Barilli v. Sky Solar Holdings, Ltd.

Background

Andrew Barilli and Ronald Pena brought this putative class action against Sky Solar Holdings, Ltd., several individuals, Roth Capital Partners, LLC, and Northland Securities, Inc. They asserted claims under Sections 11 and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, including Rule 10b-5 claims.

The court had previously granted the defendants’ motion to dismiss the Second Consolidated Amended Complaint for failure to state a claim and later denied the plaintiffs’ motion to reconsider. The plaintiffs then moved under Federal Rule of Civil Procedure 15(a)(2) for permission to file a proposed Third Amended Complaint.

Proposed New Allegations

The proposed complaint relied on a May 28, 2018 arbitration award from Hong Kong. The arbitration tribunal found that Weili Su breached a 2010 Shareholders Agreement by failing to use commercially reasonable best efforts to arrange an initial public offering of SSHCL and instead carrying out a 2013 share swap and a later Sky IPO. The tribunal also found that Su’s motive was to benefit himself and deprive certain claimants of their rights.

The plaintiffs argued that these findings showed that statements in Sky’s prospectus describing the arbitration claims as “without merit” and possibly an attempt to “extort economic benefits” were false or misleading. They also proposed additional allegations concerning Su’s business success, Sky’s internal controls, and Sky’s access to financing. The opinion states that the proposed complaint did not add new factual allegations that the plaintiffs suffered financial losses.

Court’s Analysis

Under Rule 15(a)(2), courts generally should allow amendments when justice requires, but may deny leave when amendment would be futile. An amendment is futile when the proposed claims could not survive a motion to dismiss for failure to state a claim.

For the proposed Securities Act claims based on the prospectus statements about the Hong Kong arbitration claims, the court held that the claims were barred by the statute of repose because the allegations were made more than three years after the securities were offered to the public. The court also stated that a proposed Securities Act claim concerning statements about financial institutions’ confidence in Sky was barred by the statute of repose.

For the proposed Exchange Act claims, the court treated the statements about the arbitration claims as statements of opinion. It concluded that the allegations permitted an inference that Su did not actually hold the belief expressed in the prospectus and therefore sufficiently alleged falsity and scienter, meaning an intent or knowledge of wrongdoing. But the plaintiffs failed to allege loss causation—the required connection between the alleged misstatement and the actual financial loss. The court found that the cited decline in Sky’s American depositary shares occurred before the 2018 arbitration award and was not alleged to have resulted from disclosure of whether the arbitration claims had merit. The court therefore found amendment of those claims futile.

The court also concluded that the additional allegations did not revive the previously dismissed claims. The allegations about Su’s past conduct did not show that improper practices were a material source of Sky’s success or assets, did not make the statements about internal controls misleading, and did not provide sufficient facts supporting the claims about access to financing. The court also relied on its earlier conclusions that certain financing statements were non-actionable promotional statements or were protected by cautionary language.

Disposition

The court denied the plaintiffs’ motion to amend the Second Amended Complaint in its entirety. It dismissed the case, directed the Clerk of Court to enter judgment dismissing the Second Amended Complaint, and directed the Clerk to close the case.