Fanucchi v. Enviva Inc.

The federal district court for the District of Maryland dismissed a securities action against senior officers and underwriters of Enviva, Inc., a biomass energy company that produces wood pellets. The plaintiff alleged that the officers misled ESG-focused investors with statements that materially misrepresented the company’s environmental sustainability, including statements regarding reduced greenhouse gas emissions from using wood pellets instead of fossil fuels to generate energy. The plaintiff further alleged that the officers’ statements and a registration statement were misleading because Enviva used whole trees rather than scrap wood to make its wood pellets, and that use of such pellets to generate energy produced greater greenhouse gas emissions than burning coal. Regarding the plaintiff’s claims regarding misrepresentations under Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5, the court found that the plaintiff failed to allege a material misrepresentation or scienter (i.e., that the defendants acted with intentional or reckless deception). Regarding scienter, the court rejected, among other arguments, the plaintiff’s contention that the defendants were motivated to greenwash Enviva’s operations because they could lose foreign subsidies if the operations were found not to be carbon neutral. The court also dismissed claims under Section 20(a) of the Exchange Act and Sections 11 and 15 of the Securities Act of 1933.

A federal securities class action lawsuit filed in federal district court in Maryland alleged that a company that develops, constructs, acquires, and owns and operates wood pellet production plants misrepresented the environmental sustainability of its wood pellet production and procurement. The complaint also alleged that the company overstated “the true measure of cash flow” its business generated, that the company therefore misrepresented its business model and its ability to achieve the level of growth it represented it could obtain, and that the company’s public statements were materially false and misleading at all relevant times. The complaint cited a report published in October 2022 that stated that the company was “flagrantly greenwashing its wood procurement” and called the business “a product of deranged European climate subsidies which incentivize the destruction of American forests so that European power companies can check a bureaucratic box.” The complaint also cited allegedly materially false and misleading statements made beginning in February 2019. The defendants were the company, its chair and chief executive officer, and its executive vice president and chief financial officer.