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Summary: Case: 19-14081 Date Filed: 05/04/2020 Page: 1 of 25 [DO NOT PUBLISH] IN THE UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT _ No. 19-14081 Non-Argument Calendar _ D.C. Docket No. 0:18-cv-61631-KMM THOMAS W. LUCZAK, Plaintiff-Appellant, versus NATIONAL BEVERAGE CORP., GEORGE R. BRACKEN, NICK A. CAPORELLA, Defendants-Appellees. _ Appeal from the United States District Court for the Southern District of Florida _ (May 4, 2020) Before MARTIN, GRANT, and TJOFLAT, Circuit Judges. PER CURIAM:
Summary: Case: 19-14081 Date Filed: 05/04/2020 Page: 1 of 25 [DO NOT PUBLISH] IN THE UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT _ No. 19-14081 Non-Argument Calendar _ D.C. Docket No. 0:18-cv-61631-KMM THOMAS W. LUCZAK, Plaintiff-Appellant, versus NATIONAL BEVERAGE CORP., GEORGE R. BRACKEN, NICK A. CAPORELLA, Defendants-Appellees. _ Appeal from the United States District Court for the Southern District of Florida _ (May 4, 2020) Before MARTIN, GRANT, and TJOFLAT, Circuit Judges. PER CURIAM: ..
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Case: 19-14081 Date Filed: 05/04/2020 Page: 1 of 25
[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 19-14081
Non-Argument Calendar
________________________
D.C. Docket No. 0:18-cv-61631-KMM
THOMAS W. LUCZAK,
Plaintiff-Appellant,
versus
NATIONAL BEVERAGE CORP.,
GEORGE R. BRACKEN,
NICK A. CAPORELLA,
Defendants-Appellees.
________________________
Appeal from the United States District Court
for the Southern District of Florida
________________________
(May 4, 2020)
Before MARTIN, GRANT, and TJOFLAT, Circuit Judges.
PER CURIAM:
Case: 19-14081 Date Filed: 05/04/2020 Page: 2 of 25
Thomas W. Luczak, on behalf of himself and all others who bought or
otherwise acquired securities of National Beverage Corp. (“National Beverage” or
the “Company”), alleges securities fraud against National Beverage and two of its
officers. The district court dismissed Luczak’s complaint for failure to plead that
any material misstatement or omission by the defendants violated § 10(b) of the
Securities Exchange Act of 1934 (the “Exchange Act”). After careful
consideration, we affirm in part and reverse and remand in part.
I.
A. FACTUAL BACKGROUND
In reviewing the district court’s decision to dismiss Luczak’s amended
complaint—which we refer to as the “complaint” unless otherwise specified—“we
must accept the facts pleaded as true and construe them in a light favorable to
[Luczak].” See Little v. City of North Miami, 805 F.3d 962, 964 (11th Cir. 1986)
(per curiam).
National Beverage sells a portfolio of flavored beverage products, including
LaCroix sparkling waters, throughout North America and the rest of the world. Its
stock trades on the NASDAQ under the ticker symbol “FIZZ.” National Beverage
is a family-controlled corporation, with defendant Nick A. Caporella, the
Company’s CEO and Chairman, controlling 73.5% of the common stock. The
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other individual defendant, George R. Bracken, is National Beverage’s Executive
Vice President of Finance.
The asserted class period began on July 17, 2014, when National Beverage
filed its annual report for the fiscal quarter and year ending May 3, 2014. From
this point forward, the complaint alleges the defendants caused four materially
false and misleading categories of statements to be made, two of which are
relevant on appeal.
First, Luczak says National Beverage made misleading statements regarding
velocity per outlet (“VPO”) and velocity per capita (“VPC”), two sales metrics the
Company purportedly touted as “an important measure of growth and sales.” The
complaint points to three mid-2017 press releases in which National Beverage
discussed VPO and VPC in the context of positive sales. Luczak alleges these
press releases falsely claimed VPO and VPC were unique or proprietary, and that
the statements were intended to drive the Company’s value up. On January 26,
2018, the SEC wrote to National Beverage asking the Company to explain VPO
and VPC. National Beverage responded that VPO and VPC are “proprietary
methods” but that the Company does not use them “to manage the overall
executional side of [the] business.” The SEC responded on March 23, noting
inconsistency between this description of VPO and VPC with the Company’s
earlier statements in the press releases. The next day, National Beverage’s share
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price dropped $4.82, closing at $82.83. On June 26, the Wall Street Journal
published an article detailing exchanges between the SEC and National Beverage.
The article said that “National Beverage declined to provide the requested figures”
regarding these metrics to the SEC. The next day, the Company’s share price
dropped $9.75, closing at $100.19. This allegation is referred to as the
“VPO/VPC” claim.
Luczak also says that National Beverage failed to disclose that Caporella
engaged in a pattern of sexual misconduct between 2014 and 2016. National
Beverage’s code of ethics, which the Company referred to in its 2014, 2015, and
2016 Form 10-Ks, says “[a]ny type of harassment, whether of a racial, sexual, or
other nature, is absolutely prohibited.” However, Luczak says this was not true.
He points to a July 3, 2018 article in the Wall Street Journal, which reported that
two private-jet pilots accused defendant Caporella of inappropriately touching
them during more than 30 trips between 2014 and 2016. Over the two trading days
after these allegations were reported, National Beverage’s share price fell $2.90, or
2.64%. This allegation is referred to as the “sexual harassment” claim. 1
1
Luczak also alleged that National Beverage violated generally accepted accounting
principles by failing to disclose “the Company’s vulnerability from its outsized concentration of
revenues in LaCroix”; and that various National Beverage statements concerning the natural
ingredients in LaCroix were fraudulent because “LaCroix was not 100% natural as the Company
had claimed.” The district court dismissed the claims based on these allegations. Luczak does
not challenge their dismissal on appeal.
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B. PROCEDURAL HISTORY
Luczak filed his original complaint on July 17, 2018. On October 12, 2018,
the district court granted Luczak’s motion for appointment as lead plaintiff and
approval of class counsel. Luczak then filed an amended complaint on November
2, 2018. In his amended complaint, Luczak seeks to hold all defendants liable for
violations of § 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5
promulgated thereunder, 17 C.F.R. § 240.10b-5(b). He also seeks to hold Bracken
and Caporella liable under § 20(a) of the Exchange Act, 15 U.S.C. § 78t(a).
A month later, the defendants moved to dismiss the complaint. The
defendants urged the court to dismiss Luczak’s claims for failure to allege falsity,
scienter, and loss causation, all of which are elements of a Rule 10b-5 claim. The
defendants also claimed Luczak lacks standing because he has not alleged a
personal loss and that he cannot bring claims based on misrepresentations made
before his first purchase or after his last purchase of Company shares.
The district court granted the motion to dismiss. See Luczak v. Nat’l
Beverage Corp., 400 F. Supp. 3d 1318, 1333 (S.D. Fla. 2019). First, the court
rejected the defendants’ arguments as to standing. However, the court dismissed
the entirety of the complaint for failure to state a claim. Relevant to this appeal,
the court dismissed both the VPO/VPC and sexual harassment claims for failure to
allege loss causation. In light of the court’s dismissal of Luczak’s claims for
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“primary liability under § 10(b),” it dismissed his “secondary” claims under
§ 20(a) as well.
II.
A. THE EXCHANGE ACT
Section 10(b) of the Exchange Act prohibits the “use or employ, 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 as necessary or appropriate in the public interest or for the
protection of investors.” 15 U.S.C. § 78j(b). One such rule, Rule 10b-5, makes it
unlawful for “any person,” in connection with the purchase or sale of a security,
“[t]o 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). There is
an implied private right of action for investors under Rule 10b-5. Carvelli v.
Ocwen Fin. Corp., 934 F.3d 1307, 1317 (11th Cir. 2019).
To state a claim for securities fraud under Rule 10b-5, a plaintiff must
allege:
(1) a material misrepresentation or omission; (2) made with scienter;
(3) a connection with the purchase or sale of a security; (4) reliance on
the misstatement or omission; (5) economic loss; and (6) a causal
connection between the misrepresentation or omission and the loss,
commonly called “loss causation.”
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Id. (quotation marks omitted). Luczak’s allegations fall under the “fraud-on-the-
market theory,” which “allows us to presume ‘that an investor relies on public
misstatements whenever he buys or sells stock at the price set by the market.’”
Local 703, I.B. of T. Grocery & Food Emps. Welfare Fund v. Regions Fin. Corp.,
762 F.3d 1248, 1254 (11th Cir. 2014) (quoting Erica P. John Fund, Inc. v.
Halliburton Co.,
563 U.S. 804, 811,
131 S. Ct. 2179, 2185 (2011)).
If a plaintiff cannot state a claim for securities fraud under § 10(b) and Rule
10b-5, his “control-person” claims under § 20(a) “necessarily fail as well.”
Mizzaro v. Home Depot, Inc., 544 F.3d 1230, 1255 (11th Cir. 2008).
B. PLEADING REQUIREMENTS
“To survive a motion to dismiss, a claim brought under Rule 10b-5 must
satisfy (1) the federal notice pleading requirements; (2) the special fraud pleading
requirements found in Federal Rule of Civil Procedure 9(b); and (3) the additional
pleading requirements imposed by the Private Securities Litigation Reform Act of
1995 (‘PSLRA’).” FindWhat Inv’r Grp. v. FindWhat.com, 658 F.3d 1282, 1296
(11th Cir. 2011) (citation omitted).
Under the federal notice pleading standards, a complaint must contain “a
short and plain statement of the claim showing that the pleader is entitled to relief.”
Fed. R. Civ. P. 8(a)(2). “For purposes of this analysis, all well-pleaded facts are
accepted as true, and the reasonable inferences therefrom are construed in the light
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most favorable to the plaintiff.” FindWhat, 658 F.3d at 1296 (quotation marks
omitted).
Under Rule 9(b), complaints alleging fraud or mistake “must state with
particularity the circumstances constituting fraud or mistake,” although “[m]alice,
intent, knowledge, and other conditions of a person’s mind may be alleged
generally.” Fed. R. Civ. P. 9(b). “While Rule 9(b) does not abrogate the concept
of notice pleading, it plainly requires a complaint to set forth (1) precisely what
statements or omissions were made in which documents or oral representations; (2)
the time and place of each such statement and the person responsible for making
(or, in the case of omissions, not making) them; (3) the content of such statements
and the manner in which they misled the plaintiff; and (4) what the defendant
obtained as a consequence of the fraud.” FindWhat, 658 F.3d at 1296.
Finally, “[t]he PSLRA imposes additional heightened pleading requirements
on Rule 10b-5 actions.” Id. For Rule 10b-5 claims predicated on allegedly false or
misleading statements or omissions, the PSLRA requires the complaint to “specify
each statement alleged to have been misleading” and “the reason or reasons why
the statement is misleading.” 15 U.S.C. § 78u-4(b)(1). “[I]f an allegation
regarding the statement or omission is made on information and belief,” the
complaint must “state with particularity all facts on which that belief is formed.”
Id.
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Our circuit has never taken a position on whether the PSLRA’s heightened
pleading standards apply to allegations of loss causation. We need not resolve that
question in this case because we conclude that Luczak has alleged loss causation
with regard to his VPO/VPC claim even under the heightened pleading standards
of Rule 9(b) and the PSLRA, although he has not alleged loss causation with
regard to his sexual harassment claim even under Rule 8(a)(2)’s notice pleading
requirement.
C. STANDARD OF REVIEW
We review de novo the dismissal of a securities fraud complaint for failure
to state a claim. See Mizzaro, 544 F.3d at 1236; Levine v. World Fin. Network
Nat’l Bank,
437 F.3d 1118, 1120 (11th Cir. 2006).
III.
This appeal primarily concerns the loss causation element. To show loss
causation, “a plaintiff must offer proof of a causal connection between the
misrepresentation and the investment’s subsequent decline in value.” Meyer v.
Greene, 710 F.3d 1189, 1195 (11th Cir. 2013) (quotation marks omitted); see 15
U.S.C. § 78u-4(b)(4) (requiring the plaintiff to prove that the alleged act or
omission “caused the loss for which the plaintiff seeks to recover damages”). The
plaintiff must show that the defendant’s fraud was the proximate cause of the
alleged loss. See
FindWhat, 658 F.3d at 1309. “However, the plaintiff need not
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show that the defendant’s misconduct was the sole and exclusive cause of his
injury; he need only show that the defendant’s act was a substantial or significant
contributing cause.” Id. (quotation marks omitted) (quoting Robbins v. Koger
Props., Inc.,
116 F.3d 1441, 1447 (11th Cir. 1997)).
Although loss causation can be difficult to prove in fraud-on-the-market
cases like this one, a plaintiff can demonstrate loss causation circumstantially by:
(1) identifying a “corrective disclosure” (a release of information that
reveals to the market the pertinent truth that was previously concealed
or obscured by the company’s fraud); (2) showing that the stock price
dropped soon after the corrective disclosure; and (3) eliminating other
possible explanations for this price drop, so that the factfinder can infer
that it is more probable than not that it was the corrective disclosure—
as opposed to other possible depressive factors—that caused at least a
“substantial” amount of the price drop.
FindWhat, 658 F.3d at 1311–12 (footnote omitted). “A corrective disclosure can
come from any source, and can take any form from which the market can absorb
the information and react, so long as it reveals to the market the falsity of the prior
misstatements.”
Id. at 1311 n.28 (alterations adopted) (citations and quotation
marks omitted). Although a disclosure “need not precisely mirror the earlier
misrepresentation” in order to have a corrective effect, “it must at least relate back
to the misrepresentation and not to some other negative information about the
company.”
Meyer, 710 F.3d at 1197 (quotation marks omitted). A corrective
disclosure can be established by a single disclosure or a series of partial
disclosures. Id.; see also Dura Pharms., Inc. v. Broudo,
544 U.S. 336, 342–43, 125
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S. Ct. 1627, 1631–32 (2005) (allowing for the possibility that the “relevant truth”
regarding the defendant’s actions could “leak out” through partial disclosures). In
order to plead loss causation premised on a series of partial disclosures, the
complaint “must state facts that show (1) those disclosures gradually revealed to
the market the undisclosed truth about [the defendant’s fraudulent practice], and
(2) such disclosures resulted in the decline of [the defendant’s] share price.”
Katyle v. Penn Nat’l Gaming, Inc.,
637 F.3d 462, 472–73 (4th Cir. 2011); see
Meyer, 710 F.3d at 1197.
We conclude Luczak has sufficiently alleged loss causation for his
VPO/VPC claim but not his sexual harassment claim. Because he has also pled
falsity, materiality, and scienter for the VPO/VPC claim, we reverse the district
court’s dismissal of that claim.
A. VPO/VPC CLAIM
Luczak’s allegations of loss causation for the VPO/VPC claim rely on two
documents he says were partial corrective disclosures: the March 23, 2018 Letter
from the SEC to National Beverage (the “March 23 letter”), and a June 26, 2018
article in the Wall Street Journal entitled “The SEC Has Had Its Own Questions
About LaCroix” (the “June 26 article”). The district court concluded these
documents were not corrective disclosures and dismissed the complaint for failure
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to plead loss causation. We reverse that decision and reinstate Luczak’s Rule
10b-5 claim premised on these allegations.
1. The March 23 Letter
VPO and VPC were brought to the SEC’s attention in 2017, when National
Beverage issued several press releases discussing how the Company “utilize[s] two
proprietary techniques to magnify [VPO and VPC] and this creates growth never
before thought possible.” In January 2018, the agency asked National Beverage to
“discuss[] . . . these measures” or explain why the Company did not believe
disclosure of the basis for these metrics was necessary. National Beverage
responded by refusing to disclose the basis for VPO and VPC, which it said were
“proprietary methods.” The Company also said these metrics “are used to establish
goals for certain customers, but are not utilized to manage the overall executional
side of [its] business.” Then came the March 23 letter, in which the SEC said:
We note your response that the VPO and VPC metrics are not used to
manage the execution side of your business and are not key
performance indicators. However, we note the statement that you
“utilize” two proprietary techniques to magnify these measures, which
“creates growth never before thought possible.” We also note the
statement in your press release furnished May 8, 2017 that an
“impressive VPO calculator that was reflected on the cover of our fiscal
year 2015 Proxy is flashing solid green numbers as we bring FY2017
to a close.” Please provide an expanded response that explains the VPO
and VPC metrics and reconciles [these statements] with the statement
that VPO and VPC are not utilized to manage your business and are not
key performance indicators.
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Luczak says the March 23 letter was “the first time [the market learned] that the
Company issued conflicting statements” regarding its VPO and VPC metrics “and
that the SEC was still confused and inquiring into the issue.” Luczak also says the
March 23 letter informed the market “that the Company was failing to cooperate
with the SEC.” 2
2. The June 26 Article
The June 26 article discussed National Beverage’s press releases and the
public letters between the SEC and the Company. Most relevant to Luczak’s claim
of loss causation, the June 26 article contained the following line: “In
correspondence with the agency disclosed in those filings, National Beverage
declined to provide the requested [VPO/VPC] figures.” According to Luczak, the
June 26 article “provided the market with a full realization that Defendants’ claims
about the VPO and VPC metrics were misleading.”
3. Loss Causation Analysis
The district court dismissed the VPO/VPC claim on the ground that neither
the March 23 letter nor the June 26 article “reveal[ed] to the market the pertinent
truth that was previously concealed or obscured by the company’s fraud.” Luczak,
400 F. Supp. 3d at 1330 (alteration in original) (quoting
FindWhat, 658 F.3d at
2
The district court assumed the truth of Luczak’s allegation that the March 23 letter was
public before the next trading day, as do we. See Dusek v. JPMorgan Chase & Co.,
832 F.3d
1243, 1246 (11th Cir. 2016).
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1311). The court said the March 23 letter “merely confirms the SEC’s already
established doubt of the veracity of the relevant VPC/VPO statements.” Id. at
1331 (alteration adopted and quotation marks omitted). The court also disagreed
with Luczak’s characterization of the March 23 letter as having “accused National
Beverage of failing to cooperate” with the SEC.
Id. The district court further
rejected Luczak’s use of the June 26 article as a corrective disclosure, saying
Luczak does not allege the article contained any new information “beyond a
summary of the already existing correspondence between National Beverage and
the SEC.”
Id.
We first agree with Luczak that the district court failed to analyze his
complaint as alleging a series of partial disclosures. The court erred in finding the
March 23 letter could not serve as a corrective disclosure because “it does not
constitute either ‘proof of fraud’ or ‘proof of liability.’”
Id. (quoting Sapssov v.
Health Mgmt. Assocs., Inc., 608 F. App’x 855, 863 (11th Cir. 2015) (per curiam)
(unpublished)). Luczak alleges the March 23 letter and the June 26 article
cumulatively disclosed National Beverage’s allegedly fraudulent practices. He
does not therefore need to allege the March 23 letter alone shows proof of fraud.
See
Katyle, 637 F.3d at 472–73 (stating that a partial disclosure theory is
established by showing that disclosures “gradually revealed to the market the
undisclosed truth” about defendant’s fraudulent practices).
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The district court also erred in its separate analysis of both documents.
Regarding the March 23 letter, it was improper for the court to reject Luczak’s
reading of the letter and find that “the SEC never accused National Beverage of
failing to cooperate.” Luczak, 400 F. Supp. 3d at 1331. While a court “is not
bound to accept the truth of general allegations in a complaint where they are
contradicted by specific factual details in attached exhibits,” Michel v. NYP
Holdings, Inc.,
816 F.3d 686, 707 (11th Cir. 2016), no contradiction exists here.
Before the March 23 letter, the SEC had already requested sales information and
explained it was having difficulty “reconcil[ing]” the Company’s previous
statements with its most recent letter to the agency. Given this background, it was
plausible for Luczak to construe the March 23 letter as showing National
Beverage’s “fail[ure] to cooperate with the SEC and refus[al] to give it the
information requested regarding sales.” The district court’s reading of the March
23 letter was too narrow at this stage in the proceedings. This would be so even if
Rule 9(b)’s heightened pleading standard applied, given that Luczak’s allegations
are sufficiently specific so as to “enable the [district] court to evaluate whether the
necessary causal link exists.” See
Katyle, 637 F.3d at 471 (quotation marks
omitted); see also Crawford’s Auto Ctr., Inc. v. State Farm Mut. Auto. Ins. Co.,
945 F.3d 1150, 1159 (11th Cir. 2019) (setting forth this circuit’s standard for
pleading under Rule 9(b)).
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Both the district court and the defendants characterize the June 26 article as
a “mere[] summar[y] of the earlier correspondence between the Company and the
SEC staff.” Br. of Appellees at 19; see Luczak, 400 F. Supp. 3d at 1331. But this
is not a fair reading of the article, nor of Luczak’s allegations. As Luczak points
out in the complaint, the article says only, “National Beverage declined to provide
the requested figures.” The June 26 article does not specify that this information
was gleaned only from the March 23 letter, so the district court should not have
drawn this conclusion. In addition, it is difficult to square the district court’s
contention that the March 23 letter does not show National Beverage’s refusal to
comply with SEC requests with the court’s finding that the June 26 article only
summarized the March 23 letter. The June 26 article does not specify to which
“filings” it was referring. It was not proper for the district court to assume, at the
motion to dismiss stage, that the June 26 article’s use of the word “filings” meant
the March 23 letter or any other public correspondence between the Company and
the SEC.
Luczak’s complaint alleges the defendants’ fraudulent behavior leaked out
through a series of partial disclosures, causing a drop in the stock price. Because
we find Luczak pled loss causation for the VPO/VPC claim through a “corrective
disclosure” theory, we need not reach his “materialization of the risk” argument.
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4. Other Elements
The district court dismissed Luczak’s VPO/VPC claim for failure to plead
loss causation. Because of this dismissal, the court did not analyze whether the
VPO/VPC statements were materially misleading or made with scienter. The
defendants urge us to affirm the district court on one of these alternative bases.
We decline to do so.
a. Overview
“Rule 10b-5 prohibits not only literally false statements, but also any
omissions of material fact ‘necessary in order to make the statements made, in the
light of the circumstances under which they were made, not misleading.’”
FindWhat, 658 F.3d at 1305 (quoting 17 C.F.R. § 240.10b-5(b)). “A statement is
misleading if in the light of the facts existing at the time of the statement a
reasonable investor, in the exercise of due care, would have been misled by it.”
Id.
(alterations adopted) (quotation marks omitted). A securities fraud plaintiff has the
burden of showing an alleged misstatement was material. See SEC v. Morgan
Keegan & Co.,
678 F.3d 1233, 1249 n.20 (11th Cir. 2012) (per curiam). In
addition, the plaintiff must “plead ‘with particularity facts giving rise to a strong
inference’ that the defendants either intended to defraud investors or were severely
reckless when they made the allegedly materially false or incomplete statements.”
Mizzaro, 544 F.3d at 1238 (quoting 15 U.S.C. § 78u-4(b)(2)).
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Both materiality and scienter are mixed questions of law and fact that must
typically be resolved by the factfinder. See SEC v. Merch. Capital, LLC, 483 F.3d
747, 766 (11th Cir. 2007). A court may not dismiss a securities fraud complaint on
the basis of materiality unless the alleged misrepresentations are “so obviously
unimportant to a reasonable investor that reasonable minds could not differ on the
question of their importance.”
Carvelli, 934 F.3d at 1320 (quotation marks
omitted). A plaintiff’s allegations of scienter must only be “at least as compelling
[to a reasonable person] as any opposing inference one could draw from the facts
alleged” in order to survive a motion to dismiss. Brophy v. Jiangbo Pharms., Inc.,
781 F.3d 1296, 1302 (11th Cir. 2015) (quotation marks omitted).
b. Falsity
The complaint sufficiently alleges false statements made by the defendants.
Luczak says National Beverage claimed on three specific occasions in 2017 that
VPO and VPC were exclusive metrics and that the Company used “proprietary
techniques” to interpret them. The complaint also alleges that the corrective
disclosures informed the market that VPO and VPC “were not used to manage the
business nor were they key performance indicators.” The complaint then states
with particularity why these statements were supposedly false: pointing to the 2018
corrective disclosures, Luczak alleges “the metrics were not a proprietary, the
metrics did not create growth opportunities,” and “the supposed underlying
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‘proprietary techniques’ lacked a verifiable basis and were not important metrics
used to determine sales.” It may well be that Luczak is wrong on all fronts, as the
defendants claim. But that is for the finder of fact to decide after discovery.
The defendants also say Luczak’s complaint is deficient because his
allegations of falsity as to the VPO/VPC claim are based in part on statements by
confidential witnesses. In Mizzaro, this Court recognized that a court can give less
weight “to allegations based on statements proffered by a confidential source
depend[ing] on the particularity of the allegations made in each case.” 544 F.3d at
1240. The Court went on to say that confidentiality “should not eviscerate the
weight given if the complaint otherwise fully describes the foundation or basis of
the confidential witness’s knowledge, including the position(s) held, the proximity
to the offending conduct, and the relevant time frame.”
Id. Luczak’s complaint
satisfies this standard. It identifies each confidential witness’s job, the time the
witness spent in that job, and the relevance of the witness’s job to the VPO/VPC
allegations. The defendants offer a number of reasons to doubt the credibility of
the allegations supported by these confidential witnesses. Again, the defendants
may well turn out to be right, but it is improper to weigh the evidence in this way
on a motion to dismiss.
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c. Materiality
These alleged misrepresentations were material. The May 4, 2017 press
release said National Beverage’s treatment of the VPO and VPC metrics “creates
growth never before thought possible.” The next day, a statement attributed to
Caporella said the Company’s “impressive VPO calculator” indicated “solid green
numbers as we bring FY2017 to a close.” The June 2, 2017 press release similarly
connected the VPO and VPC calculations to the Company’s fiscal health. These
are far from the “generalized, vague, nonquantifiable statements of corporate
optimism” that constitute nonactionable puffery, as defendants claim. See
Carvelli, 934 F.3d at 1319. National Beverage’s statements expressed optimism,
but they did so by citing to specific strategies and metrics the company said it was
using. Cf. Next Century Commc’ns Corp. v. Ellis,
318 F.3d 1023, 1028 (11th Cir.
2003) (per curiam) (collecting caselaw on puffery and stating that “the
characterization of a company’s performance as ‘strong’ constitutes mere
puffery”). Luczak has alleged that a reasonable investor could have relied on these
statements.
d. Scienter
The defendants say that Luczak’s reliance on confidential witnesses is also
fatal to his claim of scienter. In order for statements from a confidential witness to
raise a strong inference of scienter, the statements “must be described with
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sufficient particularity to establish [the witness’s] reliability and personal
knowledge” and the statements “must themselves be indicative of scienter.” Zucco
Partners, LLC v. Digimarc Corp., 552 F.3d 981, 995 (9th Cir. 2009); see
Mizzaro,
544 F.3d at 1247–48 (“[T]he weight to be afforded to allegations based on
statements proffered by a confidential source depends on the particularity of the
allegations made in each case, and confidentiality is one factor that courts may
consider. Confidentiality, however, should not eviscerate the weight given if the
complaint otherwise fully describes the foundation or basis of the confidential
witness's knowledge . . . .”).
We have discussed how the allegations in Luczak’s complaint are
sufficiently particular. The complaint also satisfies the “indicative of scienter”
requirement because the statements by confidential witnesses regarding VPO and
VPC make it at least as likely as not that the defendants acted with scienter in
discussing these metrics in 2017. Confidential Witness (“CW”) 1 said “the VPC
and VPO metrics were not used at National Beverage” and that they were “likely
. . . made up by Defendant Caporella.” Similarly, CW2 said National Beverage’s
management never discussed VPO or VPC during conference calls or meetings and
that none of the Company’s annual and quarterly reports contained information
about VPO or VPC. Finally, CW4 said that “never once during CW4’s tenure
working exclusively with LaCroix did anyone mention the VPC metric.” If these
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allegations are true, they would provide evidence of the defendants’ recklessness
or knowing falsity in saying National Beverage’s positive financial results were
confirmed by VPO and VPC. See Institutional Inv’rs Grp. v. Avaya, Inc., 564 F.3d
242, 270 (3d Cir. 2009) (concluding plaintiffs alleged scienter where allegations
from confidential witnesses contradict statements “directly and repeatedly” made
by corporate officer defendant).
B. SEXUAL HARASSMENT CLAIM
Luczak says his complaint pleads loss causation for the sexual harassment
claim through his identification of the July 3, 2018 Wall Street Journal article (the
“July 3 article”) as a corrective disclosure. He argues the July 3 article informed
investors that the defendants “had omitted material information regarding their
policies,” specifically “that the most senior officer charged with enforcing the
prohibition on sexual harassment . . . was himself accused as a perpetrator.” Br. of
Appellant at 28, 30. The district court dismissed the sexual harassment claim on
the ground that the July 3 article was a “mere repackaging of already-public
information,” namely allegations in two lawsuits filed over a year before the July 3
article was published. See Luczak, 400 F. Supp. 3d at 1332 (quoting
Meyer, 710
F.3d at 1199).
A document is not per se barred from being a “disclosure” simply because it
discusses information that was already available to the public. When a lawsuit has
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not been discussed in any news article or regulatory filings, the suit’s first mention
in this type of setting can, in certain circumstances, constitute a disclosure. Staehr
v. Hartford Fin. Servs. Grp., Inc., 547 F.3d 406, 435 (2d Cir. 2008). “It would be
unreasonable” for courts to expect ordinary investors to become aware of “a
lawsuit filed in an unlikely venue . . . , that received no publicity whatever . . . and
that did not . . . result in published or broadly disseminated opinions within the
relevant time period.”
Id. This Court’s opinion in Meyer endorsed the same idea
in the context of loss causation. There, the Court clarified that “corrective
disclosures must present facts to the market that are
new.” 710 F.3d at 1197–98
(alteration adopted) (quotation marks omitted). If a document discusses only
information of which the market is already aware—including “public filings and
other publicly available information”—it “is simply insufficient to constitute a
corrective disclosure.”
Id. at 1198–99.
Luczak has not sufficiently pled that the harassment lawsuits against
Caporella were news to the market when the July 3 article was published. As the
district court observed, the pleadings mentioned in the July 3 article were publicly
accessible on the date of the article’s publication. Not only that, both cases were
filed in the same court as Luczak’s action and yielded dispositive, publicly
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accessible orders before the July 3 article was published. 3 Luczak does not
contend otherwise.
We also reject Luczak’s contention that the July 3 article contained new
information through its publication of a statement that one of the plaintiffs in those
actions stood by his allegations “100%” and that Caporella’s behavior “was
definitely inappropriate.” This statement reveals no “previously concealed truth.”
FindWhat, 658 F.3d at 1311 n.28.
Because the July 3 article did not “present facts to the market that are new,
that is, publicly revealed for the first time,” the district court did not err in
dismissing the sexual harassment claim for failure to plead loss causation.4 See
Meyer, 710 F.3d at 1197–98 (quotation marks omitted).
IV.
To summarize, we hold that the district court properly dismissed Luczak’s
sexual harassment claim but that it erred in dismissing his VPO/VPC claim for
failure to satisfy the elements of Rule 10b-5. We therefore reverse the dismissal of
3
See Huenefeld v. Nat’l Beverage Corp., No. 16-CV-62881, 2017 WL 4838786 (S.D.
Fla. Oct. 24, 2017); Citrullo v. Nat’l Beverage Corp., No. 17-CV-60225,
2017 WL 9360857
(S.D. Fla. Oct. 11, 2017). A court may take judicial notice of the existence of documents filed in
related judicial proceedings. Cash Inn of Dade, Inc. v. Metropolitan Dade County,
938 F.2d
1239, 1243 (11th Cir. 1991).
4
Luczak’s opening brief on appeal does not make more than a “passing reference” to the
materialization-of-the-risk theory in the context of his sexual harassment claim, so we deem this
argument waived. See Feldman v. Am. Dawn, Inc., 849 F.3d 1333, 1345 (11th Cir. 2017).
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his securities-fraud VPO/VPC claim and vacate the dismissal of his § 20(a)
control-person claim based on those allegations.
AFFIRMED IN PART, REVERSED IN PART, VACATED IN PART.
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