Schiro v. Cemex, S.A.B. de C.V. et ay

Background

Lead Plaintiffs Carlos Llantada, Richard Storm, Jr., and Stationary Engineers Local 39 Pension Fund sued Cemex, S.A.B. de C.V.; two Cemex officers, Fernando A. Gonzalez Olivieri and José Antonio Gonzalez Flores; and Cemex Latam Holdings, S.A. The complaint asserted claims under Sections 10(b), 20(a), and 20(b) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5.

Cemex and its two officers moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which addresses failure to state a legally sufficient claim. Cemex Latam Holdings moved under Rules 12(b)(6) and 12(b)(2), the latter addressing personal jurisdiction. The second amended complaint added Cemex Latam Holdings as a defendant for the first time.

Claims Against the Cemex Defendants

The plaintiffs argued that Cemex failed to disclose an alleged bribery scheme while discussing litigation and other matters involving the Maceo plant in Colombia. Because the alleged securities fraud depended on the existence of bribery, the court required the plaintiffs to plead the alleged illegal conduct with particularity under Rule 9(b) and the Private Securities Litigation Reform Act. That required details about who participated, what happened, when and where it happened, and how it happened.

The court found that the second amended complaint inaccurately characterized Cemex’s disclosures. According to the court, Cemex had disclosed irregular payments of approximately $20 million to the legal representative of CI Calizas and said the payments violated company policies and potentially Colombian law; Cemex had not admitted that the payments were bribes.

The court also found that the complaint’s repeated allegations that Cemex executives paid approximately $20.5 million in bribes did not identify who made the payments, to whom they were made, when they were made, or how they were made. Because the plaintiffs did not adequately plead an underlying bribery scheme, the court held that they could not base a securities-fraud claim on Cemex’s alleged failure to disclose that scheme. The court therefore granted the Cemex Defendants’ motion to dismiss. It did not reach their additional arguments concerning intent, materiality, the connection between the alleged fraud and the securities transactions, or the other elements of the claim.

Claim Against Cemex Latam Holdings

The plaintiffs alleged that Cemex Latam Holdings violated Section 20(b) by using its relationship with Cemex to cause Cemex to issue materially false or misleading information. The court held that this claim was subject to a two-year statute of limitations.

The court determined that the limitations period had begun no later than April 28, 2017, when Cemex filed an annual report disclosing a serious weakness in its internal controls related to previously disclosed irregular payments and possible management misuse of funds. The second amended complaint was filed on August 1, 2019, more than two years later.

The court rejected the plaintiffs’ argument that the period began on March 14, 2018, when Cemex announced that the Department of Justice had issued a grand-jury subpoena and begun an investigation. The court also ruled that the claim did not relate back to the original complaint under Rule 15 because the plaintiffs had known about Cemex Latam Holdings and its relationship with Cemex and Cemex Colombia. The court concluded that leaving the company out of the earlier pleadings was a deliberate decision, not a mistake about the company’s identity. Because the claim was time-barred, the court did not reach Cemex Latam Holdings’ remaining arguments, including its personal-jurisdiction argument.

Disposition

The court granted Defendants’ motions to dismiss. Because the plaintiffs had not provided the required detailed explanation of additional facts that would cure the pleading defects, the court did not grant further permission to amend. The case was dismissed with prejudice, and the Clerk of Court was directed to close the case. Judge Valerie Caproni signed the opinion and order on February 10, 2020.