EXIDE BANKRUPTCY BREAKING NEWS: Federal judge rules that Exide executives can’t escape investor lawsuit over environmental issues
“These allegations support that the [company’s Vernon, California-based] facility was critical to Exide’s operations, and that the environmental contamination issues at Vernon were severe,†Judge Wilson said. “In conjunction with Exide’s environmental reporting system, these allegations support a cogent inference that defendants were aware of Vernon’s environmental issues…
Further, given the plaintiffs had provided statements from company insiders showing that Exide had a system in place for reporting any environmental compliance issue, meaning the executives — especially given their communications with state regulators — should have been aware of the Vernon plant’s issues, they had adequately pled the necessary intentionality or deliberate recklessness, Judge Wilson found.”
LAW 360
Exide Execs Can’t Escape Investor Suit Over Enviro Issues
Law360, Washington (August 12, 2014, 1:28 PM ET) — Executives of bankrupt automotive and industrial battery maker Exide Technologies Inc. can’t dismiss a putative investor class action alleging the company misled investors about its failure to comply with environmental regulations, a California federal judge ruled Monday.
While their first amended complaint had been dismissed for lack of specificity, the plaintiffs — Exide shareholders and senior noteholders — had adequately alleged in their second amended complaint that the defendants had made materially false or misleading statements regarding the company’s environmental compliance, U.S. District Judge Stephen V. Wilson said Friday, with the order made public Monday.
“These allegations support that the [company’s Vernon, California-based] facility was critical to Exide’s operations, and that the environmental contamination issues at Vernon were severe,†Judge Wilson said. “In conjunction with Exide’s environmental reporting system, these allegations support a cogent inference that defendants were aware of Vernon’s environmental issues.â€
In showing that the company had implied in financial statements that it had no outstanding environmental issues, when its Vernon battery recycling plant was actually under investigation by state regulators, as well as showing that former Exide CEO James R. Bolch had publicly claimed that the facility was within air quality standards, despite releasing highly elevated levels of arsenic, the shareholder plaintiffs had specifically alleged misleading statements by the defendants — a group of 10 Exide executives and board members — according to the order.
By backing this up with statements from state regulators discussing the purported cancer risk from the facility’s emissions and the expected multimillion-dollar cost for a facility cleanup, the plaintiffs had shown materiality of the allegedly misleading statements, with the defendants’ arguments to the contrary serving as factual issues that should be decided later in the case, the judge ruled.
Further, given the plaintiffs had provided statements from company insiders showing that Exide had a system in place for reporting any environmental compliance issue, meaning the executives — especially given their communications with state regulators — should have been aware of the Vernon plant’s issues, they had adequately pled the necessary intentionality or deliberate recklessness, Judge Wilson found.
Judge Wilson also upheld Securities Act claims alleging the company misled noteholders when it made the relevant U.S. Securities and Exchange Commission filing for the disputed bonds without disclosing its environmental issues, noting the relevant named plaintiff had purchased his bonds after the issuance of that registration statement, not before, meaning he had standing to bring the claims.
The judge, however, dropped a related control person liability claim against former Exide executive vice president R. Paul Hirt Jr., noting he was not at the company when the registration statement was issued.
William Federman, counsel for the plaintiffs, told Law360 Tuesday that following the ruling, he “[looked] forward to prosecuting this action and obtaining discovery from defendants.”
Counsel for the defendants didn’t immediately respond to a request for comment.
The case was originally filed in April 2013 against Exide, its top executives and members of its board, and the second amended complaint alleges that the company failed to disclose that its Vernon facility was releasing high levels of arsenic, lead and other hazardous materials, with state regulators — including one which eventually filed suit seeking $40 million in penalties against the company — eventually suspending operations at the plant and calling for environmental remediation.
Instead, the company had misled investors by touting its compliance with environmental standards, including specifically stating that the Vernon plant met air-quality standards, the plaintiffs argued.
In July 2013, the case was consolidated with two similar cases and Exide was voluntarily dropped as a defendant after entering Chapter 11 bankruptcy in the wake of the plant shutdown.
The individual defendants subsequently won their motion to dismiss the suit in December, without prejudice, with the second amended complaint filed in January.
The plaintiffs are represented by Robert S. Green of Green & Noblin PC and William B. Federman of Federman & Sherwood. The defendants are represented by Edwin V. Woodsome Jr., David H. Kistenbroker and Carl E. Volz of Dechert LLP. The case is Loritz et al. v. Exide Technologies Inc. et al., case number 2:13-cv-02607, in the U.S. District Court for the Central District of California.
–Editing by Mark Lebetkin.
