DECISION and ORDER Currently pending before the Court, in this securities action filed by Christina Lewis, individually and on behalf of all others similarly situated, the City of Warwick Retirement Fund, and Peter Szabo (“Plaintiffs”) against YRC Worldwide Inc. (“Defendant YRC”), James L. Welch (“Defendant Welch”), Jamie G. Pierson (“Defendant Pierson”), Stephanie D. Fisher (“Defendant Fisher”), and Darren D. Hawkins (“Defendant Hawkins”) (collectively “Defendants”), is Defendants’ motion to dismiss Plaintiffs’ Amended Complaint for failure to state a claim. (Dkt. No. 81.) For the reasons set forth below, Defendants’ motion is granted. I. RELEVANT BACKGROUND A. Summary of Plaintiff’s Amended Complaint Generally, liberally construed, Plaintiffs’ Amended Complaint alleges that, from March 10, 2014, through December 14, 2018, Defendants repeatedly violated Section 10(b) and 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”) and SEC Rule 10b-5. (See generally Dkt. No. 75 [Plfs.' Amend. Compl.].) In particular, Plaintiffs’ Amended Complaint alleges that Defendant YRC maintained a company-wide re-weigh system that overcharged customers (“Overcharge Scheme”), and thereby reaped approximately $24 million a year for weight/freight it never transported. (Id.) Plaintiff’s Amended Complaint also alleges that Defendants failed to disclose a Department of Justice (“DOJ”) investigation into Defendants’ alleged re-weigh system that was initiated through a qui tam civil complaint, and that Defendants made false and misleading statements about their pricing strategy, internal controls, and compliance with the Generally Accepted Accounting Principles (“GAAP”) and other laws. (Id.) Generally, based on these factual allegations, Plaintiffs’ Amended Complaint asserts the following two claims: (1) a claim that Defendants violated Section 10(b) of the Exchange Act, 15 U.S.C. §78(j)(b), and SEC Rule 10b-5, 17 C.F.R. §240.10b-5, during the class period; and (2) a claim that Defendants violated Section 20(a) of the Exchange Act, 15 U.S.C. §78(t)(a). (Id.) Familiarity with these claims, and the factual allegations supporting them, is assumed in this Decision and Order, which is intended primarily for the review of the parties. (Id.) B. Defendants’ Motion to Dismiss 1. Summary of Defendants’ Arguments in Their Memorandum of Law Generally, in their motion to dismiss, Defendants assert three arguments. (Dkt. No. 81- 24.) First, Defendants argue that Plaintiffs have not stated a claim for a violation of Section 10(b) of the Exchange Act or SEC Rule 10b-5. (Id. at 6-36.) More specifically, Defendants argue that Plaintiffs have not alleged facts plausibly suggesting a material misstatement or omission because, based on the Amended Complaint’s own factual allegations (and the documents incorporated by reference in the Amended Complaint), Defendants made (1) no misstatements about reported financial results, (2) no misstatements about accounting policies, (3) no misstatements about loss contingencies, (4) no misstatements about conformance to GAAP, and (5) no other material misstatements or omissions. (Id. at 8-28.) Second, Defendants argue that Plaintiffs have not alleged facts plausibly suggesting a strong inference of scienter because (1) there are no factual allegations plausibly suggesting conscious misbehavior or recklessness, and (2) Plaintiffs’ allegations of motive to commit fraud are insufficient to plausibly suggest such a strong inference. (Id. at 29-36.) Third, Defendants argue that Plaintiffs have not stated a control-person liability claim under Section 20(b) of the Exchange Act because they have failed to allege facts plausibly suggesting a primary violation of Section 10(b). (Id. at 37.) 2. Summary of Plaintiffs’ Arguments in Their Opposition Generally, in opposition to Defendants’ motion, Plaintiffs assert three arguments. (Dkt. No. 83.) First, Plaintiffs argue that they have stated a claim for a violation of Section 10(b) of the Exchange Act, SEC Rule 10b-5, and Section 20(b) of the Exchange Act by alleging that Defendants provided false and misleading statements and omissions. (Dkt. No. 83.) More specifically, Plaintiffs argue that they have alleged that (1) Defendants’ overcharge scheme occurred during the class period, (2) Defendants had an affirmative duty to disclose the overcharge scheme and DOJ investigation, (3) Defendants made materially false and misleading statements and omissions about their reported financial results, (4) Defendants failed to disclose the DOJ investigation as a loss contingency in violation of GAAP, (5) Defendants understated YRC’s re-rate reserves, (6) Defendants made material misstatements and omissions in YRC’s Sarbanes-Oxley (“SOX”) Certifications, and (7) Defendants made materially false and misleading statements about their conformance to GAAP and compliance with all laws. (Id. at 12-30.) Second, Plaintiffs argue that their Amended Complaint alleges facts plausibly suggesting a strong inference of scienter by alleging that (1) Defendant Welch had actual knowledge of the Overcharge Scheme, (2) all individual Defendants knew of the DOJ investigation, (3) Defendants failed to disclose information they had a clear duty to disclose, (4) Defendants repeatedly made statements about YRC’s re-rating pricing strategy, (5) the facts in question pertained to YRC’s core operations (rendering it apparent that knowledge of them may be attributed to the company and its key officers), (6) Defendants had the motive and opportunity required for scienter, and (7) at the very least, someone whose intent could be imputed to the corporation acted with the requisite scienter. (Id. at 31-39.) Third, Plaintiffs argue that the Amended Complaint states a control-person liability claim under Section 20(b) of the Exchange Act because it has sufficiently alleged a violation of Section 10(b) of the Exchange Act and SEC Rule 10b-5. (Id. at 40.) 3. Summary of Defendants’ Arguments in Their Reply Generally, in reply to Plaintiffs’ opposition, Defendants repeat their argument that the Amended Complaint has not alleged facts plausibly suggesting a material misrepresentation. (Dkt. No. 84.) Specifically, Defendants argue that there was (1) no duty to disclose the alleged “overcharge scheme” or DOJ investigation, (2) no misrepresentation about pricing or reported financial results, (3) no GAAP violations from non-disclosure of the DOJ investigation, (4) no misstatements about YRC’s re-rate reserves, (5) no misstatements in YRC’s SOX Certifications, and (6) no misstatements about conformance to GAAP or compliance with laws. (Id. at 18-25.) In addition, Defendants argue that Plaintiffs have not pled a strong inference of scienter because there is (1) no factual allegation plausibly suggesting conscious misbehavior or recklessness, (2) no scienter from the knowledge of the DOJ investigation, (3) no scienter from the alleged disclosure duties, (4) no scienter under the “core operations” theory, (5) no scienter from the SEC filings or SOX certifications, and (6) no scienter based on motive or opportunity. (Id. at 2-14). Finally, Defendants argue that Plaintiffs have not alleged facts plausibly suggesting that any misconduct occurred during the class period. (Id. at 15.) 4. Subsequent Letter-Briefs After the completion of briefing on their motion, Defendants submitted a letter-brief directing the Court’s attention to a Second Circuit decision published on December 10, 2019: Gamm v. Sanderson Farms, Inc, 944 F.3d 455 (2d Cir. 2019). (Dkt No. 87.) Defendants argue that, pursuant to this decision, Plaintiffs have failed to plead facts of the alleged underlying illegal activity with sufficient particularity under Fed. R. Civ. P. 9(b) and the PSLRA. (Id.) In response, Plaintiffs argue that Gamm is inapposite because their Amended Complaint is based on information provided by several confidential informants, and the alleged underlying illegal activities were pleaded with sufficient particularity. (Dkt. No. 88.) II. GOVERNING LEGAL STANDARDS A. General Legal Standard Governing Dismissal for Failure to State a Claim It has long been understood that a dismissal for failure to state a claim upon which relief can be granted, pursuant to Fed. R. Civ. P. 12(b)(6), can be based on one or both of two grounds: (1) a challenge to the “sufficiency of the pleading” under Fed. R. Civ. P. 8(a)(2); or (2) a challenge to the legal cognizability of the claim. Jackson v. Onondaga Cnty., 549 F. Supp.2d 204, 211 nn. 15-16 (N.D.N.Y. 2008) (McAvoy, J.) (adopting Report-Recommendation on de novo review). Because such dismissals are often based on the first ground, some elaboration regarding that ground is appropriate. Rule 8(a)(2) of the Federal Rules of Civil Procedure requires that a pleading contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2) [emphasis added]. In the Court’s view, this tension between permitting a “short and plain statement” and requiring that the statement “show[]” an entitlement to relief is often at the heart of misunderstandings that occur regarding the pleading standard established by Fed. R. Civ. P. 8(a)(2). On the one hand, the Supreme Court has long characterized the “short and plain” pleading standard under Fed. R. Civ. P. 8(a)(2) as “simplified” and “liberal.” Jackson, 549 F. Supp.2d at 212 n.20 (citing Supreme Court case). On the other hand, the Supreme Court has held that, by requiring the above-described “showing,” the pleading standard under Fed. R. Civ. P. 8(a)(2) requires that the pleading contain a statement that “give[s] the defendant fair notice of what the plaintiff’s claim is and the grounds upon which it rests.” Jackson, 549 F. Supp. 2d at 212 n.17 (citing Supreme Court cases) (emphasis added). The Supreme Court has explained that such fair notice has the important purpose of “enabl[ing] the adverse party to answer and prepare for trial” and “facilitat[ing] a proper decision on the merits” by the court. Jackson, 549 F. Supp. 2d at 212 n.18 (citing Supreme Court cases); Rusyniak v. Gensini, 629 F. Supp. 2d 203, 213 & n.32 (N.D.N.Y. 2009) (Suddaby, J.) (citing Second Circuit cases). For this reason, as one commentator has correctly observed, the “liberal” notice pleading standard “has its limits.” 2 Moore’s Federal Practice §12.34[1][b] at 12-61 (3d ed. 2003). For example, numerous Supreme Court and Second Circuit decisions exist holding that a pleading has failed to meet the “liberal” notice pleading standard. Rusyniak, 629 F. Supp. 2d at 213 n.22 (citing Supreme Court and Second Circuit cases); see also Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949-52 (2009). Most notably, in Bell Atlantic Corp. v. Twombly, the Supreme Court reversed an appellate decision holding that a complaint had stated an actionable antitrust claim under 15 U.S.C. §1. Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955 (2007). In doing so, the Court “retire[d]” the famous statement by the Court in Conley v. Gibson, 355 U.S. 41, 45-46 (1957), that “ a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.” Twombly, 127 S. Ct. at 1968-69. Rather than turn on the conceivability of an actionable claim, the Court clarified, the “fair notice” standard turns on the plausibility of an actionable claim. Id. at 1965-74. The Court explained that, while this does not mean that a pleading need “set out in detail the facts upon which [the claim is based],” it does mean that the pleading must contain at least “some factual allegation[s].” Id. at 1965. More specifically, the “[f]actual allegations must be enough to raise a right to relief above the speculative level [to a plausible level],” assuming (of course) that all the allegations in the complaint are true. Id. As for the nature of what is “plausible,” the Supreme Court explained that “[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.” Iqbal, 129 S. Ct. at 1949. “[D]etermining whether a complaint states a plausible claim for relief…[is] a contextspecific task that requires the reviewing court to draw on its judicial experience and common sense…. [W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged — but it has not show[n] — that the pleader is entitled to relief.” Iqbal, 129 S. Ct. at 1950 (internal quotation marks and citations omitted). However, while the plausibility standard “asks for more than a sheer possibility that a defendant has acted unlawfully,” id., it “does not impose a probability requirement.” Twombly, 550 U.S. at 556. Because of this requirement of factual allegations plausibly suggesting an entitlement to relief, “the tenet that a court must accept as true all of the allegations contained in the complaint is inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of action, supported by merely conclusory statements, do not suffice.” Iqbal, 129 S. Ct. at 1949. Similarly, a pleading that only “tenders naked assertions devoid of further factual enhancement” will not suffice. Iqbal, 129 S. Ct. at 1949 (internal citations and alterations omitted). Rule 8 “demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation.” Id. (citations omitted). Finally, a few words are appropriate regarding what documents are considered when a dismissal for failure to state a claim is contemplated. Generally, when contemplating a dismissal pursuant to Fed. R. Civ. P. 12(b)(6) or Fed. R. Civ. P. 12(c), the following matters outside the four corners of the complaint may be considered without triggering the standard governing a motion for summary judgment: (1) documents attached as an exhibit to the complaint or answer, (2) documents incorporated by reference in the complaint (and provided by the parties), (3) documents that, although not incorporated by reference, are “integral” to the complaint, or (4) any matter of which the court can take judicial notice for the factual background of the case.1 B. Legal Standard Governing Dismissal of Claims for Securities Fraud Claims for securities fraud are subject to the heightened pleading standards of Fed. R. Civ. P. 9(b) and the Private Securities Litigation Reform Act (“PSLRA”). Menaldi v. Och-Ziff Capital Mgmt. Grp. LLC, 277 F. Supp. 3d 500, 509 (S.D.N.Y. 2017) (“Menaldii II”). “Under the PSLRA, securities fraud complainants must: ‘(1) ‘specify each statement alleged to have been misleading and the reason or reasons why the statement is misleading,’ 15 U.S.C. §78u-4(b)(1); and (2) ‘state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind,’ §78u-4(b)(2).” Menaldi II, 277 F. Supp. 3d at 509 (quoting Tellabs, Inc. v. Makor Issues & Rights Ltd., 551 U.S. 308, 321 [2007]). “15 U.S.C. [Section] 78u-4(b)(1) requires that a securities fraud claim based on information and belief ‘must state with particularity all facts on which that belief is formed.’” Gamm, 944 F.3d at 463 (emphasis in original). “Rule 9(b) ‘imposes a comparable requirement’ on securities fraud plaintiffs.” Menaldi v. Och-Ziff Capital Mgmt Grp. LLC, 164 F. Supp. 3d 568 (S.D.N.Y. 2016) (“Menaldi I”) (citing In re BioScrip, Inc. Sec. Litig., 95 F. Supp. 3d 711, 725 [S.D.N.Y. 2015] [citing Fed. R. Civ. P. 9(b)] ["In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake."]). Where “‘proof that the defendant acted with a particular state of mind’ is at issue, the PSLRA requires that ‘the complaint shall, 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.’” Gamm, 944 F.3d at 462 (citing 15 U.S.C. §78u-4[b][2]); City of Pontiac Policemen’s and Firemen’s Ret. Sys. v. UBS AG, 752 F.3d 173, 184 (2d Cir. 2014) (“UBS”). A plaintiff’s complaint “must allege with particularity facts that give a ‘strong inference’ that [the defendant] acted consciously and recklessly in omitting or misrepresenting financial information.” Ind. Public Ret. Sys. v. SAIC, Inc., 818 F.3d 85, 93 (2d Cir. 2016) (“SAIC”) (citing ECA, Local 134 IBEW Joint Pension Tr. Of Chi. v. JP Morgan Chase Co., 553 F.3d 187, 198 [2d Cir. 2009] ["JP Morgan"]). The Second Circuit also requires a securities fraud complaint to “(1) specify the statement that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent.” Gamm, 944 F.3d at 462-63 (quoting Mills v. Polar Molecular Corp., 12 F.3d 1170, 1175 [2d Cir. 1993]). C. Legal Standard Governing Claims Brought Pursuant to Section 10(b) of the Exchange Act and SEC Rule 10b-5 Section 10(b) of the Exchange act “forbids (1) the ‘use or employ[ment]…of any…deceptive device,’ (2) ‘in connection with the purchase or sale of any security,’ and (3) ‘in contravention of’ Securities and Exchange Commission ‘rules and regulations.’” Dura Pharm., Inc. v. Broudo, 544 U.S. 336, 341 (2005) (quoting 15 U.S.C. §78j[b]). “Commission Rule 10b-5 forbids, among other things, the making of any ‘untrue statement of a material fact’ or the omission of any material fact ‘necessary in order to make the statements made…not misleading.’” Dura Pharm., 544 U.S. at 341. “To succeed on a claim under Section 10(b) of the Exchange Act and Rule 10b-5, ‘a plaintiff must allege that [each] defendant (1) made misstatements or omissions of material fact, (2) with scienter, (3) in connection with the purchase or sale of securities, (4) upon which the plaintiff relied, and (5) that the plaintiff’s reliance was the proximate cause of its injury.’” SAIC, 818 F.3d at 93 (quoting ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 105 [2d Cir. 2007]); Stratt-McClure v. Morgan Stanley, 776 F.3d 94, 100 (2d Cir. 2015) (“Morgan Stanley”). D. Legal Standard Governing Claims Brought Pursuant to Section 20(a) of the Exchange Act “To allege control person liability [under Section 20(a) of the Exchange Act], plaintiffs must adequately plead a ‘primary violation’ of the securities laws.” Menaldi I, 164 F. Supp. 3d at 586-87 (citing Wilson v. Merril Lynch & Co., Inc., 671 F.3d 120, 139 [2d Cir. 2011]). “To establish a prima facie case of control person liability, a plaintiff must show (1) a primary violation by the controlled person, (2) control of the primary violator by the defendant, and (3) that the defendant was, in some meaningful sense, a culpable participant in the controlled person’s fraud.” ATSI Commc’ns, 493 F.3d at 108; Menaldi I, 164 F. Supp. 3d at 586. E. Legal Standard Governing Qui Tam Actions The False Claims Act (“FCA”) permits a private party to sue on behalf of the United States Government “to remedy an injury in fact suffered by the United States.” U.S. ex rel. Wood, v. Allergan, Inc., 899 F.3d 163, 166 (2d Cir. 2018) (quoting Vt. Agency of Nat. Res. v. U.S. ex rel. Stevens, 529 U.S. 765, 771 [2000]). The Government may dismiss or settle the action notwithstanding the objections of the person initiating the action, if the person has been notified by the government and is provided the opportunity to be heard. 31 U.S.C. §3730(c)(2). “The Government may intervene in any qui tam action, taking over from the relator[.]” U.S. ex rel. Wood, 899 F.3d at 166. The “ Government, may, for good cause shown, move the court for extensions of the time during which the complaint remains under seal.” 31 U.S.C. §3730(b)(3). “Under seal” is defined as “legally protected as secret.” Under Seal, Black’s Law Dictionary (10th ed 2014). “The seal provision was enacted in the 1980′s as part of a set of reforms that were meant to ‘encourage more private enforcement suits.’” State Farm Fire and Cas. Co. v. U.S. ex rel. Rigsby, 137 S. Ct. 436, 443 (2016) (quoting S. Rep. No. 99-345, p. 23-24 [1986]). “For purposes of [Section] 3730(b)(5), the phrase, ‘brings an action,’ and the term, ‘pending,’ have their ordinary meaning.” U.S. ex rel. Hanks v. U.S. Oncology Specialty, LLP, 36 F. Supp. 3d 90, 114 (E.D.N.Y. 2018) (quoting U.S. ex rel. Wood, 899 F.3d at 172). “The term ‘pending’ means ‘[r]emaining undecided; awaiting decision.’” U.S. ex rel. Hanks, 336 F. Supp. 3d at 114-15 (quoting Kellogg Brown & Root Servs. Inc., v. U.S. ex rel Carter, 135 S. Ct. 1970, 1978 [2015] [quoting Pending, Black's Law Dictionary (10th ed. 2014)]). III. ANALYSIS The Court will begin its analysis by analyzing Plaintiffs’ claims brought pursuant to Section 10(b) of the Exchange Act and SEC Rule 10b-5 because, as explained above in Part II.D. of this Decision and Order, they must adequately plead a “primary violation” of the securities laws in order to establish a prima facie claim of control-person liability. A. Whether Plaintiffs Have Stated a Claim Under Section 10(b) of the Exchange Act and SEC Rule 10b-5 After carefully considering the matter, the Court generally answers this question in the negative for the reasons stated in Defendants’ memoranda of law. (Dkt. No. 81-24; Dkt. No. 84.) To those reasons, the Court adds the following, which is intended to supplement (and not to supplant) those reasons. Because neither party contests the other three elements of securities fraud, the Court will focus its analysis on whether Defendants made misstatements or omissions of material fact, and whether Defendants made these alleged misstatements or omissions with scienter. 1. Whether Plaintiffs Have Sufficiently Alleged a Company-Wide Scheme During the Class Period As a threshold matter, Defendants argue that Plaintiffs have failed to alleged particularized facts plausibly suggesting a company-wide overcharge scheme occurred during the purported class period. (Dkt. No. 81-24, at 18-20.) To support their allegation that the overcharge scheme occurred during the class period, Plaintiffs rely on the statements of six confidential witnesses (“CW”). (Dkt. No. 75, at
130- 68.) However, three of the six witnesses did not work at Defendant YRC during the purported class period.2 (Dkt. No. 75, at
