275 F. Supp. 3d 1063
D. Minn.2017Background
- Target announced a rapid expansion into Canada (opening >100 stores 2013–2014) and implemented a new ERP and supply-chain IT systems for that market.
- From before opening through 2014, plaintiffs allege pervasive supply-chain and IT problems (data integrity, replenishment, forecasting, POS), causing empty store shelves and excess inventory in distribution centers; Target Canada sustained large losses and ultimately exited Canada in 2015.
- Shareholders filed a securities class action alleging §10(b)/Rule 10b-5 and §20(a) claims based on allegedly misleading public statements about Canadian operations and supply-chain readiness during March 2013–Aug 2014.
- Plan participants filed an ERISA suit alleging PIC fiduciaries breached duties of prudence, loyalty, and monitoring for failing to protect 401(k) participants invested in Target stock, asserting defendants had nonpublic knowledge that Target Canada was doomed.
- Defendants moved to dismiss; the court granted dismissal of both the securities and ERISA amended complaints without prejudice for failure to meet pleading standards and Dudenhoeffer requirements.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether SAC pleads material misrepresentations/omissions under §10(b)/Rule 10b-5 with PSLRA particularity | Statements about a "strong" supply chain and effective inventory concealed systemic Canadian supply-chain failures that made the statements false | Plaintiffs plead only broad hindsight-based allegations and fail to link specific falsity reasons to specific statements | Dismissed: plaintiffs failed to specify why each statement was false when made; pleadings constitute impermissible fraud-by-hindsight |
| Whether plaintiffs pleaded scienter for securities claims | Implied by internal problems, CWs, and later corporate admissions | Defendants argued scant particularized facts to show a strong inference of scienter | Court did not reach scienter in detail because falsity pleading failed but expressed doubt scienter was adequately pled |
| Whether Item 303 omissions actionable under §10(b) | Omitted discussion quantifying whether Canada losses were startup-related vs. ongoing operational failure | Defendants: plaintiffs fail PSLRA particularity and Item 303 theory rests on the same vague systemic allegations | Dismissed: Item 303 theory failed for lack of particularized factual allegations linking omissions to actionable nondisclosure |
| Whether §20(a) controlling-person claims survive | Control liability derivative of primary violations | Defendants: primary §10(b) claims inadequately pled | Dismissed: §20(a) claims fail because underlying §10(b) violations not pleaded |
| Whether ERISA plaintiffs plausibly alleged a breach of prudence under Dudenhoeffer (alternative actions) | Fiduciaries should have (e.g.) frozen Fund purchases, held contributions in cash, disclosed problems, sent diversification notices, sought regulator guidance, or resigned | Defendants: those alternatives could violate securities laws or could reasonably be rejected by prudent fiduciaries (risk of signaling and harming the fund) | Dismissed: EAC fails to plausibly allege an alternative action that would be consistent with securities laws and that a prudent fiduciary couldn’t reasonably conclude would do more harm than good under Dudenhoeffer/Amgen |
| Whether ERISA loyalty and monitoring claims are viable | Defendants were conflicted and failed to monitor or disclose material nonpublic information to participants | Defendants: loyalty/monitoring claims are derivative of prudence claims and plaintiffs fail to plead fiduciary acts or actionable fiduciary communications | Dismissed: loyalty and monitoring claims fail as derivative or because plaintiffs do not allege fiduciary communications/particularized conflicts |
Key Cases Cited
- Halliburton Co. v. Erica P. John Fund Inc., 134 S. Ct. 2398 (Sup. Ct.) (describing private fraud action under §10(b))
- Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27 (Sup. Ct.) (materiality standard for omissions and misstatements)
- Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336 (Sup. Ct.) (loss causation requirement)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (Sup. Ct.) (standard for pleading scienter)
- In re 2007 Novastar Fin. Inc. Sec. Litig., 579 F.3d 878 (8th Cir.) (PSLRA particularity; fraud-by-hindsight analysis)
- In re Cerner Corp. Sec. Litig., 425 F.3d 1079 (8th Cir.) (requiring link between alleged misleading statement and facts showing falsity)
- Parnes v. Gateway 2000, Inc., 122 F.3d 539 (8th Cir.) (fraud-by-hindsight criticism)
- DiLeo v. Ernst & Young, 901 F.2d 624 (7th Cir.) (fraud by hindsight explained)
- Elam v. Neidorff, 544 F.3d 921 (8th Cir.) (insufficient specifics to show statement false when made)
- Fifth Third Bancorp v. Dudenhoeffer, 134 S. Ct. 2459 (Sup. Ct.) (standard for ESOP fiduciary claims: must plead plausible alternative action consistent with securities laws and likely to help the fund)
- Amgen Inc. v. Harris, 136 S. Ct. 758 (Sup. Ct.) (affirming Dudenhoeffer pleading rigor in ERISA ESOP cases)
- Braden v. Wal-Mart Stores, Inc., 588 F.3d 585 (8th Cir.) (ERISA prudence standard and elements of fiduciary breach claim)
- In re Navarre Corp. Sec. Litig., 299 F.3d 735 (8th Cir.) (PSLRA standards and cautions against hindsight pleading)