In re Romeo Power Inc. Securities Litigation

Background

Romeo Power Inc., Lionel Selwood, and Lauren Webb moved for reconsideration or clarification of the court’s June 2, 2022, order. That earlier order had granted in part and denied in part the defendants’ motion to dismiss the amended complaint. The court had denied dismissal of claims under Section 10(b) of the Securities Exchange Act and related claims under Section 20(a), finding that the complaint sufficiently alleged securities fraud by Romeo, Selwood, and Webb.

The earlier order expressly analyzed only one category of statements that was sufficiently pleaded. The defendants argued that uncertainty about which other statements remained viable would affect discovery and the possibility of resolving the case early. They asked the court to rule that two categories were not actionable: statements they characterized as future-looking and therefore protected by the Private Securities Litigation Reform Act’s safe harbor, and present-tense statements about Romeo’s revenue backlog that they argued were literally true when made.

Court’s analysis

The court explained that reconsideration is available only when a party identifies an intervening change in controlling law, new evidence, or a need to correct clear error or prevent serious injustice. The standard is strict and generally requires showing that the court overlooked controlling decisions or information that could reasonably change its conclusion.

Present-tense backlog statements

The court held that the complaint adequately alleged that the defendants materially misrepresented Romeo’s ability to obtain battery cells needed to fulfill backlog orders. Statements must be evaluated in context and as a whole, not only by whether each statement was literally true in isolation. The court stated that the alleged statements could constitute misleading “half-truths”—literally true statements that created a materially misleading impression.

The complaint alleged that Romeo’s backlog was described as approximately $300 million in October 2020 and more than $500 million by December 2020. The court found that the defendants allegedly disclosed expected future revenue while concealing present reasons why that revenue might not be realized. The complaint also adequately alleged that the cell shortage was already ongoing in late 2020, that long lead times made a prompt resolution unlikely, and that the defendants knew about the shortage. The court found the alleged facts supported a strong inference that the defendants acted with the required state of mind, while the defendants’ explanation that the disruption surprised them in early 2021 was not as plausible on the allegations.

Future-looking statements

The court ruled that none of the three safe-harbor alternatives protected the future-looking statements identified by the defendants. First, the defendants did not dispute that their projections about converting hundreds of millions of dollars in contracted revenue into actual revenue were important to investors. Second, cautionary language about future supply risks could not protect statements that allegedly failed to disclose that the risk had already occurred. Third, the complaint supported a strong inference that the defendants actually knew they lacked a reasonable basis for predicting the projected revenue ramp-up or knew of undisclosed facts seriously undermining those projections.

The court distinguished the required state of mind for the two categories of statements. The present-tense statements might have involved recklessness, while the more specific future-looking projections—with precise revenue targets and timelines—were adequately alleged to have been made with actual knowledge that the defendants could not approach them.

Disposition

The court denied the defendants’ motion for reconsideration of the order denying their motion to dismiss. The opinion states that all statements alleged to be misleading in the amended complaint remain at issue in the action.