In re Waste Management Securities Litigation

Background

Lead Plaintiff Seafarers Officers & Employees Pension Plan, Seafarers Money Purchase Pension Plan and United Industrial Workers Pension Plan brought a proposed class action against Waste Management, Inc. (WM), James C. Fish, Jr., John J. Morris, Devina A. Rankin and Leslie K. Nagy. The complaint asserted securities-fraud claims under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, as well as control-person liability under Section 20(a).

The plaintiffs alleged that WM and its officers made misleading statements about the expected completion date of WM’s acquisition of Advanced Disposal Services, Inc. The notes issued to finance the acquisition included a special mandatory redemption provision requiring WM to redeem them at 101% of face value if the acquisition was not completed by July 14, 2020. The complaint alleged that, while WM publicly described the acquisition as likely to close by the end of the second quarter of 2020, WM knew that the Department of Justice was requiring asset divestitures beyond the $200 million annual-revenue threshold in the merger agreement. WM later announced the sale of assets representing $345 million in combined annual revenues and redeemed the notes at 101% of face value.

The defendants moved to dismiss the amended complaint under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim.

Court’s analysis

The court held that the complaint adequately alleged material misrepresentations and omissions. It found that the challenged statements about the acquisition timetable could have misled investors by creating the impression that the acquisition would be approved and completed before the deadline, even though the defendants allegedly knew that the Justice Department’s objections were likely to cause a delay. The timing mattered because a delay could trigger the notes’ mandatory redemption provision and affect their trading price.

The court also held that the complaint adequately pleaded the defendants’ required state of mind, known as scienter, as to Fish, Morris and Rankin. Fish participated in merger negotiations and called Advanced Disposal’s chief executive officer about reducing the merger price because of the Justice Department’s objections. Morris participated in a similar call. Rankin signed relevant filings and discussed the expected closing date at an investor conference. These allegations supported a strong inference that the three officers knew, or had access to information showing, that their public statements about the timetable were misleading.

The allegations against Nagy were different. The complaint alleged that Nagy was WM’s chief accounting officer, signed two securities filings and sold WM stock shortly after the class period began. The court found that these allegations did not show that Nagy knew about the Justice Department’s concerns, was involved in the merger negotiations, or failed to review information she had a duty to monitor. The allegations also did not provide enough information about her stock sales to support an inference of fraudulent intent.

Because the complaint adequately alleged scienter as to WM’s chief executive officer, chief operating officer and chief financial officer, the court inferred corporate scienter as to WM. The court also held that the complaint adequately alleged the Section 20(a) control-person claim because it adequately alleged an underlying Section 10(b) violation and control-person liability.

Disposition

The defendants’ motion to dismiss was DENIED in part and GRANTED in part. The securities-fraud claim against Leslie K. Nagy was dismissed, and the Clerk of Court was directed to terminate Nagy as a defendant. The motion was otherwise denied, allowing the claims against the remaining defendants to proceed. The court also directed the Clerk to close the motion at Docket 48.