Dawes v. Imperial Sugar Co. (975 F. Supp. 2d 666, 2013)

MEMORANDUM AND ORDER

LEE H. ROSENTHAL, District Judge.

Carpenters Pension Fund of Illinois sued Imperial Sugar Company and two of its officers, Chief Executive Officer John C. Sheptor and Senior Vice-President and Chief Financial Officer Harold P. Mechler, alleging securities fraud under §§ 10(b) and 20(a) of the Exchange Act, 15 U.S.C. §§ 78j(b) and 78t(A), and Rule 10b-5, 17 C.F.R. § 240.10b-5. Carpenters sought to represent a class of investors who purchased Imperial’s stock between December 29, 2010 and August 5, 2011. During this period, according to Carpenters, the defendants artificially inflated Imperial’s stock price. Carpenters alleged that the defendants concealed ongoing operational difficulties that limited the amount of sugar Imperial could refine and pack, requiring it to pay other companies, including competitors, to refine and pack sugar for Imperial to purchase and sell to its own customers, increasing its expenses and reducing its profit margins.

The defendants have moved to dismiss the consolidated class action complaint, (Docket No. 40 (Compl.)), under Federal Rules of Civil Procedure 12(b)(6) and 9(b), and under the Private Securities Litigation Reform Act (PSLRA), 15 U.S.C § 78u-4(b)(2). (Docket Entry No. 42). Carpenters has responded, (Docket Entry No. 48), and the defendants have replied, (Docket Entry No. 52). Based on the pleadings; the motion, response, and reply; the record; and the relevant law, the defendants’ motion to dismiss is granted, without prejudice and with leave to amend no later than October 30, 2013. A status conference is scheduled for November 14, 2013, at 9:00 a.m. in Courtroom 11-B.

The reasons for this ruling are explained below.

I. Background

A. The Plaintiffs’ Allegations

Founded in 1843 in what is now Sugar Land, Texas, Imperial Sugar is one of the largest refiners and distributors of cane sugar in North America. (Compl. ¶¶2, 27). Ninety-eight percent of Imperial’s net sales are from refined sugar. Imperials sells a wide variety of sugar products, including granulated, powdered, liquid, and brown sugars. These products are marketed under several private labels and brand names, including Dixie Crystals®, Imperial®, and Holly®. (Compl. ¶ 2). Imperial sells to retailers, restaurant chains, distributors, food manufacturers, and individuals. During the relevant period, Imperial’s common stock was publicly traded on the NASDAQ. (Compl. ¶ 24).

Imperial does not grow its own sugar, but rather purchases raw sugar that it refines, packages, and sells. As a nonintegrated sugar producer, Imperial’s profit margins depend in part on the spread between prices for the raw sugar that it purchases and the refined sugar that it sells. During the relevant period, Imperial had a 50 percent interest in Wholesome Sweeteners, Inc., which produced organic cane sugar, agave syrup, honey, and other specialty sweeteners. (Compl. ¶ 29). Imperial also had a 50 percent interest in Ingenios Santod, S.A. de C.V., which owned and operated five sugar mills and markets sugar products in Mexico and the United States. (Id.).

At the beginning of the class period, Imperial owned a sugar refinery in Port Wentworth, Georgia and one in Gramercy, Louisiana. In the 2007 fiscal year, the Port Wentworth refinery was responsible for 60 percent of Imperial’s total refining capacity. (Compl. ¶ 28). On February 7, 2008, a major industrial accident at the Port Wentworth refinery killed and injured several dozen workers. (Compl. ¶ 30). Production was suspended for more than a year. (Compl. ¶ 31). In mid-2009, Imperial restarted limited production at Port Wentworth, but struggled to reach preaccident levels. (Compl. ¶ 32). Imperial used the insurance money it received after the accident to rebuild the refinery’s packaging operations, including installing new equipment. (Compl. ¶ 33) According to an anonymous former Imperial employee who worked as a senior buyer for raw sugar and packaging, Imperial’s employees did not know how to operate the new equipment. (Compl. ¶ 32). The former senior buyer estimated that between June 2010 and June 2011, the Port Wentworth refinery operated at 40 percent of its preaccident capacity. (Id.).

The complaint included other allegations based on statements attributed to unnamed former employees. According to a process-engineer team leader who worked for Imperial between February 2010 and November 2011, the “old mill” refinery at Port Wentworth was not rebuilt after the accident because Imperial did not have enough money to do so. (Compl. ¶ 33). As a result, the Gramercy refinery focused more on packaging and less on refining. Throughout 2010, Gramercy refined only enough sugar to fill one railcar per day, far less than its alleged preproduction capacity of six railcars per day. (Compl. ¶ 34).

In November 2009, Imperial entered into a joint venture with Cargill, Inc. and Louisiana Sugar Growers and Refiners, Inc. (SUGAR), known as the Louisiana Sugar Refinery, LLC (LSR). (Compl. ¶ 29). Each of the three joint-venture members was required to contribute $30 million in assets or capital. (Compl. ¶ 35). At the end of 2010, Imperial contributed land and its Gramercy refinery. According to the former Imperial senior logistics manager who served as an anonymous source, Imperial had to enter into the joint venture because Louisiana’s two main sugar growing cooperatives formed relationships with Imperial’s major competitors. (Compl. ¶ 36). One of those competitors, Cargill, was planning to build a refinery two miles away from Imperial’s Gramercy refinery. (Id.). Imperial was concerned that unless it entered into a joint venture with Cargill, the Gramercy refinery would loose access to the raw sugar it needed for its operations. The bulk sugarpacking part of the Gramercy refinery’s business— packing refined sugar into 25, 50, and 100 pound bags — was included in Imperial’s contribution to the joint venture, but Imperial was allowed to keep some of its small packaging lines. (Compl. ¶ 37). According to the senior logistics manager, this caused Imperial to lose around 50 percent of its revenue from the Gramercy refinery. (Id.).

A retail customer-service representative who worked for Imperial from 2001 until September 2011 provided information that the company had difficulties filling customer orders after the Port Wentworth refinery accident. According to this source, Imperial’s daily Late Report and Daily Cuts Reports after the accident showed frequent delays of between one week and three months in filling many customer orders. (Compl. ¶ 38). This source stated that Sheptor told the customer-service representatives “to go after the business, when he knew we couldn’t service them.” (Compl. ¶ 39).

In the fall of 2010, Imperial began providing sugar under a private label to two Wal-Mart distribution centers that supplied around 50 Wal-Mart stores. WalMart required five to six truckloads of sugar per day for each distribution center. (Compl. ¶ 40). Each truckload consisted of 42,500 to 48,000 pounds of sugar. (Id.). Wal-Mart alone took up 70 percent of Port Wentworth’s packaging capacity. According to the former senior buyer and the retail customer-service representative, on February 1, 2011 Imperial lost Wal-Mart as a customer after missing the deadlines for many shipments. (Compl. ¶41). In early 2011, Imperial also lost Meadow-brook Meats and Swank as customers due to late shipments. (Id.).

Carpenters alleged that to meet customer demand, Imperial turned to other companies, including its competitors. (Compl. ¶ 43). Imperial paid these companies to “copack” sugar that Imperial refined. According to the former senior buyer, after the Gramerey plant closed, around 50 percent of Imperial’s “retail” sales came from copacked sugar. (Compl. ¶ 44). U.S. Sugar was “by far” Imperial’s largest copacking partner, packing five or six truckloads of sugar for Imperial every week. (Compl. ¶ 46). That relationship was in place when the former senior buyer began working for Imperial Sugar in June 2010. (Id.).

Carpenters asserted that the cost of co-packing and purchasing refined sugar from third parties hurt Imperial’s profit margins. According to the former senior buyer, Imperial paid a “tolling fee” of around 50 to 60 cents per pound of co-packed sugar, which was 15 to 20 cents more per pound than for sugar Imperial packed itself. (Compl. ¶¶ 48, 50). According to this source, Imperial paid around $500,000 per month to competitor U.S. Sugar for copacking services. (Compl. ¶ 48). Carpenters alleged that because some of the eopacking arrangements were with competitors, Imperial had to disclose proprietary pricing and customer information, causing additional financial harm. (Compl. ¶ 50).

Besides purchasing packaging services, Imperial also had to purchase refined sugar from domestic and Mexican sources, including some competitors. Imperial’s former senior manager of logistics stated that in 2010, Imperial purchased between 10 and 20 railcars of refined sugar from its competitor, CSC Sugar, LLC, on 5 or 6 occasions. (Compl. ¶ 51). According to the former senior buyer, whose responsibilities included creating purchase orders, between June 2010 and June 2011 Imperial also purchased refined sugar from U.S. Sugar, Michigan Sugar Company, and Santos. (Compl. ¶ 52). The customer-service representative who worked for Imperial for the five years before October 2011 stated that Imperial purchased sugar from third parties on a daily basis in 2011. These purchases were necessary because “Imperial was pushing product [it] didn’t have” and was having trouble meeting orders from large customers such as General Mills and Kellogg’s. (Compl. ¶ 53). Carpenters alleged that Imperial’s failure to fill orders strained its relationships with those customers. Carpenters claimed that this also prevented Imperial from increasing the price of the refined sugar it sold to offset rising raw sugar prices.

According to Imperial’s former senior logistics manager, the decrease in Imperial’s operating margins was directly related to the Port Wentworth refinery’s inability to meet customer demand. (Compl. ¶ 56). This former manager stated that Imperial did not include in its budget projections the added transportation costs of purchasing and copacking refined sugar. He believed that “purchasing the refined sugar impacted margins” because Imperial was paying more for the sugar others refined and packed than for sugar it refined and packed internally. (Compl. ¶ 55). This manager also stated that the Port Went-worth problems were widely known to the defendants. According to this manager, Sheptor participated in daily calls with the Port Wentworth refinery manager and received a daily “email tracker” that detailed the refinery’s performance and goals. Sheptor had an office at the plant and was frequently there. (Compl. ¶ 57). The former customer-service representative stated that Sheptor held monthly town hall meetings and “would always acknowledge the problems at Port Wentworth.” (Id.).

Imperial’s former retail customer-service representative similarly stated that Sheptor was aware of the delays in filling customer orders. According to this representative, Sheptor was “getting the same reports we were” and discussing them with Imperial’s “master planner.” (Compl. ¶ 58). The former senior manager of logistics stated that Imperial tracked its sales and orders in a program called Foresight. When the information provided by the Foresight program indicated that Imperial needed to purchase more sugar, Imperial’s sales director would discuss it with Sheptor, who “had the final say on all purchases.” (Compl. ¶ 59). The former senior buyer corroborated this point and stated that he participated in monthly conference calls that included Sheptor and Mechler, during which they would discuss market prices for sugar and margins. (Compl. ¶ 60).

During the class period, raw sugar prices rose. Competition also increased from Mexican sugar companies aggressively seeking to enter the United States market. According to Imperial’s former senior buyer, the company was not able to increase its refined-sugar prices because “our customers were all watching what our competition was charging.” (Compl. ¶ 62). As a financial analyst tracking Imperial stock noted in a December 1, 2011 report, “[i]t is difficult to increase price to customers that have experienced order delays in the past or are generally concerned about [its] ability to deliver.” (Id.).

B. The Allegations as to Imperial’s Public Statements

Carpenters alleged that between December 29, 2010 and August 5, 2011, the defendants concealed Imperial’s financial and competitive conditions through misstatements and omissions. On December 29, 2010, the first day of the proposed class period, Imperial issued a press release summarizing its fourth quarter and 2010 fiscal year results. The press release quoted Sheptor stating as follows:

As production rates at the Port Went-worth refinery increased during the year, we identified facility and process modifications necessary to return the refinery to historical operating levels. We completed the last major modification in October 2010, and output improved significantly. While production days and fixed costs had a negative impact on fiscal 2010 results, the improvements that we have made should lead to sustained results at higher rates in 2011.

(Compl. ¶ 66).

That same day, Imperial issued a Form 10-K that it filed with the S.E.C. for the fiscal year ending on September 30, 2010. The Form 10-K included the following statements:

• “Co-packers are used under contract for small volume specialty products”;

• “The Port Wentworth refinery’s production ramped up during fiscal 2010 following the restart of the refinery which occurred in the summer of 2009”; and

• “Sales volumes increased 51.9% primarily due to the ramp up in production volume from the Port Went-worth refinery, partially offset by decreased sugar purchased from other producers.”

(Compl. ¶ 67).

After the Form 10-K’s release, Rafferty Capital Markets noted that Imperial’s 2010 results “point to a dramatic improvement in production at Port Wentworth, up to 12,494k cwt in 2010 from 1,146k cwt in 2009.” (Compl. ¶ 72(a)). The report concluded that “[tjoday’s results indicate IPSU is well-positioned for a return to profitability in F2011.” (Id.).

On December 30, 2010 Imperial held a conference call with securities analysts. Sheptor made the following statement in his opening remarks:

Results in the fourth quarter were negatively influenced by a 4.4 million pound average daily melt rate at the Port Wentworth refinery that constrained our sales volume. The refinery performance did not improve from the previous quarter, forcing us to purchase contract cover from other suppliers, and in some cases causing default on contract delivery resulting in customer complaints ....

During the first week of October, we made changes to the refinery process at the Port Wentworth plant in an attempt to resolve obstacles in production that we had encountered. These changes resulted in significantly improved performance, enabling a 13% melt rate increase, resulting in an October-November average rate of 5.1 million pounds per day. In this period, many production days exceeded our historical average rate of 5.9 million pounds per day.

(Compl. ¶ 69).

Sheptor characterized this as “a huge success and a critical step forward to returning the refinery to pre-tragedy capacity.” (Id.). He also noted that “2010 was a year challenged with recovery, a 30-year raw sugar high — raw sugar price high, and expectations not met.” (Id.). He explained:

In general, we achieved sales volumes in the past two quarters in line with preaccident levels at a time when prices for both refined sugar and raw cane sugar, our largest input cost, are at historically high levels. Our margin basis — I should say, on a margin basis, we have been successful thus far at maintaining acceptable spreads between raw and refined sugar prices.

(Compl. ¶ 70).

In response to an analyst’s question, Mechler stated that he was “pleased with the performance of the Port Wentworth refinery ... in October-November” but noted that Imperial “reduce[d] production rates in December.” (Compl. ¶ 71). In response to another question, Sheptor stated that Imperial expected the Port Wentworth refinery to reach November 2010 production levels in January 2011, once the construction of a new-silo was completed. (Id.). Sheptor stated in response to a third question that he did not anticipate any customer delay charges in that quarter and was “not aware of any customer issues that are not covered in the charges we took last year.” (Id.).

Following the call, PAA Research LLC projected that Imperial’s shares would rise in 2011. It noted that:

senior management has not been as optimistic about ongoing production levels at the company’s Port Wentworth refinery over the past two-years as they were ... today on the earnings conference call. For a management team that generally likely to keep expectations low, we were encouraged by their confidence that the Port Wentworth refinery could achieve daily production volumes of 5.5-6.0MM lbs/day once the silo repairs are completed.

(Compl. ¶ 72(b)).

On February 7, 2011, Imperial issued a press release announcing its first quarter fiscal 2011 financial results. The press release noted that net sales had increased to $227.4 million from $173.8 milliqn for the same period the previous year. (Compl. ¶ 75). The press release quoted Sheptor as stating that the “process modification implemented in the Port Went-worth refinery at the beginning of October produced immediate improvements in refinery results.” (Id.). Sheptor explained that the “refined silo repairs were completed by the contractor in mid-January and we anticipate placing the silos back in service in early February. We are anxious to continue the ramp-up in production in Port Wentworth once the silos are on fine.” (Id.).

On the same day, Imperial filed its Form 10-Q for the quarter ending December 31, 2010. The Form 10-Q stated in part:

Net sales increased 31% for the three months ended December 31, 2010, compared to the same period in the prior year. Domestic sugar volumes increased 9.0% for the quarter primarily due to increased distribution at key retailers in the consumer channel. Prior year’s first quarter consumer sales volumes were constrained as individual packaging lines were initiated at the rebuilt Port Wentworth facility during the period. Domestic sales prices increased 18.8% for the quarter.

Manufacturing costs per cwt in Port Wentworth improved compared to the same period last year as the increased average daily melt helped improve fixed cost absorption. Repairs and maintenance cost increases along with higher depreciation partially offset the absorption benefit. Port Wentworth total refined sugar production in the quarter increased over the prior year although daily production rates are still below normal levels achieved in fiscal 2006 and 2007.

(Compl. ¶ 76).

Imperial held a conference call with securities analysts on February 7, 2011. (Compl. ¶ 78). During this call, Sheptor stated that “[o]perations during the first six weeks of the quarter were remarkably improved versus previous quarters due to the Port Wentworth refinery process change completed the first week of the fiscal year. Daily melt rates steadily improved with the number of days surpassing the historical capacity.” (Id.). Sheptor summarized by stating, “[a]s we begin the new quarter, sales volumes have strengthened across all channels.” (Id.). Mechler added that, “[o]n a margin basis, thus far, we have largely been successful at maintaining acceptable spreads between raw and refined sugar prices.” (Compl. ¶ 79). We did see improvements in Port Wentworth’s unit manufacturing costs as throughput rates increased during the quarter.” (Id.). Mechler warned, however, that “[pjrices for both refined and raw cane sugar are at historically high levels and have demonstrated extraordinary volatility over the last 18 months.” (Id.). In response to an analyst’s question about the effect of the Gramercy plant’s closure, Mechler stated, “that Port Wentworth, the way it has been running, would, without Gramercy’s higher cost, ... improve gross margin.” (Compl. ¶ 80). In response to a different question, Mechler stated that Imperial had regained “substantially all of [the] retail distribution and that’s the increase in consumer volumes that we saw during the current quarter.” (Compl. ¶ 81). Mechler also stated that “we have not had to pay slotting to regain that distribution.” (Id.). He acknowledged that “[o]ur promotional expenses and advertising expenses are a little up this quarter compared to [a] year ago, but that is more to reinforce the brand, particularly regionally in the Southeast.” (Id.).

After the Form 10-Q and the conference call, PAA Research recommended Imperial’s stock, noting that “IPSU is closer to achieving normalized production levels at Port Wentworth than at any point in the past 8-years ... even with the silo issues at Port Wentworth the company achieved its highest average daily production rate in 1Q11 since the refinery accident.” (Compl. ¶ 82(a)). BWS Financial Inc. maintained its “hold” rating for the stock based on an assessment that “Port Went-worth should see gradual improvement in refining capabilities over the next few months.” (Compl. ¶ 82(b)). Janney Capital Markets kept its “neutral” rating, also noting that Imperial’s “manufacturing costs are improving as the capacity ramps and allows for fixed cost absorption.” (Compl. ¶ 82(c)).

On May 10, 2011, Imperial issued a press release reporting its second fiscal quarter 2011 financial results. This press release quoted Sheptor as stating that the “reconnection of the silos in Port Went-worth, which was deferred until the first week of April, went smoothly, and the refinery has begun to ramp up production rates again.” (Compl. ¶ 85). According to Sheptor, Imperial “achieved sales price increases during the second quarter and successfully managed raw costs in a volatile price environment.” (Id.). The press release stated that “[l]ower manufacturing costs and improved yields at the Port Wentworth refinery contributed to the improved operations results.” (Id.). “For the three months ended March 31, 2011, gross margin as a percent of sales increased to a positive 5.4% compared to a negative 19.6% in the prior quarter.” (Id.). The press release continued by stating that “[a] reduction in sales volumes from the contribution of the Gramercy refinery was substantially offset by the ramp up in volumes at the Port Wentworth refinery.” (Id.). The Form 10-Q issued on the same day also noted improvements in Imperial’s gross margin and the Port Wentworth refinery’s manufacturing costs. (Compl. ¶ 86).

In Imperial’s quarterly conference call with analysts, Sheptor stated:

It is with great pleasure that we announced a $0.34 per share earnings this quarter, the first profit for ongoing operations in three years. It was 39 months ago that we experienced the tragedy in Port Wentworth, Georgia, and many people have worked diligently to help us complete this recovery. We have accomplished an important milestone with our first profitable quarter, excluding insurance recoveries, and we are optimistic about our future.

(Compl. ¶ 88).

During this conference call, Sheptor also noted that “[s]ales and operations improvement [led] to significantly better margins” and that “[r]efinery yields have substantially improved and are approaching our historical best practice.” (Id). Sheptor responded to a question about the effect of the silo reconnection by stating, “[s]o our expectation is, with the silos online, that we don’t have any process obstacles to elevate the refinery to capacity levels.” (Compl. ¶ 89). In response to another question, Mechler acknowledged that “the results show that we oversold the second half of 2010 — overcommitted, and therefore, suffered some of the cover requirements for our customers, as we reported previously.” (Compl. ¶ 90).

Following these statements, on May 11, Rafferty upgraded Imperial’s stock from “hold” to “buy,” explaining that “[a]l-though we have seen a significant run-up in the shares recently, we believe that with the silos at Port Wentworth now online, and production issues being ironed out in Gramercy, there is a greater level of confidence in the company’s ability to return to sustained profitability.” (Compl. ¶ 91(c)). On May 16, 2011, BWS Financial upgraded Imperial’s stock from “hold” to “buy.” (Compl. ¶ 91(d)). On June 2, Janney upgraded Imperial’s stock from “neutral” to “buy.” (Compl. ¶ 91(b)). PAA Research had classified Imperial stock as a “long” investment based on “expectations of improved price realization and higher margin levels as production rates at the company’s refineries and packaging facilities improve.” (Compl. ¶ 91(a)). In an August 2011 report, PAA noted that Imperial’s stock price had “gained an astounding 71% since the company reported a big positive earnings surprise for 2Q11, compared to a-4% decline in the S & P 500.” (Id). PAA identified as one reason for the increase that “[investor recognition that the vast majority of the company’s production issues at its Port Wentworth refinery are now behind it.” (Id).

Imperial’s stock rose to $15.83 on May 16, 2011 and to $23.19 on August 4, 2011. This represented a 71.5 percent increase following Imperial’s second quarter fiscal 2011 results. (Compl. ¶ 92).

On August 5, 2011, Imperial issued a press release announcing its third fiscal quarter 2011 results. The press release reported a $16.1 million net loss for the quarter. The press release stated that “[hjigher raw sugar cost which along with lower volumes reduced gross margin was the primary reason for the loss in the current quarter.” (Compl. ¶ 95). This press release quoted Sheptor as stating that “[o]ur inability to increase prices in the face of higher raw sugar costs because of competitive pressures from domestic and Mexican sources was the principal driver of the quarter’s disappointing results.” (Id). The press release continued:

Manufacturing costs for the quarter did not improve from the same period in the prior year. The Port Wentworth refinery’s progress toward full production rates was hampered by raw sugar quality and mechanical reliability, including significant interruptions in the steam boilers providing power to the plant. The refinery operated at an average daily melt rate of 4.5 million pounds, approximately 75% of average rates prior to the 2008 industrial accident.

(Id)

Sheptor was quoted in the August 2011 press release as stating:

“The Company is reviewing potential operating and capital improvements, particularly in the utilities, raw sugar melt and water management areas of the refinery, to begin addressing mechanical reliability in these operations. These areas, which were not part of the reconstruction efforts following the accident, have proved to be impediments to sustaining efficient operations at the production rates achieved prior to the accident.”

(Id.)

Sheptor echoed the same themes in his quarterly conference call with investors. He stated:

Capital expenditures totaled $20 million for the first nine months, which included completing the required improvements in Gramercy under the LSR agreement. We expect to spend $25 million of capital expenditures for the full fiscal year 2011, principally on completing safety initiatives and normal replacement projects. We are examining a number of potential projects at the Port Wentworth refinery, which are likely to maintain capital expenditures above historical capital replacement capital levels for the next several years.

(Compl. ¶ 96).

When asked during the conference call how Imperial’s financial situation had changed so quickly, Mechler stated:

I think it comes back, as we summarized, to the margin compression, and the margin compression, at its root, traces to the inability to raise prices to match raw sugar costs____ [W]hile we expected to and intended to and attempted to, we were not able to accomplish that during the quarter.

(Compl. ¶ 98).

Sheptor stated:

If you look at the third quarter, on a volume basis, we met all of our orders and so we are not constrained on a sales side by production. Having said that, the efficiency is certainly — efficiency of how we produce is a key objective of the operations team, and they have not met the expectations that we had for the facility. They have had continued reliability problems in the older part of the refinery that was not rebuilt after the industrial accident, and reliability is of significance in this quarter in the utilities area.

It is becoming increasingly more clear that maintenance action alone isn’t going to be sufficient to improve the operating reliability of the facility, and we are assessing what type of capital demands we will have to address reliability. It isn’t possible to predict for you when we will run at a different melt rate, and we certainly are giving all efforts possible from the operating team to make that sooner than later.

(Compl. ¶ 98).

Imperial stated in its Form 10-Q that its cash and cash equivalents fell from $2.9 million to $0.3 million and that its indebtedness to Bank of America, N.A. rose from $23 million to $78.8 million. (Compl. ¶ 100). The Form 10-Q warned:

As a result of the Company’s future cash needs, including for capital expenditures, pension contributions and margin requirements of the commodity futures program, as well as the need to fund possible future operating losses in the event current margin pressures continue, the Company’s borrowing availability in the fourth quarter and beyond may be reduced to levels that would trigger the applicability of the financial covenants and other restrictions under the Credit Agreement. In such an event, it is possible that the Company will not be in compliance with such covenants and will need to seek a waiver from its lenders in order to avoid an event of default under the Credit Agreement.

(Id.).

C. The Results of the August 2011 Disclosures

Imperial’s stock price fell from $23.19 per share on August 4, 2011 to $7.79 per share on August 8, 2011. During this time, Imperial’s peer index did not decline. (Compl. ¶ 112). A December 22, 2011 Houston Chronicle article concluded that “[i]t’s unlikely, given the current price spreads for sugar and Imperial’s position the market, that it’s being undercut by cheap competitors.” (Compl. ¶ 105). The article noted that, [a]s of September, the midwestern U.S. wholesale price for refined sugar was 57 cents a pound, and raw sugar was selling for about 39 cents, according to the U.S. Department of Agriculture.” (Id.) This 18 cent price spread was “one of the highest since at least 1987, based on data from the U.S. Sugar Alliance.” (Id.). For the past 25 years, the spreads were typically between 2 cents and 6 cents. (Id.).

This lawsuit was filed on September 1, 2011. The plaintiffs asserted claims under §§ 10(b) and 20(a) of the Exchange Act, 15 U.S.C. §§ 78j(b) and 78t(A), and Rule lob-5, 17 C.F.R. § 240.10b-5. (Docket Entry No. 1). On February 1, 2012, this court appointed Carpenters Pension Fund of Illinois to serve as the lead plaintiff under the PSLRA. (Docket Entry No. 35).

On March 22, 2012, Carpenters filed its consolidated class action complaint under Federal Rule of Civil Procedure 23(a) and (b)(3). The putative class was defined as all those who acquired the publicly traded common stock of Imperial between December 29, 2010 and August 4, 2011. (Compl. ¶ 127). The complaint alleged that in Imperial’s S.E.C. filings, press releases, and conference calls during the class period, the defendants knowingly concealed the following information through their misstatements and omissions to the market:

• the Port Wentworth refinery continued to experience significant operational problems;

• Imperial was forced to participate in the LSR joint venture despite its negative effect on its refining capacity;

• the Port Wentworth refinery was unable to absorb the capacity loss from the Gramercy refinery’s closing;

• Imperial did not disclose that it was continuing to purchase refined sugar from other suppliers and to use co-packers;

• Imperial’s fiscal 2010 charges did not resolve its customer issues;

• Imperial’s operating costs increased, its margins eroded, and its competitors benefitted as a result of these problems;

• Imperial was suffering due to increased competition and industry changes that benefitted vertically integrated sugar producers; and

• Imperial was unable to raise prices due to increased competition and its strained relationships with customers.

(Compl. ¶¶ 133-48). The complaint also alleged that Sheptor and Mechler are “control persons” liable under § 20(a). (Compl. ¶ 146).

The defendants moved to dismiss Carpenters’s § 10(b) claim for failing allege material misrepresentation, scienter, and loss causation as required under the Federal Rules of Civil Procedure and the PSLRA. (Docket Entry No. 42, at 10-24). The defendants moved to dismiss Carpenters’s § 20(a) claim on the ground that it failed in the absence of a viable § 10(b) claim. (Id. at 25). Carpenters responded to the motion to dismiss and moved to strike several of the documents submitted with it. (Docket Entry No. 47, 48). The defendants replied to the response, (Docket Entry No. 52), and responded to the motion to strike, (Docket Entry No. 51), and Carpenters replied to the response to the motion to strike, (Docket Entry No. 55).

A hearing on the parties’ motions was held on October 9, 2012. This court denied Carpenters’s request to strike Exhibits D, E, L, and Q and the figures in the Sugar Production & Sales Chart that the defendants submitted with their motion to dismiss. (Docket No. 60). This court also denied Carpenters’s alternative request to convert the defendants’ motion to dismiss into a summary-judgment motion and to permit the parties to begin discovery. (Id.). This court took the defendants’ motion to dismiss and Carpenters’s motion to strike Exhibit M to that motion under advisement. (Id.). In a March 30, 2013 order, this court granted Carpenters’s request to strike Exhibit M to the defendants’ motion to dismiss. (Docket Entry No. 63).

This memorandum and order addresses the motion to dismiss. The legal and factual sufficiency of the complaint, including the exhibits appropriately considered with the motion, are analyzed against the governing legal standards.

II. The Legal Standards

A. Rules 8(a), 9(b), and 12(b)(6)

Rule 12(b)(6) allows dismissal if a plaintiff fails “to state a claim upon which relief can be granted.” In Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), the Supreme Court confirmed that Rule 12(b)(6) must be read in conjunction with Rule 8(a), which requires “a short and plain statement of the claim showing that the pleader is entitled to relief,” Fed.R.CivP. 8(a)(2). To withstand a Rule 12(b)(6) motion, a complaint must contain “enough facts to state a claim to relief that is plausible on its face.” Id. at 570, 127 S.Ct. 1955; see also Elsensohn v. St. Tammany Parish Sheriffs Office, 530 F.3d 368, 372 (5th Cir.2008) (quoting Twombly, 550 U.S. at 570, 127 S.Ct. 1955). In Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009), the Supreme Court elaborated on the pleading standards discussed in Twombly. The Court explained that “the pleading standard Rule 8 announces does not require ‘detailed factual allegations,’ but it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation.” Id. at 678, 129 S.Ct. 1937 (quoting Twombly, 550 U.S. at 555, 127 S.Ct. 1955). Iqbal explained that “[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.” Id. (citing Twombly, 550 U.S. at 556, 127 S.Ct. 1955).

For fraud claims, including securities fraud claims, Rule 9(b) also requires the complaint to “state with particularity the circumstances constituting the fraud.” Fed.R.Civ.P. 9(b). “Put simply, Rule 9(b) requires ‘the who, what, when, where, and how’ to be laid out.” Benchmark Electronics, Inc. v. J.M. Huber Corp., 343 F.3d 719, 724 (5th Cir.2003); see also Carroll v. Fort James Corp., 470 F.3d 1171, 1174 (5th Cir.2006) (“In cases concerning fraudulent misrepresentation and omission of facts, Rule 9(b) typically requires the claimant to plead the type of facts omitted, the place in which the omissions should have appeared, and the way in which the omitted facts made the representations misleading.” (internal quotation marks)).

When a plaintiff’s complaint fails to state a claim, the court should generally give the plaintiff at least one chance to amend under Rule 15(a) before dismissing the action with prejudice. See Great Plains Trust Co. v. Morgan Stanley Dean Witter & Co., 313 F.3d 305, 329 (5th Cir. 2002) (“[District courts often afford plaintiffs at least one opportunity to cure pleading deficiencies before dismissing a case, unless it is clear that the defects are incurable or the plaintiffs advise the court that they are unwilling or unable to amend in a manner that will avoid dismissal.”); see also. Richardson v. Keffer, 471 Fed.Appx. 304, 305 (5th Cir.2012) (per curiam) (“Although Rule 15 requires leave to be freely given, leave to amend ... is by no means automatic.” (internal quotation marks omitted)); Mosley v. Bowie County, 275 Fed.Appx. 327, 328 (5th Cir.2008) (per curiam) (“The record is devoid of reasons for the denial of leave to amend the complaint; accordingly, the denial of such leave constitutes an abuse of discretion.”); United States ex rel. Adrian v. Regents of the Univ. of Cal., 363 F.3d 398, 403 (5th Cir.2004) (“Leave to amend should be freely given, and outright refusal to grant leave to amend without a justification ... is considered an abuse of discretion.” (internal citation omitted)). A plaintiff, however, should be denied leave to amend a complaint if the court determines that the “proposed amendment ... clearly is frivolous” or “advances] a claim or defense that is legally insufficient on its face.” 6 Charles A. Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure § 1487 (3d ed. 2010); see also Rio Grande Royalty Co. v. Energy Transfer Partners, 620 F.3d 465, 468 (5th Cir.2010) (“The trial court acts within its discretion in denying leave to amend where the proposed amendment would be futile because it could not survive a motion to dismiss.”).

B. Section 10(b) of the Securities Exchange Act

Section 10(b) of the Securities Exchange Act makes it unlawful for any person, directly or indirectly, “[t]o use or employ, in connection with the purchase or sale of any security ... any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the [§ ] may prescribe as necessary or appropriate in the public interest or for the protection of investors.” 15 U.S.C. § 78j(b). Rule 10b-5, promulgated to enforce § 10(b), makes it unlawful for any person, directly or indirectly, “[t]o make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading.” 17 C.F.R. § 240.10b-5(b). To state a claim under § 10(b) and Rule 10b-5 Carpenters must allege, in connection with the purchase or sale of securities, facts suggesting that defendants (1) made a misstatement or omission, (2) of a material fact, (3) with scienter, (4) on which the putative class relied, (5) that proximately caused their injury. Alaska Elec. Pension Fund v. Flowserve Corp., 572 F.3d 221, 227 (5th Cir.2009).

Claims under § 10(b) and Rule 10b-5 must also satisfy the enhanced pleading requirements imposed by the PSLRA and Rule 9(b) of the Federal Rules of Civil Procedure. Lormand v. U.S. Unwired, Inc., 565 F.3d 228, 239 (5th Cir.2009); see also Tellabs, Inc. v. Makor Issues & Rights, Ltd. (Tellabs I), 551 U.S. 308, 320, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007) (stating that the PSLRA “installed both substantive and procedural controls” that were “[djesigned to curb perceived abuses of the § 10(b) private action [such as] nuisance filings, targeting of deep-pocket defendants, vexatious discovery requests and manipulation by class action lawyers.” (internal quotation marks and citations omitted)). To allege a material misstatement or omission, the PSLRA requires a complaint to “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)(1)(B). The “complaint shall, with respect to each act or omission alleged to violate this chapter, state with particularity facts giving rise to a strong inference that the defendant acted with the requisite state of mind.” 15 U.S.C. § 78u-4(b)(2)(A). The PSLRA’s pleading requirements incorporate Rule 9(b)’s fraud-pleading standard, requiring a plaintiff to specify the allegedly fraudulent statements, the speaker, when and where the statements were made, and why they are fraudulent. Id.; see also Fed.R.Civ.P. 9(b). A district court must dismiss a securities-fraud claim failing to satisfy either the PSLRA or Rule 9(b). Fin. Acquisition Partners LP v. Blackwell, 440 F.3d 278, 287 (5th Cir.2006) (citing ABC Arbitrage Plaintiffs Grp. v. Tchuruk, 291 F.3d 336, 350 (5th Cir.2002)).

In sum, to plead sufficiently under the Federal Rules of Civil Procedure and the PSLRA, a complaint must: (1) specify each statement alleged to have been misleading; (2) identify the speaker; (3) state when and where the statement was made; (4) plead with particularity the contents of the false representation; (5) plead with particularity what the person making the misrepresentation obtained thereby; and (6) explain the reason or reasons why the statement is misleading. Goldstein v. MCI WorldCom, 340 F.3d 238, 245 (5th Cir.2003). “This is the “who, what, when, where, and how required under Rule 9(b) in our securities fraud jurisprudence and under the PSLRA.” Id. What constitutes particularity differs with the facts of each case. Guidry v. Bank of LaPlace, 954 F.2d 278, 288 (5th Cir.1992).

1. Materiality

To be actionable, a misrepresentation or omission of a fact must be objectively material. See Amgen Inc. v. Conn. Retirement Plans & Trust Funds, — U.S. -, -, 133 S.Ct. 1184, 1195, 185 L.Ed.2d 308 (2013) (“[T]he question of materiality ... is an objective one .... ” (internal quotation marks omitted)). “[T]o fulfill the materiality requirement ‘there must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information made available.’ ” Basic v. Levinson, 485 U.S. 224, 231-32, 108 S.Ct. 978, 99 L.Ed.2d 194 (1988) (quoting TSC Inds., Inc. v. Northway, Inc., 426 U.S. 438, 449, 96 S.Ct. 2126, 48 L.Ed.2d 757 (1976)); see also Southland Secs. Corp. v. INSpire Ins. Solutions, Inc., 365 F.3d 353, 362 (5th Cir.2004) (noting that a fact is material if there is “a substantial likelihood that, under all the circumstances, the omitted fact would have assumed actual significance in the deliberations of the reasonable shareholder.” (internal quotation marks omitted)). The “total mix” of information includes information that is readily available to the general public and facts known or reasonably available to shareholders. Kapps v. Torch Offshore, Inc., 379 F.3d 207, 216 (5th Cir.2004).

The Supreme Court has been “careful not to set too low a standard of materiality for fear that management would bury the shareholders in an avalanche of trivial information.” Matrixx Initiatives, Inc. v. Siracusano, — U.S. -, -, 131 S.Ct. 1309, 1318, 179 L.Ed.2d 398 (2011) (internal quotation marks omitted). “[T]he disclosure required by the securities laws is measured not by literal truth, but by the ability of the statements to accurately inform rather than mislead prospective buyers.” Lormand, 565 F.3d at 248. There is no bright-line rule for determining whether information withheld from a company’s public disclosures is, or is not, material. See Matrixx Initiatives, 131 S.Ct. at 1324. Instead, determining materiality is a “fact-specific inquiry ... that requires consideration of the source, content, and context of the allegedly omitted information.” Id. at 1321 (internal quotation marks and citation omitted); see also Rubinstein v. Collins, 20 F.3d 160, 168 (5th Cir.1994). (“Materiality is not judged in the abstract, but in light of the surrounding circumstances.” (internal quotation marks and footnote omitted)).

In this case, Carpenters alleged that the defendants not only made material misrepresentations, but also that they omitted facts that reasonable investors would consider material. “The omission of a known risk, its probability of materialization, and its anticipated magnitude, are usually material to any disclosure discussing the prospective result from a future course of action.” Lormand, 565 F.3d at 248. The Fifth Circuit has

long held under Rule 10b-5, a duty to speak the full truth arises when a defendant undertakes a duty to say anything. Although such a defendant is under no duty to disclose every fact or assumption underlying a prediction, he must disclose material, firm-specific adverse facts that affect the validity or plausibility of that prediction.

Id. (citing Rubinstein, 20 F.3d at 170).

The PSLRA created a “safe harbor” protecting individuals and eorporations from liability for certain forward-looking statements that later prove false. To qualify for this protection, the statement must be “accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statement” or be immaterial. 15 U.S.C. § 78u-5(c)(l)(A)(i, ii). In this case, the defendants have not argued that the PSLRA’s safe harbor applies.

2. Scienter

Under the PSLRA, plaintiffs must state with particularity facts giving rise to a “strong inference” that the defendant acted with scienter. 15 U.S.C.A. § 78u-4(b)(2)(A). For “each act or omission alleged” to be false or misleading, plaintiffs must “state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.” 15 U.S.C. § 78u-4(b)(2)(A). Scienter requires “an intent to deceive, manipulate or defraud or that severe recklessness in which the danger of misleading buyers or sellers is either known to the defendant or is so obvious that the defendant must have been aware of it.” R2 Invs. LDC v. Phillips, 401 F.3d 638, 643 (5th Cir.2005) (internal quotation marks omitted). “Severe recklessness is limited to those highly unreasonable omissions or misrepresentations that involve not merely simple or even inexcusable negligence, but an extreme departure from the standards of ordinary care.” Id. (quotation marks and citation omitted).

In Tellabs I, the Supreme Court described how to analyze the sufficiency of scienter allegations on a motion to dismiss a federal seeurities-fraud case under the PSLRA. 551 U.S. at 322-23, 127 S.Ct. 2499. First, the district court must determine the factually sufficient complaint allegations and take them as true. Id. at 322, 127 S.Ct. 2499. Second, the court considers documents incorporated in the complaint by reference and matters subject to judicial notice. Id. at 322-23, 127 S.Ct. 2499. Third, a court must take into account plausible inferences opposing as well as supporting an inference of scienter. Tellabs I, 551 U.S. at 323, 127 S.Ct. 2499. The factual allegations must be evaluated collectively, not in isolation, to determine whether a strong inference of scienter has been pleaded. Cf. Barrie v. Intervoice— Brite, Inc., 397 F.3d 249, 260 (5th Cir.2005) (“While [the Fifth Circuit] will view a complaint in toto when considering whether a complaint has adequately pled scienter, each allegation of fraud must individually meet the particularity requirements of the PSLRA.” (internal citation omitted)).

To be sufficient, the inference need not be “irrefutable, i.e., of the ‘smoking-gun’ genre, or even the most plausible of competing inferences.” Tellabs I, 551 U.S. at 324, 127 S.Ct. 2499 (internal quotation marks omitted). But it “must be more than merely ‘reasonable’ or ‘permissible’ — it must be cogent and compelling, thus strong in light of other explanations.” Id. “The strength of an inference cannot be decided in a vacuum.” Id. at 323, 127 S.Ct. 2499. “To determine whether the plaintiff has alleged facts that give rise to the requisite ‘strong inference’ of scienter, a court must consider plausible, nonculpable explanations for the defendant’s conduct, as well as inferences favoring the plaintiff.” Id. at 323-24, 127 S.Ct. 2499. “[0]missions and ambiguities count against inferring scienter, for plaintiffs must ‘state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.’ ” Id. at 326, 127 S.Ct. 2499 (quoting 15 U.S.C. § 78u-4(b)(2)). “A complaint will survive ... 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 allege.” Id. at 324,127 S.Ct. 2499.

III. The Plaintiffs’ Allegations of Material Misrepresentations and Scienter

The defendants move to dismiss on the ground that the complaint fails to identify, with sufficient specificity, the false or misleading statements the defendants made, either affirmatively or by omitting material information necessary to keep the statements from being false or misleading. The defendants identify some general or overarching deficiencies with the complaint, as well as specific deficiencies in each of the areas Carpenters alleged were false and misleading. The arguments as to the general as well as the specific pleading issues are analyzed below.

A. General Pleading Issues

1. The Lack of an Alleged Motive for the Fraudulent Statements

Carpenters acknowledges that it has not pleaded a particular motive, financial or otherwise, for the defendants’ allegedly fraudulent behavior. Carpenters did not allege that either of the individual defendants traded Imperial stock during the class period or that they otherwise profited financially from their alleged misrepresentations and omissions. The defendants contend that the failure to plead motive weighs against finding scienter. Carpenters responds that shareholders can successfully plead scienter without alleging a particular motivation to defraud.

The Supreme Court addressed this issue in Tellabs I. The Court explained that “[w]hile it is true that motive can be a relevant consideration, and personal financial gain may weigh heavily in favor of a scienter inference ... the absence of allegation as to motive is not fatal.” Tellabs, 551 U.S. at 325, 127 S.Ct. 2499. “[Allegations must be considered collectively; the significance that can be ascribed to an allegation of motive, or lack thereof, depends on the entirety of the complaint.” Id. Nevertheless, appropriate motive allegations “ ‘meaningfully enhance the strength of the inference of scienter.’ ” Southland, 365 F.3d at 368 (quoting Nathenson v. Zonagen Inc., 267 F.3d 400, 412 (5th Cir.2001)).

In the Fifth Circuit, the absence of motive allegations is a factor in determining whether the complaint adequately pleads scienter. “[W]here a defendant’s motive is not apparent, a plaintiff may adequately plead scienter by identifying circumstances that indicate conscious behavior on the part of the defendant, but the strength of the circumstantial allegations must be correspondingly greater.” R2 Invs., 401 F.3d at 644-45 (internal quotation marks and emphasis omitted); see also S.E.C. v. Seghers, 298 Fed.Appx. 319, 334 (5th Cir.2008). This factor makes the Carpenters complaint’s allegations of context and other facts necessary to infer scienter even more important.

2. Group Pleading

In alleging scienter, the Carpenters complaint relies in part on group pleading. The complaint stated, “[i]t is appropriate to treat Individual Defendants as a group for pleading purposes and to presume that the false, misleading, and incomplete information conveyed in the Company’s public filings, press releases, and other publications as alleged herein are the collective actions of the narrowly defined group of Defendants identified above.” (Compl. ¶ 23).

The defendants correctly note that the Fifth Circuit has rejected group pleading as inconsistent with the PSLRA. See Southland Securities Corp., 365 F.3d at 365 (finding that group pleading “conflicts with the scienter requirement of the PSLRA because, even if a corporate officer’s position supports a reasonable inference that he likely would be negligent in not being involved in the preparation of a document or aware of its contents, the PSLRA state of mind requirement is severe recklessness or actual knowledge.”); Fin. Acquisition Partners LP, 440 F.3d at 285 (“Unlike the Tenth Circuit, our circuit does not permit [group] pleading.”). Courts in this circuit look to the state of mind of the individual corporate official who allegedly made, approved, or issued the statement at issue, or furnished information or language to include in the statement. It is insufficient to impute to each defendant a kind of collective knowledge of all the corporation’s officers and employees acquired in the course of their employment. Flaherty & Crumrine Preferred Income Fund, Inc. v. TXU Corp., 565 F.3d 200, 208 (5th Cir.2009). The allegations claimed to show scienter on the part of each defendant must be analyzed individually to determine whether the complaint sufficiently pleads scienter as to that defendant. Id.; see also Indiana Elec. Workers’ Pension Trust Fund IBEW v. Shaw Group, Inc., 537 F.3d 527, 532-33 (5th Cir.2008) (“[T]his court has rejected the group pleading approach to scienter.... Consequently, it is only necessary for us to address the allegations claimed to adequately show scienter on the part of the named officers to determine whether the complaint sufficiently pleads scienter.” (internal quotation marks omitted)). The rejection of group pleading requires plaintiffs pleading fraud claims against individuals under § 10(b) and Rule 10b-5 to distinguish among the defendants and allege each one’s role, intent, and knowledge. Southland, 365 F.3d at 365 (explaining that courts may not “construe allegations contained in the Complaint against the defendants as a group as properly imputable to any particular individual defendant unless the connection between the individual defendant and the allegedly fraudulent statement is specifically pleaded.”).

Carpenters contends in a footnote in its response to the motion to dismiss that it has sufficiently alleged scienter under what it refers to as “the prevailing theory of corporate scienter.” (Docket Entry No. 48 at 29, n. 11). The defendants respond that the Fifth Circuit has not endorsed “the corporate scienter doctrine” and that this court should decline to follow the cases Carpenters cites, which are from other circuits or from district courts in this circuit. (Docket Entry No. 52 at 19, n. 11). The Fifth Circuit has explained that “[a] defendant corporation is deemed to have the requisite scienter for fraud only if the individual corporate officer making the statement has the requisite level of scienter, i.e., knows that the statement is false, or is at least deliberately reckless as to its falsity, at the time he or she makes the statement.” Southland, 365 F.3d at 366. Courts must “look to the state of mind of the individual corporate official or officials who make or issue the statement (or order or approve it or its making or issuance, or who furnish information or language for inclusion therein, or the like) rather than generally to the collective knowledge of all the corporation’s officers and employees acquired in the court of their employment.” Id. As under the common law, “the required state of mind must actually exist in the individual making (or being a cause of the making of) the misrepresentation, and may not simply be imputed to that individual.... ” Id.; see also Makor Issues & Rights, Ltd. v. Tellabs Inc. (Tellabs II), 513 F.3d 702, 707 (7th Cir.2008) (“The problem with inferring a collective intent to deceive behind the act of a corporation is that the hierarchical and differentiated corporate structure makes it quite plausible that a fraud, though ordinarily not a deliberate act, could be the result of a series of acts none of which was done with scienter and imputable to the company by the doctrine of respondeat superior.”).

Carpenters acknowledges the Fifth Circuit case law but asserts that “in certain circumstances, scienter can be imputed to a corporate defendant even if it cannot be alleged with respect to any individual corporate officer.” (Docket Entry No. 48 at 29, n. 11). Carpenters relies on the Seventh Circuit’s decision in Tellabs II. In that opinion, the Seventh Circuit noted that a plaintiff may be able “to draw a strong inference of corporate scienter without being able to name the individuals who concocted the fraud.” 513 F.3d at 710. The court offered the hypothetical example of General Motors announcing that it had sold one million SUVs in a year when it had actually not sold any. In a lawsuit based on this announcement, even if the plaintiff could not name an individual officer responsible for the statement, “[t]here would be a strong inference of corporate scienter, since so dramatic an announcement would have been approved by corporate officials sufficiently knowledgeable about the company to know that the announcement was false.” Id.

Although the Fifth Circuit has not issued an opinion discussing the Seventh Circuit’s approach, at least two district courts in this circuit have found the circumstances for inferring corporate scienter to be limited. In In re Dell Inc., Sec. Litig., 591 F.Supp.2d 877 (W.D.Tex.2008), the court concluded that the facts alleged could not support an inference of corporate scienter to replace a showing of individual scienter. The court explained that the alleged misrepresentations were not “dramatic enough to assume corporate officials who were knowledgeable about the company generally would have known of their falsity at the time they were made.” Id. at 899. In In re B.P. p.l.c. Securities Litigation, 843 F.Supp.2d 712 (S.D.Tex.2012), by contrast, the court found that the complaint was sufficient to give rise to an inference of corporate scienter. After the Deepwater Horizon Accident, BP had estimated that it could recover about 500,000 barrels of oil per day. Just over a month after the accident, BP and its contractors were recovering about 15,000 barrels per day. The court found that “the erroneous estimates climb very close to — if not exceed — the extraordinary nature of the facts envisioned by the Seventh Circuit.” Id. at 790.

In this case, Carpenters’s brief discussion of the issue fails to explain how the Tellabs II approach to inferring corporate scienter applies here. Carpenters does not identify which of the allegedly false statements — whether by affirmative misrepresentation or by omission — are so dramatic as to support an inference that the individual officers knowledgeable about the c