955 F.3d 738
8th Cir.2020Background
- Plaintiffs are investors who bought Target stock between March 20, 2013 and August 4, 2014 and sued Target and executives for allegedly misleading statements about Target Canada.
- In 2013 Target opened 124 Canadian stores and rolled out new inventory forecasting, inventory management, warehouse, and checkout systems that malfunctioned, producing inaccurate product data, empty shelves, and excess inventory.
- Target Canada’s problems led to overwhelmed distribution centers and, within two years, Target Canada’s bankruptcy and store closures.
- Plaintiffs alleged executives understated problems, overstated remediation capabilities, and made optimistic profitability projections during the class period.
- The district court dismissed the §10(b) and Rule 10b-5 claims for failure to meet the PSLRA pleading requirements (particularly scienter), denied reconsideration and leave to amend, and dismissed derivative §20(a) claims; plaintiffs appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Pleading scienter under the PSLRA | Execs knew or recklessly disregarded systemic IT/supply-chain failures; insider stock sales show motive | Plaintiffs fail to plead particularized facts showing knowledge; stock sales common and not suspiciously timed | Dismissed for failure to plead scienter; nonfraudulent inference (lack of knowledge) more compelling |
| Falsity of operational statements (e.g., "we're right where we want to be", "tuning") | Statements omitted material problems and misled investors about store readiness and fixability | Statements were puffery, optimistic, and/or reflect reasonable beliefs; plaintiffs plead fraud by hindsight | Many statements are inactionable puffery or not pleaded false when made; insufficient falsity pleaded |
| May 2014 statement that early-cycle stores were on an "upward path" vs. later year-over-year sales drop | The later disclosure of an >11% sales decline proves the May statement was false and known to be false | A year-to-year decline alone does not prove the earlier statement was false or that defendants knew it was false | Plaintiffs failed to show the May 2014 statement was necessarily false or made with scienter |
| Leave to amend and §20(a) control-person claims | New confidential-witness detail would cure defects and show executives' knowledge; leave should be allowed | New allegations remain conclusory and consistent with lack of executive understanding; amendment would be futile; §20(a) derivative on §10(b) | Denial of leave was not an abuse of discretion because amendment would be futile; §20(a) dismissed as derivative |
Key Cases Cited
- Pub. Pension Fund Grp. v. KV Pharm. Co., 679 F.3d 972 (8th Cir. 2012) (describing particularity and "who, what, when, where, how" pleading in securities cases)
- Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27 (2011) (private cause of action under §10(b) and Rule 10b-5)
- Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S. 148 (2008) (elements of securities fraud claims)
- In re 2007 Novastar Fin. Inc., Sec. Litig., 579 F.3d 878 (8th Cir. 2009) (applying PSLRA heightened pleading standards)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007) (requiring a "cogent and compelling" inference of scienter)
- Cornelia I. Crowell GST Trust v. Possis Med., Inc., 519 F.3d 778 (8th Cir. 2008) (stating ways to plead scienter)
- Fla. State Bd. of Admin. v. Green Tree Fin. Corp., 270 F.3d 645 (8th Cir. 2001) (rejecting "blanket" scienter assertions)
- In re Stratasys Ltd. S’holder Sec. Litig., 864 F.3d 879 (8th Cir. 2017) (discussing inactionable puffery)
- In re Navarre Corp. Sec. Litig., 299 F.3d 735 (8th Cir. 2002) (insider sales not suspicious absent dramatic timing or deviation)
- In re Cerner Corp. Sec. Litig., 425 F.3d 1079 (8th Cir. 2005) (financial decline alone insufficient to plead fraud)