On September 27, 2024, Judge Aileen Cannon of the United States District Court for the Southern District of Florida dismissed a putative class action asserting claims under the Securities Exchange Act of 1934 against an electric utility, its parent company, and certain of their executives. Jastram v. NextEra Energy, Inc., No. 23-cv-80833, slip. op. (S.D. Fla. Sept. 27, 2024), ECF No. 118. Plaintiffs alleged that defendants made misrepresentations in response to claims in the media that the utility used corporate funds to influence state and local elections, targeted elected officials who opposed its initiatives, employed a news outlet to support its efforts against these officials, and intimidated journalists. The Court held that plaintiffs failed to adequately allege loss causation and therefore dismissed the action with prejudice.
The Court explained that, where the “fraud-on-the-market” presumption applies, a plaintiff can plead loss causation by (1) identifying a corrective disclosure, (2) showing that the stock price dropped soon after the corrective disclosure, and (3) eliminating other possible reasons for the price drop. Slip op. at 9.
The Court first evaluated the parent’s statement in a securities filing that allegations that defendants had violated the law had the potential to adversely affect the companies, and that media articles had alleged violations of Florida state and federal campaign finance law which “have the potential to result in fines, penalties, or other sanctions or effects.” Id. at 10–11. The Court held this did not qualify as a corrective disclosure. First, the statement did not mention any of the specific alleged misstatements upon which plaintiffs based their claims, and the statement acknowledging the existence of allegations about campaign finance law violations did not render any prior statements false or misleading. Id. at 11. Second, the Court explained that the warning of potential future risk due to allegations of campaign finance violations also did not reveal any prior statements to be false, but rather simply amounted to a disclosure that an investigation existed. Id. at 12. Third, the Court emphasized that the same risks plaintiffs claimed were disclosed for the first time in the purported corrective disclosure were also contained in a nearly identical set of disclosures in SEC filings three months earlier. Id. at 12–14.
The Court next held that the announcement of the company CEO’s retirement—and the related disclosure that his severance agreement contained a claw back provision—did not amount to a corrective disclosure. Id. at 14. The Court explained that retirement alone is not enough to establish loss causation, and the announcement did not reveal anything about the underlying allegations of misrepresentations. Id. at 14–15. The Court further noted that plaintiffs’ argument of a link between the claw back provision and “potential legal exposure and reputational risk” was “strained and speculative.” Id. at 15. For example, the news article that brought the provision to light did not say that it was unique or unusual, and in fact acknowledged that it was “unclear” whether the provision and other severance terms were “standard.” Id.
Having concluded that plaintiffs failed to adequately allege loss causation, the Court declined to consider defendants’ arguments that the complaint failed to adequately allege an actionable misstatement or scienter. Id. at 9. Moreover, because plaintiffs had already previously amended their complaint twice and the Court concluded that nothing could be added to change the loss-causation analysis, the Court held that leave to amend would be futile and dismissed the case with prejudice. Id. at 16 & n.6.
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