In re Supreme Industries Inc Securities Litigation

Filing 86

OPINION AND ORDER GRANTING 81 MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM - Defendants' Motion to Dismiss Plaintiff's Second Amended Class Action Complaint. The Court DISMISSES the claims WITH PREJUDICE. Signed by Judge Philip P Simon on 3/29/19. (ksp)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF INDIANA
SOUTH BEND DIVISION
In re SUPREME INDUSTRIES, INC.
SECURITIES LITIGATION

)
)
) CAUSE NO. 3:17-CV-143-PPS/MGG
)

OPINION AND ORDER
In this securities fraud case, Defendants, Supreme Industries Inc., Mark Weber,
and Matthew Long, have filed a motion to dismiss the second amended class action
complaint. [DE 81.] I previously dismissed an earlier complaint but allowed the lead
Plaintiff, Kenneth Fishman, to file an amended complaint which he timely did. After
thoroughly reviewing the amended complaint I have again concluded that Fishman has
failed to sufficiently allege, under the heightened pleading standards applicable to
securities fraud cases, that Defendants made false or misleading statements, and he has
also failed to raise a strong inference of scienter. I will therefore again dismiss the
complaint but this time the dismissal will be with prejudice.
Background
Much of the factual basis of this case has already been set out in my order dated
May 23, 2018,1 and for expediency sake, I will not repeat it here. During my analysis of
this motion, I principally will focus on the new allegations in the second amended
complaint. For present purposes, it is enough to say that Supreme is a company in the
business of manufacturing truck body parts. The company manufactures specialized
1

All references to “Op.” are to the Opinion and Order granting Defendants’ Motion to
dismiss the Amended Class Action Complaint. [DE 76.]

commercial vehicles that are attached to truck chassis which Supreme purchases from
large manufacturers such as General Motors or Navistar. According to the second
amended complaint, an important predictor of company performance is the size of its
backlog. Generally speaking, “backlog” refers to unfinished work or to customer
orders that have been received but are either incomplete or in the process of
completion.
Broadly speaking, there are two public statements at issue in this case that were
made by either Supreme or its executives that allegedly constitute material
misrepresentations in violation of Section 10(b) and Rule 10b-5: (1) a third quarter 2015
announcement by Supreme Industries regarding its backlog which Fishman claims was
misleading because they did not specify the composition of the backlog; and (2) a July
2016 prediction made by Supreme’s Chief Financial Officer that the backlog for the
second half of 2016 was “going to settle more towards the way it looked Q3 last year.”
[SAC, ¶ 94.]2 I will take up each of these claims in order below.
Discussion
Before getting into the details of the allegedly false statements, let’s begin with a
brief primer on the law that is applicable to this matter. As more fully set out in my
May 2018 order, pursuant to the Private Securities Litigation Reform Act (“PSLRA”),
the complaint must first specify each misleading statement and spell out why it is

2

All references to “SAC” are to the second amended complaint, filed on July 13, 2018.
[DE 80.]
2

misleading; and second, it must state with particularity facts giving rise to a strong
inference that the defendant acted with the requisite state of mind. 15 U.S.C. §§ 78u4(b)(1), (b)(2). Why is the standard so onerous? It’s because “Congress passed the
PSLRA in response to perceived abuses in which issuers of securities would be sued
based on little more than a significant drop in their stock prices after announcing bad
news.” Schleicher v. Wendt, 529 F.Supp.2d 959, 969 (S.D. Ind. 2007). As a result, the
heightened pleading requirements are aimed at discouraging claims of “so-called ‘fraud
by hindsight.’” In re Midway Games, Inc. Sec. Litig., 332 F. Supp. 2d 1152, 1155 (N.D. Ill.
2004) (quoting In re Brightpoint, Inc. Sec. Litig., No. IP99-0870-C-H/G, 2001 WL 395752,
at *3 (S.D. Ind. Mar. 29, 2001)).
In a case of securities fraud like this one, the plaintiff has to allege that the
defendant made the false statements with an intent to deceive or to defraud. In other
words, that is the “scienter” that must be alleged. Tellabs, Inc. v. Makor Issues and Rights,
Ltd. (“Tellabs II”), 551 U.S. 308, 319 (2007); see also Higginbotham v. Baxter Int’l, Inc., 495
F.3d 753, 756 (7th Cir. 2007) (holding the required state of mind that must be pled is “an
intent to deceive, demonstrated by knowledge of the statement’s falsity or reckless
disregard of a substantial risk that the statement is false.”).
It is my job to determine whether the facts as alleged give rise to a “strong” (or
powerful or cogent) inference of scienter. Tellabs II, 551 U.S. at 322-23. A “strong
inference” is one that is “strong in light of other explanations.” Id. at 324. In
determining whether a strong inference of scienter has been sufficiently alleged, I may

3

not only draw on “inferences urged by the plaintiff” but must engage in a “comparative
evaluation” and thus examine and consider “competing inferences rationally drawn
from the facts alleged.” Id. at 314. I must consider the totality of the facts alleged in
determining whether “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.” Id. at 324. Forward-looking statements — in other words, predictions — have
a particularly strict standard, in which case scienter requires “actual knowledge of
falsity on the part of defendants,” not merely reckless indifference. City of Livonia
Emps.’ Ret. Sys. & Local 295/Local 851 v. Boeing Co., 711 F.3d 754, 756 (7th Cir. 2013)
(citing 15 U.S.C. § 78u-5(c)(1)(B)).
Like the first amended complaint, there are two claims asserted in the second
amended complaint. The first claim arises under Section 10(b) of the Securities
Exchange Act of 1934, 15 U.S.C. § 78j(b), and SEC Rule 10b-5, 17 C.F.R. § 240.10b-5. To
state a claim for securities fraud under these provisions, Plaintiff must plead: “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.” Pugh v. Tribune Co., 521 F.3d 686, 693 (7th Cir. 2008).
The second claim, brought against the individual Defendants, Mark Weber and
Matthew Long, arises under Section 20(a) of the Securities Exchange Act of 1934. Under
this section, “[e]very person who, directly or indirectly, controls any person liable

4

under any provision of this chapter or of any rule or regulation thereunder shall also be
liable jointly and severally with and to the same extent as such controlled person is
liable . . . .” 15 U.S.C. § 78t(a).
Before turning to the new allegations, I pause to address Fishman’s comment
that Defendants have attached 56 documents to the Appendix. [DE 84 at 13 n.3.]
Fishman initially implies that this is an “unscrupulous practice” on a motion to dismiss
a securities case. [Id.] Nonetheless, he has not moved to strike any documents or
identified any specific exhibit which I should not consider. Additionally, Fishman does
not object to the documents incorporated into the second amended complaint and
doesn’t object to Defendants’ references to SEC filings provided that they are not relied
on for the truth of the matters asserted therein. [Id.] See In re Shopko Sec. Litig., No. 01C-1034, 2002 WL 32003318, at *2 (E.D. Wis. Nov. 5, 2002) (finding on a motion to dismiss
securities fraud claims that courts may consider SEC filings “only to determine what
disclosures the defendants made,” not “for the truth of the disclosures contained
therein”). This is appropriate because typically, when courts take notice of documents
in securities fraud cases, courts “consider the documents for a non–hearsay purpose i.e., for the notice that statements in the documents provided concerning certain risks, as
it relates to fraud or reliance questions - as opposed to for the substantive truth of
statements in the documents.” ABN AMRO, Inc. v. Capital Intern. Ltd., No. 04 C 3123,
2007 WL 845046, at *8 (N.D. Ill. Mar. 16, 2007). Therefore, I will not consider the
attached documents for the truth of the matters asserted within, but I will consider

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them for non-hearsay purposes.
The Third Quarter 2015 Statements
1.

Were the Third Quarter 2015 Statements False or Misleading?

As noted above, liability under Section 10(b) requires the plaintiff to prove that
the defendant either made a false statement of material fact or failed to make a
statement of material fact thereby making the statements that were made misleading.
Searls v. Glasser, 64 F.3d 1061, 1065 (7th Cir. 1995). A fact is material if a substantial
likelihood exists that a reasonable investor would have viewed the disclosure of the
facts as having significantly altered the “total mix” of information available. TSC Indus.,
Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976).
With the second amended complaint, Fishman attempts to shore up his
argument that the third quarter 2015 backlog announcements were misleading because
they did not disclose further details about the backlog composition. In other words,
while Fishman has to acknowledge that the backlog disclosures were technically
accurate, he continues to contend they were misleading because of what the defendants
did not disclose: that the anomalous backlog was the result of “two large fleet
replacement orders and the timing of an annual fleet account order received during the
third quarter.” [DE 84 at 15-16; SAC ¶¶ 10, 90, 101.]
I already directly addressed this argument in my May order and found:
Simply alleging that, because the Defendants failed to disclose the
source of the backlog, the statements they made regarding the
backlog were rendered misleading is not enough. Omitting one
detail – even a significant one – doesn’t render the whole story
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inaccurate or misleading. Failing to include the breakdown of the
backlog does not render the backlog figure “so incomplete as to be
misleading.” See In re Harley Davidson Inc. Sec. Litig., 660 F. Supp.
2d 969, 985 (E.D. Wis. 2009). Nor is the source of the backlog a fact
that is inconsistent with, or calls into question, the report of the
indisputably accurate backlog figure. See Silverman v. Motorola, Inc.,
2008 WL 4360648, at *10 (N.D. Ill Sept. 23, 2008) (“[O]mitting
smaller details, even if investors might care about them, is not
necessarily misleading.”). In other words, Fishman fails to allege
precisely how the backlog figure was rendered misleading, as
opposed to simply lacking detail.
[Op. at 12-13.]
The additional allegations in the second amended complaint do nothing to cure
this problem and Fishman still has not sufficiently alleged that the report of an accurate
backlog number was misleading. More allegations showing that the investors cared
about Supreme’s backlog, and sometimes asked questions about the backlog
composition, have been added. [SAC, ¶¶ 46-52.] Yet, the first amended complaint
contained similar allegations that “Defendants recognized that the Company’s backlog
provided insight into current and future performance,” and during earnings calls,
Supreme “drew direct connections between reported backlog and the Company’s
operations,” Supreme focused on and discussed its quarterly backlog which gave the
“metric a higher level of materiality to investors,” and the backlog was a “primary
indicator” of Supreme’s current and future performance. [FAC, ¶ 45.]3
The first amended complaint also alleged that “investors consistently pushed”

3

All references to “FAC” are to the first amended complaint, filed on April 24, 2017.

[DE 53.]
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Supreme to provide additional backlog details during earnings calls, and that investors
asked questions regarding the composition of the backlog. [Id. ¶¶ 48-50.] Merely piling
on more allegations that the investors cared about the backlog does nothing to fix the
problems with the first amended complaint — the true statement about the backlog is
still not misleading. As I found earlier, just “knowing that one metric is material and not
disclosing it” does not “lead[] to the conclusion that the Defendants must have known,
or should have known, that this failure to disclose would mislead investors.” [Op. at
15.]
Fishman argues that some of the second amended complaint’s new allegations
highlight Defendants’ previous willingness to disclose the source of an anomalous
backlog, thus trying to call into question the decision not to break down the backlog in
the statements at issue. [DE 84 at 16.] Specifically, Fishman points to the disclosure of
the third quarter of 2013 backlog to demonstrate Supreme’s “ability and willingness to
describe the source of anomalous backlog.” [Id.] That disclosure reported “strong
order intake in the third quarter led by significant fleet business and improved retail
demand for the Company’s truck bodies.” [SAC, ¶ 53.] I’m not sure why this is held
up as an example of a superior disclosure. It is very similar to the Q3 2015 SEC filings
and public release disclosure (that Plaintiff alleges to be misleading), which expressly
stated that “new order intake was stronger . . . across both retail and fleet work truck
product lines.” [Op. at 13; DE 83 at 43.]
Another addition to the second amended complaint relates to statements

8

occurring during the second quarter earnings call, on July 24, 2015. [SAC, ¶¶ 83-84.]
During that call, Long said, “[t]he backlogs are finally back to normal levels” and Weber
stated that, “[i]t’s actually sort of balanced on the backlog side as it stands today,
because we flushed a lot of the fleet orders through in the second quarter.” [Id.] But
nothing said on this call would suggest to a reasonable investor that there would be no
(or even few) fleet orders in the backlog at the end of the third quarter. To the contrary,
Supreme disclosed that the Q2 backlog was “sort of balanced” and that during Q2 it
had “strong” new order rates “across both retail and national accounts,” including
“people who are big in the leasing, big in the rental” like “the Budgets, the Penskes, the
Ryders.” [DE 83 at 30, 36.] I fail to see how anything said on the Q2 call renders the Q3
2015 disclosure that backlog included “new order intake [that] was stronger . . . across
both retail and fleet work truck product line” misleading by omission. [DE 83 at 43.]
Fishman again points to the allegations (which were in the first amended
complaint too) that a year later, on October 20, 2016, Supreme reported that it had an
unexpected third quarter backlog decline of 22%. It was at that time that Supreme first
disclosed that the large 2015 third quarter backlog was the result of “two large fleet
replacement orders and the timing of an annual fleet account order.” According to
Fishman, putting these pieces of the puzzle together, along with the subsequent fall in
the stock price, constitutes “direct evidence” that the October 2015 disclosure must
have been misleading. [FAC, ¶¶ 9-10, 78; SAC, ¶¶ 10-11, 64, 99; DE 85 at 6, 18.]
I just don’t see the characterization of the Q3 2015 backlog with greater

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specificity in 2016 as direct evidence that the previous backlog statement must have
been misleading; nor does the fall in stock price that occurred show that the Q3 2015
statement was a material misleading omission. First, the additional detail provided in
2016 was consistent with Supreme’s Q3 2015 disclosure that backlog was up because
“new order intake was stronger in the third quarter of 2015 across both retail and fleet
work truck product lines.” [DE 83 at 43; Op. at 15.] Second, if Supreme had no duty to
disclose a more detailed breakdown of its backlog for Q3 2015, its decision to give
additional detail in 2016 cannot retroactively create some disclosure obligation.
Following the announcement of the disappointing Q3 2016 backlog, there was a
stock price decline. Although Plaintiff believes this price drop is the “best evidence of
materiality” [DE 84 at 11-12], I do not think it suggests that the Q3 2015 statement was
misleading. The cases cited by Fishman [DE 84 at 16], are distinguishable. In Silverman
v. Motorola, Inc., 798 F.Supp.2d 954, 983 (N.D. Ill. 2011), the court found at the summary
judgment phase that there was a genuine issue of material fact after a disclosure and
subsequent stock price decline as to whether the disclosure revealed new, negative
information about the new 3G phones. And in Ross v. Career Educ. Corp., No. 12 C 276,
2012 WL 5363431, at *6 (N.D. Ill. Oct. 30, 2012), the defendant was a private college that
had “widespread and pervasive” inflation of placement rates of its graduates. After the
misrepresentations were discovered, the college made public statements that it had put
its legal issues behind it (those statements turned out to be false). Id. The court
concluded that “[g]iven the nature of [defendants’] tainted past, defendants’ statements

10

about the company’s current status - that it had eliminated its significant regulatory
issues – could have misled a reasonable investor to believe that [it] had remedied the
practice that led to those problems – the company’s alleged improper reporting of [job]
placement rates.” Id. at *7.
In both Silverman and Ross, which had much stronger inferences of scienter, the
additional information disclosed was arguably new information that contradicted the
earlier statements, reflecting that the earlier misstatements were indeed material. In
contrast, in this case, the additional details disclosed in Q3 2016 were not inconsistent
with the prior statements about Q3 2015 backlog, and the stock price decline could have
instead been attributable to the disappointing Q3 2016 backlog and Supreme’s
disclosure of “choppy” and “bearish” economic indicators and a further slowing of the
market. [SAC, ¶ 92; DE 83 at 353.]
The second amended complaint also adds reference to an SEC Regulation,
specifically, Regulation S-K Item 101(c)(1)(viii) which requires, where material to
understand the issuer’s business, disclosure by reporting segment of: “[t]he dollar
amount of backlog orders believed to be firm, as of a recent date and as of a comparable
date in the preceding fiscal year, together with an indication of the portion thereof not
reasonably expected to be filled within the current fiscal year, and seasonal or other
material aspects of the backlog.” [SAC, ¶ 43 (quoting 17 C.F.R. 229.101(c)(1)(viii)].
However, this regulation is inapplicable to Supreme’s report of its backlog for Q3 2015,
because Regulation S-K only applies to “annual or other reports . . . to the extent

11

provided in the forms and rules under [the Exchange] Act.” 17 C.F.R. § 229.10(a)(2); see
In re Seagate Tech. II Sec. Litig., No. C-89-2493(a) MHP, 1990 WL 134963, at *9 (N.D. Cal.
June 19, 1990) (“Plaintiffs maintain that the SEC regulations require defendants to also
disclose the specific backlog information . . . However, the regulations that plaintiffs
cite,” including “Item 101 of Regulation S-K,” “are applicable only to disclosures in
annual reports.”). Fishman seems to concede in his response that the SEC regulation is
not applicable, admitting “[t]here is no dispute that Defendants consistently reported
backlog, quarter over quarter,” but stating the second amended complaint “focuses on
Defendants’ materially misleading disclosures rather than Defendants’ purported
compliance with SEC mandated disclosures.” [DE 84 at 17 n.7.]
In sum, nothing in the second amended complaint has altered my conclusion that
Fishman “fails to allege precisely how the backlog figure was rendered misleading, as
opposed to simply lacking detail.” [Op. at 13.]
2.

Is There Strong Evidence of Scienter?

Even if the Plaintiff could somehow show that the Q3 2015 backlog statement
was misleading, I still don’t see any evidence in the second amended complaint
suggesting a strong inference of scienter. Recall that in a securities fraud case like this, a
Plaintiff 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), and the
requisite state of mind is “an intent to deceive, demonstrated by knowledge of the
statement’s falsity or reckless disregard of a substantial risk that the statement is false.”

12

Higginbotham, 495 F.3d at 756.
In reviewing the second amended complaint, I’ve kept in mind that the inference
of scienter must be cogent and at least as compelling as any opposing inference of
nonfraudulent intent. Tellabs II, 551 U.S. at 324. It isn’t enough to say that defendants
had access to greater detail about the composition of the backlog, or even that they
knew the information was important. Rather, as I already held, “Plaintiff must show
that the Defendants either intended to deceive or were recklessly indifferent to the fact
that their omissions would make their representations misleading – not just that the
Defendant knew, or should have known, they were withholding material information.”
[Op. at 15.]
Although Plaintiff has cited case law in support of the argument that subsequent
admissions support an inference of scienter, in this case, there was no post-class period
“admission” that the Q3 2015 backlog report was misleading. [DE 84 at 26.] This is in
contrast to the cases cited by Plaintiffs like Roth v. AON Corp., No. 04-C-6835, 2008 WL
656069, at *9 (N.D. Ill. Mar. 7, 2008), where the CEO admitted defendants had “violated
Aon’s Values Statement and its Code of Ethics when Aon entered into” undisclosed
contingent commission agreements; or Lormand v. US Unwired, Inc., 565 F.3d 228, 254
(5th Cir. 2009), where the court found, based on the defendants’ post-class period
deposition testimony and e-mails, that they “privately knew, at the time of the
representations, that the [programs] would be disastrous for the company but
continued to tout their benefits publicly”; or Nursing Home Pension Fund, Local 144 v.

13

Oracle Corp., 380 F.3d 1226, 1234 (9th Cir. 2004), where the plaintiffs alleged “specific
admissions from the three top executive officers”; or finally Aldridge v. A.T. Cross Corp.,
284 F.3d 72, 83 (1st Cir. 2002), where defendants disclosed post-class period that price
protection and take-back guarantees had been offered to customers the previous year
(artificially inflating reported revenues and earnings). Here, there were no admissions
of wrongdoing, and the fact that Supreme disclosed additional, consistent details a year
later when comparing the Q3 2016 backlog to the Q3 2015 backlog does nothing to
suggest that the earlier statement was fraudulent.
Plaintiff tries to take this argument even one-step further by contending that
even assuming Defendants did not believe the composition of the Q3 2015 backlog
figure was material at the time, courts have still found that defendants acted with
scienter in situations where they were aware of undisclosed information, but professed
not to have believed the information was material. [DE 84 at 27.] But again, the cases
cited by Plaintiff are distinguishable, because the undisclosed information contradicted
defendants’ public statements. See, e.g., In re Akorn, Inc. Sec. Litig., 240 F. Supp. 3d 802,
811, 819 (N.D. Ill. 2017) (finding strong inference of scienter where officers falsely
represented that the company’s financial results were “accurate and prepared in
accordance with GAAP” where defendants were aware of significant internal control
deficiencies which led to net revenue being overstated by 194.7%); S.E.C. v. Fisher, No.
07 C 4483, 2012 WL 3757375, at *13 (N.D. Ill. Aug. 28, 2012) (denying summary
judgment where defendants “expressly acknowledge[d] the improper accounting” for

14

one transaction and finding there were “just too many so-called honest mistakes for
Defendants to receive the kind of benefit of the doubt that would allow them summary
judgment”); In re Hi-Crush Partners L.P. Sec. Litig., No. 12 Civ. 8557 (CM), 2013 WL
6233561, at *21, *23 (S.D.N.Y. Dec. 2, 2013) (promoting “supposedly stable” agreement
with Baker Hughes violated “clear duty to disclose” that Baker Hughes had repudiated
the contract).
Here, as I have already said many other times, the omitted information was not
inconsistent with later released information, and other than pointing to the alleged
omissions themselves, there are no other scienter allegations in the second amended
complaint. Indeed, as I have said before, instead of there being a cogent and compelling
inference of scienter, the inference is actually to the contrary — i.e. the Defendants
believed they had disclosed sufficient, accurate information regarding the Q3 2015
backlog. Moreover, “[i]t’s completely plausible to infer that the Defendants, even
assuming the omission was material and they knew it, didn’t think, nor should they
have thought, that omitting the breakdown of the backlog would mislead anyone.” [Op.
at 15.] Nothing in the second amended complaint has altered this non-culpable
inference that I found before.
In sum, the second amended complaint still fails to state with particularity facts
giving rise to a strong inference that Defendants made the statements with “the intent
to deceive, manipulate or defraud” or with “reckless disregard for the truth.” S.E.C. v.
Bauer, 723 F.3d 758, 775 (7th Cir. 2013). This failure to plead a strong inference of

15

scienter is a basis for dismissal. See Pension Trust Fund for Operating Eng’rs v. Kohl’s
Corp., 895 F.3d 933 (7th Cir. 2018) (affirming district court’s dismissal of action with
prejudice where allegations were insufficient to establish strong inference of scienter).
Second Quarter 2016 Prediction
The second challenged statement is one that was made by Long, Supreme’s Chief
Financial Officer, during the unscripted question and answer portion of the earnings
call for Q2 2016. [SAC, ¶ 94.] In response to a question about “gross margin[s] in the
back half of the year” in light of “the slowing industry,” Long predicted that “the
backlog is going to settle more towards the way it looked Q3 last year.” [Id.; Op. at 16;
DE 83 at 284-85.] I have already found that this prediction about “what the backlog will
be at the end of September, two and a half months later,” was “the epitome of a
‘forward looking statement . . . ‘” for application of the PSLRA safe harbor. Nonetheless,
Plaintiff’s leading argument is that “the Q2 2016 statement was not forward-looking.”
[Op. at 16-18 (citing 15 U.S.C. § 78u-5(i)(1)(A)); DE 84 at 28.] I’m still not buying it.
Let’s start with an overview of the safe harbor under the PSLRA. Under the safe
harbor, corporations and individuals may avoid liability even if their public statements
prove to be false so long as the statements are forward looking. 15 U.S.C. § 78u-5(c)(1).
This is especially so if the forward-looking statements that later prove to be false are
“accompanied by meaningful cautionary statements.” Id. §78u-5(c)(1)(A)(i). But it is
important to point out that the safe harbor still applies even in the absence of the
cautionary language unless the plaintiff proves that the defendant made the statement

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with “actual knowledge” that the prediction was “false or misleading.” Id. § 78u5(c)(1)(B)(i).
Defendants have raised the argument that the statement in question — Long’s
answer to a question in the earnings call — was accompanied by meaningful cautionary
language. But I do not need to reach this, because, in any event, Fishman has failed to
sufficiently allege that Long had actual knowledge that the prediction was false or
misleading. And this is what must be alleged — actual knowledge; recklessness is not
enough. Id. § 78u-5(c)(1).
Fishman argues that the statement was not forward-looking because it omitted
past and present material facts (the divulging of which was necessary to make the
statement not misleading). [DE 84 at 19-20.] This reasoning is flawed. For starters, it
simply ignores the statutory definition of “forward-looking statement” as including “a
statement containing a projection of” any “financial items” and “a statement of future
economic performance” 15 U.S.C. § 78u-5(i)(1)(A), (C). It also ignores the plain
language of the statute which expressly contemplates application of the safe harbor to
claims “based on an untrue statement of a material fact or omission of a material fact
necessary to make the statement not misleading.” 15 U.S.C. § 78u-5(c)(1). “[T]here is no
question under the statute that a material and misleading omission can fall within the
forward-looking safe harbor.” Harris v. Ivax Corp., 182 F.3d 799, 806 (11th Cir. 1999)
(citing 15 U.S.C. § 78u-5(c)(1)).
While Fishman attacks the prediction for not being reasonable, he does not

17

directly address my previous finding that other comments made during the question
and answer session conveyed caution and uncertainty. This is important because a
company’s disclosures of red flags “undercut any inference of scienter.” Fire & Police
Pension Ass’n of Colo. v. Abiomed, Inc., 778 F.3d 228, 244 (1st Cir. 2015); see also Ziemba v.
Cascade Int’l, Inc., 256 F.3d 1194, 1211 (11th Cir. 2001) (noting various disclosures of red
flags “significantly undermine any hint of fraud.”).
As I have previously noted, Supreme warned investors of some potentially
choppy times ahead during the earnings call at issue here. For example, Weber
specifically stated in the call that Supreme saw “some indications of demand
moderation late in the quarter,” that it had “lost some business on the fleet side,” and
“purchases for the rental fleet this year were not as large as they have been historically,”
and Long stated that “[w]e had lower year-over-year fleet business.” [Op. at 13, 22; DE
83 at 280, 296, 289.] Additionally, Defendants notified investors at the outset of the call
that any forward-looking statements are within the safe harbor protection of the
PSLRA, and that predictions “are subject to risks and uncertainties that could cause
actual results to differ materially” and pointed to Supreme’s 10-K and other SEC filings
for “[i]mportant factors that could cause actual results to differ materially from those in
the forward-looking statements.” [DE 83 at 278-79.] With all of these warning signals, I
stand by my finding that “[t]here were all sorts of things said in the conference call that
suggested that caution should be taken” [Op. at 22] and I still believe that the
acknowledgment of these potential problems runs contrary to any inference of scienter.

18

Although Fishman argues that the allegedly undisclosed facts left “virtually no
chance” that the prediction could be attained, the factual allegations in the second
amended complaint just do not support this inference. [DE 84 at 20.] As I recognized
before, a prediction is not automatically misleading because there is a fact “cutting the
other way.” [Op. at 17-18.] Indeed, none of the new allegations affect what I
determined before — that this is a case where the most likely inference to be drawn
from the facts as detailed in the complaint is a benign one; the Defendants simply made
a prediction which just turned out to be wrong. [Op. at 28.] As the Seventh Circuit has
recognized:
There is no securities fraud by hindsight. The law does not require
public disclosure of mere risks of failure. No prediction – even a
prediction that the sun will rise tomorrow – has a 100 percent
probability of being correct. The future is shrouded in uncertainty.
If a mistaken prediction is deemed a fraud, there will be few
predictions, including ones that are well grounded, as no one wants
to be held hostage to an unknown future.
City of Livonia, 711 F.3d at 758 (internal quotation and citations omitted) (emphasis in
original).
Fishman also contends that the Q3 2016 backlog prediction was knowingly false
because the Q3 2015 backlog purportedly included undisclosed, atypical fleet orders.
[DE 84 at 28.] But just because the Q3 2015 backlog was large and included fleet orders
does not suggest that “there was virtually no chance” that future backlogs could be
higher. Even if those fleet orders were anomalous, there are no allegations in the
second amended complaint suggesting that Long knew, at the time, that similar fleet

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orders would not also be placed in Q3 2016. As I already found, “[e]ven if I presume
that Weber and Long knew the true makeup of the third quarter 2015 backlog and of
the sales shortfalls, that doesn’t suggest that Long knew the prediction concerning the
third quarter 2016 backlog was false when he made it.” [Op. at 19.]
At the time of Long’s statement, Fishman claims Supreme was suffering from a
significant drop in sales [DE 84 at 21], which was an allegation included in the first
amended complaint. [FAC, ¶ 54.] But Fishman now adds allegations from another
confidential witness, a former Supreme Outside Sales Manager whose orders were
filled by Supreme’s facility in Goshen, Indiana, who noted that he “knew the backlog
was down because the ongoing problems with delayed and faulty shipments resulted in
Supreme losing customers.” [SAC, ¶ 61.] Although Fishman alleges the sales decline
was “significant,” I don’t know how the confidential witness would know the numbers
of the company, and it is unclear whether the shortfalls occurred before Long made his
prediction, and to what degree. [DE 84 at 20-21.] The confidential witnesses’
allegations are not inconsistent with Supreme’s disclosures in Q2 2016 that it was seeing
signs of a slowdown, followed by its disclosures in Q3 2016 that conditions had
worsened. Still, nothing in the second amended complaint shows the prediction could
not happen, or it was impossible for Supreme to match third quarter 2015 backlog
numbers.
In sum, nothing in the second amended complaint shows that the Q3 2016
prediction was false when made, and the allegations do not give rise to a “strong

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inference” that Long had “actual knowledge” that the prediction was false or
misleading when made.
Once again, Fishman argues that scienter may be inferred from the Defendants’
high-ranking positions, confidential witnesses, and insider stock sales. [DE 84 at 29-33.]
Fishman continues to assert that Defendants must have had actual knowledge the
prediction was false because they “were intimately involved in the operations of the
company” and “were aware of the company’s successes and failures, including sales
shortfalls.” [Op. at 19; SAC, ¶¶ 120-25.] But these are nothing more than unsupported
conclusions. As I previously found, these allegations “fail[ed] to connect the dots”
because knowledge regarding the company’s business (including the composition of the
Q3 2015 backlog and alleged sales shortfalls) “doesn’t suggest that Long knew the
prediction concerning the third quarter 2016 backlog was false when he made it.” [Op.
at 19.] Rather, it is “completely plausible” that Long’s prediction of a decline in backlog
from the previous quarter, made in the context of disclosures regarding the “slowing
industry” and “demand moderation,” “accounted for these trends and for the fact that
the 2015 third quarter backlog included orders that were perhaps atypical for that
quarter.” Id. at 19-20.
The second amended complaint has added only a single allegation to support the
high-ranking position argument, that “Weber often got involved with big customers,
and personally attended sales meetings with some of their large customers.” [SAC, ¶
124.] This does not add anything substantial to the previous complaint, which already

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alleged that Weber “repeatedly discussed his personal involvement with significant
fleet customers, noting that he was ‘out in front of’ customers.” [FAC, ¶ 101.] Thus the
second amended complaint suffers from the same deficiency as the previous complaint
— there is “no allegation that, even in light of sales shortfalls and the individual
Defendants’ intimate knowledge about the company’s operations, it was impossible for
Supreme to match third quarter 2015 backlog numbers” — or that Long had actual
knowledge that it would be impossible. [Op. at 20.]
With regard to the allegations from the confidential witnesses, the second
amended complaint adds two new witnesses. Although allegations from unnamed
confidential sources “require a heavy discount,” because they may be “ill-informed,”
stemming from spite, or misrepresented, City of Livonia, 711 F.3d at 759, they can
provide an inference of scienter under some circumstances. Factors which can
strengthen that inference include a large number of confidential witnesses, descriptions
of their jobs which indicate they had first-hand knowledge of the facts, corroboration by
other sources, and the inclusion of their real names. See Makor Issues & Rights, Ltd. v.
Tellabs Inc. (“Tellabs III”), 513 F.3d 702, 712 (7th Cir. 2008); Shah v. Zimmer Biomet
Holdings, Inc., 348 F.Supp.3d 821, 844 (N.D. Ind. 2018). I already analyzed the
allegations from CW1, which are the same in the second amended complaint, and I
found that it was not enough for her to assert “there were ‘signs in July of a sales
shortfall,’” for multiple reasons. [Op. at 21-23.] Simply adding two additional
unnamed confidential witnesses has not strengthened the pleading of scienter.

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Both CW2 and CW3 reported to regional management (several levels below the
individual Defendants), and neither is alleged to have knowledge of company-wide
numbers. [SAC, ¶¶ 71-78.] Significantly, their allegations are not inconsistent with
Long’s prediction. For example, CW2 alleges that he missed his personal sales quota in
2016 (selling $5.3 million of a $6 million goal), and that some of his orders were canceled
in 2Q and 3Q of 2016. [Id. ¶ 71.] But a shortfall of $700,000 is still a very small
percentage of Supreme’s overall backlog. Moreover, the timing is vague - a shortfall
around the time of Long’s prediction, when Supreme disclosed signs of slowing down,
would not be indicative of anything other than just that, a slowdown. [Op. at 22.]
CW3's allegations are also consistent with company disclosures. She claims her
sales goal for 2016 “was later ‘re-forecasted’ because the original goal had been ‘too
inflated,’” and that she “saw a spreadsheet comparing actual sales to sales goals” in her
region, which “confirmed that ‘nobody’ in [the] region had been making their goals.”
[SAC, ¶ 76.] But we don’t know when her sales were allegedly re-forecasted, by how
much, or how much others in her region were allegedly behind in their numbers, or at
what point in time.
The testimony of the confidential witnesses does not suggest that there was such
a large sales shortfall before Long made his prediction, that it must have been
unattainable, or that Long must have known it was unattainable. Maybe even more
importantly, these allegations are not inconsistent with the Q2 2016 disclosures
cautioning about a slowing industry and signs of softness and demand moderation. [DE

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83 at 280, 289, 296.] Pointing out consistent versions of the events from other employees
does nothing to help Fishman show a strong inference of scienter, or that Long actually
knew that his prediction was false at the time he made it.
As in the first round of briefing, Fishman continues to argue that scienter may be
inferred due to suspicious stock sales. “[B]ecause executives sell stock all the time,
stock sales must generally be unusual or suspicious to constitute circumstantial
evidence of scienter.” Pugh, 521 F.3d at 695. A stock sale that is suspicious in scope and
timing can support an inference of scienter. Id.; Vallabhaneni v. Endocyte, Inc., No. 1:14cv-01048-TWP-MJD, 2016 WL 4360648, at *18 (S.D. Ind. Jan. 4, 2016). To evidence
scienter, stock sales must be “dramatically out of line with prior trading practices.”
Makor Issues & Rights, Ltd. v. Tellabs, Inc. (“Tellabs I”), 437 F.3d 588, 604 (7th Cir. 2006)
(quotation omitted). In other words, the trading must be “unusual.” City of Austin
Police Ret. Sys. v. ITT Ed. Servs., Inc., 388 F. Supp.2d 932, 950-51 (S.D. Ind. 2005). The
fact that insiders retained significant holdings weighs against any inference of scienter.
Id. at 951 (citing In re Silicon Graphics, Inc. Sec. Litig., 183 F.3d 970, 987 (9th Cir. 1999)).
In his response, Fishman argues that two types of stock sales support an
inference of scienter: (1) the collective sales of the individual defendants and other highlevel insiders; and (2) Long’s stock sale which he claims is out of line with prior trading
practices. [DE 84 at 31-32.] Although both Weber and Long had a stock sale in the class
period, I previously found those sales did not support a strong inference of scienter.
[Op. at 24-26.] Fishman does not directly address Weber’s sale in this round of briefing,

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but instead concentrates on Long now.
Let’s look at the collective sales of the individual Defendants and high-level
insiders first. The first amended complaint alleged that the individual Defendants and
other Supreme insiders (who are not named as defendants in this case), realized over
$11 million in proceeds from their sales of Supreme stock during the Class Period, and
that approximately $9.3 million of that resulted from transactions during the threemonth period corresponding to the sales slowdown – the second amended complaint
merely ups the numbers – alleging the insiders netted over $12 million during the class
period, with approximately $9.5 million of that resulting from transactions during the
three-month period from July 22, 2016 through October 21, 2016. [SAC, ¶ 127.]
In this case, where Long was the individual who made the prediction, it seems
that only his knowledge should be relevant in determining scienter and whether the
safe harbor provision is applicable. See In re Splash Tech. Holdings, Inc. Sec. Litig., 160
F.Supp.2d 1059, 1082 n. 22 (N.D. Cal. 2001) (in evaluating scienter, the PSLRA requires
the Court to consider each defendant’s sales separately). Indeed, other courts have
found that the stock sales of insiders not named as defendants are “irrelevant to
alleging scienter against the [] named Defendants.” Plevy v. Haggerty, 38 F.Supp.2d 816,
834 n. 12 (C.D. Cal. 1998); see also In re PETsMART Sec. Litig., 61 F.Supp.2d 982, 1001 (D.
Ariz. 1999) (finding “no reason to consider” the stock sales of individuals not named as
defendants absent “specific facts suggesting that defendants intended their
manipulation of [company] stock to assist these specific colleagues.”).

25

Plaintiff cites Shaw v. Digital Equipment Corp., 82 F.3d 1194, 1224 (1st Cir. 1996),
where the court did consider the stock sale of two insiders (neither of which were
defendants), in looking at scienter. [DE 84 at 31.] However, Shaw is not only notbinding, but also not compelling. Shaw was pre-PSLRA, and the First Circuit only noted
plaintiff’s allegations of stock sales by two non-defendants after it had already
concluded that plaintiffs’ other allegations supported a “reasonable inference” of the
defendants’ scienter. Id. at 1224. In specifically addressing the non-defendants’ sales,
the First Circuit noted that “the level of suspicion warranted by the alleged insider
stock sales is marginal.” Id.
Turning to Long, he had a single sale of 10,00 shares on July 29, 2016 for $166,100.
[SAC, ¶¶ 129-32; DE 83 at 501.] In considering Long’s sale, while it does raise some
suspicion, I cannot say that the timing is sufficient enough to support a strong inference
that he had actual knowledge the prediction was false when made, or that Long’s stock
sale was “dramatically out of line with prior trading practices.” Tellabs I, 437 F.3d at
604. Long only joined Supreme in 2011, so his holdings were relatively small prior to
the class period. He owned 15,000 shares through the beginning of 2013, and his
holdings increased as he was awarded, and purchased, stock over the years. [DE 83 at
836.] At the start of the class period, Long held 78,799 shares, over 20,000 of which were
awarded just a few months earlier in March 2015. [Id. at 838.] In light of his relatively
small holdings and short time at the company, it is not surprising that the sale in 2016
was Long’s first sale of stock.

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Crunching the numbers, Long sold 10,000 shares for $166,100, which Fishman
calculates saved him $53,100 compared to if he had sold on the trading day following
the October 20, 2016 announcement of Q3 backlog. [SAC, ¶ 129.] Although Fishman
points out that the majority of Long’s shares were subject to vesting schedules and over
46% of his retained shares could not have been sold by Long during the class period, I
still don’t think the sale is entitled to the relevance that Fishman urges. As I noted
before, Long “retained large amounts of Supreme shares” (83,667 shares) and “actually
ended the Class Period with greater holdings than at the beginning . . . which
undermines the inference of scienter.” [Op. at 25 (citing City of Austin, 388 F. Supp. 2d
at 951); DE 83 at 474.] By continuing to hold his shares, Long suffered a loss of over
$550,000 when the stock price declined following the October 20, 2016 announcement,
which is a much, much bigger loss than Plaintiff alleges Long avoided by his small sale
in July. As such, this does not seem like a situation where an insider dumped his stock,
suggesting inside knowledge of an impending price drop.
I have spent a considerable amount of time and effort once again determining
whether all of the facts alleged, taken collectively, give rise to a strong inference of
scienter. Tellabs II, 551 U.S. at 322-23. In looking at the context of this statement, I still
think it is telling that it was an off-the-cuff statement, made during an unscripted
portion of an earnings call in response to an on-the-spot question. Moreover, during
the same call that the statement was made, the Defendants disclosed various negative
indicators, suggesting to the investors that the outlook was choppy. Finally, the

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imprecise words used in the statement - “settle,” “more towards” and “the way it
looked” are “vague enough that I suspect no reasonable investor hearing those
statements would expect Long’s prediction to be dead on.” [Op. at 27; see Searls, 64 F.3d
at 1067.] Taking into account all of these facts, and especially taking note of the new
allegations in the second amended complaint, I am still led to the conclusion that the
inference of scienter is neither compelling nor cogent. Instead, I still believe that the
non-culpable inference - “that Defendants withheld information that they had no reason
to believe would mislead anyone and that, after accounting for and providing to the
public a substantial amount of bad information, they made a prediction which turned
out simply to not be quite true – is far more compelling.” [Op. at 28.]
In sum, Fishman’s claim relating to the second quarter 2016 prediction must be
dismissed because it lacks a strong inference of scienter. See, e.g., Fannon v. Guidant
Corp., 583 F.3d 995, 1001-02 (7th Cir. 2009) (affirming district court dismissing the case
on the pleadings with prejudice where the class complaint failed to raise the strong
inference of scienter); Sandmire v. Alliant Energy Corp., 296 F.Supp.2d 950, 960 (W.D. Wis.
2003) (dismissing class action complaint for failure to state a claim for securities fraud
where complaint lacked allegations supporting a strong inference of scienter).
The Section 20(a) Claim
With regard to the Section 20(a) claim, as I noted in my previous order, to state a
claim under Section 20(a), plaintiffs must allege a primary securities violation. Harrison
v. Dean Witter Reynolds, Inc., 974 F.2d 873, 876 n.1, 881 (7th Cir. 1992). Because I have

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found that there is no primary violation, the Section 20(a) claim must also be dismissed.
Dismissal With or Without Prejudice?
Finally, Plaintiff has already filed two amended complaints, and there is no
indication that he could successfully amend the complaint to cure the defects identified
above. Considering the procedural posture of this case, especially given the fact that
Plaintiff was allowed to replead after having the benefit of my guidance in the first
opinion, it is appropriate to dismiss Plaintiff’s claims WITH PREJUDICE. See City of
Livonia, 711 F.3d at 762 (affirming district court’s dismissal of the second amended
complaint with prejudice for failure to create a strong inference defendants acted with
scienter); Emery v. Am. Gen. Fin., Inc., 134 F.3d 1321, 1322-32 (7th Cir. 1998) (affirming
dismissal of second amended complaint and recognizing that the “district judge was
not required to give her another chance.”).
Conclusion
For the foregoing reasons, the Court GRANTS the motion to dismiss the second
amended complaint [DE 81], and dismisses the claims WITH PREJUDICE.
SO ORDERED.
ENTERED: March 29, 2019.
/ s/ Philip P. Simon
PHILIP P. SIMON, JUDGE
UNITED STATES DISTRICT COURT

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