Amorosa v. GENERAL ELECTRIC COMPANY

Background

Dominic F. Amorosa and Dominic F. Amorosa, Esq., Profit Sharing Plan sued General Electric Company and Jeffrey S. Bornstein under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5. They also brought a state-law claim for common-law fraud. The federal claims concerned alleged misleading statements and disclosures by General Electric and Bornstein.

The claims mirrored claims brought in a related class action. Amorosa had opted out of that class action. His amended complaint incorporated more than 125 paragraphs from the class-action complaint, reproduced substantial portions of it, and relied on statements attributed to former employee confidential witnesses described there. The complaint also quoted substantial portions of an order resolving a settlement between the Securities and Exchange Commission and General Electric. General Electric neither admitted nor denied the Securities and Exchange Commission’s allegations in that order.

Defendants’ Motion

The defendants moved to dismiss under Rule 12(b)(6), which allows dismissal when a complaint does not adequately state a legally sufficient claim. In securities-fraud cases, Rule 9(b) and the Private Securities Litigation Reform Act require the complaint to plead fraud with particularity and to allege specific facts supporting a strong inference that the defendant acted with the required state of mind.

The court explained that lawyers generally cannot use unverified allegations copied from another lawsuit as though they had independently investigated and confirmed them. A lawyer signing a complaint certifies under Rule 11 that the factual allegations have evidentiary support after a reasonable inquiry. The court also explained that statements from confidential witnesses ordinarily require counsel to know who the witnesses are and to have spoken with them. Amorosa acknowledged that he had not independently verified the allegations copied from the class-action complaint and had not interviewed the former employees described there.

The court further held that allegations quoted from the Securities and Exchange Commission’s order were generally treated as allegations based on information and belief. Such allegations ordinarily could not establish a fraud claim without additional, non-conclusory facts directly supported by the plaintiffs. The order also did not establish scienter, meaning the required fraudulent or consciously reckless state of mind. In addition, the court noted that a consent judgment not based on an actual adjudication generally cannot be used as evidence in later litigation between the corporation and another party.

Court’s Analysis

After disregarding the copied allegations and limiting the use of the Securities and Exchange Commission order, the court found that little remained in the amended complaint. It concluded that the remaining allegations were insufficient to support claims concerning statements by Bornstein, including statements about General Electric’s underlying performance and factoring, or a claim that General Electric failed to disclose changes to cost estimates for long-term service agreements.

The court separately considered claims corresponding to claims that had survived in the earlier class-action proceedings: claims concerning factoring in General Electric’s 2016 Form 10-K and alleged inadequate disclosures about factoring beginning in 2015. The court said that the former employees’ allegations had been important to the earlier rulings, but Amorosa could not rely on them because he had copied them without independent investigation. The Securities and Exchange Commission’s order did not cure the problem because it did not make findings about scienter, and the complaint did not provide sufficiently specific information about the relevant documents or identify who made the statements at issue. The related Section 20(a) control-person claims against Bornstein also failed because there was no adequately pleaded primary securities-law violation.

Because the federal claims were dismissed, the court declined to exercise supplemental jurisdiction over the common-law fraud claims. It dismissed those state-law claims without prejudice to refiling them in state court.

Disposition

The court granted the defendants’ motion to dismiss. The opinion states that Amorosa’s claims were dismissed; it expressly states that the state-law claims were dismissed without prejudice to refiling in state court, but it does not describe the federal claims as dismissed with or without prejudice. The court granted Amorosa one final opportunity to amend and required any second amended complaint to be filed within 30 days. Judge Jesse M. Furman directed the Clerk of Court to terminate the motion identified as ECF No. 18.