Police Officers Pension Fund v. Meredith Corporation ( 2021 )

United States Court of Appeals
For the Eighth Circuit
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No. 20-3510
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City of Plantation Police Officers Pension Fund
Plaintiff - Appellant
v.
Meredith Corporation; Stephen M. Lacy; Thomas H. Harty; Joseph H. Ceryanec;
Jonathan B. Werther
Defendants - Appellees
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Appeal from United States District Court
for the Southern District of Iowa - Central
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Submitted: September 22, 2021
Filed: October 18, 2021
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Before SMITH, Chief Judge, GRUENDER and STRAS, Circuit Judges.
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GRUENDER, Circuit Judge.
The lead plaintiff in this securities-fraud class action, the City of Plantation
Police Officers Pension Fund (the “Pension Fund”), appeals the district court’s 1
dismissal of its amended complaint. We affirm.
1
The Honorable Charles R. Wolle, United States District Judge for the
Southern District of Iowa.
I.
In January 2018, Meredith Corp. acquired Time Inc., the owner of TIME,
People, Sports Illustrated, and other magazines. Initially, Meredith executives were
optimistic about the merger. Over time, however, it became clear that this optimism
was misplaced. Meredith’s stock price plunged three times in 2019, once in May
after Meredith admitted that it would “take longer than originally anticipated to
achieve the remainder of the synergies” from the merger, again in September after
Meredith released disappointing financial results, and a third time in October after
Meredith announced the departure of one of the executives leading the Time
integration.
On behalf of himself and others who purchased Meredith stock between
January 31, 2018 and September 5, 2019, Joseph Mroz sued Meredith and several
of its executives for securities fraud. The Pension Fund was appointed lead plaintiff
and filed a 125-page amended class-action complaint that added more Meredith
executives as defendants. The amended complaint brought two counts: (1)
securities fraud under § 10(b) of the Securities Exchange Act, 15 U.S.C. § 78j(b),
and 17 C.F.R. § 240.10b-5; and (2) controlling-person liability under § 20(a) of the
Securities Exchange Act, 15 U.S.C. § 78t(a). In support of these claims, the
complaint identified 138 allegedly false or misleading statements made by Meredith
executives about the merger during the class period.
The defendants moved to dismiss the amended complaint under Federal Rule
of Civil Procedure 12(b)(6) for failure to state a claim. In its response, the Pension
Fund argued that the complaint did state a claim but also, in a footnote, asked the
district court for “leave to replead” should the district court “decide that the
Complaint does not plead a claim.” Although the Pension Fund did not offer a
proposed amended complaint, one of the attachments to its opposition to the
defendants’ motion to dismiss contained a new allegation. The district court denied
the Pension Fund’s request for leave to amend and dismissed the complaint with
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prejudice. The Pension Fund appeals, challenging the dismissal of its complaint and
denial of leave to amend.
II.
“We review de novo the district court’s grant of a motion to dismiss a
securities fraud complaint.” In re Cerner Corp. Sec. Litig., 425 F.3d 1079, 1083 (8th
Cir. 2005). As relevant here, a defendant is liable under § 10(b) only if the plaintiff
suffered economic loss as a result of relying on a material misrepresentation or
omission that the defendant made with the requisite mental state. See In re Target
Corp. Sec. Litig., 955 F.3d 738, 742 (8th Cir. 2020). Congress has established
“heightened pleading standards” for the misrepresentation and mental-state
requirements of § 10(b) liability. Cerner, 425 F.3d at 1083 (citing the Private
Securities Litigation Reform Act of 1995 § 21(d), 15 U.S.C. § 78u-4(b)). With
respect to the misrepresentation requirement, the complaint must “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 must “state with particularity all facts on
which that belief is formed.” 15 U.S.C. § 78u-4(b)(1). With respect to the mental-
state requirement, the complaint must, for “each act or omission alleged to [give rise
to liability], 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). A
“strong inference” is one that is “at least as compelling as any opposing inference
one could draw from the facts alleged.” Podraza v. Whiting, 790 F.3d 828, 837 (8th
Cir. 2015).
Not all inaccurate statements constitute material misrepresentations that can
form the basis of a § 10(b) claim. Congress has provided that no forward-looking
statement that is identified as such and “accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to differ
materially from those in the forward-looking statement” can give rise to liability
under § 10(b). 15 U.S.C. § 78u-5(c)(1)(A)(i). A statement is forward-looking if and
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only if its “truth or falsity is discernible only after it is made.” Julianello v. K-V
Pharm. Co., 791 F.3d 915, 921 (8th Cir. 2015).
In addition, a statement is immaterial for purposes of § 10(b) if “a reasonable
investor could not have been swayed” by the statement. In re K-tel Int’l, Inc. Sec.
Litig., 300 F.3d 881, 897 (8th Cir. 2002). “[V]ague” or “optimistic rhetoric”—
sometimes called corporate “puffery”—falls into this category. In re Stratasys Ltd.
S’holder Sec. Litig., 864 F.3d 879, 882 (8th Cir. 2017); see also Detroit Gen. Ret.
Sys. v. Medtronic, Inc., 621 F.3d 800, 808 (8th Cir. 2010) (“[P]uffing statements
generally lack materiality because the market price of a share is not inflated by vague
statements predicting growth. No reasonable investor would rely on these
statements . . . .”); K-tel, 300 F.3d at 897 (“Immaterial statements include vague,
soft, puffing statements or obvious hyperbole.”). Examples of corporate puffery
include forecasts of “significant growth,” Parnes v. Gateway 2000, Inc., 122 F.3d
539, 547 (8th Cir. 1997), claims that a company is “recession-resistant,” id., and
boasts that a company is “leading the race,” Stratasys, 864 F.3d at 882.
Assuming a statement does constitute a material misrepresentation, the mental
state that the plaintiff must prove varies depending on the kind of misrepresentation
made. Liability for a forward-looking material misrepresentation requires actual
knowledge that the statement is false. 15 U.S.C. § 78u-5(c)(1)(B). For other
material misrepresentations, “severe recklessness” suffices. See K-tel, 300 F.3d at
893. A defendant is “severe[ly] reckless[]” for purposes of § 10(b) liability only if,
in “an extreme departure from the standards of ordinary care,” he disregards a risk
“so obvious that [he] must have been aware of it.” Id.
Here, 137 of the 138 statements listed in the amended complaint were clearly
either (1) statements identified as forward looking and accompanied by meaningful
cautionary statements, (2) corporate puffery, or (3) forward-looking statements that
the complaint’s allegations do not imply by strong inference were made with actual
knowledge of their falsity. For example, the complaint refers to statements about
“hit[ting] the ground running”; “implementing . . . proven strategies, standards, and
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discipline”; being “on track”; being “very pleased with the integration work so far”;
and occupying an “industry-leading position”—all paradigmatic examples of the
kind of “vague” and “optimistic” rhetoric that constitutes corporate puffery. See,
e.g., Stratasys, 864 F.3d at 882 (offering similar examples of corporate puffery); City
of Taylor Police & Fire Ret. Sys. v. Zebra Techs. Corp., 8 F.4th 592, 595 (7th Cir.
2021) (treating the statement that “integration was ‘progressing as planned’” as
puffery).
The remaining statement is a remark that the complaint attributes to Thomas
Harty, Meredith’s Chief Executive Officer at the time and one of the defendants in
this action. The complaint alleges that on February 11, 2019, Harty stated that
Meredith had “fully integrated [its] HR, finance, legal and IT functions.” To support
its claim that this was a material misrepresentation made with the requisite mental
state, the complaint alleges that a former Meredith employee indicated confidentially
that he had heard that legacy Meredith employees and legacy Time employees
operated on different finance software systems until August 2019.
Although this statement comes closer than the other 137 to giving the Pension
Fund a § 10(b) claim, it too falls short. Even assuming arguendo that Harty’s
statement was false, the confidential former employee’s allegation does not “giv[e]
rise to a strong inference” of severe recklessness. See 15 U.S.C. § 78u-4(b)(2)(A);
K-tel, 300 F.3d at 893 (specifying the mental state required for a non-forward-
looking statement like Harty’s). Setting aside doubts about the significance of a
confidential employee’s allegations, but see Minneapolis Firefighters’ Relief Ass’n
v. MEMC Elec. Materials, Inc., 641 F.3d 1023, 1030 (8th Cir. 2011) (disregarding
the § 10(b) plaintiff’s “reliance on the allegations of confidential sources” when
pleading mental state), nothing in the complaint suggests that either the confidential
former employee or his sources had any insight into what, if anything, Harty knew
about the software that legacy Meredith and legacy Time employees in the finance
department were using. Nor does the complaint “state with particularity,” 15 U.S.C.
§ 78u-4(b)(2)(A), facts suggesting that it would have been so obvious that two
software systems were in use that it was “an extreme departure from the standards
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of ordinary care” for Harty to turn a blind eye to this fact, see K-tel, 300 F.3d at 893.
The more plausible inference to draw from the allegations is that Harty made the
statement because, as is typical for an executive overseeing “an ongoing corporate
consolidation,” he had “limited information about the inner workings of” the legacy
firms’ finance departments. See Zebra, 8 F.4th at 596. Because the inference of
severe recklessness is not “at least as compelling as any opposing inference one
could draw from the facts alleged,” it is not the “strong inference” that § 10(b)’s
heightened pleading standard requires. See Podraza, 790 F.3d at 837.
In sum, the complaint fails to satisfy the heightened pleading standards with
respect to the misrepresentation and mental-state requirements of § 10(b) liability.
Therefore, the district court properly dismissed the Pension Fund’s § 10(b)
securities-fraud claim. And because the Pension Fund’s § 20(a) controlling-person
claim is “derivative” of its § 10(b) claim, see 15 U.S.C. § 78t(a), the district court
properly dismissed the § 20(a) claim too. See Target, 955 F.3d at 745 (“Because the
investors’ § 10(b) claim fails, dismissal of the § 20(a) claim was also appropriate.”).
III.
Ordinarily, we review the denial of leave to amend a complaint for abuse of
discretion. In re 2007 Novastar Fin. Inc., Sec. Litig., 579 F.3d 878, 884 (8th Cir.
2009). But “when the [district] court denies leave on the basis of futility, it means
the district court has reached the legal conclusion that the amended complaint could
not withstand a motion to dismiss . . . , and appellate review of this legal conclusion
is . . . de novo.” Cornelia I. Crowell GST Tr. v. Possis Med., Inc., 519 F.3d 778, 782
(8th Cir. 2008). Even then, however, the court of appeals “can affirm the [district]
court’s denial of leave to amend on the alternate basis that [the plaintiff] failed to
offer a proposed amended complaint to the district court.” Novastar, 579 F.3d at
884.
Here, the district court offered no meaningful explanation for its denial of the
Pension Fund’s request for leave to amend. The defendants urge us to affirm on the
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alternative basis that the Pension Fund never offered a proposed amended complaint
to the district court. In response, the Pension Fund argues that the new allegation
contained in an attachment to its opposition to the defendant’s motion to dismiss
constituted the “substance of an amendment.” Even if that were true, however, the
new allegation merely supplements a former employee’s statements about reports
that certain Meredith executives may have seen in August 2018 and October 2018.
Because this allegation does not affect the analysis above, amending the complaint
to incorporate it would be futile. See Cornelia, 519 F.3d at 782-84. Therefore, even
assuming arguendo that including a new allegation in an attachment to a brief in
opposition to a motion to dismiss is the functional equivalent of offering a proposed
amended complaint, we conclude after considering the issue of futility de novo that
the district court properly denied leave to amend. See id.IV.
For the foregoing reasons, we affirm the district court’s dismissal of the
complaint and denial of leave to amend.
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