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March 2020: Complete Defense Verdict in Section 10(b) Securities Fraud Trial

March 2020

On January 29, 2020, in one of the rare Section 10(b) securities fraud cases to go to trial, Quinn Emanuel obtained a complete defense verdict for, its CEO, Thomas Siebel, and former COO, David Schmaier. Plaintiffs—who were former shareholders of an energy efficiency start-up “E2.0”—asserted claims of federal securities fraud, Delaware common law fraud, and breach of contract arising from C3’s acquisition of E2.0 in 2012.  Plaintiffs alleged damages of $68.75 million, but instead walked away with nothing and were ordered to pay Defendants’ attorney’s fees and costs. 

The litigation arose from a 2012 stock-for-stock merger through which C3, a leading AI software provider, acquired E2.0.  C3 pursued the merger believing E2.0’s software, which focused on the residential market, could complement its own software for large commercial and industrial companies.  E2.0 believed the possibility of obtaining equity in an early-stage company founded by Siebel was a “once in a lifetime proposition.”  

Although C3 had hoped the E2.0 business would thrive post-merger, it did not.  Within months, the E2.0 business unit was shut down and its residential software was abandoned.  Plaintiffs brought suit, claiming Defendants (1) falsely represented that C3 was worth $500 million during merger negotiations; (2) made a number of other misrepresentations regarding C3’s business and prospects; and (3) breached the merger agreement by interfering with E2.0’s ability to meet its “earnout” and not issuing “holdback” shares due to indemnification breaches.  

Following a 7-day bench trial, Judge Colm Connolly of the United States District Court for the District of Delaware rejected each of the Plaintiffs’ claims.  In his written opinion, Judge Connolly  repeatedly wrote that C3’s witnesses were “highly credible,” while simultaneously finding that Quinn Emanuel had shown the Plaintiffs’ witnesses were “not credible” based on their “demeanor” and the fact that their testimony contradicted the credible testimony of C3 witnesses and the documentary record.  The Court also found there was no credible evidence that Defendants represented C3 was worth $500 million, or made any other misrepresentations, finding instead that we had “clearly established that Defendants were transparent with Plaintiffs throughout the merger negotiations.”  The Court concluded its opinion by awarding our clients their attorneys’ fees and costs in defending the action, completing the across-the-board victory.