In re Romeo Power Inc. Securities Litigation

Background

Lead Plaintiff Mike Castleberg and additional Plaintiff Joshua Cante brought the case individually and purportedly for all others similarly situated. They sued Romeo Power, Inc. and Lionel E. Selwood Jr., Lauren Webb, Robert S. Mancini, D. James Carpenter, Philip Kassin, Steven P. Buffone, W. Grant Gregory, W. Thaddeus Miller, and Craig Broderick.

The amended complaint alleged violations of Section 10(b) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5, Section 20(a) of the Exchange Act, and Section 14(a) of the Exchange Act. The allegations concerned statements in Romeo’s registration statement, proxy statement, prospectus, later prospectus, and other filings about committed contract revenue and the company’s supply chain for battery cells.

Romeo was involved in a merger with RMG Acquisition Corp. The merger was approved on December 28, 2020, and completed on December 29, 2020. The plaintiffs alleged that Romeo’s filings represented that it had four battery-cell suppliers, while Romeo allegedly relied only on LG Chem and/or Samsung. On March 30, 2021, Selwood clarified that Romeo had four part numbers but preferred cell suppliers consisting of LG and Samsung.

Rule 12(b)(6) standard

The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim. The court accepted well-pleaded factual allegations as true for purposes of the motion but did not accept conclusory allegations or legal conclusions presented as facts. Securities-fraud allegations also had to meet heightened pleading requirements under Rule 9(b) and the Private Securities Litigation Reform Act, including particularized allegations of misleading statements and facts creating a strong inference of the required state of mind, known as scienter.

Section 10(b) and Rule 10b-5 claim

The First Claim alleged securities fraud against Romeo, Selwood, and Webb. The defendants argued that the complaint did not adequately plead falsity or scienter.

The court held that at least one challenged statement was adequately alleged to be false: the statements that Murata and SK Innovation supplied Romeo with battery cells, when the complaint alleged that Romeo relied only on LG Chem and/or Samsung. The court rejected the argument that other statements about tested cells, qualified cells, or supplier logos contradicted or clarified the challenged statements. It also held that the statements were not protected by the statutory safe harbor for forward-looking statements because the present-tense statements about suppliers were not projections.

The court also held that the complaint adequately alleged scienter as to Selwood and Webb. The complaint alleged that Selwood was focused on securing battery cells, personally led supply-agreement negotiations, and later corrected the statement about four suppliers. It also alleged statements by Webb about Romeo’s supply commitments and costs. The court concluded that these allegations supported a strong inference that Selwood and Webb knew, or had access to information showing, that the supplier statements were inaccurate. Their alleged scienter was imputed to Romeo. The First Claim therefore survived the motion to dismiss.

Section 20(a) claim related to Section 10(b)

The Second Claim asserted a control-person claim under Section 20(a) against Selwood and Webb in connection with the Section 10(b) claim. A control-person claim requires an underlying violation, control over the primary violator, and culpable participation. Because the court found that the complaint adequately pleaded a primary Section 10(b) violation, and the defendants offered no other argument for dismissal, the Second Claim survived.

Section 14(a) claim

The Third Claim asserted a Section 14(a) claim against all defendants based on the proxy materials. The court held that the claim was derivative rather than direct. The plaintiffs’ theory was that RMG stockholders were harmed because the proxy statement overstated Romeo’s value and caused shareholders to receive less value from the merger than expected.

Under the applicable Delaware law, the court examined who suffered the alleged harm and who would receive the benefit of any recovery. The court concluded that the alleged injury flowed from harm to the corporation and that the claim was therefore derivative. The complaint did not allege that the plaintiffs made a demand on the corporation’s board or that making a demand would have been futile, as required for a derivative action. The court dismissed the Third Claim.

Section 20(a) claim related to Section 14(a)

The Fourth Claim asserted a Section 20(a) claim against all defendants except Romeo in connection with the Section 14(a) claim. Because the complaint did not adequately allege a Section 14(a) violation, it did not allege the required underlying Exchange Act violation for the related Section 20(a) claim. The court dismissed the Fourth Claim.

Other rulings and disposition

The court granted in part the defendants’ request for judicial notice of thirteen exhibits, granting the request as to Exhibits 1 through 8 and 13. The court denied the request as to Exhibits 9 through 12 because the defendants sought to use those documents for the truth of the matters asserted. The plaintiffs’ unopposed request for judicial notice of certain documents was granted.

The court’s conclusion states that the defendants’ motion to dismiss was GRANTED IN PART and DENIED IN PART. The First Claim against Romeo, Selwood, and Webb and the Second Claim against Selwood and Webb survived. The Third Claim and Fourth Claim were dismissed. The request for oral argument was denied as moot. The clerk was directed to terminate Robert S. Mancini, D. James Carpenter, Philip Kassin, Steven P. Buffone, W. Grant Gregory, W. Thaddeus Miller, and Craig Broderick as defendants, and to close the motions at Docket Nos. 90 and 103.