The decision set forth above granted the defendants' motion to dismiss, but gave the plaintiffs leave to amend their complaint. The case is a 10b-5 securities lawsuit where the plaintiffs have alleged that they lost money because the defendants (the company and three officers) made false statements about the company's future prospects in a press release and an analyst meeting in February 2012.
Plaintiffs were stockholders of Green Mountain Coffee. The fact-pattern is a typical one: Green Mountain made certain projections of sales and then "missed estimates" in that its actual results were not as good as it had projected.
Plaintiffs challenged two sets of statements, a press release from February 1, 2012 and statements at an analyst meeting on February 21, 2012.
In the February 1, 2012 press release, the company reaffirmed prior guidance as to earnings and sales growth. According to the district court's opinion, "The "prior revenue and earnings estimates" to which [the company officer] referred included a total consolidated net sales growth of 60 to 65 percent in 2012, non-GAAP earnings per diluted share in the range of $2.55 to $2.65, and capital expenditures between $630 million and $700 million for fiscal year 2012."
Later, on May 2, 2012, the company announced that it had missed estimates as to sales growth and that it was lowering its earnings estimates for the year. Sales grew 37%, which was substantially less than the 40-50% growth that had been estimated in February 2012. In the May 2012 announcement, the company lowered its earnings estimate for the year from $2.65 to $2.50. Plaintiffs then filed their class action.
The court explains that the statements were accompanied by disclaimers:
"The Press Release also contained a litany of disclaimers and warnings. First, it explained that the Company was providing non-GAAP results in the interest of transparency even though the numbers provided did not take into account certain expenses and liabilities, including currency risks, legal and accounting expenses, and non-cash related items. Id. Second, the release contained a lengthy paragraph warning readers that certain representations in the document were "Forward-Looking Statements" that reflected management's best analyses at that point in time and therefore might not prove to be accurate predictions of the Company's actual results. GMCR further stated that among other factors, "the difficulty in forecasting sales and production levels," "the impact of the loss of major customers for the Company or reduction in the volume of purchases by major customers," "the Company's level of success in continuing to attract new customers," "sales mix variances," and "delays in the timing of adding new locations with existing customers," could all affect whether the Company would meet its performance expectations. Id. at 5.
In its Press Release, GMCR also directed investors to the set of risks it had described more thoroughly in the Company's Annual Report on Form 10-K for fiscal year 2011 and other filings with the SEC. See Compilation of Cautionary Statements, ECF No. 32-13 at *2-8. That document describes many of the aforementioned factors in greater detail, including several passages that specifically address the difficulties of predicting demand and the effect that changes in demand would have on the Company's financial performance. For example, GMCR stated that its results were extremely dependent on the sales of Keurig® single-cup brewing systems and K-Cup® portion packs; "any substantial or sustained decline in the acceptance of [those products]," GMCR explained, "would materially adversely affect us." Id. at *2. In addition, GMCR stated that demand for its products could be dampened by competition from other brands; changes in consumer tastes and preferences; changes in consumer lifestyles; national, regional, and local economic conditions; perceptions or concerns about the environmental impact of its products; demographic trends; and perceived or actual health benefits. Id. at 2, 4. GMCR also noted that the nature of its products—mainly hot beverages—exposed the Company to seasonal variations in demand. Id. at 6."
The disclaimers were sufficient to defeat the 10b-5 claim. The district court concluded that the statements at issue were forward-looking statements and that those statements were accompanied by meaningful cautionary language. Thus, the statements were not actionable and the complaint was dismissed.
In the alternative, the court held that the plaintiffs had not pleaded scienter, or intent to defraud, because there were insufficient allegations that the defendants knew their statements were false or misleading.
Edward X. Clinton, Jr.
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