Environmental Protection Bureau ( EPB ). 19 JinkoSolar s size and range of Its main production plants are located in the JinkoSolar made two public offerings of American Depository 20 Shares ( ADS ) on the New York Stock Exchange ( NYSE ), one on 21 May 13, 2010, and the other on November 10, 2010. 22 offering consisted of 5,835,000 ADS, which were sold at $11 a 23 share and raised a total of $64,185,000. 24 3 The May 1 The prospectus accompanying the May offering discussed the 2 pollution potential of JinkoSolar s business, the applicability 3 of Chinese environmental regulations and standards, and 4 JinkoSolar s efforts at compliance. 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 It stated: We generate and discharge chemical wastes, waste water, gaseous waste and other industrial waste at various stages of our manufacturing process as well as during the processing of recovered silicon material. We have installed pollution abatement equipment at our facilities to process, reduce, treat, and where feasible, recycle the waste materials before disposal, and we treat the waste water, gaseous and liquid waste and other industrial waste produced during the manufacturing process before discharge. We also maintain environmental teams at each of our manufacturing facilities to monitor waste treatment and ensure that [these] waste emissions comply with [People s Republic of China] environmental standards. Our environmental teams are on duty 24 hours. We are required to comply with all PRC national and local environmental protection laws and regulations and our operations are subject to periodic inspection by national and local environmental protection authorities. PRC national and local environmental laws and regulations impose fees for the discharge of waste materials above prescribed levels, require the payment of fines for serious violations and provide that the relevant authorities may at their own discretion close or suspend the operation of any facility that fails to comply with orders requiring it to cease or remedy operations causing environmental damage. As of December 31, 2009, no such penalties had been imposed on us.1 1 The November prospectus contained the same language, except, at the end of the section it stated, [a]s of the date of this prospectus, no such penalties had been imposed on us. 4 1 Amend. Compl. ¶ 80 (emphasis in original). 2 also stated: 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 The May prospectus Compliance with environmental, safe production and construction regulations can be costly, while non-compliance with such regulations may result in adverse publicity and potentially significant monetary damages, fines and suspension of our business operations. We use, store and generate volatile and otherwise dangerous chemicals and wastes during our manufacturing process, and are subject to a variety of government regulations related to the use, storage and disposal of such hazardous chemicals and waste. We are required to comply with all PRC national and local environmental regulations . . . . Amend. Compl. ¶ 82 (emphasis in original).2 20 On June 8, 2010, appellees submitted a report to the EPB 21 about JinkoSolar s recent expansion in solar cell production. 22 The report contained a section entitled Existing Problems. 23 explained that the Zhejiang plant was not disposing of hazardous 24 solid waste in accordance with relevant disposal methods, and was 25 emitting high levels of fluorides. 26 stated: 27 28 29 30 31 32 Amend. Compl. ¶ 5. It 1. The tube used for the discharge of chlorine (Discharge Tube A) currently has a height of 15 metres. This does not meet the minimum height requirements. 2. According to monitoring data from the Haining City Environmental Protection Bureau, 2 The November prospectus contained identical language. This exact passage was repeated in the 2010 year-end report on April 25, 2011. 5 It 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 HCl concentration levels in the region surrounding the enterprise have exceeded set limits . . . . The area surrounding the project does not have capacity for storing HCl. If this project continues to use HCl cleaning processes then once completed this would worsen the HCl pollution situation in the local area. 3. Sludge produced by the enterprise is classed as hazardous solid waste. This has not been disposed of in accordance with relevant State disposal methods. 4. Presently, the tower operated by the enterprise to absorb acidic mist has 35% efficiency in removing inorganic fluorides, which means that industrial emission volumes for fluorides are comparatively large. Amend. Compl. ¶ 61. 20 Restructuring and Reform, the report listed a number of 21 structural changes that would be necessary to ameliorate the 22 problems described in the report. In a section entitled Measures for 23 In April 2011, JinkoSolar received a notice from the EPB 24 informing [JinkoSolar] of high fluoride level in its waste. 25 May 11, 2011, the EPB detected higher than acceptable levels of 26 fluoride at JKS, this time in its waste water. 27 6. 28 again that the water around the plant did not meet environmental 29 standards because of, inter alia, fluoride levels. 30 On Amend. Compl. ¶ In another document submitted to the EPB, JinkoSolar reported The complaint further alleges that on September 15, 2011, 31 news started to break that local residents living near 32 [JinkoSolar s] solar cell plant in Zhejiang angrily demonstrated 33 outside the facility following a massive die-off of fish over the 6 1 previous month in the river flowing immediately adjacent to the 2 plant. 3 violent and protesters overturned cars, including police cars, 4 and damaged surrounding buildings. 5 People s Republic of China ordered that the plant be closed and 6 that JinkoSolar take remedial action. 7 JinkoSolar issued a press release revealing that JinkoSolar was 8 fined for non-compliance with environmental regulations in May 9 2011 and paid local landowners for damage to their crops and Amend. Compl. ¶ 9. At one point, the protest turned Within the next few days, the On September 22, 2011, 10 death of livestock and wildlife. The complaint alleges that 11 JinkoSolar s stock lost 40% of its value by the time the dust had 12 settled. 13 On October 11, 2011, appellants commenced this action 14 against JinkoSolar, several of its officers and directors, and 15 several entities that served as underwriters for the ADS 16 offerings. 17 12(a)(2) of the Securities Act of 1933 and Section 10(b) of the 18 Securities Exchange Act of 1934. 19 controlling person liability against various appellees under 20 Section 15 of the 1933 Act and Section 20(a) of the 1934 Act. Appellants alleged violations of Sections 11 and The complaint also alleged 21 Various appellees moved before the district court for 22 dismissal for failure to state a claim for relief under Fed. R. 23 Civ. P. 12(b)(6). The court granted the motion. 24 7 1 Central to appellants claims were the paragraphs in the May 2 prospectus (and repeated later) quoted above. With regard to the 3 statements about JinkoSolar s storage of hazardous and dangerous 4 chemicals, PRC national and local regulations, and the costs of 5 compliance or non-compliance, the court held that those 6 statements were not misleading. 7 the paragraph discussing JinkoSolar s pollution abatement 8 equipment and its 24-hour environmental monitoring team a more 9 complicated matter and arguably a close call. However, the court deemed that Peters v. 10 JinkoSolar Holding Co., No. 11 Civ. 7133 (JPO) (S.D.N.Y. Feb. 27, 11 2013). 12 would not read the statement about ensur[ing] compliance to 13 actually guarantee compliance because elsewhere in the 14 Prospectuses, Jinkosolar underscored to investors that fines due 15 to pollution are a real possibility. 16 court did not find any material misstatements or omissions, it 17 dismissed the complaint. However, the court concluded that the reasonable investor 18 19 Id. at *7. Because the This appeal followed. DISCUSSION We review the grant of a Section 12(b)(6) motion to dismiss 20 de novo. N.J. Carpenters, 709 F.3d at 119; Lentell v. Merrill 21 Lynch & Co., 396 F.3d 161, 167 (2d Cir. 2005). 22 accept[] all factual allegations [in the complaint] as true and 23 draw[] all reasonable inferences in favor of the plaintiff. 24 N.J. Carpenters, 709 F.3d at 119 (quoting Litwin v. Blackstone 8 In doing so, we 1 Grp., L.P., 634 F.3d 706, 715 (2d Cir. 2011)). At this stage, 2 dismissal is appropriate only where appellants can prove no set 3 of facts consistent with the complaint that would entitle them to 4 relief. 5 Inc., 129 F.3d 240, 242-43 (2d Cir. 1997). Elec. Commc ns Corp. v. Toshiba Am. Consumer Prods., 6 The complaint, alleging violations of Sections 11 and 12 of 7 the 1933 Securities Act and Section 10(b) of the 1934 Securities 8 Exchange Act, raises a host of legal issues with regard to 9 varying standards of liability and defenses, the various 10 plaintiffs standing, the particularity of the pleadings with 11 regard to requisite states of mind and conduct of each defendant, 12 etc. 13 material misstatement of fact or an omission to state a fact that 14 renders a statement made materially misleading. 15 Act of 1933 § 11(a), 15 U.S.C. § 77k(a) (2012) ( In case any part 16 of the registration statement . . . contain[s] an untrue 17 statement of a material fact or omit[s] to state a material fact 18 . . . necessary to make the statements therein not misleading, 19 any person acquiring such security . . . may . . . sue . . . . ); 20 Securities Act of 1933 § 12(a)(2), 15 U.S.C. § 77l(a)(2) (2012) 21 ( Any person who . . . offers or sells a security . . . which 22 includes an untrue statement of a material fact or omits to state 23 a material fact necessary in order to make the statements . . . 24 not misleading . . . shall be liable . . . . ); In re Time Warner However, each of the three sections imposes liability for a 9 See Securities 1 Inc. Sec. Litig., 9 F.3d 259, 269 (2d Cir. 1993) ( A duty to 2 disclose arises whenever secret information renders prior public 3 statements materially misleading . . . . ). 4 The district court dismissed the complaint for failure to 5 meet this requirement. 6 intimate no view on any other issue. 7 We disagree and vacate the dismissal. We While the statements regarding JinkoSolar being subject to a 8 variety of pollution regulations and the high cost of both 9 compliance and non-compliance are not misstatements, they are 10 relevant to the materiality of the prospectuses description of 11 JinkoSolar s potential to cause serious pollution problems and 12 the steps it was taking to avoid those problems. 13 that description, we believe the complaint sufficiently alleges 14 that the failure to disclose that the prophylactic steps were 15 then failing to prevent serious ongoing pollution problems 16 rendered that description misleading. 17 a) With regard to Material Omissions 18 In general there is no duty to disclose a fact in the 19 offering documents merely because a reasonable investor would 20 very much like to know that fact, In re Time Warner, 9 F.3d at 21 267, but [d]isclosure is required . . . when necessary to make 22 . . . statements made, in light of the circumstances under which 23 they were made, not misleading. 24 Siracusano, 131 S.Ct. 1309, 1321 (2011) (quoting 17 C.F.R. § 25 240.10b-5(b)). 10 Matrixx Initiatives, Inc. v. 1 Even when there is no existing independent duty to disclose 2 information, once a company speaks on an issue or topic, there is 3 a duty to tell the whole truth. 4 295 F.3d 312, 331 (2d Cir. 2002) ( [T]he lack of an independent 5 duty is not . . . a defense to . . . liability because upon 6 choosing to speak, one must speak truthfully about material 7 issues. 8 had a duty to be both accurate and complete. ).3 9 stated: See Caiola v. Citibank, N.A., Once Citibank chose to discuss its hedging strategy, it As we have 10 11 12 13 14 15 16 17 18 19 In re Morgan Stanley Info. Fund Sec. Litig., 592 F.3d 347, 366 20 (2d Cir. 2010) (internal citations and quotation marks omitted). 21 b) 22 The literal truth of an isolated statement is insufficient; the proper inquiry requires an examination of defendants' representations, taken together and in context. Thus, when an offering participant makes a disclosure about a particular topic, whether voluntary or required, the representation must be complete and accurate. Application We address only the disclosures of the May prospectus 23 because our conclusion that they could be found by a trier of 24 fact to be materially misleading applies a fortiori to the later 25 repetition of those disclosures. 3 Because the May prospectus discussed the risks of pollution inherent in JinkoSolar s business and the general practices JinkoSolar had implemented to cabin this risk, it put the issue in play, Shapiro v. UJB Financial Corp., 964 F.2d 272, 282 (3d Cir. 1992), so we have no need to discuss whether it had a duty to disclose such risks. 11 1 As quoted above, the prospectus discussed JinkoSolar s 2 pollution abatement equipment and its provision of monitoring 3 environmental teams on duty 24 hours a day. 4 must be read in the context of the further disclosure by the 5 prospectus that JinkoSolar generates, uses, and stores dangerous 6 chemicals and wastes and is subject to Chinese regulations 7 regarding such chemicals and wastes. 8 prospectus also informed investors that compliance with such 9 regulations is costly and that non-compliance may lead to bad 10 11 These statements Amend. Compl. ¶ 82. The publicity, fines, and even a suspension of the business. All of the above may be technically true. However, the 12 description of pollution-preventing equipment and 24-hour 13 monitoring teams gave comfort to investors that reasonably 14 effective steps were being taken to comply with applicable 15 environmental regulations. 16 not guarantee 100% compliance 100% of the time. 17 may often be unobtainable, and reasonable investors may be deemed 18 to know that. 19 such as that quoted above if in fact the equipment and 24-hour 20 team were then failing to prevent substantial violations of the 21 Chinese regulations. 22 To be sure, these descriptions did Such compliance However, investors would be misled by a statement The complaint alleges that in June 2010 JinkoSolar submitted 23 a report to Chinese regulators about existing problems. 24 report, quoted in detail supra, describes problems of a nature 12 This 1 that is sufficient, if proven, to allow a trier of fact, absent 2 contrary evidence, to draw an inference that the problems 3 existing as of June 8, 2010, were both present and substantial 4 at the time of the May 13, 2010, offering. 5 The failure to disclose these problems in the May prospectus 6 could be found by a trier of fact to be an omission that renders 7 misleading the comforting statements in the prospectus about 8 compliance measures. 9 the additional statement that non-compliance with the This misleading omission is not cured by 10 environmental regulations may be very costly. Although this 11 statement warned of a financial risk to the company from 12 environmental violations, the failure to disclose then-ongoing 13 and serious pollution violations would cause a reasonable 14 investor to make an overly optimistic assessment of the risk. 15 generic warning of a risk will not suffice when undisclosed facts 16 on the ground would substantially affect a reasonable investor s 17 calculations of probability. 18 (2d Cir. 2004) ( Cautionary words about future risk cannot 19 insulate from liability the failure to disclose that the risk has 20 transpired. ) 21 offering a business s peculiar risk of fire, the installation of 22 a comprehensive sprinkler system to reduce fire danger, and omit 23 the fact that the system has been found to be inoperable, without 24 misleading investors. A Rombach v. Chang, 355 F.3d 164, 173 One cannot, for example, disclose in a securities 13 1 Of course, the misleading omission must be material, that 2 is, the omission must be of facts that a reasonable investor 3 would consider important. 4 That requirement is not much of a barrier to appellants 5 prevailing on a Fed. R. Civ. P. 12(b)(6) motion in this matter. 6 At the time the statements regarding pollution prevention and 7 compliance measures were made, a reasonable investor could 8 conclude that a substantial non-compliance would constitute a 9 substantial threat to earnings, if not to the entire venture. In re Morgan Stanley, 592 F.3d at 360. 10 Indeed, the prospectus said as much. 11 formulation of measuring the importance of the event discounted 12 by the probability of its occurrence, Basic, Inc. v. Levinson, 13 485 U.S. 224, 238 (1988) (quoting SEC v. Texas Gulf Sulphur Co., 14 401 F.2d 833, 849 (2d Cir. 1968)), a trier of fact could find 15 that the existence of ongoing and substantial pollution problems 16 -- here the omitted facts -- was of substantial importance to 17 investors. Applying the Basic 18 CONCLUSION 19 We therefore vacate the dismissal of the complaint and 20 remand. 14
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