Stricker v. Coty Inc. et al
Filing
63
OPINION AND ORDER re: 44 MOTION to Dismiss the Consolidated Class Action Complaint filed by Sergio Pedreiro, Coty Inc., Jack Stahl, Erhard Schoewel, M. Steven Langman, Peter Harf, James E. Shiah, Robert Singer, Lambertus J.H. B echt, Oliver Goudet, Joachim Faber, Michele Scannavini, Bradley M. Bloom. Plaintiffs' Complaint, as written, constitutes a classic example of Monday morning-quarterbacking whereby Plaintiffs, armed with disappointing fourth quarter results, resort to vague assertions and innuendo to support a "Defendants misled me" theory of liability. Unfortunately for Plaintiffs, Section 11 requires much more than the grab bag of suspicion and speculation contained in Plaintiffs' pleadi ng. Accordingly, IT IS HEREBY ORDERED THAT Defendants' motion to dismiss the Amended Consolidated Class Action Complaint is GRANTED in its entirety. The Clerk of the Court is respectfully directed to terminate the motion located at docket number 44 and close this case. (As further set forth in this Order.) (Signed by Judge Richard J. Sullivan on 3/29/2016) (kko) (Main Document 63 replaced on 3/29/2016) (kko). Modified on 3/29/2016 (kko).
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
_____________________
No. 14-cv-919 (RJS)
_____________________
IN RE COTY INC. SECURITIES LITIGATION
_____________________
OPINION AND ORDER
March 29, 2016
___________________
RICHARD J. SULLIVAN, District Judge:
Lead Plaintiffs Eugene Stricker and
Michael Bollinger, on behalf of themselves
and all other persons and entities who
purchased Coty Inc. (“Coty”) common stock
in connection with its initial public offering
(“IPO”) (collectively, “Plaintiffs”), bring
this securities action against Coty and some
of its officers and directors (the “Individual
Defendants,”
and
collectively,
“Defendants”) for issuing an allegedly false
and misleading registration statement in
violation of Sections 11 and 15 of the
Securities Act of 1933 (the “Securities
Act”). Now before the Court is Defendants’
motion
to
dismiss
the
Amended
Consolidated Class Action Complaint for
failure to state a claim pursuant to Federal
Rule of Civil Procedure 12(b)(6). For the
following reasons, Defendants’ motion is
granted.
I. BACKGROUND
A. Facts 1
Founded in Paris in 1904, Coty
manufactures beauty products, including
fragrances, color cosmetics, and skin care
products, which it sells in over 130 countries
and territories around the globe, primarily
through mass market retailers such as CVS,
1
The following facts are taken from the Amended
Consolidated Class Action Complaint, filed on
October 18, 2014. (Doc. No. 50 (“Complaint” or
“Compl.”).) In ruling on Defendants’ motion, the
Court has also considered Defendants’ Memorandum
of Law (Doc. No. 46 (“Mem.”)), Defendants’
Supplemental Memorandum of Law (Doc. No. 51
(“Supp. Mem.”)), Plaintiffs’ Opposition (Doc. No. 53
(“Opp’n”)), and Defendants’ Reply (Doc. No. 55
(“Reply”)). When deciding a motion to dismiss, the
Court may also consider “any written instrument
attached to the complaint, statements or documents
incorporated into the complaint by reference, legally
required public disclosure documents filed with the
SEC, and documents possessed by or known to the
plaintiff and upon which it relied in bringing the
suit.” ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493
F.3d 87, 98 (2d Cir. 2007).
commenced its IPO, in which it sold
approximately $1 billion in common stock.
(Compl. ¶ 1.) On the same day, Coty also
filed its Prospectus with the SEC. (Doc. No.
45, Ex. 4 (the “Prospectus”).)
Kmart, Target, Walgreens, and Walmart.
(Compl. ¶ 34; Doc. No. 45, Ex. 2 (the
“Registration Statement”), at 1; Compl. ¶ 36
(citing Registration Statement at 113).) In
2001, Coty began to implement a “new
strategic vision to transform the Company
through product-offering diversification and
a
new
global-branding
strategy.”
(Registration Statement at 102.) Between
2002 and 2012, Coty more than tripled its
net revenues, achieving revenues of $4.6
billion in the 2012 fiscal year. (Id.) Seventy
percent of Coty’s net revenue in 2012 came
from its ten “power brands,” including color
cosmetic and nail products OPI and Sally
Hansen. (Compl. ¶¶ 37–39; Registration
Statement at 1–2.)
Three months later, on September 17,
2013, Coty filed a Form 8-K with the SEC
and issued a press release announcing
Coty’s financial results for the fourth quarter
and the 2013 fiscal year that ended on June
30, 2013. (Compl. ¶ 101.) The press release
indicated that “[o]ver the last few months
the Company has seen a deceleration of
market growth in the U.S. and Europe,
triggering significant trade de-stocking
activity, particularly by U.S. mass retailers.”
(Id. (citation omitted).) 2 On the same day,
Coty conducted a conference call with
analysts and investors to discuss its financial
results. (Id. ¶ 102.) During the call,
Defendant Michele Scannavini, then-CEO
of Coty, noted that “[t]he nail category has
seen unprecedented competitive activity”
and that “[i]nventory reduction in the US
mass markets” would likely lead to
“marginally lower” net revenues in the first
quarter of the 2014 fiscal year as compared
to the previous year. (Id.) Scannavini also
stated that there had been de-stocking of
Sally Hansen products in the fourth quarter
of the 2013 fiscal year and first quarter of
the 2014 fiscal year. (Id.; see also id. ¶ 104
(noting that the “biggest impact” from
destocking “will be in nail, and particularly
in Sally Hansen”).) As a result, Scannavini
noted that the nail category, which had
“fantastic growth over the last two fiscal
year[s],” experienced a decline in growth,
especially in June 2013, when there was
only 0.8% growth, and July, when there was
2.5% decline in growth. (Id. ¶ 104.) This
In the spring of 2013, Coty announced
its plans to go public with an IPO, and, on
May 28, 2013, Coty filed its Registration
Statement with the Securities and Exchange
Commission (“SEC”). (Compl. ¶ 1.) The
Registration Statement, which became
effective on June 12, 2013 (Doc. No. 45, Ex.
3 (“Notice of Effectiveness”), at 2), spanned
nearly 200 pages and contained detailed
reports of Coty’s financial condition for the
first three quarters of the 2013 fiscal year,
based in part on the performance of its
power brands, and listed the various risks
facing Coty at the time. Among other
things, the Registration Statement noted that
Coty’s year-over-year net revenues and
operating income for the first three quarters
of the 2013 fiscal year had increased 4%.
(Id. at 51, 55.) It further stated that this
increase was primarily driven by growth in
Coty’s power brands Sally Hansen and OPI
and its global expansion of the OPI product
line. (Id. at 52, 106.) Nevertheless, in a
section discussing the risks that Coty might
face in the future, the Registration Statement
warned investors that Coty’s performance
could be affected by increased competition,
market trends, and excess inventory. (Id. at
20–21, 33.) On June 13, 2013, Coty
2
According to the Complaint, “[d]estocking occurs
when retailers adjust their inventory levels by
declining to purchase new inventory, and instead, sell
the inventory at issue at a discount.” (Compl. ¶ 3.)
2
Section 11 violations against all Defendants,
a Section 12 violation against underwriter
Merrill Lynch, and Section 15 violations
against the Individual Defendants. 3 (Doc.
No. 2.) In essence, Plaintiffs allege that
Coty’s Registration Statement painted an
overly sunny picture of Coty’s financial
health and deliberately obscured the dark
clouds that had begun forming well before
the IPO in June as a result of increased
competition, destocking by U.S. mass
market retailers, and the termination of the
partnership between Coty and one of its
important vendors, Sephora.
Relying
primarily on an assortment of confidential
informants 4 within the company, Plaintiffs
allege that:
drop caused a “very, very quick and material
readjustment of stock by mass retailer[s] to
have inventory more tuned with growth.”
(Id.) Nevertheless, Scannavini noted that,
even though the situation appeared
“gloom[y],” he expected that “the boost of
the activity in [the] emerging market[s]”
would “bring our growth rate much more in
line with our long-term targets.” (Doc. No.
45, Ex. 5 (“Sept. 17, 2013 Earnings Call
Tr.”), at 10.)
On November 7, 2013, Coty announced
its results for the first quarter of the 2014
fiscal year. See Coty Inc., Quarterly Report
(Form 10-Q) (Nov. 7, 2013) (“First Quarter
SEC Report”). In the first quarter of fiscal
year 2014, Coty’s net revenues decreased
3% as compared to the 2013 first quarter,
and net revenues of the color cosmetics
products decreased 10% as compared to the
2013 first quarter. Id. at 23–24. The decline
in color cosmetics was “primarily driven by
lower net revenues of Sally Hansen and OPI
in the U.S.” Id. at 24. In particular,
revenues of Sally Hansen in the United
States decreased as a result of “an
increasingly competitive retail environment”
and a decline in consumer demand for nail
products, which ultimately caused retailers
to reduce their inventory of Sally Hansen
products. Id. In addition, the decline in
sales of OPI in the United States was
attributed, in part, to the discontinuation of
the “Sephora by OPI” nail polish line. Id.
Nevertheless, as Scannavini predicted in the
September 17, 2013 fourth quarter and yearend earnings call, “accelerated growth in
emerging markets,” such as Brazil, Chile,
and Argentina, “partially offset[]” the
decline in net revenues in North America.
Id. at 25.
•
A confidential informant (“CI 1”), who
worked as a Vice President of Field
Sales for Coty from June 2009 through
February 2013 and was an account
manager for color cosmetics products,
stated that “starting in late 2012, sales
of Coty’s Color Cosmetics were
struggling
due
to
increased
3
The Individual Defendants include Michele
Scannavini, Sérgio Pedreiro, James E. Shiah,
Lambertus J.H. Becht, Bradley M. Bloom, Joachim
Faber, Oliver Goudet, Peer Harf, M. Steven
Langman, Erhard Schoewel, Robert Singer, and Jack
Stahl. (Compl. ¶¶ 13–25.) On September 10, 2014,
Plaintiffs voluntarily dismissed the Section 12 claim
against Merrill Lynch. (Doc. No. 43.)
4
“It is well-established that confidential sources may
be relied upon in a complaint so long as plaintiffs
also rely on other facts that provide an adequate basis
for believing the allegations in the complaint,” such
as by providing the position of the confidential
source “to support the probability that a person in the
position occupied by the source would possess the
information alleged.” In re Bear Stearns Mortg.
Pass-Through Certificates Litig., 851 F. Supp. 2d
746, 767 n.23 (S.D.N.Y. 2012) (internal quotation
marks and alteration omitted) (citing Novak v.
Kasaks, 216 F.3d 300, 313–14 (2d Cir. 2000)).
B. Procedural History
On February 13, 2014, Plaintiffs filed
the first complaint in this action, asserting
3
during the period of CI
employment. (Id. ¶¶ 43, 62.)
competition and lack of customer
demand for Coty’s products.” (Compl.
¶¶ 40, 60.)
•
•
•
4’s
•
•
A second confidential informant (“CI
2”), who served as Director of Demand
Planning, Supply Chain, and Sales and
Operations Planning, “was responsible
for managing the supply chain unit,”
and worked at Coty from December
1999 through October 2013, noted
that, by January or February of 2013,
sales of the newly launched Sally
Hansen nail gels “were forecasted to
be down.” (Id. ¶¶ 41, 65.) CI 2 also
noted that, in May or June of 2013, he
“observed
de-stocking
activity
whereby Coty’s cosmetics were being
returned or destroyed.” (Id. ¶ 66.)
A third confidential informant (“CI
3”), who served as a Senior Marketing
Manager in the Brand Management
Division of Coty from January 2007
through October 2013, worked within
the color cosmetics department for
mass market retailers like Walmart and
Walgreens, and “was partially
responsible for . . . observing the
effects of competitor products” on
Coty’s sales, noted that “towards the
end of 2012 through 2013, there was a
significant increase in competitor
products, which negatively affected
consumer demand for Sally Hansen
products.” (Id. ¶¶ 42, 60.)
Another confidential informant (“CI
6”), who worked as a retail manager at
Coty from 2007 to December 2013,
generally stated that, in the spring of
2013, there was a “slow-down in mass
market sales of certain cosmetic
products.” (Id. ¶¶ 45, 63.) 5
Finally, a confidential informant (“CI
7”), who worked as a corporate travel
consultant “for OPI Products/Coty Inc.
from February 2012 through April
2013” and “was responsible for
arranging business travel itineraries for
OPI’s senior executives” stated that, in
November 2012, he learned from the
Supervisor of the Corporate Travel
Department at OPI that “OPI was no
longer going to be manufacturing or
marketing the Sephora by OPI line of
nail products.” (Id. ¶¶ 46, 73.)
Based on these facts, Plaintiffs claim
that the Registration Statement contained
false and misleading statements in violation
of Section 11 and that Defendants failed to
disclose negative material trends that were
allegedly affecting Coty at the time of the
IPO in violation of Item 303 of Regulation
S-K. 6
On September 23, 2014, Defendants
filed a motion to dismiss the complaint for
failure to state a claim under Sections 11 and
15 of the Securities Act. (Doc. No. 44.) On
October 18, 2014, with permission from the
Another confidential informant (“CI
4”), who worked as a Demand Analyst
from January 2013 through April 2013
and attended bi-weekly meetings at
which customers’ orders and Coty’s
forecasts on products such as Sally
Hansen were discussed, noted that
“customer orders for Sally Hansen
products were smaller than expected”
5
While a fifth confidential informant (“CI 5”) is
identified in the Complaint (Compl. ¶ 44), Plaintiffs
attribute no allegations to CI 5.
6
Plaintiffs’ Complaint does not allege that the
Prospectus contained any false statements in
violation of the Securities Act.
4
Court, Plaintiffs amended their complaint by
adding additional factual allegations, mostly
from confidential informants. (Doc. Nos.
49, 50.) After the Amended Consolidated
Class Action Complaint was filed, the Court
allowed Defendants to supplement their
memorandum of law in support of their
motion to dismiss. (Doc. No. 51.) The
motion was fully briefed on December 2,
2014. (Doc. Nos. 53, 55.)
In addition, because Plaintiffs’ Section
11 and Section 15 claims are not based on
fraud and neither party suggests as much
(see Mem. at 8–9; Opp’n 10–11), Plaintiffs
need not satisfy the heightened pleading
requirements of Federal Rule of Civil
Procedure 9(b) or the Private Securities
Litigation Reform Act.
See Panther
Partners Inc. v. Ikanos Commc’ns, Inc., 681
F.3d 114, 120 (2d Cir. 2012).
II. LEGAL STANDARD
III. DISCUSSION
To survive a motion to dismiss pursuant
to Rule 12(b)(6) of the Federal Rules of
Civil Procedure, a complaint must “provide
the grounds upon which [the] claim rests.”
ATSI Commc’ns, Inc., 493 F.3d at 98; see
also Fed. R. Civ. P. 8(a)(2) (“A pleading
that states a claim for relief must contain . . .
a short and plain statement of the claim
showing that the pleader is entitled to relief .
. . .”). To meet this standard, plaintiffs must
allege “enough facts to state a claim to relief
that is plausible on its face.” Bell Atl. Corp.
v. Twombly, 550 U.S. 544, 570 (2007). “A
claim has facial plausibility when the
plaintiff pleads factual content that allows
the court to draw the reasonable inference
that the defendant is liable for the
misconduct alleged.” Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009). In reviewing a Rule
12(b)(6) motion to dismiss, a court must
accept as true all factual allegations in the
complaint and draw all reasonable
inferences in favor of the plaintiff. ATSI
Commc’ns, 493 F.3d at 98. However, that
tenet “is inapplicable to legal conclusions.”
Iqbal, 556 U.S. at 678. Thus, a pleading that
offers only “labels and conclusions” or “a
formulaic recitation of the elements of a
cause of action will not do.” Twombly, 550
U.S. at 555. If the plaintiff “ha[s] not
nudged [its] claims across the line from
conceivable to plausible, [its] complaint
must be dismissed.” Id. at 570.
A. Section 11
Section 11 of the Securities Act gives
“purchasers a right of action against an
issuer or designated individuals (directors,
partners, underwriters, and so forth) for
material misstatements or omissions in
registration statements.” Omnicare, Inc. v.
Laborers Dist. Council Constr. Indus.
Pension Fund et al., 135 S. Ct. 1318, 1323
(2015); see also In re Francesca’s Holdings
Corp. Sec. Litig., Nos. 13-cv-6882, 13-cv7804 (RJS), 2015 WL 1600464, at *23
(S.D.N.Y. Mar. 31, 2015) (noting that
Section 11 imposes liability on “every
person who signed the registration
statement, the directors of the issuer, and the
underwriters of the security” when the
registration statement contains “a material
misstatement or omission” (internal
quotation marks omitted)). Accordingly, to
state a claim for a Section 11 violation, a
purchaser of the security must allege that a
registration statement, at the time it became
effective, “contained an untrue statement of
a material fact or omitted to state a material
fact required to be stated therein or
necessary to make the statements therein not
misleading.” 15 U.S.C. § 77k(a); see also
Ladmen Partners, Inc. v. Globalstar, Inc.,
No. 07-cv-976 (LAP), 2008 WL 4449280, at
*10 (S.D.N.Y. Sept. 30, 2008). Unlike
Section 10(b) of the Securities Exchange
Act of 1934, Section 11 does not require that
5
the reasonable investor as having
significantly altered the ‘total mix’ of
information made available.” (citation
omitted)).
a plaintiff demonstrate that the defendants
acted “with any intent to deceive or defraud”
to establish liability. Omnicare, 135 S. Ct.
at 1323. As a result, Section 11 essentially
imposes “strict liability on issuers and
signatories” for making false or misleading
statements in registration statements.
Panther Partners, 681 F.3d at 120; Degulis
v. LXR Biotech., Inc., No. 95-cv-4204
(RWS), 1997 WL 20832, at *3 (S.D.N.Y.
Jan. 21, 1997) (“[T]o make out a prima facie
case at the pleadings stage, Plaintiffs need
only allege a material misstatement or
omission. Neither knowledge nor reason to
know is an element in a plaintiff’s prima
facie case.”); see also Herman & MacLean
v. Huddleston, 459 U.S. 375, 381–82 (1983)
(“[S]ection [11] was designed to assure
compliance with the disclosure provisions of
the [Securities] Act by imposing a stringent
standard of liability on the parties who play
a direct role in a registered offering.”
(footnote omitted)).
Under Section 11, a defendant can also
be liable for “an omission in contravention
of an affirmative legal disclosure
obligation.” Panther Partners, 681 F.3d at
120. Regulation S-K outlines the reporting
requirements for SEC filings of public
companies, and Item 303 of Regulation S-K
requires an issuer of securities to “[d]escribe
any known trends or uncertainties that have
had or that the registrant reasonably expects
will have a material favorable or
unfavorable impact on net sales or revenues
or income from continuing operations.” 17
C.F.R. § 229.303(a)(3)(ii). Therefore, a
defendant may be liable under Item 303 if it
failed to disclose a trend that “is both
[1] presently known to management and [2]
reasonably likely to have material effects on
the registrant’s financial condition or results
of operations.” Litwin v. Blackstone Grp.,
L.P., 634 F.3d 706, 716 (2d Cir. 2011)
(quoting SEC Release No. 6835, 54 Fed.
Reg. 22427, 22429 (May 18, 1989), 1989
WL 1092885 (“SEC Release 6835”), at *4).
“Knowledge of a trend is an essential
element triggering disclosure under Item
303.” In re Noah Educ. Holdings, Ltd. Sec.
Litig., No. 08-cv-9203 (RJS), 2010 WL
1372709, at *6 (S.D.N.Y. Mar. 31, 2010);
Garber v. Legg Mason, Inc., 537 F. Supp. 2d
597, 614 (S.D.N.Y. 2008) (noting that
merely “pleading a trend’s existence” is
insufficient to establish knowledge), aff’d,
347 F. App’x 665 (2d Cir. 2009). To
demonstrate knowledge, a plaintiff must
allege facts that raise a “plausible inference”
that the company’s management was aware
of a trend that would “materially impact” the
company’s financial condition. Panther
Partners, 681 F.3d at 121–22.
To decide whether a misstatement or
omission is material, a court “must engage
in a fact-specific inquiry” as to whether
“there is a substantial likelihood that a
reasonable shareholder would consider it
important” in making an investment
decision. ECA, Local 134 IBEW Joint
Pension Trust of Chi. v. JP Morgan Chase
Co., 553 F.3d 187, 197 (2d Cir. 2009)
(internal
quotation
marks
omitted).
Moreover, the “central issue” for a Section
11 claim is “not whether the particular
statements, taken separately, were literally
true,
but
whether
defendants’
representations, taken together and in
context, would have misled a reasonable
investor about the” securities. McMahan &
Co. v. Wherehouse Entm’t, Inc., 900 F.2d
576, 579 (2d Cir. 1990); see also ECA,
Local 134 IBEW Joint Pension Trust of Chi.,
553 F.3d at 197 (“[T]here must be a
substantial likelihood that the disclosure of
the omitted fact would have been viewed by
6
in securities law. Indeed, as several courts
within the Second Circuit have stated,
“disclosure of accurate historical data does
not become misleading even if less
favorable results might be predictable by the
company in the future.” In re Duane Reade
Inc. Sec. Litig., No. 02-cv-6478 (NRB),
2003 WL 22801416, at *6 (S.D.N.Y. Nov.
25, 2003) (internal quotation marks
omitted), aff’d sub nom., Nadoff v. Duane
Reade, Inc., 107 F. App’x 250 (2d Cir.
2004); see also, e.g., In re Nokia Oyj (Nokia
Corp.) Sec. Litig., 423 F. Supp. 2d 364, 395
(S.D.N.Y. 2006) (“Defendants may not be
held liable under the securities laws for
accurate reports of past successes, even if
present circumstances are less rosy.”
(internal quotation marks omitted)); In re
Bayer AG Sec. Litig., No. 03-cv-1546
(WHP), 2004 WL 2190357, at *11
(S.D.N.Y. Sept. 30, 2004) (finding that
accurate statements of “strong sales” records
are not actionable “since they are merely
recitations of historical fact and are not
alleged to be inaccurate”). As a result,
Plaintiffs have failed to allege that the
truthful facts set forth in the Registration
Statement claim about Coty’s year-over-year
net revenues and operating income as of
March 31, 2013 were misleading.
Here, Plaintiffs assert Section 11 and
Item 303 claims based on the allegations
that the Registration Statement contained
material misstatements or omissions
regarding (i) the financial performance of
Coty’s color cosmetics products, (ii) the
destocking of Sally Hansen and OPI
products by retailers, (iii) the global
expansion of OPI and the termination of the
“Sephora by OPI” brand, and (iv) the market
risks facing Coty at the time of the IPO.
The Court addresses each argument in turn.
1. Sales of Coty’s Color Cosmetics
Plaintiffs first argue that the Registration
Statement was misleading when it stated that
the net revenues and operating income of
Coty’s color cosmetics products had
increased in the nine months ending on
March 31, 2013 as compared to the same
months in the previous fiscal year.
According to Plaintiffs, this statement, even
if “technically accurate” (Opp’n at 22), was
misleading because (i) net revenues and
operating income of Coty’s color cosmetics
“were materially declining” by June 13,
2013 (Compl. ¶¶ 78(a), 80–81, 84–85) and
(ii) increased competition was leading to a
material decline in Coty’s color cosmetics
products, including its Sally Hansen line (id.
¶¶ 67–68, 74, 78(b)).
Moreover, Plaintiffs allege no facts that
actually support their assertions that sales of
Coty’s color cosmetics were declining at the
time of the IPO. Instead, Plaintiffs rely on a
series of conclusory, nonspecific statements
from confidential informants who claim that,
starting in late 2012, sales of color cosmetics
were “struggling,” “underperform[ing],”
“forecasted to be down,” and “smaller than
expected” due to a “significant increase” in
competitor products. (Compl. ¶¶ 60, 62–65,
67.) Such generic allegations fail to raise a
plausible inference that the Registration
Statement omitted a fact, much less a
material fact, that required disclosure under
either Section 11 or Item 303. See In re
Plaintiffs do not assert that the
Registration Statement’s assertions that the
net revenues and operating income of Coty’s
color cosmetics “increased” were false.
Instead, Plaintiffs seem to argue that the
Registration Statement’s assertion about
Coty’s past financial performance – as of
March 31, 2013 – was misleading because it
created an implicit promise that Coty’s net
revenues and operating income would
continue to increase, even though, as
Plaintiffs allege, sales of color cosmetics
were declining at the time of the IPO.
However, Plaintiffs’ assertion has no basis
7
weeks before the Registration Statement
became effective. See In re Focus Media
Holding Ltd. Litig., 701 F. Supp. 2d 534,
540 (S.D.N.Y. 2010) (“The case law [in
Section 11 cases] reflects that courts have
been reluctant to impose liability based upon
a failure to disclose financial data for a fiscal
quarter in progress.” (internal quotation
marks omitted)); In re Turkcell Iletisim
Hizmetler, A.S. Sec. Litig., 202 F. Supp. 2d
8, 13 (S.D.N.Y. 2001) (“[T]he SEC and the
case law recognizes how unworkable and
potentially misleading a system of
instantaneous disclosure out [of] the normal
reporting periods would be,” especially
since an “immediate release of data” would
likely be “without the benefit of reflection or
certainty provided by the traditionally
recognized reporting periods.”). In short,
even if sales of Coty’s color cosmetics were
declining before the Registration Statement
became effective on June 12, 2013, which is
by no means clear from the Complaint,
Plaintiffs
have
alleged
no
facts
demonstrating
that
the
Registration
Statement was false or misleading merely
because it stated that net revenues in the first
three quarters of the 2013 fiscal year – as of
March 31, 2013 – had increased over the
same time period in the previous fiscal year.
See also Charter Twp. of Clinton Police &
Fire Ret. Sys. v. KKR Fin. Holdings LLC,
No. 08-cv-7062 (PAC), 2010 WL 4642554,
at *11 (S.D.N.Y. Nov. 17, 2010)
(“[P]laintiffs are not allowed to plead
Section 11 claims with the benefit of 20/20
hindsight.”).
IAC/InterActiveCorp Sec. Litig., 695 F.
Supp. 2d 109, 119 (S.D.N.Y. 2010) (noting
that allegations by confidential informants
that are “stated in the most general of terms
and without any facts that might corroborate
the statements of unidentified former
employees” are insufficient to state a
plausible claim); In re IndyMac Mortg.Backed Sec. Litig., 718 F. Supp. 2d 495, 510
(S.D.N.Y. 2010) (statement of one
confidential witness that defendants’
appraisals were “shoddy” insufficient to
sustain, by itself, a Section 11 claim);
Schoenhaut v. Am. Sensors, Inc., 986 F.
Supp. 785, 791 (S.D.N.Y. 1997) (noting that
the phrase “continued strong demand” does
not “convey any material information”
because it “does not contain information of
reasonable specificity or impart a definite
indicia of performance; rather, it constitutes
nothing more than a vague assertion”).
In an effort to bolster these vague
allegations from confidential informants,
Plaintiffs make much of the fact that the
quarterly operating income of Coty’s color
cosmetic segment decreased from $57.1
million on December 31, 2012 to $50.4
million on March 31, 2013 to $28.1 million
on June 30, 2013. (Compl. ¶ 78(e)(i).)
However, these numbers offer little
guidance as to the information that was
available at the time of the IPO. Indeed,
Plaintiff’s own allegations in the Complaint
reflect that revenue in the nail category of
Coty’s color cosmetics products had growth
of 10.8% in April, 11.7% in May, and then,
“all of a sudden,” just 0.8% in June,
suggesting that the decline in growth rate of
sales Coty’s color cosmetics began in June,
just as the Registration Statement became
effective on June 12, 2013. (Compl. ¶ 104
(citing Sept. 17, 2013 Earnings Call Tr. at
10).) But, as Plaintiffs themselves have
already conceded (see Opp’n at 23),
Defendants were not required to disclose a
drop in sales that began in June, merely two
Nor have Plaintiffs pleaded facts that
could support an Item 303 claim for failure
to disclose known trends regarding Coty’s
declining sales. First, Plaintiffs’ allegations
fail to demonstrate that the decline in growth
rate occurred sufficiently in advance of the
Registration Statement that it required
disclosure as a negative material trend under
Item 303, since the alleged decline in Coty’s
8
See Milman v. Box Hill Sys. Corp., 72 F.
Supp. 2d 220, 230 (S.D.N.Y. 1999) (finding
that plaintiffs must allege specific
knowledge of a particular trend).
In
addition, Plaintiffs’ assertion that, through
certain technological platforms, “Coty
management” monitored the “amount of
inventory held by retailers in a near realtime fashion” to forecast sales trends (id.
¶¶ 47–50) fails to raise a plausible inference
that any particular member of Coty
management had knowledge of any
particular decline in sales. See Blackmoss,
2010 WL 148617, at *9 (noting that a
plaintiff alleging an Item 303 violation must
plead “with some specificity” facts
establishing that the defendant had
knowledge of the purported trend).
Similarly, Plaintiffs’ additional allegation
that Coty employed “‘demand planners’
who were responsible for sales forecasts”
and
“conduct[ed]
monthly
forecast
consensus meetings with Marketing and
Operations teams” (Compl. ¶¶ 51–57) does
not identify any specific trend that Coty’s
management was “alert[ed]” to – after May,
in which growth from nail products
increased by nearly 12%, but before the
Registration Statement became effective on
June 12, 2013 – as a result of these
meetings.
See Johnson v. Sequans
Commc’ns S.A., No. 11-cv-6341 (PAC),
2013 WL 214297, at *12 (S.D.N.Y. Jan. 17,
2013) (granting dismissal of an Item 303
claim where “there is no allegation that
[management] ever received information
alerting it to” the alleged negative material
trend). Finally, CI 3’s allegation that he
attended monthly meetings, along with the
President of Coty Beauty Americas, where
“declining sales trends, customer disinterest,
and competitor risks were discussed”
(Compl. ¶ 69), is so vague as to which of
Coty’s products were facing declining sales
or how “customer disinterest” or
“competitor risks” affected any particular
nail products began, at the earliest, in June.
As noted above, according to the facts
alleged in the Complaint, revenue growth in
Coty’s nail products actually increased
10.8% in April and 11.7% in May, only to
slow down “all of a sudden” to 0.8% in
June. (Compl. ¶ 104 (citing Sept. 17, 2013
Earnings Call Tr. at 10).) Assuming the
truth of these facts, the decline in growth
rate
would
have
been
almost
contemporaneous with the IPO on June 13,
2013 – clearly an insufficient time period to
establish a trend, as opposed to an “isolated
occurrence[]” that would not require
disclosure under Item 303. See In re Noah,
2010 WL 1372709, at *6; Blackmoss Invs.
Inc. v. ACA Capital Holdings, Inc., No. 07cv-10528 (RWS), 2010 WL 148617, at *10
(S.D.N.Y. Jan. 14, 2010) (“As a matter of
law, a two[-]month period of time does not
establish a ‘trend’ for purposes of the
disclosures required by Item 303.”);
Pearlstein v. BlackBerry Ltd., No. 13-cv7060 (TPG), 2015 WL 1137519, at *10
(S.D.N.Y. Mar. 13, 2015) (finding that twoand five-month periods are insufficient to
establish a trend); see also In re Noah, 2010
WL 1372709, at *6 (“Plaintiff’s own
characterization of the changes in rawmaterial costs as a ‘spike’ belies allegations
that [defendant] was experiencing a trend of
rising costs in raw materials before the
IPO.” (citation omitted)).
Second, even assuming that there was
such a trend, Plaintiffs’ Item 303 claim
would still fail because Plaintiffs have not
plausibly alleged that Coty’s management
had knowledge of this trend at the time the
Registration Statement became effective.
To support their claim that this trend was
“presently
known
to
management,”
Plaintiffs allege that the “negative trends
were discussed within the Company at
senior levels.” (Compl. ¶ 68.) However,
such a conclusory assertion is insufficient to
raise a plausible inference of knowledge.
9
color cosmetic product as to be meaningless.
In short, Plaintiffs’ Item 303 analysis boils
down to an assertion that fourth quarter
revenues were down and management had
meetings about the company’s performance
so, therefore, management must have known
of the bad numbers before the IPO.
Accordingly, the Court finds that
Plaintiffs have failed to raise a plausible
inference that Coty’s financial performance
as of March 31, 2013, as stated in the
Registration Statement, constituted material
misstatements or omissions in violation of
Section 11 or Item 303.
But Item 303 simply requires more to
demonstrate a plausible inference of
knowledge by management. For example,
in McKenna v. SMART Technologies Inc.,
the court held that allegations “detail[ing]
the employees’ roles,” explaining “why
those employees would have access to the
information discussed in the” complaint, and
identifying “internal reports and information
about decreased demand,” which contained
“the information contrary to the picture of
increasing demand portrayed in the Offering
Documents” were sufficient to raise a
plausible inference of knowledge. No. 11cv-7673 (KBF), 2012 WL 3589655, at *5
(S.D.N.Y. Aug. 21, 2012). Similarly, in
Panther Partners, the Second Circuit held
that plaintiffs’ allegations that the defendant
was receiving numerous calls about a
defective product and was gathering its
board of directors to discuss this issue and
fly to Japan to address the defect with the
manufacturers raised a plausible inference of
knowledge. 681 F.3d at 121–22. No similar
allegations exist here. Instead, Plaintiffs
merely allege that there were meetings and
describe only in broad, conclusory terms
what was discussed at those meetings.
(Compl. ¶ 69 (noting that “declining sales
trends, customer disinterest, and competitor
risks were discussed”).)
As a result,
Plaintiffs’ allegations are “[s]ketchy at best”
and “do not provide enough detail to nudge
plaintiffs’ claims across the line from
conceivable to plausible.”
In re
IAC/InterActiveCorp, 695 F. Supp. 2d at
119.
2. Destocking
Plaintiffs
also
allege
that
the
Registration Statement – which noted that
the year-over-year increase in net revenue of
Coty’s color cosmetics products in the first
three quarters of the 2013 fiscal year was
“primarily driven by strong growth in . . .
Sally Hansen” – was misleading because, at
the time of the IPO, Sally Hansen products
were being destocked. (Compl. ¶¶ 78(e),
82–83 (quoting Registration Statement at
51).)
Plaintiffs further allege that the
Registration Statement’s assertion that
growth in the color cosmetics business was
“driven by the growth of higher than
segment average priced . . . OPI products”
was misleading because OPI products were
similarly being destocked “by the time of
the IPO.” (Id. ¶ 83.)
Once again, however, these alleged
misstatements are statements of historical
fact, which are not even alleged to be false
and could be deemed misleading only if
construed to be an implicit promise of
continued growth of comparable magnitude
or, in other words, an assurance of future
performance. But Section 11 does not
recognize such a theory of liability, or
require corporations to downplay or
derogate their accurate historical results.
See, e.g., In re Initial Pub. Offering Sec.
Litig., 358 F. Supp. 2d 189, 210 (S.D.N.Y.
2004) (“The disclosure of accurate historical
data does not become misleading even if
less favorable results might be predictable
by the company in the future.”). Therefore,
10
47 F.3d 47, 53 (2d Cir. 1995) (“Mere
allegations that statements in one report
should have been made in earlier reports do
not make out a claim of securities fraud.”).
Thus, the Court finds that an August 8, 2013
analyst report discussing “Coty’s potential
exposure to destocking” (Compl. ¶ 99
(emphasis added)) and Coty’s November 7,
2013 press release, which stated that a
decline in net revenues was caused, in part,
by destocking (id. ¶ 106), likewise fail to
raise a plausible inference that Coty was
experiencing destocking issues, and that
management knew so, before June 2013
such that Defendants were required to
disclose this fact at the time the Registration
Statement became effective. See In re TVIX
Sec. Litig., 25 F. Supp. 3d 444, 450
(S.D.N.Y.) (noting that a Section 11 claim
cannot be based on “hindsight” or a
“backward-looking assessment of the
registration statement” (internal quotation
marks omitted)), aff’d sub nom., Elite
Aviation LLC v. Credit Suisse AG, 588 F.
App’x 37 (2d Cir. 2014); In re Noah, 2010
WL 1372709, at *6–7 (finding that a spike
in raw materials lasting two months was
insufficient to establish a trend).
Plaintiffs’ Section 11 claim with respect to
destocking is denied.
Plaintiffs nevertheless assert that
Defendants had an obligation to disclose the
fact of destocking because such activity
constituted a trend under Item 303. This
claim fails as well.
While Plaintiffs
conclusorily allege that Coty’s products
were being destocked in the “months leading
up to the IPO” (Compl. ¶ 58), the only fact
alleged in support of this assertion is the
single allegation from CI 2 that, “[i]n
approximately May/June 2013, CI 2
observed de-stocking activity whereby
Coty’s cosmetics were being returned or
destroyed” (id. ¶ 66). However, such a
vague and equivocal allegation about “destocking activity” cannot support a plausible
inference that, at the time the Registration
Statement became effective on June 12,
2013, Coty’s products were being destocked
in such a material way as to require
disclosure with respect to a $4.6 billion
company. See In re IAC/InterActiveCorp,
695 F. Supp. 2d at 120–21 (granting
dismissal of a Section 11 claim where
plaintiffs’ confidential informants “have
offered no concrete facts that would
demonstrate – or even hint, really” – at the
existence of a fact that would make the
registration statement misleading).
In sum, Plaintiffs’ one-two punch of
poor post-IPO earnings coupled with
temporally nonspecific and substantively
vague assertions of destocking by one
confidential informant is not enough to
establish the falsity of the Registration
Statement or the existence of an omitted
known trend.
Accordingly, the Court
dismisses Plaintiffs’ Section 11 and Item
303 claims as they relate to destocking.
Similarly, Plaintiffs’ reliance on
statements made by Scannavini in the
September 17, 2013 earnings call – nearly
three months after the IPO – that destocking
had “impacted Sally Hansen in the fourth
quarter of fiscal-year ’13 and the first
quarter of fiscal-year ’14” (Compl. ¶ 102) is
misplaced since Plaintiffs fail to explain
when such destocking began or when the
material effects of that destocking became
known to management.
Moreover, as
previously noted, post-IPO financial results
cannot be used to support Plaintiffs’ Section
11 claim. See Acito v. IMCERA Grp., Inc.,
3. Expansion of OPI and the Termination
of the “Sephora by OPI” Partnership
Plaintiffs next allege that Coty’s
Registration Statement – which stated that
“we are expanding the OPI brand globally”
and that the increase in net revenue was
11
professional channels driven by Sally
Hansen and OPI.” (Declaration of Lisa H.
Rubin, dated Sept. 23, 2014, Doc. No. 45,
Ex. 6 (emphasis added).) In short, Plaintiffs
have alleged no facts to demonstrate that the
Registration Statement’s assertion that OPI
was expanding globally was false or
misleading in violation of Section 11.
caused by a growth in sales of OPI products
in the nine months leading up to March 31,
2013 (Compl. ¶¶ 80, 88–89 (quoting
Registration Statement at 51, 106)) – was
misleading because, at the time of the IPO,
the “OPI sales had contracted in material
part because a partnership between Coty and
Sephora for the sale of Coty’s Sephora by
OPI nail polish” in the United States had
ended (id. ¶¶ 78(c), 89–90, 112).
In addition, Plaintiffs have failed to
demonstrate how the termination of a single
product line – the “Sephora by OPI” nail
polish brand – constituted a material trend
that required disclosure under Item 303.
While “the likely non-renewal of a material
contract” may in certain circumstances
constitute a trend that should be disclosed,
see SEC Release 6835 at *4, a plaintiff must
still raise a plausible inference that the
termination of the contract “materially
impact[ed]”
a
company’s
financial
condition. Panther Partners, 681 F.3d at
121–22.
For example, in Litwin v.
Blackstone Group., L.P., the Second Circuit
found that a defendant private equity firm’s
loss of its exclusive contract with its biggest
customer constituted a trend that the firm
was required to disclose if it was determined
that the termination of the contract was
“reasonably expected to materially impact
[the defendant’s] future revenues.” 634 F.3d
706, 719 (2d Cir. 2011); see also Panther
Partners, 681 F.3d at 121 (finding that
defendant was required to disclose, as a
negative material trend under Item 303, that
a product defect affected its customers
which accounted for 72% of its revenues).
Once again, Plaintiffs do not allege that
the historical statements contained in the
Registration Statement were false. Instead,
they effectively argue that the statements
were misleading because they amounted to
an implicit promise of ongoing growth. But
as noted above, Plaintiffs cannot base a
Section 11 claim on implicit promises read
into
Defendants’
historical
factual
statements. Moreover, even assuming that
Section 11 countenanced such a fanciful
theory of liability, Plaintiffs still fail to
explain how the termination of a single
product line sold in the United States
demonstrates that Defendants’ statements
that the OPI brand was expanding globally
was false or misleading.
Put simply,
Plaintiffs have offered no allegation about
how the termination of the U.S.-based
“Sephora by OPI” nail polish impacted the
global expansion of OPI offerings.
Significantly, Plaintiffs do not allege that
Coty’s annual report filed with the SEC on
September 17, 2013 – which acknowledged
that “OPI net revenues were in line with
fiscal 2012,” while nevertheless also noting
that, in the 2013 fiscal year, OPI indeed
expanded globally and Coty achieved
“higher net revenues from the expanded
distribution [of OPI] in Europe” – was false
or misleading. Coty Inc., Annual Report
(Form 10-K) (Sept. 17, 2013) (“Coty 2013
Annual Report”), at 39 (emphasis added).
The 2013 Annual Report also stated that,
“[i]n nail care, we achieved a #1 position
globally in the combined retail and
Here, beyond conclusorily alleging that
the partnership between Coty and Sephora
for the sale of the “Sephora by OPI” nail
polish was a “material partnership” (Compl.
¶ 78(c)), Plaintiffs have failed to allege any
facts about the significance of this line to
Coty’s broader business or that the
termination of this product line materially
affected Coty’s financial condition prior to
12
discounted to OPI employees.” (Id. ¶ 73.)
As an initial matter, the Court finds that this
second-hand statement by CI 7 – a corporate
travel consultant who was not an executive
or manager, or even an employee in a
relevant area of Coty’s business – is
insufficient on its own to raise a plausible
inference that the “Sephora by OPI”
partnership ended in November 2012, much
less that Coty’s management was aware of
this “trend.” See McKenna, 2012 WL
3589655, at *5 (noting that a confidential
informant’s “general allegations and
anecdotes of former employees,” absent
“plausible detail as to why individuals” in
those positions would have knowledge of
those allegations, is insufficient to state a
Section 11 claim (alteration and internal
quotation marks omitted)). Moreover, other
allegations in the Complaint suggest that the
termination of the “Sephora by OPI” line did
not occur until after the IPO. For example,
Plaintiffs provide an excerpt of a November
2013 Credit Suisse analyst report which
stated that “Sephora’s partnership to sell
Sephora by OPI ended over the summer of
2013.” (Compl. ¶¶ 110, 112 (emphasis
added).)
Similarly, the Complaint
references a February 2014 report which
stated that “the loss of Sephora distribution
in the U.S. for the OPI brand could dampen
growth in 2Q14” – which was, of course,
eight months after the IPO. (Id. ¶ 112.)
June 12, 2013. Indeed, as already discussed,
Plaintiffs’ assertion that the termination of
the sale of the “Sephora by OPI” line
materially decreased OPI’s sales (Compl.
¶ 89) is belied by the fact that Coty’s 2013
Annual Report, which Plaintiffs do not
dispute, demonstrated that OPI’s net
revenues in the 2013 fiscal year “were in
line with fiscal 2012,” despite the decline in
U.S. sales occasioned by the termination of
the Sephora by OPI line, due to the
expanded global distribution of OPI
products. (Coty 2013 Annual Report at 39.)
As a result, even if Plaintiffs plausibly
alleged that Coty terminated the “Sephora
by OPI” relationship before June 12, 2013,
the Court would nevertheless grant
Defendants’ motion to dismiss Plaintiffs’
Item 303 claim in light of Plaintiffs’ failure
to allege any facts demonstrating that the
termination of the “Sephora by OPI” product
line materially impacted Coty’s financial
condition.
Finally, Plaintiffs’ Section 11 and Item
303 claims must fail for the additional
reason that Plaintiffs have failed to allege a
plausible inference that the termination of
the “Sephora by OPI” product line occurred
before the IPO on June 13, 2013. To
support their claim that this partnership
ended prior to June 13, 2013, Plaintiffs rely
on allegations from a single confidential
informant, CI 7, who worked as a corporate
travel consultant “for OPI Products/Coty
Inc. from February 2012 through April
2013” and “was responsible for arranging
business travel itineraries for OPI’s senior
executives.” (Compl. ¶ 46.) CI 7 stated
that, in November 2012, he learned from the
Supervisor of the OPI Corporate Travel
Department that “OPI was no longer going
to be manufacturing or marketing the
Sephora by OPI line of nail products” and
that, around the same time, he attended a
“warehouse sale at which huge amounts of
Sephora by OPI product were severely
Accordingly, because Plaintiffs have
failed to allege a plausible inference that the
termination of the “Sephora by OPI” brand
in the United States rendered a statement
about OPI’s global expansion misleading or
that the termination would have a material
impact on Coty’s financial performance, the
Court grants Defendants’ motion to dismiss
the Section 11 and Item 303 claims.
13
enough to state a Section 11 claim. See In
re ProShares Trust Sec. Litig., 889 F. Supp.
2d 644, 653 (S.D.N.Y. 2012) (“When a
registration statement warns of the exact risk
that later materialized, a Section 11 claim
will not lie as a matter of law.”), aff’d, 728
F.3d 96 (2d Cir. 2013).
4. Risk Disclosures
Finally, Plaintiffs allege that the risk
disclosures in Coty’s Registration Statement
were false or misleading, in violation of
Section 11, because they stated that certain
events could affect Coty when, at the time of
the IPO, they were already affecting Coty.
More specifically, Plaintiffs contend that the
Registration Statement’s assertions that
increased competition within the highly
competitive beauty business, rapid changes
in market trends and consumer preferences,
and the possibility of retaining excess
inventory could impact Coty’s future
financial
performance
(Registration
Statement at 20–21, 33) were misleading
because, at the time of the IPO, sales of
Coty’s color cosmetics products were
already declining as a result of increased
competition, the destocking of Sally Hansen
and OPI products had already occurred, and
the termination of the “Sephora by OPI” nail
polish line had already been effectuated
(Compl. ¶¶ 91–98).
Moreover, even if it could be
demonstrated that some of these events had
occurred prior to June 12, 2013, Coty’s
highly vague and generic discussion of
potential market risks “could not have been
misleading to a reasonable investor as the
description said nothing company-specific,
and no reasonable investor would infer
anything about the state of” the company.
In re FBR Inc. Sec. Litig., 544 F. Supp. 2d
346, 362 (S.D.N.Y. 2008) (internal
quotation marks omitted); (see, e.g.,
Registration Statement at 20–21 (noting that
Coty’s financial performance could suffer if
it is unable to “compete effectively” or does
not continuously develop new products));
see also In re Bank of Am. AIG Disclosure
Sec. Litig., 980 F. Supp. 2d 564, 579
(S.D.N.Y. 2013) (“[W]here there is
disclosure that is broad enough to cover a
specific risk, the disclosure is not misleading
simply because it fails to discuss the specific
risk.” (citing Hunt v. All. N. Am. Gov’t
Income Trust, Inc., 159 F.3d 723, 730–31
(2d Cir.1998))), aff’d, 566 F. App’x 93 (2d
Cir. 2014).
“Courts in this Circuit have held that a
company’s purported risk disclosures are
misleading where the company warns only
that a risk may impact its business when that
risk has already materialized.”
In re
Facebook, Inc. IPO Sec. & Derivative Litig.,
986 F. Supp. 2d 487, 516 (S.D.N.Y. 2013)
(“The Company’s purported risk warnings
misleadingly represented that this revenue
cut was merely possible when, in fact, it had
already materialized.”); see also Rombach v.
Chang, 355 F.3d 164, 173 (2d Cir. 2004)
(“Cautionary words about future risk cannot
insulate from liability the failure to disclose
that the risk has transpired.”). However, as
the Court has already found, Plaintiffs have
failed to allege facts to establish that any of
these alleged events were occurring at the
time of the IPO, and the fact that some of
these events occurred after the Registration
Statement became effective is simply not
As a result, because Plaintiffs have not
plausibly alleged that these risk disclosures
discussed events that were already occurring
at the time of the IPO or were otherwise
misleading, the Court grants Defendants’
motion to dismiss these claims.
B. Section 15
Section 15 of the Securities Act imposes
derivative and joint and several liability on
individuals who “control[] any person
14
legal theories” to support their request to
amend); Porat v. Lincoln Towers Cmty.
Ass’n, 464 F.3d 274, 275–76 (2d Cir. 2006).
liable” under Section 11, “unless the
controlling person had no knowledge of or
reasonable ground to believe in the existence
of the facts by reason of which the liability
of the controlled person is alleged to exist.”
15 U.S.C. § 77o(a). Obviously, failure to
plead a Section 11 claims necessarily leads
to the dismissal of a Section 15 claim. See
Hutchison v. Deutsche Bank Sec. Inc., 647
F.3d 479, 490 (2d Cir. 2011). Therefore,
because the Court has determined that
Plaintiffs have failed to allege a primary
violation under Section 11, the Court grants
Defendants’ motion to dismiss Plaintiffs’
Section 15 claim.
Here, on the final page of their
opposition to Defendants’ motion to dismiss,
Plaintiffs, without any legal or other support,
state in a single sentence that “[i]n the event
of dismissal, [they] request leave to
replead.” (Opp’n at 25.) Significantly,
Plaintiffs offer no basis for their request for
leave to amend nor do they attach a
proposed amended complaint. See Loreley
Fin. (Jersey) No. 3 Ltd. v. Wells Fargo Sec.,
LLC, 797 F.3d 160, 190 (2d Cir. 2015)
(noting that a court may deny leave to
amend, on notice grounds, “where the
request gives no clue as to how the
complaint’s defects would be cured”
(internal quotation marks omitted)).
Notably, this is not Plaintiffs’ first attempt at
re-pleading in this action. To the contrary,
on October 17, 2014, after Defendants filed
their first motion to dismiss, Plaintiffs
sought and received leave to amend “in
order to address purported pleading
deficiencies identified by Defendants” in
their motion to dismiss. (Doc. Nos. 47, 49.)
Among the deficiencies identified by
Defendants was the failure to allege
“concrete facts” supporting their claims.
(Doc. No. 47.)
Notwithstanding the
opportunity to file amended pleadings,
Plaintiffs’ claims still rely on general and
conclusory allegations from a handful of
confidential witnesses who fail to provide
sufficient facts capable of sustaining a cause
of action.
C. Leave to Amend
Although “Rule 15(a) of the Federal
Rules of Civil Procedure provides that leave
to amend ‘shall be freely given when justice
so requires,’ it is within the sound discretion
of the [Court] to grant or deny leave to
amend.” McCarty v. Dun & Bradstreet
Corp., 482 F.3d 184, 200 (2d Cir. 2007)
(quoting Fed. R. Civ. P. 15(a)). In addition,
the Second Circuit has consistently stated
that district courts may deny leave to amend
when plaintiffs request such leave in a
cursory sentence on the last page of an
opposition to a motion to dismiss, without
any justification or an accompanying
suggested amended pleading. See, e.g.,
Food Holdings Ltd. v. Bank of Am. Corp.,
423 F. App’x 73, 76 (2d Cir. 2011)
(affirming district court’s denial of leave to
amend where plaintiff requested leave to
amend “on the final page of their brief in
opposition to defendants’ motion to dismiss,
in boilerplate language and without any
explanation as to why leave to amend was
warranted”); City of Pontiac Policemen’s &
Firemen’s Ret. Sys. v. UBS AG, 752 F.3d
173, 188 (2d Cir. 2014) (affirming denial of
leave to amend where plaintiffs already had
one opportunity to amend their complaint
and they “identified no additional facts or
As Judge Lynch aptly noted when he
was on the district court, “[w]hile pleading
is not a game of skill in which one misstep
may be decisive to the outcome, neither is it
an interactive game in which plaintiffs file a
complaint, and then bat it back and forth
with the Court over a rhetorical net until a
viable complaint emerges.” In re Refco
15
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