Kampe v. Volta Inc.

Background

The plaintiffs brought this consolidated securities class action on their own behalf and for three proposed classes. They sued Volta Inc., Tortoise Acquisition Corp. II, and several of their officers, directors, and executives. The complaint asserted claims under Sections 11 and 15 of the Securities Act; Sections 14(a) and 20(a) of the Securities Exchange Act of 1934; and Section 10(b) of the Exchange Act and Securities and Exchange Commission Rule 10b-5.

The claims concerned statements made before and after Volta’s August 26, 2021 merger with Tortoise. The plaintiffs alleged that the defendants failed to disclose serious problems with Volta’s business, including allegedly premature recognition of advertising revenue, financing needs, executive departures, unpaid obligations to site hosts and vendors, deteriorating business relationships, and unrealistic revenue and charging-stall projections. The court accepted the complaint’s factual allegations as true for purposes of deciding the motion to dismiss.

The court had previously dismissed an earlier amended complaint and gave the plaintiffs directions for adding facts supporting their allegations of falsity. The plaintiffs then filed the Second Consolidated Amended Class Action Complaint. The defendants moved to dismiss it in its entirety.

Judicial Notice and Incorporation by Reference

The court granted the defendants’ requests to incorporate several documents by reference and to take judicial notice of certain publicly filed Securities and Exchange Commission documents. Incorporation by reference allowed the court to treat documents extensively quoted or relied on in the complaint as part of the complaint. Judicial notice allowed the court to consider the existence and publicly available content of the documents without assuming that every disputed fact in them was true.

Section 10(b), Rule 10b-5, and Section 20(a)

The court dismissed the Section 10(b) and Rule 10b-5 claims because the plaintiffs did not plausibly plead that the challenged statements were false or misleading. The court did not need to decide the defendants’ separate arguments about scienter, meaning an intent or extreme recklessness to deceive, or loss causation, meaning the required connection between the alleged misconduct and the investors’ losses.

The court held that a newly alleged projection was forward-looking and protected by the Private Securities Litigation Reform Act’s safe harbor. The safe harbor can protect identified forward-looking statements accompanied by meaningful warnings or statements made without actual knowledge that they were false or misleading. The court also adhered to its earlier ruling that other challenged projections were protected by the safe harbor. The court found that the new confidential-witness allegations did not provide a sufficient basis to conclude that the projections were knowingly false or lacked a reasonable basis.

The court separately rejected the plaintiffs’ theories concerning premature revenue recognition. It found that the allegations did not provide enough reliable and specific information about the confidential witness’s role, the affected sales region, the customers involved, or the amount of revenue allegedly pulled forward. The allegations therefore did not allow the court to determine whether the alleged accounting violations were minor or technical or instead amounted to widespread and significant revenue inflation.

The court also found inadequate allegations concerning financing needs and the alleged failure to disclose January 2022 financing efforts. Volta had repeatedly disclosed that it might need additional capital and that failure to obtain it could materially harm the company. The plaintiffs also did not adequately support their allegations about an allegedly abandoned financing term sheet.

Regarding executive departures, the court stated that the plaintiffs might plausibly allege that the departures were involuntary. But they did not adequately allege that the executives were terminated specifically because they were responsible for Volta’s financial problems. The allegations about Volta’s business, site-host relationships, payment delinquencies, revenue figures, and projections likewise did not adequately connect the challenged statements to facts showing falsity or material misleadingness.

Because the plaintiffs did not plead an underlying violation of the Exchange Act, their Section 20(a) control-person claims also failed. A control-person claim depends on a primary securities-law violation and allegations that the defendant exercised actual power or control over the primary violator.

Sections 11 and 15 of the Securities Act

The court dismissed the Section 11 claim concerning Volta’s merger registration statement. Although Section 11 does not require proof of fraudulent intent, the court held that the complaint sounded in fraud, so the heightened particularity requirement of Federal Rule of Civil Procedure 9(b) applied. The plaintiffs did not adequately plead that the challenged registration-statement statements were false or misleading.

The court rejected the plaintiffs’ allegations about premature revenue recognition, network scale, contractual obligations, and projected installations for substantially the same reasons it rejected their related Exchange Act theories. It also maintained its earlier conclusion that several forward-looking statements in the offering documents and investor presentation were protected by the securities-fraud safe harbor.

Because the Section 11 claim failed, the derivative Section 15 claim also failed. Section 15 imposes liability on a person who controls someone liable under Section 11, so it requires an underlying Section 11 violation.

Sections 14(a) and 20(a) of the Exchange Act

The court dismissed the Section 14(a) claim and its related Section 20(a) claim. These claims were based on the same allegedly false or misleading statements in the merger registration statement. The court explained that the claims failed because they relied on statements the court had found not plausibly materially false or misleading and on statements protected by the safe harbor.

Disposition

The court granted the defendants’ motion to dismiss the plaintiffs’ claims under Sections 10(b), 11, and 14(a), as well as the derivative claims under Sections 15 and 20(a). The court concluded that further leave to amend would be futile because the plaintiffs had previously amended their complaint and had not corrected the identified deficiencies. The dismissal was with prejudice. The clerk was directed to enter judgment and close the file.