444 F.Supp.3d 498
S.D.N.Y.2020Background:
- Securities-fraud class action on behalf of purchasers of Skechers stock from Oct. 20, 2017 to July 19, 2018; claims under §10(b), Rule 10b-5 and §20(a) against Skechers and three executives (Greenberg, Weinberg, Vandemore).
- Core allegation: defendants repeatedly represented that Skechers would achieve "leverage" (sales growth outpacing SG&A growth), but knew—because of planned retail expansion and costly third-party logistics in China and related committed expenses—that leverage was unattainable.
- Challenged communications: multiple earnings-call statements and SEC filings referencing expected slowing of SG&A growth or ability to "leverage," plus an after-the-fact explanation for Q1 2018 SG&A results; plaintiffs identify corrective disclosures on April 19, 2018 (Q1 results) and July 19, 2018 (Q2 results and management comments).
- Plaintiffs invoke Item 303 (Regulation S-K) as a basis for an omission claim and rely on analyst reports and insider sales and compensation as evidence of scienter.
- Defendants moved to dismiss under Rule 12(b)(6); the court granted the motion, concluding most statements were non-actionable predictions or puffery, omission/Item 303 claims were not properly pled, and scienter was not adequately alleged.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| PSLRA safe-harbor applicability | Cautionary language in 10-K/10-Q did not cover the specific China/SG&A risk, so forward-looking statements are actionable | Company filings provided meaningful cautionary language that shields forward-looking statements | Safe-harbor not invoked; defendants' cited cautionary language was too general to cover the specific alleged risk |
| Actionability / Falsity of statements | Earnings-call and filing statements promising or implying near-term leverage were false because expenses were already committed | Statements were forward-looking predictions or generic corporate puffery, not guarantees of outcomes | Most challenged statements are non-actionable predictions or puffery; plaintiffs failed to plead falsity (except Q1 explanation, which also failed on facts) |
| Item 303 / omission claim | Management had a duty to disclose known trends/uncertainties (rising SG&A) and failed to do so | Plaintiffs did not plead that management actually ‘‘knew’’ the specific trend; financials already disclosed allowed calculation of SG&A trends | Item 303 omission insufficiently pled; disclosure of trends was not shown to be known or material under pleading standards |
| Scienter (individual & corporate) | Insider sales, incentive compensation, access to internal info and core-operations theory support strong inference of intent/recklessness | Sales/bonuses were not unusual or extraordinary; access allegations are conclusory; no specific internal reports alleged | Scienter not adequately pled for individuals or Skechers as corporation; allegations amount to fraud-by-hindsight |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (pleading must state plausible claim)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (courts need not accept legal conclusions as true)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007) (scienter must give rise to a "strong" inference as compelling as any opposing inference)
- Rombach v. Chang, 355 F.3d 164 (2d Cir. 2004) (Rule 9(b) particularity for securities fraud)
- ATSI Comm., Inc. v. Shaar Fund, Ltd., 493 F.3d 87 (2d Cir. 2007) (PSLRA/Rule 9(b) standards applied to securities claims)
- ECA, Local 134 IBEW Joint Pension Trust v. JP Morgan Chase Co., 553 F.3d 187 (2d Cir. 2009) (circumstantial indicia to plead scienter)
- Stratte-McClure v. Morgan Stanley, 776 F.3d 94 (2d Cir. 2015) (Item 303 disclosure duty analysis)
- Novak v. Kasaks, 216 F.3d 300 (2d Cir. 2000) (must identify reports/statements to show defendants had access to contrary facts)
- Omnicare, Inc. v. Laborers Dist. Council Constr. Indus. Pension Fund, 575 U.S. 175 (2015) (when omissions render statements misleading; materiality/communication context)
- Loreley Fin. (Jersey) No. 3 Ltd. v. Wells Fargo Sec., LLC, 797 F.3d 160 (2d Cir. 2015) (corporate scienter can be pled by imputing individual scienter or showing approval by knowledgeable officials)