Case 2:19-cv-20588-JMV-JBC Document 64 Filed 09/23/22 Page 1 of 20 PageID: 2725
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`Not for Publication
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`UNITED STATES DISTRICT COURT
`DISTRICT OF NEW JERSEY
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`In re AURORA CANNABIS, INC.
`SECURITIES LITIGATION
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`Civil Action No. 19-20588
`(JMV) (JBC)
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`OPINION
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`John Michael Vazquez, U.S.D.J.
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`In this putative class action, Plaintiffs, purchasers of Aurora Cannabis, Inc.’s (“Aurora”)
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`stock between October 23, 2018 and February 6, 2020 (the “Class Period”), allege that Aurora and
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`seven of its officers1 engaged in securities fraud violations. Currently pending before the Court is
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`Defendants’ motion to dismiss Plaintiffs’ Second Amended Complaint (the “SAC”) pursuant to
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`Federal Rule of Civil Procedure 12(b)(6). D.E. 55. The Court reviewed all the submissions in
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`support and in opposition2 and considered the motion without oral argument pursuant to Federal
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`Rule of Civil Procedure 78(b) and Local Civil Rule 78.1(b). For the reasons discussed below,
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`Defendants’ motion is GRANTED.
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`1 The officers are Defendants Terry Booth, Stephen Dobler, Glen Ibbott, Cameron Battley, Michael
`Singer, Jason Dyck, and Allan Cleiren. See SAC ¶¶ 23-29. The parties and the Court refer to
`these Defendants collectively as the Individual Defendants.
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` The Court refers to Defendants’ brief in support of their motion as “Defs. Br.,” D.E. 55-1;
`Plaintiffs’ opposition brief as “Plfs. Opp.,” D.E. 57; and Defendants’ reply brief as “ Defs. Reply,”
`D.E. 61.
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` 2
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`I.
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`FACTUAL BACKGROUND3 & PROCEDURAL HISTORY
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`For purposes of the instant motion, the Court does not retrace this case’s full factual and
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`procedural history. This Court’s July 6, 2021 opinion granting Defendants’ motion to dismiss the
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`First Amended Complaint (the “MTD Opinion”) includes a detailed recounting of the factual
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`background of this matter. D.E. 42. To the extent relevant to the instant motion, the Court
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`incorporates the factual and procedural history from the MTD Opinion.
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`Briefly, Aurora manufacturers and produces cannabis products. It operates in more than
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`25 countries and purports to be one of Canada’s leading licensed producers. SAC ¶¶ 2, 22.
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`Plaintiffs allege that Defendants touted the growing demand for consumer cannabis in Canada and
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`Aurora’s priority to increase production and capacity in response. Id. ¶ 3. Plaintiffs further allege
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`that Defendants unrealistically projected that Aurora would have positive earnings before interest,
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`taxes, depreciation, and amortization (“EBITDA”) for its fourth fiscal quarter of 2019 (“4Q19”).
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`Id. Aurora missed its 4Q19 EBITDA projection, posting a loss of more than $11 million. Id. ¶
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`10. Plaintiffs allege that Defendants engaged in securities fraud by misleading investors on
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`numerous fronts, including profitability and consumer demand. Id. ¶ 11. Defendants’ alleged
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`false statements and omissions largely pertain to Aurora’s ability to meet its 4Q19 projection.
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`In the First Amended Complaint (“FAC”), Plaintiffs identified three factors that
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`Defendants allegedly knew, or recklessly disregarded, would impact Aurora’s 4Q19 projection:
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`(1) an over-production of cannabis by Aurora and other Canadian licensed producers; (2) the
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`limited number of retail stores in Ontario and Quebec; and (3) competition from the cannabis black
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`market. MTD Opinion at 6. In the SAC, Plaintiffs still allege that Aurora’s sale of cannabis in
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`3 The factual background is taken from the SAC. D.E. 49. When reviewing a Rule 12(b)(6) motion
`to dismiss, the Court accepts as true all well-pleaded facts in the pleading. Fowler v. UPMC
`Shadyside, 578 F.3d 203, 210 (3d Cir. 2009).
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`Canada, and therefore its EBITDA projection, was “severely constrained by at least” the
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`overproduction of cannabis by Aurora and other Canadian licensed producers and the limited
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`number of retail stores in Ontario and Quebec. SAC ¶ 56. Plaintiffs continue to allege that
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`Defendants knew, or recklessly disregarded, these factors. Id. Plaintiffs, however, no longer
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`emphasize black market competition.
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`Plaintiffs also include new allegations about an alleged sham transaction with Radient, an
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`affiliated entity. Plaintiffs allege that Defendants entered into the transaction to inflate Aurora’s
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`financials. Radient was formed in 2001 to pursue commercial opportunities in extraction
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`technology. Id. ¶ 113. In January 2017, Aurora and Radient entered into a joint venture research
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`agreement, through which the parties agreed to research the extraction of materials from cannabis.
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`In November 2017, Aurora and Radient entered into a Master Services Agreement (“MSA”),
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`whereby Radient agreed to process cannabis biomass from Aurora into extracts, distillates,
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`concentrates, or oils for a fee. Id. ¶ 114.
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`The MSA also includes an Investor Rights Agreement that provides Aurora with the ability
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`to appoint a director to Radient’s board and participate in Radient equity offerings. Id. ¶ 116. As
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`of March 31, 2019, Aurora owned approximately 14% of Radient’s issued and outstanding
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`common shares, and Defendant Cleiren served as a member of Radient’s board from February
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`2019 through December 2020. Id. ¶ 118. Aurora’s CEO, Defendant Booth, was a member of
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`Radient’s board from 2017 to February 2019. Id. ¶ 118 n.10. In addition, “certain of Radient’s
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`public disclosures from July 8, 2019 state: Aurora and its affiliates will have access to material
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`confidential information respecting the Company [Radient].” Id. Plaintiffs allege that these
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`factors enabled Aurora to exert significant control over Radient when the alleged sham transaction
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`occurred. Id. ¶ 119.
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`Turning to the transaction, in June 2019, Plaintiffs allege that Radient purchased $21.7
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`million of dried cannabis biomass from Aurora. Id. ¶ 109. Plaintiffs claim that although Aurora
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`never relinquished control of the product, it “repurchased” the biomass from Radient for $18
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`million. Aurora recorded Radient’s purchase as revenue. Id. ¶¶ 131-32, 141. Plaintiffs allege that
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`there was no business reason for this transaction, and it was simply an orchestrated “round-trip”
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`transaction to boost Aurora’s financials. Id. ¶ 131. Plaintiffs continue that Aurora needed to inflate
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`its financial picture to continue its acquisition and expansion strategy. Using Aurora stock, Aurora
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`acquired five separate entities between November 2018 and August 2019. Id. ¶ 274. Plaintiffs
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`assert that Defendants’ statements about Aurora’s positive 4Q19 EBITDA projection were false
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`because they knew that the Radient transaction was fraudulently engineered to boost Aurora’s
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`sales. Id. ¶ 208. Plaintiffs add that Defendants made material omissions in SEC filings by failing
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`to disclose the Radient transaction as a related-party transaction and for recognizing revenue. Id.
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`¶¶ 160-63.
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`Plaintiffs continue that through of a series of partial disclosures beginning in September
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`2019, when Aurora’s 4Q19 financial results were released, the value of Aurora’s common stock
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`declined. In addition, Plaintiffs address several analyst articles that subsequently disclosed
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`Aurora’s misconduct. Plaintiffs contend that these articles also caused declines in Aurora’s
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`common stock price. Id. ¶ 278.
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`Plaintiff William Wilson filed the initial class action Complaint in this matter on November
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`21, 2019. D.E. 1. On July 23, 2020, this Court entered an order granting Wilson’s motion to
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`consolidate his case with another case filed by Plaintiff Andrew L. Warren. D.E. 16. Plaintiffs
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`filed the FAC on September 21, 2020. The FAC alleged two counts: (1) violation of Section 10(b)
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`of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 (“Count One”); and
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`(2) violation of Section 20(a) of the Exchange Act against the Individual Defendants (“Count
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`Two”). FAC ¶¶ 216-223. Defendants moved to dismiss the FAC, D.E. 32, which the Court
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`granted. In dismissing Plaintiffs’ Section 10(b) and Rule 10b-5 claim, the Court explained that
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`Plaintiffs failed to allege sufficiently any actionable misrepresentations or omissions. MTD
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`Opinion at 23-27. The Court also noted that Plaintiffs’ allegations as to scienter appeared lacking,
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`id. at 30, and addressed potential shortcomings with Plaintiffs’ allegations of loss causation, id. at
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`32. Finally, because Plaintiffs failed to state a Section 10(b) claim, the Court also dismissed the
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`Section 20(a) control person liability claim. Id. at 32-33.
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`In granting Defendants’ motion to dismiss, the Court provided Plaintiffs with leave to file
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`an amended pleading to address the identified deficiencies. D.E. 43. Plaintiffs filed the SAC on
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`September 7, 2021. D.E. 49. On December 6, 2021, Defendants filed the instant motion. D.E.
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`55.
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`II.
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`LEGAL STANDARDS
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`A. Federal Rule of Civil Procedure 12(b)(6)
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`To withstand a motion to dismiss under Rule 12(b)(6), a plaintiff must allege “enough facts
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`to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544,
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`570 (2007). A complaint is plausible on its face when there is enough factual content “that allows
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`the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”
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`Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Although the plausibility standard “does not impose
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`a probability requirement, it does require a pleading to show more than a sheer possibility that a
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`defendant has acted unlawfully.” Connelly v. Lane Const. Corp., 809 F.3d 780, 786 (3d Cir. 2016)
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`(internal quotation marks and citations omitted). As a result, a plaintiff must “allege sufficient
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`facts to raise a reasonable expectation that discovery will uncover proof of [his] claims.” Id. at
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`789.
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`In evaluating the sufficiency of a complaint, a district court must accept all well-pleaded
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`factual allegations in the complaint as true and draw all reasonable inferences in favor of the
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`plaintiff. Phillips v. County of Allegheny, 515 F.3d 224, 231 (3d Cir. 2008). A court, however, is
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`“not compelled to accept unwarranted inferences, unsupported conclusions or legal conclusions
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`disguised as factual allegations.” Baraka v. McGreevey, 481 F.3d 187, 211 (3d Cir. 2007). If,
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`after viewing the allegations in the complaint in a light most favorable to the plaintiff, it appears
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`that no relief could be granted under any set of facts consistent with the allegations, a court may
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`dismiss the complaint for failure to state a claim. DeFazio v. Leading Edge Recovery Sols., LLC,
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`No. 10-2945, 2010 WL 5146765, at *1 (D.N.J. Dec. 13, 2010).
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`B. Federal Rule of Civil Procedure 9(b)
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`“Independent of the standard applicable to Rule 12(b)(6) motions, Rule 9(b) imposes a
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`heightened pleading requirement of factual particularity with respect to allegations of fraud.” In
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`re Rockefeller Ctr. Props., Inc. Sec. Litig., 311 F.3d 198, 216 (3d Cir. 2002). Pursuant to Rule
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`9(b), when “alleging fraud or mistake, a party must state with particularity the circumstances
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`constituting fraud or mistake . . . [m]alice, intent, knowledge, and other conditions of a person’s
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`mind may be alleged generally.” Fed. R. Civ. P. 9(b). A party alleging fraud must therefore
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`support its allegations with factual details such as “the who, what, when, where and how of the
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`events at issue.” U.S. ex rel. Moore & Co., P.A. v. Majestic Blue Fisheries, LLC, 812 F.3d 294,
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`307 (3d Cir. 2016). Accordingly, “[t]o satisfy the particularity standard, ‘the plaintiff must plead
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`or allege the date, time and place of the alleged fraud or otherwise inject precision or some measure
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`of substantiation into a fraud allegation.’” Feingold v. Graff, 516 F. App’x 223, 226 (3d Cir. 2013)
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`(citing Frederico v. Home Depot, 507 F.3d 188, 200 (3d Cir. 2007)). This heightened pleading
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`standard is designed to “ensure that defendants are placed on notice of the precise misconduct with
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`which they are charged, and to safeguard defendants against spurious charges of fraud.”
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`Craftmatic Sec. Litig. v. Kraftsow, 890 F.2d 628, 645 (3d Cir. 1989) (internal quotation marks
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`omitted).
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`C. The Private Securities Litigation Reform Act (PSLRA)
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`The PSLRA imposes further pleading requirements. “The PSLRA established heightened
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`pleading requirements for a plaintiff to meet in order to plead a cause of action successfully in
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`class actions alleging securities fraud.” Rahman v. Kid Brands, Inc., 736 F.3d 237, 241 (3d Cir.
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`2013). The PSLRA “requires that a complaint state with particularity both the facts constituting
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`the alleged violation, and the facts evidencing scienter, i.e., the defendant’s intention to deceive,
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`manipulate, or defraud.” Id. at 241-42 (quoting Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551
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`U.S. 308, 313 (2007)) (internal quotations omitted). In other words, plaintiffs bringing a claim
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`involving an allegedly false or misleading statement must “(1) ‘specify each statement alleged to
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`have been misleading [and] the reason or reasons why the statement is misleading,’ 15 U.S.C. §
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`78u-4(b)(1), and (2) ‘state with particularity facts giving rise to a strong inference that the
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`defendant acted with the required state of mind,’ § 78u-4(b)(2).” Rahman, 736 F.3d at 242
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`(quoting Tellabs, 551 U.S. at 321).
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`Both provisions of the PSLRA pleading standard require that facts be pled “with
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`particularity,” echoing the requirement set forth in Federal Rule of Civil Procedure 9(b). Id. at
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`241 n.3. Although the “PSLRA replaced Fed. R. Civ. P. 9(b) as the applicable pleading standard
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`in private securities class actions,” Rule 9(b)’s particularity requirement “is comparable to and
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`effectively subsumed by the requirements” of the PSLRA. Id. This standard “requires plaintiffs
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`to plead the who, what, when, where and how: the first paragraph of any newspaper story.”
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`Institutional Invs. Grp. v. Avaya, Inc., 564 F.3d 242, 253 (3d Cir. 2009). Section 78u-4(b)(1) also
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`adds the requirement that where “an allegation regarding [a defendant’s] statement or omission is
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`made on information or belief,” plaintiffs must “state with particularity all facts on which that
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`belief is formed”; that is, they must describe the sources of information with particularity,
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`including “the who, what, when, where and how of the sources, as well as the who, what, when,
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`where, and how of the information those sources convey.” Id.; see 15 U.S.C. § 78u-4(b)(1).
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`As to state of mind, the PSLRA’s approach for pleading scienter sharply deviates from
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`Rule 9(b), which allows plaintiffs to plead the relevant mental state element generally. Avaya, 564
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`F.3d at 253. Under the PSLRA, a court must evaluate whether all the facts in the complaint as
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`alleged, taken collectively, give rise to a “strong inference of scienter” – not whether any individual
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`allegation viewed in isolation meets that standard. Tellabs, 551 U.S. at 323. In determining
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`whether the alleged facts give rise to a strong inference of scienter, a court must “take into account
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`plausible opposing inferences.” Id. This involves a comparative inquiry that evaluates how likely
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`one conclusion is as compared to others, considering the pleaded facts. Id. Thus, a court must
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`consider plausibly pled, nonculpable explanations for the defendant’s conduct as well as inferences
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`favoring the plaintiff. Id. at 324. Although the inference that the defendant acted with scienter
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`need not be irrefutable, the inference must be more than merely “reasonable” or “permissible.” Id.
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`A complaint will survive only if a reasonable person would “deem the inference of scienter cogent
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`and at least as compelling as any opposing inference one could draw from the facts alleged.” Id.
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`III. ANALYSIS
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`A. Securities Fraud (Count One)
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`In Count One, Plaintiffs allege that Defendants violated Section 10(b) and Rule 10b-5:
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`Section 10(b) of the Exchange Act prohibits the “use or
`employ[ment], in connection with the purchase or sale of any
`security . . . [, of] any manipulative or deceptive device or
`contrivance in contravention of such rules and regulations as the
`[SEC] may prescribe.” 15 U.S.C. § 78j(b). SEC Rule 10b-5
`implements this provision by making it unlawful to, among other
`things, “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.” 17 C.F.R. § 240.10b-5(b). The Supreme Court has
`implied a private cause of action from the text and purpose of
`[S]ection 10(b). Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27,
`36-37 (2011).
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`City of Edinburgh Council v. Pfizer, Inc., 754 F.3d 159, 167 (3d Cir. 2014). Accordingly, to state
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`a securities fraud claim under Section 10(b) and Rule 10b-5, Plaintiffs “must allege (1) a material
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`misrepresentation or omission, (2) scienter, (3) a connection between the misrepresentation or
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`omission and the purchase or sale of a security, (4) reliance upon the misrepresentation or
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`omission, (5) economic loss, and (6) loss causation.” Id. at 167.
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`Defendants assert
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`that Plaintiffs fail “to allege (1) any actionable material
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`misrepresentation or omission, (2) scienter, and (3) loss causation.” Defs. Br. at 16. The Court
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`addresses each requirement in turn.
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`1. Material Misrepresentations or Omissions
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`As to the first element, a plaintiff must “identify a false representation of material fact or
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`omission that makes a disclosed statement materially misleading.” In re NAHC, Inc. Sec. Litig.,
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`306 F.3d 1314, 1330 (3d Cir. 2002) (citing In re Burlington Coat Factory Sec. Litig., 114 F.3d
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`1410, 1419 (3d Cir. 1997)). “[A] fact or omission is material only if ‘there is a substantial
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`likelihood that it would have been viewed by the reasonable investor as having significantly altered
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`the “total mix” of information’ available to the investor.” Id. (quoting Basic Inc. v. Levinson, 485
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`U.S. 224, 231-232 (1988)). Courts must “examine statements in the full context of the documents
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`which they are a part” and not engage in a “selective reading” of the statements. Pfizer, 754 F.3d
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`at 168-69 (citing Burlington Coat Factory, 114 F.3d at 1426; Tellabs, 551 U.S. at 322).
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`In dismissing Count One of the FAC, the Court concluded that Plaintiffs failed to plead
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`any actionable omissions pertaining to Defendants’ failure to disclose that Aurora’s sales were
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`constricted by an oversupplied market, lack of retail stores, or the black market. MTD Opinion at
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`24-28. Plaintiffs still focus on Defendants’ alleged omissions regarding oversupply and lack of
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`retail stores, but their allegations about these alleged omissions are unchanged in the SAC.
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`Therefore, for the same reasons discussed in the MTD Opinion, the Court determines that Plaintiffs
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`fail to allege any actionable omissions pertaining to oversupply or the dearth of retail stores.
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`Plaintiffs instead focus on the Radient deal, which Defendants contend is also insufficiently
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`pled. Defendants first assert that the deal was not a sham, setting forth a counter-narrative. Defs.
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`Br. at 21-27. Defendants explain that Radient purchased cannabis biomass from Aurora, processed
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`the biomass into oils or extracts, and Aurora purchased the processed products from Radient. Id.
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`at 9-15. In support, Defendants largely rely on Radient’s financial statements and other documents
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`referenced in passing in the SAC. See, e.g., id. at 24 (citing to Radient’s 2019 financial statements).
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`At this stage, the Court is focused on plausible factual allegations. See Twombly, 550 U.S.
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`at 555 (explaining that Fed. R. Civ. P. 8(a)(2) requires that pleadings include “[f]actual allegations”
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`that “raise a right to relief above the speculative level”); see also Fowler, 578 F.3d at 213 (“[I]t
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`has been noted that a plaintiff is not required to establish the elements of a prima facie case but
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`instead, need only put forth allegations that raise a reasonable expectation that discovery will
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`reveal evidence of the necessary element.” (internal quotation omitted)). Although the Court could
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`arguably rely on some of these documents, “[t]he proper place to resolve factual disputes is not on
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`a motion to dismiss[.]” 4 Doe v. Princeton Univ., 30 F.4th 335, 342 (3d Cir. 2022). As result, the
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`Court will accept Plaintiffs’ allegations as true and does not consider Defendants’ alternate factual
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`arguments at this time.
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`Next, Defendants argue that the Court should not accept allegations from Plaintiffs’
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`confidential witnesses because Plaintiffs do not indicate that they worked for Aurora or shared the
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`alleged information with any Aurora employees. Defs. Br. at 27-29. In alleging that the Radient
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`deal was a sham, Plaintiffs partially rely on allegations from four former Radient employees (the
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`“FEs”). The FEs’ allegations include information about the size of the transaction, Radient’s
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`extraction capabilities at the time, and Radient’s finances. See, e.g., SAC ¶¶ 133-37.
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`As discussed, “the PSLRA imposes a particularity requirement on all allegations, whether
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`they are offered in support of a statement's falsity or of a defendant's scienter.” Avaya, 564 F.3d
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`at 263 (quoting 15 U.S.C. § 78u–4(b)(1), (b)(2)). Thus, when considering allegations from
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`confidential sources, the Third Circuit instructs that courts apply the particularity requirement by
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`“evaluating the ‘detail provided by the confidential sources, the sources' basis of knowledge, the
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`reliability of the sources, the corroborative nature of other facts alleged, including from other
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`sources, the coherence and plausibility of the allegations, and similar indicia.’” Cal. Pub. Emps.’
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`Ret. Sys. v. Chubb, 394 F.3d 126, 147 (3d Cir. 2004). If anonymous source allegations are found
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`4 When deciding a Rule 12(b)(6) motion to dismiss, a court may consider the pleadings, “exhibits
`attached to the complaint and matters of public record,” and “an undisputedly authentic document
`that a defendant attaches as an exhibit to a motion to dismiss if the plaintiff’s claims are based on
`the document.” Pension Benefit Guar. Corp. v. White Consol. Indus., Inc., 998 F.2d 1192, 1196
`(3d Cir. 1993). A court may also rely on “a document integral to or explicitly relied upon in the
`complaint.” U.S. Express Lines Ltd. v. Higgins, 281 F.3d 383, 388 (3d Cir. 2002) (citation
`omitted). Defendants fail to explain how the Court could properly consider these documents in
`deciding the motion to dismiss. The Court also notes that none of the documents that Defendants
`rely upon reflect whether Aurora repurchased the biomass or instead purchased extracts from
`Radient, or whether Radient ever took possession of the product.
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`wanting with respect to these criteria, a court “must discount them steeply.” Avaya, 564 F.3d at
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`263. But if a confidential witness’ allegations are adequately particularized, a court need not
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`dismiss them “simply on account of their anonymity.” Id.
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`Defendants maintain that because the FEs did not communicate with any Aurora
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`employees, the FEs cannot be used to substantiate Plaintiffs’ allegations about Defendants
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`purported accounting violations from the Radient deal. See Defs. Br. at 15-16; Defs. Reply at 7.
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`But the cases Defendants cite in support do not support such a position. Moreover, the Court does
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`not view the FEs’ allegations as only relevant to the alleged accounting fraud. Rather, the FEs’
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`allegations also reflect that this was an unusual and large-scale transaction for Radient. Therefore,
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`Plaintiffs do not necessarily need to plead that the FEs communicated with Aurora to satisfy the
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`particularity requirement. Plaintiffs’ allegations permit the Court to plausibly infer that at least
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`two of the Individual Defendants knew information raised by the FEs. Plaintiffs allege that Aurora
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`owned Radient stock, had access to Radient’s confidential information, and that Cleiren was a
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`Radient Board member at the time of the transaction. SAC ¶ 120. Moreover, Booth previously
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`served on Radient’s Board. Id. ¶ 23.
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`Defendants do not otherwise challenge the veracity of the FEs’ allegations. Thus, the Court
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`concludes that Plaintiffs provide sufficient information to establish the confidential sources’ bases
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`of knowledge and their allegations otherwise corroborate the FEs’ information. Consequently, the
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`Court will not discredit, or steeply discount, the allegations from the four FEs.
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`Finally, Defendants argue that Plaintiffs failed to sufficiently allege that the transaction
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`violated any International Accounting Standards (“IAS”). Plaintiffs assert that Aurora’s financial
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`statements failed to disclose that Aurora and Radient were related parties under IAS 24. SAC ¶¶
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`160-63. IAS 24 sets forth the requirements to determine whether entities are related, such that an
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`entity must disclose related party transactions and commitments. Defs. Br. at 29-31; see also
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`Marino Decl., Ex. M at 5-7. IAS 24.9(b) sets forth several, fact-specific definitions to use in
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`determining whether entities are related. Id. at 6-7. Here, Plaintiffs plead that Aurora and Radient
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`are related parties because Aurora had the ability to exert significant influence over Radient.5 SAC
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`¶ 162. But it is not clear on which subsection of IAS 24.9(b) Plaintiffs rely. Consequently, as
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`alleged, the Court adequately cannot analyze whether Plaintiffs sufficiently plead that Radient and
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`Aurora were related parties under IAS 24. Plaintiffs’ allegations as to an IAS violation, therefore,
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`are deficient.
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`Defendants also maintain that even accepting Plaintiffs’ allegations that Aurora
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`repurchased biomass from Radient, Aurora was permitted to recognize the revenue on its sale to
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`Radient under International Financial Reporting Standard (“IFPS”) 15 because Aurora was not
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`contractually obligated to repurchase the biomass. Defs. Br. at 22-23. IFRS 15 explains
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`circumstances when a company can recognize revenue when purchasing assets from a customer
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`via a contract. See Marino Decl., Ex. K. Plaintiffs allege that IFRS 15 requires that contracts have
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`commercial substance to recognize revenue. SAC ¶ 139. Here, Plaintiffs plausibly allege that the
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`deal lacked commercial substance because Radient could not pay for the purchase and never took
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`control of the product. SAC ¶¶ 134, 137. Thus, regardless of whether there was a contract for
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`repurchase, Plaintiffs plausibly allege that Radient should not have recognized revenue because
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`the contract lacked commercial substance.
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` 
`5 Plaintiffs plead that Booth and Cleiren both served on Radient’s Board. However, Plaintiffs fail
`to further plead the relevant section of IAS 24.
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` 
`
`13
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`Case 2:19-cv-20588-JMV-JBC Document 64 Filed 09/23/22 Page 14 of 20 PageID: 2738
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`In sum, except for the related party disclosure allegations, the Court rejects Defendants’
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`arguments to dismiss alleged omissions about the Radient transaction. Plaintiffs, therefore,
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`sufficiently plead actionable omissions related to the Radient deal.6 
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`2. Scienter
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`Defendants also seek to dismiss Count One as to Plaintiffs’ scienter allegation. The Court
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`only addresses scienter as to the Radient deal because the other allegations, as noted above, are
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`not plausibly pled. “Scienter is a mental state embracing intent to deceive, manipulate, or defraud,
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`and requires a knowing or reckless state of mind.”7 Avaya, 564 F.3d at 252 (internal citations and
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`quotations omitted) (quoting Ernst & Ernst v. Hochfelder, 425 U.S. 185, 194 n.12 (1976) and
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`citing In re Advanta Corp. Sec. Litig., 180 F.3d 525, 534-35 (3d Cir. 1999)). The PSLRA scienter
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`standard “requires plaintiffs to allege facts giving rise to a ‘strong inference’ of ‘either reckless or
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`conscious behavior.’” Id. at 267 (quoting Advanta, 180 F.3d at 534-35). A reckless statement is
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`one “involving not merely simple, or even inexcusable negligence, but an extreme departure from
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`the standards of ordinary care, and which presents a danger of misleading buyers or sellers that is
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`either known to the defendant or is so obvious that the actor must have been aware of it.” Id. at
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` 
`6 In their reply brief, Defendants argue that many of the alleged wrongful statements are protected
`by the PSLRA safe harbor, and rely on arguments from their motion to dismiss the FAC. Defs.
`Reply at 9-10. But the FAC did not include allegations about the Radient deal. The Court will not
`consider new arguments made in the reply that could have been made in the initial brief. See
`Cobra Enters., LLC v. All Phase Servs., Inc., No. 20-4750, 2020 WL 2849892, at *1 (D.N.J. June
`1, 2020) (“As a matter of procedure, this Court will not accept arguments offered for the first time
`in the reply brief, as they were not properly asserted in the opening brief and Plaintiffs have not
`had the opportunity to respond to them.”). Consequently, the Court declines to consider
`Defendants’ safe harbor arguments.
`
` 7
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` This standard is distinguishable from the mental state for forward-looking statements, which
`requires actual knowledge, under the PSLRA Safe Harbor provision. See 15 U.S.C. § 78u-5(c).
`14
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`Case 2:19-cv-20588-JMV-JBC Document 64 Filed 09/23/22 Page 15 of 20 PageID: 2739
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`267 n.42 (citing Advanta, 180 F.3d at 535). “‘[C]laims essentially grounded on corporate
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`mismanagement’ do not adequately plead recklessness.” Id. (citing Advanta, 180 F.3d at 540).
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`A “strong inference” of scienter is one that is “cogent and at least as compelling as any
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`opposing inference of nonfraudulent intent.” Id. at 267 (quoting Tellabs, 551 U.S. at 324). It is
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`more than “merely ‘reasonable’ or ‘permissible.’” Tellabs, 551 U.S. at 324. To make this
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`determination, a court must “weigh the plausible nonculpable explanations for the defendant’s
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`conduct against the inferences favoring the plaintiff.” Avaya, 564 F.3d at 267 (quoting Tellabs,
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`551 U.S. at 324) (internal quotations omitted). However, “[t]he inference that the defendant acted
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`with scienter need not be irrefutable, i.e., of the ‘smoking-gun’ genre, or even the most plausible
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`of competing inferences.” Id. (quoting Tellabs, 551 U.S. at 324). “The pertinent question is
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`‘whether all of the facts alleged, taken collectively, give rise to a strong inference of scienter, not
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`whether any individual allegation, scrutinized in isolation, meets that standard.” Id. at 267-68
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`(quoting Tellabs, 551 U.S. at 323). “Omissions and ambiguities ‘count against inferring scienter.’”
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`Id. at 268 (quoting Tellabs, 551 U.S. at 326). “Motive and an opportunity to commit fraud” are
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`just a factor in this analysis. Advanta, 180 F.3d at 534-35. In sum, “[a] complaint will survive . .
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`. only if a reasonable person would deem the inference of scienter cogent and at least as compelling
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`as any opposing inference one could draw from the facts alleged.” Id.
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`Defendants contend that Plaintiffs’ allegations about Radient do not support a strong
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`inference of scienter because Plaintiffs do not allege that any Defendant had knowledge of
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`Radient’s internal information. Defendants reiterate that