Citations
- 966 F. Supp. 2d 525
Full opinion text
MEMORANDUM OPINION AND ORDER
THOMAS D. SCHROEDER, District Judge.
This is a federal securities class action on behalf of a class consisting of all persons, other than Defendants, who acquired the common stock of a start-up company, Primo Water Corporation (“Primo” or “the company”), between November 4, 2010, and November 10, 2011 (the “Class Period”), including the company’s initial public offering on November 4, 2010 (the “IPO”) and its common stock offering on June 17, 2011 (“Secondary Offering”) (collectively, the “Offerings”). In their 131-page amended complaint (Doc. 52), Plaintiffs seek recovery for stock losses under Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 (“1933 Act”) and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (“1934 Act”), as amended by the Private Securities Litigation Reform Act of 1995 (“PSLRA”) and Rule 10-b5 promulgated thereunder, 17 C.F.R. § 240.10b-5. The Defendants in this case can be divided into two categories: (1) the “Primo Defendants,” composed of Primo and its executives; and (2) the “Underwriter Defendants,” who served as underwriters for Primo’s Offerings. Together, the Primo Defendants and Underwriter Defendants will be referred to simply as “Defendants.”
This action was filed on December 2, 2011 (Doc. 1), and an amended complaint was filed June 22, 2012 (Doc. 52). The matter is currently before the court on motions to dismiss by the Primo Defendants (Doc. 58) and the Underwriter Defendants (Doc. 56). Also before the court is Plaintiffs’ motion to strike certain pages of the Primo Defendants’ appendix of documents filed in support of their motion to dismiss. (Doc. 64.) The court heard arguments on Defendants’ motions on May 16, 2013. For the reasons set forth below, the motion to strike will be granted in part and denied in part, Defendants’ motions to dismiss will be granted, and the case will be dismissed.
I. FACTUAL BACKGROUND
A. Primo, Its Products, and Business Model
Primo is a Delaware corporation headquartered in Winston-Salem, North Carolina, that provides three and five gallon containers of purified bottled water, self-serve filtered drinking water, and water dispensers. (Doc. 52 at ¶ 8.) Primo’s water dispensers are designed to dispense Primo and other dispenser-compatible bottled water. (Id. at ¶40.) The company is founded on a “razor-razorblade” business model, whereby the initial sale of Primo water dispensers (the razor) then creates a base of users who frequently purchase bottles of Primo water or refill their bottles at refill stations (the razorblades). (Id. at ¶ 43.) Under Primo’s business strategy, the company would sell its water dispensers and bottled water at major retail locations, such as Lowe’s Home Improvement (“Lowe’s”) and Wal-Mart, among others. (Id. at ¶ 44.) If a customer at one of these retailers' buys a Primo water dispenser and Primo bottled water, the empty water bottle can either be recycled and exchanged at Primo’s bottle exchange displays or refilled at Primo’s refill vending machines. (Id.) If a customer exchanges a water bottle at Primo’s bottle exchange display, the display provides the customer with a discount coupon toward the purchase of a full bottle of Primo water. (Id.) Alternatively, a customer has the option of refilling his water bottle at Primo’s refill vending station, as the bottle can be sanitized and reused up to 40 times. (Id.) This business model ostensibly creates a recurring and constant demand for the company’s products. (Id. at ¶ 43.)
B. The Offerings
Primo made its IPO on November 4, 2010, by offering 8.33 million shares to the public at $12.00 per share, with an overallotment option for the Underwriter Defendants of 1,250,000 shares, raising approximately $114.96 million. (Id. at ¶¶ 45-47.) In connection with the IPO, Primo filed a Registration Statement, which incorporated the IPO prospectus. (Id. at ¶ 45.) In the IPO Registration Statement, Primo made statements about, among other things, the number of locations selling its products, the company’s marketing efforts, and the demand for Primo products. (See generally Appendix to Doc. 59 (“App.”) at 1-228.) Many of these statements are now challenged by Plaintiffs as material misrepresentations or omissions and will be discussed in more detail in the analysis to follow.
On June 17, 2011, Primo made its Secondary Offering of common stock. (Doc. 52 at ¶ 102.) This Secondary Offering raised $42.2 million for the company. (Id. at ¶ 103.) In the Secondary Offering Registration Statement, which incorporated the Secondary Offering prospectus, Primo again made statements about, among other things, the number of locations at which Primo’s products were offered, marketing and promotion efforts, and retailer demand for Primo products. (Id. at ¶¶ 104-07.) Additionally, the Secondary Offering Registration Statement announced that due to technology acquired as a result of Primo’s acquisition of the Omnifrio Single-Serve Beverage Business (“Omnifrio”), Primo would launch a single-serve carbonated beverage appliance, known as the “Flavor Station,” in the “fourth quarter of 2011.” (Id. at ¶¶ 114-15, 118.) As with the statements made in the IPO Registration Statement, Plaintiffs challenge statements made in connection with the Secondary Offering as materially false and misleading.
C. Guidance Statements, Press Releases, and Conference Calls
Primo also released guidance documents throughout the Class Period that contained statements Plaintiffs challenge as false and/or misleading. These statements were made in guidance documents and press releases and during conference calls with Primo executives.
For example, on March 24, 2011, Primo issued a press release (“March 2011 press release”) reporting its financial results for the fourth quarter and year ended December 31, 2010. (Id. at ¶ 191.) The company stated that it had approximately 12,600 combined Exchange and Refill locations. (Id. at ¶ 193.) It also stated that it expected to end the first quarter of 2011 with between 14,500 and 14,900 combined Exchange and Refill D. Prim (“Prim”), Primo’s founder and Chief Executive Officer, also stated that Primo had plans to integrate Omnifrio carbonation technology into Primo’s water dispenser appliances. (Id. at ¶ 197.) Prim also stated that Omnifrio had already developed 30 flavors with three different carbonation levels. (Id.) In Primo’s 2010 Form 10-K, which was filed approximately a week after the March 2011 press release, Primo confirmed that it had 12,600 combined retail locations and that the company was expecting to introduce Omnifrio technology. (Id. at ¶¶ 199-200, 203.) In the Form 10-K, Primo also made statements about its marketing and promotion efforts, including that it was engaging in “regular cross marketing promotions” and was focused on “developing and maintaining a brand identity.” (Id. at ¶ 201.)
On May 10, 2011, Primo issued a press release (“May 2011 press release”) that announced its financial results for the first quarter of 2011. (Id. at ¶208.) In this press release, Primo stated that it “expects total sales in the second quarter of 2011 to double” and “continues to expect sales to increase 260% to 275% compared to 2010.” (Id. at ¶ 209.)
Despite Primo’s predictions about its 2011 growth, lower than expected sales later forced the company to revise its expectations downward. On August 10, 2011 (“August 2011 press release”), approximately two months after the Secondary Offering, Primo announced that it had failed to meet earlier earnings projections due to lower than anticipated sales. (Id. at ¶ 226.) Primo disclosed that Lowe’s and Wal-Mart, two major Primo retailers, did not launch scheduled national promotions for Primo products during the second quarter. (Id. at ¶ 226-28.) Primo reported that “both retailers are committed to the program and have started rolling out the national promotion of water and dispensers in the third quarter. The Company expects these major mass retail partners to continue to roll out the national promotion during the remainder of the third quarter and in the fourth quarter of 2011.” (Id. at ¶ 228.) Primo also stated that the company “continue[s] to be in [a] great position for strong long-term revenue and earnings growth” (id. at ¶ 230) and announced that its Flavor Station water carbonation appliance would be ready for sale during the 2011 holiday season (id. at ¶ 231).
In a conference call later that same day, Primo executives identified the source of low sales as a delay in the addition of water dispenser selling locations and a delay in the national promotions scheduled by major retailers. (Id. at ¶ 234-35.) Further, Primo executives made additional statements about the upcoming launch of the Flavor Station appliance and increased the estimate for Flavor Station sales for 2011. (Id. at ¶ 236-37.) Despite this announcement, analysts concluded that Primo’s disappointing second quarter and lower 2011 guidance hurt the company’s credibility. (Id. at ¶ 245.) Primo’s common stock price collapsed from $13.92 per share on August 9, 2011, to $5.40 per share at closing on August 10, 2011. (Id. at ¶ 248.)
On November 8, 2011, Primo issued another press release (“November 2011 press release”) announcing results for the third quarter of 2011. (Id. at ¶ 250.) Again, Primo reported a net loss and revised downward its financial projections for fourth quarter sales to be $22.0 to $24.0 million compared to prior guidance of $27.0 to $29.5 million. (Id.) Primo also announced that it expected to have “limited sales of Flavor Station appliances during the fourth quarter due to delays in reformulating [ ] flavors.” (Id. at ¶ 251.) Following this press release, Primo’s stock again declined in value from a closing price of $5.57 on November 8, 2011, to a closing price of $4.58 on November 9, 2011. (Id. at ¶ 264.) After Primo issued its third quarter Form 10-Q, the price of Primo common stock fell again to close at $3.06 on November 10, 2011. (Id.) This represented an approximately 80.95% decrease in common stock price from Primo’s Class Period high of $16.06 per share. (See id.)
Other specific facts will be discussed below, as relevant to the legal analysis.
II. MOTION TO STRIKE
Preliminary to consideration of the merits of Defendants’ motions, Plaintiffs have moved to strike four separate exhibits contained in the appendix that the Primo Defendants submitted in support of their motion to dismiss. The exhibits at issue are as follows:
(1) Appendix pp. 687-90: Graham Bowley, Wall Street, the Home of the Vanishing I.P.O., N.Y. TIMES, November 17, 2010.
(2) Appendix pp. 772-73: “Data Shark Store Loeation/Delivery Query and Results” dated July 1, 2010.
(3) Appendix pp. 774-80: Spreadsheet detailing Prim’s holdings during the Class Period, with related Form 4s.
(4) Appendix pp. 781-92: Spreadsheet detailing Primo insider stock purchases during the Class Period, with related Form 4s.
Courts may consider documents attached to a motion to dismiss “so long as they are integral to the complaint and authentic.” Sec’y of State for Def. v. Trimble Navig. Ltd., 484 F.3d 700, 705 (4th Cir.2007). As such, the court can consider “documents attached to the complaint, documents incorporated by reference in the complaint, or matters of judicial notice” without converting a motion to dismiss into one for summary judgment. Sun Chem. Trading Corp. v. CBP Res., Inc., No. L01CV00425, 2004 WL 1777582, at *3 (M.D.N.C. July 29, 2004) (internal quotations and citation omitted). Further, in a securities fraud case, the court may consider “public documents quoted by, relied upon, incorporated by reference or otherwise integral to the complaint.” In re Royal Ahold N.V. Secs. & ERISA Litig., 351 F.Supp.2d 334, 349 (D.Md.2004) (internal quotations and citations omitted).
The first exhibit (Appendix pages 687-90) is a N.Y. Times newspaper article that provides a general discussion of IPOs, their inherently risky nature, and their decline in U.S. stock markets. Courts may take judicial notice of newspaper articles (particularly in cases such as this that allege fraud on the market) when they specifically discuss the subject of the case. See, e.g., Quaak v. Dexia, S.A, 357 F.Supp.2d 330, 339 (D.Mass.2005). However, the article at issue never mentions Primo or the bottled water industry, but rather is offered only to demonstrate that IPOs can be risky ventures. Accordingly, the Plaintiffs’ motion to strike will be granted with respect to this exhibit. Id. (granting motion to strike newspaper articles).
The second exhibit (Appendix pages 772-73) is represented to be a printout of Primo customer deliveries according to the company’s “Data Shark” computer program, a database that tracks the company’s sales. The Data Shark database is referenced multiple times in the amended complaint in connection with Plaintiffs allegations that Primo overstated its sales. {See, e.g., Doc. 52 at ¶¶ 53-54, 76, 161-63, 266.) For example, the amended complaint alleges that when Confidential Witness 1 (“CW1”) left the company in late 2010, the Data Shark program revealed that 1,500 of the company’s 5,000 retailers had not had a delivery in 18 months or more. {Id. at ¶¶ 53-54.) The exhibit, in contrast, purports to show that as of June 30, 2010, 6,926 Primo customers had received a delivery within the past thirty days. (App. at 773.) The Primo Defendants contend that the exhibit demonstrates that Plaintiffs’ allegations are false.
It is true that on a motion under Federal Rule of Civil Procedure 12(b)(6) the court can look to documents that are cited in the complaint. Greenhouse v. MCG Capital Corp., 392 F.3d 650, 656 (4th Cir.2004). The problem here is that it is not clear that the proposed exhibit is in fact one of the documents cited in the amended complaint. Moreover, the exhibit does not speak for itself, and it is not clear exactly what the figures on it mean. Plaintiffs’ reference to the Data Shark computer system does not permit the court’s consideration of any and every document that the system is capable of producing, particularly if it is not a report specifically mentioned in the amended complaint. Accordingly, the coqrt will grant the motion to strike this document.
Finally, the third and fourth exhibits (Appendix pages 774-92) detail stock holdings and purchases by Prim, Primo’s founder, and are offered to show that Plaintiffs fail to allege a strong inference of scienter to defraud where public documents show that Prim himself continued to purchase shares of the company during the Class Period. Because the presence or absence of scienter is not a basis for the court’s ultimate resolution of the motions to dismiss (and even if it were, the court need not rely on these exhibits), the court will not consider these exhibits, and the motion to strike them is moot. See United States v. Ebert, 178 F.3d 1287, at *34 n. 15 (4th Cir.1999) (unpublished table decision) (finding motion to strike newspaper article that was not considered moot).
III. MOTIONS TO DISMISS
Both the Primo Defendants and the Underwriter Defendants have moved to dismiss the amended complaint for failure to state a claim upon which relief can be granted pursuant to Federal Rule of Civil Procedure 12(b)(6). (Does. 56 & 58.)
Federal Rule of Civil Procedure 8(a)(2) provides that a complaint must contain a “short and plain statement of the claim showing that the pleader is entitled to relief.” While the complaint need only “give the defendant fair notice of what the ... claim is and the grounds upon which it rests,” the plaintiffs pleading obligation “requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (internal quotations omitted).
The purpose of a Rule 12(b)(6) motion is to “test[] the sufficiency of a complaint” and not to “resolve contests surrounding the facts [or] the merits of a claim.” Republican Party of N.C. v. Martin, 980 F.2d 943, 952 (4th Cir.1992). The court “must accept as true all of the factual allegations contained in the complaint,” Erickson v. Pardus, 551 U.S. 89, 94, 127 S.Ct. 2197, 167 L.Ed.2d 1081 (2007) (per curiam), and all reasonable inferences must be drawn in the plaintiffs favor, Ibarra v. United States, 120 F.3d 472, 474 (4th Cir.1997). However, Rule 12(b)(6) protects against meritless litigation by requiring sufficient factual allegations “to raise a right to relief above the speculative level,” Twombly, 550 U.S. at 555, 127 S.Ct. 1955, so as to “nudge[ ] the[ ] claims across the line from conceivable to plausible,” id. at 570, 127 S.Ct. 1955; see Ashcroft v. Iqbal, 556 U.S. 662, 680, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). As explained by the United States Supreme Court:
A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. The plausibility standard is not akin to a probability requirement, but it asks for more than a sheer possibility that a defendant has acted unlawfully.
Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 (internal quotations and citations omitted). Although the truth of the facts alleged is assumed, courts are not bound by the “legal conclusions drawn from the facts” and “need not accept as true unwarranted inferences, unreasonable conclusions, or arguments.” Giarratano v. Johnson, 521 F.3d 298, 302 (4th Cir.2008) (internal quotations and citations omitted).
While these standards govern the consideration of a Rule 12(b)(6) motion generally, there are additional pleading standards under the PSLRA that apply to a securities class action such as this. These heightened pleading standards exist because Congress recognized the potential for abuse in the securities fraud context, including “nuisance filings, targeting of deep-pocket defendants, vexatious discovery requests and manipulation by class action lawyers.” Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit, 547 U.S. 71, 81, 126 S.Ct. 1503, 164 L.Ed.2d 179 (2006). The requirement of heightened pleading reflects Congress’ view that courts should “be vigilant in preventing meritless securities fraud claims from reaching the discovery phase of litigation.” Cozzarelli v. Inspire Pharm. Inc., 549 F.3d 618, 623 (4th Cir.2008). Accordingly, where appropriate, heightened pleading requirements will be discussed below.
A. The 1934 Act Claims
The court turns first to Plaintiffs’ claims under the 1934 Act. There are two claims: violation of Section 10(b) and violation of Section 20(a) (collectively, “1934 Act claims”).
1. Pleading Standards
The parties agree that the 1934 Act claims must be analyzed pursuant to Federal Rule of Civil Procedure 9(b). (See Doc. 59 at 26 (stating that Rule 9(b) applies to the 1934 Act claims); Doc. 66 at 29 (same)); see also City of Ann Arbor Emp. Ret. Sys. v. Sonoco Prods. Co., 4:08-cv-2348-TLW-TER, 2009 WL 2487045, at *1 (D.S.C. Aug. 14, 2009) (Rule 9(b) applies when assessing a motion to dismiss a claim under the 1934 Act). As such, Plaintiffs’ claims must be “stated with particularity.” Fed.R.Civ.P. 9(b). This means that Plaintiffs must establish the “who, what, when, where, and how” of the alleged fraud that underlies their claims. United States ex rel. Wilson v. Kellogg Brown & Root, Inc., 525 F.3d 370, 379 (4th Cir.2008) (internal quotations and citations omitted).
Additionally, the PSLRA requires heightened pleading as to (1) scienter and (2) misrepresentation. Katyle v. Penn Nat. Gaming, Inc., 637 F.3d 462, 471 n. 5 (4th Cir.2011). First, “Congress [has] required that plaintiffs make specific allegations of false statements or else face dismissal. And Congress instructed courts to dismiss any securities fraud complaint that does not state with particularity facts giving rise to a strong inference that the defendant acted with scienter.” Cozzarelli, 549 F.3d at 623 (internal quotations and citations omitted). The Supreme Court has counseled that “[a] complaint will survive [under the PSLRA’s heightened pleading standards] only if a reasonable person would deem the inference of scienter cogent and at least as compelling as any opposing inference one could draw from the facts alleged.” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 324, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007).
Next, if a plaintiff alleges that a defendant made false or misleading statements, the PSLRA requires that the plaintiff “specify each statement alleged to have been misleading, the reason or reasons why the statement is misleading, and, if an allegation regarding the statement or omission is made on information and belief, the complaint shall state with particularity all facts on which that belief is formed.” 15 U.S.C. § 78u-4(b)(l). Thus, the PSLRA modifies past practice “(1) by requiring a plaintiff to plead facts to state a claim and (2) by authorizing the court to assume that the plaintiff has indeed stated all of the facts upon which he bases his allegation of a misrepresentation or omission.” Teachers’ Ret. Sys. of La. v. Hunter, 477 F.3d 162, 172 (4th Cir.2007) (citing 15 U.S.C. § 78u-4(b)(l)). In determining if the complaint satisfies the pleading standards of the PSLRA, the court will assess the complaint as a whole. As such, the court will evaluate the number and level of detail of the facts, the plausibility and coherency of the facts, the sources of the facts and the reliability of those sources, and any other criteria that can be used to inform how well the facts support Plaintiffs’ allegations. Hunter, 477 F.3d at 174.
2. Section 10(b) Claim
Section 10(b) and SEC Rule 10b-5 (collectively referred to as the “Section 10(b) claim” ) make it unlawful for any person to commit fraud in connection with the purchase or sale of securities. 15 U.S.C. § 788(b); 17 C.F.R. § 240.10b-5. To succeed on a Section 10(b) claim, a plaintiff must show “(1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a connection between the misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss causation.” Matrixx Initiatives, Inc. v. Siracusano, — U.S. —, 131 S.Ct. 1309, 1317, 179 L.Ed.2d 398 (2011).
In this case, Defendants have moved to dismiss Plaintiffs’ Section 10(b) claim based principally on four grounds: (1) a lack of loss causation, (2) the PSLRA’s safe harbor provision for forward-looking statements, (3) Plaintiffs’ failure to plead that any of the challenged statements was false/misleading or material, and (4) Plaintiffs’ failure to allege facts establishing a strong inference of scienter. (See generally Docs. 57 & 59.) After careful consideration, the court finds that dismissal is warranted based on Plaintiffs’ failure to plead that any of the challenged statements were a material misrepresentation or omission and, additionally, on the PSLRA’s safe harbor provisions. Accordingly, those grounds are addressed below, and the court need not reach the issues of loss causation and scienter with respect to the 1934 Act claims. See Nolte v. Capital One Fin. Corp., 390 F.3d 311, 317 (4th Cir.2004).
a. Failure to Plead any Statement was a Material Misrepresentation or Omission Pursuant to Section 10(b)
The basis of a Section 10(b) claim is that the defendant made “a public misrepresentation for which it may be found primarily liable.” Gariety v. Grant Thornton, LLP, 368 F.3d 356, 369 (4th Cir.2004). The statement challenged must either be (1) false or (2) an omission that renders the statement misleading. Longman v. Food Lion, Inc., 197 F.3d 675, 682 (4th Cir.1999). Additionally, the statement, whether a falsity or an omission, must also be material. Siracusano, 131 S.Ct. at 1317. The Fourth Circuit has stated that Section 10(b) and Rule 10b-5 “decidedly do not prohibit any misrepresentation — no matter how willful, objectionable, or flatly false — of immaterial facts, even if it induces reactions from investors that, in hindsight or otherwise, might make the misrepresentation appear material.” Greenhouse, 392 F.3d at 656 (emphasis removed). “[A] fact stated or omitted is material if there is a substantial likelihood that a reasonable purchaser or seller of a security (1) would consider the fact important in deciding whether to buy or sell the security or (2) would have viewed the total mix of information made available to be significantly altered by disclosure of the fact.” Longman, 197 F.3d at 683; see also Isquith v. Middle South Utilities, Inc., 847 F.2d 186, 207-08 (5th Cir.1988); In re Gentiva Sec. Litig., 932 F.Supp.2d 352, 367 (E.D.N.Y.2013) (“At the pleading stage, a plaintiff satisfies the materiality requirement of Rule 10b-5 by alleging a statement or omission that a reasonable investor would have considered significant in making investment decisions” (internal quotations and citation omitted)).
Plaintiffs’ amended complaint identifies numerous allegedly false and/or misleading statements. The parties have grouped the challenged statements into general categories for convenience, and the court will do the same. These categories are: (1) statements regarding the number of retail locations at which Primo products were offered; (2) statements regarding marketing and promotion efforts; (3) statements regarding retailer demand; (4) statements regarding retailer unhappiness and shrinkage; and (5) statements relating to the release of the Flavor Station. Each will be addressed in turn,
i. Statements Regarding the Number of Retail Locations
The first set of statements challenged by Plaintiffs concerns the number of retail locations at which Primo’s products were being offered. Specifically, Plaintiffs allege that at the time of the IPO Primo “materially overstated the number of locations where Primo’s water bottle exchange services were offered, and where Primo was selling water” by including approximately 1,500 store locations in its reported 7,200 water bottle exchange service locations that did not have water bottle exchange machines and did not sell Primo water. (Doc. 52 at ¶ 49.)
In its IPO Registration Statement, Primo stated:
As of June 30, 2010, our bottle water exchange service and water dispensers were offered in each of the contiguous United States and located in approximately 7,200 and 5,500 retail locations respectively ... In addition, we added approximately 700 exchange locations during the quarter ended September 30, 2010, bringing the total number of our exchange locations as of September 30, 2010 to approximately 7,900.
(Doc. 52 at ¶ 50.) Plaintiffs contend that these statements (and others relating to the number of retail locations in the Secondary Offering (see, e.g., id. at ¶ 104), press releases/conference calls (see, e.g., id. at ¶ 167, 170, 183), and other SEC filings (see, e.g., id. at ¶ 176)) were materially inaccurate. Specifically, Plaintiffs contend that Primo was over-reporting the number of locations at which it sold its products because 1,500 stores in the Western region of the United States “had not had a delivery of water in 18 months or more.” (Id. at ¶ 53.) Plaintiffs also state that there were “stores that sold less than five bottles a year that Primo still counted within the purported total number of stores. Other stores listed as actively selling Primo bulk water had only two or three new bottles delivered in a year’s time.” (Id.)
Plaintiffs’ falsity argument is premised on the allegation that Primo “materially overstated the number of stores it reported as selling Primo products” and the proposition that underperforming stores could not be considered as “offering” the product. (Id. at ¶ 56 (emphasis added).) Plaintiffs argue that sales were lagging in many stores and therefore the report of the number of locations was misleading. However, Plaintiffs’ claims that Defendants’ statements are materially false and/or misleading fail.
There is no evidence that Primo ever made any statement regarding the number of locations at which it was actually selling its products; instead, Primo’s IPO Registration Statement, Secondary Offering, and press releases state only that “[Primo’s] bottle water exchange service and water dispensers were offered” at a certain number of locations. (See, e.g., id. at ¶ 49, 60, 104-05.) Even if 1,500 locations reported by Primo had not received deliveries in eighteen months, Plaintiffs fail to identify a material misrepresentation or omission that contradicts Primo’s assertion that its products were being offered, even if not robustly, at every reported location. Plaintiffs have not articulated any authority for the proposition that Defendants had a duty to identify the relative success of each of its retail locations, and the court cannot conceive of one on these facts.
Moreover, in light of the information Primo disclosed, there is no substantial likelihood that a reasonable purchaser or seller would have considered the alleged fact important in deciding whether to buy or sell, or would have viewed the total mix of information made available to him to be significantly altered by its disclosure. Longman, 197 F.3d at 682-83. Primo’s various offerings and 10-Qs and 10-Ks (see App. at 409-502 (Form 10-K for Year Ended December 31, 2010) and 503-530 (Form 10-Q for Quarter Ended June 30, 2011)), disclosed the company’s total sales revenues as a result of its retail operations. The reasonable investor was easily able to determine averages of those figures based on the company’s public statements. (See, e.g., id. at 769 for an analyst calculation of average per location sales and exchange revenue per bottle.)
Primo also clearly disclosed as early as the IPO that a substantial portion of its sales were attributable to a small number of large retailers. (See id. at 14 (“We depend on a small number of large retailers for most of our consumer sales.”) & 20 (“Certain retailers make up a significant percentage of our retail sales volume, such that if one of more of these retailers were to materially reduce or terminate its business with us, our sales would suffer.”).) Moreover, as the company’s reported retail locations grew over the Class Period, from 7,200 (exchange service)/5,500 (dispensers) locations reported in the IPO (id. at 6), to “approximately 14,600 combined retail locations” in the Secondary Offering (id. at 233), to 22,600 locations by September 30, 2011, as noted in the November 8, 2011 press release (id. at 631), and as the company’s sales continued to increase significantly, the impact of the alleged 1,500 underperforming stores cannot be said to have been material.
Accordingly, Plaintiffs’ claims as to challenged statements regarding the number of retail locations will be dismissed,
ii. Statements Regarding Marketing and Promotion Efforts
Plaintiffs next challenge Primo’s statements about its marketing and promotion efforts. Though Plaintiffs make numerous allegations on this point, their ultimate contention is that Primo was “failing to properly promote and market its products, if at all.” (Doc. 52 at ¶ 62.) In the amended complaint, Plaintiffs identify several statements by Primo in the IPO Registration Statement about marketing and promotion efforts, exemplified by the following:
We direct our marketing efforts as close as possible to the point of sale to strengthen our brand and promote consumer awareness of our water bottle exchange service ... Our displays include Primo graphics, slogans and instructions on the exchange process that simply attach to the displays ... In addition, we work with retailers to customize in-store solutions to best promote our brand ... We plan to increase our promotional activity as we expand our business ... We are also increasing our public relations initiatives associated with new market launches, developing additional cooperative advertising programs with retail distribution partners and increasing our field marketing activities.
(Id. at ¶ 61.) Further, Plaintiffs attack statements made in the Secondary Offering and 2010 Form 10-K about marketing efforts. (Id. at ¶¶ 107, 201 (which identify Primo displays and cross marketing promotion efforts as efforts to “develop! ] and maintain! ] a brand identity”).) Plaintiffs also identify statements in the August 2011 press release about direct-to-consumer marketing plans as false and misleading. (Id. at ¶ 232 (challenging Primo’s statement in the August 2011 press release that it plans to implement a “new direct-to-consumer marketing campaign to increase exposure and raise awareness of its full product offering and to drive sales of appliances and consumables”).)
Plaintiffs contend that all of these statements about marketing and promotion efforts are materially inaccurate statements of fact. Specifically, they assert that, leading up to the IPO, Primo was failing to properly promote and market its products, thus leading to retailer dissatisfaction, and that at the time of the IPO Primo was not planning to increase its promotional activities, public relations initiatives, or its field marketing activities. (Id. at ¶ 62.) Plaintiffs base this assertion on information obtained from former Primo employees serving as confidential witnesses. Confidential Witness 6 (“CW6”) reported that Primo “did not value sales or marketing,” “had literally no consumer based marketing,” and “wouldn’t put money into marketing.” (Id. at ¶ 66.) Confidential Witness 4 (“CW4”) also reported that “Primo did not have the finances to properly ‘promote the product.’ ” (Id. at ¶ 70.) Other confidential witnesses (Confidential Witness 5 (“CW5”) and Confidential Witness 3 (“CW3”)) reported that Primo was not updating its graphic displays (Id. at ¶ 72) and not offering price promotions (Id. at ¶ 73). CW5 also reported that Primo cut its marketing budget by $130,000 and fired its outside marketing company. (Id. at ¶ 84.)
None of these statements can serve as the basis of a Section 10(b) claim. First, as noted by the Primo Defendants, the amended complaint itself calls into doubt Plaintiffs’ assertions that Primo was “failing to properly promote and market its products, if at all.” (Id. at ¶ 62.) The amended complaint contains multiple allegations that Primo was in fact carrying on marketing and promotional activities. For example, paragraph 112 contains CW5’s recounting of an April 2011 negotiation with Lowe’s for a “dispenser promotion”; paragraph 113 contains CW5’s statements that “just two months before the Secondary Offering ... Primo tried to convince Target to run a promotion”; paragraph 118 recounts how Primo “spent money to market ... the Flavor Station”; paragraph 235 recounts how Primo “completed a branding review related to [the] Omnifrio acquisition”; and paragraph 256 notes that Primo “just gave some promotional dollars away for this quarter to get — to kind of juice some sales.” These statements flatly contradict Plaintiffs’ assertions that Primo failed to engage in marketing or promotional activity.
Additionally, the court cannot credit the evidence provided by several of the confidential witnesses that reported on Primo’s plans for marketing and promotion efforts. If a “complaint chooses to rely on facts provided by confidential sources, it must describe the sources with sufficient particularity to support the probability that a person in the position occupied by the source would possess the information alleged or in the alternative provide other evidence to support their allegations.” Hunter, 477 F.3d at 174. Plaintiffs fail to satisfy this standard because multiple confidential witnesses that made allegations about Primo’s marketing and promotion plans left Primo’s employment before the Class Period began. Both CW3 and CW4 left Primo’s employment in July 2010 (Doc. 52 at ¶ 33-34), well before November 4, 2010, the date of the IPO and the first day of the Class Period. As such, statements by these confidential witnesses that Primo was not offering product promotions before the IPO and start of the Class Period (see Doc. 52 at ¶¶ 70 & 73) do not support Plaintiffs’ allegations that Primo made materially false or misleading statements during the Class Period. CW3 and CW4 simply could not have had personal knowledge of marketing and promotional activities or plans conducted after the IPO that would have made Primo’s statements about marketing plans false or misleading. See In re Trex Co., Inc. Sec. Litig., 454 F.Supp.2d 560, 573 (W.D.Va.2006) (stating that “[a] confidential witness’ testimony can be used in pleading under the PSLRA so long as the testimony involves facts of which the witnesses had personal knowledge,” and then finding that confidential witness statements did not meet this standard because the witnesses had left employment during the relevant class period).
Further, Primo’s statements about marketing and promotions constitute immaterial puffery. “[Statements that consist of nothing more than indefinite statements of corporate optimism, also known as ‘puffery,’ are immaterial as a matter of law.” In re Lab. Corp. of Am. Holdings Sec. Litig., No. 1:03CV591, 2006 WL 1367428, at *9 (M.D.N.C. May 18, 2006) (citing Raab v. General Physics Corp., 4 F.3d 286, 289 (4th Cir.1993)); see also In re Cable & Wireless, PLC, Sec. Litig., 332 F.Supp.2d 896, 900 (E.D.Va.2004) (defining an immaterial statement as “a certain kind of rosy affirmative commonly heard from corporate managers and familiar to the marketplace — loosely optimistic statements that are so vague, so lacking in specificity, or so clearly constituting the opinions of the speaker, that no reasonable investor could find them important to the total mix of information available”).
Here, Primo’s statements merely parrot corporate optimism that would not be deemed important to a reasonable investor when making a decision about purchasing securities. For example, Primo’s statements that marketing efforts are “directed] ... as close as possible to the point of sale to strengthen our brand” (Doc. 52 at ¶ 201), that the company was “plan[ning] to increase our promotional activity” (id. at ¶ 61), and that the company was “increasing our public relations initiatives associated with new market launches” (id.) are nothing more than amorphous, optimistic statements that cannot form the basis of a Section 10(b) claim. See, e.g., Longman, 197 F.3d at 685 (holding that company’s statement that it “believe[s] that Food Lion’s Extra Low Prices and its clean and conveniently located stores are especially well suited to the demands of our customers” was immaterial puffery and could not form the basis of a Section 10(b) claim); Raab, 4 F.3d at 289 (holding that a statement that a company’s business unit was “poised to carry the growth and success of 1991 well into the future” was immaterial puffery).
Finally, any remaining statements that do not constitute immaterial puffery are simply not false or misleading. For example, Plaintiffs challenge Primo’s statement that its “displays include Primo graphics, slogans and instructions on the exchange process” (Doc. 52 at ¶ 61). However, at no point in the amended complaint do Plaintiffs actually contradict this assertion. Rather, Plaintiffs allege that display graphics for bulk water shelving were “starting to age” and that even though funds were reallocated from sales to redesign to update them, the graphics were not redesigned. (Id. at ¶ 72.) Plaintiffs also allege that CW1, who helped install graphic displays before the IPO, “was only provided with ’50 percent’ of the materials needed to do the job.” (Id. at ¶ 80.) However, the only example provided in the amended complaint is an instance (again, before the IPO and Class Period) where CW1 was told to use display products already “in the field” even though those displays did not match newer graphics used on Primo products. (Id. at ¶ 82.)
In the end, Plaintiffs’ attack on Primo’s marketing and promotion representations devolves into a disagreement as to the quality and execution of the effort. For example, while Plaintiffs allege that Primo discharged its outside marketing firm, the August 2011 press release reveals that the company hired an internal head of marketing to oversee the company’s efforts. (App. at 625.) Plaintiffs’ criticisms do not rise to the level of a Section 10-b claim under the PSLRA. Accordingly, the court finds that none of the challenged statements relating to marketing and promotion efforts can serve as a basis for the Plaintiffs’ Section 10(b) claim.
iii. Statements Regarding Shrinkage, Retailer Unhappiness, and Retailer Demand
Plaintiffs next challenge Primo’s statements that relate to shrinkage (high rate of product loss), retailer unhappiness, and retailer demand.
The specific statements in the IPO Registration Statement relating to shrinkage and retailer unhappiness are as follows:
Our water bottle exchange solution is easy for retailers to implement, requires minimal management supervision and store based labor and provides centralized billing and detailed performance reports. Our solution offers retailers attractive financial margins and the ability to optimize typically unused retail space with our displays. Additionally, due to the recurring nature of water consumption and water bottle exchange, retailers benefit from year-round customer traffic and highly predictable revenue ...
Our water bottle exchange service provides retailers with a year-round consumer product and an opportunity to increase sales and profits with minimal labor and financial investment ... Retailers benefit from our water bottle exchange service that offers high margin and generates productivity from often underutilized interior and exterior retail space ...
[E]mpty bottles are exchanged at our recycling center displays where consumers receive a recycling ticket that offers a discount toward the purchase of a full bottle of Primo purified water ...
We acquire new consumers ... by accepting most dispenser-compatible water bottles in exchange for a recycle ticket discount toward the purchase of a full bottle of Primo purified water ...
We sell our water dispensers at minimal margin and provide a coupon for a free three- or five-gallon bottle of water with the sale of various water dispensers at certain retailers to drive consumer demand for our water bottle exchange[.]
(Doc. 52 at ¶¶ 86-87.) Additionally, Plaintiffs challenge statements in the Secondary Offering and various press releases regarding the opportunity for the company’s future growth and the company’s ability to increase market penetration. (See, e.g., id. at ¶ 60 (“Such retailers present us an opportunity of approximately 13,900 additional nationwide locations”) & ¶ 105 (“We believe we have significant opportunities to increase store penetration with our existing retail relationships”).)
Plaintiffs argue that these statements are actionable under Section 10(b). Specifically, Plaintiffs allege that Primo’s water bottle machines were poorly manufactured and allowed consumers to steal water bottles and discount coupons, thus failing to result in positive financial results or high margins for retailers, as claimed. (Id. at ¶ 88.) According to CW1 and CW3 (both of whom left the company before the Class Period), the ability of consumers to illicitly remove returned water bottles and activate the water dispenser’s sensor to acquire a discount ticket without actually having returned a water bottle meant that Primo’s shrinkage numbers reached as high as 15% to 25% in some months. (Id. at ¶¶ 90-92.) Plaintiffs also generally challenge statements in the IPO Registration Statement and Secondary Offering by alleging that Primo’s products were not selling, thus aggravating retailers and limiting market expansion opportunities. (Id. at ¶¶ 97-98, 62(a).)
Plaintiffs allege that Primo’s statements that its products had high margins for retailers are contradicted by the statements of the confidential witnesses that customers could illegitimately obtain returned water bottles and discount coupons from Primo’s machines. However, statements about products having high margins are nothing more than “ ‘[s]oft,’ ‘puffing’ ” statements that have previously been found to be immaterial as a matter of law. See Raab, 4 F.3d at 289 (statement that “[r]egulatory changes ... have created a marketplace for the DOE Services Group with an expected annual growth rate of 10% to 30% over the next several years” was immaterial); Lasker v. N.Y. State Elec. & Gas Corp., 85 F.3d 55, 59 (2d Cir.1996) (statements that the defendant’s business strategies would lead to “continued prosperity” immaterial); Pipefitters Local No. 636 Defined Ben. Plan v. Tekelec, No. 5:11-CV-4-D, 2013 WL 1192004, at *8 (E.D.N.C. Mar. 22, 2013) (finding statements that Tekelec “expected growth to come from EAGLE XG” and that “business has been very strong” not actionable); Palladin Partners v. Gaon, No. 05-CV-3305, 2006 WL 2460650, at *9 (D.N.J. Aug. 22, 2006) (finding that the defendant’s statement that it “expects to achieve improvements to gross margins” was not actionable); cf. Newman v. Rothschild, 662 F.Supp. 957, 959 (S.D.N.Y.1987) (statement by defendant that investment would yield twenty to thirty percent profit was beyond mere puffery because it provided a specific percentage).
Additionally, even if this were not the case, Plaintiffs’ allegations about shrinkage would still fail. Although Plaintiffs allege that shrinkage costs rendered Primo’s statements about their products having a “high margin” for retailers false, the amended complaint itself undermines this assertion. . In the amended complaint, Plaintiffs reveal that Primo sold its products to Kmart, Lowe’s, and Kroger on consignment. (Doc. 52 at ¶ 94.) This meant that “it was Primo’s responsibility to make up for the presence of any short fall between deliveries and sales,” and thus the cost of shrinkage was born by Primo, not the retailers. {Id. at ¶ 95 n. 4.) As such, for several of Primo’s largest accounts, any amount of shrinkage would not have affected the margins on Primo products from the retailers’ point of view.
Plaintiffs’ next set of allegations relate to retailer unhappiness and retailer demand. Plaintiffs challenge Primo’s statements that its products were a benefit to retailers and that it had significant expansion opportunities, citing the company’s sales results. Again, Primo’s statements in the IPO Registration Statement, Secondary Offering, and press releases on these points consist of nothing more than innocuous corporate optimism about the growth of the company and the effect of Primo products on retailers. See Longman, 197 F.3d at 685 (holding that company’s statements that it “believe[s] that Food Lion’s Extra Low Prices and its clean and conveniently located stores are especially well suited to the demands of our customers” and that the company “will continue to pay close attention to service levels and cleanliness in our stores and believe we will achieve high marks from customers in these areas” were immaterial puffery); Raab, 4 F.3d at 289 (statement that a business unit was “poised to carry the growth and success of 1991 well into the future” was immaterial); In re Computer Scis. Corp. Sec. Litig., 890 F.Supp.2d 650, 668 (E.D.Va.2012) (statements that the company “steadily made progress in delivering on our commitments” and the company was “pleased with [its] progress” were immaterial); In re First Union Corp. Sec. Litig., 128 F.Supp.2d 871, 892 (W.D.N.C.2001) (holding that statements that “1998 will continue to be a very active year” and that “we expect further improvements in efficiency” were immaterial); see also Rombach v. Chang, 355 F.3d 164, 174 (2d Cir.2004) (noting that companies must be permitted to operate with a “hopeful outlook”). Additionally, regarding Plaintiffs’ allegations that retailers were dissatisfied with Primo’s products, the amended complaint and confidential witnesses fail to identify a single dissatisfied retailer. This makes Plaintiffs’ allegations conclusory and vague, and the pleading standards of the PSLRA are not satisfied. In re Trex, 454 F.Supp.2d at 579 (finding that confidential witness statements did not meet the particularity requirement of the PSLRA when the confidential witness did not name any distributors that were actually dissatisfied with the company’s business agreement).
Accordingly, a Section 10(b) claim will not lie based on the challenged statements about shrinkage, retailer unhappiness, and retailer demand.
iv. Statements Relating to the Release of the Flavor Station
The last set of statements challenged by Plaintiffs relates to the Omnifrio acquisition and release of the Flavor Station appliances. Specifically, the amended complaint challenges two of Primo’s statements relating to the acquisition of Omnifrio: a March and June 2011 statement that Omnifrio had developed 30 flavors (see, e.g., Doc. 52 at ¶¶221, 223(c)) and Primo’s forecast that sales of a Flavor Station device would begin in the fourth quarter of 2011 (see, e.g., id. at ¶¶ 115, 182, 186-88, 203, 212, 231, 235-36).
With regard to Primo’s statement that “[w]e have more than 30 flavors today” {id. at ¶ 221), Plaintiffs allege that this statement is false because approximately five months later Primo announced that it had “limited sales of Flavor Station appliances during the fourth quarter due to delays in reformulating its flavors.” (Id. at ¶ 251.) Plaintiffs assert that this contradicts Primo’s previous statement that Omnifrio had already developed 30 flavors.
Although Plaintiffs identify these statements as inconsistent, Plaintiffs have not plausibly alleged that Primo did not in fact acquire 30 flavors from Omnifrio. Implicit in Primo’s statement that it was reformulating Omnifrio flavors is the fact that Omnifrio would first have had to develop the flavors so that they could in fact be “reformulated.” Thus, Plaintiffs have not met the pleading standards of the PSLRA.
Further, the statements that Primo expected the launch of the Flavor Station during the fourth quarter/holiday season of 2011 are not materially false or misleading. Specifically, under the “bespeaks caution” doctrine, the statements at issue are not material. In determining whether an alleged misrepresentation or omission is material, the court must consider the statement in the full context in which it was made. Gasner v. Bd. of Supervisors of the Cnty. of Dinwiddie, Va., 103 F.3d 351, 358 (4th Cir.1996). Moreover, cautionary language in a document may negate the materiality of an alleged misrepresentation or omission. In re Donald J. Trump Casino Sec. Litig., 7 F.3d 357, 371 (3d Cir.1993), cert. denied sub nom. Gollomp v. Trump, 510 U.S. 1178, 114 S.Ct. 1219, 127 L.Ed.2d 565 (1994); accord In re Coventry Healthcare, Inc. Sec. Litig., No. 08:09-CV-2337-AW, 2011 WL 1230998, at *12 (D.Md. Mar. 30, 2011). The use of cautionary language is usually not dispositive but instead is relevant to the materiality inquiry. Rubinstein v. Collins, 20 F.3d 160, 168 (5th Cir.1994). However, dismissals based on the bespeaks caution doctrine are appropriate when the complaint “attempts to turn economic forecasts or corporate goals into actionable misrepresentations.” In re Sourcefire, Inc. Sec. Litig., No. JFM 07-1210, 2008 WL 1827484, at *5 (D.Md. Apr. 23, 2008). This is the case because the bespeaks caution doctrine mirrors the securities laws’ goal of regulating forward-looking statements less so than declaratory statements of fact. See, e.g., Malone v. Microdyne Corp., 26 F.3d 471, 479 (4th Cir.1994) (“Misstatements or omissions regarding actual past or present facts are far more likely to be actionable than statements regarding projections of future performance.” (emphasis removed)).
In the Secondary Offering, press releases, and conference calls at issue, Primo did make forward-looking statements about its goal to launch the Flavor Station appliance, but it accompanied those statements with cautionary language. (See, e.g., App. at 245 (Secondary Offering) (stating that “We may not be able to introduce or sell products to be developed by the Omnifrio Single-Serve Beverage Business within the anticipated timeframe or at all”; “We have not yet introduced these products and we may never be successful in selling them”; “[A] market for these products may never develop”; “[W]e may not realize the full benefits of the acquisition transactions”), 428 (Form 10-K) (“We may experience difficulties in integrating ... the Omnifrio Single-Serve Beverage Business with our current business and may not be able to fully realize all of the anticipated synergies from [this] acquisition[ ]”), 528 (Form 10 — Q) (“Our introduction of these products into the market may also be adversely affected by certain factors that are out of our control”), 626 (August 2011 press release) (stating that “actual results could differ materially from those stated here,” noting Primo’s potential inability to “develop, introduce and produce new product offerings (including the Flavor Station line of appliances) within the anticipated time frame or at all,” and referencing the risk disclosures in the Form 10-K), 660 (Q2 2011 Earnings Call) (referencing the prior risk disclosures in the August 2011 press release and Primo’s SEC filings).)
This cautionary language was tailored to the specific risks Primo faced in launching the Flavor Station. See In re Constellation Energy Group, Inc. Sec. Litig., 738 F.Supp.2d 614, 625 (D.Md.2010). Further, the cautionary language is particularly relevant here because Primo’s statements were only future projections, not statements of past or present fact. See Shaw v. Digital Equip. Corp., 82 F.3d 1194, 1206 (1st Cir.1996), superseded by statute on other grounds, as noted in Greebel v. FTP Software, Inc., 194 F.3d 185 (1st Cir.1999) (“[The bespeaks caution doctrine] embodies the principle that when statements of ‘soft’ information such as forecasts, estimates, opinions, or projections are accompanied by cautionary disclosures that adequately warn of the possibility that actual results or events may turn out differently, the ‘soft’ statements may not be materially misleading under the securities laws.”). As such, statements made by Primo about the launch of the Flavor Station cannot serve as the basis for a Section 10(b) claim.
b. The “Safe Harbor” Provision of the PSLRA Immunizes Some of the Challenged Statements from Liability
In addition to the fact that none of the statements challenged by Plaintiffs is a misstatement or omission of material fact, the safe harbor provision of the PSLRA applies to certain of the statements. Specifically, statements made in the Secondary Offering, in challenged guidance documents, or during conference calls with investors are immune from liability if they are forward-looking statements that are accompanied by meaningful cautionary language. Under the PSLRA safe harbor, forward-looking statements are protected from liability if “they contain ‘meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statements].’ ” Johnson v. Pozen, Inc., No. 1:07CV599, 2009 WL 426235, at *14 (M.D.N.C. Feb. 19, 2009) (quoting 15 U.S.C. § 78u-5(c)(1)(A)(i)). A meaningful statement need only be enough to properly warn a reasonable investor of significant risks similar to that actually realized so as to put him or her on notice. In re Lab. Corp., 2006 WL 1367428, at *5. Further, “[e]ven if a forward-looking statement is not accompanied by cautionary language, liability only attaches if the speaker had actual knowledge that it was false when made.” Pozen, 2009 WL 426235, at *14 (emphasis removed). Thus, Primo’s statements are protected by the safe harbor if (1) the statements were accompanied by meaningful cautionary language, or (2) Plaintiffs have failed to plead that the speaker had actual knowledge of the statements’ falsity at the time the statements were made.
Forward-looking statements under the PSLRA are defined to include ‘“statements] containing a projection of revenues, income (including income loss), earnings (including earnings loss) per share, capital expenditures, dividends, capital structure, or other financial items,’ as well as ‘[] statements] of the plans and objectives of management for future operations, including plans or objectives relating to the products or services of the issuer.’ ” Id. In this case, statements made by Primo in the challenged guidance statements and Secondary Offering qualify as forward-looking because they involve earnings projections or statements regarding future operations. For example, Primo’s May 2011 press release, which contained an earnings prediction for the second quarter and full year 2011, stated that Primo “expects total sales ... to double” and “continues to expect sales to increase 260% to 275%.” (App. at 615.) The amended complaint establishes that Primo later missed these projections because two of its major retailers, Lowe’s and WalMart, had decided to postpone a national rollout of Primo’s dispensers. (Doc. 52 at ¶ 110.)
Plaintiffs allege that Primo’s statement in the May 2011 guidance statement was false and misleading; however, this statement was specifically identified as a forward-looking statement and accompanied by meaningful cautionary language. In the May 2011 press release, Primo specifically stated:
Certain statements contained herein (including our second quarter and full year 2011 guidance) are not based on historical fact and are ‘forward-looking statements’ within the meaning of the applicable securities laws and regulations ... Owing to the uncertainties inherent in forward-looking statements, actual results could differ materially from those stated here. Factors that could cause actual results to differ materially ... include ... the loss of major retail customers of the Company or the reduction in volume of purchases by major retail customers ... [or] lower than anticipated consumer and retailer acceptance[.]
(App. at 616.) Further, the May 2011 press release also referenced additional risks that were identified in Primo’s 2010 Form 10-K, which was filed March 30, 2011. (Id. at 616, 411-502).
Such SEC filings incorporated by reference are sufficient to invoke the safe harbor. In re CIENA Corp. Sec. Litig., 99 F.Supp.2d 650, 661 (D.Md.2000). In the Form 10-K, Primo included a section on “Risks Relating to Our Business and Industry.” (App. at 428.) There, Primo identified risks it faced due to its reliance on a small number of large retailers (specifically Lowe’s and Wal-Mart) that were “nonexclusive and may be terminated at will.” (Id. (noting that “[i]f any significant retailer materially reduces, terminates or is unwilling to expand its relationship with us, ... our sales would suffer”).) Primo noted that large retailers “continually evaluate and often modify their in-store retail strategies” and “[o]ur business could suffer significant setbacks in net sales and operating income if one or more of our major retail customers modified its current retail strategy resulting in a termination or reduction of its business relationship with us.” (Id.) The court finds that this cautionary language “conveys substantive information about factors that realistically could cause results to differ materially from those projected in the forward-looking statement” and thus is sufficient as a matter of law to activate the PSLRA’s safe harbor. See In re Humphrey Hospitality Trust, Inc. Sec. Litig., 219 F.Supp.2d 675, 683-84 (D.Md.2002) (internal quotations removed).
In the August 2011 press release, Primo also made forward-looking statements about the launch of the Flavor