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Maguire Financial, LP v. Powersecure International, Inc.

United States Court of Appeals, Fourth Circuit

November 15, 2017

MAGUIRE FINANCIAL, LP, Movant - Appellant,
v.
POWERSECURE INTERNATIONAL, INC.; SIDNEY HINTON, Defendants - Appellees, and LEONARD ASH, Individually and on Behalf of All Others Similarly Situated, Plaintiff, and CLAY LESLIE; PAUL E. MOORE, Movants, and CHRISTOPHER T. HUTTER, Defendant.

          Argued: September 15, 2017

         Appeal from the United States District Court for the Eastern District of North Carolina, at Greenville. James C. Dever III, Chief District Judge. (4:14-cv-00092-D)

         ARGUED:

          Charles J. Piven, BROWER PIVEN, Stevenson, Maryland, for Appellant.

          Gregory Lewis Watts, WILSON SONSINI GOODRICH & ROSATI, Seattle, Washington, for Appellees.

         ON BRIEF:

          Michael A. Ostrander, WILSON & RATLEDGE, PLLC, Raleigh, North Carolina; David A.P. Brower, Richard H. Weiss, BROWER PIVEN, New York, New York, for Appellant.

          Lee M. Whitman, Tobias S. Hampson, WYRICK ROBBINS YATES & PONTON LLP, Raleigh, North Carolina; Barry M. Kaplan, WILSON SONSINI GOODRICH & ROSATI, Seattle, Washington, for Appellees.

          Before WILKINSON, DUNCAN, and THACKER, Circuit Judges.

          DUNCAN, Circuit Judge:

         Plaintiff-Appellant Maguire Financial, LP ("Maguire Financial") appeals the district court's dismissal of its amended complaint in this securities fraud class action. Maguire Financial argues that the district court erred in holding that a statement by the CEO of PowerSecure International, Inc. ("PowerSecure"), to securities analysts that the company had secured a "contract renewal" could not form the basis for liability under § 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), see 15 U.S.C. § 78(b), and Rule 10b-5, see 17 C.F.R. § 240.10b-5, because the amended complaint failed to adequately allege scienter. For the reasons that follow, we affirm.

         I.

         A.

         PowerSecure provides utility and energy technologies to electric utilities and their customers.[1] Sidney Hinton, PowerSecure's president and CEO, has three decades of experience in the energy industry. Hinton certified PowerSecure's financial reports and signed its annual and quarterly SEC filings.

         PowerSecure has three operating segments: Interactive Distributed Generation ("DG"), Energy Efficiency ("EE"), and Utility Infrastructure ("UI"). Its UI products and services include transmission and distribution system construction and maintenance, installation of advanced metering and efficient lighting, and emergency storm restoration. The UI segment generated 41% of PowerSecure's 2013 revenue. During the class period, Florida Power & Light ("FP&L") was the largest electric utility in Florida and had a three-year contract with PowerSecure for the West Palm Beach area that was soon to expire. FP&L's contract accounted for approximately 10% of PowerSecure's UI revenue and about 4.1% of its total revenue.

         PowerSecure issued a press release on June 6, 2013, announcing that it had "added approximately $75 million to its revenue backlog, including approximately $49 million from a renewed and expanded three year utility infrastructure (UI) award to serve one of the nation's largest investor owned utilities (IOUs)." J.A. 412. On August 7, 2013, Hinton stated during a conference call and live webcast for securities analysts and investors that PowerSecure was "blessed to announce securing a $49 million three-year contract renewal, both the renewal and expansion with one of the largest investor [owned] utilities in the country." J.A. 412. Investment analysts reacted positively to the announcement, and the next day PowerSecure's common stock rose more than 10% to close at $17.71 per share.

         On August 16, 2013, PowerSecure sold 2.3 million shares at $16 per share, and Hinton sold 200, 000 shares from his personal holdings at the same price. Hinton also transferred to his wife approximately $2.5 million of his PowerSecure stock in December 2013 and February 2014 as part of a divorce settlement.

         On May 7, 2014, PowerSecure surprised the market by reporting a first quarter loss of almost $4.3 million as its cost of sales increased 34% and operating expenses grew by 39%. Hinton stated on a conference call with analysts that same day that FP&L had "changed the geographies we were serving" from West Palm Beach to Ft. Myers and that "we probably underestimated the negativity [and] the complexity of basically starting from scratch in a new territory." J.A. 417-18. Since it was not feasible for PowerSecure's employees in West Palm Beach to commute 125 miles to Ft. Myers to fulfill the new contract, they left the company to work for other contractors. Consequently, PowerSecure had to hire and train new workers in Ft. Myers at significant expense. Although the new contract offered ...


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