Vaughn Leroy Meyer v. JinkoSolar Holding Co.

13-616-cv
Vaughn Leroy Meyer v. JinkoSolar Holding Co.
UNITED STATES COURT OF APPEALS 1
FOR THE SECOND CIRCUIT 2
August Term, 2013 3
(Argued: September 18, 2013 Decided: July 31, 2014) 4
Docket No. 13-616-cv 5
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VAUGHN LEROY MEYER, RICHARD MATKEVICH, ABDULLAH AL MAHMUD, 7
AZRIEL SHUSTERMAN, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS 8
SIMILARLY SITUATED, 9
10
Plaintiffs-Appellants, 11
MARCO PETERS, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS 12
SIMILARLY SITUATED, 13
14
Plaintiff, 15
v. 16
JINKOSOLAR HOLDINGS CO., LTD., STEVEN MARKSCHEID, CREDIT SUISSE 17
SECURITIES (USA) LLC, OPPENHEIMER & CO., INC., ROTH CAPITAL 18
PARTNERS, LLC, COLLINS STEWART LLC, 19
20
Defendants-Appellees, 21
WILLIAM BLAIR & CO., XIANDE LI, KANGPING CHEN, XIANHUA LI, WING 22
KEONG SLEW, HAITAO JIN, ZIBIN LI, LOGGEN ZHANG, 23
24
Defendants.*
25
26
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B e f o r e: WINTER, WALKER, and WESLEY, Circuit Judges. 28
29
* The clerk is instructed to modify the party caption to conform to this
opinion.

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Appeal from an order of the District Court for the 1
Southern District of New York (J. Paul Oetken, Judge) 2
dismissing a complaint alleging violations of the federal 3
securities laws. We vacate the dismissal of the complaint on 4
the ground that the failure to disclose ongoing serious 5
pollution problems rendered misleading statements describing 6
measures taken to comply with Chinese environmental 7
regulations. 8
MICHAEL STEPHEN BIGIN (Uri Seth 9
Ottensoser, Joseph R. Seidman, Jr., 10
Laurence Jesse Hasson, on the 11
brief), Bernstein Liebhard LLP, New 12
York, NY, for Plaintiffs- 13
Appellants. 14
15
BRIAN H. POLOVOY (Jerome S. Fortinsky, 16
on the brief), Shearman & Sterling 17
LLP, New York, NY, for Defendants- 18
Appellees JinkoSolar Holdings Co., 19
Ltd. and Steven Markscheid. 20
21
WILLIAM J. SUSHON (Bradley J. Butwin, 22
B. Andrew Bednark, on the brief), 23
O’Melveny & Meyers LLP, New York, NY, 24
for Defendants-Appellees Credit Suisse 25
Securities (USA) LLC, Oppenheimer & 26
Co., Inc., Roth Capital Partners, LLC, 27
and Collins Stewart LLC. 28
29
WINTER, Circuit Judge: 30
Various purchasers of securities issued by JinkoSolar 31
Holdings Co., Ltd. in two public offerings appeal from Judge 32
Oetken’s dismissal of their complaint alleging violations of the 33
2

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federal securities laws. We hold that appellees’ failure to 1
disclose ongoing, serious pollution problems rendered misleading 2
statements in a prospectus describing prophylactic measures taken 3
to comply with Chinese environmental regulations. We therefore 4
vacate and remand. 5
BACKGROUND 6
In reviewing a dismissal under Rule 12(b)(6), we view the 7
facts alleged in the complaint as true. N.J. Carpenters Health 8
Fund v. Royal Bank of Scot. Grp., PLC, 709 F.3d 109, 119 (2d Cir. 9
2013). 10
Primarily using facilities in China, JinkoSolar manufactures 11
various photovoltaic products (“PV products”), that is, solar 12
cells and solar panel products. JinkoSolar’s size and range of 13
products rapidly increased after its July 2009 acquisition of 14
Zhejiang Sun Valley Energy Application Technology Company, Ltd. 15
(“Sun Valley”). Its main production plants are located in the 16
Jiangzi and Zhejiang provinces in China, which are regulated by 17
the Haining Environmental Protection Bureau (“EPB”). 18
JinkoSolar made two public offerings of American Depository 19
Shares (“ADS”) on the New York Stock Exchange (“NYSE”), one on 20
May 13, 2010, and the other on November 10, 2010. The May 21
offering consisted of 5,835,000 ADS, which were sold at $11 a 22
share and raised a total of $64,185,000. 23
24
3

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The prospectus accompanying the May offering discussed the 1
pollution potential of JinkoSolar’s business, the applicability 2
of Chinese environmental regulations and standards, and 3
JinkoSolar’s efforts at compliance. It stated: 4
We generate and discharge chemical wastes, 5
waste water, gaseous waste and other 6
industrial waste at various stages of our 7
manufacturing process as well as during the 8
processing of recovered silicon material. We 9
have installed pollution abatement equipment 10
at our facilities to process, reduce, treat, 11
and where feasible, recycle the waste 12
materials before disposal, and we treat the 13
waste water, gaseous and liquid waste and 14
other industrial waste produced during the 15
manufacturing process before discharge. We 16
also maintain environmental teams at each of 17
our manufacturing facilities to monitor waste 18
treatment and ensure that [these] waste 19
emissions comply with [People’s Republic of 20
China] environmental standards. Our 21
environmental teams are on duty 24 hours. We 22
are required to comply with all PRC national 23
and local environmental protection laws and 24
regulations and our operations are subject to 25
periodic inspection by national and local 26
environmental protection authorities. PRC 27
national and local environmental laws and 28
regulations impose fees for the discharge of 29
waste materials above prescribed levels, 30
require the payment of fines for serious 31
violations and provide that the relevant 32
authorities may at their own discretion close 33
or suspend the operation of any facility that 34
fails to comply with orders requiring it to 35
cease or remedy operations causing 36
environmental damage. As of December 31, 37
2009, no such penalties had been imposed on 38
us. 1
39
1 The November prospectus contained the same language, except, at the
end of the section it stated, “[a]s of the date of this prospectus, no such
penalties had been imposed on us.”
4

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Amend. Compl. ¶ 80 (emphasis in original). The May prospectus 1
also stated: 2
Compliance with environmental, safe 3
production and construction regulations can 4
be costly, while non-compliance with such 5
regulations may result in adverse publicity 6
and potentially significant monetary damages, 7
fines and suspension of our business 8
operations. We use, store and generate 9
volatile and otherwise dangerous chemicals 10
and wastes during our manufacturing process, 11
and are subject to a variety of government 12
regulations related to the use, storage and 13
disposal of such hazardous chemicals and 14
waste. We are required to comply with all PRC 15
national and local environmental regulations 16
. . . . 17
18
Amend. Compl. ¶ 82 (emphasis in original). 2
19
On June 8, 2010, appellees submitted a report to the EPB 20
about JinkoSolar’s recent expansion in solar cell production. 21
The report contained a section entitled “Existing Problems.” It 22
explained that the Zhejiang plant was “not disposing of hazardous 23
solid waste in accordance with relevant disposal methods, and was 24
emitting high levels of fluorides.” Amend. Compl. ¶ 5. It 25
stated: 26
1. The tube used for the discharge of 27
chlorine (Discharge Tube A) currently has a 28
height of 15 metres. This does not meet the 29
minimum height requirements. 30
2. According to monitoring data from the 31
Haining City Environmental Protection Bureau, 32
2 The November prospectus contained identical language. This exact
passage was repeated in the 2010 year-end report on April 25, 2011.
5

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HCl concentration levels in the region 1
surrounding the enterprise have exceeded set 2
limits . . . . The area surrounding the 3
project does not have capacity for storing 4
HCl. If this project continues to use HCl 5
cleaning processes then once completed this 6
would worsen the HCl pollution situation in 7
the local area. 8
3. Sludge produced by the enterprise is 9
classed as hazardous solid waste. This has 10
not been disposed of in accordance with 11
relevant State disposal methods. 12
4. Presently, the tower operated by the 13
enterprise to absorb acidic mist has 35% 14
efficiency in removing inorganic fluorides, 15
which means that industrial emission volumes 16
for fluorides are comparatively large. 17
18
Amend. Compl. ¶ 61. In a section entitled “Measures for 19
Restructuring and Reform,” the report listed a number of 20
structural changes that would be necessary to ameliorate the 21
problems described in the report. 22
In April 2011, JinkoSolar received a notice from the EPB 23
“informing [JinkoSolar] of high fluoride level in its waste.” On 24
May 11, 2011, the EPB detected “higher than acceptable levels of 25
fluoride at JKS, this time in its waste water.” Amend. Compl. ¶ 26
6. In another document submitted to the EPB, JinkoSolar reported 27
again that the water around the plant did not meet environmental 28
standards because of, inter alia, fluoride levels. 29
The complaint further alleges that on September 15, 2011, 30
“news started to break that local residents living near 31
[JinkoSolar’s] solar cell plant in Zhejiang angrily demonstrated 32
outside the facility following a massive die-off of fish over the 33
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previous month in the river flowing immediately adjacent to the 1
plant.” Amend. Compl. ¶ 9. At one point, the protest turned 2
violent and protesters overturned cars, including police cars, 3
and damaged surrounding buildings. Within the next few days, the 4
People’s Republic of China ordered that the plant be closed and 5
that JinkoSolar take remedial action. On September 22, 2011, 6
JinkoSolar issued a press release revealing that JinkoSolar was 7
fined for non-compliance with environmental regulations in May 8
2011 and paid local landowners for damage to their crops and 9
death of livestock and wildlife. The complaint alleges that 10
JinkoSolar’s stock lost 40% of its value by the time the dust had 11
settled. 12
On October 11, 2011, appellants commenced this action 13
against JinkoSolar, several of its officers and directors, and 14
several entities that served as underwriters for the ADS 15
offerings. Appellants alleged violations of Sections 11 and 16
12(a)(2) of the Securities Act of 1933 and Section 10(b) of the 17
Securities Exchange Act of 1934. The complaint also alleged 18
controlling person liability against various appellees under 19
Section 15 of the 1933 Act and Section 20(a) of the 1934 Act. 20
Various appellees moved before the district court for 21
dismissal for failure to state a claim for relief under Fed. R. 22
Civ. P. 12(b)(6). The court granted the motion. 23
24
7

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Central to appellants’ claims were the paragraphs in the May 1
prospectus (and repeated later) quoted above. With regard to the 2
statements about JinkoSolar’s storage of hazardous and dangerous 3
chemicals, PRC national and local regulations, and the costs of 4
compliance or non-compliance, the court held that those 5
statements were not misleading. However, the court deemed that 6
the paragraph discussing JinkoSolar’s pollution abatement 7
equipment and its 24-hour environmental monitoring team “a more 8
complicated matter” and “arguably a close call.” Peters v. 9
JinkoSolar Holding Co., No. 11 Civ. 7133 (JPO) (S.D.N.Y. Feb. 27, 10
2013). However, the court concluded that the reasonable investor 11
would not read the statement about “ensur[ing]” compliance to 12
actually guarantee compliance because “elsewhere in the 13
Prospectuses, Jinkosolar underscored to investors that fines due 14
to pollution are a real possibility.” Id. at *7. Because the 15
court did not find any material misstatements or omissions, it 16
dismissed the complaint. This appeal followed. 17
DISCUSSION 18
We review the grant of a Section 12(b)(6) motion to dismiss 19
de novo. N.J. Carpenters, 709 F.3d at 119; Lentell v. Merrill 20
Lynch & Co., 396 F.3d 161, 167 (2d Cir. 2005). In doing so, we 21
“accept[] all factual allegations [in the complaint] as true and 22
draw[] all reasonable inferences in favor of the plaintiff.” 23
N.J. Carpenters, 709 F.3d at 119 (quoting Litwin v. Blackstone 24
8

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Grp., L.P., 634 F.3d 706, 715 (2d Cir. 2011)). At this stage, 1
dismissal is appropriate only where appellants can prove no set 2
of facts consistent with the complaint that would entitle them to 3
relief. Elec. Commc’ns Corp. v. Toshiba Am. Consumer Prods., 4
Inc., 129 F.3d 240, 242-43 (2d Cir. 1997). 5
The complaint, alleging violations of Sections 11 and 12 of 6
the 1933 Securities Act and Section 10(b) of the 1934 Securities 7
Exchange Act, raises a host of legal issues with regard to 8
varying standards of liability and defenses, the various 9
plaintiffs’ standing, the particularity of the pleadings with 10
regard to requisite states of mind and conduct of each defendant, 11
etc. However, each of the three sections imposes liability for a 12
material misstatement of fact or an omission to state a fact that 13
renders a statement made materially misleading. See Securities 14
Act of 1933 § 11(a), 15 U.S.C. § 77k(a) (2012) (“In case any part 15
of the registration statement . . . contain[s] an untrue 16
statement of a material fact or omit[s] to state a material fact 17
. . . necessary to make the statements therein not misleading, 18
any person acquiring such security . . . may . . . sue . . . .”); 19
Securities Act of 1933 § 12(a)(2), 15 U.S.C. § 77l(a)(2) (2012) 20
(“Any person who . . . offers or sells a security . . . which 21
includes an untrue statement of a material fact or omits to state 22
a material fact necessary in order to make the statements . . . 23
not misleading . . . shall be liable . . . .”); In re Time Warner 24
9

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Inc. Sec. Litig., 9 F.3d 259, 269 (2d Cir. 1993) (“A duty to 1
disclose arises whenever secret information renders prior public 2
statements materially misleading . . . .”). 3
The district court dismissed the complaint for failure to 4
meet this requirement. We disagree and vacate the dismissal. We 5
intimate no view on any other issue. 6
While the statements regarding JinkoSolar being subject to a 7
variety of pollution regulations and the high cost of both 8
compliance and non-compliance are not misstatements, they are 9
relevant to the materiality of the prospectuses’ description of 10
JinkoSolar’s potential to cause serious pollution problems and 11
the steps it was taking to avoid those problems. With regard to 12
that description, we believe the complaint sufficiently alleges 13
that the failure to disclose that the prophylactic steps were 14
then failing to prevent serious ongoing pollution problems 15
rendered that description misleading. 16
a) Material Omissions 17
In general there is no duty to disclose a fact in the 18
offering documents “merely because a reasonable investor would 19
very much like to know that fact,” In re Time Warner, 9 F.3d at 20
267, but “[d]isclosure is required . . . when necessary ‘to make 21
. . . statements made, in light of the circumstances under which 22
they were made, not misleading.’” Matrixx Initiatives, Inc. v. 23
Siracusano, 131 S.Ct. 1309, 1321 (2011) (quoting 17 C.F.R. § 24
240.10b-5(b)). 25
10

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Even when there is no existing independent duty to disclose 1
information, once a company speaks on an issue or topic, there is 2
a duty to tell the whole truth. See Caiola v. Citibank, N.A., 3
295 F.3d 312, 331 (2d Cir. 2002) (“[T]he lack of an independent 4
duty is not . . . a defense to . . . liability because upon 5
choosing to speak, one must speak truthfully about material 6
issues. Once Citibank chose to discuss its hedging strategy, it 7
had a duty to be both accurate and complete.”). 3 As we have 8
stated: 9
The literal truth of an isolated statement is 10
insufficient; the proper inquiry requires an 11
examination of defendants' representations, 12
taken together and in context. Thus, when an 13
offering participant makes a disclosure about 14
a particular topic, whether voluntary or 15
required, the representation must be complete 16
and accurate. 17
18
In re Morgan Stanley Info. Fund Sec. Litig., 592 F.3d 347, 366 19
(2d Cir. 2010) (internal citations and quotation marks omitted). 20
b) Application 21
We address only the disclosures of the May prospectus 22
because our conclusion that they could be found by a trier of 23
fact to be materially misleading applies a fortiori to the later 24
repetition of those disclosures. 25
3 Because the May prospectus discussed the risks of pollution inherent
in JinkoSolar’s business and the general practices JinkoSolar had implemented
to cabin this risk, it put the issue “in play,” Shapiro v. UJB Financial
Corp., 964 F.2d 272, 282 (3d Cir. 1992), so we have no need to discuss whether
it had a duty to disclose such risks.
11

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As quoted above, the prospectus discussed JinkoSolar’s 1
pollution abatement equipment and its provision of monitoring 2
environmental teams on duty 24 hours a day. These statements 3
must be read in the context of the further disclosure by the 4
prospectus that JinkoSolar generates, uses, and stores “dangerous 5
chemicals and wastes” and is subject to Chinese regulations 6
regarding such chemicals and wastes. Amend. Compl. ¶ 82. The 7
prospectus also informed investors that compliance with such 8
regulations is costly and that non-compliance may lead to bad 9
publicity, fines, and even a suspension of the business. 10
All of the above may be technically true. However, the 11
description of pollution-preventing equipment and 24-hour 12
monitoring teams gave comfort to investors that reasonably 13
effective steps were being taken to comply with applicable 14
environmental regulations. To be sure, these descriptions did 15
not guarantee 100% compliance 100% of the time. Such compliance 16
may often be unobtainable, and reasonable investors may be deemed 17
to know that. However, investors would be misled by a statement 18
such as that quoted above if in fact the equipment and 24-hour 19
team were then failing to prevent substantial violations of the 20
Chinese regulations. 21
The complaint alleges that in June 2010 JinkoSolar submitted 22
a report to Chinese regulators about “existing problems.” This 23
report, quoted in detail supra, describes problems of a nature 24
12

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that is sufficient, if proven, to allow a trier of fact, absent 1
contrary evidence, to draw an inference that the problems 2
“existing” as of June 8, 2010, were both present and substantial 3
at the time of the May 13, 2010, offering. 4
The failure to disclose these problems in the May prospectus 5
could be found by a trier of fact to be an omission that renders 6
misleading the comforting statements in the prospectus about 7
compliance measures. This misleading omission is not cured by 8
the additional statement that non-compliance with the 9
environmental regulations may be very costly. Although this 10
statement warned of a financial risk to the company from 11
environmental violations, the failure to disclose then-ongoing 12
and serious pollution violations would cause a reasonable 13
investor to make an overly optimistic assessment of the risk. A 14
generic warning of a risk will not suffice when undisclosed facts 15
on the ground would substantially affect a reasonable investor’s 16
calculations of probability. Rombach v. Chang, 355 F.3d 164, 173 17
(2d Cir. 2004) (“Cautionary words about future risk cannot 18
insulate from liability the failure to disclose that the risk has 19
transpired.”) One cannot, for example, disclose in a securities 20
offering a business’s peculiar risk of fire, the installation of 21
a comprehensive sprinkler system to reduce fire danger, and omit 22
the fact that the system has been found to be inoperable, without 23
misleading investors. 24
13

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Of course, the misleading omission must be material, that 1
is, the omission must be of facts that a reasonable investor 2
would consider important. In re Morgan Stanley, 592 F.3d at 360. 3
That requirement is not much of a barrier to appellants’ 4
prevailing on a Fed. R. Civ. P. 12(b)(6) motion in this matter. 5
At the time the statements regarding pollution prevention and 6
compliance measures were made, a reasonable investor could 7
conclude that a substantial non-compliance would constitute a 8
substantial threat to earnings, if not to the entire venture. 9
Indeed, the prospectus said as much. Applying the Basic 10
formulation of measuring the importance of the event discounted 11
by the probability of its occurrence, Basic, Inc. v. Levinson, 12
485 U.S. 224, 238 (1988) (quoting SEC v. Texas Gulf Sulphur Co., 13
401 F.2d 833, 849 (2d Cir. 1968)), a trier of fact could find 14
that the existence of ongoing and substantial pollution problems 15
-- here the omitted facts -- was of substantial importance to 16
investors. 17
CONCLUSION 18
We therefore vacate the dismissal of the complaint and 19
remand. 20
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