Case: 1:18-cv-04473 Document #: 68 Filed: 10/16/19 Page 1 of 16 PageID #:1499
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE NORTHERN DISTRICT OF ILLINOIS
`EASTERN DIVISION
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`ASHLEY PIERRELOUIS, individually
`and on behalf of all others similarly situated, )
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`Plaintiff,
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`GOGO, INC., MICHAEL J. SMALL,
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`NORMAN SMAGLEY, BARRY ROWAN,
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`and JOHN WADE,
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`v.
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`Defendants.
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`No. 18 C 4473
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`Judge Jorge L. Alonso
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`MEMORANDUM OPINION AND ORDER
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`Lead plaintiffs, Maria Zingas and Daniel Rogers1 (“plaintiffs”), have filed an Amended
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`Class Action Complaint For Violation of the Federal Securities Laws, asserting violations of
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`sections 10(b) and 20(a) of the Securities Exchange Act and Rule 10b-5 of the Securities Exchange
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`Commission (“SEC”). Defendants, Gogo, Inc. (“Gogo”), Michael J. Small, Norman Smagley,
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`Barry Rowan, and John Wade, move to dismiss the complaint pursuant to Federal Rule of Civil
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`Procedure 12(b)(6) for failure to state a claim under Rule 8, Rule 9(b), and the Private Securities
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`Litigation Reform Act of 1995 (“PSLRA”). For the following reasons, the motion is granted.
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`BACKGROUND
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`Gogo provides in-flight internet connectivity services to customers traveling by airplane.
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`The individual defendants are current and former Gogo executives. This lawsuit centers on
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`defendants’ public statements concerning the performance of Gogo’s new 2Ku system.
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`1 This class action was initially brought by the above-captioned plaintiff, but after class members Zingas
`and Rogers moved for appointment as lead plaintiffs and the other movants withdrew, the Court ultimately
`granted Zingas and Rogers’s motions and appointed them as co-lead plaintiffs. (Oct. 10, 2018 Order, ECF
`No. 41.)
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`Gogo’s service works by integrating hardware and software installed on airplanes with
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`satellite and ground-based networks. To provide internet access, Gogo relies for each flight on
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`one of two systems—the “air to ground” (“ATG”) system or its new 2Ku antenna-and-satellite-
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`based system, first deployed in 2016. The 2Ku system, an upgrade on Gogo’s earlier “Ku-band”
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`satellite system, relies on the Ku open-architecture satellite network, from which Gogo purchases
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`capacity as needed, to deliver in-flight internet connectivity at up to twice the speed of its earlier
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`Ku-band system, as well as significantly faster than the ATG systems. Gogo announced the 2Ku
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`system in 2014 and began marketing it to airlines. By the end of 2016, 2Ku had been installed on
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`94 airplanes. By the end of 2017, it had been installed on approximately 550 airplanes.
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`Each 2Ku system is installed in a ventilated compartment known as the “radar dome” or
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`“radome.” When airport personnel spray the aircraft with de-icing fluid, the fluid may permeate
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`the radomes via the ventilation valves. The 2Ku hardware consists of disc-like antennas stacked
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`on top of one another that rotate in different directions—but when de-icing fluid infiltrates the
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`radomes, the antennas become “sticky” and unable to function due to the glycol in the fluid. (Am.
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`Compl. ¶ 55, ECF No. 55.)
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`In November or December 2017, Delta Airlines, a major partner that accounted for 25% of
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`Gogo’s revenue in 2014, 2015, and 2016, placed calls to Gogo complaining that its 2Ku systems
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`were not working and threatening to shut them down if they were not fixed. Gogo reacted
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`promptly, and its employees worked overtime to address the problem. Gogo first attempted to
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`change the antennas and install a part known as a deflector, a folded piece of rubber surrounding
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`the antennas, to prevent the de-icing fluid from reaching the antennas. The deflectors did not fix
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`the problem. Gogo’s repair crews would often replace the radome entirely, but the repair would
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`not prevent the problem from recurring. (Id. ¶ 59.) Repairs sometimes had to be postponed for
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`weeks because the airline could not afford to take the plane out of service long enough to complete
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`them, and the longer a 2Ku system was down, the greater the potential decrease in Gogo’s average
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`revenue per aircraft (“ARPA”), an important accounting metric that Gogo—and its investors—
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`used to track its financial performance.
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`Between February 27, 2017, and February 22, 2018, defendants made numerous statements
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`to investors and analysts on conference calls, at conferences, and in documents filed with the SEC,
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`in which, plaintiffs allege, defendants omitted to fully disclose that a defect in the 2Ku system or
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`its installation was inhibiting its performance or concealed the defect’s seriousness. In these
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`statements, defendants described the company’s outlook in optimistic terms, and they described
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`any stagnation of ARPA as a short-term problem caused by “dilution” due to new installations,
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`apparently because, when a Gogo system is first installed in a new aircraft, it takes time for the
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`passengers who travel in that aircraft to adopt the habit of purchasing Gogo’s internet services.
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`Plaintiffs contend that defendants’ omissions made these statements materially misleading.
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`In particular, in many of their allegedly misleading statements to investors and analysts,
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`certain of the defendants summarized the advantages of the 2Ku system as “characterized by three
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`numbers: 15, 98, 98. This means 15-plus megabits per second speed to connect the passengers;
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`98% coverage of global flight hours and 98% service availability.” (See, e.g., id. ¶ 82.) Defendants
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`allegedly suggested that Gogo’s 2Ku systems were already achieving that level of performance,
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`when, in reality, according to plaintiffs, the de-icing fluid infiltration problem was negatively
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`affecting the systems’ performance and requiring costly repairs.
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`On February 22, 2018, in announcing Gogo’s 2017 fourth quarter and year-end results,
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`defendants acknowledged the de-icing fluid infiltration issue. During a conference call, Wade
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`acknowledged that there had been “growing pains,” and on “some aircraft [Gogo] saw degraded
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`reliability,” but also stated that they had “identified the root cause of all of these issues, and have
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`fixes for all of them that have either been deployed or [are] in the process of being deployed.” (Id.
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`¶ 122.) When an analyst asked for more detail, Wade replied that the “reliability issues” were
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`“actually really caused by the de-icing fluid, which was able to penetrate under some of the
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`[radome], which caused the antennas to temporarily get sticky, if you will. The fix to that was
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`very easy to do, and we’ve deployed that on a number of aircraft and we’re not seeing any further
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`issues around that at this time.” (Id. ¶ 124.) According to plaintiffs, this explanation failed to
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`convey how costly the 2Ku repairs were and how likely they were to affect earnings figures in
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`subsequent reporting periods.
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`Plaintiffs allege that it was only on May 4, 2018, that Gogo’s new CEO, Oakleigh Thorne,
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`disclosed the full truth about the 2Ku defect and the associated installation and repair issues. In a
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`conference call, Thorne revealed that Gogo’s 2018 first-quarter earnings were poor because of the
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`“de-icing fluid impact on 2Ku,” which caused the airlines to “h[o]ld back on marketing the
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`product” and Gogo to “ramp[] up spending to fix reliability” as soon as possible. (Id. ¶ 62.) Thorne
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`acknowledged that Gogo had previously set forth its “goal” of “98% system availability, 98%
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`flight route coverage and 15 megabits per second speeds,” but the company had “slipped on the
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`98% system availability with [its] de-icing problems.” (Id.) The winter weather and the
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`accompanying de-icing stops had caused availability to “plunge[] down to the mid 80s.” (Id.)
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`However, according to Thorne, the company had conducted a “thorough analysis of root causes”
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`and fixed certain software and manufacturing issues that had contributed to the de-icing problem,
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`and it was already back up to 96% availability. In the second half of the year, Thorne reported,
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`the company planned to “roll out a set of 2Ku modifications that will keep de-icing fluid out of the
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`[antenna] raceways and get us back to our target of 98% system availability.” (Id.)
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`Based on Thorne’s May 4, 2018 revelations, Gogo’s shares fell $1.73 per share to close at
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`$7.86 on May 7, 2018 (a drop of over 18%). The same day, after the market closed, Moody’s
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`downgraded Gogo’s credit rating, and the share price fell an additional $2.80 per share to close at
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`$5.06. Plaintiffs allege that defendants’ omission to fully disclose the defect in the 2Ku system
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`before May 4, 2018, had inflated Gogo’s share price, and the news of the full extent of the de-icing
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`fluid issue caused the share price to fall, to the detriment of plaintiffs and other investors, and in
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`violation of the Securities Exchange Act and Rule 10b-5 of the SEC. Additionally, plaintiff claims
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`that the individual defendants are liable as “controlling persons” of Gogo under § 20(a) of the
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`Securities Exchange Act, 15 U.S.C. § 78t. Defendants have moved to dismiss for failure to state a
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`claim under Federal Rule of Procedure 12(b)(6).
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`ANALYSIS
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`Section 10(b) of the Securities Exchange Act prohibits the use “in connection with the
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`purchase or sale of any security . . . [of] any manipulative or deceptive device or contrivance in
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`contravention of such rules and regulations as the [Securities and Exchange] Commission may
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`prescribe.” 15 U.S.C. § 78j. Under SEC Rule 10b-5, it is unlawful for any person:
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`(a) To employ any device, scheme, or artifice to defraud,
`(b) To make any untrue statement of a material fact or to omit to state a material
`fact necessary in order to make the statements made, in the light of the
`circumstances under which they were made, not misleading, or
`(c) To engage in any act, practice, or course of business which operates or would
`operate as a fraud or deceit upon any person,
`in connection with the purchase or sale of any security.
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`17 C.F.R. § 240.10b-5. Thus, under § 10(b) and Rule 10b-5, “a plaintiff can obtain damages if she
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`can prove (1) the defendant made a false statement or omission (2) of material fact (3) with scienter
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`(4) in connection with the purchase or sale of securities (5) upon which the plaintiff justifiably
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`relied and (6) that the false statement proximately caused the plaintiff damages.” Makor Issues &
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`5
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`Rights, Ltd. v. Tellabs, Inc., 437 F.3d 588, 595 (7th Cir. 2006) (“Tellabs I”), vacated and remanded
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`on other grounds by Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007). The
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`required scienter is “an intent to deceive, demonstrated by knowledge of the statement’s falsity or
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`reckless disregard of a substantial risk that the statement is false.” Higginbotham v. Baxter Int’l,
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`Inc., 495 F.3d 753, 756 (7th Cir. 2007).
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`“A motion [to dismiss] under Rule 12(b)(6) tests whether the complaint states a claim on
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`which relief may be granted.” Richards v. Mitcheff, 696 F.3d 635, 637 (7th Cir. 2012). Under
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`Rule 8(a)(2), a complaint must include “a short and plain statement of the claim showing that the
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`pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). The short and plain statement under Rule
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`8(a)(2) must “‘give the defendant fair notice of what the claim is and the grounds upon which it
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`rests.’” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S.
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`41, 47 (1957) (ellipsis omitted)).
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`Under federal notice-pleading standards, a complaint’s “[f]actual allegations must be
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`enough to raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555. Stated
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`differently, “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim
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`to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting
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`Twombly, 550 U.S. at 570). “A claim has facial plausibility when the plaintiff pleads factual
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`content that allows the court to draw the reasonable inference that the defendant is liable for the
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`misconduct alleged.” Id. (citing Twombly, 550 U.S. at 556). “In reviewing the sufficiency of a
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`complaint under the plausibility standard, [courts must] accept the well-pleaded facts in the
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`complaint as true, but [they] ‘need[ ] not accept as true legal conclusions, or threadbare recitals of
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`the elements of a cause of action, supported by mere conclusory statements.’” Alam v. Miller
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`6
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`Brewing Co., 709 F.3d 662, 665-66 (7th Cir. 2013) (quoting Brooks v. Ross, 578 F.3d 574, 581
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`(7th Cir. 2009)).
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`Additionally, any claims of or including acts of fraud must comply with Federal Rule of
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`Civil Procedure 9(b), which requires the pleading party to “state with particularity the
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`circumstances constituting fraud.” U.S. ex rel. Presser v. Acacia Mental Health Clinic, LLC, 836
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`F.3d 770, 775 (7th Cir. 2016). Although fraudulent or deceptive intent “may be alleged generally,”
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`Rule 9(b) requires a plaintiff to describe the “circumstances” of the alleged fraudulent activity with
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`“particularity” by including such information as “the identity of the person who made the
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`misrepresentation, the time, place and content of the misrepresentation, and the method by which
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`the misrepresentation was communicated,” Windy City Metal Fabricators & Supply, Inc. v. CIT
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`Tech. Fin. Servs., Inc., 536 F.3d 663, 668 (7th Cir. 2008), or, to put it differently, by providing the
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`“who, what, where, when and how” of the alleged fraudulent conduct. See Bank of Am., Nat’l
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`Ass’n, v. Knight, 725 F.3d 815, 818 (7th Cir. 2013).
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`The Private Securities Litigation Reform Act (“PSLRA”) imposes heightened pleading
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`requirements on private, class action claims of securities fraud under § 10(b) and Rule 10b-5:
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`(b) Requirements for securities fraud actions
`(1) Misleading statements and omissions
`In any private action arising under this chapter in which the plaintiff alleges that
`the defendant—
`(A) made an untrue statement of a material fact; or
`(B) omitted to state a material fact necessary in order to make the statements
`made, in the light of the circumstances in which they were made, not
`misleading;
`the complaint shall specify each statement alleged to have been misleading, the
`reason or reasons why the statement is misleading, and, if an allegation
`regarding the statement or omission is made on information and belief, the
`complaint shall state with particularity all facts on which that belief is formed.
`(2) Required state of mind
`(A) In general
`Except as provided in subparagraph (B), in any private action arising under this
`chapter in which the plaintiff may recover money damages only on proof that
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`the defendant acted with a particular state of mind, 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.
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`15 U.S.C. § 78u-4 (italicized emphasis added). Thus, under the PSLRA, private securities fraud
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`plaintiffs not only must plead with particularity the factual circumstances constituting fraud,
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`including by specifying the alleged misrepresentations and the basis for any allegations made on
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`information and belief, but they must also plead with particularity sufficient facts to give rise to a
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`“strong inference” that the defendant acted with scienter. See Tellabs I, 437 F.3d at 594 (“[T]he
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`PSLRA essentially returns the class of cases it covers [i.e., private securities fraud class actions]
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`to a very specific version of fact pleading—one that exceeds even the particularity requirement of
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`. . . Rule . . . 9(b).”).
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`A “strong inference” is one that is “strong in light of other explanations.” Tellabs, Inc. v.
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`Makor Issues & Rights, Ltd., 551 U.S. 308, 323 (2007). That is, it is “more than merely plausible
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`or reasonable—it must be cogent and at least as compelling as any opposing inference of
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`nonfraudulent intent.” Id. at 314. Determining whether allegations give rise to such an inference
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`requires courts to “take into account plausible opposing inferences” because “[t]he strength of an
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`inference cannot be decided in a vacuum,” and “[t]he inquiry is inherently comparative.” Id. at
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`323 (internal quotation marks omitted); see Makor Issues & Rights, Ltd. v. Tellabs Inc., 513 F.3d
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`711 (7th Cir. 2008) (“Tellabs II” ) (“The plausibility of an explanation depends on the plausibility
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`of the alternative explanations.”).
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`The required state of mind under the PLSRA is “an intent to deceive, demonstrated by
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`knowledge of the statement’s falsity or reckless disregard of a substantial risk that the statement is
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`false.” Higginbotham v. Baxter Int’l, Inc., 495 F.3d 753, 756 (7th Cir. 2007). Defendants acted
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`with the required scienter if they spoke in disregard of a risk of falsity that was “‘so obvious that
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`[they] must have been aware of it.’” See Tellabs II, 513 F.3d at 702, 704 (quoting In re Scholastic
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`Corp. Sec. Litig., 252 F.3d 63, 76 (2d Cir. 2001)). “When the facts known to a person place him
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`on notice of a risk, he cannot ignore the facts and plead ignorance of the risk.” Tellabs II, 513
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`F.3d at 704.
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`In support of their motion to dismiss, defendants argue2 that (1) plaintiff does not meet its
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`burden to plead falsity and (2) plaintiff’s complaint fails to raise a strong inference of scienter.
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`I. MATERIAL FALSITY
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`Under the PSLRA, a complaint containing a Rule 10b-5 claim must “specify each
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`statement that is allegedly misleading, the reasons why it is so, and, if based on information and
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`belief, what specific facts support that information and belief.” Tellabs I, 437 F.3d at 595 (citing
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`15 U.S.C. § 78u–4(b)(1)). That does not mean that a complaint “automatically survives” if it states
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`all the known facts that might support an inference of falsity, nor that it fails if it “leaves out a
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`redundant detail.” Tellabs I, 437 F.3d at 595. “[T]he relevant question is ‘whether the facts alleged
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`are sufficient to support a reasonable belief as to the misleading nature of the statement or
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`omission.’” Id. (quoting Novak v. Kasaks, 216 F.3d 300, 314 n.1 (2d Cir. 2000)). “A litany of
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`alleged false statements, unaccompanied by the pleading of specific facts indicating why those
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`statements were false, does not meet” the standard set by the PSLRA. Metzler Inv. GMBH v.
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`Corinthian Colls., Inc., 540 F.3d 1049, 1070 (9th Cir. 2008).
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`Plaintiffs list all of the materially misleading statements and omissions defendants are
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`alleged to have made in a twenty-three-page, thirty-nine-paragraph section of their Amended
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`2 Defendants make additional arguments in their opening brief concerning such issues as the safe harbor for
`forward-looking statements, see 15 U.S.C. § 78u-5, and control person liability under § 20(a) of the
`Securities Exchange Act, 15 U.S.C. § 78t(a), but the Court need not reach those issues because it agrees
`with defendants that plaintiffs’ allegations are not sufficient to support a plausible inference that they were
`false when made or to create a strong inference of scienter, which are sufficient bases to grant defendants’
`motion.
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`Complaint. (Am. Compl. ¶¶ 72-131.) Defendants argue that plaintiffs have not alleged with
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`particularity that the de-icing fluid problem had yet manifested itself in a such a serious way as to
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`permit a factfinder to reasonably conclude that any of these statements were false, misleading, or
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`without a reasonable basis when made; rather, according to defendants, plaintiffs are relying on an
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`impermissible “fraud by hindsight” theory, see Denny v. Barber, 576 F.2d 465, 469-70 (2d Cir.
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`1978) (Friendly, J.).
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`Plaintiffs respond that the seriousness of the defect in the 2Ku systems must have been
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`apparent long before its eventual disclosure in May 2018 or even its partial disclosure in February
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`2018. Defendants have admitted that the de-icing fluid sprayed on airplanes in wintry weather
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`damaged the 2Ku systems, and dozens of 2Ku systems had been installed by the end of December
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`2016, when winter was just beginning, so, plaintiffs argue, the problem must have appeared during
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`the winter of 2016-17. Certainly, according to plaintiffs, the problem must have manifested itself
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`by the time of Delta’s complaints in November or December 2017, which Gogo was unable to
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`resolve through the following February.3 Additionally, Gogo’s service database sent outage lists
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`to the entire company, and certain of the defendants publicly touted Gogo’s ability to track and
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`respond to service outages immediately, which, according to plaintiffs, reinforces the inference
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`that the service disruptions caused by de-icing fluid infiltration would have been apparent as they
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`occurred. For example, during a November 17, 2017 conference call, defendant Wade stated that
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`3 In their response brief, plaintiffs cite a media report in support of these allegations. (See Pls.’ Opp’n to
`Defs.’ Mot. to Dismiss at 5 n.7 (citing Jason Rabinowitz, Delta deepens involvement in 2Ku MRO in face
`of reliability issues, Runway Girl Network (Feb. 27, 2018, https://runwaygirlnetwork.com/2018/02/27/
`delta-deepens-involvement-in-2ku-mro-in-face-of-wi-fi-reliability-issues/). Defendants cry foul, arguing
`that plaintiffs may not cite materials outside of the pleadings in response to a motion to dismiss. The Court
`is skeptical of the argument, see Geinosky v. City of Chicago, 675 F.3d 743, 745 (7th Cir. 2012), but
`ultimately it need not reach it because defendants win anyway. Even if the Court assumes that it can
`properly consider the media reports that plaintiffs have cited, they fail to state a claim.
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`Case: 1:18-cv-04473 Document #: 68 Filed: 10/16/19 Page 11 of 16 PageID #:1499
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`“we have a network operation center that monitors around 8,000 aircraft globally, 24/7. . . . [W]e
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`have a very detailed view into what’s happening in those aircraft as they fly.” (Am. Compl. ¶
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`136.) During the same call, defendant Rowan explained, “As far as 2Ku, the vast majority of the
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`flights, we get rave reviews on how it works, . . . [and] when it does fail, we hear about it instantly
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`. . . . When we know we have a bad flight, we hear about it.” (Id. ¶ 137.)
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`But these do not amount to sufficiently particularized factual allegations to support a
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`reasonable belief that defendants’ statements were false or misleading at the time they were made.
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`“When one of the circumstances indicating falseness is the alleged existence of contemporaneous
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`information inconsistent with a particular statement that was allegedly known only to the
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`defendants, some detail about the alleged information, other than that its substance contradicted
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`the substance of the identified statement, must be provided.” See Yourish v. Cal. Amplifier, 191
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`F.3d 983, 995-96 (9th Cir. 1999) (citing Arazie v. Mullane, 2 F.3d 1456, 1466-67 (7th Cir. 1993)).
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`For example, if a plaintiff asserts a securities fraud claim based on “internal documents” predicting
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`that a corporation’s cash flow would prove to be inadequate in the coming months, without
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`indicating “who prepared the projected figures, when they were prepared, how firm the numbers
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`were, . . . which [of the corporation’s] officers reviewed them,” or “whether [the documents]
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`reflected a final determination that cash flow would be inadequate,” the plaintiff’s “scanty
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`descriptions of internal memoranda” are insufficient to state a claim with particularity. Arazie, 2
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`F.3d at 1467.
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`In this case, without more “specific facts,” Metzler, 540 F.3d at 1070, to demonstrate when
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`the 2Ku problems showed themselves to be of “a sufficient magnitude,” see Karam v. Corinthian
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`Colleges, Inc., No. 10-CV-6523, 2012 WL 8499135, at *10 (C.D. Cal. Aug. 20, 2012), plaintiffs’
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`allegations do not support a reasonable belief that defendants’ statements were false, misleading,
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`Case: 1:18-cv-04473 Document #: 68 Filed: 10/16/19 Page 12 of 16 PageID #:1499
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`or without a reasonable basis at the time they were made. Merely alleging that (a) Gogo could and
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`did track service outages, (b) defendants had access to outage reports, and (c) at some time prior
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`to May 4, 2018, during or after the “winter,” the 2Ku system’s “availability plunged down to the
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`mid 80s” (Am. Compl. ¶ 62), without other details, does not provide sufficiently specific and
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`particularized information about when the data revealed that the de-icing problem had caused a
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`precipitous drop in availability, or when it became clear that costly remediation efforts were
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`necessary. See Yourish, 191 F.3d at 995-96; Arazie, 2 F.3d at 1467; see also Zerger v. Midway
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`Games, Inc., No. 07 C 3797, 2009 WL 3380653, at *9 (N.D. Ill. Oct. 19, 2009) (“Plaintifs’ bald
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`allegation . . . does [not] show that the financial consequences of that decision were known, or
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`could have been known, at the time those guidances were issued. Plaintiffs thus fail to plead the
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`“when” of Defendants’ alleged fraud with enough particularity.”), In re Harley-Davidson, Inc.
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`Sec. Litig., 660 F. Supp. 2d 969, 987 (E.D. Wis. 2009) (“[A]llegations regarding the preparation
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`and dissemination of daily reports do not actually mention any reports that contained statistics
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`materially inconsistent with the defendants’ public statements.”).
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`
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`True, while the Court must ensure that “the grounds for the plaintiff’s suspicions . . . make
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`the allegations plausible,” it must do so while “remain[ing] sensitive to information asymmetries
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`that may prevent [plaintiff] from offering more detail” based only on its pre-complaint inquiry,
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`which it conducts without the benefit of discovery. See Pirelli Armstrong Tire Corp. Retiree Med.
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`Benefits Tr. v. Walgreen Co., 631 F.3d 436, 443 (7th Cir. 2011). But even bearing in mind that
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`plaintiffs cannot yet obtain documents or data that only defendants possess, plaintiffs must still
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`plead sufficient factual matter to make the alleged fraud plausible. Plaintiffs do not carry this
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`burden by pleading that defendants merely had access to data that may have shown that their
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`statements to investors were misleading when made, without describing specific documents
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`Case: 1:18-cv-04473 Document #: 68 Filed: 10/16/19 Page 13 of 16 PageID #:1499
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`containing that data or otherwise alleging that the data was available to the defendants in some
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`specific form. See Yourish, 191 F.3d at 995-96; cf. Pension Tr. Fund for Operating Engineers v.
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`DeVry Educ. Grp., Inc., No. 16 C 5198, 2017 WL 6039926, at *8-9 (N.D. Ill. Dec. 6, 2017)
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`(plaintiffs sufficiently alleged falsity by identifying documents that they could not obtain but that
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`were compiled by a government agency during an exhaustive investigation and described in some
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`detail in a Joint Rule 26(f) report that the agency filed in separate litigation); Jones v. Corus
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`Bankshares, Inc., 701 F. Supp. 2d 1014, 1020-21 (N.D. Ill. 2010) (“These allegations set forth in
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`very clear and specific terms [by way of specific figures] the information available to Corus and
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`why, given its possession of this information, Corus’s statements about the adequacy of its reserves
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`were misleading.”). Plaintiffs have not made sufficiently particularized allegations to make
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`plausible, rather than merely possible, that defendants’ statements were misleading when made.
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`II.
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`SCIENTER
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`As stated above, the PSLRA requires plaintiffs to make not general but particularized
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`allegations of “facts giving rise to a strong inference that the defendant acted with the required
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`state of mind.” 15 U.S.C. § 78u-4.
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`
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`The Court has already explained that plaintiffs do not make sufficiently particularized
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`allegations of falsity because they do not allege when the 2Ku de-icing problem manifested itself
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`as such a severe problem as to make defendants’ statements to investors misleading. Similarly,
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`plaintiffs do not make sufficiently particularized allegations of scienter because they do not allege
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`when defendants knew or should have known of the magnitude of the de-icing problem. Again,
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`plaintiffs allege, in pertinent part, that (a) Gogo could and did track service outages, (b) defendants
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`had access to outage reports, and (c) at some time prior to May 4, 2018, during or after the “winter,”
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`the 2Ku system’s “availability plunged down to the mid 80s” due to de-icing fluid infiltration (Am.
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`Case: 1:18-cv-04473 Document #: 68 Filed: 10/16/19 Page 14 of 16 PageID #:1499
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`Compl. ¶ 62). (See id. ¶¶ 132-39.) But these allegations do not answer the critical question of
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`when defendants had sufficient knowledge to put them on notice that there was at least a substantial
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`risk that Gogo would have to incur considerable remediation costs to prevent service outages due
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`to de-icing fluid infiltration.
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`
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`“[A] complaint fails to satisfy the PSLRA’s particularity requirements by making
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`conclusory allegations of scienter derived from a defendant’s mere access to information.”
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`Cornielsen v. Infinium Capital Mgmt., LLC, 916 F.3d 589, 602 (7th Cir. 2019). While 2Ku
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`performance may well have been “vital” to defendants’ business, that fact alone is not sufficient
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`to “create a strong inference” that defendants knew in 2017 and early 2018 that the de-icing
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`problem was serious enough to merit mention in any statement to investors about the 2Ku system.
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`See Boca Raton Firefighters’ & Police Pension Fund v. DeVry Inc., No. 10 C 7031, 2012 WL
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`1030474, at *10 (N.D. Ill. Mar. 27, 2012). This Court has previously explained that an inference
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`of scienter based on the argument that the defendants “had to be monitoring the data because the
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`numbers were so important” is “weak at best.” Pension Tr. Fund for Operating Eng’rs, 2017 WL
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`6039926, at *13 (internal quotation and alteration marks omitted) (citing Boca Raton, 2012 WL
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`1030474, at *10-11); see Harley-Davidson, 660 F. Supp. 2d at 999 (“[N]ot only is mere receipt of
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`reports insufficient to establish scienter, the inferential leap required to tie [such general
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`allegations] to the conclusion that defendants acted knowingly or recklessly when presenting
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`relevant information to the market is untenable given the heightened pleading standards [of the
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`PSLRA].”). A complaint asserting claims under the PSLRA must make “fact-based connections
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`between a speaker, a statement, and specific, contradictory information presumably known to that
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`speaker at the time the statement was made.” Harley-Davidson, 660 F. Supp. 2d at 1000. But
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`plaintiffs have not described with particularity what defendants are meant to have known that was
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`Case: 1:18-cv-04473 Document #: 68 Filed: 10/16/19 Page 15 of 16 PageID #:1499
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`contrary to their public statements to investors. See Abrams v. Baker Hughes Inc., 292 F.3d 424,
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`433 (5th Cir. 2002) (“[P]laintiffs have not pointed to any particular reports or information—
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`available to defendants before the announced financial restatements—that are contrary to the
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`restatements.”); cf. Tellabs II, 513 F.3d at 706-07, 709 (describing complaint’s particularized
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`factual allegations of weakening demand for the company’s most important products due to “the
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`bursting of the fiber-optics bubble”, as evidenced by a reduction in orders for its “flagship”