Zecher v. Vince Holding Corp., 2:18-cv-05072

Background

Plaintiffs (investors and family trusts) sued Vince Holding Corp. and individual officers/directors under Section 10(b)/Rule 10b-5 and Section 20(a), alleging securities fraud related to Vince’s migration from Kellwood’s ERP systems to its own.
After Vince’s 2013 IPO, Kellwood provided critical, proprietary ERP services under a Shared Services Agreement; Vince repeatedly warned in SEC filings that transitioning those services could be difficult and could materially harm results.
Plaintiffs allege Vince selected Microsoft’s cloud-based Dynamics AX (allegedly a beta release lacking middleware), failed to disclose that fact, and that those omissions artificially inflated Vince stock during the Relevant Period (Mar. 19, 2015–May 19, 2017).
Defendants moved to dismiss under Rules 12(b)(6) and 9(b) and the PSLRA, relying on public SEC filings, press releases, and news articles referenced in the Amended Complaint.
Magistrate Judge Shields recommended dismissal in full with prejudice and without leave to replead, and recommended denying consolidation motions as moot.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether failure to disclose that Vince used a beta Microsoft AX lacking middleware was a material omission actionable under Section 10(b)/Rule 10b-5	Zecher: Vince omitted material facts — using an unproven beta AX and lacking middleware — which increased transition risk and caused losses	Vince: It disclosed the migration risk and the reliance on third‑party systems; software choice/details are business decisions, not material omissions	Held: Not actionable; allegations amount to corporate mismanagement and non‑material software choices already encompassed by prior risk disclosures
Whether Plaintiffs pleaded falsity and scienter with the particularity required by Rule 9(b) and the PSLRA	Zecher: Complaint gives detailed factual background and references showing defendants knew risks	Vince: Plaintiffs fail to plead when/why statements were false or who knew what; no particularized facts showing scienter	Held: Plaintiffs failed PSLRA/Rule 9(b) particularity and scienter pleading requirements
Whether Plaintiffs adequately pleaded loss causation/reliance and that alleged misstatements materially altered the total mix of information	Zecher: The specific undisclosed software facts would have altered investors’ decisions	Vince: Public filings warned of migration risk and potential harms; additional technical details would not change the total mix	Held: Information about specific software choice was not material and would not have significantly altered the total mix; loss causation theory insufficient
Whether Section 20(a) control‑person claims survive absent a primary violation	Zecher: Individual defendants controlled Vince and are culpable participants	Vince: Primary claim fails, so control‑person claim cannot stand	Held: Section 20(a) claims dismissed because primary securities claims fail; dismissal with prejudice and no leave to replead

Key Cases Cited

Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading must state a plausible claim)
Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility standard for complaints)
Singh v. Cigna Corp., 918 F.3d 57 (2d Cir. 2019) (materiality and total‑mix standard in securities claims)
Mills v. Polar Molecular Corp., 12 F.3d 1170 (2d Cir. 1993) (Rule 9(b) particularity for fraud pleading)
Ernst & Ernst v. Hochfelder, 425 U.S. 185 (1976) (scienter requirement for Section 10(b))
ATSI Commc’ns v. Shaar Fund, Ltd., 493 F.3d 87 (2d Cir. 2007) (elements for securities fraud and control‑person liability)
Sante Fe Indus. Inc. v. Green, 430 U.S. 462 (1977) (corporate mismanagement is not securities fraud)
Kleinman v. Elan Corp., 706 F.3d 145 (2d Cir. 2013) (when additional disclosure is necessary to avoid misleading investors)
In re Lululemon Athletica Sec. Litig., 14 F. Supp. 3d 553 (S.D.N.Y. 2014) (dismissing related control‑person claims where primary claims fail)
In re Crocs, Inc. Sec. Litig., 774 F. Supp. 2d 1122 (D. Colo. 2011) (system migration problems do not necessarily state securities fraud)
Thomas v. Arn, 474 U.S. 140 (1985) (procedural rule on objections to magistrate recommendations)
Caidor v. Onondaga Cnty., 517 F.3d 601 (2d Cir. 2008) (failure to timely object to magistrate reports waives review)