SUMMARY ORDER
Plaintiff-Appellant the Teachers’ Retirement System of Oklahoma (“Teachers”) appeals from the May 8, 2020 judgment of the district court (Cote, J.) in favor of Defendants-Appellees the General Electric Company and eight of its officers (together, “GE”), dismissing Teachers’ claims under Section 10(b) and 20(a) of the Securities and Exchange Act of 1934 under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim. On appeal, Teachers challenges the district courts ruling with regard to its Second Amended Complaint (“SAC”) that the challenged statements did not constitute material misrepresentations in violation of the securities laws, but rather were mere puffery or otherwise not actionable under Section 10(b). Teachers also challenges the district courts decision to dismiss its related claim based on Item 303 of Regulation S-K. We assume the parties’ familiarity with the underlying facts, procedural history, and arguments on appeal, to which we refer only as necessary to explain our decision to affirm.
We review de novo a district courts decision to dismiss a complaint under Fed. R. Civ. P. 12(b)(6), “accepting all factual allegations as true and drawing all reasonable inferences in the plaintiffs favor.” CBF Indústria de Gusa S/A v. AMCI Holdings, Inc., 850 F.3d 58, 77 (2d Cir. 2017); see Stratte-McClure v. Morgan Stanley, 776 F.3d 94, 99-100 (2d Cir. 2015).
To state a claim for securities fraud under Section 10(b) and Rule 10b-5, a plaintiff “must establish that the defendant, in connection with the purchase or sale of securities, made a materially false statement or omitted a material fact, with scienter, and that the plaintiffs reliance on the defendants action caused injury to the plaintiff.” ECA, Local 134 IBEW Joint Pension Tr. of Chi. v. JP Morgan Chase Co., 553 F.3d 187, 197 (2d Cir. 2009) (“ECA”). “An alleged misrepresentation is material if there is a substantial likelihood that a reasonable person would consider it important in deciding whether to buy or sell shares of stock.” Singh v. Cigna Corp., 918 F.3d 57, 63 (2d Cir. 2019); see also Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27, 38, 131 S.Ct. 1309, 179 L.Ed.2d 398 (2011) (a misstated or omitted fact is material if it “would have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information made available”).
A statement can be misleading by virtue of its omissions viewed in context of the statement as a whole. See In re Vivendi, S.A. Securities Litigation, 838 F.3d 223, 239 (2d Cir. 2016). “Even when there is no existing independent duty to disclose information, once a company speaks on an issue or topic, there is a duty to tell the whole truth.” Meyer v. Jinkosolar Holdings Co., 761 F.3d 245, 250 (2d Cir. 2014). An omission in the absence of an affirmative statement, however, “is actionable ․ only when the corporation is subject to a duty to disclose the omitted facts.” In re Vivendi, 838 F.3d at 239.
Item 303 of Regulation S-K imposes an affirmative duty to disclose certain information, and failure to comply with Item 303 “can serve as the basis for a securities fraud claim under Section 10(b).” Stratte-McClure, 776 F.3d at 101. Item 303 requires the registrant (here, GE) to “[d]escribe any known trends or uncertainties that have had or that the registrant reasonably expects will have a material favorable or unfavorable impact on net sales or revenues or income from continuing operations.” 17 C.F.R. § 229.303(a)(3)(ii). Because “issuing financial statements that omit elements required by Item 303 can mislead investors,” an omission that violates Item 303 can be a material omission under Rule 10b-5. Stratte-McClure, 776 F.3d at 104. A violation of Item 303 does not automatically give rise to liability, however. To withstand a Rule 12(b)(6) motion to dismiss, a plaintiff must also sufficiently plead the other elements of such a claim: reliance, scienter, and injury. Id. at 103.
On appeal, Teachers challenges the district courts decision with respect to eight specific public statements made by GE in 2017 and 2018 about its new HA turbine. Teachers contends that these statements were materially misleading because they touted the HA turbines performance while omitting material information about a blade defect, including the impact the defect would have on GEs revenue and profit. Teachers similarly argues that Item 303 obligated GE to disclose the defect and yet GE failed to do so.
The district court determined that the challenged statements were either too general to constitute a representation that an investor would reasonably rely on, or they were not actionable because they were statements of opinion. Many of the statements identified could rightly be categorized as non-actionable “puffery.” See ECA, 553 F.3d at 206. Our recent decision Abramson v. Newlink Genetics Corp., 965 F.3d 165 (2d Cir. 2020), however, which we issued after the district court rendered its decision in this case, recognized that the hard line between a statement of fact and one of opinion, which we relied on more heavily in the past, has been softened in recent years in the wake of the Supreme Courts ruling in Omnicare, Inc. v. Laborers Dist. Council Const. Indus. Pension Fund, 575 U.S. 175, 135 S.Ct. 1318, 191 L.Ed.2d 253 (2015). Id. at 176 (“Omnicare reduced the significance of district courts’ classification of statements as those of fact or opinion.”). In Abramson, we commented that “when a statement of opinion implies facts or the absence of contrary facts, and the speaker knows or reasonably should know of different material facts that were omitted, liability under Rule 10b-5 may follow.” Id. at 175. We need not determine, however, whether any of the statements alleged here to be misleading crossed the line drawn in Omnicare and Abramson, because Teachers failed adequately to plead scienter in connection with any of the alleged misrepresentations under Rule 10b-5 or the allegedly wrongful omission under Item 303.
To plead scienter sufficiently to survive a motion to dismiss, a complaint must “state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.” Employees’ Ret. Sys. of Govt of the Virgin Islands v. Blanford, 794 F.3d 297, 305 (2d Cir. 2015). A “strong” inference is one that is “more than merely plausible or reasonable—it must be cogent and at least as compelling as any opposing inference of nonfraudulent intent.” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 314, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007); see also S. Cherry St., LLC v. Hennessee Grp. LLC, 573 F.3d 98, 110-11 (2d Cir. 2009). Scienter can be pleaded with adequate particularity through allegations showing either “(1) that defendants had the motive and opportunity to commit fraud, or (2) strong circumstantial evidence of conscious misbehavior or recklessness.” ECA, 553 F.3d at 198.
Teachers alleges scienter under the latter theory only. The SAC alleges that GE made statements praising the HA turbine, even though they knew when making the statements that the turbines suffered from a significant blade defect, that the defect harmed the turbines performance, and that GEs proposed solution to the defect “could not be implemented effectively” and would “have a material financial impact” on GE. Appellants Reply Br. at 20-21. Teachers argues that these allegations adequately support an inference of scienter—that is, recklessness—because they “strongly suggest [GE] sought to use those disclosures to express optimism and underrepresent the extent of those very problems.” Id. at 21 (citing Setzer v. Omega Healthcare Investors, 968 F.3d 204, 216 (2d Cir. 2020)).
We are not persuaded. To adequately plead recklessness under applicable standards, which we discuss below, “a plaintiff must allege conduct which is highly unreasonable and which represents an extreme departure from the standards of ordinary care to the extent that the danger was either known to the defendant or so obvious that the defendant must have been aware of it.” Setzer, 968 F.3d at 213 (citing In re Carter-Wallace, Inc. Sec. Litig., 220 F.3d 36, 39 (2d Cir. 2000)). Recklessness in the security fraud context is more than just “a heightened form of negligence,” but must approximate “actual intent.” Stratte-McClure, 776 F.3d at 106. Here, even assuming that some of GEs statements were misleading,
1
these statements did not amount to a “sufficiently extreme departure from the standards of ordinary care” to support an inference of recklessness. See Setzer, 968 F.3d at 215. The SAC alleges that GEs plan was to “inspect customers H-class turbine blades and add a new protective coating to repair the blades or replace the blades altogether.” J.A. 49. The challenged statements were made in the context of GEs ongoing disclosures about the oxidation problem, the Exelon blade break, and the plan GE had in place to address these issues. See J.A. 152, 154. Thus, the allegations in the SAC are consistent with the more plausible, non-culpable inference that, before the Exelon break, GE had developed what it believed was a workable solution to the oxidation issue—a solution that would not adversely affect the turbines’ performance or GEs finances in a material way, and that GE revised its assessment of the issue and its solution when confronted with the blade failure at the Exelon power plant, and disclosed the financial consequences with reasonable promptness.
2
The inference proposed by Teachers —that GE “engaged in conscious misstatements with the intent to deceive”—is decidedly less plausible from the allegations of the SAC. See Novak v. Kasaks, 216 F.3d 300, 312 (2d Cir. 2000). Teachers has therefore failed to plead allegations that would support the requisite “strong inference” of scienter, Employees’ Ret. Sys. of Govt of the Virgin Islands, 794 F.3d at 305, and the complaint fails under Rule 12(b)(6).
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We have considered Teachers’ remaining arguments and find in them no basis for reversal. For the foregoing reasons, the District Courts judgment is AFFIRMED.
FOOTNOTES
1
. For example, GEs statements on September 20 and 28 that the turbines were “meeting – and in many cases exceeding – their performance goals at every customer site today,” J.A. 151, 154, could be seen as misleading “without the contextualization” of other material facts. See Abramson, 965 F.3d at 174.
2
. Although when reviewing a Rule 12(b)(6) dismissal we ordinarily draw all reasonable inferences in the plaintiffs favor, when we evaluate “whether the plaintiff has alleged facts that give rise to the requisite ‘strong inference’ of scienter, [we] must consider plausible, nonculpable explanations for the defendants conduct, as well as inferences favoring the plaintiff.” Tellabs, Inc., 551 U.S. at 323–24, 127 S.Ct. 2499.