United States District Court, S.D. Florida
IN RE KLX, INC. SECURITIES LITIGATION,
ORDER GRANTING DEFENDANTS' MOTION TO
Robin L. Rosenberg United States District Judge
MATTER is before the Court on Defendants' Motion to
Dismiss [DE 47], Plaintiffs' Response in Opposition [DE
49] and Defendants' Reply [DE 51]. The Court has also
considered Plaintiffs' Motion to Strike [DE 50],
Defendants' Response in Opposition [DE 52], and
Plaintiffs' Reply [DE 53], and denied Plaintiffs'
Motion to Strike on August 17, 2016 [DE 54]. The Court held
oral argument on the Motion to Dismiss on January 25, 2017.
For the reasons discussed below, the Motion to Dismiss is
GRANTED. The case is DISMISSED WITH PREJUDICE. The Clerk is
ordered to CLOSE the case.
18, 2016, Lead Plaintiffs International Brotherhood of
Electrical Workers Local No. 38 Pension Fund Pension Plan and
Steamfitters Local 449 Pension Fund
(“Plaintiffs”) filed their Amended, Consolidated
Class Action Complaint (the “Amended Complaint”)
against Defendants KLX Inc. (“KLX”), Amin Khoury
(“Khoury”) and Michael Senft
(“Senft”) (Khoury and Senft, collectively, the
“Individual Defendants, ” and together with KLX,
the “Defendants”) [DE 44]. Plaintiffs brought
this action on behalf of themselves and a putative class of
others who acquired KLX's common stock between March 9,
2015 and November 11, 2015 (the “Class Period”).
Plaintiffs' two-count complaint alleges violations of
Sections 10(b) and 20(a) of the Securities Exchange Act of
1934 and SEC Rule 10b-5.
organized under the laws of Delaware and maintains its
principal place of business in Wellington, Florida. (Compl.
¶ 18.) Throughout the Class Period, Mr. Khoury served as
Chief Executive Officer and Director, as well as Chairman of
the Board of Directors of KLX. (Id. ¶ 19.) Mr.
Senft served as Vice President-Chief Financial Officer and
Treasurer. (Id. ¶ 20.) Each continues in these
roles. (See 2016 Q3 10-Q at 27.)
traces its roots to B/E Aerospace, Inc. (“B/E”),
the “world's leading manufacturer of aircraft cabin
interior products, ” that Mr. Khoury co-founded in
1987. (Compl. ¶¶ 19, 27.) In 2013 and 2014, B/E
acquired seven energy services sector companies to form an
energy group within B/E. (Id. ¶ 34.) In
December 2014, through a spin off from B/E, KLX was formed as
an independent, publicly traded company. (Id.
¶¶ 29, 32.) KLX has two divisions: the Aerospace
Solutions Group (“ASG”), and the Energy Services
Group (“ESG”). (Id. ¶ 2.) ESG, at
issue here, provides technical services and rentals to oil
and natural gas exploration and drilling companies.
(Id.) During the Class Period, ESG contributed
15-20% of KLX's revenues, while ASG contributed the other
80-85%. See 2015 Q110-Q at 13; 2015 Q3 10-Q at 14 .
Amended Complaint points to three categories of disclosures
which Plaintiffs allege constitute misrepresentations,
contain omissions, or create a false impression of KLX's
true condition: first, that Defendants spoke in an
overly-positive manner about the Company's financial
health (see, e.g., Compl. ¶ 48); second, that
Defendants made false and misleading statements about
employment figures (see, e.g., id. ¶
96(a)); and third, that the Company made various
misrepresentations in its public disclosures as a result of
failing to recognize a good will and long-term asset
impairment charge at an earlier point in time (see,
e.g., id. ¶¶ 8, 125). At oral
argument, Plaintiffs' counsel limited these allegations
to “the [C]ompany's failure to recognize an
impairment in the first quarter of 2015 versus the third
quarter” by “recklessly fail[ing] to disclose
that its ESG assets [were impaired], ” and stated that
“[t]here is no disagreement that the Defendants
regularly and consistently disclosed to investors that the
market was in dire straits and that it was having a negative
impact on the [C]ompany.” (Hr'g Tr. 21:1-7,
20:19-22.) While Plaintiffs thus backed away from the first
two groups of allegations at oral argument, the Court will
nonetheless discuss each of these categories below.
securities fraud claim under Section 10(b) has six elements:
(1) a material misrepresentation or omission; (2) made with
scienter; (3) a connection with the purchase or sale of a
security; (4) reliance on the misstatement or omission; (5)
economic loss; and (6) a causal connection between the
material misrepresentation or omission and the loss, commonly
called “loss causation.” Mizzaro v. Home
Depot, Inc., 544 F.3d 1230, 1236-1237 (11th Cir. 2008);
see also 15 U.S.C. § 78j(b) and Rule 10b-5 17
C.F.R. § 240.10b-5.
state a claim under Section 20(a), Plaintiffs must allege
that: (1) KLX committed a primary violation of the securities
laws; (2) the Individual Defendants had the power to control
the general business affairs of KLX; and (3) the Individual
Defendants “had the requisite power to directly or
indirectly control or influence the specific corporate policy
which resulted in primary liability.” Theoharous v.
Fong, 256 F.3d 1219, 1227 (11th Cir. 2001) (citation
omitted). If a plaintiff fails to adequately plead a
violation of Section 10(b) and Rule 10b(5), a claim under
Section 20(a) necessarily fails as well. See Garfield v.
NDC Health Corp., 466 F.3d 1255, 1261 (11th Cir. 2006).
moved to dismiss the Amended Complaint based on Federal Rules
of Civil Procedure 12(b)(6) and 9(b), and the Private
Securities Litigation Reform Act (“PSLRA”).
General Motion to Dismiss
Rule 12(b)(6), the Court accepts Plaintiffs' factual
allegations as true and draws inferences from the Amended
Complaint in the light most favorable to Plaintiffs.
Ashcroft v. Iqbal, 556 U.S. 662, 696 (2009).
However, “conclusory allegations, unwarranted
deductions of facts or legal conclusions masquerading as
facts will not prevent dismissal.” Oxford Asset
Mgmt., Ltd. v. Jaharis, 297 F.3d 1182, 1188 (11th Cir.
Rule 9(b) and the Private Securities Litigation Reform
Amended Complaint is subject to the heightened pleading
requirements of Rule 9(b) and the PSLRA. Mizzaro,
544 F.3d at 1238. Rule 9(b) requires that a complaint set out
“(1) precisely what statements were made in what
documents or oral representations or what omissions were
made, and (2) the time and place of each such statement and
the person responsible for making (or, in the case of
omissions, not making) same, and (3) the content of such
statements and the manner in which they misled the plaintiff,
and (4) what the defendants obtained as a consequence of the
fraud.” Id. at 1237.
addition, in 1995, Congress enacted the PSLRA “[a]s a
check against abusive litigation in private securities fraud
actions, ” Tellabs, Inc. v. Makor Issues &
Rights, Ltd., 551 U.S. 308, 308 (2007). The PSLRA made
two key changes to securities fraud cases. First, it shifted
the particularity requirement, mandating that a complaint
“specify each statement alleged to have been
misleading, the reason or reasons why the statement is
misleading, and, if an allegation regarding the statement or
omission is made on information and belief, the complaint
shall state with particularity all facts on which that belief
is formed.” 15 U.S.C. § 78u-4(b)(1). Second, it
raised the pleading requirement for scienter such that, under
the PSLRA, a “complaint shall, with respect to each act
or omission alleged to violate this chapter, state with
particularity facts giving rise to a strong inference that
the defendant acted with the required state of mind.”
15 U.S.C. § 78u-4(b)(2). These changes were designed to
stop baseless suits at the earliest stage in a litigation.
See Waterford Twp. Gen. Emps. Ret. Sys. v. BankUnited
Fin. Corp., No. 08-CIV-22572, 2010 WL 1332574, at *13
(S.D. Fla. Mar. 30, 2010).
Eleventh Circuit has observed that “putting the PSLRA
and [its] substantive scienter case law together yields the
following stringent standard” to survive a motion to
dismiss: In addition to pleading all other requisite
elements, the complaint must “plead with particularity
facts giving rise to a strong inference that the defendants
either intended to defraud investors or were severely
reckless when they made the allegedly materially false or
incomplete statements.” Mizzaro, 544 F.3d at
1238. In reviewing an alleged violation of securities law, a
court must ask itself: “When the allegations are
accepted as true and taken collectively, would a reasonable
person deem the inference of scienter at least as strong as
any opposing inference?” Id. at 1239.
analyzing a motion to dismiss in a securities fraud case, the
Court may consider the full text of documents incorporated by
reference into the complaint and other documents as to which
the Court may take judicial notice. Tellabs, 551
U.S. at 322. In particular, the Court may consider the full
text of securities filings alleged to contain misstatements.
Bryant v. Avado Brands, Inc., 187 F.3d 1271, 1276-81
(11th Cir. 1999) (noticing SEC filings). Documents
incorporated by reference may be considered if they are
central to plaintiff's claim and undisputed. Day v.
Taylor, 400 F.3d 1272, 1276 (11th Cir. 2005); see
also Harris v. Ivax Corp., 182 F.3d ...