IN RE: ORIGIN MATERIALS (2025)

MEMORANDUM AND ORDER RE: MOTION TO DISMISS SECOND AMENDED COMPLAINT

Lead plaintiff Todd Frega brings this putative class action against defendants Origin Materials Inc., Richard Riley, and John Bissell, alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act, 15 U.S.C. §§ 78j(b), 78t(a). The court previously dismissed plaintiff's Corrected Amended Complaint. (See Docket No. 82.) Plaintiff subsequently filed the Second Amended Complaint (Docket No. 85), which defendants move to dismiss (Docket No. 89).¹

I. Factual Background 2

Defendant Origin Materials (“Origin” or “the company”) is a publicly traded company that purports to produce “sustainable materials” by converting plant-based matter such as wood residues into materials that can replace the petroleum-based plastics typically used in consumer products. (Second Am. Compl. (“SAC”) (Docket No. 85) ¶ 5.) Defendants Bissell and Riley are the co-CEOs of Origin. (See id. ¶¶ 12, 14.)

Origin produces chloromethylfurfural (“CMF”), a “building block” chemical that can be converted into other products. (Id. ¶ 6.) As relevant here, CMF can be converted into (1) paraxylene (“PX”), a chemical used to produce a type of plastic called polyethylene terephthalate (“PET”); and (2) furandicarboxylic acid (“FDCA”), a chemical used to produce a different type of plastic called polyethylene furanoate (“PEF”). (See id.)³

In February 2021, Origin announced plans to build Origin 2, a manufacturing plant intended to focus on, inter alia, production of PX/PET, with construction to be completed by mid-2025. (See id. ¶¶ 41-43, 60, 71-75.)

In November 2021, Origin retained an outside engineering firm to conduct the “front-end loading” process, a multiphase development process involving “progressively refining the project scope, definition, and feasibility, ultimately paving the way for detailed engineering and construction.” (Id. ¶¶ 51, 59.)

Origin subsequently encountered chemical engineering issues related to scaling up the production of PX/PET. (See id. ¶¶ 86-88.) As a result, the plans for Origin 2 changed, with the plant to instead focus on the production of FDCA/PEF and construction to be delayed by several years. (See id. ¶¶ 89-92, 112-14.) On August 9, 2023, defendants publicly announced these changes. (See id. ¶¶ 151-55.) The company's share price subsequently fell. (See id. ¶¶ 162, 166-67.)

II. Section 10(b)

Section 10(b) of the Securities Exchange Act of 1934 makes it unlawful for any person to “ ‘use or employ, in connection with the purchase or sale of any security registered on a national securities exchange ․ any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the [Securities and Exchange] Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.’ ” In re Rigel Pharms., Inc. Sec. Litig., 697 F.3d 869, 876 (9th Cir. 2012) (quoting 15 U.S.C. § 78j(b)). “One of those rules promulgated under the Act is Securities and Exchange Commission Rule 10b–5,” id., which makes it unlawful to, inter alia, (a) “employ any device, scheme, or artifice to defraud,” (b) “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) “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.” 17 C.F.R. § 240.10b-5.

“To survive a motion to dismiss under this regime, [the plaintiff] must plead: (1) a material misrepresentation or omission by the defendant (‘falsity’); (2) scienter; (3) a connection between the misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss causation.” Espy v. J2 Glob., Inc., 99 F.4th 527, 535 (9th Cir. 2024) (quotation marks omitted).

“At the pleading stage, a complaint alleging claims under section 10(b) and Rule 10b–5 must ․ satisfy the heightened pleading requirements of both Federal Rule of Civil Procedure 9(b) and the Private Securities Litigation Reform Act” (“PSLRA”). Rigel Pharms., 697 F.3d at 876.

Rule 9(b) provides: “In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake.” Fed. R. Civ. P. 9(b). “Thus, Rule 9(b) requires particularized allegations of the circumstances constituting fraud, including identifying the statements at issue and setting forth what is false or misleading about the statement and why the statements were false or misleading at the time they were made.” Rigel Pharms., 697 F.3d at 876.

“Under the PSLRA, ‘the complaint shall [1] specify each statement alleged to have been misleading [and] the reason or reasons why the statement is misleading, and [2], 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.” In re Genius Brands Int'l, Inc. Sec. Litig., 97 F.4th 1171, 1180 (9th Cir. 2024) (quoting 15 U.S.C. § 78u-4(b)(1)(B)); see also Tellabs, Inc. v. Makor Issues & Rts., Ltd., 551 U.S. 308, 321 (2007) (same). The PSLRA also requires that the complaint “ ‘state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.’ ” Rigel Pharms., 697 F.3d at 882 (quoting 15 U.S.C. § 78u–4(b)(2)).

A. Confidential Witness & Supporting Allegations

In pleading the alleged violations, the complaint relies primarily upon statements attributed to a former Origin employee referred to as Confidential Witness 1 (“CW1”).

To comply with the PSLRA, “[a] complaint relying on confidential witness statements must describe the confidential witnesses ‘with sufficient particularity to establish their reliability and personal knowledge.’ ” Glazer Cap. Mgmt., L.P. v. Forescout Techs., Inc., 63 F.4th 747, 766-67 (9th Cir. 2023) (quoting Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981, 995 (9th Cir. 2009)). In determining whether the complaint has established the reliability and personal knowledge of a confidential witness, courts consider “the level of detail provided by the confidential witnesses, the plausibility of the allegations, the number of sources, the reliability of the sources, corroborating facts, and similar indicia of reliability.” Id. at 767.

1. Prior Order Finding Allegations of CW1 Insufficient

The court previously addressed the sufficiency of CW1's allegations in ruling on defendants’ motion to dismiss the Correct Amended Complaint. There, the court noted that the Corrected Amended Complaint (“CAC” (Docket No. 61)) attributed the following allegations to CW1:

In “late 2022” and “early 2023,” CW1 “learned from attending biweekly meetings with Origin's R&D group” that there were “unexpected chemical issues” (referred to as “fouling” occurring “at every step” of the PX/PET production process), leading to delays in the development process for Origin 2. ([CAC] ¶¶ 86, 88.) In December 2022, CW1 attended a meeting at which defendants Riley and Bissell provided updates on Origin 2, including that the company was “considering” changing the plans and construction schedule for Origin 2. (See id. ¶ 87.)

“CW1 further reported that in March 2023, based on emails with his direct manager and his attendance at weekly meetings held by Defendants Riley and Bissell, CW1 learned that Origin 2 was being broken up into two phases, was shifting to new products, and would no longer produce [PX/PET].” (Id. ¶ 89.) “CW1 also learned from these weekly Friday meetings with Defendants Riley and Bissell in March 2023, that [front-end loading] was being delayed for Origin 2.” (Id. ¶ 90.)

(Order Dismissing CAC (Docket No. 82) at 6-7.)

Based on the facts alleged in the Corrected Amended Complaint, the court concluded that “the allegations concerning what CW1 ‘learned’ at meetings attended by defendants are fatally vague, as they do not indicate ‘when this information was conveyed to [defendants], who conveyed it, or the substance of what was allegedly conveyed.’ ” (Order Dismissing CAC at 7 (quoting In re Ditech Commc'ns Corp. Sec. Litig., No. 05-cv-02406 JSW, 2007 WL 2990532, at *8 (N.D. Cal. Oct. 11, 2007)).)

The court also explained that the Corrected Amended Complaint “fail[ed] to allege with specificity what defendants’ role was during these meetings and whether defendants had access to the same information that was communicated to CW1,” expressing concern that what CW1 “learned” might not be based on reliable information. (See id.) Accordingly, the court concluded that “the statements attributed to CW1 -- which are foundational to plaintiff's allegations that defendants committed securities violations -- do not satisfy the PSLRA's particularity requirements,” and therefore granted the motion to dismiss the Corrected Amended Complaint. (Id. at 9.)

2. Amended CW1 Allegations

Plaintiff's Second Amended Complaint contains updated allegations attributed to CW1. Plaintiff's amendment has partially cured the defects previously identified by the court.

According to the Second Amended Complaint, CW1 was a “technical development engineer who was employed at Origin prior to and throughout the Class Period” and “worked on developing the technology for ․ converting CMF to PX for Origin 2.” (SAC ¶ 85.) CW1 was part of an engineering group that compiled chemistry data and sent it to the Origin 1 plant for further testing. (Id.) If the tests were successful, CW1 and his team would send the data to the outside engineering firm working on the “front-end loading” development process for Origin 2. (Id.)

The Second Amended Complaint rehashes several of the allegations from the prior complaint, including that in “late 2022” and “early 2023,” CW1 “learned from attending biweekly meetings with Origin's R&D group” that there were “unexpected chemical issues” (including “fouling” occurring “at every step” of the PX/PET production process), leading to delays in the development process for Origin 2. (See id. ¶¶ 86, 88.). Further, in December 2022, CW1 attended an all-hands meeting “helmed by” defendants Riley and Bissell, at which Riley and Bissell “revealed” that the company “was already considering scaling down the size of Origin 2, splitting the building of the plant into two phases, and shifting the focus of Origin 2 from PX to another product,” and explained that the company “would either have to make less [PX/PET] at the plant or pivot the production to another product due to the economics of [PX/PET].” (See id. ¶ 87.)

However, the amended complaint goes further and also provides new details concerning the pivotal March 2023 meeting. According to CW1, the meeting in question occurred on March 3, 2023 and was one of the recurring weekly meetings held via video conference on Fridays from 9-10am. (See id. ¶¶ 90-91.) These weekly meetings, which typically lasted an hour or more, were led by a moderator and included Bissell as a speaker. (Id. ¶ 90.) Bissell was a “huge contributor” to the weekly meetings and was “in charge” of them. (Id.)

CW1 elaborates that during the weekly meeting that took place on March 3, 2023, Bissell spoke to those in attendance concerning Origin 2, explaining that because of issues related to the poor performance of PX/PET and the high cost of the plant, Origin 2 would be “broken up into two phases, was shifting to new products, and would no longer produce PX[/PET].” (Id. ¶ 91.) “Accordingly, Bissell told the group [attending the meeting], ‘we are going to move in this new direction.’ ” (Id.) Further, Bissell “presented a detailed plan of action to move forward with the changes at Origin 2 away from PX production and the changes to plant construction.” (Id. ¶ 92.) CW1 explains that Bissell was the “first person [he] heard reveal that the [c]ompany would not produce PX[/PET] at Origin 2.” (Id. ¶ 91.)

The statements attributed to CW1 have sufficient indicia of personal knowledge and reliability. CW1 was an engineer working on Origin 2's development process, and it is “probab[le] that a person in the position occupied by [CW1] would possess the information alleged.” See Glazer, 63 F.4th at 767. The statements explain how, when, and from whom CW1 obtained the information (company meetings with Origin's R&D group and with Bissell) and provide detail concerning the information he learned regarding Origin 2's development. See In re Quality Sys., Inc. Sec. Litig., 865 F.3d 1130, 1145 (9th Cir. 2017) (indicating that information such as job titles, roles in company, attendance at meetings with defendant, and work on project at issue served to establish reliability and personal knowledge of confidential witnesses). Further, CW1's allegations are plausible given that the changed plans he describes were later confirmed by the company.

Defendants argue that CW1's statements are unreliable because they are internally inconsistent. Specifically, they point out that CW1 discussed the issues with Origin 2's development in several different ways, referring to “fouling issues” in manufacturing PX/PET, problems with Origin 2's “technology maturity,” and difficulties in “finaliz[ing] the chemistry for Origin 2” leading to delays in the front-end loading process. (See SAC ¶¶ 86, 89, 95.) These descriptions do not appear inconsistent, but rather refer to the same set of difficulties facing the company in Origin 2's development process. For instance, the complaint explicitly states that the “fouling issues resulted in the [c]ompany being unable to finalize the chemistry for Origin 2.” (Id. ¶ 86.)

Defendants also argue that CW1's new allegations are not credible because they contradict his allegations as stated in the Corrected Amended Complaint. The Corrected Amended Complaint stated that CW1 learned of the changes via “emails with his direct manager and his attendance at weekly meetings held by Defendants Riley and Bissell.” (CAC ¶ 89.) Defendants argue that the allegations concerning the emails are missing from the Second Amended Complaint. This is not so. The Second Amended Complaint merely adds greater specificity concerning the March 2023 meeting and emails, explaining that Bissell described the changed plans at the March 3, 2023 meeting and these changes were reiterated in emails with CW1's team -- which presumably included his manager -- later in the month. (See SAC ¶¶ 91-93.)

CW1's statements are also consistent with other allegations made in the complaint regarding the company's contracts with Avantium and Pepsi. The complaint alleges that on February 21, 2023, Origin entered into an agreement to license Avantium's technology, enabling Origin to convert CMF into FDCA at a commercial scale. (SAC ¶¶ 94-98.) Discussing the agreement during a call with analysts, Avantium's CEO implied that Origin would produce FDCA/PEF at Origin 2. (See id. ¶ 100.) The Avantium agreement lends credence to CW1's allegation that by the following month, Origin had affirmatively decided to shift towards FDCA/PEF production at Origin 2.⁴

The complaint further alleges that on May 9, 2023, Origin finalized amendments to an existing “offtake” agreement (i.e., an agreement to purchase goods from a supplier) with Pepsi. (See id. ¶ 101.) The original offtake agreement provided, inter alia, that Pepsi had a five-year term to purchase a specified amount of PX/PET from Origin 2. (Id. ¶ 102.) It allowed Pepsi to terminate the contract if Origin 2 did not begin commercial operation by June 30, 2025 and required Origin to provide regular progress reports concerning the construction of Origin 2. (Id. ¶ 103.) If Origin obtained actual knowledge that there was a substantial likelihood Origin 2 would not begin production by June 30, 2025, Origin was required to notify Pepsi and provide an updated estimated timeline. (Id. ¶ 104.)

The May 9, 2023 amendment revised the commercial operation deadline to June 30, 2026. (Id. ¶ 105.) The amended agreement also permitted Origin to provide Pepsi with FDCA/PEF from Origin 2 (rather than only PX/PET), stating that Origin was “focused on carrying out its strategic plan to accelerate production of FDCA and PEF ․” (Id. ¶¶ 106-107.) This agreement bolsters the credibility of CW1's allegation that by March 2023, the company had already decided to shift Origin 2 to FDCA/PEF production and to delay Origin 2's construction schedule.

Based on the foregoing, the statements attributed to CW1 bear sufficient indicia of reliability and personal knowledge to be relied upon in analyzing whether the section 10(b) requirements are satisfied.

B. Scienter

Scienter is “ ‘a mental state embracing intent to deceive, manipulate, or defraud.’ ” Or. Pub. Emps. Ret. Fund v. Apollo Grp. Inc., 774 F.3d 598, 607 (9th Cir. 2014) (quoting Tellabs, 551 U.S. at 319). “A defendant who makes misrepresentations or omissions ‘either intentionally or with deliberate recklessness acts with scienter.’ ” Id. (quoting In re Daou Sys., Inc., 411 F.3d 1006, 1015 (9th Cir. 2005)). “Deliberate recklessness is a higher standard than mere recklessness,” representing “an extreme departure from the standards of ordinary care ․ which presents a danger of misleading buyers or sellers that is either known to the defendant or is so obvious that the actor must have been aware of it.” Espy, 99 F.4th at 535–36 (internal quotation marks omitted).

“To adequately plead scienter under the PSLRA, the complaint must ‘state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.’ ” Rigel Pharms., 697 F.3d at 882 (quoting 15 U.S.C. § 78u–4(b)(2)). “The inquiry ․ is whether all of the facts alleged, taken collectively, give rise to a strong inference of scienter, not whether any individual allegation, scrutinized in isolation, meets that standard.” Tellabs, 551 U.S. at 322–23. “The ‘strong inference’ ‘must be cogent and compelling, thus strong in light of other [countervailing] explanations,’ not merely ‘reasonable’ or ‘permissible.’ ” In re NVIDIA Corp. Sec. Litig., 768 F.3d 1046, 1052 (9th Cir. 2014) (quoting Tellabs, 551 U.S. at 324) (alteration in original).

Plaintiff relies on the allegations already discussed above to establish scienter -- namely, the statements attributed to CW1, the agreement with Avantium, and the amendment to the Pepsi offtake agreement. To plead scienter based on confidential witness statements, the complaint “must satisfy two hurdles imposed by the PSLRA.” Espy, 99 F.4th at 536. “First, the confidential witnesses whose statements are introduced to establish scienter must be described with sufficient particularity to establish their reliability and personal knowledge. Second, those statements which are reported by confidential witnesses with sufficient reliability and personal knowledge must themselves be indicative of scienter.” Id. The court has already completed the first step of the inquiry by establishing the reliability and personal knowledge of CW1. The court thus turns to the question of whether the confidential witness statements are indicative of scienter on the part of each defendant.

Based on the allegations provided, plaintiff has adequately pled scienter as to Bissell and the company, but not as to Riley.

1. Bissell and The Company

As relevant here, CW1 states that at the March 3, 2023 meeting, Bissell informed the meeting attendees that Origin 2 “would now be broken up into two phases, was shifting to new products, and would no longer produce [PX/PET],” telling the group that the company was “ ‘going to move in this new direction.’ ” (See SAC ¶ 91.) Bissell also presented a “detailed plan of action” by which the changes would be implemented. (Id. ¶ 92.) These allegations clearly support a strong inference that Bissell had knowledge of the changed plans; it need hardly be said that Bissell had knowledge of what he himself said at the meeting.

As discussed above, CW1's allegations indicating that Bissell knew of the changed plans by March 3, 2023 are consistent with the February 21, 2023 Avantium agreement that would allow Origin to produce FDCA/PEF, and the May 9, 2023 Pepsi amendment that pushed back the deadline for production at Origin 2 and would allow Origin to provide Pepsi with FDCA/PEF rather than only PX/PET. While these agreements are not themselves indicative of scienter, they bolster CW1's allegations that the decision to change the plans for Origin 2 had already been made by March 3, 2023.

The “core operations” doctrine provides further support concerning Bissell's knowledge. Pursuant to this doctrine, the court “may consider a senior executive's role in a company to determine whether there is a cogent and compelling inference that the senior executive knew of the information at issue,” including “consideration of the executive's access to the information, and, whether, given the importance of the information, it would be ‘absurd’ to suggest that management was without knowledge of the matter.” In re Alphabet, Inc. Sec. Litig., 1 F.4th 687, 706 (9th Cir. 2021) (cleaned up, emphasis added).

Origin 2 was a highly important project -- Origin's first large-scale plant -- and Bissell was a co-CEO of the company who regularly communicated with investors concerning the company's technology and provided updates about Origin 2's development. (See SAC ¶¶ 14, 41-45, 62-65, 69, 73, 75, 77-81, 87, 90-92, 113, 119, 131, 139, 145, 148, 154-59.) “[I]n conjunction with [the] detailed and specific allegations about [Bissell]’s exposure to factual information within the company” concerning the changed plans for Origin 2, Bissell's role in the company and the importance of the information at issue contribute to a strong inference of scienter. See S. Ferry LP, No. 2 v. Killinger, 542 F.3d 776, 785 (9th Cir. 2008); see also Quality Sys., 865 F.3d at 1145 (executives’ public representations that they possessed “access to, and knowledge of” sales information indicated that they possessed scienter concerning detrimental changes to sales pipeline).

Once Bissell allegedly had knowledge of the affirmative changes to the plans for Origin 2, it would have been abundantly clear that any representations to the contrary (discussed below) were likely to mislead consumers regarding the plant's development. “When the defendant is aware of the facts that made the statement misleading, he cannot ignore the facts and plead ignorance of the risk.” See S.E.C. v. Platforms Wireless Int'l Corp., 617 F.3d 1072, 1094 (9th Cir. 2010) (defendant acted with deliberate recklessness in issuing press release touting company's new product when defendant knew the product did not exist); see also Flynn v. Sientra, Inc., No. 15-cv-07548 SJO RAO, 2016 WL 3360676, at *12–14 (C.D. Cal. June 9, 2016) (finding plaintiff pled scienter based on statements attributed to one confidential witness and core operations doctrine).

Accordingly, plaintiff has pled that defendant Bissell possessed scienter, which can be imputed to defendant Origin. See Alphabet, 1 F.4th at 706 (“the ‘scienter of the senior controlling officers of a corporation may be attributed to the corporation itself to establish liability as a primary violator of § 10(b) and Rule 10b-5 when those senior officials were acting within the scope of their apparent authority’ ”) (quoting In re ChinaCast Educ. Corp. Sec. Litig., 809 F.3d 471, 475 (9th Cir. 2015)).

2. Riley

In contrast, noticeably absent from the Second Amended Complaint are any allegations concerning whether or when Riley knew of the changes to Origin 2 during the class period. While the complaint alleges that Riley discussed that the company was “considering” changing the plans for Origin 2 in December of 2022 (SAC ¶ 87), this allegation alone does not support a strong inference concerning Riley's knowledge of the final decision to change the plans communicated by Bissell at the March 3, 2023 meeting. Although Riley was co-CEO, the core operations doctrine does not suffice to establish a strong inference of scienter in the absence of allegations concerning Riley's access to information concerning the final changes. See Alphabet, 1 F.4th at 706; S. Ferry, 542 F.3d at 785. For instance, it is possible that Riley was less involved in or knowledgeable about the technological aspects of the company than Bissell. Accordingly, plaintiff has failed to plead Riley possessed scienter and his claims will be dismissed as against defendant Riley.

C. False or Misleading Statements

“In setting forth the reasons why they contend that each challenged statement is misleading, securities plaintiffs may rely on either an affirmative misrepresentation theory or an omission theory.” Wochos v. Tesla, Inc., 985 F.3d 1180, 1188 (9th Cir. 2021). “Under Rule 10b-5, an affirmative misrepresentation is an ‘untrue statement of a material fact,’ and a fraudulent omission is a failure 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.’ ” Id. (quoting See 17 C.F.R. § 240.10b-5(b)).

“To determine whether a statement or omission is misleading, ‘our central inquiry is whether a reasonable investor would have been misled about the nature of his investment.’ ” Genius Brands, 97 F.4th at 1181 (quoting In re VeriFone Sec. Litig., 11 F.3d 865, 869 (9th Cir. 1993)). “This is an objective inquiry that requires us to assess ‘whether an investor who had been reasonably diligent in reviewing’ the statement or omission at issue ‘would have been misled.’ ” Id. (quoting Durning v. First Bos. Corp., 815 F.2d 1265, 1268 (9th Cir. 1987)).

Courts typically perform a separate analysis of each disclosure pursuant to the PSLRA's requirement that plaintiffs “specify each statement alleged to have been misleading.” See Zhou v. Desktop Metal, Inc., 120 F.4th 278, 293 (1st Cir. 2024) (“When a plaintiff alleges multiple false or misleading statements, we perform our analysis statement by statement, considering each statement in turn.”); Bondali v. Yum! Brands, Inc., 620 F. App'x 483, 491 (6th Cir. 2015) (“[O]ther circuits, like this circuit, undertake a statement-by-statement analysis.”); In re Eventbrite, Inc. Sec. Litig., No. 5:18-cv-02019-EJD, 2020 WL 2042078, at *10 (N.D. Cal. Apr. 28, 2020) (“[F]or falsity, the Court must do a statement-by-statement analysis.”).

Plaintiff argues that defendants made several statements and omissions that misled consumers concerning both the construction timeline of Origin 2 and the products to be produced at Origin 2. Specifically, they allege that defendants continued to represent that Origin 2 would produce PX/PET and construction would be completed by mid-2025, despite knowing that Origin 2 would instead produce FDCA/PEF and would not be completed by that date.⁵

1. Statements Prior to March 3, 2023

As discussed above, CW1 alleges that by March 3, 2023, the company affirmatively changed course such that Origin 2 would “be broken up into two phases, was shifting to new products, and would no longer produce PX[/PET].” (See SAC ¶ 91.) However, CW1's statements indicate that prior to March 3, 2023, CW1 learned only that defendants had confronted technical difficulties and delays and “consider[ed]” alternative plans for Origin 2. (See id. ¶¶ 86-88.) Although the complaint also alleges that Origin entered the Avantium licensing agreement on February 21, 2023, that agreement alone is insufficient to plead that defendants definitively changed the plans for Origin 2 prior to March 3, 2023; it is possible that in February 2023, Origin had only decided to incorporate FDCA/PEF into Origin 2 alongside PX/PET, rather than in lieu of it. (See id. ¶ 87 (in December 2022, Riley and Bissell “stated that the [c]ompany would either have to make less [PX/PET] at the plant or pivot the production to another product”).)

Defendants were under no obligation to disclose these developing technical difficulties and potential future plans, as their omission did not render representations about the plans for Origin 2 (to produce PX/PET and be completed by mid-2025) misleading. “[C]ompanies do not have an obligation to offer an instantaneous update of every internal development, especially when it involves the oft-tortuous path of product development,” but rather must “disclose a negative internal development only if its omission would make other statements materially misleading.” See Weston Fam. P'ship LLLP v. Twitter, Inc., 29 F.4th 611, 620 (9th Cir. 2022).

It appears from the complaint that the company at first attempted to work through the technical issues and continue the development process based on the original plan for Origin 2. CW1 and his team were “falling behind” in their work for Origin 2's front-end loading development process in late 2022 and engineers “started developing solutions for the issues” in early 2023. (SAC ¶¶ 86, 88.) As a result of the technological difficulties, in December 2022, “CW1 was instructed that the [c]ompany was far off from completing [the front-end loading process] for Origin 2.” (Id. ¶ 87.) These allegations indicate that the company was still working towards completing the in-progress development process despite the problems. By contrast, CW1 learned for the first time on March 3, 2023 that the plans for Origin 2 had changed entirely. (See id. ¶ 91.)

While CW1 states that “the plan announced on March 3, 2023 was likely formulated months in advance because it was well thought out by the time it was conveyed by Bissell ․ at the March 3, 2023 meeting” (see id. ¶ 92), this is pure conjecture. Based on the complaint, the court has no way of inferring how long the plans had been formulated prior to Bissell's announcement at the March 3, 2023 meeting. Although the company was “considering” alternative plans for Origin 2 prior to that meeting (see SAC ¶ 87), “[t]he existence of a contingency plan does not evince an intent to execute that plan.” See In re Intel Corp. Sec. Litig., No. 5:20-cv-05194 EJD, 2023 WL 2767779, at *19 (N.D. Cal. Mar. 31, 2023), aff'd, No. 23-15695, 2024 WL 1693340 (9th Cir. Apr. 19, 2024).

Accordingly, the complaint fails to plead that any statements or omissions concerning the plans for Origin 2 made prior to March 3, 2023 -- namely, the Press Release, Earnings Call, PowerPoint, and Form 10-K dated February 23, 2023 (see SAC ¶ 115-20) -- were false or misleading. See In re Stac Elecs. Sec. Litig., 89 F.3d 1399, 1404 (9th Cir. 1996) (“the statement or omission must be shown to have been false or misleading when made”); Weston, 29 F.4th at 622 (“without more, temporal proximity alone does not satisfy the particularity requirements of Rule 9(b)”); Glazer, 63 F.4th 777 (plaintiffs failed to plead that company partnerships terminated “prior to the date on which [defendant] made the alleged statements [to the contrary], and therefore failed to plead falsity”). Accordingly, plaintiff's claims will be dismissed insofar as they are premised on statements made prior to March 3, 2023.

2. March 7, 2023 PowerPoint

A PowerPoint presentation posted to the company's website on March 7, 2023 stated that Origin 2 was “expected” to use sustainable materials “to make PET,” and that construction was “expected to start by mid-2023,” with the plant “expected to be operational mid-2025.” (SAC ¶ 127.)

As explained above, CW1 alleges that by March 3, 2023, defendants had affirmatively made the decision to change the plans for Origin 2, which would no longer produce PX/PET and would not be completed by mid-2025. Assuming the truth of that allegation, the statements to the contrary in the March 7 PowerPoint presentation were false because they “affirmatively created an impression of a state of affairs that differed in a material way from the one that actually existed.” See Quality Sys., 865 F.3d at 1144 (quoting Brody v. Transitional Hosps. Corp., 280 F.3d 997, 1006 (9th Cir. 2002)) (alterations adopted); see also id. at 1143 (“reassuring investors that ‘everything [was] going fine’ with FDA approval when the company knew FDA approval would never come was materially misleading,” as was a statement that a company “ ‘anticipate[d] a continuation of its accelerated expansion schedule’ when the expansion had already failed”) (citations omitted).

That the representations concerning Origin 2 were couched in terms of subjective “expectations” makes no difference. Even if defendants “sincerely believed” that Origin 2 would be completed as originally planned, that expectation did not “fairly align with the information in [defendants’] possession at the time” -- i.e., that Origin would not be proceeding as planned, but would instead produce FDCA/PEF and would not be completed in 2025. See Glazer, 63 F.4th at 779; see also Omnicare, Inc. v. Laborers Dist. Council Const. Indus. Pension Fund, 575 U.S. 175, 185 (2015) (opinion statements can “contain embedded statements of fact,” which “may be read to affirm not only the speaker's state of mind ․ but also an underlying fact”). Based on the allegations of the complaint, these statements were not merely projections made amidst uncertainty concerning Origin 2's development, but rather directly contradicted the new, concrete plans for the plant. Accordingly, plaintiff has pled that the representations in the March 7, 2023 PowerPoint were false or misleading.⁶

3. May 10, 2023 Press Release

According to a press release dated May 10, 2023: “For Origin 2, the Company continues to make progress on front-end design, construction planning, and financing.” (SAC ¶ 129.)

“ ‘[V]ague statements of optimism’ are generally not actionable because investors ‘know how to devalue the optimism of corporate executives.’ ” Glazer, 63 F.4th at 770 (quoting In re Cutera Sec. Litig., 610 F.3d 1103, 1111 (9th Cir. 2010)). A “pure statement of opinion” is also “generally not actionable.” Wochos, 985 F.3d at 1196 (citing Omnicare, 575 U.S. at 187).

A statement that Origin “continue[d] to make progress” in the development process for Origin 2 (SAC ¶ 129) is merely an optimistic opinion and is not actionable unless the company had been “making no progress at all.” See Wochos, 985 F.3d at 1195-96 (statement that company was “making great progress” towards achieving manufacturing goal was not actionable, even if company was aware of problems that could prevent company from meeting that goal). Plaintiffs have pled “no facts that would establish falsity in that sense.” See id. As the complaint alleges, the development process for Origin 2 was still ongoing (albeit with setbacks and changes), and thus it cannot be said that no “progress” was occurring. See id.; see also Weston, 29 F.4th at 620 (statements that company was “continuing [its] work” on “ongoing” project did not suggest that project was “on track,” but rather provided a “vaguely optimistic assessment” that was not false or misleading); Macomb Cnty. Emps.’ Ret. Sys. v. Align Tech., Inc., 39 F.4th 1092, 1099 (9th Cir. 2022) (statements that sales market was a “huge market opportunity” and “growing significantly for us” were not false or misleading but were merely “feel-good descriptions from [defendant's] executives” because the market was still growing, “albeit at a diminished rate”). The complaint therefore fails to plead that this statement concerning “progress” was false or misleading.

Plaintiff also points to a statement in the press release that Origin had “made progress developing new products and applications that may be incorporated into the design of the plant, including FDCA, PEF, and biofuels.” (SAC ¶ 129.) However, as plaintiff alleges, Origin 2 did, in fact, shift towards producing FDCA/PEF. (See id. ¶ 152.) The statement at issue suggested to consumers that Origin 2 may incorporate FDCA/PEF production, and the company later confirmed this plan. (See id.) Thus, based on plaintiff's allegations, this statement was neither false nor misleading.

4. May 10, 2023 1Q’23 Earnings Call

During an investor earnings call on May 10, 2023, defendant Bissell stated that the company “continue[d] to advance for design, construction, planning, and financing.” (SAC ¶ 131.) Bissell also stated that he was “proud of how our team continues to execute against our Origin 1 and Origin 2 milestones.” (Id.) For the reasons given above, these are merely statements of optimism and opinion that are not actionable as securities violations. See Glazer, 63 F.4th at 770; Wochos, 985 F.3d at 1195-96; see also In re Atossa Genetics Inc. Sec. Litig., 868 F.3d 784, 799–800 (9th Cir. 2017) (company's statement that it was “reasonably confident” was not actionable).

During the call, Bissell also represented that the company “continue[d] to make progress developing new products and applications, which may be incorporated into the design of the plant such as FDCA, which can be converted to [P]EF ․” (SAC ¶ 131.) As explained above, plaintiffs have not pled that this representation is false or misleading, as Origin did ultimately incorporate FDCA/PEF into the plant design.

5. May 10, 2023 1Q’23 Form 10-Q

Origin's Form 10-Q dated May 10, 2023 stated that “[w]e continue to make progress on front-end design, construction planning, and financing.” (SAC ¶ 132.) For the reasons given above, this general statement concerning “progress” in Origin 2's development is not actionable. See Glazer, 63 F.4th at 770; Wochos, 985 F.3d at 1195-96.

Form 10-Q also provided Origin's standard cautionary language, including the following: (1) “Construction of our plants may not be completed in the expected timeframe or in a cost effective manner”; (2) “There is a risk that significant unanticipated costs or delays could arise due to, among other things, ․ unforeseen technical issues or increases in plant and equipment costs ․”; (3) “[W]e may not be able to resolve all of the difficulties that may arise in a timely or cost-effective manner, or at all”; (4) “If we experience delays or increased costs, our estimates and assumptions are incorrect, or other unforeseen events occur, our business, ability to supply customers, financial condition, results of operations and cash flows could be adversely impacted”; and (5) “[W]e may not be successful or efficient in developing or implementing new production processes” due to risks including “difficulties in designing, developing, implementing, and scaling up new process technologies, development and production timing delays ․” (SAC ¶ 136 (emphasis added).)

The complaint plausibly alleges that the cautionary language referring to purely hypothetical engineering difficulties and construction delays was misleading, given that defendants allegedly knew such problems had already manifested with respect to Origin 2. As the Ninth Circuit has explained, “[r]isk disclosures that ‘speak entirely of as-yet-unrealized risks and contingencies’ and do not ‘alert the reader that some of these risks may already have come to fruition’ can mislead reasonable investors.” Alphabet, 1 F.4th at 703 (quoting Berson v. Applied Signal Tech., Inc., 527 F.3d 982, 985–87 (9th Cir. 2008)) (alterations adopted); see also In re Facebook, Inc. Sec. Litig., 87 F.4th 934, 948–49 (9th Cir. 2023) (plaintiff pled falsity of risk disclosure stating that “our users’ data may be improperly accessed, used, or disclosed” where company knew that user data had already been accessed by third party) (emphasis in original). “Defendants cannot rely on boilerplate language describing hypothetical risks to avoid liability for the failure to disclose that the company already had information” indicating that the risk spoken of had already occurred. Glazer, 63 F.4th at 779. Accordingly, plaintiff has pled that Origin's cautionary language was misleading.

6. May 10, 2023 Fireside Chat 7

Also on May 10, 2023, Bissell participated in a virtual “fireside chat” that was disseminated to investors on the company's website. (SAC ¶ 138.) During the discussion, Bissell discussed and promoted Origin's process for producing PET, and stated that Origin's PET is “identical to PET that's made for [sic] fossil materials” and is a “next-generation PET that has better performance in a whole bunch of areas.” (Id. ¶ 139.)

Plaintiff argues that these statements were false or misleading because they gave the impression that Origin 2 would still produce PX/PET. However, the statements at issue were not specific to Origin 2. The complaint does not suggest that the company entirely abandoned PX/PET, only that Origin 2 would no longer produce that material. Indeed, the complaint indicates that PX/PET was also intended to be a “primary product” at both Origin 1 and Origin 3. (See SAC ¶ 60.) The complaint therefore fails to plead that these statements concerning the company's production of PX/PET are false or misleading.

7. May 12, 2023 PowerPoint

A PowerPoint presentation posted to the company's website on May 12, 2023 stated that Origin 2 was “expected” to use sustainable materials “to make PET,” and that construction was “expected to start by mid-2023,” with the plant “expected to be operational mid-2025.” (SAC ¶ 141.) This language is identical to the language in the March 7, 2023 PowerPoint already discussed. As the court concluded above, plaintiff has adequately alleged that this language was false or misleading.

8. May 22, 2023 Fireside Chat 8

In a May 22, 2023 virtual “fireside chat” posted on the company's website, Bissell discussed the PET market and PET recycling process, stating, inter alia, that “mechanically recycled PET ․ is just not quite the same as new material that we can make” and that Origin's PET has a “lower carbon footprint.” (SAC ¶ 145.) As explained above, the complaint does not allege that the company was ceasing to produce PX/PET altogether, only that Origin 2 would not produce PX/PET. Because these statements do not represent that Origin 2 would produce PX/PET, they are not false or misleading.

9. June 8, 2023 Fireside Chat 9

In a June 8, 2023 virtual “fireside chat” posted on the company's website, Bissell discussed the PX/PET production process in general and the benefits of PX/PET, stating that “for us, going into PET was very intentional.” (SAC ¶ 148.)

As explained above, the complaint does not allege that the company was ceasing to produce PX/PET altogether, only that Origin 2 would not produce PX/PET. Because Bissell's discussion of PX/PET during this fireside chat does not represent that Origin 2 would produce PX/PET, it was not false or misleading.

Based on the foregoing, the court concludes that plaintiff has pled falsity only as to the statements concerning Origin 2's timeline and production of PX/PET in the March 7, 2023 PowerPoint; the cautionary language in the May 10, 2023 1Q’23 Form 10-Q; and the statements concerning Origin 2's timeline and production of PX/PET in the May 12, 2023 PowerPoint.

D. Loss Causation

“Plaintiffs in securities fraud actions must allege loss causation” -- i.e., that the alleged securities violations caused the plaintiffs to suffer an economic loss. See Genius Brands, 97 F.4th at 1183. “In a fraud-on-the-market case like this one, loss causation ‘begins with the allegation that the defendant's misstatements (or other fraudulent conduct) artificially inflated the price at which the plaintiff purchased her shares.’ ” Id. (quoting In re BofI Holding, Inc. Sec. Litig., 977 F.3d 781, 789 (9th Cir. 2020)). “Next, a plaintiff must allege that ‘the truth became known.’ ” Id. (quoting Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 347 (2005)). “Finally, a plaintiff must allege that the revelation caused the fraud-induced inflation in the stock's price to be reduced or eliminated.” Id. (quotation marks omitted). “At that point, the plaintiff has suffered an economic loss caused by the misstatements because she is no longer able to recoup in the marketplace the inflationary component of the price she originally paid.” BofI, 977 F.3d at 789.

“The most common way for plaintiffs to prove that ‘the truth became known’ is to identify one or more corrective disclosures.” Genius Brands, 97 F.4th at 1184 (quoting BofI, 977 F.3d at 790). A corrective disclosure occurs when “ ‘information correcting the misstatement or omission that is the basis for the action is disseminated to the market.’ ” BofI, 977 F.3d at 790. (quoting 15 U.S.C. § 78u-4(e)(1)).

“The plaintiff need not show ‘that a misrepresentation was the sole reason’ for a price decline, but rather that it was ‘one substantial cause.’ ” Genius Brands, 97 F.4th at 1183 (quoting Daou, 411 F.3d at 1025). “In the end, loss causation is simply a variant of proximate cause, and the ultimate issue is whether the defendant's misstatement, as opposed to some other fact, foreseeably caused the plaintiff's loss.” Id. (cleaned up). “Plaintiffs need only show a causal connection between the fraud and the loss.” Id. (cleaned up).

Here, plaintiff alleges that Origin's August 9, 2023 press release constituted a corrective disclosure because it revealed, inter alia, that Origin 2's construction was being delayed -- with “Phase 1 [of construction] start-up projected for late 2026 to 2027 and Phase 2 start-up projected for 2028” -- and that Origin 2 would “focus on the production of FDCA[/PEF]” rather than PX/PET. (See SAC ¶¶ 151-52.) As the above discussion indicates, this press release directly contradicts the previous representations that Origin 2 would make PX/PET and that the plant was expected to begin construction by mid-2023 and begin operations mid-2025. (See id. ¶¶ 127, 141.) The complaint further explains that “[a]nalysts were shocked by the substantial Origin 2 delays and changes,” with one analyst noting that “with Origin 2 delayed and significantly more expensive than indicated earlier,” the company's “investment case is broken.” (Id. ¶ 164.) Another analyst referred to the “decision to shift planned Origin 2 production” as a “major curveball.” (Id. ¶ 165.)

Over the course of the day following the announcement, Origin's “share price fell $2.87 per share, or 66.5%, to close at $1.46 per share on August 10, 2023.” (Id. ¶ 162.) The share price continued to fall in the following weeks, closing at $0.99 per share on October 31, 2023. (Id. ¶ 167.) Plaintiff alleges that these drops in share price immediately following the corrective disclosure indicate that Origin's stock price had been “artificially inflated due to [d]efendants’ false and misleading public statements,” and the decline in stock price was “a direct result of [d]efendants’ misrepresentations and omissions being revealed to the market.” (Id. ¶¶ 213, 215.)

Here, plaintiff has adequately pled loss causation. He “identif[ied] a specific economic loss: the [immediate] drop in value on [August 10, 2023], that followed the [August 9, 2023] press release” -- which directly contradicted information previously disseminated by defendants -- and he “allege[d] that this loss was caused by [defendants’] misrepresentations.” See In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1056 (9th Cir. 2008); see also BofI, 977 F.3d at 791 (plaintiffs pled loss causation by alleging drop in stock price of more than 30% occurred “immediately after” corrective disclosure). Accordingly, the complaint will not be dismissed on this ground.

III. Section 20(a)

Section 20(a) of the Securities Exchange Act “makes certain ‘controlling’ individuals also liable for violations of section 10(b) and its underlying regulations.” Zucco, 552 F.3d at 990. “Controlling persons liability under Section 20(a) ․ is derivative, such that there is no individual liability where there is no primary violation of securities law.” Genius Brands, 97 F.4th at 1180.

Defendants argue only that because plaintiff fails to plead a claim under section 10(b), his claim under section 20(a) also fails. (See Docket No. 89 at 48 n.10.) As discussed above, plaintiff has adequately pled a violation of section 10(b). Accordingly, the claim under section 20(a) will not be dismissed.

IT IS THEREFORE ORDERED that defendants’ motion to dismiss (Docket No. 89) be, and the same hereby is, GRANTED on all claims against defendant Richard Riley.

IT IS FURTHER ORDERED that on the claims against defendants John Bissell and Origin Materials, Inc. the motion to dismiss is GRANTED as to the following:

• All statements dated February 23, 2023;

• May 10, 2023 Press Release;

• May 10, 2023 1Q’23 Earnings Call;

• Statements about “progress” in May 10, 2023 1Q’23 Form 10-Q;

• May 10, 2023 Fireside Chat;

• May 22, 2023 Fireside Chat; and

• June 8, 2023 Fireside Chat;

And is DENIED as to the following:

• March 7, 2023 PowerPoint;

• Cautionary language in May 10, 2023 1Q’23 Form 10-Q; and

• May 12, 2023 PowerPoint.

Plaintiff has twenty days from the date of this Order to file an amended complaint, if he can do so consistent with this Order.

FOOTNOTES

1.   Pursuant to the parties’ stipulation, on November 25, 2024 the court set oral argument on defendants’ motion to dismiss the Second Amended Complaint for February 18, 2025. (Docket No. 88.) On February 7, 2025 -- less than two weeks prior to a hearing that had been set for months -- the parties submitted a new stipulation to continue the hearing one month, to March 17, 2025, based on an unspecified “family event.” (Docket No. 95.) The court approved that stipulation. On February 11, 2025, the parties submitted a third stipulation, seeking to continue the hearing an additional two weeks to March 31, 2025. (Docket No. 96.)The issues have been thoroughly briefed by the parties and the court has carefully considered all arguments raised. Rather than further delay resolution of the matter, the court will decide the motion on the papers without oral argument pursuant to Local Rule 230(g). The scheduled March 17, 2025 hearing on the motion is hereby VACATED.

3.   The complaint frequently refers to PX and PET interchangeably or as one unit. As such, the court will refer to the first product line as “PX/PET.” The court will refer to the second product line as “FDCA/PEF.”

4.   Defendants argue that the complaint mischaracterizes the Avantium partnership by omitting portions of the Avantium CEO's statements, which are incorporated by reference, see Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988, 1002 (9th Cir. 2018). Specifically, defendants point to the Avantium CEO's discussion of an offtake agreement whereby Avantium would sell FDCA/PEF to Origin. (See Def.’s Ex. 16 (Docket No. 90-16) at 2.) This information does not change the analysis. That Origin agreed to purchase FDCA/PEF from Avantium does not negate that Origin had also licensed technology to produce FDCA/PEF at its own plants. Indeed, it appears that the offtake agreement was intended not to supplant, but to “support ․ the industrial technology license agreement” whereby Origin would produce FDCA/PEF. (See id.)

5.   Defendants dispute that the statements or omissions were false or misleading, but do not dispute that they were material.

6.   Defendants represent that this presentation was accompanied by the company's cautionary language. However, there is nothing before the court, whether in the complaint or provided as an exhibit, indicating that the March 7, 2023 PowerPoint was accompanied by cautionary language. Regardless, as discussed in further detail below, plaintiff has sufficiently alleged that the cautionary language itself was misleading, so its inclusion would not activate the PSLRA's “safe harbor” protection. See 15 U.S.C. § 78u-5(c)(1); Glazer, 63 F.4th at 781.

WILLIAM B. SHUBB, UNITED STATES DISTRICT JUDGE