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Howard v. Arconic Inc.

United States District Court, W.D. Pennsylvania

June 21, 2019

MARTIN HOWARD, Plaintiff,
v.
ARCONIC INC ET AL, Defendants.

          OPINION

          Mark R. Hornak, Chief United States District Judge.

         In 2017, a tragic fire at Grenfell Tower in London, England, claimed 71 lives and injured 70 more. One of Arconic's architectural products, Reynobond PE paneling, formed part of the Tower's exterior cladding system, and some news outlets reported that the panels contributed to the fire's rapid spread. Plaintiffs allege, on behalf of themselves and a securities class, that a UK-based sales employee had reason to know that the Reynobond PE that Arconic's subsidiary supplied would be improperly used by a third party on that high-rise tower. But this is not a products liability case. Plaintiffs claim that 81 of Arconic's statements in prior SEC filings, customer brochures, and presentations to investors violated federal securities laws by failing to disclose alleged sales of Reynobond PE for unsafe uses. However, Plaintiffs have failed to adequately, plausibly plead that Defendants had knowledge of the facts they allegedly failed to disclose, or that Defendants made materially false or misleading statements or failed to disclose facts they had a duty to disclose, so as to make out a violation of the federal securities laws they invoke. For these and the other following reasons, the Court will grant Defendants' Motion to Dismiss.

         I. BACKGROUND

         A. Facts

         For purposes of ruling on the pending Motion to Dismiss, the Court will accept the facts as alleged in the First Amended Complaint as true and review it in its entirety. The Court also may review and consider "documents incorporated into the complaint by reference, and matters of which a court may take judicial notice," including documents required by law to be filed with the Securities and Exchange Commission and press releases. Winer Family Tr. v. Queen, 503 F.3d 319, 327 (3d Cir. 2007) (quoting Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 323 (2007)).[1] In reviewing the First Amended Complaint, the Court notes that, for their claims under the Securities Exchange Act of 1934, Plaintiffs must satisfy the heightened pleading requirements established by the Private Securities Litigation Reform Act as discussed in Section III, infra.

         Arconic, Inc. ("Arconic" or the "Company") is a global company engaged in "the engineering and manufacturing of aluminum and other lightweight metals into products used worldwide in the aerospace, automotive, commercial transportation, packaging, building and construction, oil and gas, defense, consumer electronics, and industrial industries." (First Amended Complaint, ECF No. 61 ("FAC" or "Complaint") ¶ 19.) Arconic is incorporated in Delaware and its common stock was listed on the New York Stock Exchange at all relevant times. (Ex. 1, ECF No. 72-3 (certificate of incorporation); FAC ¶ 2.) In September 2014, shares of Arconic's Class B Mandatory Convertible Preferred Stock were sold to the public ("Preferred Offering"), pursuant to a registration statement filed with the SEC ("Registration Statement"). (FAC ¶ 74-76.)

         One product Arconic manufactures and sells is Reynobond wall cladding. (Id. ¶ 40.) Reynobond is the Company's brand of aluminum composite material ("ACM"), and consists of two thin sheets of aluminum bonded to either side of a non-aluminum core. (Id. ¶ 40.) Arconic manufactured two Reynobond products: Reynobond PE, which featured a polyethylene core, and Reynobond FR, which featured a fire-resistant material at the core. (Id.) Combined with insulation, panels of Reynobond can be used to form a cladding system affixed to a building's exterior. (Id.) Reynobond was sold by Arconic's Engineered Products and Solutions business segment until the third quarter of 2015, and then by its Transportation and Construction Solutions segment. (Id. ¶ 214.) Plaintiffs allege that Arconic's sales personnel pushed Reynobond PE, which was cheaper than Reynobond FR, to customers, particularly when engaged in competitive bidding. (Id. ¶ 40.)

         According to Arconic's 10-Ks, sales for Arconic's product grouping of "architectural aluminum systems," of which Reynobond PE formed part, accounted for approximately 4 percent of the Company's overall sales in 2013 through 2015, and approximately 8 percent in 2017. (See Ex. 2, ECF No. 72-4 (2013 10-K), at 132 ($977 million out of $23 billion in total sales); Ex. 3, ECF No. 72-5 (2014 10-K), at 134 ($1, 002 billion out of just under $24 billion); Ex. 4, ECF No. 72-6 (2015 10-K), at 140 ($951 million out of $22.5 billion); Ex. 6, ECF No. 72-8 (2017 10-K), at 91 ($1, 065 billion out of $12.9 billion).)

         From May 8, 2010, until April 17, 2017, Defendant Klaus Kleinfeld was the Company's Chief Executive Officer ("CEO") and Chairman of its Board of Directors. (FAC ¶ 20.) In addition to Defendant Arconic, the remaining Defendants are current and former officers and directors of Arconic who signed the Registration for the Preferred Offering (those individuals, together with Kleinfeld, the "Individual Defendants"), and investment banking firms that acted as underwriters for the Preferred Offering (together, the "Underwriter Defendants"). (Id. ¶¶ 25-26.)

         On June 14, 2017, a fire broke out at Grenfell Tower in North Kensington, London, England, a 24-story, 67-meter-high tower block of public housing apartments. (Id. ¶ 43.) Seventy-one (71) people died, and over seventy (70) people were injured. (Id. ¶ 45.)

         Grenfell Tower had been recently renovated, and in connection with that renovation, Reynobond PE was installed by Harley Facades as part of the building's cladding system in 2015- 2016. (Id. ¶ 47.) A French subsidiary of Arconic, Alcoa Architectural Products SAS (later known as Arconic Architectural Products SAS) ("AAP SAS"), sold the panels to Omnis Exteriors, a fabricator, who cut the panels into shape and supplied them to the Grenfell contractors. (Id. ¶¶ 47, 50.) Approximately 3, 125 square meters of Reynobond PE were used to clad the Tower. (Id. ¶ 44.) The cladding was combined with Celotex RS50000 PIR Thermal insulation. (Id. ¶ 47.) Studio E Architects, of Ryton Ltd., oversaw the project. (Id. ¶ 13.) Ryton, who had outbid another bidder, called for the installation of Reynobond PE. (Id. ¶ 48.) Although the initial building plans from 2012 specified zinc cladding, the Kensington and Chelsea Tenant Management Organisation ("KCTMO"), who managed Grenfell Tower, pressured the project manager on the Grenfell renovation to cut costs, and suggested swapping the panels of zinc cladding for panels of Reynobond PE. (Id. ¶ 49.)

         Ten days after the fire, on June 24, 2017, The New York Times and Reuters published articles suggesting a link between the fire's rapid spread and Grenfell Tower's cladding system, including Reynobond PE. (Id. ¶¶ 67-68.) These reports also detailed emails from mid-2014 between Deborah French, Arconic's UK sales manager for Reynobond, and executives at the contractors involved in the bidding process for the renovation at Grenfell Tower. (Id. ¶ 68; see Id. ¶ 50.) In those emails, French responded to requests from the companies on the availability of samples of five different types of Reynobond panels, all of which were available in the PE and FR versions. (Id. ¶ 68.) Those emails did not refer to how tall Grenfell Tower was, but did refer to other high-rise projects where paneling had been used when discussing the desired appearance for Grenfell Tower. (Id.)

         Following these news reports, the price of the Preferred Shares decreased when trading resumed on Monday, June 26th, 2017, trading down as low as $36.50 per share in intraday trading-down nearly $4 per share, or 9.5%, from their close of $40.11 on the evening of Friday, June 23rd, 2017, on the high volume of more than 1.4 million shares trading. (Id. ¶ 70.)

         On June 26, 2017, the same day as the stock price drop, Arconic announced that it was discontinuing global sales of Reynobond PE for use on high-rise buildings. (Id. ¶¶ 61, 109.) In that announcement, Arconic stated:

The loss of lives, injuries and destruction following the Grenfell Tower fire are devastating, and our deepest condolences are with everyone affected by this tragedy. We have offered our full support to the authorities as they conduct their investigations.
While the official inquiry is continuing and all the facts concerning the causes of the fire are not yet known, we want to make sure that certain information is clear:
• Arconic supplied one of our products, Reynobond PE, to our customer, a fabricator, which used the product as one component of the overall cladding system on Grenfell Tower. The fabricator supplied its portion of the cladding system to the facade installer, who delivered it to the general contractor. The other parts of the cladding system, including the insulation, were supplied by other parties. We were not involved in the installation of the system, nor did we have a role in any other aspect of the building's refurbishment or original design.
• While we provided general parameters for potential usage universally, we sold our products with the expectation that they would be used in compliance with the various and different local building codes and regulations. Current regulations within the United States, Europe and the UK permit the use of aluminum composite material in various architectural applications, including in high-rise buildings depending on the cladding system and overall building design. Our product is one component in the overall cladding system; we don't control the overall system or its compliance.
Nevertheless, in light of this tragedy, we have taken the decision to no longer provide this product in any high-rise applications, regardless of local codes and regulations.

(Id. ¶ 109.)

         A 2016 AAP SAS brochure represented that cladding products containing polyethylene (PE) should not be used in buildings over a height often (10) meters, and stated that "it is crucial to choose the adapted products in order to avoid the fire spreading to the whole building. Especially when it comes to facades and roofs, the fire can spread extremely rapidly." (Id. ¶ 101.) The brochure also warned that "[b]uildings are also classified according to their height, which will define which materials are safer to use. Another important rule when it comes to the height of buildings concerns the accessibility of the fire brigade-as soon as the building is higher than the firefighters' ladders, it has to be conceived with an incombustible material." (Id.)

         Arconic's brochure also contained a visual height guidance table, noting that PE can be used on buildings up to ten (10) meters tall, fire-retardant (FR) materials should be used on buildings up to thirty (30) meters tall, and only cladding panels with non-combustible material (the A2 model) should be used above that height. (Id. ¶ 102.) That table is displayed below:

         (Image Omitted)

(Id.)

         After the fire, the British government established an independent expert advisory panel to advise on immediate measures to implement to secure the safety of the buildings. (Id. ¶ 64.) That panel conducted a test to evaluate a cladding system that mimicked the one used on Grenfell Tower. (Id. ¶ 65.) The panel concluded that the PE system did not meet UK building regulation guidance. (Id. ¶ 66.) According to the test report, a classification was impossible because the cladding testing had been terminated early, after eight (8) minutes rather than the minimum forty (40), "due to flame spread above the test apparatus." (Id.)

         A 2018 BBC report also stated that the fire rating for Reynobond PE had been downgraded, after "fire tests carried out as early as 2014" (around the time of the Grenfell Tower sale), to a rating that did not comply with UK building code requirements for high-rise use. (Id. ¶¶ 101, 120, 186, 281.) According to the BBC report, "Arconic knew the test rating had been downgraded, but the UK body that certifies building products said it was not told about the change." (Id. ¶ 120.) Reynobond PE had a certificate based on a B rating issued in 2008, on a scale from A to F with A being the top rating. (Id.). The BBC report stated that a series of reports commissioned by Arconic in 2014 and 2015, which tested two configurations of the cladding, were given a classification of C and E. (Id.)

         The BBC also obtained Arconic correspondence with clients from late 2015, after the Grenfell Tower sale, in which the Company confirmed that some of the panels were rated class E, and addressed "concerns about the product's fire reaction class in the UK." (Id.)

         B. Procedural History

         The first of four related complaints in this litigation was filed on July 13, 2017, in the Southern District of New York as Brave v. Arconic Inc. et al, No. 1:17-cv-05312 (S.D.N.Y.). (ECF No. 38, at 2.) Shortly after the first notice was published on July 13, 2017, two additional complaints were filed in the Southern District of New York: Tripson v. Arconic, No. 17-cv-05369 (filed July 14, 2017), and Sullivan v. Arconic, No. 17-cv-05457 (filed July 18, 2017). (ECF No. 38, at 2.) On August 11, 2017, the instant action-the Howard Complaint-was filed in this District. Id. Ultimately, Brave, Tripson, and Sullivan were each voluntarily dismissed in the Southern District of New York before the September 11, 2017, lead plaintiff motion deadline. Id. at 3. Sullivan was refiled in the Western District of Pennsylvania (Docket Number 2:17-cv-1213) on September 15, 2017.

         The Court then granted a Motion to Consolidate the cases into Howard v. Arconic, No. 2:17-cv-1057, and to appoint Iron Workers Local 580 - Joint Funds and Ironworkers Locals 40, 361 & 417 - Union Security Funds (collectively, "Ironworkers") as the Lead Plaintiff for purchasers of all Arconic securities except purchasers of Arconic Depositary shares sold pursuant and/or traceable to Arconic's September 18, 2014, initial public offering ("Preferred IPO Purchasers"), and to appoint Janet L. Sullivan as the Lead Plaintiff for purchasers of Preferred IPO Purchasers. (ECF No. 56). The Court also appointed Plaintiffs' chosen counsel. (Id.) The remaining defendants are Arconic, the Individual Defendants, and the Underwriter Defendants.

         On April 9, 2018, Plaintiffs filed the First Amended Complaint (Consolidated), at ECF No. 61. Pending before the Court is Defendants' Motion to Dismiss for Failure to State a Claim, ECF No. 71. The Court has reviewed the Motion, the brief in support therein ("Defs.' Br.," ECF No. 72), Plaintiffs' Brief in Opposition ("Pl.'s Br.," ECF No. 75), and Defendants' Reply Brief ("Defs.' Reply," ECF No. 80). The Court held oral argument on the Motion on November 27, 2018. (ECF No. 87.) At the Court's request, the parties submitted supplemental briefing at ECF Nos. 90, 91, 98, and 99. The parties also submitted supplemental letters to the Court at ECF Nos. 101 and 103. The Court has reviewed this record and the applicable law, and the matter is ripe for disposition.

         II. LEGAL STANDARD FOR MOTIONS TO DISMISS

         In considering a motion to dismiss pursuant to Rule 12(b)(6), the court is to "accept all factual allegations as true, construe the complaint in the light most favorable to the plaintiff, and determine whether, under any reasonable reading of the complaint, the plaintiff may be entitled to relief." Phillips v. Cty. of Allegheny, 515 F.3d 224, 233 (3d Cir. 2008) (quoting Pinker v. Roche Holdings Ltd., 292 F.3d 361, 374 n.7 (3d Cir. 2002)). Ordinarily, to survive a motion to dismiss, a complaint must plead "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).

         III. DISCUSSION

         In the Complaint, Plaintiffs allege that Arconic and Kleinfeld violated § 10(b) of the Securities Exchange Act of 1934 ('"34 Act") and the rules and regulations promulgated thereunder, that all Defendants violated § 11 of the Securities Act of 1933 ('"33 Act") and the rules and regulations promulgated thereunder, that Kleinfeld violated § 20(a) of the '34 Act, and that Arconic and the Individual Defendants violated § 15 of the '33 Act.

         At the outset, the Court observes that Plaintiffs' Complaint suffers from three related and fundamental flaws. These flaws pervade Plaintiffs' claims under both the '33 and '34 Acts, and (in addition to the other deficiencies explained in this Opinion) pretermit any potential for their pleadings to establish a violation of federal securities laws. The Complaint's three hundred and twenty-three (323) paragraphs do not cure these basic defects.

         First, Plaintiffs have not adequately and plausibly alleged that Reynobond PE was being or had been sold for inappropriate end uses other than on the Grenfell Tower. At most, Plaintiffs allege that one of Arconic's foreign subsidiary's employees was responsible for the single Grenfell Tower sale and that she had reason to know that Reynobond PE would ultimately be used for that high-rise project. That is not nearly enough. Plaintiffs seek an inference that more improper sales had occurred, or were occurring, based on the fact that Arconic said in a press release that it would discontinue global sales of Reynobond PE for use in high-rise buildings. But Plaintiffs seek to create an inference that is not plausibly supported by either that logic or any facts actually pleaded in the Complaint. And they ignore the more compelling inference: that in the wake of damaging news stories suggesting a connection between Reynobond PE and the tragic fire's spread, Arconic sought to bring to zero any chance that Reynobond PE would be sold in the future for any high-rise building use, and to assure the public of the same. Plaintiffs' assertions do not plausibly connect the dots to provide a basis for a plausible inference that, in doing so, Arconic was somehow admitting to a practice of prior sales of Reynobond PE for improper end uses. Beyond that, although Plaintiffs refer to highly flammable cladding used on other buildings in the UK, they do not plead, plausibly or otherwise, that such cladding was Reynobond PE (or, for that matter, FR), nor do they refer to Reynobond PE being used on any building other than Grenfell Tower. (See FAC ¶¶ 294, 300.) This unsupported suggestion permeates the Complaint, and the Court cannot credit any of its iterations.

         Second, Plaintiffs have failed to adequately and plausibly allege that Kleinfeld or any other Arconic executive knew that Reynobond PE was allegedly being sold for improper end uses. The Complaint contains no averments that Kleinfeld knew that Reynobond PE had been used on Grenfell Tower or any other high rise. Any suggestion that Kleinfeld "should have known" does not bear examination. At best, Plaintiffs' allegations as to Kleinfeld add up to the inference that he knew that there was a difference between Reynobond PE and Arconic's other Reynobond product, "FR," whose name denotes its fire resistance. This does not suffice to establish his culpable knowledge of sales leading up to an improper end use of Reynobond PE.

         Third, Plaintiffs repeatedly point to Arconic's alleged failure to inform investors that Reynobond PE had been sold for use on Grenfell Tower, and that the end use on a high-rise building was unsafe. The Complaint sets forth in exacting detail the tragic events of the fire. The Grenfell Tower sale may well form the basis of a products liability claim under UK law-an issue most certainly not before this Court. But for the reasons that follow, as pleaded, the Complaint does not plausibly show that a failure to inform investors of this single sale to an end user who wound up using the product unsafely provides a basis for a securities law claim.

         Because of these basic deficiencies, and for the reasons that follow, Defendants' Motion to Dismiss will be granted, and Plaintiffs' Complaint will be dismissed without prejudice.

         A. Section 10(b) '34 Act Claims

         Section 10(b) of the Exchange Act makes it unlawful for any person "[t]o use or employ, in connection with the purchase or sale of any security . . . any manipulative or deceptive device or contrivance in contravention of such rules and regulations" prescribed by the SEC. 15 U.S.C. § 78j(b). To implement § 10(b), the SEC promulgated Rule 10b-5, which makes it unlawful "[t]o make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading ... in connection with the purchase or sale of any security." 17 C.F.R. § 240.10b-5(b).

         The Supreme Court has implied a private cause of action from the text and purpose of § 10(b) to investors who have been injured by its violation. See Tellabs, Inc. v. Makor Issues & Rights, Ltd, 551 U.S. 308, 318 (2007). To state a securities fraud claim under § 10(b), a plaintiff must allege the following elements: (1) a material misrepresentation or omission, (2) scienter, (3) a connection between the misrepresentation or omission and the purchase or sale of a security, (4) reliance upon the misrepresentation or omission, (5) economic loss, and (6) loss causation. Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 341-42 (2005); City of Edinburgh Council v. Pfizer, Inc., 754F.3dl59, 167 (3d Cir. 2014).

         In addition to pleading the foregoing elements, the Private Securities Litigation Reform Act ("PSLRA") imposes two distinct, heightened pleading requirements that must be satisfied for a complaint alleging § 10(b) claims to survive a motion to dismiss. See Inst'l Inv'rs Group v. Avaya, Inc., 564 F.3d 242, 252 (3d Cir. 2009). First, the PSLRA requires that "the complaint shall specify each statement alleged to have been misleading, the reason or reasons why the statement is misleading, and, if an allegation regarding the statement or omission is made on information and belief, the complaint shall state with particularity all facts on which that belief is formed." 15 U.S.C. § 78u-4(b)(1). Second, the complaint must, "with respect to each act or omission alleged to violate this chapter, state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind." 15 U.S.C. § 78u-4(b)(2)(A). That state of mind is "scienter," which is defined as a "mental state embracing intent to deceive, manipulate, or defraud" and it requires knowledge or recklessness. Avaya, 564 F.3d at 252 (quoting Ernst & Ernst v. Hochfelder, 425 U.S. 185, 194 n.12 (1976)). Both provisions require that facts be pleaded with particularity. This standard "requires plaintiffs to plead the who, what, when, where and how: the first paragraph of any newspaper story." Id. at 253 (quoting In re Advanta Corp. Sec. Litig., 180 F.3d 525, 534 (3d Cir. 1999)).

         In addition to the traditional Rule 12(b)(6) standard, the Supreme Court has prescribed a three-step process for considering a motion to dismiss in a § 10(b) case. See Tellabs, 551 U.S. at 322-23. First, as with any motion to dismiss, the court must "accept all factual allegations in the complaint as true." Id. at 322. Second, the court must "consider the complaint in its entirety, as well as other sources courts ordinarily examine when ruling on Rule 12(b)(6) motions to dismiss, in particular, documents incorporated into the complaint by reference, and matters of which a court may take judicial notice." Id. On this point, the inquiry is "whether all of the facts alleged, taken collectively, give rise to a strong inference of scienter, not whether any individual allegation, scrutinized in isolation, meets that standard." Id. at 323. Third, "in determining whether the pleaded facts give rise to a 'strong' inference of scienter, the court must take into account plausible opposing inferences." Id.

         Plaintiffs aver in Count III of the Complaint that Arconic and Kleinfeld violated § 10(b) of the '34 Act and Rule 10b-5 by making false statements of material fact and/or omitting material facts, which deceived the investing public, artificially inflated Arconic's securities' prices, and caused Plaintiffs and members of the Class to purchase Arconic's securities at artificially inflated prices.[2] (See FAC ¶¶ 306-16.)

         Defendants contend that Plaintiffs' § 10(b) claim must be dismissed because: (1) Plaintiffs fail to allege materially false or misleading statements; (2) Plaintiffs fail to plead facts raising a strong inference of scienter; and (3) any claims based on purchases of Arconic securities before the sale of Reynobond PE for use on Grenfell Tower must be dismissed. The Court will address each of these arguments in turn.

         i. Materiality

         The first element of a securities fraud claim under § 10(b) is a material misrepresentation or omission. Under the PSLRA's heightened pleading standard, a plaintiff first must specify each allegedly misleading statement, why the statement was misleading, and, if an allegation is made on information and belief, all facts supporting that belief with particularity. 15 U.S.C. § 78u- 4(b)(1).

         Plaintiffs identify the allegedly misleading statements made by Defendants. (See FAC ¶¶ 141-43, 145, 147, 151-54, 156-69, 171-82, 188-89, 190-95, 197-205, 207-16, 222-46, 248-49, 251-62, 264, 271-85.) Plaintiffs also aver why they are alleged to be misleading. (See FAC ¶¶ 148-50, 183-87, 217-21, 265-70, 286-90). Defendants argue that the allegedly misleading statements and omissions are not actionable because they are immaterial, not false or misleading, and/or non-actionable puffery or as forward-looking statements protected by the PSLRA's safe harbor provision. See 15 U.S.C. §78u-5(c)(1).

         To prevail on a § 10(b) claim, a plaintiff must show that the defendant made a misleading statement or omission as to a material fact. Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27, 38 (2011) (citing Basic Inc. v. Levinson, 485 U.S. 224, 238 (1988)). A misrepresentation or omission "is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to [act]." TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976). The Supreme Court has held that to satisfy the materiality requirement "there must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the 'total mix' of information made available." Basic Inc., 485 U.S. at 231-32 (quoting TSC Indus., 426 U.S. at 449).

         The Third Circuit has held that the question of materiality "typically presents a mixed question of law and fact," which traditionally has been viewed as appropriate for the trier of fact. Semerenko v. Cendant Corp., 223 F.3d 165, 178 (3d Cir. 2000). However, "complaints alleging securities fraud often contain claims of omissions or misstatements that are obviously so unimportant that courts can rule them immaterial as a matter of law at the pleading stage." In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1426 (3d Cir. 1997). The Court determines materiality as of the date of the alleged misstatement or omission, not with the benefit of hindsight. See In re NAHC, Inc. Sec. Litig., 306 F.3d 1314, 1330 (3d Cir. 2002).

         Plaintiffs have identified five categories of statements[3] that they contend violated § 10(b) of the '34 Act: (1) statements in product brochures about Reynobond; (2) statements about Arconic's values, commitment to safety, and safety-related policies and goals; (3) financial disclosues; (4) risk disclosures; and (5) statements highlighting Reynobond and other Arconic products. The Court concludes that Plaintiffs have not adequately alleged that any of these were materially misleading, and Plaintiffs' § 10(b) claims will be dismissed.

         1. Statements in Brochures

         Plaintiffs allege that throughout the class period, Defendants misrepresented statements about Arconic's products in product brochures on Arconic's official website. The brochures stated, in relevant part, [4] that:

• Arconic's PE products were "safe and compliant,"
• Reynobond PE was "designed and tested to meet safety and environmental building codes around the world," and
• Reynobond PE "was a fully tested product, with building-code approvals around the world."

(FAC¶¶ 167-69; 199-200.)

         The principal question for the Court is whether these statements were material; that is, whether the statements in customer brochures concerning Reynobond PE plausibly would have made a "significant difference" to an investor's choice to buy or sell Arconic securities?

         Plaintiffs allege that these statements were materially misleading, if not demonstrably false, because at the time they were made, Arconic had commissioned reports showing that its Reynobond PE products had failed to meet UK fire-safety standards, and had been downgraded from Class B to Class C and E grades. Moreover, Plaintiffs point to the UK's post-Grenfell ban on Reynobond PE's use (no matter what local codes permitted) on high-rise buildings to illustrate that a reasonable investor could not have known that Arconic was engaging in reckless sales of Reynobond PE which would in turn increase the risk of civil and criminal liability. Also, Plaintiffs point out that Defendants' assurances that Reynobond PE was "fully tested" are in tension with reports that testing on the product could not be fully completed.

         a. "In connection with" element

         The first, threshold question for the Court to decide is whether the brochure statements can even give rise to liability to investors-that is, were they made "in connection with" the sale of securities? Plaintiffs aver that the statements, disseminated through Arconic's website, were part of the "total mix" of information relied upon by investors, under a fraud-on-the-market theory. Plaintiffs claim they are actionable because a reasonable investor could have read and relied on these publicly available statements, even if they were not geared toward investors. Defendants argue that the statements could not, as a matter of law, be relied upon by investors because they were customer-facing publications, and it is implausible that such publications would have made a significant difference to any reasonable investor's decisionmaking.

         Rule 10b-5's "in connection with" requirement will be satisfied if a statement "is material to a decision by one or more individuals ... to buy or sell" a security. Chadbourne & Parke LLP v. Twice, 571 U.S. 377, 387 (2014) (interpreting the Securities Litigation Uniform Standards Act of 1998 ("SLUSA")'s identical language).[5] The statement must "make[] a significant difference to someone's decision to purchase or sell" a security. Id. The Supreme Court has outlined some broad parameters for evaluating the "in connection with" requirement. First, Rule 10b-5 must be "flexibly" construed to "effectuate its remedial purposes." SEC v. Zandford, 535 U.S. 813, 819 (2002). Second, although 10b-5 protects the integrity of the securities markets, its remedial purposes are not limited to that goal. Id. at 821-22. Therefore, the "in connection with" requirement can be met even if a "transaction is not conducted through a securities exchange or an organized over-the-counter market." Superintendent of Ins. of State of N.Y.v. Bankers Life & Cas. Co., 404 U.S. 6, 10 (1971). Third, the fraud can be "in connection with" the purchase or sale of securities even if an identifiable purchaser or seller is not the individual who is deceived. United States v. O'Hagan, 521 U.S. 642, 658 (1997).

         Plaintiffs appear to argue that by virtue of their publication on Arconic's website, a reasonable investor would rely on the statements in the product brochures. This assertion does not find support in caselaw. That is because "[a]lthough an investor might read these promotional materials, the brochure and pamphlet are geared to consumers of a product, not investors in a corporation. It would distort the meaning of rule 10(b)(5) to allow such materials to serve as a basis for liability." Hemming v. Alfin Fragrances, Inc., 690 F.Supp. 239, 244-45 (S.D.N.Y. 1988). The goal of the brochures is to persuade a customer to purchase Arconic's products, not its stocks. The brochures are not directed at the financial community. Even assuming the brochures were inaccurate, Arconic could be a wise investment for a whole host of other reasons. By the same token, if the brochures were entirely accurate, Arconic could still be too risky an investment for other reasons. The Court therefore declines to adopt a per se rule that any publication on a website will be considered "in connection with" a purchase or sale of securities.

         While the Supreme Court embraced a "broad reading" of Rule 10b-5 in Zandford, that reading is "not boundless," Rowinski v. Salomon Smith Barney Inc., 398 F.3d 294, 301-02 (3d Cir. 2005). Rather, "the 'in connection' criteria is satisfied where material misrepresentations are 'disseminated to the public in a medium upon which a reasonable investor would rely.'" Rowinski, 398 F.3d at 301 (quoting Semerenko v. Cendant Corp., 223 F.3d 165, 176 (3d Cir. 2000)). The Court must therefore determine whether consumer product brochures on Arconic's website are a medium upon which a reasonable investor would rely.

         "[T]he market can absorb technical information." In re Carter-Wallace, Inc. Sec. Litig., 150 F.3d 153, 156-67 (2d Cir. 1998). But that information must be something that an analyst would use to study the financial prospects of a company. For example, in Carter-Wallace, the plaintiffs alleged that the defendant company had violated Rule 10b-5 by making false statements about its anti-epileptic drug in advertisements in two medical journals. Id. The Court concluded that "false advertisements in technical journals may be 'in connection with' a securities transaction if the proof at trial establishes that the advertisements were used by market professionals in evaluating the stock of the company." Id. at 156-57.

         The Third Circuit also concluded in Rowinski that publicly disseminated investment research reports may form the basis for liability. There, retail brokerage customers of Salomon Smith Barney sued the company, alleging that, to "reap hundreds of millions of dollars in investment banking fees," Salomon Smith Barney had produced investment research reports reflecting excessively favorable views of its investment banking clients. Rowinski, 398 F.3d at 296-97.[6] The Court determined that the securities transactions coincided with the alleged fraud because the transactions were "necessary" to the fraud's success. Id. at 302. The Court explained that without the transactions, the share prices of the investment banking clients would not have increased, and without that share price increase, the clients would not have given Salomon Smith Barney the investment banking business it wanted. Id.

         So, considering whether a customer-facing product brochure may similarly give rise to liability, the Court will consider whether Plaintiffs have adequately alleged that market professionals, in evaluating Arconic's stock, plausibly would have used the brochures as they would an advertisement in a technical journal or an investment research report. Plaintiffs cite empirical research that product advertising may affect investor decisions, and that managers may use advertising in order to affect such decisionmaking. (Pl.'s Br., at 33.)[7] However, these studies analyzed the effects of increased overall advertising spending on stock prices, not whether investors typically consider specific customer-facing material in making investment decisions. It may well be that investors would view, say, a Super Bowl ad campaign for a well-known tech company's new phone or tablet, and decide that said company was a wise investment. But Plaintiffs have not alleged anything of the sort happened here. That Arconic advertised its products in brochures or on its website does not, without more, drive a plausible inference that investors would rely on them.

         Plaintiffs' cited authority regarding whether statements appearing on Arconic's website were "publicly disseminated"-and therefore part of the mix of information on which a reasonable investor would rely-does not counsel a different result. For instance, in SEC v. Stinson, although the Court concluded that the "in connection element" was satisfied, that was because the defendants communicated material misstatements and omissions in direct email solicitations, a webinar sponsored by an IRA custodian, and websites. No. 10-3130, 2011 U.S. Dist. LEXIS 65723, at *12 (E.D. Pa. June 20, 2011). And in Last Atlantis Capital LLC v. AGS Specialist Partners, the Court concluded that "it is reasonable for members of the public who trade in options to rely on statements made by options specialists on their public websites, just as it is reasonable for companies maintaining websites to anticipate that current or potential investors might read and rely on website statements." 749 F.Supp.2d 828, 834 (N.D. 111. 2010) (emphasis added). In these cases, information was either communicated directly to investors or was designed to interface with investors. The information in Arconic's brochures was neither directly communicated to nor designed to communicate with investors. And Plaintiffs have not provided any examples from caselaw where a purely customer-facing brochure published on a website, on its own, gave rise to Rule 10b-5 liability.

         The Court therefore concludes that Plaintiffs have not plausibly pleaded that the statements made in Arconic's product brochures were made "in connection with" the sale of securities on a fraud-on-the-market theory. On this basis alone, these statements cannot form the basis for 10b-5 liability. The Court will nevertheless also consider whether these alleged misstatements could be plausibly found to be materially false or misleading.

         b. Alleged Falsity

         Defendants argue that Plaintiffs' claims pertaining to Reynobond product brochures should be dismissed for another reason: that the statements in the brochures were not materially misleading. The Court will first address Plaintiffs' quantitative materiality argument, and then address whether Plaintiffs have adequately alleged that the statements were materially misleading.

         i. Quantitative Materiality

         The parties agree that quantitative measurement is not enough to establish materiality, though it can be persuasive. Throughout their pleadings, Plaintiffs refer to the Arconic's precipitous stock price drop after the Grenfell fire as evidence of materiality. (See, e.g., FAC ¶ 296; 300-01 (describing stock price declines of anywhere between 8-11% allegedly flowing from the damaging news stories in the fire's wake stating that Arconic was no longer selling Reynobond PE and that Arconic had known the panels would be used on Grenfell Tower).) Defendants do not squarely address whether the downturn in stock prices alone suffices to establish materiality. However, they do they point to the relatively small share of business Reynobond PE sales in the UK represented, to suggest that any statements in Reynobond PE product brochures were immaterial.

         The Third Circuit has established that, in an efficient securities market such as the New York Stock Exchange, "information important to reasonable investors ... is immediately incorporated into the stock price." Burlington, 114 F.3d at 1425. Thus, when stock is traded in an efficient market, materiality may be measured post hoc by considering the movement of a firm's stock price immediately after the pertinent disclosure. Oran v. Stafford, 226 F.3d 275, 285 (3d Cir. 2000). "Because in an efficient market 'the concept of materiality translates into information that alters the price of the firm's stock,' if a company's disclosure of information has no effect on stock prices, 'it follows that the information disclosed . . . was immaterial as a matter of law.'" (Id. (quoting Burlington, 114 F.3d at 1425)).

         Plaintiffs argue that the drop in Arconic's prices evinces materiality because "the risk of fire, and the attendant exposures to significant civil and criminal liabilities, materialized." (Pl.'s Br., at 34.) However, although Plaintiffs have alleged that Arconic's prices dropped as a result of the negative press coverage, the precise relationship between those publications and the price drop does not map on to the relationship between the post-fire disclosure (which is the specific disclosure Plaintiffs allege should have occurred years earlier) and the price drop. Plaintiffs allege that Arconic should have disclosed earlier in time that it was selling Reynobond PE to end users that were using the panels in ways that, at minimum, violated local regulations.

         Perhaps it would be one thing if Arconic's disclosure that it knew Reynobond PE was being sold for use on the Grenfell Tower was the sole piece of information the market received, in a vacuum, before markets reopened on June 26, 2017, and Arconic's stock price dropped. That would specifically tie a price drop to that single disclosure, conceivably creating an inference that the same disclosure made earlier would itself cause the price drop. But the information that the market received was not only the disclosure of a sale for an improper purpose. The market had also learned, for the first time, that the panels shared the blame for a horrific fire with a large number of injuries and deaths. Plaintiffs have not alleged facts pointing to any disclosure earlier than ten (10) days after the fire that Arconic's product was involved in the fire. It is therefore impossible to logically disentangle the stock drop attributable to the disclosure of the Grenfell Tower sale from that attributable to the disclosure that the product sold may have contributed to a high-fatality fire at the property. This distinction is critical, because the crux of Plaintiffs' case is an alleged failure to make a public disclosure at or near the time of the sale in which Ms. French was involved. To point to a stock price drop on the heels of the actual fire in an effort to demonstrate that that very price drop would likewise be attributable Xo just the disclosure of the sale involved years before (e.g., made at or near the time of that sale) seeks to conflate at least two potentially causative events to generate an implausible inference. The Court thus declines to reach a conclusion about materiality on the basis of the stock price drop alone.

         For their part, Defendants argue the flip side of the coin-that because Reynobond PE contributed only a small fraction of Arconic's overall business, any statements in its product brochures cannot be considered material. Plaintiffs dispute the percentage of the business that Reynobond should be considered to represent, and also allege that due to the high risk from Reynobond PE panels, their relatively small share of Arconic's business should not doom the materiality analysis, because risky sales of a highly dangerous product representing a small segment of a business would still be material to a reasonable investor.

         The Supreme Court has noted that "[statistical significance" is not dispositive in every case. Matrixx Initiatives, Inc., 563 U.S. at 44. The inquiry is "contextual." Id. The SEC's internal guidance in Staff Accounting Bulletin (SAB) No. 99 provides that both quantitative and qualitative factors should be considered in assessing a statement's materiality. SEC Staff Accounting Bulletin No. 99, 64 Fed. Reg. 45150, 45150-52 (August 19, 1999). SAB No. 99 suggests that a numerical threshold, as a "rule of thumb" for registrants, "may provide the basis for a preliminary assumption that ... a deviation of less than the specified percentage with respect to a particular item on the registrant's financial statements is unlikely to be material." Id. at 45151. But it emphasizes that "quantifying ... the magnitude of a misstatement is only the beginning of an analysis of materiality." Id. The Third Circuit has not yet discussed SAB 99, but the Second Circuit has adopted it as persuasive authority. See ECA, Local 134 IBEW Joint Pension Tr. of Chi. v. JP Morgan Chase Co., 553 F.3d 187, 197-98 (2d Cir. 2009).

         The Complaint alleges that aluminum products formed an important segment of the Company, and contributed significantly to Arconic's revenues. (FAC ¶ 296.) Plaintiffs allege that sales of Reynobond PE are quantitatively material because Architectural Systems accounted for 50% of the Transportation and Construction Solutions ("TCS") segment. However, TCS's annual revenues were only 15% of the Company's total, and so it follows that Architectural Systems accounted for about 7.5% of Arconic's total revenues. Public documents also establish that Reynobond was not part of the Aluminum Architectural Systems product grouping. (See Ex. 7, ECF No. 72-9 at 7 (distinguishing between "Arconic Architectural Products," which included the "Reynobond" brand, and "Arconic Architectural Systems," which included Arconic's "Kawneer" brand and "framing" product).) The Court therefore does not conclude that statements pertaining to Reynobond were material simply because of their proportionality to the Company's overall revenues. In sum, the Court will not draw any inferences on materiality in either direction based on quantitative measures.

         ii. Qualitative materiality

         Even if customer brochures could give rise to § 10(b) liability, for Plaintiffs' claims to survive, the Court would have to conclude that the statements they identify were false and misleading for failing to disclose risks posed by alleged sales of Reynobond PE for unsafe end uses. Plaintiffs allege that at the time the statements were made, Arconic was supplying Reynobond PE for use in high-rise buildings, in contravention of its statements in the brochures. Defendants contend that Plaintiffs' claims must be dismissed because no reasonable investor would take the statements in Arconic's brochures to mean that Reynobond PE would never be or had never been misused.

         To sustain their brochure-related claims, Plaintiffs must allege facts indicating that Defendants were under a duty to disclose Reynobond PE's UK rating downgrade and that Arconic had allegedly sold the product for use on high-rise buildings. The Court notes that a company does not have a freestanding responsibility to disclose all good or bad news that might influence its stock price. Basic, Inc. v. Levinson, 485 U.S. 224, 239 n.17 (1988). "No matter how detailed and accurate disclosure statements are, there are likely to be additional details that could have been disclosed but were not." Brody v. Transitional Hosps. Corp., 280 F.3d 997, 1006 (9th Cir. 2002). "[N]either Rule 10b-5 nor Section 14(e) contains a freestanding completeness requirement. . . ." Id.

         Instead of a system of continuous disclosure, an issuer may keep silent unless there is a duty to disclose. Id. "Such a duty to disclose may arise when there is insider trading, a statute requiring disclosure, or an inaccurate, incomplete or misleading prior disclosure." Oran v. Stafford, 226 F.3d 275, 285-86 (3d Cir. 2000).

         As explained below, the Court concludes that Plaintiffs have not plausibly alleged that the brochure statements give the false or misleading impression that Reynobond PE is always safe for all uses, or that no customer had ever used Reynobond PE unsafely, that it had the highest rating on every test, or that Reynobond PE complied with all building codes wherever it was sold. Arconic's statements did not provide absolute guarantees to its customer audience. That Reynobond PE was used in Grenfell Tower's cladding does not contradict the statements in Arconic's product brochures. Therefore, Arconic was not required to disclose any further information about Reynobond PE.

         To begin, Arconic's statements that Reynobond is "designed and tested to meet safety and environmental building codes," is "fully tested" and is "of the highest quality" (FAC ¶¶ 142, 167, 199, 222, ) would not plausibly mislead investors into thinking that Reynobond PE in particular will be or is always safely used by end users, or that there are no unsafe uses of it. Also, many of the statements in these brochures refer to Reynobond products in general, and expressly clarify that Reynobond "is available with either a polyethylene (PE) core or a fire-resistant (FR) core." (FAC ¶¶ 142, 167, 199, 222.) An investor could not plausibly have been misled into thinking that the PE product was always fire-safe given that there was a specifically designated fire-resistant Reynobond product available and referred to in those same sales materials.

         Additionally, although Plaintiffs argue that Defendants' statement that Reynobond PE was "fully tested" was contradicted by media reports showing that the product had been downgraded after testing two different configurations of the cladding, (see Id. ¶ 120, ) the fact that the product was downgraded in the UK and that some configuration testing was not completed as part of that evaluation does not render the statement that Reynobond PE was "fully tested" misleading. It is not plausible that the statement represented to Arconic's customers (let alone its investors) that Reynobond PE received the highest rating on every test to which it was subject in every country, or that every test performed by anybody on Reynobond PE was completed. And Plaintiffs have not plausibly alleged that a reasonable investor would read "fully tested" to mean that. "Fully tested" does not comment on Reynobond PE's quality of manufacture, whether every potential end use of it is safe, or whether it would comply with regulatory codes anywhere and everywhere no matter its end use. Plaintiffs do not adequately support an inference that "fully tested" means anything other than exactly what it says-that at some point, Reynobond PE had been "fully tested."

         Nor do Plaintiffs' averments that in 2018, a test of PE panels commissioned by the BBC could not be completed because the plastic burst into flames give rise to an inference that the product was not "fully tested." Post-hoc investigative testing does not inform what Arconic would have been aware of, or what investors would have understood from its brochures, in 2014.

         Moreover, Plaintiffs' allegations that the ACM cladding system (combining Reynobond PE with insulation materials) had never been tested before the installation on Grenfell Tower do not render misleading Arconic's statement that Reynobond PE was "fully tested." (See FAC ¶ 115.) The Complaint does not allege that Arconic was responsible for any such testing in the first instance, or that it was responsible for ensuring that an overall cladding system including its product complied with local regulations. In fact, the brochure in which the "fully tested" language appears specifically tells customers that "[t]esting is advisable to determine the performance of any fastening system" for Reynobond. (Ex. 17, ECF No. 72-19, at 9.) If "fully tested" meant that no future testing would ever be (or need to be) done, or that the full ACM cladding system had already been tested in every instance, it would make no sense to expressly advise customers to test the completed cladding system to determine its suitability and performance.

         Further, Defendants' statement that Reynobond PE met building codes "throughout the world" is not contradicted by the allegation that the product failed to meet UK fire safety standards, because standards "throughout the world" plainly vary. Additionally, the brochure on which Plaintiffs rely notes that "[a] variety of fasteners are used to fabricate and install Reynobond panels. Fastener selection is the construction project engineer's responsibility. You may successfully use specific fasteners for panel load-testing purposes in obtaining building-code recognition. We can provide this information upon request." (Ex. 17, 72-19, at 9.) It would contravene logic to state that a customer might need to "obtain[] building-code recognition" for use of Reynobond PE if the brochure were also guaranteeing that the product in every use met every building code standard in the world. Plaintiffs have not plausibly ...


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