In re Enovix Corporation Securities Litigation

Background

Enovix was developing a battery-production facility called Fab-1 in Fremont, California. It outsourced much of Fab-1’s equipment to Shenzhen Yinghe Technology Co. Ltd. in China. The complaint alleged that the equipment repeatedly failed factory acceptance testing before Enovix sent it to California, and that it later failed site acceptance testing as well.

Investors sued on behalf of a proposed class, asserting claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5(b). The court previously allowed claims concerning Statements 4, 6, and 7 to proceed, while finding that the complaint did not adequately plead claims based on nine other alleged misstatements. Statement 4 was made in an August 2021 shareholder letter. Statement 6 was made by defendant Rust during an August 2021 earnings call, when he said there were no “red flags” in the company’s factory and site acceptance testing. Statement 7 was made by Rust in September 2021, when he said Fab-1’s qualification process was “going on quite well.”

Defendants moved under Federal Rule of Civil Procedure 12(c) for partial judgment on the pleadings as to Statements 6 and 7. The court considered the motion even though defendants could have raised the arguments earlier, citing a change in defense counsel and additional context presented with the motion.

Legal standard

A Rule 12(c) motion for judgment on the pleadings is functionally the same as a motion to dismiss for failure to state a claim. The court accepts the complaint’s factual allegations as true and views them in the light most favorable to the nonmoving party. The motion may be granted when, even accepting those allegations, the moving party is entitled to judgment as a matter of law.

Because this was a securities-fraud case, the allegations also had to satisfy heightened pleading requirements under Federal Rule of Civil Procedure 9(b) and the Private Securities Litigation Reform Act. The complaint had to identify each misleading statement, explain why it was misleading, and plead particular facts supporting a strong inference that the defendants acted with the required state of mind.

Court’s analysis

Statement 6

The court held that Statement 6 was not actionable when read in context. The analyst’s question concerned Enovix’s “proprietary equipment,” and the surrounding materials distinguished that equipment from other manufacturing equipment, including equipment supplied by Yinghe. The complaint did not allege that the equipment from U.S.-based vendors was malfunctioning or that Rust’s statement about that equipment was misleading.

The court rejected plaintiffs’ argument that Rust was required to disclose the Yinghe equipment’s failed factory acceptance testing whenever he discussed the production line. The court explained that the securities laws prohibit misleading or untrue statements, not every statement that is incomplete. It therefore granted defendants’ motion as to Statement 6.

Statement 7

The court also held that Statement 7 was not actionable when read in context. Rust described qualification as testing equipment after it had been installed in Fremont. The court contrasted that process with factory acceptance testing, which occurred at the vendor’s factory before delivery. The complaint itself indicated that qualification did not specifically include factory acceptance testing, and plaintiffs acknowledged that site acceptance testing was the first step in qualification.

The court rejected plaintiffs’ argument that Rust’s statement that qualification was proceeding well repeated an implication that the equipment had passed factory acceptance testing. It concluded that the statement was not misleading merely because Rust did not affirmatively disclose the earlier failed factory testing. The court therefore granted defendants’ motion as to Statement 7.

Disposition

The court granted defendants’ motion for partial judgment on the pleadings. Plaintiffs’ claims based on Statements 6 and 7 were dismissed from the case with prejudice. The alleged misstatement in Statement 4 remained. The court also stated that the case-management conference would remain scheduled for October 17, 2025, and that the parties should address resuming briefing on plaintiffs’ pending motion for class certification.