Sanchez et al v. Dutchess County Dept. of Community & Family Services et al, No. 7:2017cv06597 - Document 43 (S.D.N.Y. 2018)

Court Description: OPINION AND ORDER re: 33 MOTION to Dismiss Plaintiff's Second Amended Complaint filed by Benjamin Doty, Candace Lynch, County Of Dutchess, Glen Brown. For the foregoing reasons, Defendants' motion is GRANTED to the exte nt Plaintiffs seek declaratory and injunctive relief. The motion is also GRANTED as to Plaintiffs' claims against the County. The remainder of the action is STAYED pending the conclusion of both of the state proceedings. The parties are to pr ovide status updates every three months (and promptly upon the conclusion of the state proceedings). The Clerk of Court is directed to terminate the pending motion, (Doc. 33), and seal Plaintiffs' Declaration, (Doc. 39), pending substitution of redacted copies. SO ORDERED. (Signed by Judge Cathy Seibel on 9/28/2018) (ne) Transmission to Sealed Records Clerk for processing.

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Sanchez et al v. Dutchess County Dept. of Community & Family Services et al Doc. 43 USDC SONY DOCUMENT UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK ELECTRONICALLY FILED DOC #: _ _---t:,,f'+,r..,......-,..,....,...,...DATE FILED:----,,__-+-"---- -----------------------------------x FRANKFURT-TRUST INVESTMENT LUXEMBURG AG, individually and on behalf of all others similarly situated, 17 Civ. 3570 (VM) Plaintiff, DECISION AND ORDER - against UNITED TECHNOLOGIES CORP. et al, Defendants. -----------------------------------x VICTOR MARRERO, United States District Judge. Lead Plaintiff ( "Kapi talforeningen") Kapitalforeningen Laegernes Invest brings this putative class action on behalf of itself and other stock purchasers and acquirers of defendant United Technologies ( "UTC") Corp.' s stock. Kapitalforeningen alleges that UTC and its senior executives made materially false and misleading statements and omissions in violation of Section l0(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. § 78a et seq., about UTC's business and projected earnings per share for the 2015 fiscal year. UTC and the individually-named senior executive defendants, Gregory Hayes ("Hayes"), Akhil Johri Alain Bellemare ("Bellemare"), Geraud ("Darnis," Darnis David Gitlin collectively ("Johri"), ("Gitlin") with the and senior executives, the "Executive Defendants" and together with OTC, the "Defendants") have moved pursuant to Federal Rule of Civil 1 Dockets.Justia.com Procedure 12(b) (6) ("Rule 12(b) (6)") to dismiss the suit for failing to state a claim. ("Motion to Dismiss," Dkt. No. 41.) Defendants argue that the alleged misstatements are either forward-looking statements protected Securities Litigation Reform Act under ( "PSLRA") the Private safe harbor or non-actionable opinion statements. Defendants also argue that Kapitalforeningen does not adequately plead scienter. After Defendants filed the Motion to Dismiss, but before the Motion to Dismiss was ruled on, Kapitalforeningen filed the now-operative second amended complaint. ("Second Amended Complaint," Dkt. No. 45.) The Court now addresses Defendants' letter motion seeking to renew the Motion to Dismiss, but now as to the Second Amended Complaint. (See "Def. Feb. 6 Letter.") For the reasons discussed below, Defendants' Motion to Dismiss is GRANTED. I. BACKGROUND A. JUDICIAL NOTICE OF DOCUMENTS This case involves statements made by Defendants in calls with investors and in filings with the Securities and Exchange Commission between December 11, ("SEC") 2014 regarding and July UTC' s 20, 2015 profitability ( the "Class Period") . Only parts of those statements are quoted in the Second Amended Complaint. Therefore, as an initial matter, the background of this case depends partly on whether and how 2 the Court relies on documents other than the Second Amended Complaint. Of course, at this stage in the proceedings, the Court takes Complaint as all well-pleaded facts true. See, ~, Spool v. Adoption Agency, 520 F.3d 178, 183 in securities in the World Child Int' 1 (2d Cir. 2008). However, involving cases Second Amended misrepresentation or misstatement claims, courts in the Second Circuit often take judicial notice of documents filed with the SEC "'only to determine what the documents stated,' and 'not to prove the truth of their contents.'" Sharette v. Credit Suisse Int'l, 127 F. Supp. Jennings, 3d 60, 75 (S.D.N.Y. 489 F.3d 499, 509 2015) (2d Cir. (quoting Roth v. 2007)). For the same purpose, courts in this district also take judicial notice of transcripts of companies' earnings calls. See, ~ ' Dekalb Cty. Emps.' Ret. Sys. v. Controladora Vuela Compania De Aviacion, S.A.B. de C.V., No. 15 Civ. 1337, 2016 WL 3685089, at *l n.2 (S.D.N.Y. July 6, 2016). Defendants have provided numerous SEC filings and earnings call transcripts for the Court's consideration. Many of those filings Kapitalforeningen in are the quoted or Second Amended referred Complaint. to It by is therefore appropriate for the Court to take judicial notice of such documents and to consider them in adjudicating the Motion to Dismiss, examining the documents only to determine 3 what statements they contain rather than to prove the truth of the documents' on notice by [] the district Warner, contents. Kapitalforeningen has been "put [D] efendants' proffer of the documents that court might 937 F.2d 767, 774 consider them," Kramer v. Time (2d Cir. 1991), and has neither objected to the Court taking judicial notice of the documents nor contested their authenticity in any way. Defendants have also asked the Court not to credit certain allegations about UTC' s profitability and business that are contradicted by statements relying upon NECA-IBEW Health & & in the [in the contradicted evidence." complaint] by more to be specific (citing Ashcroft v. filings, Welfare Fund v. Goldman Sachs Co., 693 F.3d 145, 149 n.1 (2d Cir. 2012) facts SEC ("We assume those true unless allegations Iqbal, conclusory or or 556 U.S. documentary 662, 678-79 (2009))). Such an approach would be in direct contravention of the mandate from Roth to not consider the truth of the contents in SEC filings in these types of cases. Because Roth has been reaffirmed time and again by courts in this district, ~ , Ong v. 199, 223 Chipotle Mexican Grill, (S.D.N.Y. 2018), Inc., see, 294 F. Supp. 3d and the Court of Appeals for the Second Circuit, see, ~ , Morrison v. Eminence Partners II, 4 L.P., 714 F. App'x 14, 18 n.3 (2d Cir. 2017), the Court rejects Defendants' request. Thus, except as otherwise noted, the factual background derives from the pleaded therein, Second Amended which the Complaint and Court accepts as the true facts for the purposes of ruling on the Motion to Dismiss. See Spool, 520 F.3d at 183. B. FACTUAL BACKGROUND 1. UTC's Business and Defendants UTC is a conglomerate technology and industrial company providing worldwide. products By 2015, for it aerospace and building employed hundreds of industries thousands of employees working on items such as plane parts and engines, helicopters, elevator systems, HVAC solutions and more. Those separate businesses have specific subdivisions at UTC. Through some reorganizations before, during, and after the Class Period, the names and reporting structures for the subdivided businesses changed nominally but not much substantively. In relation to the Executive Defendants: Hayes is UTC's CEO, and was newly-appointed to that position shortly before the Class Period. He is self-described as "a naturally curious guy" and promised to "ask a lot of questions" upon taking the role. (Second Amended Complaint 11 returned to UTC in January 2015 as its CFO. 5 5, 203.) Johri (See id. 1 22.) Darnis ran a group known as "UTC Building & Industrial Systems" which encompassed (1) UTC's HVAC business known as Climate Controls ("Otis"). & (See id. Security; and 1 25.) (2) Otis Elevator Company Until 2015, Bellemare led UTC's Propulsion & Aerospace Systems, which encompassed (1) & Whitney; and (2) UTC Aerospace Systems 11 23, 33.) Throughout the Class ("UTAS"). Period, UTAS (See id. and predecessors have been led at least in part by Gitlin. id. 11 Pratt its (See 24, 34-36.) Some of these subdivisions are quite large. In 2015, UTAS - which provides aerospace supplies and products - accounted for about $1.9 billion, or 25% of UTC's profits, and Otis accounted for $2.3 billion, or 32% of UTC's profits. (See id. 1 32.) Working in these varied businesses has generally been a profitable enterprise for UTC. In 2014, UTC reported earnings per share ( "EPS") of $6. 80 on sales of over $65 billion - increases of 9% and 4% from 2013, respectively. (See "Form 8- K, Jan. 26, 2015," Dkt. No. 43 Ex. 2 at 7.) However, 2014. the 2015 fiscal year was a bit bumpier than Although still profitable, UTC reported earnings per share of $6·. 30 on sales of $56 .1 billion. 1 (See "Form 8-K, Part of the drop in absolute terms year-over-year may have occurred because UTC also sold off its helicopter business, Sikorsky Aircraft Corporation in 2015. (See Second Amended Complaint 1 177.) 6 Jan. 27, 2016," Dkt. No. 43 Ex. 14 at 7.) This drop stemmed largely from difficulties in two specific subdivisions: UTAS and Otis. ( Second Amended difficulties regarding its Complaint 1 UTAS 2.) had "commercial aftermarket sales." (Id.) This is the market for replacement parts for aircraft after their sale to the consumer. Separately, difficulty with expanding its elevator business Otis had in China. (Id.) Relying on the statements made by former employees of UTC and its subsidiaries, Kapi talforeningen alleges that these difficulties were communicated to and well-known by the Executive Defendants going into 2015. However, despite the alleged advanced warnings of these difficulties, according to Kapitalforeningen, Defendants repeatedly provided guidance to investors that UTC expected conservative growth across the company in 2015, including for the UTAS and Otis businesses. Kapitalforeningen alleges that these statements about UTC's 2015 projected financial targets were misleading and part of a "campaign to mislead investors condition and future prospects." as (Id. 1 to UTC's business 3.) 2. Defendants' Allegedly Misleading Statements i. December 11, 2014 Statements On December 11, 2014 2014, Hayes reviewed the preliminary results and initial targets 7 for 2015 in a call with investors. (Id. 1 For 2015, Hayes projected "earnings 107.) per share of somewhere between $7.00 and $7.20, that's 3% to 6% growth." (Id. 11107-08.) He cautioned that "the business unit plans . . . are challenging" but also "achievable." (Id. 1 108.) Bellemare, president of a subdivision encompassing UTAS at that time, also projected that for UTAS, "[w]e expect very solid conversion on strong equipment] and aftermarket volume . . commercial [original So for UTAS, we see sales up mid-single digit and earnings up $225 million to $275 million." (Id. 1109.) For Otis, Darnis presented that "[w]e expect revenue to grow in all segments and geographies, and I'd say, upper end of the mid-single digit, call it 5% to 6%." (Id. 1 111.) He also said that "after several years of flat performance and declining share, Otis trajectory is trending positive." (Id. 1112.) Analysts then asked for a bit more guidance on Otis's performance in China. In response, Hayes explained that he expected the conversion of backlogged orders - orders placed in prior periods for which customers have not fully paid yet - to provide growth, and he also offered that "I think the Chinese government will do what's necessary to support that growth." (Id. 11 34, 114.) Darnis echoed Hayes's thoughts. For 2015, he anticipated "10% revenue growth in China" based on converting backlogged 8 orders and some order growth. (Id. 1114.) He recognized that "China has been slowing" and that Otis was second, "flat" third, and likely fourth quarters of 2014. for the (Id.) He went further to point out that a "question mark going to be watching closely" is that "China . we're is clearly slowing down, and we're seeing that, and slowdown both in the backlog conversion and also the order rates." Call Transcript, December 11, 2014," Dkt. No. (See "Earnings 43 Ex. 3 at 12.) ii. January 26, 2015 Statements A month later, UTC presented its final 2014 financial picture and revised its 2015 outlook. UTC revised its 2015 forecast downward from between $7.00 and $7.20 to $6.85 to $7. 05 per share. (Second Amended Complaint 1 121.) UTC changed its guidance due to a strengthening U.S. dollar and a falling discount expressed rate for pension expenses. (Id.) Hayes still that there was "momentum" heading into 2015, and that the "business fundamentals and operational expectations have not changed." (Id. 1 122.) After UTC's Director of Investor Relations reported that UTAS aftermarket sales increased by 5% in the 2014 fourth quarter compared to 2013, he was asked about how the reported 5% growth compared to the projected high single-digit growth guidance for UTAS for 2015. (See "Earnings Call Transcript, 9 January 26, 2015," Dkt. No. 43 Ex. 4 at 4, 11; Second Amended Complaint, 124.) Johri explained that the 2013 fourth quarter was "exceptionally strong" in that it rose 17% compared to the year before, so 5% growth on top of that for 2014 was "really not a change in our expectations" for 2015. (Earnings Call Transcript, January 26, 2015 at 11.) Turning to Otis, Hayes was asked by an analyst whether the 10% growth for China was "still realistic." Hayes said that "[i]t's certainly within (Id. at 13.) the realm possibility" and that he "wouldn't give up on this." of (Id.; Second Amended Complaint, 125.) He reiterated his hopes from December 2014 for converting order backlogs and additional order growth and pointed out that "[w]e've seen some [Chinese government] stimulus lending regulations measures ease a take hold, little bit reinvigorate the property market." seen some to try and, bank again, (Second Amended Complaint , 12 5. ) iii. February 18, 2015 Statements Only a few weeks later, speaking at Barclays' Industrial Select Conference, Hayes reaffirmed that UTC was "on the right track" to meet its revised guidance and expected "commercial businesses to grow 5% to 6% organically." 10 (Id. , , 131-32.) iv. March 12, 2015 Statements and Darnis's Stock Sale The following month, UTC held its 2015 annual investor analyst meeting. (Id. 1136.) Although Hayes explained there was "no change" to the prior guidance, UTC cautioned investors repeatedly throughout. For UTAS, Gitlin explained that "commercial aftermarket sales and orders were a bit weaker than we expected. So commercial aftermarket is a watch item for us in the first quarter." (See "Investor Call Transcript, Dkt. No. 43 Ex. March 12, 2015," 5 at 12.) He also provided details on what led to this decline: there were "fewer new 787 operators" and airlines were being "very disciplined" and "not necessarily ordering more parts or provisioning." still anticipated that UTAS (Id. at 12-13.) Gitlin would meet "full-year expectations" but it was based, in part, on the expectation of being Complaint "a 1 aftermarket continued bit back-end strong was are commercial 1 Amended Complaint Second Amended and similar some turning positive." strong" and aftermarket "we should growth." see (Second 139.) caution Darnis began by noting that performance (Id.; 137.) Ultimately, Gitlin said that "[c]ommercial fundamentals There loaded." share about the Otis business. "after several years of loss, the Otis flat trajectory is (Id.; Investor Call Transcript, March 12, 11 2015 at 29.) But this was accompanied by "some challenges [because] the growth of the China elevator market . is slowing [as] evidenced by our slower order growth over the last three quarters." ( Investor Call Transcript, March 12, 2015 at 29.) He continued by remarking that these challenges "are the largest risk to our 2015 expectation." (Id.) Still, Darnis thought Otis would hit its 2015 targets because, after a "soft" first quarter, throughout the year." it would (Id. at 30.) "see some improvement Overall, Darnis said he felt "good that, overall, for the year, we're going to end up in our mid-single Amended Complaint share has turned." 1 digit [sales growth] range." (Second 140.) This was because "the momentum on (Id. at 23; Second Amended Complaint 1 140.) Analysts and investors asked follow up questions about the 2016 prospects in China. Darnis explained that for 2015, "we've assumed we're going to grow orders at a rate of GDP" and that if there were no "growth in orders going to 2016" then there would be "no growth on the sales side" but that it was "not really going to be an issue for" 2015. Investor Call Transcript, March 12, (Id. 2015 at 38.) 1 142; Finally, Johri concluded by stating that UTC anticipated being at the low end of earnings per share growth of 0% to 3%. Call Transcript, March 12, 2015 at 40.) 12 (Investor One day after the analyst meeting, Darnis exercised options to acquire more than 300,000 shares of UTC stock and immediately sold them for more than a $19 million profit. (Second Amended Complaint 1 215.) v. March 18, 2015 Statements Only a few days after the conference, Johri spoke at the Bank of America Merrill Lynch Global Industrials Conference. He affirmed that "2015 is on track of what we said in January" and that things "operationally, [are] thought." moving (Id. 1 everything, along 149.) exactly [is] in as line we expected, with what we He was also asked by analysts about the downturn in construction in China, and stated that "it's not an issue for 2015 as much" given the order backlog. (Id. 1150.) vi. April 21, 2015 Statements UTC presented its 2015 month later. first quarter results about a It announced that sales grew about 3% over the 1 154.) stated that "the prior year and reaffirmed its full-year guidance. (Id. In its accompanying press release, Hayes fundamentals of all of our businesses remained solid." He noted that "commercial aerospace aftermarket growth was slower . . . than we anticipate for the year." Johri (Id.) similarly noted the "soft start" (Id.) On UTAS, to the aftermarket sales for the year before reaffirming the prior guidance. 13 1 (Id. 156.) Johri also touched on Otis and stated that they "feel we can get to the low end of the range at least." 1 157.) He said they would be equipment market." vii. "watching" the (Id. "China new (Id.) May 19, 2015 and June 4, 2015 Statements At a trade group conference on May 19, 2015, Hayes once again 1 reaffirmed "UTC' s overall guidance for 2015." (Id. 168.) He said he was "not that concerned about 2015 for UTC in China" given the backlog of sales. (Id. 1 at June another trade group conference on 169.) Johri spoke 4, 2015 and similarly reaffirmed the slow start but said that they "still feel good about where we are." (Id. 1 173.) viii. June 15, 2015 Statements The last performance set come of from alleged the misstatements June 15, 2 015 about Paris Air UTC's Show Analysts and Portfolio Managers Meeting, where UTC announced its plan to di vest itself of Sikorsky. (Id. 1 1 77.) After accounting for the removal of Sikorsky, UTC reiterated in a press release that it "continues to expect organic sales growth of 3% to 5%." (Id.) As in the prior calls, Gitlin noted that he expected UTAS's "commercial aftermarket to be backend loaded in the year." (Id. 1 180.) Gitlin delved further into the commercial aftermarket numbers. He explained that the 2015 guidance was "premised on 14 commercial aftermarket being up in the high single digits, but it will not be up in the high single digits." (See "Investor Call Transcript, June 15, 2015," Dkt. No. 43 Ex. 9 at 7.) He attributed this assessment to the market being "weaker than we expected." (Id.) Thus, commercial aftermarket was now "the question mark for the year." (Id.) In response to questions, Gitlin explained how commercial aftermarket is broken up into three "buckets": and repair. (Id. at 8.) spare parts, provisioning, Gitlin explained how the year had progressed in each bucket and the challenges UTC faced in provisioning and repair. (Id.) Johri also briefly touched on Otis. He said that "China has slowed down" and that "orders continue to be down yearover-year" which was "bad news." (Id. at 15.) 3. July 21, 2015 Earnings Call and Aftermath About a month later, UTC announced its second quarter earnings and once again lowered its guidance for 2015, down to $6.15 to $6.30. (Second Amended Complaint 1 177.) These revisions were made after reviewing "six months of trends" on the UTAS commercial aftermarket sales and "a slowing China" for Otis. (Id.) traded down 7.03%. Following (Id. 1 the announcement, UTC's stock 196.) Hayes offered reasons for why UTC missed its financial targets. He said "[a]fter half a year of actual results, it's 15 clear that the commercial aftermarket assumptions that our Aerospace Systems business used were overly optimistic." (Id. 1 190.) He also said after two years of strong growth in commercial aftermarket sales, "I think we just assumed that we were going to continue to see that kind of growth." 1 191.) airline As an example misstep, plans, Boeing Company's UTC anticipated ("Boeing") Hayes more said that, business (Id. based on related to 787 aircraft and also had not expected airlines to carry a "high level of inventory" for provisioning. (See "Earnings Call Transcript, July 21, 2015,". Dkt. No. 43 Ex. 13 at 8-9.) Ultimately, Hayes put the onus of being "way too aggressive" on the UTAS projections on himself, stating: But I'll tell you that probably the root cause is we pushed the Aerospace Systems guys to have a plan that was going to be up roughly $300 million for the year. And in order to do that, they had to push the aftermarket guys to deliver a much bigger number. And at the end of the day, I don't think there was a strong basis in that aftermarket assumption around how we were going to get there. They were looking at trends, but I don't think we delved deep enough into - or we didn't question enough the assumptions underlying how they were going to get there. And so I would tell you that's a miss on my part, that's a miss on our part from a planning perspective that we didn't dig deep enough last year when these plans were getting put together. (Id. at 10-11; see also Second Amended Complaint 11 191-93.) Johri also Consistent with explained the prior the revised guidance calls, 16 he said for there Otis. was a "significant slowdown of construction markets in China" and a "slowdown in the rate of backlog conversion." (Second Amended Complaint 1 190.) Hayes also explained why UTC did not revise its guidance in June when it announced the Sikorsky sale although it "could (Id. 11 104, 194) Regarding UTAS, he said that Gitlin have." "had some plans in the back half of June in terms of orders that he expected to get that he didn't get; and quite frankly, it was a lot worse than I think [Gitlin] or anybody else expected when he stood up in June." (Earnings Call Transcript, July 21, 2015 at 11.) And for Otis, he explained that "I think that we were still hoping for some recovery, better news out of China in June. It's a big month for orders." (Id.) 4. Analyst Reports After many of these calls, analysts issued reports generally expressing confidence in UTC's guidance through the year and its ability to hit the projected targets. For example, after Hayes was appointed, an analyst believed Hayes "clearly units." June, examine [d] the assumptions (Second Amended Complaint 1 of [UTC' s] operating 5.) In March, April, and analysts wrote encouragingly that UTC reiterated its earnings per share guidance each time. (Id. 11147, 160, 161, 174, 181.) However, after the final revision to UTC's guidance 17 for the year in July, an analyst described the adjustment as "more than a major surprise." (Id. 1 14.) 5. Former Employee Reports on Difficulties Kapitalforeningen presents ten unnamed former employees of OTC and its subsidiaries (the "Former Employees") who were involved with or had insight into OTAS and Otis difficulties during or before Employees the describe aftermarket Class the commercial Period. The difficulties sales, and first relating the six to others Former OTAS and address the difficulties facing Otis. At a high level, Kapitalforeningen alleges that OTC knew about the difficulties described below and failed to disclose them while making its earnings projections. Former Employee One ("FE l") i. FE 1 is one of the main witnesses referenced in the Second Amended Complaint. Inertial, Control which is a & FE 1 was a Senior Exe cu ti ve Aircraft Management Systems unit of OTAS' s in ( "ICAMS") , Sensors and Integrated Systems division ("SIS"), for part of the Class Period, specifically from January 2013 through May 2015. 1 3 6.) SIS is one of eight OTAS (Second Amended Complaint di visions. 2 ( See "OTAS The parties have not provided an organizational chart for UTC. For simplicity and clarity, the Court will use the following taxonomy to delineate most entities: entities such as UTAS and Otis will be referred to as "subdivisions" of UTC, entities such as SIS, that make up UTAS will 2 18 Presentation, March 12, 2015," Dkt. No. 43 Ex. 17 at 2.) As part of his role, FE 1 "was involved in preparing sales and profits projections 1 37.) SIS. for ICAMS." (Second Amended Complaint FE 1 reported to Brian Sartain, (Id. Justin 1 a vice president at 36.) Sartain, in turn, reported to SIS president Keppy, who reported to and briefed some of the Executive Defendants as well as other intermediate managers. (Id.) Thus, throughout the Class Period, at least two levels of management separated FE 1 from any Executive Defendant, specifically Bellemare and Gitlin. (See id. 11 36, 37.) According to FE 1, the commercial aftermarket business had "deteriorated significantly" to be off by as much as 40%50% during the 2013-2014 period compared to earlier periods. (Id. 1 38.) Although FE 1 worked within only one unit within one UTAS division, ICAMS was alleged to have been the "largest component of SIS sales and profits" and SIS contributed either 75% of UTAS's profit or "at least had to have been a major contributor" to UTAS' s profits. FE 1 provided a few (Id. 1 39.) reasons for this market deterioration. First, airlines began to stockpile inventory. (Id. 1 40.) Second, Boeing - a major client - be referred to as "divisions," and entities such as ICAMS, SIS will be referred to as "units." 19 launched a that make up partnership program in 2012 requiring vendors like UTC to cut prices. 11 (Id. 41-43.) Third, airlines began forming groups to pool purchasing power of spare and replacement parts, and thus obtained Finally, better prices on parts. 11 (Id. 44-45.) airlines were buying more counterfeit parts, correspondingly fewer parts from UTC. and (Id. ,, 46-47.) FE 1 attended meetings within ICAMS discussing these trends and "their adverse impact on UTAS commercial aftermarket sales" and "UTAS' s other business uni ts." (Id. ,, 48-49.) FE 1 recalled "discussions in 2014" among Sartain and other SIS leaders, and a meeting in March or April 2014, including both recognized Keppy these aftermarket sales." and Sartain, difficulties (Id. 1 49.) during which "plaguing Keppy commercial FE 1 is not alleged to have been present for this meeting. FE 1 also discussed these difficulties with colleagues at meetings. Specifically, FE Operational Reviews" meetings, ICAMS and a , 50.) The "Maintenance, difficulties 1 regularly attended "SIS attended by members of both Repair and Overhaul" discussed at these unit. (Id. meetings were eventually raised with Bellemare "and other members of UTAS Senior Corporate Leadership" through meetings that "built upon each other" in the following way: ICAMS briefed Sartain, then Sartain briefed Keppy, and finally Keppy briefed Michael 20 Dumais (another senior manager who was a level below Gitlin), Bellemare and Gitlin. (Id. 1 51.) "FE 1 attended a few such briefings to Defendant Bellemare during his tenure" but it is unstated whether meetings FE responsible the difficulties attended. 1 FE 1 projections targets, discussed Keppy was (Id. 1 also targets management these that SIS eventual briefing to targets difficulties regarding as did other ICAMS units. presented these the 97.) incorporated for for at separately for distilling information in months missed sales and profit Bellemare. (Id.) were to Gitlin, the (Id. 1 2015 52.) Bellemare, into his financial Keppy then and Dumais. (Id.) However, after Keppy presented the targets, he received revised projections "rejecting" ICAMS's plans and reflecting larger increases in sales which various team members viewed as "unrealistic." (Id. 11 52-53. ) Keppy eventually provided the revised projections to Sartain, FE 1 and his team. According to who passed them on to (Id.) FE 1, employees from other SIS units reported similar frustrations with their business targets. (Id.) Even more broadly, FE 1 believed that "UTAS's other business units also had unrealistic targets imposed upon them by UTAS management." (Id. 1 60.) FE 1 learned from Sartain that when a UTAS executive argued about the targets, Bellemare 21 told him to "get on board or we will find someone who will." (Id. 1 54. ) ii. Former Employees Two Through Five Kapitalforeningen includes statements from Former Employees two through five to bolster FE l's claims. Former Employee Two ("FE 2") was a "SIS Senior Manager" during the Class Period. (Id. 1 45.) FE 2 described some of the same reasons why aftermarket sales were declining and how that impacted his projections that were presented to management through a similar "bottom-up" mechanism as FE 1 described. (Id. 11 45, presentations 57.) of FE 2 these was not involved projections to in any the of the Executive Defendants, but, like FE 1, FE 2 also received higher targets back from SIS senior management. targets were set, 1 11 58, 59.) Once the FE 2 met monthly with SIS executives "to discuss performance and variances (Id. (Id. against" those targets. 99.) Former Employee Three ("FE 3") is described as a former "Procurement Manager" at UTAS prior to and throughout the Class Period, who corroborates FE l's claim that counterfeits "also had a negative impact on commercial aftermarket sales." (Id. 1 47.) FE 3 also attended monthly "all hands" meetings on the performance of his group, 22 where there were slides "which reflected an overall aftermarket performance." decline 1 (Id. Former Employee Four in UTAS commercial 95.) ( "FE 4") is a "senior financial executive" within one of SIS's other units, Kidde, and stated that the targets given to him for 2015 were "unrealistic." 1 (Id. 55.) FE differed from that said 4 the management that typical, threatened the 2015 projection process historical "give-and-take" and that who hit those could not targets would lose their jobs or be moved out of the unit. 1 (Id. FE 56.) 4 also described the Hyperion Financial Management System, "which was the consolidator of all of UTC' s financial data from around the world." to FE Kidde 4, forecast (Id. information 1 was 94.) According put into this consolidator, which was rolled up into reports about SIS and eventually executives." UTAS, and was available to "all C-Suite (Id.) Former Employee Five ( "FE 5"), an "Aftermarket Demand Planner" also in Kidde, expressed similar negative sentiments 1 about the 2015 targets. (Id. meetings "business-in-hand" and a aftermarket weekly sales headquarters." that were 55.) He too, described regular report regarding circulated to Keppy and (Id. 11 75-76, 210.) 23 "SIS Former Employee Six ( "FE 6") and "Pulling In" Sales iii. FE 6 is another key witness to the difficulties that were facing UTAS. FE 6 was a manager within the "Business Development and Strategy" group at UTAS. 1 (Id. This 61.) group was responsible for developing the aftermarket services sales growth analysis for 2015. the 2015 year, the (Id.) FE 6 explained that for "bottom-up" and "pressure-test[ed]" analysis projected "low to mid-single digit growth forecast for commercial aftermarket services." projection noticed, was based such as a Boeing's 787. on similar (Id. 11 This 62-64.) difficulties that FE "lower amount of 787 provisioning" 1 for (Id.) Also similar to FE 1, FE 6 explained the reporting structure whereby these projections were eventually presented to Gitlin after two or three levels of review - FE (Id. 11 63- 6 was not present for the discussions with Gitlin. 65.) And again similar to FE 1 and other Former Employees, FE 6 later learned that management "rejected" his forecast. 1 (Id. 70.) After that, according to Kapitalforeningen "FE 6 and his staff began devising strategies to attempt management-imposed projected growth rate." (Id. to 1 meet the 71.) This was done in part through the long-time practice of "pulling in" or accelerating sales from future quarters into current quarter "creating the illusion of growth." 24 the (Id. 1 72.) FE 4 described this practice as "unsustainable" because "[w] ithout an ever-expanding future pool of sales to draw from at some point, there is nothing left to pull from." (Id.) FE 4, FE 5, and FE 6 each reported that there existed some "pulling in" of sales in their uni ts every quarter. (Id. 11 55, 73-74.) FE 5, who started in October 2014, specified that within his SIS unit, "for a period of time they were able to pull in approximately $2 million in sales from forward months into months they were short" but this stopped "during the first or second quarter of 2015." iv. (Id.) Former Otis and Otis Subsidiary Employees The remaining four Former Employees mentioned in the Second Amended Complaint worked subsidiaries. Kapitalforeningen for Otis alleges or unnamed Otis that they support allegations that Otis was losing market share in China through 2015 and that Otis relied upon an undisclosed and unsustainable practice of taking fake orders. Former Employee Seven ("FE Shanghai, a "sales contract reviewer" at Otis in "recalled elevator accidents" adversely affecting Otis sales. 2014 due 7"), to (Id. 1 80.) FE 7 also asserted sales declined in "deteriorating construction markets," and saw discounts up to 40% on contracts signed in 2014, which were larger than the 20% discount typically given. (Id. 11 81, 83.) Former Employee Eight ("FE 8") was a "senior manager" at 25 two Otis subsidiaries and similarly recalled a loss of market shares due to accidents, which "was management through situation reports." Former Employee Nine sales" at recalled "Otis a ( "FE 9") in Shanghai, major accident reported (Id. 1 to Otis 80.) was the former "head of China." (Id. impacting Otis 1 81.) sales He also and . that generally sales declined in China throughout 2013 and 2014. (Id.) FE 9 viewed Otis's products as more expensive, and inferior in terms of quality and specifications as compared to competitors' products, which made attracting new business difficult. (Id. 1 83.) Former Employee Ten ("FE 10") was another sales manager in China, and recalled a market "slow down" that "senior management must" have known about given access to sales data and regular sales team meetings. (Id. 1 81.) FE 7, FE 8 and FE 10 also described the practice of "Fake and Specially Approved" orders at Otis in China. "Fake" orders are, as the name implies, orders that would never be realized. (Id. 1 87.) "Specially Approved" orders are orders that sales people closed but for which Otis did not receive a deposit on. (Id. 1 88.) FE 8 estimates that "15-20%" of the order backlog "could be comprised" of fake orders. (Id. 1 87.) FE 7 believed there were "a lot" of "Specially Approved" orders at the end of 2014. Kapitalforeningen alleges that statements 26 about Otis's performance were misleading in part because they failed to disclose these practices. (See, ~ ' id. 1 118.) C. PROCEDURAL BACKGROUND Kapitalforeningen brought a putative class action on May 12, 2017 on behalf of stock purchasers and acquirers, and the case was assigned to the Honorable Judge John G. Koeltl. Kapitalforeningen claims Defendants made fraudulently false statements or omissions ( "Section 10 (b) ") of in violation the Exchange Act, of Section l0(b) as well as claims against the Executive Defendants for control person liability under Section 20 (a) After the appointment Kapitalforeningen 2017. (See Dkt. Motion to ( "Section 20 (a)") filed Nos. Dismiss on of counsel an amended 27, 31.) December Dismiss.) Within the next month, Then, 11, of the Exchange Act. and lead complaint plaintiff, in November Defendants filed 2017. (See Motion the to the case was reassigned to this Court and Kapitalforeningen filed the Second Amended Complaint. After the filing of the Second Amended Complaint, Defendants sought permission to file a new motion to dismiss, and the Court directed them to its letter-writing practice outlined in the Court's individual rules. (See Dkt. No. 48.) Defendants wrote to Kapi talforeningen detailing their arguments about the Second Amended Complaint's infirmities, 27 largely reiterating the arguments in support of the Motion to Dismiss. ("Def. January Letter," 24 Kapitalforeningen responded (see "Pl. Dkt. No. January 30 49.) Letter," Dkt. No. 50) and UTC notified the Court that the parties could not resolve their differences. ("Def. February 6 Letter," Dkt. No. 54.) The Court now construes Defendants' above as a renewed motion to dismiss letters described the Second Amended Complaint pursuant to Rule 12(b) (6). II. LEGAL STANDARDS A. RULE 12(B) (6) MOTION TO DISMISS Defendants argue that the Second Amended Complaint should be dismissed because it fails to state a claim for which relief can be granted under Rule 12(b) (6). "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 Bell Atl. (2007)). This Corp. v. standard is met Twombly, 550 U.S. 544, 570 "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678. A court should not dismiss a complaint for failure to state a claim if the factual allegations sufficiently "raise a right to relief above the 28 speculative level." Twombly, 550 U.S. at 555. The task of a court in ruling on a motion to dismiss is to "assess the legal feasibility of the complaint, not to assay the weight of the evidence which might be offered in support thereof." In re Initial Pub. Offering Sec. Litig., 383 F. Supp. 2d 566, 574 (S.D.N.Y. 2005) nom. (internal quotation marks omitted), aff'd sub Tenney v. Credit Suisse First Boston Corp. , No. 05 Civ. 3430, 2006 WL 1423785 (2d Cir. May 19, 2006). The Court must accept all well-pleaded factual allegations in the complaint as true, and draw all reasonable inferences in the plaintiff's favor. Warner, Inc., 282 F.3d 147, plaintiffs claiming fraud, 152 See Chambers v. (2d Cir. 2002). Time However, including securities fraud cases about material misstatements and omissions, must satisfy the heightened pleading requirements of Federal Rule of Civil Procedure 9(b) ("Rule 9(b)") by "stat[ing] with particularity the circumstances constituting fraud." Fed. R. Civ. P. 9(b). B. THE EXCHANGE ACT Kapitalforeningen brings two claims. One is against Defendants for misrepresentations or omissions of material fact in violation of Section l0(b) Rule l0b-5 of the Exchange Act and ("Rule l0b-5") promulgated thereunder, 17 C.F.R. Section 240.l0b-5. The second is brought solely against the 29 Executive Defendants under Section 20(a) of the Exchange Act for control person liability. 15 U.S.C. § 78t(a). Defendants argue that affirmations of (1) management's projections and guidance are forward-looking statements protected by the statutory PSLRA safe harbor and "bespeaks caution" doctrine; opinion statements; adequately allege the (2) and statements "Def. Memo," Dkt. No. 44 unactionable Kapitalforeningen (3) scienter. are ( See Def. February did 6 Letter; at 2-3.) To successfully bring a claim under Section l0(b) Rule l0b- 5, 3 "a plaintiff must allege that the securities, the (4) upon which the plaintiff relied, and (5) that plaintiff's 2013); ( 2) (3) in connection with the purchase or sale of reliance was injury." Solow v. Citigroup, Cir. and defendant ( 1) made misstatements or omissions of material fact, with scienter, not see Scientific-Atlanta, also the Inc., proximate 552 of its 82 (2d LLC v. ( 2008) . As 507 F. App'x 81, Stoneridge Inc., cause U.S. Inv. 148, Partners, 157 Section 10 (b) of the Exchange Act makes it unlawful "[t] o use or employ, in connection with the purchase or sale of any security . . . any manipulative or deceptive device or contrivance " 15 U.S.C. § 78j (b). Rule l0b-5, promulgated thereunder, provides that it is unlawful, in connection with the purchase or sale of any security, "(a) [t]o employ any device, scheme, or artifice to defraud, (b) [t]o make any untrue statement of a material fact or to omit to state a material fact . . . or (c) [t]o engage in any act, practice, or course of business which operates . . as a fraud or deceit . ." 17 C.F.R. § 240.l0b-5. Section 10 (b) operates as a "broad" prohibition against manipulation, whether in the form of false statements or market manipulation. 30 outlined below, certain elements of these claims are further defined by the PSLRA's amendments to the Exchange Act enacted in 1995. "Section 20(a) of the Exchange Act imposes derivative liability on parties controlling persons who commit Exchange Act violations." 223, 238 omitted). n.6 In re Vivendi, (2d "[T]o Cir. S.A. 2016) establish a Sec. Litig., (internal prima 838 F.3d quotation facie case marks . . a plaintiff must show (1) a primary violation by the controlled person, (2) control of the primary violator by the defendant, and (3) that the defendant was, in some meaningful sense, a culpable participant in the controlled person's fraud." ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 108 (2d Cir. 2007) (internal quotation marks omitted). 1. Misstatements or Omissions of Material Fact The PSLRA requires statement alleged to have that a complaint been misleading, "specify the each reason or reasons why the statement is misleading, and, if an allegation regarding the statement or omission is based on information or belief, the complaint shall state with particularity all facts on which that belief is formed." 15 U.S.C. § 78u-4(b); see also Rombach v. Chang, 355 F.3d 164, 172 (2d Cir. 2004). An omission is actionable "only when the [defendant] is subject to a duty to disclose the omitted facts." In re Time 31 Warner Inc. Sec. Litig., 9 F.3d 259, 267 (2d Cir. 1993). Although "Rule l0b-5 imposes no duty to disclose all material, nonpublic information, once a party chooses to speak, it has a 'duty to be both accurate and complete.'" Plumbers' Union Local No. F. Supp. 12 2d Pension Fund v. 166, 180 Swiss (S.D.N.Y. Reinsurance 2010) (quoting Co., 753 Caiola v. Citibank, N.A., N.Y., 295 F.3d 312, 331 (2d Cir. 2002)). 2. Scienter Scienter is defined as "a mental state embracing intent to deceive, manipulate, or defraud," Tellabs, Issues & Rights, quotation marks Ltd., 551 U.S. omitted). particularity [the] 308, Plaintiffs 319 Inc. v. Makor (2007) must (internal "state with facts giving rise to a strong inference that the defendant acted with the required state of mind. To satisfy this requirement, a complaint may (1) allege facts that constitute strong circumstantial evidence of conscious misbehavior or recklessness, or (2) allege facts to show that defendants had both motive and opportunity to commit fraud." Rombach, 355 F.3d at 176 (internal citations and quotation marks omitted) . Ultimately, "a complaint will survive . . . only if . the inference of scienter [is at] least as compelling as any opposing inference one could draw from the facts alleged. In determining whether a strong 32 inference exists, the allegations are not to be reviewed independently or in isolation, but the facts alleged must be taken collectively. The 'strong inference' standard is met when the inference of fraud is at least as likely as any non-culpable explanations offered." Slayton v. Am. Exp. Co., 604 F.3d 758, 766 (2d Cir. 2010) (internal citations omitted). 3. PSLRA Safe Harbor The PSLRA also contains a safe harbor provision that raises elements of the pleading standard even higher from the requirements PSLRA set out above in safe harbor provision statements" which include certain applies to a "forward-looking "statement[s] containing a . . or other financial (including earnings loss) per share, and The income (including income loss), earnings projection of . items circumstances. statement of future economic performance, including any such statement contained in a discussion and analysis of financial condition by the management "See Slayton, 604 F.3d at 766-67 (internal quotation marks omitted). Under the PSLRA, parties "shall not be liable with respect to any forward-looking statement," Section 77z-2 (c), to the extent that 15 U.S.C. they can show that: (1) the statements were accompanied by meaningful cautionary language; ( 2) the statements were immaterial; or ( 3) the plaintiff failed to prove the statements were made with actual 33 knowledge that they were false or misleading. See Slayton, 604 F.3d at 766. In evaluating whether cautionary language is adequate, courts must "identify the allegedly undisclosed risk and then read the allegedly cautionary language could have fraudulent materials including the to determine if a reasonable investor been misled into thinking that the risk that materialized and resulted in his loss did not actually exist." In re Focus Media Holding Ltd. Litig., 701 F. Supp. 2d 534, 541 (S.D.N.Y. 2010) (internal quotation marks omitted); see also Halperin v. eBanker USA.com, Inc., 295 F.3d 352, 359 (2d Cir. 2002). 4. Opinion Statements When the alleged misstatements or omissions are made within the context of statements of opinions, plaintiffs are also required to show that "(l) the speaker d[oes] the belief . the fact [s] professed; ( 2) not hold [ ] supplied in support of the belief professed are untrue; or (3) the speaker omits information that makes the statement misleading to a reasonable investor." Tongue v. Sanofi, 816 F.3d 199, 210 (2d Cir. 2016) (citing Omnicare, Inc. v. Laborers Dist. Council Contr. Indus. Pension Fund, 135 S. Ct. 1318 (2015)). 34 III. DISCUSSION Kapitalforeningen alleges a "fraud by hindsight" theory of liability that the Second Circuit has repeatedly rejected. ~, Denny v. Barber, 576 F.2d 465, 471 (2d Cir. 1978) (Friendly, J.). This conclusion is clearest in the context of evaluating Kapi talforeningen' s scienter allegations, which are Section claim insufficient to state a l0(b) fraud regardless of whether the statements at issue are classified as opinion statements, forward-looking statements, or otherwise. However, because the Court finds that nearly all / the statements are also opinion statements that are not misleading, Kapitalforeningen also fails to state a claim on those grounds. A. SCIENTER Kapitalforeningen fails to allege particularized facts giving rise to a "strong inference" that any Defendant acted with scienter. As noted above, Kapitalforeningen must allege either commit ( 1) Defendants fraud circumstantial or had both motive (2) evidence the of and opportunity to existence conscious of sufficient misbehavior or recklessness. Rombach, 355 F.3d at 176. 1. Motive and Opportunity On the first factor, corporate officers "motives that are common to most do not constitute motive for the 35 purpose [ ] " of establishing scienter. ECA, Local 134 IBEW Joint Pension Trust of Chicago v. JP Morgan Chase Co., F.3d 187, 198 omitted). (2d The Cir. 2009) opportunity to (internal commit quotation fraud is 553 marks generally assumed where the defendant is a corporation or corporate officer. See, ~' In re AstraZeneca Sec. Litig., 559 F. Supp. 2d 453, 468 (S.D.N.Y. 2008); Pension Comm. of Univ. of Montreal Pension Plan v. Banc of Am. Sec., LLC, 446 F. Supp. 2d 163, prong, 181 (S.D.N.Y. courts often 2006) assume ("Regarding the that 'opportunity' corporations, corporate officers, and corporate directors would have the opportunity to commit contest fraud if that there they so desired.") . was an opportunity Defendants do not to commit fraud. However, they argue that not only does Kapitalforeningen fail to allege any theory or motive, but Defendants actually faced the exact opposite incentives. Specifically, Defendants point out that according to SEC filings, the Executive Defendants' bonuses were tied partly to UTC's ability to hit projected earnings per share numbers, 2015. and thus were not paid out in (See Def. Memo at 28; Dkt. No. 43 Ex. 19 at 37-42.) They also argue that UTC would not have engaged in stock repurchasing if it knew the stock was inflated. Memo at 28-29.) 36 (See Def. Kapitalforeningen makes only one allegation, pertaining solely to Darnis (who was the leader of the subdivision containing Otis), that implicates the motive prong. At first glance, it is not trivial: Darnis sold over 300,000 shares of stock for a $19 million profit on March 13, after a call with analysts. 2015, the day (Second Amended Complaint 1 215.) SEC filings from the sale date show he still retained options on over 630,000 shares, which were also worth tens of millions of dollars. (See March 13, 2015 UTC Proxy Statement at 52.) Darnis is the only Executive Defendant alleged to have sold stock during the Class Period, and he announced his retirement only weeks Complaint 1 after the Class Period ended. ( Second Amended 25.) "[T] he motive showing is generally met when corporate insiders allegedly make a misrepresentation in order to sell their own shares at a profit." ECA, Local 134 IBEW, 553 F.3d at 198 (internal quotation marks omitted). On the other hand, "a significant stock sale by just one corporate insider is insufficient to support such an inference." See, ~ , In re DRDGOLD Ltd. Sec. Litig., 472 F. Supp. 2d 562, 570 (S.D.N.Y. 2007) (collecting authority); In re eSpeed, 457 F. Supp. 2d 266, 291 (S.D.N.Y. 2006) factor [regarding motive] two other individual Inc. Sec. Lit., ("[T)he dispositive is that other insiders, defendants, 37 did not sell including during the putative class period.") . That situation is precisely the case here. Darnis is the only one of five Executive Defendants to have made any such sales and he still retained millions worth of stock options after his sale. This circumstance is therefore insufficient to show motive as required under the PSLRA. Kapitalforeningen attempts to differentiate DRDGOLD by arguing that scienter can be adequately alleged even in cases with insider buying. (Pl. January 30 Letter at 3 (citing In re MF Global Holdings Ltd. Sec. Litig., 982 F. Supp. 2d 277, 306, 320 (S.D.N.Y. 2013)) .) But there, the Court ultimately relied upon the conscious misbehavior or recklessness prong to support its scienter finding, not the motive prong. MF Global Holdings, 982 F. Supp. 2d at 306. As discussed below, Kapi talforeningen does not adequately plead scienter under that prong either. 2. Conscious Misbehavior or Recklessness The other way to plead scienter is to allege "conscious misbehavior or recklessness." " [T) he strength of the circumstantial allegations must be correspondingly greater if there is no motive." ECA, (internal quotation marks Local 134 IBEW, omitted). 553 F. 3d at 199 Thus, a plaintiff pleading the "conscious misbehavior or recklessness" theory of scienter must allege conduct that is "highly unreasonable 38 and which represents an extreme departure from the standards of ordinary care to the extent that the danger was either known to the defendant or so obvious that the defendant must have been aware of it." Kalnit v. Eichler, 264 F.3d 131, 142 (2d Cir. 2001) (internal quotation marks omitted). There are at evidence can least support four methods where circumstantial an inference of scienter, including allegations that defendants "(1) benefitted in a concrete and personal way from the purported deliberately illegal behavior; (3) fraud; ( 2) engaged in knew facts or had access to information suggesting that their public statements were not accurate; or (4) failed to check information they had a duty to monitor." Employees' Ret. Sys. of Gov't of the Virgin Islands v. Blanford, 794 F.3d 297, 306 (2d Cir. 2015) (internal quotation marks omitted). The Court addressed the first method above in regards to motive, where it is typically assessed despite its inclusion within the conscious misbehavior or recklessness prong.~, ECA, Local 134, 553 F.3d at 198 and opportunity to defraud, [defendants] from the ("In order to [show] motive [p] laintiffs must allege that benefitted in some concrete and personal way purported fraud. " (internal quotation marks omitted)); Heller v. Goldin Restructuring Fund, L.P., 590 F. Supp. 2d 603, 622 (S. D. N. Y. 2008) 39 ( finding motive and that defendants "benefitted simultaneously). in a Further, allegations or arguments concrete and personal Kapitalforeningen that go to the makes way" no second or fourth methods. Turning to the third method, the Second Amended Complaint contains three categories of relevant allegations. The first category is that Defendants "admitted" that they had no factual basis for the earnings guidance. 11 Second Amended Complaint (See, ~ , 211-13.) Next, Kapitalforeningen alleges that Former Employees provided contrary information indicating UTAS' s and Otis's difficulties when forecasting 2015 sales figures, and Defendants received that information. (Id. 11 48-70, 94-100.) Finally, Kapitalforeningen alleges that Defendants had access to various systems and reporting mechanisms (Id. 11 containing 203-09.) the These relevant allegations, contrary even information. when considered together, do not sufficiently plead scienter. i. Category One: Hayes's Admissions The allegations in the admissions category do not support the contention that Defendants acted with scienter when making the alleged misstatements. These allegations rely on the statements made in July 2015 when UTC lowered the guidance for the 2015 financial statements were made targets once again. exclusively 40 by Hayes during These his evaluation of what UTC could have done to discover the issues earlier in the year. As Kapitalforeningen highlights, Hayes (and wrongly UTC) would grow. did not enough" "assumed" commercial (Second Amended Complaint "think we delved deep 11 enough" aftermarket sales 211-13.) He said he or "dig [ged] deep into the assumptions of the commercial aftermarket sales growth. admissions (Id.) Kapitalforeningen alleges that these are that Defendants "necessarily knew they had not questioned the underlying assumptions or delved into how UTC was actually going to achieve the unrealistic guidance." (Pl. January 30 Letter at 3.) But these are retrospective observations that "became apparent" to Hayes only after he "met with the folks at UTAS and [] met with the Otis team." (Earnings Call Transcript, July 21, 2015 at 7.) Thus, Hayes was not admitting that when he spoke in December 2014 or January 2015 that he knew at that time that UTC had not "delv[ed] deep enough," nor is it reasonable to infer he meant to say that. The closest statement to such an admission is that Hayes said UTC "could have" adjusted the 2015 guidance during the June 15, Sikorsky announcement. even that ambiguous (Second Amended Complaint statement ignores the 1 2015 212.) But context that Defendants were still expecting orders "in the back half of 41 June" which did not materialize in an unexpected way. (Earnings Call Transcript, July 21, 2015 at 11.) None of these statements are actual admissions of prior knowledge or reckless conduct. Arguably, at best they may be relevant to an allegation of negligent conduct. In re Nokia Oyj (Nokia Corp.) Sec. Litig. is instructive in this regard. Defendant Nokia - at the time a large cell phone manufacturer - and its executives faced similar false statement claims under Section l0(b) and Rule l0b-5. See 423 F. Supp. 2d 364 (S.D.N.Y. 2006). After a few quarters of growing sales in the early 2000s, Nokia projected continued increases in sales for its next quarter. Id. at 359-60. In fact, sales declined that quarter, the stock dropped 16% in a day, and defendants were accused of withholding information that its recent positive performance and sales growth was "aberrant" and likely to end soon. Id. In support of their scienter allegations, plaintiffs alleged that Nokia's CEO "admitted" that he knew Nokia's products were "not competitive" because the CEO stated "we saw early on last year that what might be happening is that we are not fully competitive, so certainly we have started to take measures." Id. at 404-05. The Honorable Judge Kenneth Karas of this Court held that this statement did not support scienter. Id. the "statement merely suggests that, at the time, 42 Instead, there was some level of internal concern that a segment of Nokia's products were not as competitive as Nokia wished." 405. The court reasoned that, Id. at because the defendants there "took action . . . to fix some of its problems" they had cause to be optimistic and "the fact that, in retrospect, such optimism may have been too optimistic does not retroactively make Nokia's prior statements knowingly false, in particular when defendants' wishful statements were not worded as guarantees." Id. Unlike the Nokia CEO who acknowledged doubts existing in prior periods, Hayes never made any admissions of doubts as to his prior opinions. Instead, Hayes's statements during the Class Period and alleged admissions show, at most, that UTC and the Executive Defendants similarly shared both concerns and optimism about the business. and the other Executive Like the Nokia CEO, Defendants had concerns Hayes about commercial aftermarket sales during the first half of the year - concerns which they shared with analysts as they uncovered information. But the Executive Defendants were also similarly optimistic about orders in the second half of the year that never materialized. Holding these two beliefs does not make their statements about the projected sales knowingly or recklessly false. the Thus, 43 Court finds that the allegations in the admissions category fail to allege scienter. Categories Two and Three: Reporting Mechanisms ii. In support allegations, access to of or received that Amended Complaint, the to performance. second and Employees and third categories of Kapi talforeningen argues systems contrary the Former the various that Defendants opinions, Former Employees describe and that Defendants' these public items had reports and in the Second contained statements about facts UTC's (Second Amended Complaint 11 94-100, 201, 203- 210.) As a threshold matter, Defendants ask the Court to discredit or discount the Former Employees due essentially to their anonymity. (Def. Memo at 23.) That is not the standard in the Second Circuit. Allegations may rest on information provided by anonymous sources, like the Former Employees, when they "are described in the complaint with sufficient particularity to support the probability that a person in the position occupied by the information alleged." Novack, source would possesses the 216 F.3d at 314. Pursuant to Rule 9, when alleging the existence of reports and meetings containing identify contrary the facts, reports or plaintiffs statements 44 "must specifically containing this information." Id. previously found at Court has scienter when confidential witnesses (1) circulated reports directly to 309. with the defendants; (2) For example, relevant attended the contrary information meetings about issues with defendants or immediate subordinates; and the ( 3) supported allegations of "widespread knowledge" of problems. See Cornwell v. Credit Suisse Grp., 689 F. Supp. 2d 629, 63739 (S.D.N.Y. 2010); see also San Leandro Emergency Med. Grp. Profit Sharing Plan v. Philip Morris Companies, Inc., 75 F.3d 801, 812 (2d Cir. 1996) (quoting similar language in First Circuit and Seventh Circuit cases regarding the specificity of information complaints must contain about reports and figures to state a claim); Freudenberg v. E*Trade Fin. Corp., 712 F. Supp. 2d 171, 196 (S.D.N.Y. 2010) (finding scienter adequately pled when confidential witnesses "had first-hand interactions with specific risks); scienter and the defendants" DRDGOLD, 472 F. identifying no including Supp. at 572 conversations "reviewed by any specific individuals . reporting of (finding no or reports . on any specific dates" containing contrary facts); Steinberg v. Ericsson LM Tel. Co., No. 07 Civ. 9615, 2008 WL 5170640, at *13 (S.D.N.Y. Dec. 10, 2008) (finding no scienter in part because "all three of [p]laintiff's confidential sources were mid-level managers in the United States who claim no contacts or communications 45 with [d]efendants, or even with [defendant's] European corporate headquarters"). Turning to the allegations themselves, the second and third categories of scienter allegations are deficient in the same two respects. plausibly allege To that start, the Kapitalforeningen specific "contrary does facts" not it describes were ever communicated to Defendants or accessible to them. And equally critically, even if the information reached Defendants, there are no plausible allegations that the information was contrary to public statements in light of UTC's size and structure. To address the allegations pertaining to Otis first, there are no allegations that any of the exclusively Chinesebased Former Employees' slowdowns, Fake orders, communicated generic to any statements management" knowledge about construction market or Specially-Approved orders Executive that Defendant. information was (Second Amended Complaint 1 management" had access to sales data (id. There are were only "reported to Otis 80) and that "senior 1 81). There are no descriptions of when these reports would have been provided to the Executive Defendants, what they contained, or on what systems they existed. These generic statements fall far short of the requirements of Rule 9(b). 46 The allegations against UTAS, albeit stronger, also fail to plead scienter sufficiently. No Former Employee is alleged to have circulated a report on the UTC's alleged difficulties directly to any Executive Defendant. There is no compelling allegation that any Former Employee: attended a meeting with any Executive Defendant or even with an immediate subordinate of any Executive Defendant discussing commercial aftermarket difficulties; received the revised targets back directly from the Executive Defendants; or had insights on all commercial aftermarket sales across UTAS divisions. Instead, Kapitalforeningen alleges that the Former Employees' superiors (employed two or three levels above the Former Employees) within conveyed the aggregated divisions and units. derived from Former reports Former Employees' concerning larger These allegations are "personal Employees' concerns business inherently not knowledge" as required. Levy v. Maggiore, 48 F. Supp. 3d 428, 443 (E.D.N.Y. 2014) ("Plaintiff is only required to show that the source of the belief is someone in a position to have had personal knowledge."); see also Novack, 216 F.3d at 314. FE 6 is the Former Employee that was closest to the process for generating sales targets on a UTAS-wide level. He created aftermarket reflecting the services difficulties sales UTC 47 never targets allegedly disclosed. These targets were eventually presented to Gitlin, but only after two or three levels of interim review, and at a meeting FE 6 was not present for. There was therefore no direct reporting of the information from FE 6 to any Defendant similar to the reporting that existed in Cornwell. See 689 F. Supp. 2d at 637-39. Then, even if the sales difficulties had reached Gitlin as part of the projected targets, the allegations do not show the projections facts." That themselves themselves is, it consisted is contained unclear strictly specific whether of the numerical "contrary projections targets or descriptive causal information alerting Gitlin and the others about the difficulties with Boeing's partnership program or counterfeit parts, for example. More about critically, what example, comprises FE 6's Kapitalforeningen "commercial projections also aftermarket pertained to equivocates sales." For "Aftermarket Services sales growth" as part of the "Aftermarket Services team." (Second Amended Complaint 11 61, 63, 64.) (emphasis added) But, as Gitlin described, the "commercial aftermarket" consists of three separate provisioning, and repair. 15, 2015, at 8.) buckets: spare parts, (See Investor Call Transcript, June Despite this specificity contained in the Second Amended Complaint, and Defendants' comments about how 48 commercial aftermarket sales are separated, Kapitalforeningen argues that FE 6's projections reflected the best that UTAS aftermarket sales, as a whole, could reach. (Pl. January 30 Letter at 2.) This contention is a stretch, and an important one. When accounting for this detail, 6's projections of "low to it is unclear how FE mid-single digit aftermarket services is a meaningful Defendants' directionally similar guidance of digit" growth for UTAS in overall growth" "contrary fact" commercial in from "high single aftermarket sales. There are similar deficiencies with FE l's descriptions of monthly SIS Operational Review business plan targets for 2015. meetings and the SIS (See Second Amended Complaint 11 49-51.) Like FE 6, FE 1 was not present for any of the briefings to Defendants about the trends his team discussed. Thus, even though FE 1 identified specific issues pertaining to commercial aftermarket sales, such as airlines stockpiling inventory, worked them into his projections and discussed them with colleagues, it is not alleged with particularity how those specific issues were reported up the chain. Even if the projections had been reported upward, Defendants rightfully point out, Employees directly supporting as FE 1 and the other Former FE l's allegations worked mainly within a single UTAS unit, so they had no insight on 49 how other UTAS units, let projected aftermarket sales. alone other See Rombach, UTAS divisions, 355 F. 3d at 174 ("[I]t is wholly unclear why data relating to four facilities can be deemed facilities, representative of defendants' 115 other or material to the company's overall financial condition."). There could well be differences among units and divisions year-to-year. Indeed, UTC itself reported that commercial aftermarket sales were down within one subdivision but up in another in the same period during its 2014 earnings call. (Earnings Call Transcript, January 26, 2015 at 2.) Thus, these allegations do not support the existence of "contrary facts" available to Defendants, given the limited insight these Former Employees had into UTAS as a whole. To circumvent this deficiency, Kapitalforeningen relies on FE l's reports that ICAMS was the "largest component of" SIS and SIS contributed either 75% of UTAS's profit or "at least had to have been a major contributor" of UTAS' s profits. (Id. 1 39.) There are two problems with this maneuver. One is that the "largest component" of "a major contributor" is a vague allegation that undermines how representative FE l's observations are. That is, even if ICAMS is a major part of SIS and SIS is a major component of UTAS's overall profits, that does not mean I CAMS or SIS makes up a major part of UTAS's commercial aftermarket sales or profits. 50 Second, as Defendants point out, FE l's reports about 12-15% declining commercial aftermarket profits in ICAMS are inconsistent with UTAS's rising profits in commercial aftermarket sales overall at the time, as reported in UTC's SEC filings. Although the Court does not rely on these judicially noticed filings for the truth of their contents, Sharette, 127 F. Supp. 3d at 75, it is notable that Kapitalforeningen does not contend that UTC' s reporting question or accounting Defendants' is inaccurate assertions or otherwise its about historical performance. FE l's other comments do not support a strong inference of scienter. For example, without more information on the sources, the Court does not credit the allegation that FE 1 heard from a supervisor that Bellemare fought with another senior manager "about the (Second Amended Complaint the allegations, unrealistic 1 FY2015 targets." 54.) Even if the Court credited as Defendants point out, these third-hand comments fail to specify what about the targets the senior manager argued was unrealistic, and if they pertained to the issues FE 1 identified. Additionally, available on UTC the fact systems that does some not forecast salvage the data was scienter allegations. FE 4 allegedly placed Kidde's forecast data into the Hyperion Financial Management System, which consolidated 51 "all of UTC' s 1 94.) data" financial data from around the world." (Id. Kapitalforeningen never describes what the "forecast contains in terms of specific would be available to generically-described Defendants. sales reports "contrary facts" Similarly, were Complaint would still even if aggregated provided to management during the Class Period, Amended that suffer and the Second from pleading deficiencies. It is not enough for Kapitalforeningen to plead that Defendants had access to data showing declining sales indeed Defendants shared that precise information with investors during the Class Period. Instead, the reports would need to provide information on the specific causes and issues, upon which Kapitalforeningen relies, such as the practice of pulling in sales. Kapitalforeningen's This focus is the on the fundamental practice problem of with pulling in sales: nowhere does the Second Amended Complaint allege that this practice was ever raised with Defendants, and the lack of specificity with which the practice is described does not suggest it was so "widespread" or done at such a scale that Defendants must have known about it, as was the case in Cornwell. The limited allegations of Former Employees Two through Five fare no better and do not bolster the other allegations. Although there is consistency among the observations of the 52 difficulties in aftermarket commercial sales and aggressive business targets to make them seem like "widespread knowledge," the weight of these allegations is negated by the fact that the Former Employees all come from the same few units and mostly from the same division as FE 1. For example, FE 2, like FE 1, worked in SIS and never presented information about the difficulties directly to Defendants. Amended Complaint 11 45, 58, 59.) in the same division as FE 1, (id. (See Second FE 4 and FE 5 also worked 1 55) and never had contact with any of the Executive Defendants. Thus, the import of these allegations at most is limited to performance in certain smaller sections of UTAS rather than the subdivision as a whole. 3. Competing Inferences Of course, when assessing scienter, the Court must consider the evidence in its totality, and also consider all plausible opposing inferences. See Tellabs, 551 U.S. at 323. In determining whether a complaint has pleaded factual allegations giving rise to a strong inference of scienter, " [a] court . . must assess the complaint in its entirety, and not scrutinize each allegation." Employees' Ret. Sys., 794 F.3d at 305. Here, many of the allegations, such as those pertaining to Hayes's alleged admissions or Defendants' motives, fail to 53 support Kapitalforeningen's claims. The remaining allegations pertain exclusively to what the Former Employees reported. Although the consistent reports traits, among the the Former Former Employee's Employees limited share vantage point and lack of interaction with the Executive Defendants preclude those allegations from clearing the scienter hurdle. Ultimately, the allegations narratively describe management's misses and a lack of communication. This competing inference is supported by the Executive Defendants' Former Employees' statements contemporaneous comments. and Hayes made clear that although he "pushed the UTAS guys" to have larger numbers, in fact, it was the ultimately the "UTAS guys" who "had to push the aftermarket guys." (Second Amended Complaint 1 116.) The Former revised targets with those Employees consistently received from superiors below Defendants, targets in hand worked with their and then teams determine how to meet them - without Defendants' input. ~ ' id. the to (See, 11 52, 59.) This inference is also consistent with the allegation that FE 4 recalled that Keppy, not Defendants, would "bully" people to have them "make [their] number" or threaten to lose their job. (Id. 1 56.) In sum the stronger inference is that the Executive Defendants disclosed the difficulties with UTAS 54 and Otis once they learned about them and otherwise just missed the 2015 targets. 4. Core Operations and Stock Buybacks Kapitalforeningen's scienter are remaining allegations to support easily addressed and dispensed with. First, Kapitalforeningen incorrectly invokes the "core operations" doctrine to argue that the "importance of UTAS to UTC' s financial results supports a strong inference of scienter." (Id. 1 214.) Whether the "core operations doctrine survives as a viable theory of scienter" after the passage of the PSLRA remains debatable. In re Pretium Res. Inc. Sec. Litig., 256 F. Supp. 3d 459, 474 (S.D.N.Y. 2017), aff'd sub nom. Martin v. F. Quartermain, Frederick v. 2012)). 732 Mechel OAO, App'x 475 37 (2d Cir. F. App'x 353, When applying the doctrine, 2018) (quoting 356 (2d Cir. "courts have required that the operation in question constitute nearly all of a company's business before finding scienter." Claiborne, Inc., 814 F. Supp. 2d 323, 343 Tyler v. (S.D.N.Y. Liz 2011). For example, UTAS is alleged to contribute only around 25% of UTC's profits as a whole - and commercial aftermarket sales are even less than that. Next, Kapitalforeningen argues that Defendants initiated billions of dollars of stock buyback during the Class Period to "prop up" UTC' s reported earnings per share to "conceal 55 UTC's inability" to meet the guidance. However, again, on the contrary, "substantial share repurchases" tend to "negate a finding of scienter" because it would make no economic sense for a company to buy back its stock at a price it knows to be inflated. See Retirement Bd. of the Policemen's Annuity v. FXCM Inc., No. 15 Civ. 3599, 2016 WL 4435243, at *7 (S.D.N.Y. Aug. 18, 2016), vacated and remanded on other grounds, 693 F. App'x 77 (2d Cir. 2017) (citing Tyler, 814 F. Supp. 2d at 337-38). Moreover, other than the fact of the buyback itself, there are no particularized allegations that Defendants engaged in the buyback to "prop up" UTC's figures, such as emails discussing this strategy or meetings analyzing it. 5. Conclusion Regarding Scienter In sum, the Court finds that no Executive Defendant made a misleading statement with sufficient degree of scienter. There are also no allegations regarding the scienter of any other corporate officer who is not a Defendant that could be attributed to UTC. The Section l0(b) Executive Defendants and UTC are claims against all the therefore dismissed. See Teamsters Local 445 Freight Div. Pension Fund v. Dynex Capital Inc., 531 Exchange F.3d 190, Act 196 violation, (2d Cir. the 2008). Section liability claims must also be dismissed. Inc., 493 F.3d at 108. 56 With no primary 20 control person See ATSI Cornrnc'ns B. OPINION STATEMENT LIABILITY As a second and alternative basis for dismissal, the Court finds that nearly all of the alleged misstatements are opinions that do not give rise to liability. alleged misstatements that do not qualify For the few as opinion statements, other reasons render them innocuous. The standard for opinion statement liability is whether any omitted "misleading Court's information to a Omnicare makes the reasonable investor" standard. Sanofi, opinion under 816 statements the F.3d Supreme at 210. "Reasonable investors understand that opinions sometimes rest on a weighing of competing facts that every fact statement." Id. known at 211 to an [and do] . issuer supports not expect its opinion (internal quotation marks omitted). "[A] statement of opinion 'is not necessarily misleading when an issuer knows, but fails to disclose, some fact cutting the other way.'" The omitted facts must "conflict with what a reasonable investor would take from the statement itself." Id. (internal quotation [Omnicare] standard marks omitted). "[M]eeting the is no small task for an investor." Id. at 210. Defendants categorize the alleged misstatements into two categories of statement falls opinion within statements, one of 57 and those assert two that categories. every One category comprises statements on UTC' s 2015 projections. (Def. Memo at 21.) The other category consists of statements reaffirming those (Id.) estimates. Defendants argue the statements in both categories are "non-actionable opinions" because Kapitalforeningen has not adequately met the Sanofi test. (Def. January 23 Letter at 2.) Kapitalforeningen concedes that certain statements are opinion statements. argues those (Pl. statements January 30 meet letter at 2.) But Omnicare and Sanofi the it standards due to the alleged omissions of material facts that make them misleading, and because Defendants allegedly made the statements with "no reasonable basis in fact." (See Pl. January 30 Letter at 2.) Kapitalforeningen also argues that certain statements are factual, non-opinion statements. (Id.) As a threshold matter, the Court must decide whether the alleged misstatements are opinion statements or statements of fact. Kapitalforeningen concedes that numerous statements regarding future profitability are opinion statements. See Sanofi, 87 F. Supp. 3d at 531 ("expectations for the future" are opinions not "presently existing, objective facts"). However, Kapitalforeningen asserts that other statements are factual. As the Court recognized in MF Global, the Second Circuit has not comprehensively delineated the difference between a 58 statement of opinion and a statement of fact. Glob. Holdings Ltd. (S.D.N.Y. 2013) Sec. Litig., (classifying 982 F. See In re MF Supp. defendants' 2d 277, 312 statements on certain accounting decisions as opinions due to a lack of a verifiable "objective standard"). However there are some clear benchmarks applicable to the majority of the statements at issue. "[E]xpressions of optimism [and] projections about the future" are typical types of opinion statements. Int'l Bus. Machs. Corp. Sec. Litig., Cir. 1998) . assess For the whether 163 F.3d 102, remaining statements, they are verifiable on the In re 107 (2d Court must some objective standard. See MF Global, 982 F. Supp. 2d at 312. 1. Non-Opinion Statements The Court first addresses the non-opinion statements. Kapitalforeningen argues many of the statements at issue are "non-opinion statements." (Pl. January 30 Letter at 2 (citing Second Amended Complaint The Court, however, 11 finds 112, 122-24, 131, 138-40, 149) .) that only two of the related statements are factual statements. In one Darnis is quoted as saying: declining "after share, several Otis years of trajectory flat is performance trending and positive." (Second Amended Complaint 1112.) Next, Darnis is also alleged to have made a similar, more detailed statement later. 1 14 0. ) Kapitalforeningen argues 59 these statements (Id. are misleading because Hayes "admitted" that "over the last 10 or 15 years," Defendants had "seen a continued erosion of Otis market share as we have pursued margin expansion," and Otis had "taken margin expansion to the point now where we're not terribly competitive based on new equipment pricing." (Id. 1 119.) Hayes also said that Defendants had "seen a big slowdown in China" regarding Otis. These few general (Id.) lines about Otis do not support a finding of falsity sufficient to make Darnis's comments about Otis's trajectory misleading. Further, given UTC's many disclosures from the beginning of the Class Period about Otis difficulties in China, a reasonable investor would know how Otis was performing in China for the years beforehand. Thus, although Kapitalforeningen is correct that these are factual statements, the Court is not persuaded that they give rise to Section l0(b) fraud liability for Defendants. The other statements Kapitalforeningen argues are nonopinion statements are in fact either opinion statements more fully addressed below or otherwise non-actionable puffery because they conveyed "no meaningful, objective data that an investor would rely upon." ~, Oklahoma Firefighters Pension & Ret. Sys. v. Xerox Corp., 300 F. Supp. 3d 551, 577 (S.D.N.Y. examples 2018) of this (internal quotation puffery include 60 marks omitted). statements such as Some "our business fundamentals and operational expectations have not changed." (Second Amended Complaint 1 122; see also id. 123, (alleging regarding 139 similar business "fundamentals".) misstatements 11 UTC's For a company operating worldwide on billions of dollars of sales a year in multiple industries, it is unclear what information is conveyed by the reference to "fundamentals" that was ultimately false. 2. Opinion Statements The remaining statements Kapitalforeningen cites, however, are opinion statements subject to the Omnicare test. This classification includes statements such as "[b]ased on solid backlog and continued orders strength, we see topline momentum as we enter 2015" (id. 1 122); "we still expect . high single-digit growth in the aftermarket at UTAS" 1 124) ; "we expect stronger commercial aftermarket in the second half of the year, back-end loaded" (id. 1 (id. 1 primarily because provisioning is 138); UTC was "on the right track" 131); "2015 is on track of what we said in January," and that "operationally, everything, as we expected, things [are] moving along exactly in line with what we thought" 1 (id. (id. 14 9) . Thus, for these types of statements, as well as the others in the Second Amended Complaint relating to expected future earnings that Kapitalforeningen concede are opinion 61 statements, the Omnicare test and its two options for when liability may attach to opinion statement applies. i. Option One: Actual Knowledge Reasonable Basis in Fact Under the first option, of Falsity or No Kapitalforeningen must allege with particularity that Defendants had actual knowledge of the falsity, or knew the statement did not s. Ct. at 1325-28, 1332; meaningful inquiry." Omnicare, 135 see also City of Westland Police "rest on some Fire Ret. Sys. v. MetLife, & Inc., 129 F. Supp. 3d 48, 72 n.155 (S.D.N.Y. 2015) (holding omission as misleading if the statement had "no reasonable basis in fact"). As discussed above with regards to scienter, Kapitalforeningen cannot show Hayes had actual knowledge of the falsity of any of these statements. Instead, Kapitalforeningen relies heavily on this reasonable basis in fact" prong. "no (See Pl. January 30 Letter at 3.) Once again, the allegations can be separated as those pertaining to Otis versus those pertaining to UTAS. For Otis, Otis-related "order Kapi talforeningen does not allege statements backlog," or on "order the Chinese strength" reasonable basis in fact. That is, market were made that the slowdown, with no there are no allegations about how Defendants evaluated China's slowdown or the order backlog, and even if the Court credits the weak allegations 62 about the Fake and Specially Approved orders, nothing links those allegations Otis China's to Defendants' performance. The opinion statements about Court also notes that Defendants disclosed the numerous difficulties about Otis in the Chinese market throughout the Class Period. Next, Kapitalforeningen argues that Hayes admitted that his prior statements about UTAS's profitability had no basis in fact. Kapitalforeningen specifically points to Hayes' s statements on the July 21, 2015 earnings call that "I don't think there was a strong basis in that aftermarket assumption around how we were going to get there. " (Pl. January 3 O Letter at 2-3 ( "Defendants have admitted that their assumption of continued growth in 2015 lacked any factual basis.").) Kapitalforeningen's reliance on this statement ignores that even taking it at face value, Hayes's statement is that there was not a reasonable "strong basis" basis," which which is not the same as is the standard for "no opinion statement liability. But this statement cannot be taken at face value. one, as explained retrospectively with earlier, the Hayes benefit is of clearly hindsight, For speaking and not stating that he knew at the time there was no reasonable basis for UTC's projections. Additionally, on the same call, Defendants described the basis for the earlier opinion. Hayes 63 and Johri explained in the call that the projections were based on sales from the year before as well as projections from airlines' plans. 2015, at 8-9.) (See Earnings Call Transcript, July 21, Although the Court cannot accept these contemporaneous statements for their underlying truth, provide important context for the alleged they admissions. Further, while Kapitalforeningen cannot plead what happened during the meetings to discuss the 2015 targets, the Second Amended Complaint is replete with detail about the process demonstrating the "meaningful inquiry" that went into crafting such targets. Sanofi, 816 F.3d at 214. The Former Employees' recounting of that process and managements' revisions ignoring "negative trends" also do not show that the statements were made without a reasonable basis in fact. "contrary Indeed, for facts" to the same support reasons the why scienter there are no allegations, Kapitalforeningen points to no specific facts to show that UTC's ultimate projections were unreasonable in light of the information obtained by Defendants. The opinion statement liability cases that Kapitalforeningen points to illustrate the high bar required to allege Defendants had opinion statements. "no reasonable basis" for their The court in Westland Police and Fire Retirement System found that plaintiffs did not adequately 64 allege that there was "no reasonable basis" for the defendant's opinion because they "alleged no facts whatsoever regarding the basis for [defendant's] opinion." 129 F. Supp. 3d at alleges Here, 82. that even though Defendants Kapitalforeningen ignored generally advice, employees' Kapitalforeningen provides no allegations that Defendants had sufficient knowledge about the Former Employees' or demonstrating whether Defendants statements interpreted and considered the Former Employees' recommendations. Kapitalforeningen also points to another case which does not involve opinion statements Children's Place Retail Stores, 230 (S.D.N.Y. basis" 2008) (briefly at all, Inc., see 580 F. touching upon in the context of scienter), Hall Supp. "a v. The 2d 212, reasonable and another case that states the rule but its analysis focuses strictly on whether defendants "did not actually believe" their statements. In re Lehman Bros. Sec. & Erisa Litig., 131 F. Supp. 3d 241, 255 (S.D.N.Y. 2015). In sum, there are no specific allegations to support Kapitalforeningen' s argument that the guidance Defendants offered about UTC was made with no reasonable basis in fact. ii. Option Two: Misleading Omissions The second way to meet the Omnicare standard is to show that Defendants' opinion statements omitted information that 65 "makes the statement misleading to a reasonable investor." Sanofi, 816 F.3d at 210. One unsettled issue is how the Court is to weigh the materiality of some omitted "fact cutting the other way" under the elevated Generally, Omnicare "materiality standard is for opinion typically a statements. fact-intensive endeavor ill-suited for resolution on a motion to dismiss." ~ , San Leandro Emergency Med. Grp. Profit Sharing Plan v. Philip Morris Companies, Inc., 75 F.3d 801, 811 (2d Cir. 1996). Sanofi and other recent cases provide some guidance on when those facts require disclosure. In Sanofi, the defendants made optimistic statements estimating that the Food and Drug Administration ("FDA") was 90% likely to approve a new drug within a certain timeframe. 816 F.3d at 211. When making that statement, the defendants did not disclose some non-dispositive negative guidance from the FDA about whether the agency would, in fact, approve the drug within the timeframe. Id. Eventually, the drug was approved, but only after the timeframe. Id. at 208. The Court of Appeals found that the defendants' expected drug approval were statements about the optimistic expressions of opinion, especially in light of "caveats" made in the offering materials about FDA approval. Id. at 211. 66 The Court of Appeals also analyzed omissions from opinion statements in another post-Omnicare case involving the goldmining industry. App'x 37 (2d Cir. See Martin v. 2018). Quartermain, 732 F. The defendant goldmining company hired a consultant to "estimate the quantity of gold" that could be produced from a mining site. preliminary analysis was positive See id. and the at 39. The consultant recommended that the goldmining company test some samples to confirm its results. Thus, the goldmining company hired a testing company to both test samples and issue a report after processing all the data. goldmining company During the sampling process, "reported favorable results" the despite receiving negative and contrary interim reports about the samples from the testing company. Id. never issued completed Eventually, the its analysis goldmining or company The testing company a released final report. the negative interim reports and its stock fell 30%. The Court of Appeals held that, again especially in light of the disclosures and volatility of the industry, the original optimistic comments were not misleading. Id. at 41. That is, the goldmining company was not required to release the interim reports along with its optimistic statements, as company to issue only a final report. 67 it hired the sampling Between Sanofi and Martin, even significant, directly it is clear that omitting contradictory information from opinion statements is not misleading, "especially" when there are countervailing disclosures. With that standard in mind, the Court addresses the parties' arguments. Here, the alleged omissions are (1) the various factors leading to the slowdown of commercial aftermarket sales and culminating in business units' lower projections; (2) the practice of pulling in sales from future periods; and (3) the Fake and Specially Approved Otis orders. (See, ~ ' Second Amended Complaint 11 117, 118, 120, 130.) Starting with allegations are the third too scant category, the Otis related in detail and scope to support allegations that investors should have been informed about them. Specifically, the allegations provide essentially no details on the scope of the practice of Fake and Specially Approved orders, and there are no plausible allegations providing context that the practice played any part in Otis missing its growth target. Continuing in reverse order, the practice of pulling in sales is also described at a high level such that the scope and impact of it are not alleged well enough to show it would be misleading to withhold the information from a reasonable investor - certainly not to the 68 level that test data was in Sanofi and Martin. Kapitalforeningen points to Murphy v. Precision Castparts Corp., 16 Civ. 521, *9 (D. Or. June 27, 2017 WL 3084274, at 2017), which held that the defendant's failure to disclose its aggressive pulling in strategy was actionable. However, the practices there were described at a much deeper level and the materiality was inextricably linked with a change in policy by a major customer that critically hindered further pulling below, in here future there sales. Moreover, were frank as warnings discussed about the commercial aftermarket numbers in the latter half of the Class Period once Defendants began reporting interim numbers. The Sanofi and Martin cases also provide the reasoning for why the omissions slowdown of opinion commercial statements Once again, about the factors aftermarket about UTAS' s sales leading to the do not make the profitability misleading. the severity or scope of the problems are not described in sufficient detail and certainly do not rise to the significance of the omissions in Sanofi and Martin. For example the omission of information that "commercial primes began stockpiling in additional parts. . [Which] resulted in lower aftermarket sales and profits" provides no detail as to the scope of the problem. see also id. 1 44, 46 (Second Amended Complaint (describing 69 counterfeit 1 sales 40; and airlines' pooling buying powers as generically impacting profits).) As another example, Boeing launched a partnership costsaving program that was allegedly implemented years before the Class Period 2012. Kapitalforeningen does not explain why that two-year-old program newly impacted OTAS in the Class Period, or, more fundamentally, how Boeing's component price hike negatively impacts OTC's commercial aftermarket sales. By virtue aftermarket of being sales "aftermarket" are Boeing's customers, not sales, principally such as airlines. OTC' s to commercial Boeing, but to (See "OTC Form 10-K, dated February 5, 2015," Dkt. No. 43 Ex. 1 at 11 (describing risks to "component aftermarket parts and service" based on decisions by commercial airlines - not manufacturers).) Thus again, without additional allegations on how Boeing's program impacted OTC's aftermarket sales, there is no way to assess the omission of that program in the context of Sanofi and Martin. Finally, the Court recognizes that as early as March 12, 2015, Defendants provided numerous commercial aftermarket sales were a details "watch i tern" sales and orders were weaker than expected. Call Transcript, especially March 12, render any 2015, at 12.) optimistic 70 about how and that (See Investor These disclosures opinion statements as insufficiently misleading to satisfy the Omnicare standard, even recognizing that analysts were surprised by the guidance in July 2015. For all (See Second Amended Complaint these reasons, the 1 5.) Second Amended Complaint fails to sufficiently allege omissions that would make any of UTC's statements about its future performance misleading to the reasonable investor. C. SAFE HARBOR UTC protected also by argues the that PSLRA' s the safe alleged harbor misstatements and the are common-law "bespeaks caution" doctrine for forward-looking statements. (See Def. Memo at 15-27.) Many of the statements at issue are likely protected by the safe harbor and thus subject to an even higher threshold to plead scienter that the Second Amended Complaint does not meet. Even so, courts in the Second Circuit have consistently held "that neither the PSLRA safe harbor nor the bespeakscaution doctrine protects material omissions." See, ~, Wilson v. LSB Indus., Inc., No. 15 Civ. 7614, 2017 WL 7052046, at *3 (S.D.N.Y. Mar. 2, 2017). UTC never addressed this issue, but as discussed above, many of the allegations in the Second Amended Complaint concern the alleged omissions of material information. Because the Court 71 is dismissing the Second Amended Complaint on alternative grounds, it will not evaluate this defense further. IV. ORDER For the reasons discussed above, it is hereby ORDERED that the renewed motion to dismiss 41, 48) filed by United Technologies Corp., (Dkt. Nos. Gregory Hayes, Akhil Johri, and Alain Bellemare to dismiss the second amended complaint in this case is GRANTED. SO ORDERED. Dated: New York, New York 28 September 2018 C:::::::::> VictorMarrero U.S.D.J. 72

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