Flora v. The Hain Celestial Group, Inc. et al

Filing 148

ORDER ADOPTING REPORT AND RECOMMENDATIONS: For the stated reasons (Please see Order for further details), IT IS HEREBY ORDERED that: I. Plaintiffs' objections are OVERRULED; II. The R&R is ADOPTED as to the scienter-related recommendation s and the dismissal recommendation; III. Defendants' Dismissal Motions (ECF Nos. 113 , 116 ) are GRANTED; and IV. The Clerk of Court enter judgment accordingly and, thereafter, mark this case CLOSED. So Ordered by Judge Joanna Seybert on 9/29/2023. (AF)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
----------------------------------x
In Re THE HAIN CELESTIAL GROUP INC.
SECURITIES LITIGATION

FILED 
CLERK 

3:49 pm, Sep  29, 2023
U.S. DISTRICT COURT 
EASTERN DISTRICT OF NEW YORK 
LONG ISLAND OFFICE 

ORDER ADOPTING
REPORT & RECOMMENDATION
16-CV-4581 (JS)(LGD)

----------------------------------x
Appearances
For Lead Plaintiff: Carol C. Villegas, Esq.
Rosewood Funeral
Christine M. Fox, Esq.
1
Home
James M. Fee, Esq.
LABATON SUCHAROW LLP
140 Broadway
New York, New York 10005
Brian Schall, Esq.
THE SCHALL LAW FIRM
1880 Century Park East, Suite 404
Los Angeles, California 90067
For Lead Plaintiff: Robert V. Prongay, Esq.
Leannae Heine Solish, Esq.
Salamon Gimpel 2
GLANCY PRONGAY & MURRAY LLP
1925 Century Park East, Suite 2100
Los Angeles, California 90067
For Defendants:

John M. Hillerbrecht, Esq.
Jeffrey D. Rotenberg, Esq.
Marc A. Silverman, Esq.
DLA PIPER LLP (US)
1251 Avenue of the Americas
New York, New York 10020

SEYBERT, District Judge:
Before the Court is the Report and Recommendation (“R&R”
or “Report”) of Honorable Lee G. Dunst recommending that the
Counsel for Plaintiff Rosewood Funeral Home are also Co-Lead
Counsel for the Class.
1

Counsel for Plaintiff Salamon Gimpel are also Co-Lead Counsel
for the Class.
2

Page 1 of 60

dismissal motions 3 of Defendants The Hain Celestial Group, Inc.
(“Hain”

or

“the

Company”),

and

of

Irwin

D.

Simon

(“Simon”),

Pasquale Conte (“Conte”), John Carroll (“Carroll”), and Stephen J.
Smith (“Smith”, and together with Simon, Conte, and Carroll, the
“Individual

Defendants”)

(collectively,

the

“Defendants”)

be

granted and that the Second Amended Consolidated Class Action
Complaint (“SAC”) (ECF No. 110) of Lead Plaintiffs Rosewood Funeral
Home and Salamon Gimpel (the “Plaintiffs”) be dismissed with
prejudice.

(See

R&R,

Magistrate

Judge

(hereafter,

“Objection”

ECF

Dunst’s
or

No.

142. 4)

Plaintiffs

recommendations
“Obj.”),

ECF

No.

object

to

(see

Objection

144),

to

Defendants have responded (see Response, ECF No. 145).

which

For the

reasons which follow, the Objections are OVERRULED, the R&R is
ADOPTED as discussed herein, and the Dismissal Motions are GRANTED.
BACKGROUND
This

federal

securities

class

action

asserting

violations of the Securities Exchange Act (the “Act”) is based
upon Plaintiffs’ allegations that, by their false and misleading
The dismissal motions of Hain (ECF No. 113) and the Individual
Defendants (ECF No. 116) are addressed together; hereafter, they
shall be referred to as the “Dismissal Motions”. (See also Hain
Support Memo, ECF No. 114; Hain Reply, ECF No. 120; Ind. Defs.
Support Memo, ECF No. 117; Ind. Defs. Reply, ECF No. 121; Suppl.
Support Memo, ECF No. 134; Opp’n re: Hain, ECF No. 118; Opp’n re:
Ind. Defs., ECF No. 119; Suppl. Opp’n, ECF No. 136.)
3

The Court assumes the parties’ familiarity with the terms of
art defined in the R&R, which are adopted herein.
4

Page 2 of 60

statements and omissions, the Defendants purposely concealed the
Company’s declining business due to new competitors in the healthy
food and personal care products market, which the Company had
previously

dominated.

As

the

Second

Circuit

summarized

it,

Plaintiffs’ theory of the case is: “Defendants made statements
attributing Hain’s high sales volume to strong consumer demand,
while omitting to state that increased competition had weakened
consumer demand and that Hain’s high sales volume was achieved in
significant part by the offer of unsustainable channel stuffing
incentives.” In re Hain Celestial Grp., Inc. Sec. Litig., 20 F.4th
131, 137 (2d Cir. 2021).
the

parties’

background

(See also Obj. at 6.)

familiarity

and

extensive

with

both

procedural

the

The Court presumes
underlying

background

of

factual

this

case.

Indeed, in the absence of any objections to the Magistrate Judge’s
recitation of the Factual Background (see R&R at 1-24) and the
Procedural History of the case (see id. at 24-28), which the Court
finds to be accurate, thorough, and clear of error, said Factual
Background and Procedural History are adopted in their entirety
and incorporated herein by reference. See Sali v. Zwanger & Pesiri
Radiology

Grp.,

LLP,

No.

19-CV-0275,

2022

WL

819178,

at

*1

(E.D.N.Y. Mar. 18, 2022) (where no party challenges magistrate
judge’s recitation of factual and procedural backgrounds of the
case, upon clear error review, adopting and incorporating same
into court’s order).
Page 3 of 60

For ease of reference, the Court notes the following.
First, only two causes of action remain:

Plaintiffs’ first cause

of action alleging Defendants’ violations of Section 10(b) of the
Act and Rule 10b-5(b) promulgated thereunder (hereafter, “Count I”
or the “Rule 10(b) Claim”); and Plaintiffs’ corresponding third
cause

of

action

alleging

the

Individual

Defendants

violated

Section 20(a) of the Act (hereafter, “Count III” or the “Section
20(a) Claim”).

Second, Defendants’ Dismissal Motions are before

this Court upon remand by the Second Circuit “for reconsideration
of Defendants’ motion to dismiss the Second Amended Complaint,”
with this Court to “consider afresh whether the [SAC] adequately
stated

a

sufficiency

claim
of

under
the

Rule

10b-5(b)”

scienter

and

allegations,

to

“reassess

considering

the
the

cumulative effect of the circumstantial allegations of intent
together with the pleaded facts relating to motive and opportunity”
because “the strength of circumstantial allegations required to
plead

scienter

varies

depending

on

whether

there

are

also

allegations of motive and opportunity on the part of corporate
officers to commit fraud.”

Hain Celestial, 20 F.4th at 138

(emphasis added) (citing ECA, Loc. 134 IBEW Joint Pension Tr. of
Chi. v. JP Morgan Chase Co., 553 F.3d 187, 198-99 (2d Cir. 2002)).

Page 4 of 60

DISCUSSION
I.

Applicable Law 5
A. Rule 72(b)
A district court “may accept, reject, or modify, in whole

or in part, the findings or recommendations made by the magistrate
judge.” 28 U.S.C. § 636(b)(1)(C); see also FED. R. CIV. P. 72(b)(3).
Any portion of such a report and recommendation to which a timely
objection has been made is reviewed de novo.
§ 636(b)(1); FED. R. CIV. P. 72(b)(3).

See 28 U.S.C.

“Objections to a report and

recommendation must be ‘specific and are to address only those
portions of the proposed findings to which the party objects.’”
Fossil Grp. Inc. v. Angel Seller, LLC, No. 20-CV-2441, 2021 WL
4520030, at *2 (E.D.N.Y., Oct. 4, 2021) (quoting Phillips v. Reed
Grp., Ltd., 955 F. Supp. 2d 201, 211 (S.D.N.Y. 2013) (cleaned up)).
General objections, or “objections that are merely perfunctory
responses argued in an attempt to engage the district court in a
rehashing of the same arguments set forth in the original papers
will not suffice to invoke de novo review.”

Owusu v. N.Y.S. Ins.,

The Court adopts the legal standards stated by Magistrate Judge
Dunst in his Report as to: (1) a Rule 12(b)(6) dismissal motion
(see R&R at 28-29); (2) the applicable pleading requirements under
Rule 9(b) of the Federal Rules of Civil Procedure and under the
PSLRA (see id. at 29); (3) making out a claim under Rule 10b-5(b)
(see id.); and (4) stating a Section 20(a) claim under the Act
(see id. at 29-30), to which no objections have been raised, which
are not clearly erroneous, and which are incorporated herein by
reference.
5

Page 5 of 60

655

F.

Supp.

2d

308,

312-13

(S.D.N.Y.

2009)

(quotations,

alterations and citation omitted); see also Trivedi v. N.Y.S.
Unified Ct. Sys. Off. of Ct. Admin., 818 F. Supp. 2d 712, 726
(S.D.N.Y. 2011), aff’d sub nom Seck v. Off. of Ct. Admin., 582 F.
App’x 47 (2d Cir. Nov. 6, 2014) (“[W]hen a party makes only
conclusory or general objections [] the Court will review the
Report strictly for clear error.[]

Objections to a Report must be

specific and clearly aimed at particular findings in the magistrate
judge’s proposal.” (cleaned up)).

Any portion of a report and

recommendation to which no specific timely objection is made, or
to which only general, conclusory or perfunctory objections are
made, is reviewed only for clear error. Owusu, 655 F. Supp. 2d at
312-13; see also Bassett v. Elec. Arts, Inc., 93 F. Supp. 3d 95,
100-01 (E.D.N.Y. 2015).
B. Rule 10b-5(b) Claims 6
Rule
10b-5(b)
provides
that,
in
connection with the purchase or sale of any
security, it is “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 light of the
circumstances under which they were made, not
misleading.”
17 C.F.R. § 240.10b-5.
To
support a claim under that rule, a plaintiff
must plead: (1) a material misrepresentation
or omission (i.e., materiality and falsity),
(2) scienter, (3) a connection between the
misrepresentation or omission and the purchase
Provided here merely for the convenience of the reader.
supra note 5.)
6

Page 6 of 60

(See

or sale of a security, (4) reliance on the
misrepresentation or omission, (5) economic
loss, and (6) loss causation. See, e.g., Noto
v. 22nd Century Grp., Inc., 35 F.4th 95, 102
(2d Cir. 2022). [Further], “[t]he first two
elements
must
be
pled
with
heightened
specificity pursuant to the Private Securities
Litigation Reform Act of 1995 and Federal Rule
of Civil Procedure 9(b).” Id.
(R&R at 29 (second set of brackets added).)
II.

Application
A. The R&R
Cognizant of the Circuit Court’s directives, in making

his Report, Magistrate Judge Dunst proceeded to consider as if for
the first time Plaintiffs’ SAC.
the

Magistrate

Judge

made

Upon that “afresh” consideration,
the

following

findings

and

recommendations.
1. As to Count I
a. Abandoned Portion of the Claim
Initially, “to the extent [Count I] challenges Hain’s
financial results, the reported methods of calculating them, their
compliance

with

Magistrate

Judge

SOX,

and

found

their

compliance

Plaintiffs

with

abandoned

therefore, he recommends they be dismissed.

GAAP,”

those

(R&R at 31.)

[Remainder of page intentionally left blank.]

Page 7 of 60

the

claims;

b. The Attribution Statements Are Not Actionable
Magistrate

Judge

Dunst

found

the

Attribution

Statements, 7 reviewed in context, were not puffery and, therefore,
“trigger[ed] a duty for Hain to disclose any information necessary
to make them not misleading.”

(R&R at 32-33 (footnote omitted).)

In making his recommendation, the Magistrate Judge rejected the
Company’s reliance on the Circuit Court’s Boca Raton decision (id.
at 34-37 (discussing Boca Raton Firefighter’s and Police Pension
Fund v. Bahash, 506 F. App’x 32 (2d Cir. 2012)), since other “cases
make clear[ that,] because Defendants ‘put the sources of [Hain’s]
revenue at issue . . . [,] the alleged failure to disclose the
true sources of such revenue could give rise to liability under
Section 10(b).’”

(Id. (quoting In re Van der Moolen Holding N.V.

Sec. Litig., 405 F. Supp. 2d 388, 401 (S.D.N.Y. 2005); further
citation omitted) (first and third set of brackets added).)
Then, as to Plaintiffs’ “challenges [to] the Company’s
statements as materially false or omissive for failing to disclose
that Hain relied on ‘unsustainable practices’ to generate sales
and/or

that

Hain

lacked

adequate

accounting

controls,”

the

For convenience, the Court notes, the Attribution Statements
where “statements in Hain’s SEC filings between November 2013 and
May 2016” that attributed the Company’s financial results to
various causes, i.e.: “strong brand contribution;” “expanded
distribution;” the “strong demand” and “momentum” for organic and
natural products; Hain’s “diverse portfolio” of brands; and/or
“solid execution of [Hain’s] operational initiatives”.
(R&R at
31.)
7

Page 8 of 60

Magistrate Judge found Plaintiffs failed to plead an actionable
misstatement

or

omission.

(R&R

at

38.)

Regarding

the

“unsustainable practices” branch of the recommendation, Magistrate
Judge Dunst stated two ground for finding the relevant statements,
as pled, were not actionable:

(a) as to Plaintiffs’ contention

that the Company offered its customers an absolute right of return,
Plaintiffs misplaced their reliance on CWs to support this claim;
the

Magistrate

Judge

found

the

CWs’

statements

to

be

“too

conclusory and generic to support an allegation that Hain relied
on the right of return as alleged in the SAC” (R&R at 39-40; see
also id. at n.18); and (b) the Company disclosed other offered
sales incentives and promotions, obviating any further need for
disclosure (see
id. at 41-42).
--- ---

Regarding the accounting controls

branch of the recommendation, Magistrate Judge Dunst rejected
Plaintiffs’

reliance

on

the

SEC

Order,

finding

(c)

the

SOX

Statements were nonactionable opinion statements of management
since (i) Plaintiffs did not plead the Company failed to evaluate
its internal controls (see R&R at 43-44), and (ii) the SEC Order
did not indicate that the Individual Defendants contemporaneously
knew of any deficiencies in the Company’s internal controls when
they

signed

the

SOX

(d) contrary

to

Plaintiffs’

misleadingness
disclosure

that

based
the

certificates

upon
Audit

(i)

(see

allegations
the

of

Company’s

Committee’s

Page 9 of 60

id.

at

44-45);

and

falseness

and

November

investigation

2016

found

no

evidence

of

intentional

wrongdoing

regarding

the

Company’s

accounting practices, and (ii) Simon’s related comments regarding
the Company’s commitment to both the transparency of its financial
reporting and the strengthening of its internal controls, such
allegations were undermined by and not, as Plaintiffs argued,
supported by the SEC Order (see id. at 45-46).
c. Plaintiffs Fail to Plead Scienter
As to the scienter element of Plaintiffs’ Rule 10(b)
Claim, the Magistrate Judge found Plaintiffs failed to plead that
claim

in

accordance

standards.

with

the

applicable

heightened

pleading

(See generally R&R at 47 (“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 alleged.’” (quoting Tellabs, Inc. v.
Makor Issues & Rights, Ltd., 551 U.S. 308, 324 (2007)).)

In making

his scienter findings, Magistrate Judge Dunst examined Plaintiffs’
alleged facts first as to the Individual Defendants and then as to
the Company.

The Individual Defendants’ scienter finding was

further broken down into three subcategories: (a) whether the
Individual Defendants had both motive and opportunity to commit
the alleged fraud (hereafter, the “Motive & Opportunity Prong”)
(see R&R at 47-54); (b) whether there was strong circumstantial
evidence

of

conscious

misbehavior

or

recklessness

by

the

Individual Defendants (hereafter, the “Misbehavior or Recklessness
Page 10 of 60

Prong”) (see id. at 54-65); and (c) a collective evaluation of the
proffered bases for finding scienter (hereafter, the “Collective
Evaluation Prong”) (see id. at 65).
(i)

Motive & Opportunity Prong

More particularly to the Motive & Opportunity Prong,
which

requires

allegations

showing

the

Individual

Defendants

benefitted in some concrete and personal way from the purported
fraud (see R&R at 47 (quoting ECA, 553 F.3d at 198; further
citation

omitted),

the

Magistrate

Judge

found

unpersuasive

Plaintiffs’ reliance upon the Individual Defendants’ (a) stock
sales, (b) compensation and bonuses, and (c) use of Company stock
in certain acquisitions.

(See id. at 47-48.)

As to Stock Sales:

Scienter may be shown “when an

insider makes a misrepresentation to sell shares at a profit.”
(R&R at 48 (citing ECA, 553 F.3d at 198).)

However, the sale must

be unusual or suspicious, and courts consider factors such as “the
amount of profit from the sales, the portion of stockholdings sold,
the change in volume of insider sales, and the number of insiders
selling.”

City of Omaha Police & Fire Ret. Sys. v. Evoqua Water

Techs. Corp., 450 F. Supp. 3d 379, 419 (S.D.N.Y. 2020) (further
citation omitted) (quoted in R&R at 48).

Further, the timing of

insider stock sales may also be a relevant factor.

(See R&R at 48

(quoting Glaser v. The9, Ltd., 772 F. Supp. 2d 573, 587 (S.D.N.Y.
2011)).)

Against that backdrop, Magistrate Judge Dunst found:
Page 11 of 60

Plaintiffs’ SAC did not identify the profits realized by Carroll
or

Simon

from

their

respective

stock

sales,

undermining

an

inference of motive and opportunity (see id. at 48-49); the timing
of Carroll’s and Simon’s stock sales were each well outside the
first allegedly negative disclosure in January 2016 and before the
end of the Class Period, undermining any inference of scienter
(see id. at 49); and, there are no allegations that the other
Individual Defendants, Smith and Conte, or any other insiders,
made suspicious stock sales during the Class Period, undermining
a strong inference of scienter (see id. at 49-50).

Yet, as to the

number and percentage of shares sold by Carroll and Simon, the
Magistrate Judge accepted “Plaintiffs’ calculations as true and
assume[d]

(without

deciding)

inference of scienter.”

that

this

(Id. at 50.)

factor

supports

an

Nonetheless, when viewed

collectively Magistrate Judge Dunst found “Plaintiffs’ ‘motive and
opportunity’

allegations

fail[ed]

to

raise

an

inference

of

scienter as compelling as the competing non-fraudulent inference.”
(Id.)
because

Thus, “even when insider stock sales are substantial,”
Plaintiffs

“fail[ed]

to

plead

(1)

profits

from

the

challenged sales, (2) that any challenged sales occurred close in
time to corrective disclosures or the end of the [C]lass [P]eriod,
and (3) that more than two executives allegedly engaged in unusual
or suspicious sales,” they “have not sufficiently alleged that

Page 12 of 60

Carroll and Simon’s stock sales reflect motive sufficient to
establish their scienter.”

(R&R at 51.)

As to Bonuses:

Magistrate Judge Dunst observed that

because virtually all corporate insiders share the desire for an
increase in stock prices to improve their executive compensation,
the yearning for such an increase does not support scienter.

(See

R&R at 52 (citing S. Cherry St., LLC v. Hennessee Grp. LLC, 573
F.3d

98,

109

(2d

Cir.

2009)).)

Thus,

he

found

Plaintiffs’

allegations in this regard insufficient to establish motive.

(See

id. (quoting Lipow v. Net1 UEPS Techs., Inc., 131 F. Supp. 3d 144,
160 (S.D.N.Y. 2015)).)
As to Using Company Stock for Acquisitions:

Recognizing

that the inflation of stock prices may inure to the benefit of
stockholders in the acquisition context, Magistrate Judge Dunst
further acknowledged that using artificially inflated stocks may,
in certain situations, be sufficient to establish scienter, but
that

“[t]he

allegations

requisite

showing

demonstrating

‘a

requires
unique

[alleged] fraud and the acquisition.’”

‘extremely
connection

contextual’
between

the

(R&R at 52-53 (quoting

ECA, 553 F.3d at 201 n.6).) The Magistrate Judge found Plaintiffs’
allegations in this regard to be conclusory.

(See id. at 53.)

Moreover, the time between the acquisitions and the first alleged
corrective disclosure was too attenuated, and more so as to the
end of the Class Period.

(See id.)

Similarly, “Plaintiffs offer

Page 13 of 60

nothing to demonstrate that Defendants made material misstatements
or omissions to inflate Company stock for any of the acquisitions.”
(Id. at 53-54.)
(ii) Misbehavior or Recklessness Prong
Continuing,

and

specifically

to

the

Misbehavior

or

Recklessness Prong, Magistrate Judge Dunst framed his analysis by
stating Plaintiff is also seeking “to establish scienter through
circumstantial evidence of recklessness, which requires ‘a showing
of reckless disregard for the truth, that is, conduct which is
highly unreasonable and which represents an extreme departure from
the standards of ordinary care.’”
Sourlis,

851

omitted).)

F.3d

139,

144

(2d

(R&R at 54 (quoting SEC v.
Cir.

2016);

further

citation

Of the four methods by which a plaintiff can show a

strong inference of the requisite recklessness, the Magistrate
Judge examined Plaintiffs’ theory, i.e., that Defendants knew
facts

or

had

access

to

information

statements were not accurate.

suggesting

their

(See id. at 54-55.)

public

He further

explained that “[b]ecause Plaintiffs . . . have not shown motive
(even

taking

circumstantial

the

motive

evidence

correspondingly greater.”

allegations

of

conscious

collectively),
misbehavior

must

“the
be

(Id. at 55 (quoting Ark. Pub. Emps.

Ret. Sys. v. Bristol-Myers Squibbs Co., 28 F.4th 343, 355 (2d Cir.
2022)).)

Magistrate Judge Dunst proceeded to analyze each of the

five bases Plaintiffs alleged as scienter of known but undisclosed
Page 14 of 60

information, to wit: (a) an absolute right-to-return; (b) the
Company’s reliance on sales incentives and promotions; (c) the SOC
certifications and internal controls; (d) personnel changes; and
(e) access to reports and core U.S. business.
As to an Absolute Right-of-Return:

In his Report,

Magistrate Judge Dunst states: “The SAC’s allegations regarding
the right to return rely entirely on the CWs.”

(R&R at 55.)

However, the Magistrate Judge found the CW-based allegations “are
too sparse” to show the Individual Defendants actually possessed
the knowledge highlighting the falsity of the subject public
statements and are “too vague, speculative, and conclusory to
contribute to an inference of scienter.”

(Id. at 55-56 (providing

examples of deficient allegations).)
As to the Company’s Reliance on Sales Incentives and
Promotions:

Because

the

Magistrate

Judge

found

Defendants

contemporaneously disclosed the Company’s use of incentives and
promotions

to

support

sales,

precludes finding scienter.

he

concluded

(R&R at 56.)

that

determination

Moreover, since such a

practice is common, offering sales and promotions to meet revenue
targets “contribute little to a strong inference of fraud.”

(Id.

(quoting S.E.C. v. Espuelas, 698 F. Supp. 2d 415, 430 (S.D.N.Y.
2020) (cleaned up); further citations omitted).)
As to the SOX Certifications and Internal Controls:
Because Plaintiffs relied upon events that occurred after the
Page 15 of 60

Individual

Defendants

signed

the

subject

SOX

certificates,

Magistrate Judge Dunst found Plaintiffs’ allegations deficient
since they did “not adequately allege[] [Defendants] had any
knowledge

of

‘glaring

accounting

executed the SOX certifications.”

irregularities’

when

they

(R&R at 58 (quoting Reilly v.

U.S. Physical Therapy, Inc., No. 17-CV-2347, 2018 WL 3559089, *19
(S.D.N.Y.

2018)).)

And,

regarding

internal

controls,

the

Magistrate Judge stated, “[t]hat Hain undertook remedial efforts
after the Class Period to strengthen its internal controls ‘was a
prudent course of action that weakens rather than strengthens an
inference of scienter.’”

(Id. (quoting Slayton v. Am. Express

Co., 604 F.3d 758, 777 (2d Cir. 2010)).)

Accordingly, based upon

the facts alleged in the SAC, Magistrate Judge Dunst found the
more plausible inference to be drawn from the Company’s inadequate
internal

controls

was

corporate

mismanagement,

which

is

unactionable.

(See id. at 58-59 (“[I]t is well established that

mismanagement

is

not

actionable

under

the

securities

laws.”

(quoting Woolger v. Kingstone Cos., Inc., 477 F. Supp. 3d 193, 240
(S.D.N.Y. 2020)).)
As
observed

to

that

Personnel
terminations

Changes:
and

Magistrate

resignations

Judge
of

Dunst

corporate

executives alone is not enough to infer scienter; rather, the
employment change must be highly unusual and suspicious.

(See R&R

at 59 (citations omitted).) Thus, a plaintiff needs to plead facts
Page 16 of 60

showing the employment change is either somehow tied to the alleged
fraud or alerts others to the alleged fraud; alternatively, the
employee’s scienter must be otherwise evident.
five

Company

executives

upon

whose

(See id.)

employment

Of the

changes

the

Plaintiffs relied in alleging scienter, Magistrate Judge Dunst
found none availing.

First, Smith’s September 2015 resignation

after only two years with the Company and subsequent year-plus
period of unemployment, without more, did not support scienter.
(See R&R at 60.)

Nor was CW-1’s unsupported belief that Smith was

forced out of the Company a sufficient “something more” to show
scienter.
positions

(See id.)
was

not

Second, Carroll’s March 2017 change in

highly

unusual

or

suspicious,

especially

considering Plaintiffs’ own allegations that Carroll regularly
changed positions within Hain.

(See id.)

Additionally, the March

2017 move to another position could be viewed as a promotion and
not a demotion, since the new position concerned “Global Brands”
for all of Hain.

(See id. at 61.)

Third, while Conte resigned as

CFO and Executive Vice President of Finance “on June 22, 2017[,]
the same day Hain filed the 2016 Form 10-K that announced it was
taking remedial measures to correct material weaknesses in its
internal controls,” Plaintiffs’ SAC lacks “sufficient facts to
support that Conte acted with scienter in connection with the
challenged statements, that his resignation somehow alerted anyone
at Hain to the alleged fraud, or that his scienter was otherwise
Page 17 of 60

evident.”

(Id.)

The Magistrate Judge observed the “more cogent

inference” was Conte resigned because of his negligent oversight
of responsible employees or the positive optics his resignation
would provide.

(See id.)

Fourth, while Plaintiffs allege the

Company’s June 2018 announcement of Simon’s leaving, they “do not
explain why [said] resignation supports an inference of scienter.”
(Id.

at

62.)

Absent

an

explanation,

the

timing

of

Simon’s

departure from Hain cuts against an inference of scienter since it
was 16 months after the Class Period ended.

(See id.)

“Finally,

Plaintiffs’ allegations regarding the demotion of Meiers and the
terminations of Powhida, Ng, and Hyndman are irrelevant to the
Individual Defendants’ scienter because Plaintiffs do not allege
the

Individual

changes.”

Defendants

were

involved

in

those

employment

(Id. (citations omitted).)
As to Access to Reports & Core U.S. Business:

First,

the Magistrate Judge summarily found the SAC allegations that the
Individual

Defendants

“had

knowledge

of”

or

“had

full

and

unfettered access to” all materials regarding the Company’s U.S.
business

rendering

them

insufficient to raise the requisite inference of scienter.

(R&R

at 63.)

were

generic

in

nature,

thereby

Second, Magistrate Judge Dunst rejected Plaintiffs’

reliance on the “core operations” doctrine to establish scienter,
since that doctrine is more appropriately viewed as providing
support for, but not as an independent basis of, scienter.
Page 18 of 60

(See

id. at 64.)

In the absence of other allegations raising an

inference of scienter, e.g., “specific factual allegations linking
the Individual Defendants to the alleged fraud,” “Plaintiffs’ core
operations doctrine arguments fail.” (Id. at 65 (quoting Francisco
v. Abengoa, S.A., 559 F. Supp. 3d 286, 320-21 (S.D.N.Y. 2021)
(cleaned up)).)
(iii) Collective Evaluation Prong
Finally,

as

to

the

Collective

Evaluation

Prong,

in

undertaking that evaluation of Plaintiffs’ alleged circumstances
and situations supporting scienter, Magistrate Judge Dunst stated
“[t]he SAC ‘will survive . . . only if a reasonable person would
deem the inference of scienter cogent and at least as compelling
as any opposing inference once could draw from the facts alleged.’”
(R&R at 65 (quoting Tellabs, 551 U.S. at 324 (emphasis added)).)
He found the collective review of the scienter allegations wanting.
Highlighting the Individual Defendants’ signings of the Class
Period

SOX

certifications

regarding

the

sufficiency

of

the

Company’s internal controls, which controls the Company undertook
to self-audit, and which the Company self-reported to the SEC, as
well as, thereafter, admitting said controls had been deficient,
Magistrate

Judge

Dunst

concluded

“‘any

reasonable

shareholder

would deem the inference of scienter to be far less compelling
than an inference of, at most, non-actionable mismanagement and
negligence’ on the part of the Individual Defendants.”
Page 19 of 60

(Id.

(quoting

Sachsenberg

v.

IRSA

Inversiones

v.

Representaciones

Sociedad Anonima, 339 F. Supp. 3d 169, 185 (S.D.N.Y. 2018); citing
In re Wachovia Equity Sec. Litig., 753 F. Supp. 2d. 326, 367
(S.D.N.Y.

2011)

(finding

scienter

allegations

collectively

reflected “[b]ad judgment and poor management . . . not fraud”)).)
In making his scienter finding as to Hain, because
“Plaintiffs

asked

the

Court

to

find

corporate

scienter

by

‘imput[ing] each Individual Defendant’s scienter to Hain’” (R&R at
66 (quoting Suppl. Opp’n at 6)), since the Magistrate Judge found
“Plaintiffs failed to plead a strong inference of scienter on the
part of the Individual Defendants,” he likewise found a lack of
Company scienter.

(Id.)

Magistrate Judge Dunst concluded that,

while not asked to do so, he would further find Plaintiffs could
not establish corporate scienter by way of a false statement that
is exceedingly dramatic.

(See id. at 66-67.)

In sum, Magistrate Judge Dunst recommended “the Court
find the unabandoned portion of the SAC’s Count I fail[s] to state
a

claim”

because

Plaintiffs

failed

to

plead

an

actionable

misstatement or omission and failed to raise a strong inference of
scienter as to any of the Defendants.

(Id. at 67.)

2. As to Count III
Finding

“Plaintiffs

failed

to

plead

their

predicate

Section 10(b) of Rule 10b-5 violation,” Magistrate Judge Dunst

Page 20 of 60

correspondingly recommended the dismissal of Plaintiffs’ Section
20(a) Claim, i.e., Count III.

(R&R at 67.)

3. As to Dismissal with Prejudice
Finally,

Magistrate

Judge

Dunst

recommended

the

Dismissal Motions be dismissed with prejudice since “Plaintiffs
had numerous opportunities to plead a case adequate to survive
dismissal.”

(R&R at 67.)

Moreover, after the Circuit Court

“vacated the 2020 Dismissal Decision, Plaintiffs have neither
sought leave to further amend the SAC nor communicated that they
possess facts that would bolster it.”

(Id. at 68.)

B. The Parties’ Positions
1. Plaintiffs’ Objections
Broadly,

Plaintiffs

object

to

their

purported

abandonment of claims concerning Hain’s false financial results
(hereafter,

the

“Abandonment

Recommendation”),

and

much

of

Magistrate Judge Dunst’s falsity analysis (hereafter, the “Falsity
Recommendation”) and all his scienter analyses (hereafter, the
“Scienter Recommendation”).

(See Obj. at 1, 3.)

a. Re: The Abandoned Claims Recommendation
(see R&R at 30-31)
While acknowledging “a plaintiff may abandon a claim
either affirmatively or effectively by failing to oppose arguments
raised

in

defendants’

motions

to

dismiss,”

neither scenario occurred in this instance.
Page 21 of 60

Plaintiffs

argue

(Obj. at 7-8 (citing

R&R at 30-31).

“First, Plaintiffs could not have effectively

abandoned these statements, because Defendants never challenged
their falsity.”

(Id. at 8 (citing Dismissal Motions; Reply, ECF

No. 120; Suppl. Support Memo, ECF No. 134; Defs. App. Br.).)
Plaintiffs further argue “such an argument would be futile” in
light of the Company’s restatement of financial results and its
“post-Class

Period

admissions

that

it

suffered

from

material

weaknesses in financial reporting,” as well as the SEC’s finding
the Company lacked sufficient policies and procedures providing
reasonable

assurances

that

quarter-end

sales

were

properly

accounted.

(Id. (citing SAC at ¶¶ 146-52, 162; In re Atlas Air

Worldwide Holdings, Inc. Sec. Litig., 324 F. Supp. 2d 474, 486
(S.D.N.Y. 2004) (“[T]he mere fact that financial results were
restated is sufficient basis for pleading that those statements
were false when made.”)).)

Moreover, Plaintiffs contend they have

“repeatedly

maintained

the

falsity

statements,”

supporting

their

of

Hain’s

maintenance-of-position

with citations to previous briefings.

financial
argument

(Id. (citing Opp’n, ECF No.

118, at 11, 16 (listing Hain’s accounting policies as categories
of alleged misstatements; asserting “Defendants do not challenge
the falsity of these alleged misstatements, and have therefore
waived

this

argument”;

and

incorporating

Plaintiffs’

previous

falsity arguments made in earlier briefs); Pls. App. Br.; Suppl.
Opp’n, ECF No. 136, at 3).)

Plaintiffs would assign error to the

Page 22 of 60

Magistrate

Judge’s

reliance

on

their

separate

responsive

explanation to Defendants’ materiality arguments in making his
Abandonment

Recommendation,

elucidating

that

in

response

to

Defendants’ materiality arguments, Plaintiffs argued “Defendants’
omission of their reliance on unsustainable practices . . . were
qualitative factors that significantly altered the total mix of
altered information for investors” (Obj. at 9 (citing Opp’n at
15)); read in context, that explanation should not be interpreted
as

Plaintiffs

results.

abandoning

their

challenge

to

Hain’s

financial

(Id.)
b. Re: The Falsity Recommendation
(see R&R at 38-46)
Unsurprisingly, Plaintiffs do not object to Magistrate

Judge Dunst’s recommended finding that the Company’s Attribution
Statements are not puffery.
33).)

(See Obj. at 10-11 (citing R&R at 32-

However, they object to the Magistrate Judge’s further

finding that the Attribution Statements are, nonetheless, not
actionable “because Hain disclosed in its Class Period [Form] 10-Ks
that the Company ‘undertook sales incentives and promotions.’”
(Obj. at 10 (citing R&R at 41-43).)
Judge

Spatt

did,

Magistrate

Plaintiffs contend that, as

Judge

Dunst

misunderstands

the

requirements of a Rule 10b-5(b) claim, as well as Plaintiffs’
theory of their claim by, instead, focusing on whether Plaintiffs
sufficiently alleged a right-of-return, thereby erring.
Page 23 of 60

(See id.

at 12 (citing Hain Celestial, 20 F.4th at 137).)

They further

argue that the Magistrate Judge erred in finding the Company’s
disclosures in its Class Period Form 10-Ks sufficiently disclosed
the unsustainable business practices of which Plaintiffs complain,
i.e., its off-invoice sales concessions (variously referred to as
“channel

stuffing”,

“loading”,

and

“pull-in

sales”)

which

disclosures Plaintiffs assert were inadequate since, e.g., the
cited disclosures failed to sufficiently convey that part of Hain’s
business practices included improper revenue recognition for the
timing of trade and promotional accruals, as well as premature
recognition of revenue of certain sales. (See id. at 13-14 (citing
R&R at 41-42).)

Additionally, after Hain’s 2016 Disclosure, the

Company’s stock decline and the SEC’s investigation provided a
reasonable inference that Hain’s unsustainable business practices
were not conveyed with sufficient intensity and credibility to
dispel the false impression of Defendants’ Attribution Statements.
(Id. at 14 (quoting Ganino v. Citizens Utils. Co., 228 F.3d 154,
168

(2d

Cir.

misstatements,

2000)).)

Regarding

Plaintiffs

Hain’s

maintain

the

accounting

controls

Recommendation

is

improperly limited to examining the SEC Order because of the prior
error of finding Plaintiffs abandoned its accounting statement
allegations.

(See id. (citing R&R at 43 and 43-46).)

Plaintiffs

also argue the Report’s recommendation that the SEC Order did not
indicate

“Defendants

knew

or

should

Page 24 of 60

have

known

of

different

material

facts

about

the

Company’s

internal

contemporaneously with the SOX Statement,” is error.
(quoting R&R at 45).)

controls
(Id. at 15

They posit that, in combination with their

CWs’ accounts, the SEC’s findings in its Order “sufficiently
establish

that

the

SOX

Statements

were

materially

false

and

misleading, and give rise to a strong inference that the Defendants
knew, or reasonably should have known, of their misleading nature.”
(Id.)

Relatedly, Plaintiffs insist the Report fails to adequately

consider

numerous

allegations

from

their

CWs,

which

provide

detailed, specific, firsthand knowledge of the Company’s extracontractual sales concessions and its accounting and internal
control practices and which the SEC Order confirmed.
15-16.)

(See id. at

In sum, according to Plaintiffs, the Report improperly

failed to find Plaintiffs’ CWs’ accounts provided sufficient facts
to

support

an

inference

that

(a)

Defendants’

Attribution

Statements, (b) the Company’s (i) reported financial results,
(ii) accounting policies and practices, and (iii) sales and trade
promotions reporting, and (c) the SOX Statements were materially
false or misleading.

(Id. at 16 (footnote omitted).)

c. Re: The Scienter Recommendations
Plaintiffs

object

to

the

Report’s

rejection

of

all

Plaintiffs’ individual scienter arguments and the Report’s lessthan-meaningful assessment of Plaintiffs’ scienter allegations as
a whole, especially in light of Judge Spatt’s having previously
Page 25 of 60

determined

those

allegations

(found

in

Plaintiffs’

Amended

Consolidated Class Action Compliant (ECF No. 75)) to have come
“quite close” but falling “just short” of supporting a strong
inference of scienter, and the Circuit Court’s directive that,
upon remand, this Court “consider[] the cumulative effect of the
circumstantial allegations of intent together with the pleaded
facts relating to motive and opportunity.”

(Obj. at 17 (first

quoting In re Hain Celestial Grp., Inc. Sec. Litig., No. 16-CV4581, 2019 WL 1429560, at *19 (E.D.N.Y. Mar. 29, 2019); then
quoting Hain Celestial, 20 F.4th at 138).)

Plaintiffs expound

their objections by addressing them under two categories:
motive-and-opportunity-related

scienter

and

the

the

conscious-

misbehavior-and-recklessness-related scienter.
(i)

Motive & Opportunity Scienter
(see R&R at 47-65)

Plaintiffs highlight three situations upon which they
relied to allege scienter and with which they object to the
Magistrate Judge’s recommendations, to wit: suspiciously timed and
unusual insider stock sales; Individual Defendants’ bonuses; and,
use of the Company’s stock for acquisitions.

As to the stock

sales, Plaintiffs argue that, although Magistrate Judge Dunst
“correctly found that the ‘sales volume and the holding portion’
of Defendants insider stock sales ‘favor[ed] an inference of
scienter’,” he erred in concluding the “suspiciously timed and
Page 26 of 60

unusual stock sales did not support an inference of scienter.”
(Obj. at 18 (citing R&R at 50-51; quoting R&R at 51).)

They

contend this error was based upon the Magistrate Judge having
inappropriately engaged in fact-finding regarding:
(i) Plaintiffs’ purported failure to allege
net profits (versus the net proceeds reported
in Reports on Form 4 filed the SEC); (ii) the
timing of the insider sales; and (iii) the
absence [of] suspicious insider stock sales by
the two Individual Defendants who were not at
Hain for the entirety of the Class Period.
(Id.)

Plaintiffs continue by faulting the Magistrate Judge for

advancing, without analysis, an argument not made by Defendants,
i.e., that Plaintiffs failed to allege net profits, which, in any
event, is but one, non-dispositive factor to consider.
18-19 (citing R&R at 48).)

(Id. at

Indeed, according to Plaintiffs, given

they pled proceeds from the sales, the percentages of holdings
sold, and the alleged suspect timing of the sales, which are
relevant factors to the scienter determination, the lack of alleged
net profits is of no consequence.

(Id. at 19.)

As for the timing

of the insider stock sales, Plaintiffs contend the Report’s focus
on trades made within the final 100-day period from the end of the
Class

Period

was

erroneous

because

Magistrate

Judge

Dunst

arbitrarily and capriciously derived that timeframe from cherrypicking fact-specific case law to conclude that the timing of the
subject sales, i.e., outside the 100-day period, cuts against
scienter.

(Id. (citing R&R at 49).)

Rather, the Magistrate Judge

Page 27 of 60

should have considered the timing of the sales with other factors,
such as the percentage of shares sold by Carroll and Simon, which
would have supported finding an inference of scienter.
at 19-20.)

(See id.

Moreover, Plaintiffs would have the Court disavow

Magistrate Judge Dunst’s discounting of Carroll’s and Simon’s
stock sales as inferring scienter based upon the lack of stock
sales by insiders Smith or Conte; at most, that fact should
undermine scienter as to Smith and Conte only.

(See id. at 20

(citing R&R at 49-50).)
Additionally,

Plaintiffs

assert

the

R&R

erroneously

recast their well-pled allegations regarding Carroll’s and Simon’s
bonuses, rendering those allegations too general to support an
inference of improper motive.
see also R&R at 52.)

(See Obj. at 20 (citing R&R at 47);

Indeed by truncating Plaintiffs’ bonus-

related allegations to “the Individual Defendants were motivated
to

inflate

the

Company’s

stock

price

to

increase

their

compensation,” Plaintiffs argue the Magistrate Judge improperly
concluded those allegations failed to establish scienter since
“the law is clear that the desire of individual defendants to . . .
increase their compensation by artificially inflating stock price
is not sufficient to establish motive.”

(R&R at 52.)

Moreover,

they contend this misconstrues their allegations and position
since what they pled was that Carroll and Simon “were motivated to
misrepresent Hain’s financial results because of the large cash
Page 28 of 60

bonuses and stock option grants that were closely tied to the
Company’s financial performance, including Hain’s net sales,” and,
that in FY2015, Simon met his bonus target for net sales by only
0.1%.”

(Obj. at 20-21 (first quoting SAC at ¶ 363; then citing

SAC at ¶ 364).) In other words, “nowhere in the [SAC] do Plaintiffs
contend that Defendants manipulated Hain’s stock price to increase
their bonuses; yet, the Recommendation denigrates these well-pled
allegations on that errant (and non-existent) basis.”

(Id. at 21

(citing R&R at 54 8).)
Similarly, Plaintiffs maintain that the Report “recasts
Plaintiffs’ allegations concerning Defendants’ use of Hain stock
to

effectuate

acquisitions

during

the

Class

Period,”

thereby

declining to find those allegations support a finding of scienter.
(See

Obj.

at

21

(comparing

SAC

¶

367,

with

R&R

at

52-54

(“[Plaintiffs] assert in a conclusory fashion that Defendants
acted

with

scienter

to

inflate

Hain

stock

to

complete

acquisitions in 2014 and one acquisition in 2015.”)).)

three

Plaintiffs

contend their allegations are that Defendants carried out the
subject acquisitions with fraudulently inflated stocks, which is
“a motive allegation that supports a finding of scienter.”

(Id.

(explaining further “Plaintiffs do not allege that Defendants’
acquisitions were fraudulent”).)

Hence, Plaintiffs would have the

Citation to page 54 of the R&R is incorrect; the correct citation
should be to page 52 of the R&R.
8

Page 29 of 60

Court reject the Magistrate Judge’s finding of lack of scienter
arguing

his

misconstruction

of

their

allegations

regarding

Defendants’ use of Hain’s stock for the subject acquisitions led
to this incorrect recommendation.
(ii)
Plaintiffs

(See id.)

Misbehavior or Recklessness Scienter
(see R&R at 54-65)
claim

several

errors

Dunst’s recommended finding of no scienter.

in

Magistrate

Judge

(See, e.g., Obj. at

22 (“While the Recommendation noted that Defendants triggered a
duty to disclose the existence of the improper sales practices and
deemed Defendants’ argument against such disclosure as ‘untenable’
and ‘misplaced” . . . it paradoxically concluded Defendants’
failure to fulfill that duty was not undertaken with scienter.”
(Id. (first quoting R&R at 34; then citing R&R at 31-38).)
First, regarding Defendants’ knowledge of, and active
participation in, the Company’s unsustainable sales practices,
Plaintiffs argue it was error to find no scienter based upon the
Individual Defendants’ personal involvement in the undisclosed
sales practices, together with their extensive efforts to conceal
the extent and terms of those practices, which other courts have
found adequate.

(Id. at 23 (citing In re Scholastic Corp. Sec.

Litig., 252 F.3d 63, 76 (2d Cir. 2001)).)

Plaintiffs contend this

error occurred because the Magistrate Judge ignored Plaintiffs’
relevant

allegations

regarding

same,

Page 30 of 60

instead

“awkwardly

contend[ing] that the absolute right of return allegations were
based on inadequate CW allegations and therefore failed.”

(Id.)

Moreover, from Plaintiffs’ perspective, Magistrate Judge Dunst
incorrectly failed to consider the Individual Defendants’ close
monitoring of inventory levels as an indicia of scienter (see R&R
at 24-25), as well as Plaintiffs’ “allegations that distributors’
refusal to accept excess end-of-quarter inventory from Hain was
the

match

that

investigations,

lit
SEC

the

fuse

of

settlement,

and

the

Company’s

massive

accounting

investor

losses.”

(Id. at 24.)
Second, regarding the Company’s internal controls and
accounting, Plaintiffs assert Hain’s admission in its late-filed
FY2016 Form 10-K that the Company needed to restate its results
for FY2014, FY2015, and the first three quarters of FY2016 supports
scienter; therefore, the Magistrate Judge’s recommended finding to
the contrary is error.
Third,

(See Obj. at 24-25.)

regarding

their

allegations

of

terminations,

resignations, and demotions, Plaintiffs maintain Magistrate Judge
Dunst incorrectly concluded “that the personnel changes during the
Class Period at Hain’s accounting department, executive officer
positions, and other functions directly related to the [alleged]
fraud does not contribute to an inference of scienter,” coupled
with the wrong finding that “Plaintiffs did not adequately plead
independent facts indicating that the personnel changes were tied
Page 31 of 60

to the alleged fraud, that these changes somehow alerted defendants
to the fraud, or that the defendants’ scienter was otherwise
evident.”

(Id. at 25 (citing R&R at 59).)

perplexed

given

they

“plead

that

the

Plaintiffs are left

termination

of

seven

executives and the demotion of two more--a group that included
each Individual Defendant--contribute to a strong inference of
scienter

when

considered

scienter allegations.”

holistically

with

Plaintiffs’

other

(Id. (citing SAC at ¶¶ 339-50).)

They

argue other courts have found such suspicious resignations tied to
unethical

sales

practices

are

at

least

as

compelling

as

any

opposing scienter. (Id. (quoting Bos. Ret. Sys. v. Alexion Pharm.,
Inc., 556 F. Supp. 3d 100, 136 (D. Conn. 2021).)
the

extent

the

Magistrate

Judge

stretches

Relatedly, to

to

find

other,

alternative explanations for the terminations, resignations, and
demotions, he erred in finding those explanations to be more
compelling than the ones advanced by Plaintiffs.

(See id. at 26-

27 (“The Recommendations independent fact finding and creation of
alternative explanations for personnel changes at Hain is improper
and must be rectified.”).)
Fourth, regarding Plaintiffs’ reliance upon the core
operation

doctrine

to

support

scienter,

in

asserting

the

Magistrate Judge erred in recommending Plaintiffs’ core operations
theory does not support such a finding, Plaintiffs state they never
argued their scienter allegations hinged only on that theory.
Page 32 of 60

(Obj. at 27 (citing Suppl. Opp’n at 6-8; Opp’n at 17-23; CAC Opp’n
at 9-19).)

In any event, even if not expressly endorsed by the

Circuit Court, courts within the Second Circuit rely upon the
doctrine to infer scienter.

(See id. (citing Haw. Structural

Ironworkers Pension Tr. Fund v. AMC Ent. Holdings, Inc., 422 F.
Supp. 3d 821, 852 (S.D.N.Y. 2019); further noted cases omitted).)
d. Re: The CWs’ Allegations Recommendation
Succinctly, Plaintiffs argue that despite their wellpled CW allegations, Magistrate Judge Dunst erred in finding those
allegations “too conclusory and generic” and “based upon rumor or
conjecture”

because

(1)

said

allegations

were

detailed

and

(2) complaints may be based upon hearsay at the pleading stage.
(Obj. at 28 (citing City of Warren Police & Fire Ret. Sys. v. World
Wrestling Enter., 477 F. Supp. 3d 123, 132 (S.D.N.Y. 2020).)
Plaintiffs highlight “[t]he City of Warren opinion also rejected
‘as easily distinguishable’ the defendants’ reliance upon the same
cases that the Recommendation uses as grounds to ignore the wellpled allegations from the CWs.”
F. Supp. 3d at 132 n.1).)

(Id. (citing City of Warren, 477

Plaintiffs would further assign fault

to the R&R since the Report “ignores precedent from within the
Second Circuit which plainly holds that confidential witnesses
need not have direct contact with Individual Defendants to credit
their allegations.”

(Id. at 28-29 (citing In re Avon Sec. Litig.,

No. 19-CV-1420, 2019 WL 6115349, at *21 (S.D.N.Y. Nov. 18, 2019)).)
Page 33 of 60

e. Re: The Corporate Scienter Recommendation
Reciprocally, Plaintiffs propound that “[b]ecause the
Court should correct the Recommendations’ mistaken position that
the [SAC] should be dismissed for failure to plead scienter as to
the Individual Defendants, the Court should also find that the
Individual Defendants’ scienter is imputed to Hain.”

(Obj. at

29.)
f. Re: The Section 20(a) Claim Recommendation
Correspondingly, and based upon their objections to the
Magistrate Judge’s recommendations that Plaintiffs’ first cause of
action, the Rule 10(b) Claim, be dismissed, Plaintiffs also lodge
an objection to Magistrate Judge Dunst’s recommendation that their
third cause of action, the Section 20(a) Claim, be dismissed. (See
Obj. at 29.)
g. Re: The Dismissal with Prejudice Recommendation
Finally, as to Magistrate Judge Dunst’s recommendation
that

Plaintiffs’

SAC

be

dismissed

with

prejudice,

Plaintiffs

object to same, arguing that the recommendation is improperly based
upon the passage of time when, in actuality, Plaintiffs have “had
only

two

opportunities

to

replead.”

(Obj.

at

30

(“The

Recommendation did not . . . deem amendment futile,” but simply
that the case “has been pending too long.”
68); see also R&R t 67.)

Page 34 of 60

(Id. (citing R&R at

2. Defendants’ Responses 9
a. Re: The Scienter Recommendations, Generally
Defendants

maintain

Magistrate

Judge

Dunst

properly

considered scienter, following the Second Circuit’s directive to
do so collectively. (Response at 4.) Thus, the Magistrate Judge’s
initial individual consideration of Plaintiffs’ various scienter
allegations is of no moment.
evaluating
Dunst

Plaintiffs’

rightly

(See id.)

scienter

determined

Moreover, in collectively

allegations,

“that

any

Magistrate

reasonable

Judge

inference

of

scienter was ‘far less compelling than an inference of, at most,
non-actionable mismanagement and negligence.’”

(Id. at 5 (quoting

R&R at 65).)
(i) Motive & Opportunity Scienter
Defendants would debunk each of Plaintiffs’ motive-andopportunity-related objections.

As to the stock sales, Defendants

assert the Magistrate Judge correctly relied upon three factors,
Defendants’ Response does not track the order of Plaintiffs’
objections; instead, their Response proceeds as following: first,
addressing
scienter
(i)
beginning
with
its
collective
consideration, (ii) then proceeding to the Motive and Opportunity
Prong, (iii) followed by the Misbehavior and Recklessness Prong,
(iv) then to consideration of the CWs’ allegations, and (v) finally
addressing corporate scienter; second, addressing Plaintiffs’
purported abandonment of claims concerning Hain’s reported
financial results; third, addressing whether Plaintiffs’ pled an
actionable misstatement or omission, both as to an absolute-rightof-return and as to disclosure of certain sales practices; fourth,
addressing Plaintiffs’ Section 20(a) Claim; and, finally,
addressing the recommendation to dismiss this action with
prejudice.
9

Page 35 of 60

collectively, in finding no sale-related scienter:

the failure to

allege net profits from the sales, which the Magistrate Judge found
to be “merely one of the many ‘[r]elevant factors’” considered
(Response at 6 (citing R&R at 48; further stating “[n]o portion of
the Report suggests that this finding was alone dispositive”));
the lack of suspiciously timed stock sales, with the Magistrate
Judge using a 100-day-period, supported by case law, merely as a
contrast to Plaintiffs’ position that sales well-outside a 100day-period before the end of the Class Period support scienter,
but for which proffered longer time-period Plaintiffs do not cite
any case law (see id. at 7 (citing R&R at 49)); and the lack of
other insider sales, which –- contrary to the Plaintiffs’ objection
-– was not used as a “per se rule” against scienter (id. (comparing
Obj. at 7, with R&R at 50-51)).
argue

the

Magistrate

Judge

Moreover, to the extent Plaintiffs
inappropriately

engaged

in

fact-

finding, that is incorrect since what Magistrate Judge Dunst did
was draw inferences as the Supreme Court instructs.

(See id.

(first citing Obj. at 18; then quoting Tellabs, 551 U.S. at 314).)
Then, as to bonuses, Defendants contend the Magistrate
Judge’s findings that Plaintiffs’ bonus-related allegations do not
support scienter “are in lockstep with the settled principle of
Second Circuit law . . . .”
(collecting cases)).)

(Response at 8 (citing R&R at 52

They argue Magistrate Judge Dunst followed

“the well-established principle” “that scienter cannot be based on
Page 36 of 60

a motivation for the company to succeed,” which “applies equally
to sales figures—i.e., financial performance—as it does to stock
prices.”

(Id. (citations omitted); see also id. at 9.)
Continuing,

as

to

Hain’s

acquisitions

with

Company

stocks, Defendants contend Magistrate Judge Dunst properly found
Plaintiffs’
scienter

acquisition-related

given

allegations

the

lack

of

demonstrating

a

allegations
necessary

unique

purported fraud and the acquisition.
at

53-54).)

unpersuasive

Defendants

would

Plaintiffs’

do

not

extremely

connection

support

contextual

between

the

(Response at 9 (citing R&R

further

have

the

misapprehension-based

Court

find

objection

regarding the Magistrate Judge’s finding that “Plaintiffs offer
nothing to demonstrate that Defendants made material misstatements
or

omissions

to

inflate

Company

stock

price

for

any

of

the

Acquisitions” since, by its plain meaning, the finding makes clear
no misapprehension was had.

(Id. at 10 (quoting R&R at 53-54).)

In addition, the cases upon which Plaintiffs rely do not support
their contention that the Company’s stock-reliant acquisitions had
any unique connection to the alleged fraud.

(See id. (further

stating “Plaintiffs admit the acquisitions were part of Hain’s
business strategy since 2000” (citing SAC at ¶¶ 45-46; emphasis in
Response)).)

Page 37 of 60

(ii) Misbehavior or Recklessness Scienter
Under the Misbehavior or Recklessness Prong, Defendants
initially contend that, as the Magistrate Judge found, Plaintiffs
did not adequately plead an absolute-right-of-return; therefore,
their

theory

requisite
Defendants

of

“unsustainable

pleading
argue

standards.

Plaintiffs

do

practices”
(Response
not

fails
at

dispute

to

11.)

meet

the

Indeed,

Magistrate

Judge

Dunst’s finding that Plaintiffs have abandoned this theory of their
case, which Defendants maintain “is an allegation and theory that
was offered to support each and every one of [Plaintiffs’] claims.”
(Response at 11 (citing R&R at 39, 55).)

Defendants highlight

that “Plaintiffs refer to the alleged ‘absolute right to return’
at least 25 times in the SAC as support for its core ‘unsustainable
practices’ theory—that Hain was selling product it expected would
get returned and therefore the sales were ‘unsustainable’.”
(citing SAC).)

(Id.

Yet, those allegations “rely entirely on the CWs”,

which the Magistrate Judge found were “too sparse” to support the
claim, thereby rightly supporting the Magistrate Judge’s finding
that scienter was not alleged based upon “unsustainable practices.
(Id. at 11-12 (quoting R&R at 39, 55) (reiterating “Plaintiffs do
not challenge here that they failed to adequately plead an absolute
right of return” thereby requiring an adoption of the Magistrate
Judge’s recommendation that there is no inference of scienter based
upon “unsustainable practices”).)
Page 38 of 60

Furthermore,

Defendants

advance

that

Plaintiffs’

objection regarding Simon’s and Carroll’s negotiated sales should
be overruled since Magistrate Judge Dunst both addressed those
allegations and “found that ‘offer[ing] sales and promotions to
meet revenue targets . . . are common practice.”

(Response at 12

(quoting R&R at 56-57).) Because that is what the Magistrate Judge
found to have occurred here, as underscored by the SEC Order, it
was also proper that he found no strong inference of scienter based
upon Carroll’s and Simon’s sales practices.
id.

at

13

inferences

(further
of

discussing

wrongful

intent

how

the

regarding

(See id.; see also

SEC
the

Order

undermines

Company’s

sales

practices).)
In addition, Defendants propound that the Magistrate
Judge’s finding of a lack of scienter based upon SOX, GAAP, and
internal

controls

violations

was

correct

because:

Plaintiffs

relied on facts that occurred after the Individual Defendants
signed their SOX certifications, when what was necessary was
allegations of knowledge at the time the SOX certifications were
executed (Response at 13); the Company’s financial statements were
audited by Ernst & Young from 2013 through 2016, thereby negating
any intent to deceive (see id. 13-14); and, Hain’s remedial actions
after the Class Period undercut any inference of scienter, which
recommendation Plaintiffs do not challenge (see id. at 14).
Defendants

contend

these

allegations

Page 39 of 60

reflect,

at

Thus,
most

“[u]nactionable corporate mismanagement” and not scienter.

(Id.

citing R&R at 58-59).)
Likewise,

Defendants

counter

Plaintiffs’

objection

regarding their employment-status-changes allegations, i.e., that
the Magistrate Judge wrongly engaged in independent fact finding
and creating alternative explanations (see Obj. at 27), advancing
their

position

that

Magistrate

Judge

Dunst

properly

found

Plaintiffs’ reliance on CW allegations insufficient to allege
scienter, as well as competing inferences that could be drawn from
said allegations, which outweighed Plaintiffs’ proffered inference
of scienter.
correct

(Response at 14.)

because

“the

court

According to Defendants, this was

reviewing

scienter

allegations

is

directed to consider ‘competing inferences rationally drawn from
the facts alleged.’”
314).)

(Id. at 15 (quoting Tellabs, 551 U.S. at

Moreover, this was the right conclusion given the absence

of independent evidence suggesting the employment changes were
highly unusual.

(Id. (citing R&R at 59).)
(iii)

The CWs’ Allegations

Finally, regarding Magistrate Judge Dunst’s finding that
Plaintiffs’

CWs’

allegations

lack

sufficient

specificity,

Defendants argue “Plaintiffs vaguely claim that the CWs generally
support scienter,” but fail to make specific arguments rebutting
why said statements are not too conclusory or vague to be credited.
(Response

at

16

(citing

R&R

at

39-40,

Page 40 of 60

55-56,

60)

(further

highlighting that in their Objection, Plaintiffs “do not discuss
any particular CW or specific allegation”).)

In support of the

Report, Defendants provide a witness-by-witness list of examples
showing why Magistrate Judge Dunst found each CW’s allegations to
be too vague and conclusory, and, thereby, insufficient.
Response at 17-18.)

(See

Additionally, Defendants argue “Plaintiffs

have long been on notice as to the fatal flaws in their reliance
on their CWs” and encourage this Court to “adopt the persistent
conclusion

in

three

written

decisions

that

‘the

confidential

witnesses’ allegations are too vague, speculative, and conclusory
to contribute to an inference of scienter.’”

(Id. at 18 (citing

R&R and Judge Spatt’s prior Dismissal Orders, ECF Nos. 106 & 122).)
(iv) Corporate Scienter
Relatedly, since “Plaintiffs rely exclusively on the
imputation of individual scienter to Hain to plead the Company’s
corporate scienter,” since the Magistrate Judge properly found
Plaintiffs failed to raise an inference of scienter as to the
Individual Defendants, the correctness of that conclusion inures
to the related conclusion that Plaintiffs failed to plead corporate
scienter.

(Response at 18.)
b.

Abandoned Claims Recommendation

Addressing Plaintiffs’ objection to Magistrate Judge
Dunst’s

claim-abandonment

finding,

Defendants

focus

on

the

recommended finding that “Plaintiffs’ challenge is ‘not [to] the
Page 41 of 60

financial figures [themselves] but instead the failure to disclose
Hain’s ‘reliance on pull-in sales tactics to generate sales.’”
(Response at 19 (quoting R&R at 30 (brackets in Response)).)
Defendants explain that, in the context of opposing Defendants’
materiality

arguments

raised

in

their

Dismissal

Motions,

Plaintiffs challenged the omission of allegedly improper tactics
underlying the Company’s financial results and not the literal
falsity of those results.
Suppl.

Opp’n

at

3).)

(See id. (citing Pls. Opp’n at 12 and
Thus,

Magistrate

Judge

Dunst’s

claim-

abandonment finding was correct since “Plaintiffs themselves took
the position that the SAC ‘challenge[d] as materially omissive not
the financial figures’ but the supposed failure to disclose the
sales tactics ‘that generated these figures.’”

(Response at 19-

20 (quoting Report at 30 (citing Plaintiffs’ own pleading)).)
Hence, Defendants characterize this not as abandonment, but “an
explicit acknowledgement of what [Plaintiffs’] claims are and are
not about.”

(Id. at 20; see also id. at note 10 (asserting that

even if Plaintiffs had not abandoned their literal-falsity-offinancial-results

claim,

such

claim

would

fail

on

scienter

grounds).)
c. The Unactionable Statements Recommendaiton
Contrary to Plaintiffs, Defendants further insist the
Magistrate Judge correctly found Plaintiffs failed to plead an
actionable

omission,

i.e.,

that

Hain

Page 42 of 60

did

not

disclose

its

engagement of certain unsustainable practices, which Plaintiffs
contend consisted of an “absolute right of return” and other
practices such as sales incentives and promotions.
20 (citing R&R at 39).)
Defendants

underscore

(Response at

As to the absolute-right-to-return prong,
the

Magistrate

Judge’s

reliance

on

CW

allegations in reaching his recommendation that Plaintiffs’ claims
are too conclusory and/or vague to sufficiently plead the Company
generated sales by relying upon that practice.
R&R at 39-40).)

(See id. (citing

In sum, Defendants claim, “[b]ecause Plaintiffs

did not properly plead that Hain granted an absolute right of
return, they ipso facto did not plead a failure to disclose it.”
(Id.)

As to the other sales practices, the Magistrate Judge

correctly found the Company disclosed such practices (see id. at
21 (citing R&R at 41)) and that “Plaintiffs conceded explicitly in
the SAC that ‘throughout the Class Period’ the Company disclosed
its use of these sales incentives and specified that its reported
sales figures were net of those incentives.”
42).)

(Id. (quoting R&R at

Simply, there can be no failure-to-disclose claim because

the Company did disclose.
(collecting cases)).)

(See id. at 22 (citing R&R at 42

Moreover, Plaintiffs’ objection based upon

the Company’s alleged lack of intensity and credibility regarding
its

disclosure

of

incentives

and

promotions

is

unavailing,

especially since this is not a case of “affirmative misstatements”
requiring intense correction.

(See id. (citing R&R at 41-43)

Page 43 of 60

(further discounting cases Plaintiffs rely upon as inapposite to
the instant case).)

Rather, Magistrate Judge Dunst was correct in

finding Hain openly disclosed its sales and incentives practices.
(See
id.)
--- --Addressing whether the Company’s statements regarding
its

accounting

Plaintiffs

controls

do

not

were

actionable,

challenge

Defendants

Magistrate

Judge

maintain
Dunst’s

recommendation that the statements are opinions and, therefore,
not

actionable.

(Response

at

23

(citing

R&R

at

43-46).)

Defendants explain that “Plaintiffs do not dispute the Report’s
conclusion that the ‘SEC Order does not even discuss . . . the
assertions in the SOX Statements that management reviewed Hain’s
internal

controls

effective.’”

and

concluded

that

(Id. (quoting R&R at 44).)

the

Controls

were

Further, regarding the

Individual Defendants knowing about deficient accounting controls
at the time they signed the SOX Statements, Plaintiffs rely upon
the CWs’ statements to support their objection to the Report, which
is not enough to sustain their objection given the Magistrate
Judge’s finding that the SAC CW allegations are too general and
conclusory to support Plaintiffs’ position.

(Id. at 24.)

And, as

Defendants also observe, Plaintiffs do not “address the principle
of

law

that

deficiencies’

a
is

‘post-Class

Period

insufficient

to

identification
show

that

the

of

control

Individual

Defendants knew—at the time they signed their certification[s]—of
Page 44 of 60

any

deficiencies

in

the

Company’s

internal

controls.”

(Id.

(quoting R&R at 45 (citing cases)).)
d. The Section 20(a) Claim Recommendation
As to Plaintiffs’ Section 20(a) claim, their third cause
of action, Defendants argue Plaintiffs’ objection to the dismissal
of this claim is based on its unavailing objections to Magistrate
Judge

Dunst’s

dismissed.
sustain

recommendation

that

(Response at 29.)

Plaintiffs’

underlying

objection likewise fails.

their

Rule

10(b)

Claim

be

Because there are no grounds to
objections,

this

concomitant

(See id.)

e. The Dismissal with Prejudice Recommendation
Finally, the Defendants would have the Court overrule
Plaintiffs’ objection to the recommendation that their SAC be
dismissed with prejudice.

(See Response at 29-30.)

They base

their position on the passage of time, which is mentioned by the
Magistrate Judge, further arguing that “Plaintiffs offer no new
facts that they could plead to rectify the SAC’s deficiencies.”
(Id. at 30.)
C. The Court’s Rulings
1. Scienter
Notwithstanding

Magistrate

Judge

Dunst’s

threshold

recommendation finding that Plaintiffs have failed to plead an
actionable misstatement or omission (see R&R at 46), with which
the Court concurs, in light of the Second Circuit’s mandate that
Page 45 of 60

“[o]n remand, the district court should independently reassess the
sufficiency

of

the

scienter

allegations,

considering

the

cumulative effect of the circumstantial allegations of intent
together

with

the

pleaded

facts

relating

to

motive

and

opportunity,” Hain Celestial, 20 F.4th at 138, herein the Court
focuses

on

Magistrate

Plaintiffs’
arguments.
were

to

objections

related

Dunst’s

thereto,

Plaintiffs’

and

because

the

further

Court

recommendations,

Defendants’

to

address

these

Rule

overrules

objections--individually

necessary

scienter

responsive

Hence, for the reasons that follow, even if the Court

sustain

objections,

Judge

and

other

10(b)

Claim-related

Plaintiffs’

scienter-

cumulatively--it
objections

or

is

not

Plaintiffs’

objections regarding their Rule 20(a) Claim, which, as pled, is
dependent upon their Rule 10(b) Claim.

The Court proceeds by

addressing the scienter objections as presented by Plaintiffs:
first, the motive-and-opportunity-related scienter; and, second,
the

conscious-misbehavior-and-recklessness-related

scienter.

Generally, however, Plaintiffs’ reliance on Judge Spatt’s prior
“close call” observation regarding scienter is of no moment since
it

applied

to

Plaintiffs’

Amended

Complaint, not the subject SAC.

Consolidated

Class

Action

Second, such reliance would fly

in the face of the Circuit Court’s directive that this Court
consider afresh the SAC, which is precisely what the Magistrate
Judge has done.
Page 46 of 60

a. Motive & Opportunity Scienter
The Court agrees with Magistrate Judge Dunst regarding
Plaintiffs’

reliance

on

stock

sales;

individually

and

collectively, finding it does not raise an inference of scienter.
After

properly

identifying

the

appropriate

framework

for

considering stock sales as an inference of motive-and-opportunityrelated

scienter,

i.e.,

considering

various

relevant

non-

dispositive factors (see R&R at 48 (listing by way of example:
sale profits; percentage of stocks sold; change in volume of
insider sales; number of shares sold; and, timing of sales)), the
Magistrate Judge examined Plaintiffs’ allegations against this
framework, correctly finding the allegations wanting, with each
finding well-supported by case law. (See R&R at 48-51.) Likewise,
the Court rejects Plaintiffs’ characterization of the Magistrate
Judge’s consideration of the various sales factors as engaging in
erroneous

fact-finding.

Not

so.

As

Plaintiffs

themselves

recognize (see Opp’n at 17), in accordance with Supreme Court
directives, when presented with scienter allegations, courts are
to consider competing inferences rationally drawn from the facts
alleged.

See Tellabs, 551 U.S. at 323-26 (instructing “the court

must take into account plausible opposing inferences” and “the
reviewing court must ask: [w]hen the allegations are accepted as
true and taken collectively, would a reasonable person deem the
inference

of

scienter

at

least

as

Page 47 of 60

strong

as

any

opposing

inference?”).

Magistrate Judge Dunst has performed the requisite

comparison, not engaged in improper fact-finding.

Further, the

Court will not assign error to the Magistrate Judge’s consideration
of

Plaintiffs’

failure

to

allege

net

profits

on

the

sales

notwithstanding this argument was not raised by Defendants; it is
a relevant factor and clearly was not dispositive in the Magistrate
Judge’s consideration of scienter related to the stock sales. See,
e.g., In re Inv. Tech. Grp., Inc. Sec. Litig., 251 F. Supp. 3d
596, 622 (S.D.N.Y. 2017) (“A number of courts in this district
have found that allegations do not support a finding of ‘motive
and opportunity’ when net profits are not pleaded”) (collecting
cases).

Similarly, Magistrate Judge Dunst’s use of a comparative

100-day-period in assessing the time period of the stock sales is
not error; case law supports his use of this approximate time-frame
to assess the suspiciousness of the stock sales.

See, e.g.,

Reilly, 2018 WL 3559089, at *14 (“Indeed, courts in this Circuit
are

frequently

skeptical

that

stock

sales

are

indicative

of

scienter where no trades occur in the months immediately prior to
a negative disclosure” (collecting cases)).
countervailing

case

law

to

support

In the absence of

their

argument

for

consideration of a longer time-period, Plaintiffs’ objection on
this point carries little weight.

Finally, Plaintiffs’ objection

to Magistrate Judge Dunst finding Individual Defendants Conte and
Smith not selling Company stock as cutting against a finding of
Page 48 of 60

scienter is little more than a disagreement with his assessment of
this

stock

sale

factor;

their

theory

that

these

Individual

Defendants were not with the Company for the full 3.5-year Class
Period,

without

Magistrate

more,

Judge’s

is

unavailing

consideration

of

to
this

assign

error

factor.

to

Nor

the
have

Plaintiffs persuasively shown how Magistrate Judge Dunst failed to
decide the stock sales factor on the facts of this case.

Of

import, thereafter, Magistrate Judge Dunst collectively evaluated
the stock sales motive-and-opportunity allegations and found they
failed to infer scienter as compelling as competing non-fraudulent
inferences; Plaintiffs raise no objection to this finding, which
is not clearly erroneous.

In sum, Plaintiffs’ stock-sales-related

objections are overruled.
Regarding consideration of Carroll’s and Simon’s bonuses
as

a

scienter

factor,

the

Court

disagrees

with

Plaintiffs’

contention that Magistrate Judge Dunst improperly recast their
allegations.

The Magistrate Judge fairly summarized Plaintiffs’

argument

properly

and

assessed

the

related

allegations;

his

subsequent bonuses-related finding, supported by case law, is not
faulty.

Hence,

Plaintiffs’

bonuses-related

objection

is

overruled.
Finally,

Plaintiffs’

objection

regarding

Magistrate

i.e.,
that
Judge Dunst’s stock-supported acquisition finding -- --such acquisitions did not infer scienter -- is equally unavailing.
Page 49 of 60

Plaintiffs do little more than disagree with the Magistrate Judge’s
succinct

rephrasing

of

Plaintiffs’

relevant

stock-supported

acquisition allegations; such disagreement is untenable to sustain
Plaintiffs’

lodged

contextual”

inquiry,

objection.
Plaintiffs

Indeed,

for

fail

identify

to

this

“extremely
any

unique

connection between the alleged fraud and the subject acquisitions
that could support such an inference.

See ECA, 553 F.3d at 201

n.6; see also id. at 201 (“[T]he link between the acquisition and
the alleged misconduct simply is not close enough to strengthen
the inference of an intent to defraud.”). Therefore, without more,
it was not erroneous for the Magistrate Judge to find a lack of
scienter from the proffered stock-supported acquisitions, thereby
warranting the overruling of Plaintiffs’ corresponding objection.
b. Misbehavior or Recklessness Scienter
As

stated,

supra,

Plaintiffs

scienter through recklessness.

advance

arguments

of

To advance a recklessness theory

in support of their fraud claims, Plaintiffs are required to allege
“a state of mind approximating actual intent, and not merely a
heightened form of negligence.”

In re Bristol-Myers Squibb Co.

CVR Secs. Litig., No. 21-CV-8255, -- F. Supp. 3d --, 2023 WL
2308151, at *4 (S.D.N.Y. Mar. 1, 2023) (quoting Stratte-McClure v.
Morgan Stanley, 776 F.3d 94, 106 (2d Cir. 2015) (cleaned up).

That

is, “a plaintiff must allege, ‘at the least,’ that the defendant
engaged

in

‘conduct

which

is

highly

Page 50 of 60

unreasonable

and

which

represents an extreme departure from the standards of ordinary
care to the extent that the danger was either known to the
defendant or so obvious that the defendant must have been aware of
it.’”

Id. (quoting Kalnit v. Eichler, 264 F.3d 131, 142 (2d Cir.

2001) (cleaned up).
The Court finds Plaintiffs’ objections to the Magistrate
Judge’s recklessness scienter recommendation, which Magistrate
Judge Dunst based upon five categories of allegations, are not
sustainable.

To begin, Plaintiffs make a perfunctory objection

that the Magistrate Judge has not properly considered Plaintiffs’
allegations of the Individual Defendants’ personal involvement in
the Company’s alleged undisclosed sales practices.

(See Obj. at

22-23 (citing R&R at 55-57).)

Indeed, Plaintiffs fail to raise

any

the

meaningful

objection

to

Magistrate

Judge’s

regarding the absolute-right-of-return allegations.
55-56, with Obj. at 23.)

finding

(Cf. R&R at

Nor do they clearly object to the

Magistrate Judge’s determination that “at the heart of Plaintiffs’
claims

is

the

allegation

that

Hain

drove

sales

by

granting

distributors a right to return Excess Inventory, [and that] the
exercise of that right in turn increased the deficit between Hain’s
actual and reported sales each financial quarter . . . .”
39; see also id. at 55.)

(R&R at

As Defendants observe, “Plaintiffs refer

to the alleged ‘absolute right to return’ at least 25 times in the
SAC as support for its core ‘unsustainable practices’ theory” and
Page 51 of 60

that “[t]he Report rightly found that such allegations ‘rely
entirely on the CWs’ [which] were ‘too sparse’ to support the
claim.”

(Response at 11 (citing R&R at 39, 55; citations to SAC

omitted); see also id. at 16-18 (further addressing the CWs’
allegations as “vague, conclusory and ultimately insufficient” and
listing examples of same).) Relatedly, other than baldly asserting
the

Magistrate

allegations

Judge

that

unsustainable

and

“fail[ed]

Defendants
undisclosed

to

had

engage

personal

sales

with

Plaintiffs’

knowledge

practices,”

of

(Obj.

at

the
23

(emphasis in original)), Plaintiffs fail to expound upon this
point, which is unavailing in light of Magistrate Judge Dunst’s
thorough discuss of same.

(See R&R at 56-57 (Part IV(D)(2)(b),

“Hain’s Reliance On Sales Incentives and Promotions”).)
as

Defendants

astutely

highlight,

“the

SEC

Order

Moreover,
undermines

inferences of wrongful intent on this question . . . stat[ing]
there was nothing wrong with Hain’s sales practices, and the SEC
did

not

charge

the

[C]ompany

or

any

individual

with

fraud.”

(Response at 13; see also R&R at 56-57 (“[E]ven assuming the
Individual

Defendants

pushed

the

Company

to

offer

sales

and

promotions to meet revenue targets[,] that would ‘contribute[]
little to a strong inference of fraud because such actions are
common practice.’” (quoting S.E.C. v. Espuelas, 698 F. Supp. 2d
415, 430 (S.D.N.Y. 2010); further citations omitted).)

Page 52 of 60

On the issue of alleged GAAP and internal controls
violations, Plaintiffs’ objections are little more than their
disagreement with the Magistrate Judge’s recommendation that the
alleged violations do not support scienter.

(See Obj. at 24-25.)

Moreover, the case upon which Plaintiffs rely, In re CannaVest
Corp. Secs. Litig., which is factually inapposite from the instant
one, undercuts their objection.
(S.D.N.Y.

2018).

allegations

were

There,

the

strongly

307 F. Supp. 3d 222, 245-46
plaintiffs’

supported

improper

by

accounting

statements

of

a

confidential witness, who: was a financial consultant hired by the
company; worked directly with the CEO; knew right away that the
company

was

not

applying

proper

accounting

practices;

reported frequently to the company’s board of directors.

and,

See id.

This is “far more than a misapplication of accounting principles,”
which is what is required to establish recklessness when improper
accounting is alleged.
omitted).

Id. (internal quotations and citation

Thus, the CannaVest allegations established that the

company knew of its accounting failures. By contrast, here, having
examined the SAC, the Magistrate Judge stated:
Plaintiffs neither undermined the assertions
in the SOX Statements that management reviewed
Hain’s internal controls and concluded that
the controls were effective nor adequately
pled that Defendants knew or were reckless in
not knowing that the Company’s internal
controls were deficient.
To this point,
Plaintiffs “have not adequately alleged that
defendants had any knowledge of ‘glaring
Page 53 of 60

accounting irregularities’ when they executed
the SOX certifications . . . .” Reilly, 2018
WL 3559089, at *19.
Instead, Plaintiffs
“rel[y]
only
on
facts
occurring
after
Individual
Defendants
signed
their
certifications, namely the post-Class Period
disclosures of material weaknesses in [Hain]’s
internal controls . . . That dog won’t hunt.”
[In re] Diebold [Nixdorf, Inc., Secs. Litig.,
No. 14-CV-2900,], 2021 WL 1226627, at *14
[(S.D.N.Y. Mar. 31, 2018)].
(R&R at 58.)
Finally, as to Plaintiffs’ objection regarding personnel
changes, they underscore having pled “the termination of seven
executives and the demotion of two more—a group that includes each
Individual Defendant,” which Plaintiffs argue “contribute to a
strong inference of scienter when considered holistically with
Plaintiffs’ other scienter allegations.”

(Obj. at 25 (citing SAC

¶¶ 339-50).) They also contend the timing of the personnel changes
can support a strong inference of scienter.

(Id. at 26 (quoting

In re Salix Pharm., Ltd., No. 14-CV-8925, 2016 WL 1629341, at *15
(S.D.N.Y. Apr. 22, 2016).)
Plaintiffs,

the

court

That may be so, but in Salix, cited by

found

the

resignations

of

top

company

executives to be “‘highly unusual and suspicious’ because the
[company]

Board

resignation
clawback

exercised

agreements,”

based

on

a

the
which

Board

clawback

provisions

provisions

determination

“allow[ed]
that

Defendants ‘intentionally engaged in wrongdoing.’”
1629341, at *15.

in

the

their
for

a

Individual

Salix, 2016 WL

The timing of the Salix executives’ resignations
Page 54 of 60

was not the dispositive factor in finding scienter based upon
resignations.

See, e.g., Francisco v. Abengoa, S.A., 624 F. Supp.

3d 365, 402 (S.D.N.Y. 2022) (“As there is no other circumstantial
evidence of fraud, even if the Court were to find [the timing of]
Sanchez Ortega’s resignation suspicious, it would not be enough to
rescue plaintiffs’ claims.”).
In comparison, here, Magistrate Judge Dunst properly
found the timing of the personnel changes were not enough to
elevate said changes to “highly unusual and suspicious” given the
dearth of facts indicating those changes are “tied to” the alleged
fraud.

(R&R at 59 (quoting Glaser, 772 F. Supp. 2d at 598); see

also, e.g., id. at 60 (re: Smith (“Courts routinely hold that
without more, resigning after an even shorter tenure than Smith’s
does not support scienter.” (citations omitted))); at 61 (re:
Carroll (“Plaintiffs failed to plead independent facts indicating
that Carroll’s employment change was tied to the alleged fraud,
alerted defendants to the alleged fraud, or that Carroll’s scienter
was otherwise evident.” (citation omitted)));

at 61 (re: Conte

(“Plaintiffs fail to allege sufficient facts to support that Conte
acted with scienter in connection with the challenged statements,
that his resignation somehow alerted anyone at Hain to the alleged
fraud, or that his scienter was otherwise evident.”)); at 62 (re:
Simon (“Plaintiffs do not explain why Simon’s resignation supports
an inference of scienter.

Under these circumstances, the timing
Page 55 of 60

of

Simon’s

ended—cuts

resignation—sixteen
against

Furthermore,

to

such

the

objection

regarding

Magistrate

Judge’s

an

after

inference.”

extent
the

months

Plaintiffs

personnel

purported

the

Class

(citations
further

changes

“independent

omitted)).)
register

based
fact

Period

an

upon

the

finding

and

creation of alternative explanations,” (Obj. at 27), such an
argument fails.
whether

the

Magistrate Judge Dunst was correctly assessing

proffered

scienter

was

“cogent

and

at

least

as

compelling as any opposing inference of nonfraudulent intent.”
Tellabs, 551 U.S. at 314.
Finally, Plaintiffs’ objection that the Magistrate Judge
improperly applied the “core operations” doctrine is erroneous.
Magistrate Judge Dunst began by recognizing that the majority of
courts within the Second Circuit find the doctrine “may provide
support for[,] but not an independent basis of[,] scienter,” and
that courts in this District that have applied the doctrine require
the operation at issue to make up nearly all of a company’s
business or be essential to the company’s survival.

(See R&R at

64 (first quoting Lipow v. Net1 UEPS Techs., Inc., 131 F. Supp. 3d
144, 163 n.11 (collecting cases); then quoting Francisco, 559 F.
Supp. 3d at 320).)

Then, giving Plaintiffs the benefit of the

assumption that “the U.S. business is essential to Hain’s survival
because it generates approximately 60% of the Company’s net sales,”
Magistrate Judge Dunst proceeded to find the Plaintiffs’ reliance
Page 56 of 60

on the “core operations” doctrine to be “misplaced given that the
SAC fails to plead separate facts raising an inference of scienter
to be supplemented by the core operations doctrine.”

(R&R at 64.)

Thus, there is no reason to assign error here.
Plaintiffs

do

not

lodge

any

objections

regarding

Magistrate Judge Dunst’s collective evaluation of the recklessness
allegations.

(See Obj., in toto.)

Nor does the Court find any.

c. The CWs’ Statements
In a general manner, Plaintiffs object to Magistrate
Judge Dunst’s CW-related findings.

(See Obj. at 27-29.)

As

Defendants put forth, however: “Plaintiffs’ Objection makes no
specific arguments to rebut the three decisions finding each and
every witness unreliable. . . .

Plaintiffs do not discuss any

particular CW or specific allegation or identify why these CW
statements are not too conclusory and vague to be credited.”
(Response at 16 (citing Obj. at 27-29, further citation omitted).)
Moreover, contrary to Plaintiffs’ objection, in support of their
position, Defendants provide a detailed list highlighting why the
CWs’ allegations are vague and conclusory.

(See id. at 17-18.)

The Court agrees with Defendants; the CWs’ allegations are too
vague, speculative, and conclusory to support an inference of
scienter.

See, e.g., Francisco v. Abengoa, S.A., 481 F. Supp. 3d

179, 208-09 (S.D.N.Y. 2020) (discrediting “general and second-

Page 57 of 60

hand” confidential witness allegations).

Therefore, no error is

had.
d.

The Company’s Scienter

Since the Court finds no error in the Magistrate Judge’s
recommendations

regarding

scienter

as

to

the

Individual

Defendants, that recommendation flows to the Company’s scienter:
The lack of Individual Defendants’ scienter imputes to Hain.
Likewise, because Plaintiffs’ objections regarding their Section
20(a) Claim are based upon their objections regarding their Rule
10(b)

Claim,

overrules

which

the

Plaintiffs’

Court

Section

has

overruled,

20(a)

the

Claim-related

Court

also

objections.

See, e.g., In re Telefonaktiebolaget LM Ericsson Secs. Litig., No.
22-CV-1167, -- F. Supp. 3d --, 2023 WL 3628244, at *18 (E.D.N.Y.
May 24, 2023) (where plaintiff “failed to establish a primary
violation of Section 10(b), its Section 20(a) claim necessarily
fails and must be dismissed”).
2.

Dismissal with Prejudice

Finally,
recommendation

that

regarding
the

SAC

Magistrate
be

dismissed

Judge
with

Dunst’s
prejudice,

Plaintiffs object to same, arguing that the recommendation is based
merely upon the passage of time, without the Magistrate Judge
having addressed whether amending would be futile.
(quoting FED. R. CIV. P. 15(a)(2).)

Not so.

(Obj. at 30

In addition to

observing the passage of time, Magistrate Judge Dunst also observed
Page 58 of 60

“Plaintiffs had numerous opportunities to plead a case to survive
dismissal,” that Plaintiffs were afforded the opportunity to file
their SAC, and that since the Circuit’s Hain decision, “Plaintiffs
have neither sought leave to further amend the SAC nor communicated
that they possess facts that would bolster it.”

(R&R at 67-68.)

Hence, without using the word “futile”, it is implied by the text
of the recommendation that the finding of futility is the basis
for

the

Magistrate

prejudice.

Judge’s

recommendation

of

dismissal

with

Moreover, the Court notes: (1) in their Oppositions,

Plaintiffs do not request leave to amend; and (2) despite the
Magistrate Judge’s recommendation of dismissal with prejudice, in
their Objection, Plaintiffs fail to articulate any new facts that
would rectify the deficiencies of their pleadings.

Cf. Reiner v.

Teladoc Health, Inc., No. 18-CV-11603, 2021 WL 4451407, at *17-18
(S.D.N.Y. Sept. 8, 2021) (recommending, where “[i]n a single
sentence at the end of their opposition brief, plaintiffs request
that,

‘if

any

part

of

the

[subject

amended

c]omplaint

is

dismissed,’ they be granted leave to replead,” but where plaintiff
also (1) had already been afforded the opportunity to amend in
response to a previous dismissal, and (2) had “provide[d] no
information – not even a hint – as to what more they believe they
could allege to overcome the deficiencies” of the subject amended
complaint, said complaint be dismissed with prejudice), report and
recommendation adopted, 2021 WL 4461101 (S.D.N.Y. Sept. 29, 2021).
Page 59 of 60

Thus, here, Magistrate Judge Dunst’s recommendation of dismissal
with prejudice is proper; Plaintiffs’ objection is overruled.
***
While some of Plaintiffs’ objections are subject to
clear error review, even upon de novo review, the Court finds the
Magistrate Judge’s scienter-related recommendations to be thorough
and

well-reasoned.

Therefore,

objections are overruled.

Plaintiffs’

scienter-related

The Court adopts Magistrate Judge

Dunst’s scienter-related recommendations.

In turn, in the absence

of the requisite specific scienter allegations, Plaintiffs have
failed to plausibly allege their Rule 10(b) and Rule 20(a) Claims,
warranting granting the Dismissal Motions.
CONCLUSION
For the stated reasons, IT IS HEREBY ORDERED that:
I.

Plaintiffs’ objections are OVERRULED;

II.

The R&R is ADOPTED as to the scienter-related recommendations
and the dismissal recommendation;

III. Defendants’

GRANTED; and

IV.

The

Clerk

Dismissal
of

Court

Motions
enter

(ECF

Nos.

judgment

113,

116)

accordingly

are
and,

thereafter, mark this case CLOSED.
SO ORDERED.
/s/ JOANNA SEYBERT
Joanna Seybert, U.S.D.J.
Dated:

September 29,2023
Central Islip, New York
Page 60 of 60