Eaton Corp. Seeks Dismissal of Class Action Suit

In 2012, Eaton merged with Cooper Industries and formed a new parent company domiciled in Ireland. Research analysts speculated that Eaton might also sell its automotive business. Eaton repeatedly stated that it would not. For example, on June 12, 2013, Eaton issued a press release stating unequivocally: "We are not, and have not been, in the process of discussions to sell our automotive business." (Ex. 5 (emphasis added).) Eaton never sold this business, and owns it to this day.

Plaintiffs contend that Eaton should nevertheless have disclosed that the U.S. tax laws prevented Eaton from divesting any business unit in a tax-free manner for five years after the Cooper transaction, making the disposition of its automotive business "economically prohibitive." This theory states no claim.

First, because the CCAC was filed after the applicable two-year statute of limitations expired, its attempt to more than triple the length of the alleged class period from eight months to 26 months is time-barred. Rule 15(c)(1)(C) permits the "relation back" of amendments to earlier, timely pleadings only "for a mistake," which is not and cannot be pled here.

Second, the CCAC (regardless of its class period) states no claim because it establishes no actionable omission or misstatement. The hypothetical tax consequences of a hypothetical transaction that never happened are both immaterial as a matter of law and subject to no disclosure duty. That third parties rumor-mongered about a potential divestiture is irrelevant and cannot create a new legal requirement for a company to rebut speculation by others. Sufficient information was also publicly available for investors to consider such hypothetical tax consequences for themselves, further undermining any disclosure duty. In any event, plaintiffs also fail to plead facts establishing that such a transaction would have been "economically prohibitive."

Third, the CCAC does not come close to establishing the requisite "strong inference" of fraudulent intent (or "scienter"). Plaintiffs rely almost exclusively on sales of Eaton stock by Messrs. Cutler and Fearon, but plaintiffs do not, as they must, establish anything "unusual or suspicious" about the class period sales -- nor could they. Each individual sold similar amounts of stock before or after the class period, which (along with numerous other reasons) wholly undermines any potential inference of scienter.

Plaintiffs do not come close to stating a claim. The CCAC should be dismissed.

Eaton is a diversified power management company that makes energy-efficient products "in the industrial, agricultural, construction, aerospace, and vehicle markets." (¶¶ 2, 23.) Mr. Cutler was Eaton's CEO from August 2000 until his retirement in May 2016. (¶ 24.) Mr. Fearon is Eaton's CFO. (¶ 25.) Both are defendants.

B. The Cooper Transaction

On May 21, 2012, Eaton announced an agreement to merge with Cooper Industries plc, an Irish company. As part of the transaction, a new Irish company was created and acquired both Eaton and Cooper. (See ¶¶ 23, 44.) The transaction closed on November 30, 2012. (¶ 45.)

C. Analysts Speculate about a Hypothetical Sale or Spin-Off, Which Eaton Repeatedly Denies -- and Has Never Done

After the Cooper transaction was announced, analysts speculated about a "potential, future spin-off or other divestiture of Eaton's vehicle businesses." (¶ 56.) Eaton repeatedly denied this speculation, making clear that it was not contemplating a disposition, often in statements that the CCAC fails to describe in whole or in part.

For example, on May 21, 2012, the date the Cooper transaction was announced, an analyst asked Mr. Cutler if "[we] should . . . expect more portfolio evolution over time?" (e.g., whether certain business units would be sold). (¶ 58.) The CCAC quotes part of Mr. Cutler's response, in which he said that it was "not in our active planning any substantial, additional change in the portfolio as a result of this transaction." (Id.) However, the CCAC omits the rest of his answer, in which he explained: "We have continued and will continue to grow our 2 vehicle businesses, primarily through internal investment. So that was really the point of that amplification. It was really consisten[t] with our historical business." (Ex. 2, at 11 (emphasis added).)² On that same call, Mr. Cutler stated unequivocally: "We have no such plans" to sell any business. (Id. at 12; see ¶ 59 (emphasis added).) Mr. Cutler also explained that Eaton "does not anticipate material changes in the portfolio" of businesses. (Ex. 2, at 12.) All of this, too, is omitted from the CCAC.

Analyst speculation followed by Eaton's denials continued (as does the CCAC's omissions and selective quotations of those denials). On November 13, 2012, when Mr. Cutler was asked at an industry conference about "the ability to divest businesses," the CCAC quotes part of his response: "nothing structural in our deal structure or any of our covenants that, it prevents us from making changes in our portfolio." (¶ 89.) But it omits the rest of that sentence, which explained:

On June 10, 2013, Bloomberg published an article entitled "Eaton Said to Consider Sale of Auto-Parts Business." (¶ 99.) That article is quoted in the CCAC. (Id.) What is not quoted in the CCAC -- despite plaintiffs' "review and analysis" of "press releases" in bringing this case (CCAC at 1) -- is the press release that Eaton issued two days later, on June 12, 2013, making another unequivocal denial. The press release states:

• "We are not, and have not been, in the process of discussions to sell our automotive business."

• "There was no basis for published reports involving speculation on the sale of Eaton's automotive business."

• Mr. Cutler is quoted as saying "I've answered this question repeatedly since we did the acquisition of Cooper" and "[o]ur vehicle business is a very important part of Eaton. It is a very strong franchise" and "an important part of our company, and a very strong profit-producing portion of our company."

At a November 13, 2013 conference, in response to questioning, Mr. Fearon noted that no business at Eaton is a "sacred cow" and that if "we believe a business is better owned by somebody else we will not be afraid to act on that." (¶ 103.) The CCAC quotes some of these words, but again omits the rest of the answer, which explains why Eaton was not looking to sell the automotive business:

D. Eaton Identifies the Hypothetical Tax Consequences of the Transaction It Had Said It Would Not Do -- and Never Has Done

On a July 29, 2014, during Eaton's second quarter 2014 earnings call, Mr. Cutler again sought to put the issue to rest. He explained (again) that Eaton had no plan or desire to sell its automotive business and that tax implications made it more costly:

E. This Lawsuit

No lawsuit concerning these issues was filed for nearly two years. The first complaint was filed on July 22, 2016. (Dkt. No. 1.) It asserted an eight-month class period of November 13, 2013 through July 28, 2014. (Id. ¶ 1.) On November 4, 2016, before a lead plaintiff was appointed, an "Amended Complaint" alleged a 26-month class period of May 21, 2012 through July 28, 2014. (Dkt. No. 33 ¶ 1.) Defendants had no obligation to, and did not, respond to that pleading. On January 13, 2017, after the appointment of a lead plaintiff, the CCAC was filed. Like the Amended Complaint, the CCAC alleges an expanded class period of May 21, 2012 through July 28, 2014. (¶ 1.)

A securities fraud claim is "timely if filed no more than two years after plaintiffs 'discover[ed] the facts constituting the violation.'" Merck & Co. v. Reynolds, 559 U.S. 633, 637 (2010) (quoting 28 U.S.C. § 1658(b)(1)). Here, the CCAC alleges that the "fraud" was "finally disclosed" on July 29, 2014. (¶ 107.) The two-year statute of limitations therefore expired on July 29, 2016.

The first complaint in this case was filed on July 22, 2016, a week before the limitations period expired. It alleged a class period from November 13, 2013 through July 28, 2014. Plaintiffs' CCAC was filed on January 13, 2017 -- nearly six months after the statute of limitations expired -- and attempts to allege a new class period more than three times as long, from May 21, 2012 through July 28, 2014. (See ¶ 1.) This new class period is time-barred.

Rule 15(c) governs when "[a]n amendment to a pleading relates back to the date of the original pleading." Under Rule 15(c)(1)(C), an amendment that "changes the party or the naming of the party against whom a claim is asserted" relates back only if, inter alia, there was "a mistake concerning the proper party's identity." This requirement applies equally to the naming of new plaintiffs and new defendants. See Dial Corp. v. News Corp., 2016 WL 690895, at *2 (S.D.N.Y. Feb. 9, 2016) ("The Second Circuit has applied Rule 15(c)(1)(C) to both amendments changing defendants and amendments changing plaintiffs."); Dumont v. Litton Loan Servicing, LP, 2014 WL 815244, at *16 (S.D.N.Y. Mar. 3, 2014) ("[T]he Second Circuit has itself applied the mistake requirement to newly added plaintiffs."). In class actions, this means that attempts to add new plaintiffs by expanding a class period after a statute of limitations has expired are subject to Rule 15(c)(1)(C)'s mistake requirement. See Dial, 2016 WL 690895, at *2 ("Rule 15(c)(1)(C)'s 'mistake requirement . . . has even greater persuasive power in the context of a class action."); Wilder v. News Corp., 2015 WL 5853763, at *14-15 (S.D.N.Y. Oct. 7, 2015) (rejecting under Rule15(c)(1)(C) an amended complaint expanding the alleged class period).

Here, because plaintiffs make no attempt to (and cannot) show that the CCAC's expanded class period was not timely pled because of a mistake, that class period is time-barred.³ That was the conclusion in Wilder, a securities class action where, as here, plaintiffs sought to expand the class period after the statute of limitations had expired. See 2015 WL 5853762, at *3, *14. Judge Gardephe held that, because plaintiffs had not shown that their failure to timely plead the expanded class period "was the result of mistake," the new class period was "barred by the statute of limitations." Id. at *16-17. The same result is warranted here. See also Dial, 2016 WL 690895, at *2 (rejecting expanded class period under Rule 15(c)(1)(C)); In re Bennett Funding Grp., Inc. Sec. Lit., 2000 WL 565187, at *2 (S.D.N.Y. May 8, 2000) (same).

Because the CCAC's expanded class period is time-barred, and seven of the eight "misstatements" alleged in the CCAC fall within that expanded class period, those seven statements are inactionable as a matter of law.⁴See Wilder, 2015 WL 5853762, at *2 ("statements that pre-date the class period . . . are not [actionable]"); Lattanzio v. Deloitte & Touche LLP, 476 F.3d 147, 153 (2d Cir. 2007) (quotation omitted) ("A defendant . . . is liable only for . . . statements made during the class period."). The only alleged misstatement that falls within the original class period is "Misstatement No. 8," on November 13, 2013. (¶ 152.) In any event, neither Misstatement No. 8 nor any of the other (time-barred) alleged misstatements supports a claim for the additional reasons below.

B. Plaintiffs Fail to Plead Facts Establishing a Section 10(b) Claim

In addition to pleading fraud with particularity under Rule 9(b), Section 10(b) claims must satisfy the heightened pleading requirements of the PSLRA, including (i) the plaintiff must "specify each statement alleged to have been misleading [and] the reason or reasons why it is misleading," and (ii) "with respect to each [alleged] act or omission . . . 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)(1), (2); see Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 319 (2007). Claims based on "speculation and conclusory allegations" will not suffice. Plumbers & Steamfitters Local 773 Pension Fund v. Canadian Imperial Bank of Commerce, 694 F. Supp. 2d 287, 297 (S.D.N.Y. 2010) (citation omitted). Complaints that fail to meet the PSLRA standards must be dismissed. See 15 U.S.C. § 78u-4(b)(3)(A). The CCAC should be dismissed.

Here, the "indicated probability" of a hypothetical transaction was zero. Eaton repeatedly and accurately denied that a transaction would happen -- and one never did. The theoretical tax consequences of such a purely speculative transaction were immaterial under any application of these principles. This Court reached a similar conclusion in In re Cosi, Inc. Securities Litigation, finding immaterial a company's failure to disclose an "alternate franchising model" when plaintiffs had alleged "only that Cosi had researched the possibility of franchising for two months," but had not alleged that "any affirmative steps had been taken to implement a franchising plan." 379 F. Supp. 2d 580, 587 (S.D.N.Y. 2005) (Koeltl, J.); accord S.E.C v. Wyly, 33 F. Supp. 3d 290, 301-302 (S.D.N.Y. 2014) ("While bright line rules regarding when merger negotiations become material are disfavored, this Circuit's cases establish that something beyond desire to transact is necessary."). Plaintiffs here can allege no affirmative steps at all. This alone is reason to dismiss plaintiffs' claims. See In re Cosi, 379 F. Supp. 2d at 587 (dismissing claims); L.L. Capital Partners, L.P. v. Rockefeller Ctr. Properties, Inc., 921 F. Supp. 1174, 1181(S.D.N.Y. 1996) (dismissing as immaterial the omission of company's desire to restructure a loan or to be acquired because the potential suitor had not "indicated even the slightest interest in either possibility"); Panfil v. ACC Corp., 768 F. Supp. 54, 58 (W.D.N.Y. 1991) (dismissing as immaterial the omission of an "'intention' to pursue a possible merger at some time in the future") aff'd, 952 F.2d 394 (2d Cir. 1991).

As an initial matter, and as this Court has explained, "[f]ederal securities laws are designed to promote the disclosure of facts." Silsby v. Icahn, 17 F. Supp. 3d 348, 361 (S.D.N.Y. 2014) (Koeltl, J.) (emphasis added). Hypothetical tax effects are not facts. See L.L. Capital Ptrs., 921 F. Supp. at 1179-80 (no duty to disclose "opinion[s]," "predictions and speculations" because they are not "material fact[s]"); Silsby, 17 F. Supp. 3d at 362 (no duty to disclose "conclusions drawn" from facts). There was no duty to disclose hypothetical tax effects here for this reason alone.

Moreover, the only reason a potential spin-off transaction was discussed at all is because analysts (not Eaton) were rumor-mongering about that topic. It is well-established, however, that a company "has no duty to correct . . . rumors" not attributable to the company. State Teachers Ret. Bd. v. Fluor Corp., 654 F.2d 843, 850 (2d Cir. 1981); see also In re Symbol Techs. Class Action Litig., 950 F. Supp. 1237, 1244 (E.D.N.Y. 1997) (market rumors do not "create a duty to comment on [the company's] future performance"). Any other construct would permit third-party control over the substance and timing of company disclosures, which is neither sensible nor the law. Eaton simply had no duty to correct third-party speculation about a hypothetical transaction.

Finally, Eaton also had no duty to disclose such hypothetical tax effects because companies are under no duty to disclose "material information . . . readily accessible in the public domain." Bank of Am. AIG Disclosure Sec. Litig., 980 F. Supp. 2d 564, 576 (S.D.N.Y. 2013) (Koeltl, J.) (citing In re KeySpan Corp. Sec. Litig., 383 F. Supp. 2d 358, 377 (E.D.N.Y. 2003)); see also In re Progress Energy, Inc. Sec. Litig., 371 F. Supp. 2d 548, 552-53 (S.D.N.Y. 2005) ("It is well-established that the securities laws do not require the disclosure of information that is publicly known."). This includes public laws, including "generally applicable tax provision[s]." Progress Energy, 371 F. Supp. 2d at 553; see also Heliotrope Gen., Inc. v. Ford Motor Co., 189 F.3d 971, 977 (9th Cir. 1999) ("The Tax Code is publicly available information.").

Here, plaintiffs acknowledge that the tax laws governing tax-free spin-off transactions are "26 U.S.C. § 355, related Internal Revenue Service ('IRS') regulations and judicial decisions." (¶ 7 n.2.) All of these are public, and it has long been known that Section 355 has certain "statutory conditions," including "that [the company's] trade or business must not have been acquired within five years in a transaction in which gain or loss was recognized." McLaulin v. C.I.R., 276 F.3d 1269, 1273-74 (11th Cir. 2001); see also 26 U.S.C. §§ 355(b), (d); 26 C.F.R. §§ 1.355-3(b), 1.355-6(b)(2). It was also publicly known that Eaton had been acquired as part of the Cooper transaction. The May 21, 2012 press release announcing that transaction stated that "Eaton and Cooper will be combined under a new company incorporated in Ireland." (Ex. 8, at 1.) The Proxy Statement disclosed on its very first page that "Eaton will merge with Turlock Corporation, a wholly owned subsidiary of New Eaton." (Ex. 9, at 1.)

Accordingly, neither the tax laws nor Eaton's acquisition were secret. While analysis may have been required to understand all of the tax implications of a theoretical spin-off, adequate information was publicly available "from which investors could draw their own conclusions" if they chose to examine the issue. Silsby, 17 F. Supp. 3d at 362 ("The importance of disclosed facts, and any 'characterizations of or conclusions drawn from those facts[,] are matters that are left to the judgment of investors.'") (quotation omitted). Eaton had no duty to disclose hypothetical tax consequences for this additional reason. See id. (dismissing claim where investors could assess known issue for themselves); Heliotrope, 189 F.3d at 976-77 (dismissing claim based on alleged failure to disclose the applicability of certain tax laws).

Plaintiffs' case hinges on the notion that Eaton's spin-off of a business unit was "not possible" because of "economically prohibitive tax consequences" of the Cooper transaction. (See, e.g., ¶ 10.) It is the basis for alleging that all eight of the alleged "misstatements" are false (see ¶¶ 131, 133, 135, 137, 140, 144, 147, 150, 153), and the CCAC uses the phrase "economically prohibitive" (or a minor variation of it) in no fewer than 33 paragraphs. (See ¶¶ 10, 11, 12, 14, 58-59, 67, 69-70, 80, 83, 84, 86, 88, 89, 97, 103, 107, 112, 114, 117, 131, 133, 135, 136-37, 140-41, 144, 147, 150, 153 & 197.)

But the CCAC alleges no facts supporting these bare allegations. No facts establish what these hypothetical tax consequences would have been, much less that they would be "prohibitive" to Eaton. Such conclusory allegations do not come close to stating a claim. See, e.g., In re Francesca's Holdings Corp. Sec. Litig., 2015 WL 1600464, at *13 (S.D.N.Y. Mar. 31, 2015) (dismissing allegation that retailer received "margins that 'are not possible in retail'" as too "generic" and "conclusory"); In re Refco Capital Markets, Ltd. Brokerage Customer Sec. Litig., 2007 WL 2694469, at *10 (S.D.N.Y. Sept. 13, 2007) (dismissing for lack of factual support allegation that loans "were uncollectible" because entities "to which the loans were made lacked the financial ability and intention to repay them").

Plaintiffs have pled no actionable misstatement or omission.

C. Plaintiffs Do Not Raise a "Strong Inference" of Scienter

In addition, the CCAC must be dismissed because plaintiffs fail to establish the "strong inference" of scienter that the PSLRA requires as to each defendant. See 15 U.S.C. § 78u-4(b)(2). Scienter, in this context, means "intent to deceive, manipulate or defraud" as to each alleged misstatement. Tellabs, 551 U.S. at 319 (quotation omitted). In the Second Circuit, scienter can be established by facts showing (i) that defendants had the "motive and opportunity" to commit fraud, or (ii) strong circumstantial evidence of "conscious misbehavior or recklessness." ECA, Local 134 IBEW Joint Pension Trust of Chicago v. JP Morgan Chase Co., 553 F.3d 187, 198 (2d Cir. 2009).

To meet this exacting standard, a plaintiff must do more than allege "'facts from which . . . a reasonable person could infer that the defendant acted with the required intent,' for that gauge 'does not capture the stricter demand Congress sought to convey.'" S. Cherry St., LLC v. Hennessee Grp. LLC, 573 F.3d 98, 110-11 (2d Cir. 2009) (emphasis in original)(quoting Tellabs, 551 U.S. at 314). Instead, the Supreme Court has held that the inference of scienter must be "more than merely plausible or reasonable -- it must be cogent and at least as compelling as any opposing inference of nonfraudulent intent." Tellabs, 551 U.S. at 314. Plaintiffs have not pled a "strong" (or any) inference of scienter here.

Mr. Cutler. As the CCAC itself makes clear, Mr. Cutler disposed of almost exactly the same amount of stock in 2013 (before the original class period) as in 2014 (during the original class period and highlighted):

               Mr. Cutler's Shares Sold in 2013 and 2014

        Mr. Cutler's First Quarter Sales By Month (2010 - 2015)

Mr. Fearon. The same is true for Mr. Fearon. According to the CCAC, he sold $4.126 million in stock during the November 13, 2013 to July 28, 2014 original class period and $4.058 million during the year before that. (¶ 157.) There was nothing usual about these sales, either. See, e.g., Sina, 2006 WL 2742048, at *12. The stock sales during the original class period support no inference of scienter.

 

Mr. Cutler's Stock Sales

 

 

 

Plaintiffs plainly establish no motive as to Mr. Cutler based on stock sales. Indeed, the most compelling explanation for Mr. Cutler's sales is that he was planning to (and did) retire in May 2016 under Eaton's mandatory retirement age. (¶ 24; Ex. 40, at 53; Ex. 41, at 55-56; Ex. 42, at 58-59; Ex. 43, at 53; Ex. 44, at 48; Ex. 45, at 63; Ex. 46, at 64 (disclosing mandatory retirement age each year from 2010 through 2016).) City of Taylor Gen. Employees Ret. Sys. v. Magna Int'l Inc., 967 F. Supp. 2d 771, 799 (S.D.N.Y. 2013) (nomotive where stock sales preceded retirement); In re Avon Prods., Inc. Sec. Litig., 2009 WL 848017, at *21 (S.D.N.Y. Feb. 23, 2009) (same).

Plaintiffs fare no better as to Mr. Fearon. He disposed of more stock in the period after the alleged fraud than during it:

 

Mr. Fearon's Stock Sales

 

 

 

Nor is there any allegation that Mr. Cutler or Mr. Fearon sold "at times calculated to maximize personal benefit from the undisclosed insider information." Gildan, 636 F. Supp. 2d at 270. None of the sales occurred near the start or end of the class period. Nearly five months elapsed between Mr. Cutler's last sale and the end of the class period. (¶ 157.) More than eight months elapsed between Mr. Fearon's last sale and the end of the class period. (Id.) Courts have found that similar lapses of time refute any inference of scienter. See N. Collier Fire Control & Rescue Dist. Firefighter Pension Plan & Plymouth Cty. Ret. Ass'n v. MDC Partners, Inc., 2016 WL 5794774, at *19 (S.D.N.Y. Sept. 30, 2016) ("Courts in this District have consistently held that stock sales occurring even a few months before the alleged revelation of the fraud do not raise a strong inference of scienter."); Take-Two Interactive, 551 F. Supp. 2d at 279 (no scienter where stock sales occurred four months before end of class period); In re Bausch & Lomb, Inc. Sec. Litig., 592 F. Supp. 2d 323, 344 (W.D.N.Y. 2008) (quotation and citation omitted) ("[T]he law in this Circuit is clear that . . . stock sales are not indicative of scienter when they are more than two months before the announcement in question.").⁷

Finally, and truly grasping at straws, plaintiffs resort to arguing that Mr. Cutler's pre-class period sales must be suspicious by trying to draw a connection between those sales and issues involving an unrelated litigation. (¶ 164.) Plaintiffs omit that this theory was rejected years ago in the securities litigation concerning those issues, which was dismissed. See Florida Carpenters Reg'l Council Pension Plan v. Eaton Corp., 964 F. Supp. 2d 875,882 (N.D. Ohio 2013), aff'd, 572 F. App'x 356 (6th Cir. 2014) (affirming the dismissal of all claims against Eaton and its executives). In any case, the sales in question were made eight months before issues arose in that case (¶ 164), and thus support no inference of scienter. See Koplyay, 2013 WL 6233908, at *5; Lululemon, 14 F. Supp. 3d at 586 n.24.

As an initial matter, as this Court has recognized, where a claim is based on "omissions, rather than false statements, it is especially important to rigorously apply the standard for pleading intent." Bank of Am., 980 F. Supp. 2d at 586 (citation omitted). Because the omission on which plaintiffs base their case -- the hypothetical tax consequences of a transaction Eaton declared it would not do -- was both immaterial and not subject to a duty to disclose, it cannot form the basis of scienter. See Kalnit v. Eichler, 264 F.3d 131, 144 (2d Cir. 2001) (emphasis in original) (where a "case does not present facts indicating a clear duty to disclose, plaintiff's scienter allegations do not provide strong evidence of conscious misbehavior or recklessness"). There is no conscious misbehavior or recklessness for this reason alone.

In an attempt to conjure up scienter in the absence of facts, plaintiffs rely on a number of generic (and routinely rejected) theories. They contend that "because of their positions of control and authority as senior executives" Messrs. Cutler and Fearon knew of the "adverse tax implications of the merger." (¶ 31; see also ¶¶ 26-32.) It is black-letter law that such allegations of scienter based on mere corporate positions are not sufficient. As an initial matter, "[s]cienter must be separately pled and individually supportable as to each defendant," but here plaintiffs lump them together. C.D.T.S. v. UBS AG, 2013 WL 6576031, at *6 (S.D.N.Y. Dec. 13, 2013). "Courts in this Circuit have long held that accusations founded on nothing more than a defendant's corporate position are entitled to no weight." Plumbers & Steamfitters, 694 F. Supp. 2d at 300 (emphasis added). Any inference of scienter is regularly rejected on this basis. See id. at 303 (dismissing claims for lack of scienter); Goblen v. 51job, Inc., 453 F. Supp. 2d 759, 768 (S.D.N.Y. 2006) (rejecting allegations "that defendants, due to their high-level positions in the Company, had access to" information contrary to public statements).

Plaintiffs also seek to establish scienter by alleging that the Cooper transaction "was a core operation" of Eaton (¶ 170), and that Mr. Cutler and Mr. Fearon were familiar with that transaction and its effects. (See ¶¶ 172-75.) With this allegation, plaintiffs appear to seek to establish scienter by presuming that senior executives know the details of the "core operation" of their businesses. See Cortina v. Anavex Life Scis. Corp., 2016 WL 7480415, at *7 (S.D.N.Y. Dec. 29, 2016) (explaining and rejecting the "core operations doctrine"). But "[w]hether a plaintiff may rely on the core operations doctrine in light of the PSLRA has not been decided by the Court of Appeals for the Second Circuit" and "[t]hose Courts of Appeals that have addressed the question have found that it is no longer viable in most situations." Total Equity Capital LLC v. Flurry, Inc., 2016 WL 3093993, at *5 (S.D.N.Y. June 1, 2016) (quotation omitted). On the rare occasions when it has been applied, it has been where other specific facts established scienter and the "core" operations at issue were business units accounting for nearly all of a company's operations. Id. Plaintiffs make no such allegations here.

Plaintiffs have not, and cannot, raise any inference of scienter.

New York, New York

² The Court may of course consider documents referenced in the complaint, public disclosure documents filed with the SEC, and other documents plaintiffs relied on or knew of in bringing the lawsuit. See Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2002).

³ The Amended Complaint filed on November 4, 2016, does nothing to avoid the statute of limitations bar, as it, too, was filed after the statute of limitations expired. In any event, plaintiffs never suggested that it was intended to correct a mistake under Rule 15(c)(1)(C).

⁴See Misstatement Nos. 1 & 2 (May 21, 2012) (¶¶ 130, 132); Misstatement No. 3 (June 22, 2012) (¶ 135); Misstatement No. 4 (Sept. 14, 2012) (¶¶ 139-40); Misstatement No. 5 (Oct. 31, 2012) (¶ 143); Misstatement No. 6 (Nov. 13, 2012) (¶ 146); Misstatement No. 7 (May 21, 2013) (¶ 149).

⁵ For ease of reference, the term "sales" is used to include exercises of stock options.

⁶ The following charts are derived from the Form 4s filed with the SEC concerning executive stock sales. See Exs. 10-39.

⁷ Plaintiffs also fail to allege any connection between the timing of the sales and the alleged misstatements. The alleged misstatements and Mr. Cutler's sales occurred months apart. See Koplyay v. Cirrus Logic, Inc., 2013 WL 6233908, at *5 (S.D.N.Y. Dec. 2, 2013) (citation and quotation omitted) (emphasis in original) (finding that timing "weighs against a finding of scienter" where the "majority of the sales were neither at the beginning of the Class Period, soon after the allegedly misleading statements, not clustered at its end"); Keyspan, 383 F. Supp. 2d at 385 (the lapse of four to six weeks between the allegedly fraudulent statement and the insider's sales "tends to negate any inference" of scienter); Lululemon, 14 F. Supp. 3d at 586 n.24 (no inference of scienter where "more than twoweeks" passed between alleged misstatement and stock sales).