Bhangal v. Hawaiian Electric Industries, Inc.

Background

The plaintiffs filed a federal securities class action on behalf of people who purchased or acquired Hawaiian Electric Industries, Inc. stock during the period from February 28, 2019, through September 4, 2023. They alleged that Hawaiian Electric Industries, Inc. and four individual officers misled investors about wildfire mitigation, including insulated power lines, utility-pole maintenance, vegetation trimming, consultation with wildfire experts, safety priorities, and oversight of subsidiaries. The allegations followed the August 8, 2023 Lahaina wildfire, which the opinion says caused at least 101 deaths and destroyed the historic town of Lahaina.

The amended complaint asserted two counts. Count One alleged violations of Section 10(b) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5 against all defendants. Count Two alleged control-person liability under Section 20(a) of the Exchange Act against the individual defendants.

Requests to Consider Additional Documents

The defendants asked the court to consider 29 exhibits. The court granted the request for incorporation by reference, which permits a court to consider a document described in and integral to the complaint. The court incorporated the reports, videos, press releases, blog posts, and Hawaiian Electric Company’s Wildfire Mitigation Plan identified in the opinion.

The court also granted the request for judicial notice of the company’s Securities and Exchange Commission filings and screenshots of corporate websites for the stated purposes. For certain Hawaiian Electric Company press releases and submissions to Hawaii’s Public Utilities Commission, the court took notice only of the information available to the market, not the truth of disputed facts in those documents.

Statements Attributed to Subsidiaries

The court held that the plaintiffs had not plausibly alleged that Hawaiian Electric Industries had ultimate authority over 11 statements made in Hawaiian Electric Company or Maui Electric materials. Under the Supreme Court’s rule concerning the “maker” of a statement, liability generally requires the defendant to have ultimate authority over the statement, including its content and whether and how it was communicated.

The court found that the complaint showed Hawaiian Electric Industries wholly owned Hawaiian Electric Company, but ownership alone did not establish authority over the subsidiary’s statements. The court therefore granted the defendants’ motion to dismiss as to the statements in the subsidiary blog posts, videos, sustainability reports, and press releases.

Alleged False or Misleading Statements

The court concluded that the plaintiffs had not adequately pleaded falsity or misleading content for the challenged categories of statements.

- Insulated conductors: Statements that traditional power lines had been replaced with insulated conductor systems in “targeted areas prone to vegetation-related outages” did not claim that all power lines had been replaced. The plaintiffs did not allege that Hawaiian Electric Industries failed to install insulated conductors in the targeted areas covered by the statements. - Utility-pole maintenance: Statements about continual maintenance, inspections, and upgrades did not include a specific spending amount, benchmark, or deadline. Allegations that the company spent less than planned, replaced fewer poles than expected, and had many aging poles did not make the statements false when made. The plaintiffs also did not allege that the company failed to inspect its poles or that any poles failed. - Vegetation trimming: The Wildfire Mitigation Plan described trimming, removing, and spraying vegetation on prescribed cycles. Although it recommended against further trimming of already low-lying vegetation in wildfire areas, the court did not read the plan as establishing a general policy against trimming. The court also found the confidential-witness allegations and a 2020 audit report insufficient to connect vegetation-management problems to the challenged statements when they were made. - Wildfire collaborators and consultants: The complaint did not allege that Hawaiian Electric Industries failed to hire the consultant or develop work plans based on the consultant’s recommendations. The statements also did not promise that the company would adopt every recommendation. The court further found that the statements about working with community members and wildfire collaborators were not plausibly false or misleading because the plaintiffs’ own allegations showed that the company collaborated with community organizations. - Safety: Statements that safety was the company’s number-one priority or of paramount importance were non-actionable corporate “puffery”—general promotional language that investors cannot objectively measure. The court also said that the complaint’s allegations about not deenergizing certain circuits did not establish that safety was not the company’s top priority across all of its operations. - Oversight of subsidiaries: Statements expressing the company’s belief that subsidiaries had appropriately responded to environmental conditions were opinion statements. The plaintiffs did not plausibly allege that the company did not hold those beliefs, that the beliefs were objectively untrue, or that the company omitted particular facts about the investigation or knowledge underlying the opinions. The court also found that a statement about the board’s oversight of enterprise-risk programs did not promise that the programs would eliminate every material risk.

Scienter

“Scienter” means the required state of mind for securities fraud, such as actual knowledge or deliberate recklessness. The court held that the plaintiffs had not pleaded facts creating a strong inference of scienter for any individual defendant.

The complaint alleged that two officers knew of the Wildfire Mitigation Plan because they signed a report referring to the company’s wildfire plans, but it did not adequately allege that the other two officers knew of or had access to the plan. Even assuming all four officers had access to it, the complaint did not show that they knew the details of the 77-page plan. The allegations about reports from the company’s Chief Risk Officer also did not identify whether those reports addressed the specific subjects at issue.

The court found that the plaintiffs did not allege a motive for concealing information or that any individual defendant benefited by selling stock at an inflated price. The absence of motive was not by itself decisive, but the complaint also lacked particularized facts showing that the defendants knew the statements were false or acted with deliberate recklessness. Because the individual defendants’ scienter was not adequately pleaded, the court also found that the complaint did not establish corporate scienter for Hawaiian Electric Industries.

Section 20(a) Claim and Disposition

A Section 20(a) claim requires an adequately pleaded underlying violation of federal securities law and the defendant’s actual power or control over the primary violator. Because the plaintiffs did not adequately allege a Section 10(b) violation, the court dismissed the Section 20(a) claim as well.

The court granted the defendants’ request for incorporation by reference and judicial notice and granted the defendants’ motion to dismiss. Because the plaintiffs’ claims were not legally impossible, the court granted the plaintiffs leave to amend and ordered them to file an amended complaint by November 12, 2024. The order disposed of Docket Nos. 81 and 83.