PLYMOUTH COUNTY RETIREMENT SYSTEM v. PRIMO WATER CORPORATION, et al

Filing 80

MEMORANDUM OPINION AND ORDER signed by JUDGE THOMAS D. SCHROEDER on 08/14/2013. For the reasons stated, the court finds that Plaintiffs have failed to state a claim upon which relief can be granted against the Primo Defendants or the Underwriter Defendants under Sections 11, 12(a)(2), and 15 of the 1933 Act and Sections 10(b) and 20(a) of the 1934 Act, because the challenged statements are not material misrepresentations or omissions of material fact. Further, many of these same statements are forward-looking and protected by the PSLRA's safe harbor. Thus, dismissal of the amended complaint is appropriate. ORDERED that Plaintiffs' motion to strike portions of the Primo Defendants' exhibits (Doc. #64 ) is GRANTED as to Appendix (Doc. #60 ) pages 687-90 and 772-73 and DENIED as moot as to pages 774-92. FURTHER that the motions to dismiss of the Primo Defendants (Doc. #58 ) and the Underwriter Defendants (Doc. #56 ) are GRANTED, and Plaintiffs' claims against them are DISMISSED WITH PREJUDICE. A Judgment consistent with this Memorandum Opinion and Order will issue separately.(Taylor, Abby)

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF NORTH CAROLINA

PLYMOUTH
COUNTY
RETIREMENT
ASSOCIATION, et al.,
Plaintiffs,
v.
PRIMO
al.,

WATER

CORPORATION,

et

Defendants.

)
)
)
)
)
)
)
)
)
)
)

1:11-cv-1068

MEMORANDUM OPINION AND ORDER
THOMAS D. SCHROEDER, District Judge.
This is a federal securities class action on behalf of a
class

consisting

of

persons, 1

all

other

than

Defendants,

who

acquired the common stock of a start-up company, Primo Water
Corporation

(“Primo”

or

“the

company”),

between

November

4,

2010, and November 10, 2011 (the “Class Period”), including the
company’s
“IPO”)

initial

and

(“Secondary
their

its

public
common

Offering”)

131-page

amended

offering
stock

on

offering

(collectively,
complaint

November

2010

(the

June

17,

2011

“Offerings”).

In

on

the

(Doc.

4,

52),

Plaintiffs

seek

recovery for stock losses under Sections 11, 12(a)(2), and 15 of
1

The lead Plaintiffs are Employees’ Retirement System of the
Government of the Virgin Islands and Plymouth County Retirement
Association.
However, the entire Plaintiff class (including the lead
Plaintiffs) will be referred to simply as “Plaintiffs” throughout this
opinion.

the Securities Act of 1933 (“1933 Act”) and Sections 10(b) and
20(a) of the Securities Exchange Act of 1934 (“1934 Act”), as
amended by the Private Securities Litigation Reform Act of 1995
(“PSLRA”)

and

§ 240.10b-5.

Rule

10-b5

promulgated

thereunder,

17

C.F.R.

The Defendants in this case can be divided into

two categories: (1) the “Primo Defendants,” composed of Primo
and its executives 2; and (2) the “Underwriter Defendants,” who
served as underwriters for Primo’s Offerings. 3

Together, the

Primo Defendants and Underwriter Defendants will be referred to
simply as “Defendants.”
This action was filed on December 2, 2011 (Doc. 1), and an
amended complaint was filed June 22, 2012 (Doc. 52).

The matter

is currently before the court on motions to dismiss by the Primo
Defendants (Doc. 58) and the Underwriter Defendants (Doc. 56).
Also before the court is Plaintiffs’ motion to strike certain
pages of the Primo Defendants’ appendix of documents filed in
2

Specifically, the Primo Defendants are: Primo; Billy D. Prim
(founder, President, Chairman of the Board of Directors (“Board”), and
Chief Executive Officer of Primo); Mark Castaneda (Chief Financial
Officer, Secretary, and Assistant Treasurer of Primo); David J. Mills
(Vice President-Finance and Treasurer of Primo); Richard A. Brenner
(Board member); David W. Dupree (Board member); Malcolm McQuilkin
(Board member); and David L. Warnock (Board member). (Doc. 52 at ¶¶
8-17.)

3

The Underwriter Defendants are: Stifel, Nicolaus & Company, Inc.
(underwriter and sole-book running manager and representative for the
Offerings who helped draft and disseminate the prospectuses for the
Offerings); BB&T Capital Markets (underwriter for the Offerings);
Janney Montgomery Scott LLC (underwriter for the Offerings); and
Signal Hill Capital Group LLC (underwriter for the Offerings). (Doc.
52 at ¶¶ 19-22.)

2

support of their motion to dismiss.
arguments

on

Defendants’

motions

(Doc. 64.)
on

May

16,

The court heard
2013.

For

the

reasons set forth below, the motion to strike will be granted in
part and denied in part, Defendants’ motions to dismiss will be
granted, and the case will be dismissed.
I.

FACTUAL BACKGROUND 4
A.

Primo, Its Products, and Business Model

Primo is a Delaware corporation headquartered in WinstonSalem,

North

containers
drinking
Primo’s

Carolina,

of

purified

water,
water

that

and

provides

bottled

water

dispensers

three

water,

designed

(Doc.
to

other dispenser-compatible bottled water.
company

is

founded

on

a

five

self-serve

dispensers.

are

and

52

dispense

gallon

filtered
at

¶

8.)

Primo

and

(Id. at ¶ 40.)

“razor-razorblade”

business

The

model,

whereby the initial sale of Primo water dispensers (the razor)
then creates a base of users who frequently purchase bottles of
Primo

water

or

razorblades).

refill

their

bottles

(Id. at ¶ 43.)

at

refill

stations

(the

Under Primo’s business strategy,

the company would sell its water dispensers and bottled water at
major

retail

locations,

such

4

as

Lowe’s

Home

Improvement

At the motion to dismiss stage, the amended complaint, and all
reasonable inferences therefrom, are viewed in the light most
favorable to Plaintiffs.
E. Shore Mkts., Inc. v. J.D. Assocs., Ltd.
P’ship, 213 F.3d 175, 180 (4th Cir. 2000).

3

(Id. at ¶ 44.) 5

(“Lowe’s) and Wal-Mart, among others.

If a

customer at one of these retailers buys a Primo water dispenser
and Primo bottled water, the empty water bottle can either be
recycled and exchanged at Primo’s bottle exchange displays or
refilled

at

Primo’s

refill

vending

machines.

(Id.)

If

a

customer exchanges a water bottle at Primo’s bottle exchange
display,

the

display

provides

the

customer

with

a

discount

coupon toward the purchase of a full bottle of Primo water.
(Id.)

Alternatively, a customer has the option of refilling his

water bottle at Primo’s refill vending station, as the bottle
can

be

sanitized

business

model

and

reused

ostensibly

up

to

creates

demand for the company’s products.
B.

40
a

times.

(Id.)

recurring

and

This

constant

(Id. at ¶ 43.)

The Offerings

Primo made its IPO on November 4, 2010, by offering 8.33
million

shares

to

the

public

at

$12.00

per

share,

with

an

overallotment option for the Underwriter Defendants of 1,250,000
shares, raising approximately $114.96 million.
47.)

(Id. at ¶¶ 45-

In connection with the IPO, Primo filed a Registration

Statement,

which

incorporated

the

5

IPO

prospectus.

(Id.

at

Primo’s SEC filings make clear that Primo was dependent on a small
number of major retailers for its success.
(Appendix to Doc. 59 at
428.)
For example, Primo noted in its 2010 Form 10-K that “Lowe’s
Home Improvement and Wal-Mart represented approximately 37% and 21% of
our consolidated net sales.” (Id.)

4

¶ 45.) 6

In the IPO Registration Statement, Primo made statements

about, among other things, the number of locations selling its
products, the company’s marketing efforts, and the demand for
Primo products.

(See generally Appendix to Doc. 59 (“App.”) at

1-228.)

of

Many

these

statements

are

now

challenged

by

Plaintiffs as material misrepresentations or omissions and will
be discussed in more detail in the analysis to follow.
On

June

17,

2011,

Primo

made

its

(Doc. 52 at ¶ 102.) 7

common stock.

raised $42.2 million for the company.
Secondary

Offering

Registration

Secondary

Offering

of

This Secondary Offering
(Id. at ¶ 103.)

Statement,

which

In the

incorporated

the Secondary Offering prospectus, Primo again made statements
about,

among

other

things,

the

number

of

locations

at

which

Primo’s products were offered, marketing and promotion efforts,
and retailer demand for Primo products.
Additionally,

the

Secondary

Offering

(Id. at ¶¶ 104-07.)
Registration

Statement

announced that due to technology acquired as a result of Primo’s
acquisition
(“Omnifrio”),

of

the
Primo

Omnifrio
would

Single-Serve

launch

a

Beverage

single-serve

Business
carbonated

6

The IPO Registration Statement is 228 pages and, as a general
matter, contains a robust discussion of the company’s business and
risk factors that could affect its performance and revenues, as well
as cautions on forward-looking statements.

7

The Secondary Offering Registration Statement is 180 pages and, like
its IPO counterpart, also contains a robust discussion of Primo’s
business, risk factors, and forward-looking statements.

5

beverage

appliance,

known

as

the

“Flavor

Station,”

(Id. at ¶¶ 114-15, 118.) 8

“fourth quarter of 2011.”

in

the

As with the

statements made in the IPO Registration Statement, Plaintiffs
challenge

statements

made

in

connection

with

the

Secondary

Offering as materially false and misleading.
C.

Guidance
Calls

Statements,

Press

Releases,

and

Conference

Primo also released guidance documents throughout the Class
Period that contained statements Plaintiffs challenge as false
and/or

misleading.

These

statements

were

made

in

guidance

documents and press releases and during conference calls with
Primo executives.
For
release

example,
(“March

on

March

2011

press

24,

2011,

release”)

Primo

issued

reporting

its

a

press

financial

results for the fourth quarter and year ended December 31, 2010.
(Id. at ¶ 191.)

The company stated that it had approximately

12,600 combined Exchange and Refill locations.

(Id. at ¶ 193.)

It also stated that it expected to end the first quarter of 2011
with

between

14,500

and

14,900

8

combined

Exchange

and

Refill

According to the amended complaint, the Omnifrio Single-Serve
Beverage Business “primarily consists of technology related to singleserve cold carbonated beverage appliances and consumable flavor cups,
or ‘S-cups,’ and CO2 cylinders used with the appliances to make a
variety of cold beverages.” (Doc. 52 at ¶ 115.) Using the technology
developed by Omnifrio, Primo conceptualized an appliance that
dispenses single-serve cold carbonated beverages -- the so-called
Flavor Station. (Id. at ¶¶ 115, 118.)

6

locations.

(Id.)

During an accompanying conference call, Billy

D. Prim (“Prim”), Primo’s founder and Chief Executive Officer,
also

stated

that

Primo

had

plans

to

integrate

Omnifrio

carbonation technology into Primo’s water dispenser appliances. 9
(Id. at ¶ 197.)

Prim also stated that Omnifrio had already

developed 30 flavors with three different carbonation levels.
(Id.)

In Primo’s 2010 Form 10-K, which was filed approximately

a week after the March 2011 press release, Primo confirmed that
it had 12,600 combined retail locations and that the company was
expecting to introduce Omnifrio technology.
203.)

(Id. at ¶¶ 199-200,

In the Form 10-K, Primo also made statements about its

marketing and promotion efforts, including that it was engaging
in

“regular

cross

marketing

promotions”

and

“developing and maintaining a brand identity.”

was

focused

on

(Id. at ¶ 201.)

On May 10, 2011, Primo issued a press release (“May 2011
press release”) that announced its financial results for the
first quarter of 2011.

(Id. at ¶ 208.)

In this press release,

Primo stated that it “expects total sales in the second quarter
of 2011 to double” and “continues to expect sales to increase
260% to 275% compared to 2010.”

(Id. at ¶ 209.)

Despite Primo’s predictions about its 2011 growth, lower
than

expected

sales

later

forced

9

the

company

to

revise

its

Primo went on to complete the acquisition of Omnifrio by April 11,
2011. (Doc. 52 at ¶ 207.)

7

expectations downward.
release”),

On August 10, 2011 (“August 2011 press

approximately

two

months

after

the

Secondary

Offering, Primo announced that it had failed to meet earlier
earnings projections due to lower than anticipated sales.
at ¶ 226.)

(Id.

Primo disclosed that Lowe’s and Wal-Mart, two major

Primo retailers, did not launch scheduled national promotions
for Primo products during the second quarter.
28.)

(Id. at ¶ 226-

Primo reported that “both retailers are committed to the

program and have started rolling out the national promotion of
water and dispensers in the third quarter.

The Company expects

these major mass retail partners to continue to roll out the
national promotion during the remainder of the third quarter and
in the fourth quarter of 2011.” 10

(Id. at ¶ 228.)

Primo also

stated that the company “continue[s] to be in [a] great position
for strong long-term revenue and earnings growth” (id. at ¶ 230)
and

announced

that

its

Flavor

Station

water

carbonation

appliance would be ready for sale during the 2011 holiday season
(id. at ¶ 231).
In a conference call later that same day, Primo executives
identified the source of low sales as a delay in the addition of
10

Plaintiffs’ allegations are slightly misleading on this point.
Plaintiffs allege that Primo revealed that Wal-Mart and Lowe’s “would
not be launching their scheduled national promotions.”
(Doc. 52
¶ 228.)
But in quoting Primo’s August 2011 press release, it is
apparent that Plaintiffs do not contend that these promotions never
reached fruition, but only that they did not do so until the third
quarter of 2011. (Id.)

8

water dispenser selling locations and a delay in the national
promotions scheduled by major retailers.

(Id. at ¶ 234-35.)

Further, Primo executives made additional statements about the
upcoming launch of the Flavor Station appliance and increased
the estimate for Flavor Station sales for 2011.
37.)

(Id. at ¶ 236-

Despite this announcement, analysts concluded that Primo’s

disappointing second quarter and lower 2011 guidance hurt the
company’s credibility.

(Id. at ¶ 245.)

Primo’s common stock

price collapsed from $13.92 per share on August 9, 2011, to
$5.40 per share at closing on August 10, 2011.

(Id. at ¶ 248.)

On November 8, 2011, Primo issued another press release
(“November 2011 press release”) announcing results for the third
quarter of 2011.

(Id. at ¶ 250.)

Again, Primo reported a net

loss and revised downward its financial projections for fourth
quarter sales to be $22.0 to $24.0 million compared to prior
guidance of $27.0 to $29.5 million.
that

it

expected

appliances

during

to

have

the

“limited

fourth

reformulating [] flavors.”
press

release,

Primo’s

(Id.)
sales

quarter

Primo also announced
of
due

to

(Id. at ¶ 251.)

stock

again

declined

Flavor

Station

delays

in

Following this
in

value

from

a

closing price of $5.57 on November 8, 2011, to a closing price
of $4.58 on November 9, 2011.

(Id. at ¶ 264.)

After Primo

issued its third quarter Form 10-Q, the price of Primo common
stock fell again to close at $3.06 on November 10, 2011.
9

(Id.)

This

represented

an

approximately

80.95%

decrease

in

common

stock price from Primo’s Class Period high of $16.06 per share.
(See id.)
Other specific facts will be discussed below, as relevant
to the legal analysis.
II.

MOTION TO STRIKE
Preliminary to consideration of the merits of Defendants’

motions, Plaintiffs have moved to strike four separate exhibits
contained in the appendix that the Primo Defendants submitted in
support of their motion to dismiss.

The exhibits at issue are

as follows:
(1)

Appendix pp. 687-90: Graham Bowley, Wall Street,
the Home of the Vanishing I.P.O., N.Y. TIMES,
November 17, 2010.

(2)

Appendix
pp.
772-73:
“Data
Shark
Store
Location/Delivery Query and Results” dated July
1, 2010.

(3)

Appendix pp. 774-80: Spreadsheet detailing Prim’s
holdings during the Class Period, with related
Form 4s.

(4)

Appendix pp. 781-92: Spreadsheet detailing Primo
insider stock purchases during the Class Period,
with related Form 4s.

Courts
dismiss

“so

authentic.”

may
long

consider
as

they

documents
are

attached

integral

to

to
the

a

motion

complaint

to
and

Sec’y of State for Def. v. Trimble Navig. Ltd., 484

F.3d 700, 705 (4th Cir. 2007).

As such, the court can consider

“documents attached to the complaint, documents incorporated by
10

reference

in

the

complaint,

without converting
judgment.

Sun

a

Chem.

motion

or
to

Trading

matters
dismiss

Corp.

v.

of
into
CBP

judicial
one

for

Res.,

notice”
summary

Inc.,

No.

1:01CV00425, 2004 WL 1777582, at *3 (M.D.N.C. July 29, 2004)
(internal

quotations

and

citation

omitted).

Further,

in

a

securities fraud case, the court may consider “public documents
quoted by, relied upon, incorporated by reference or otherwise
integral to the complaint.”

In re Royal Ahold N.V. Secs. &

ERISA Litig., 351 F. Supp. 2d 334, 349 (D. Md. 2004) (internal
quotations and citations omitted).
The first exhibit (Appendix pages 687-90) is a N.Y. Times
newspaper article that provides a general discussion of IPOs,
their inherently risky nature, and their decline in U.S. stock
markets.

Courts may take judicial notice of newspaper articles

(particularly in cases such as this that allege fraud on the
market) when they specifically discuss the subject of the case.
See, e.g., Quaak v. Dexia, S.A., 357 F. Supp. 2d 330, 339 (D.
Mass. 2005).

However, the article at issue never mentions Primo

or the bottled water industry, but rather is offered only to
demonstrate that IPOs can be risky ventures.

Accordingly, the

Plaintiffs’ motion to strike will be granted with respect to
this

exhibit.

Id.

(granting

articles).

11

motion

to

strike

newspaper

The second exhibit (Appendix pages 772-73) is represented
to be a printout of Primo customer deliveries according to the
company’s “Data Shark” computer program, a database that tracks
the

company’s

multiple

sales.

times

in

The

the

Data

amended

Shark

database

complaint

in

is

referenced

connection

Plaintiff’s allegations that Primo overstated its sales.
e.g., Doc. 52 at ¶¶ 53-54, 76, 161-63, 266.)
amended

complaint

alleges

that

when

with
(See,

For example, the

Confidential

Witness

1

(“CW1”) left the company in late 2010, the Data Shark program
revealed that 1,500 of the company’s 5,000 retailers had not had
a delivery in 18 months or more.

(Id. at ¶¶ 53-54.)

The

exhibit, in contrast, purports to show that as of June 30, 2010,
6,926 Primo customers had received a delivery within the past
thirty days.

(App. at 773.)

The Primo Defendants contend that

the exhibit demonstrates that Plaintiffs’ allegations are false.
It is true that on a motion under Federal Rule of Civil
Procedure

12(b)(6)

the

court

cited in the complaint.

can

clear

that

the

to

documents

that

are

Greenhouse v. MCG Capital Corp., 392

F.3d 650, 656 (4th Cir. 2004).
not

look

proposed

The problem here is that it is
exhibit

is

documents cited in the amended complaint.

in

fact

one

of

the

Moreover, the exhibit

does not speak for itself, and it is not clear exactly what the
figures on it mean.

Plaintiffs’ reference to the Data Shark

computer system does not permit the court’s consideration of any
12

and

every

document

that

the

system

is

capable

of

producing,

particularly if it is not a report specifically mentioned in the
amended complaint.

Accordingly, the court will grant the motion

to strike this document.
Finally, the third and fourth exhibits (Appendix pages 77492)

detail

stock

holdings

and

purchases

by

Prim,

Primo’s

founder, and are offered to show that Plaintiffs fail to allege
a strong inference of scienter to defraud where public documents
show

that

company

Prim

during

himself
the

continued

Class

Period.

to

purchase
Because

shares

the

of

presence

the
or

absence of scienter is not a basis for the court’s ultimate
resolution of the motions to dismiss (and even if it were, the
court

need

not

rely

on

these

exhibits),

the

court

will

not

consider these exhibits, and the motion to strike them is moot.
See United States v. Ebert, 178 F.3d 1287, at *34 n.15 (4th Cir.
1999)

(unpublished

table

decision)

(finding

motion

to

strike

newspaper article that was not considered moot).
III. MOTIONS TO DISMISS
Both the Primo Defendants and the Underwriter Defendants
have moved to dismiss the amended complaint for failure to state
a claim upon which relief can be granted pursuant to Federal
Rule of Civil Procedure 12(b)(6).

(Docs. 56 & 58.)

Federal Rule of Civil Procedure 8(a)(2) provides that a
complaint must contain a “short and plain statement of the claim
13

showing that the pleader is entitled to relief.”

While the

complaint need only “give the defendant fair notice of what the
.

.

.

claim

is

and

the

grounds

upon

which

it

rests,”

the

plaintiff’s pleading obligation “requires more than labels and
conclusions, and a formulaic recitation of the elements of a
cause of action will not do.”

Bell Atl. Corp. v. Twombly, 550

U.S. 544, 555 (2007) (internal quotations omitted).
The purpose of a Rule 12(b)(6) motion is to “test[] the
sufficiency

of

a

complaint”

and

not

to

“resolve

surrounding the facts [or] the merits of a claim.”

contests
Republican

Party of N.C. v. Martin, 980 F.2d 943, 952 (4th Cir. 1992).
court

“must

accept

as

true

all

of

the

factual

The

allegations

contained in the complaint,” Erickson v. Pardus, 551 U.S. 89, 94
(2007) (per curiam), and all reasonable inferences must be drawn
in the plaintiff’s favor, Ibarra v. United States, 120 F.3d 472,
474 (4th Cir. 1997).

However, Rule 12(b)(6) protects against

meritless litigation by requiring sufficient factual allegations
“to

raise

a

right

to

relief

above

the

speculative

level,”

Twombly, 550 U.S. at 555, so as to “nudge[] the[] claims across
the

line

from

conceivable

to

plausible,”

Ashcroft v. Iqbal, 556 U.S. 662, 680 (2009).

id.

at

570;

As explained by

the United States Supreme Court:
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
14

see

for the misconduct alleged. The plausibility standard
is not akin to a probability requirement, but it asks
for more than a sheer possibility that a defendant has
acted unlawfully.
Iqbal,

556

omitted).

U.S.

at

678

(internal

quotations

and

citations

Although the truth of the facts alleged is assumed,

courts are not bound by the "legal conclusions drawn from the
facts"

and

"need

not

accept

as

true

unwarranted

unreasonable conclusions, or arguments."
521

F.3d

298,

302

(4th

Cir.

2008)

inferences,

Giarratano v. Johnson,

(internal

quotations

and

citations omitted).
While these standards govern the consideration of a Rule
12(b)(6)

motion

standards

under

generally,
the

action such as this.
because

Congress

PSLRA

there
that

are

apply

additional

to

a

pleading

securities

class

These heightened pleading standards exist

recognized

the

potential

for

abuse

in

the

securities fraud context, including “nuisance filings, targeting
of

deep-pocket

defendants,

vexatious

manipulation by class action lawyers.”

discovery

requests

and

Merrill Lynch, Pierce,

Fenner & Smith Inc. v. Dabit, 547 U.S. 71, 81 (2006).

The

requirement of heightened pleading reflects Congress’ view that
courts should “be vigilant in preventing meritless securities
fraud claims from reaching the discovery phase of litigation.”
Cozzarelli v. Inspire Pharm. Inc., 549 F.3d 618, 623 (4th Cir.

15

2008).

Accordingly,

where

appropriate,

heightened

pleading

requirements will be discussed below.
A.

The 1934 Act Claims

The court turns first to Plaintiffs’ claims under the 1934
Act.

There

are

two

claims:

violation

of

Section

10(b)

and

violation of Section 20(a) (collectively, “1934 Act claims”).
1.

Pleading Standards

The parties agree that the 1934 Act claims must be analyzed
pursuant to Federal Rule of Civil Procedure 9(b).

(See Doc. 59

at 26 (stating that Rule 9(b) applies to the 1934 Act claims);
Doc. 66 at 29 (same)); see also City of Ann Arbor Emp. Ret. Sys.
v. Sonoco Prods. Co.,

4:08–cv–2348–TLW–TER,

2009 WL 2487045, at

*1 (D.S.C. Aug. 14, 2009) (Rule 9(b) applies when assessing a
motion

to

dismiss

a

claim

under

the

1934

Act).

Plaintiffs’ claims must be “stated with particularity.”
Civ. P. 9(b).

As

such,

Fed. R.

This means that Plaintiffs must establish the

“who, what, when, where, and how” of the alleged fraud that
underlies their claims.

United States ex rel. Wilson v. Kellogg

Brown & Root, Inc., 525 F.3d 370, 379 (4th Cir. 2008) (internal
quotations and citations omitted).
Additionally, the PSLRA requires heightened pleading as to
(1) scienter and (2) misrepresentation.

Katyle v. Penn Nat.

Gaming, Inc., 637 F.3d 462, 471 n.5 (4th Cir. 2011).
“Congress

[has]

required

that
16

plaintiffs

make

First,
specific

allegations of false statements or else face dismissal.
Congress

instructed

courts

to

dismiss

any

securities

And
fraud

complaint that does not state with particularity facts giving
rise

to

a

scienter.”

strong

inference

that

the

defendant

acted

with

Cozzarelli, 549 F.3d at 623 (internal quotations and

citations omitted).

The Supreme Court has counseled that “[a]

complaint will survive [under the PSLRA’s heightened pleading
standards] 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.”

Tellabs, Inc.

v. Makor Issues & Rights, Ltd., 551 U.S. 308, 324 (2007).
Next, if a plaintiff alleges that a defendant made false or
misleading

statements,

the

PSLRA

requires

that

the

plaintiff

“specify each statement alleged to have been misleading, the
reason or reasons why the statement is misleading, and, if an
allegation
information

regarding
and

the

belief,

statement
the

or

omission

complaint

shall

is

made

state

particularity all facts on which that belief is formed.”
U.S.C. § 78u-4(b)(1).

on

with
15

Thus, the PSLRA modifies past practice

“(1) by requiring a plaintiff to plead facts to state a claim
and (2) by authorizing the court to assume that the plaintiff
has indeed stated all of the facts upon which he bases his
allegation of a misrepresentation or omission.”

Teachers' Ret.

Sys. of La. v. Hunter, 477 F.3d 162, 172 (4th Cir. 2007) (citing
17

15

U.S.C.

§

In

78u–4(b)(1)).

determining

if

the

complaint

satisfies the pleading standards of the PSLRA, the court will
assess

the

evaluate

complaint

the

plausibility
facts

and

number
and

as

a

and

whole.

level

such,

of
of

of

detail

of

the

coherency
reliability

the

As

facts,

the

those

the

court

will

the

facts,

the

sources

sources,

and

of

any

the

other

criteria that can be used to inform how well the facts support
Plaintiffs’ allegations.
2.

Hunter, 477 F.3d at 174.

Section 10(b) Claim

Section 10(b) and SEC Rule 10b-5 (collectively referred to
as the “Section 10(b) claim” 11) make it unlawful for any person
to

commit

fraud

securities.

15

in

connection

U.S.C.

with

§78j(b);

17

the

purchase

C.F.R.

§

or

sale

240.10b-5.

of
To

succeed on a Section 10(b) claim, a plaintiff must show “(1) a
material
scienter;

misrepresentation
(3)

a

or

connection

omission

between

by

the

the

defendant;

misrepresentation

(2)
or

omission and the purchase or sale of a security; (4) reliance
upon the misrepresentation or omission; (5) economic loss; and
(6) loss causation.”

Matrixx Initiatives, Inc. v. Siracusano,

131 S. Ct. 1309, 1317 (2011).

11

SEC Rule 10b-5 is Section 10(b)’s implementing regulation. However,
the scope of Rule 10b-5 is coextensive with the coverage of Section
10(b), and it is therefore appropriate to refer to both the statute
and rule together as the “Section 10(b) claim.” See S.E.C. v. Pirate
Investor LLC, 580 F.3d 233, 237 n.1 (4th Cir. 2009).

18

In this case, Defendants have moved to dismiss Plaintiffs’
Section 10(b) claim based principally on four grounds: (1) a
lack of loss causation, 12 (2) the PSLRA’s safe harbor provision
for forward-looking statements, (3) Plaintiffs’ failure to plead
that any of the challenged statements was false/misleading or
material,

and

(4)

Plaintiffs’

failure

to

allege

establishing a strong inference of scienter.
Docs. 57 & 59.)
that

dismissal

plead

that

(See generally

After careful consideration, the court finds
is

any

facts

warranted

of

the

based

challenged

on

Plaintiffs’

statements

failure

were

a

to

material

misrepresentation or omission and, additionally, on the PSLRA’s
safe

harbor

provisions.

Accordingly,

those

grounds

are

addressed below, and the court need not reach the issues of loss
causation and scienter with respect to the 1934 Act claims.

See

Nolte v. Capital One Fin. Corp., 390 F.3d 311, 317 (4th Cir.
2004).

12

Defendants’ loss causation argument is based on the contention that
the amended complaint fails to establish a sufficient nexus between
the fall in stock price and the alleged misrepresentations and
omissions.
In short, Defendants contend that the amended complaint
makes clear that Plaintiffs’ losses resulted from the publication of
negative company performance, not from any misstatement or omission.

19

a.

Failure
to
Plead
any
Statement
was
a
Material
Misrepresentation
or
Omission
Pursuant to Section 10(b) 13

The basis of a Section 10(b) claim is that the defendant
made

“a

public

misrepresentation

primarily liable.”

(1)

false

or

which

it

may

be

found

Gariety v. Grant Thornton, LLP, 368 F.3d

356, 369 (4th Cir. 2004).
be

for

(2)

The statement challenged must either

an

omission

that

renders

the

statement

misleading.

Longman v. Food Lion, Inc., 197 F.3d 675, 682 (4th

Cir. 1999).

Additionally, the statement, whether a falsity or

an omission, must also be material.

Siracusano, 131 S. Ct. at

1317.

The Fourth Circuit has stated that Section 10(b) and Rule

10b-5

“decidedly

matter

how

do

not

willful,

prohibit

any

objectionable,

misrepresentation
or

flatly

false

–

no

–

of

immaterial facts, even if it induces reactions from investors
that,

in

hindsight

or

otherwise,

misrepresentation appear material.”
(emphasis removed).

might

make

the

Greenhouse, 392 F.3d at 656

“[A] fact stated or omitted is material if

there is a substantial likelihood that a reasonable purchaser or
seller of a security (1) would consider the fact important in
deciding whether to buy or sell the security or (2) would have
viewed

the

total

mix

of

information

13

made

available

to

be

Even if not specifically addressed below, the court has reviewed all
of the challenged statements in the amended complaint.
The court
finds
that
none
of
these
statements
constitutes
a
material
misrepresentation or omission as required by Section 10(b).

20

significantly altered by disclosure of the fact.”

Longman, 197

F.3d at 683; see also Isquith v. Middle South Utilities, Inc.,
847 F.2d 186, 207-08 (5th Cir. 1988); In re Gentiva Sec. Litig.,
No. 10-cv-5064, 2013 WL 1200334, at *10 (E.D.N.Y. Mar. 25, 2013)
(“At the pleading stage, a plaintiff satisfies the materiality
requirement of Rule 10b-5 by alleging a statement or omission
that a reasonable investor would have considered significant in
making investment decisions” (internal quotations and citation
omitted)).
Plaintiffs’ amended complaint identifies numerous allegedly
false and/or misleading statements.

The parties have grouped

the

general

challenged

statements

into

categories

convenience, and the court will do the same.

for

These categories

are: (1) statements regarding the number of retail locations at
which

Primo

marketing

products

and

were

promotion

offered;
efforts;

(2)
(3)

statements

regarding

statements

regarding

retailer demand; (4) statements regarding retailer unhappiness
and shrinkage; and (5) statements relating to the release of the
Flavor Station.

Each will be addressed in turn.
i.

The
concerns

first
the

set
number

Statements
Regarding
Retail Locations
of
of

statements
retail

products were being offered.

the

challenged

locations

at

by

Number

of

Plaintiffs

which

Primo’s

Specifically, Plaintiffs allege

21

that at the time of the IPO Primo “materially overstated the
number of locations where Primo’s water bottle exchange services
were offered, and where Primo was selling water” by including
approximately 1,500 store locations in its reported 7,200 water
bottle exchange service locations that did not have water bottle
exchange machines and did not sell Primo water.

(Doc. 52 at ¶

49.)
In its IPO Registration Statement, Primo stated:
As of June 30, 2010, our bottle water exchange service
and water dispensers were offered in each of the
contiguous United States and located in approximately
7,200 and 5,500 retail locations respectively . . . In
addition,
we
added
approximately
700
exchange
locations during the quarter ended September 30, 2010,
bringing the total number of our exchange locations as
of September 30, 2010 to approximately 7,900.
(Doc. 52 at ¶ 50.)

Plaintiffs contend that these statements

(and others relating to the number of retail locations in the
Secondary

Offering

(see,

e.g.,

id.

at

¶

104),

press

releases/conference calls (see, e.g., id. at ¶ 167, 170, 183),
and other SEC filings (see, e.g., id. at ¶ 176)) were materially
inaccurate.
over-reporting
products

Specifically,
the

because

number

1,500

Plaintiffs
of

stores

locations
in

the

contend
at

that

which

Western

it

Primo

was

sold

its

region

of

the

United States “had not had a delivery of water in 18 months or
more.”

(Id. at ¶ 53.)

Plaintiffs also state that there were

“stores that sold less than five bottles a year that Primo still

22

counted

within

the

purported

total

number

of

stores.

Other

stores listed as actively selling Primo bulk water had only two
or three new bottles delivered in a year’s time.”

(Id.)

Plaintiffs’ falsity argument is premised on the allegation
that

Primo

“materially

overstated

the

number

of

stores

it

reported as selling Primo products” and the proposition that
underperforming stores could not be considered as “offering” the
product.

(Id. at ¶ 56 (emphasis added).)

Plaintiffs argue that

sales were lagging in many stores and therefore the report of
the number of locations was misleading.

However, Plaintiffs’

claims that Defendants’ statements are materially false and/or
misleading fail.
There is no evidence that Primo ever made any statement
regarding
selling

the
its

Statement,
that

number

products;

Secondary

“[Primo’s]

dispensers

of

were

locations

at

instead,

Primo’s

Offering,

bottle
offered”

and

which

it

was

IPO

Registration

press

releases

water

exchange

service

at

certain

a

number

actually

state
and

of

only
water

locations.

(See, e.g., id. at ¶ 49, 60, 104-05.)

Even if 1,500 locations

reported

deliveries

by

Primo

had

not

received

in

eighteen

months, Plaintiffs fail to identify a material misrepresentation

23

or

omission 14

products

were

that

contradicts

being

offered,

reported

location.

authority

for

the

Primo’s

even

Plaintiffs
proposition

if
have

that

assertion

not

that

robustly,

not

at

its
every

articulated

Defendants

had

a

duty

any
to

identify the relative success of each of its retail locations,
and the court cannot conceive of one on these facts.
Moreover,

in

light

of

the

information

Primo

disclosed,

there is no substantial likelihood that a reasonable purchaser
or seller would have considered the alleged fact important in
deciding whether to buy or sell, or would have viewed the total
mix of information made available to him to be significantly
altered

by

its

disclosure.

Longman,

197

F.3d

at

682-83.

Primo’s various offerings and 10-Qs and 10-Ks (see App. at 409502 (Form 10-K for Year Ended December 31, 2010) and 503-530
14

In the amended complaint, Plaintiffs do allege that “multiple Kmart
stores no longer stocked any of Primo’s water products.” (Doc. 52 at
¶ 52.)
This is the only allegation that relates to whether Primo
falsely reported the number of locations at which its products were
being offered. However, simply alleging that “multiple Kmart stores”
no longer stocked Primo products is not enough for Plaintiffs to
survive a motion to dismiss.
An element of a claim under Section
10(b) is that a challenged misrepresentation or omission be
“material.”
Siracusano, 131 S. Ct. at 1317.
Plaintiffs have not
alleged with any particularity that the number of Kmart stores no
longer offering Primo’s products is material.
“Multiple” means only
more than one.
Merriam-Webster Online Dictionary, http://www.m-w.com
(last visited May 21, 2013) (defining multiple as “involving more than
one”). This allegation fails to establish materiality in light of the
thousands of stores to which Primo supplied products.
As such,
because materiality is not sufficiently pleaded, this allegation will
not help Plaintiffs escape dismissal. See Greenhouse, 392 F.3d at 656
(stating that Section 10(b) does “not prohibit any misrepresentation —
no matter how willful, objectionable, or flatly false — of immaterial
facts”).

24

(Form

10-Q

for
total

sales

company’s

Quarter

operations.
determine
public

The

averages

Ended

June

revenues

reasonable
of

statements.

those

(See,

30,

as

a

2011)),
result

of

was

easily

investor
figures

e.g.,

based

id.

disclosed

at

on

769

its

the
for

the

retail

able

to

company’s
an

analyst

calculation of average per location sales and exchange revenue
per bottle.)
Primo also clearly disclosed as early as the IPO that a
substantial portion of its sales were attributable to a small
number of large retailers.
small

number

sales.”)

&

of
20

large

(See id. at 14 (“We depend on a

retailers

(“Certain

for

retailers

most

of

make

up

our
a

consumer

significant

percentage of our retail sales volume, such that if one of more
of these retailers were to materially reduce or terminate its
business with us, our sales would suffer.”).)

Moreover, as the

company’s reported retail locations grew over the Class Period,
from

7,200

reported

in

(exchange
the

IPO

service)/5,500
(id.

at

6),

to

(dispensers)

locations

“approximately

14,600

combined retail locations” in the Secondary Offering (id. at
233), to 22,600 locations by September 30, 2011, as noted in the
November

8,

2011

press

release

(id.

at

631),

and

as

the

company’s sales continued to increase significantly, the impact
of the alleged 1,500 underperforming stores cannot be said to
have been material.
25

Accordingly, Plaintiffs’ claims as to challenged statements
regarding the number of retail locations will be dismissed.
ii.

Plaintiffs
marketing

next

and

Statements
Regarding
Promotion Efforts

challenge

promotion

Primo’s

efforts.

Marketing

statements

Though

and

about

Plaintiffs

its
make

numerous allegations on this point, their ultimate contention is
that

Primo

was

“failing

products, if at all.”

to

properly

promote

and

(Doc. 52 at ¶ 62.)

market

its

In the amended

complaint, Plaintiffs identify several statements by Primo in
the

IPO

Registration

Statement

about

marketing

and

promotion

efforts, exemplified by the following:
We direct our marketing efforts as close as possible to
the point of sale to strengthen our brand and promote
consumer awareness of our water bottle exchange service
. . . Our displays include Primo graphics, slogans and
instructions on the exchange process that simply attach
to the displays . . . In addition, we work with retailers
to customize in-store solutions to best promote our brand
. . . We plan to increase our promotional activity as we
expand our business . . . We are also increasing our
public relations initiatives associated with new market
launches, developing additional cooperative advertising
programs with retail distribution partners and increasing
our field marketing activities.
(Id. at ¶ 61.)
the

Secondary

efforts.

Further, Plaintiffs attack statements made in
Offering

and

2010

Form

10-K

about

marketing

(Id. at ¶¶ 107, 201 (which identify Primo displays and

cross marketing promotion efforts as efforts to “develop[] and
maintain[]

a

brand

identity”).)

26

Plaintiffs

also

identify

statements in the August 2011 press release about direct-to–
consumer marketing plans as false and misleading.

(Id. at ¶ 232

(challenging Primo’s statement in the August 2011 press release
that it plans to implement a “new direct-to-consumer marketing
campaign to increase exposure and raise awareness of its full
product

offering

and

to

drive

sales

of

appliances

and

consumables”).)
Plaintiffs
marketing

and

contend

that

promotion

statements of fact.

all

of

efforts

these

are

statements

materially

about

inaccurate

Specifically, they assert that, leading up

to the IPO, Primo was failing to properly promote and market its
products, thus leading to retailer dissatisfaction, and that at
the time of the IPO Primo was not planning to increase its
promotional

activities,

public

field marketing activities.
this

assertion

employees

on

serving

relations

(Id. at ¶ 62.)

information
as

initiatives,

obtained

confidential

or

its

Plaintiffs base

from

witnesses.

former

Primo

Confidential

Witness 6 (“CW6”) reported that Primo “did not value sales or
marketing,”
“wouldn’t

“had
put

literally
money

into

no

consumer

marketing.”

based

marketing,”

(Id.

at

¶

and
66.)

Confidential Witness 4 (“CW4”) also reported that “Primo did not
have the finances to properly ‘promote the product.’”
¶ 70.)

Other

confidential

witnesses

(Confidential

(Id. at
Witness

5

(“CW5”) and Confidential Witness 3 (“CW3”)) reported that Primo
27

was not updating its graphic displays (Id. at ¶ 72) and not
offering price promotions (Id. at ¶ 73).

CW5 also reported that

Primo cut its marketing budget by $130,000 and fired its outside
marketing company.
None

of

(Id. at ¶ 84.)

these

statements

Section 10(b) claim.
the

amended

assertions

serve

as

the

basis

of

a

First, as noted by the Primo Defendants,

complaint

that

can

Primo

itself
was

calls

“failing

market its products, if at all.”

into
to

doubt

properly

(Id. at ¶ 62.)

Plaintiffs’
promote

and

The amended

complaint contains multiple allegations that Primo was in fact
carrying on marketing and promotional activities.
paragraph

112

contains

CW5’s

recounting

of

an

For example,
April

2011

negotiation with Lowe’s for a “dispenser promotion”; paragraph
113 contains CW5’s statements that “just two months before the
Secondary Offering . . . Primo tried to convince Target to run a
promotion”; paragraph 118 recounts how Primo “spent money to
market . . . the Flavor Station”; paragraph 235 recounts how
Primo “completed a branding review related to [the] Omnifrio
acquisition”; and paragraph 256 notes that Primo “just gave some
promotional dollars away for this quarter to get – to kind of
juice

some

sales.”

These

statements

flatly

contradict

Plaintiffs’ assertions that Primo failed to engage in marketing
or promotional activity.

28

Additionally, the court cannot credit the evidence provided
by

several

Primo’s

of

the

plans

for

confidential
marketing

and

witnesses

that

promotion

reported

efforts.

on

If

a

“complaint chooses to rely on facts provided by confidential
sources,

it

must

describe

the

sources

with

sufficient

particularity to support the probability that a person in the
position occupied by the source would possess the information
alleged or in the alternative provide other evidence to support
their allegations.”

Hunter, 477 F.3d at 174.

Plaintiffs fail

to satisfy this standard because multiple confidential witnesses
that

made

allegations

about

Primo’s

marketing

and

promotion

plans left Primo’s employment before the Class Period began.
Both CW3 and CW4 left Primo’s employment in July 2010 (Doc. 52
at ¶ 33-34), well before November 4, 2010, the date of the IPO
and the first day of the Class Period.

As such, statements by

these confidential witnesses that Primo was not offering product
promotions before the IPO and start of the Class Period (see
Doc. 52 at ¶¶ 70 & 73) do not support Plaintiffs’ allegations
that Primo made materially false or misleading statements during
the

Class

Period.

CW3

and

CW4

simply

could

not

have

had

personal knowledge of marketing and promotional activities or
plans

conducted

after

the

IPO

that

would

have

made

statements about marketing plans false or misleading.

Primo’s

See In re

Trex Co., Inc. Sec. Litig., 454 F. Supp. 2d 560, 573 (W.D. Va.
29

2006) (stating that “[a] confidential witness’ testimony can be
used

in

pleading

under

the

PSLRA

so

long

as

the

testimony

involves facts of which the witnesses had personal knowledge,”
and then finding that confidential witness statements did not
meet this standard because the witnesses had left employment
during the relevant class period).
Further, Primo’s statements about marketing and promotions
constitute immaterial puffery.

“[S]tatements that consist of

nothing more than indefinite statements of corporate optimism,
also known as ‘puffery,’ are immaterial as a matter of law.”

In

re Lab. Corp. of Am. Holdings Sec. Litig., No. 1:03CV591, 2006
WL

1367428,

at

*9

(M.D.N.C.

May

18,

2006)

(citing

Raab

v.

General Physics Corp., 4 F.3d 286, 289 (4th Cir. 1993)); see
also In re Cable & Wireless, PLC, Sec. Litig., 332 F. Supp. 2d
896, 900 (E.D. Va. 2004) (defining an immaterial statement as “a
certain kind of rosy affirmative commonly heard from corporate
managers and familiar to the marketplace - loosely optimistic
statements that are so vague, so lacking in specificity, or so
clearly

constituting

the

opinions

of

the

speaker,

that

no

reasonable investor could find them important to the total mix
of information available”).
Here, Primo’s statements merely parrot corporate optimism
that would not be deemed important to a reasonable investor when
making a decision about purchasing securities.
30

For example,

Primo’s statements that marketing efforts are “direct[ed] . . .
as close as possible to the point of sale to strengthen our
brand” (Doc. 52 at ¶ 201), that the company was “plan[ning] to
increase our promotional activity” (id. at ¶ 61), and that the
company

was

“increasing

our

public

relations

initiatives

associated with new market launches” (id.) are nothing more than
amorphous, optimistic statements that cannot form the basis of a
Section

10(b)

claim.

See,

e.g.,

Longman,

197

F.3d

at

685

(holding that company's statement that it “believe[s] that Food
Lion's Extra Low Prices and its clean and conveniently located
stores

are

especially

well

suited

to

the

demands

of

our

customers” was immaterial puffery and could not form the basis
of a Section 10(b) claim); Raab, 4 F.3d at 289 (holding that a
statement that a company's business unit was “poised to carry
the

growth

and

success

of

1991

well

into

the

future”

was

immaterial puffery).
Finally, any remaining statements that do not constitute
immaterial
example,

puffery

are

Plaintiffs

simply

not

challenge

false

Primo’s

or

misleading.

statement

that

For
its

“displays include Primo graphics, slogans and instructions on
the exchange process” (Doc. 52 at ¶ 61).

However, at no point

in the amended complaint do Plaintiffs actually contradict this
assertion.

Rather, Plaintiffs allege that display graphics for

bulk water shelving were “starting to age” and that even though
31

funds were reallocated from sales to redesign to update them,
the graphics were not redesigned.

(Id. at ¶ 72.)

Plaintiffs

also allege that CW1, who helped install graphic displays before
the IPO, “was only provided with ‘50 percent’ of the materials
needed to do the job.”

(Id. at ¶ 80.)

However, the only

example provided in the amended complaint is an instance (again,
before the IPO and Class Period) where CW1 was told to use
display

products

already

“in

the

field”

even

though

those

displays did not match newer graphics used on Primo products.
(Id. at ¶ 82.)
In the end, Plaintiffs’ attack on Primo’s marketing and
promotion representations devolves into a disagreement as to the
quality

and

execution

of

the

effort.

For

example,

while

Plaintiffs allege that Primo discharged its outside marketing
firm, the August 2011 press release reveals that the company
hired an internal head of marketing to oversee the company’s
efforts.

(App. at 625.)

Plaintiffs’ criticisms do not rise to

the level of a Section 10-b claim under the PSLRA.

Accordingly,

the court finds that none of the challenged statements relating
to marketing and promotion efforts can serve as a basis for the
Plaintiffs’ Section 10(b) claim.

32

iii. Statements
Regarding
Shrinkage,
Retailer
Unhappiness,
and
Retailer
Demand
Plaintiffs next challenge Primo’s statements that relate to
shrinkage (high rate of product loss), retailer unhappiness, and
retailer demand.
The specific statements in the IPO Registration Statement
relating to shrinkage and retailer unhappiness are as follows:
Our water bottle exchange solution is easy for
retailers to implement, requires minimal management
supervision
and
store
based
labor
and
provides
centralized billing and detailed performance reports.
Our solution offers retailers attractive financial
margins and the ability to optimize typically unused
retail space with our displays.
Additionally, due to
the recurring nature of water consumption and water
bottle exchange, retailers benefit from year-round
customer traffic and highly predictable revenue . . .
Our water bottle exchange service provides retailers
with a year-round consumer product and an opportunity
to increase sales and profits with minimal labor and
financial investment . . . Retailers benefit from our
water bottle exchange service that offers high margin
and generates productivity from often underutilized
interior and exterior retail space . . .
[E]mpty bottles are exchanged at our recycling center
displays where consumers receive a recycling ticket
that offers a discount toward the purchase of a full
bottle of Primo purified water . . .
We acquire new consumers . . . by accepting most
dispenser-compatible water bottles in exchange for a
recycle ticket discount toward the purchase of a full
bottle of Primo purified water . . .
We sell our water dispensers at minimal margin and
provide a coupon for a free three- or five-gallon
bottle of water with the sale of various water

33

dispensers at certain retailers to drive
demand for our water bottle exchange[.]
(Doc.

52

at

¶¶

86-87.)

Additionally,

consumer

Plaintiffs

challenge

statements in the Secondary Offering and various press releases
regarding the opportunity for the company’s future growth and
the company’s ability to increase market penetration.

(See,

e.g., id. at ¶ 60 (“Such retailers present us an opportunity of
approximately 13,900 additional nationwide locations”) & ¶ 105
(“We believe we have significant opportunities to increase store
penetration with our existing retail relationships”).)
Plaintiffs argue that these statements are actionable under
Section
water

10(b).
bottle

consumers

to

Specifically,
machines

steal

were

water

Plaintiffs

bottles

that

Primo’s

manufactured

poorly

allege

and

allowed

and

discount

coupons,

thus

failing to result in positive financial results or high margins
for retailers, as claimed.

(Id. at ¶ 88.)

According to CW1 and

CW3 (both of whom left the company before the Class Period), the
ability of consumers to illicitly remove returned water bottles
and activate the water dispenser’s sensor to acquire a discount
ticket without actually having returned a water bottle meant
that Primo’s shrinkage numbers reached as high as 15% to 25% in
some months.
challenge

(Id. at ¶¶ 90-92.)

statements

in

the

IPO

Plaintiffs also generally
Registration

Statement

and

Secondary Offering by alleging that Primo’s products were not

34

selling,

thus

aggravating

expansion opportunities.

retailers

and

limiting

market

(Id. at ¶¶ 97-98, 62(a).)

Plaintiffs allege that Primo’s statements that its products
had

high

margins

for

retailers

are

contradicted

by

the

statements of the confidential witnesses that customers could
illegitimately
coupons

from

obtain

returned

Primo’s

water

machines.

bottles

However,

and

discount

statements

about

products having high margins are nothing more than “‘[s]oft,’
‘puffing’”

statements

immaterial

as

(statement

that

a

that

matter

of

have

previously

law.

“[r]egulatory

See

changes

been

Raab,
.

.

.

4

found
F.3d

have

to
at

be
289

created

a

marketplace for the DOE Services Group with an expected annual
growth rate of 10% to 30% over the next several years” was
immaterial); Lasker v. N.Y. State Elec. & Gas Corp., 85 F.3d 55,
59

(2d

Cir.

strategies

1996)

would

Pipefitters

Local

(statements

that

lead

to

“continued

No.

636

Defined

the

defendant’s

prosperity”

Ben.

Plan

v.

business

immaterial);
Tekelec,

No.

5:11–CV–4–D, 2013 WL 1192004, at *8 (E.D.N.C. Mar. 22, 2013)
(finding statements that Tekelec “expected growth to come from
EAGLE

XG”

and

that

“business

has

been

very

strong”

not

actionable); Palladin Partners v. Gaon, No. 05-CV-3305, 2006 WL
2460650,

at

*9

(D.N.J.

Aug.

22,

2006)

(finding

that

the

defendant’s statement that it “expects to achieve improvements
to gross margins” was not actionable); cf. Newman v. Rothschild,
35

662 F. Supp. 957, 959 (S.D.N.Y. 1987) (statement by defendant
that investment would yield twenty to thirty percent profit was
beyond mere puffery because it provided a specific percentage).
Additionally, even if this were not the case, Plaintiffs’
allegations

about

Plaintiffs

allege

statements

about

shrinkage

their

still

fail.

shrinkage

that

would

costs

rendered

products

having

a

“high

Although
Primo’s

margin”

for

retailers false, the amended complaint itself undermines this
assertion.

In the amended complaint, Plaintiffs reveal that

Primo

its

sold

consignment.

products

(Doc.

52

to

at

¶

Kmart,
94.)

Lowe’s,
This

and

meant

Kroger

that

“it

on
was

Primo’s responsibility to make up for the presence of any short
fall

between

deliveries

and

sales,”

and

thus

shrinkage was born by Primo, not the retailers.
n.4.)

the

cost

of

(Id. at ¶ 95

As such, for several of Primo’s largest accounts, 15 any

amount of shrinkage would not have affected the margins on Primo
products from the retailers’ point of view.
Plaintiffs’

next

set

of

allegations

unhappiness and retailer demand.

relate

to

retailer

Plaintiffs challenge Primo’s

statements that its products were a benefit to retailers and
that

it

had

significant

expansion

15

opportunities,

citing

the

Kmart, Lowe’s, and Kroger account for Primo’s top retailers.
For
example, Lowe’s alone represented 37% of Primo’s consolidated net
sales for calendar year 2010. (Doc. 52 at ¶ 110.) As such, the court
(and a reasonable investor) can safely conclude that a large number of
Primo’s products were purchased on consignment.

36

company’s sales results.

Again, Primo’s statements in the IPO

Registration Statement, Secondary Offering, and press releases
on these points consist of nothing more than innocuous corporate
optimism about the growth of the company and the effect of Primo
products on retailers.

See Longman, 197 F.3d at 685 (holding

that company's statements that it “believe[s] that Food Lion's
Extra Low Prices and its clean and conveniently located stores
are especially well suited to the demands of our customers” and
that

the

company

“will

continue

to

pay

close

attention

to

service levels and cleanliness in our stores and believe we will
achieve

high

immaterial

marks

from

customers

puffery);

Raab,

4

F.3d

at

in
289

these

areas”

(statement

were

that

a

business unit was “poised to carry the growth and success of
1991 well into the future” was immaterial); In re Computer Scis.
Corp. Sec. Litig., 890 F. Supp. 2d 650, 668 (E.D. Va. 2012)
(statements

that

the

company

“steadily

made

progress

in

delivering on our commitments” and the company was “pleased with
[its] progress” were immaterial); In re First Union Corp. Sec.
Litig., 128 F. Supp. 2d 871, 892 (W.D.N.C. 2001) (holding that
statements that “1998 will continue to be a very active year”
and that “we expect further improvements in efficiency” were
immaterial); see also Rombach v. Chang, 355 F.3d 164, 174 (2d
Cir. 2004) (noting that companies must be permitted to operate
with a “hopeful outlook”).

Additionally, regarding Plaintiffs’
37

allegations

that

retailers

were

dissatisfied

with

Primo’s

products, the amended complaint and confidential witnesses fail
to

identify

a

single

dissatisfied

retailer.

This

makes

Plaintiffs’ allegations conclusory and vague, and the pleading
standards of the PSLRA are not satisfied.

In re Trex, 454 F.

Supp. 2d at 579 (finding that confidential witness statements
did not meet the particularity requirement of the PSLRA when the
confidential witness did not name any distributors that were
actually dissatisfied with the company’s business agreement).
Accordingly, a Section 10(b) claim will not lie based on
the challenged statements about shrinkage, retailer unhappiness,
and retailer demand.
iv.

Statements Relating to the Release of
the Flavor Station

The last set of statements challenged by Plaintiffs relates
to the Omnifrio acquisition and release of the Flavor Station
appliances.

Specifically, the amended complaint challenges two

of Primo’s statements relating to the acquisition of Omnifrio: a
March and June 2011 statement that Omnifrio had developed 30
flavors

(see,

e.g.,

Doc.

52

at

¶¶

221,

223(c))

and

Primo’s

forecast that sales of a Flavor Station device would begin in
the fourth quarter of 2011 (see, e.g., id. at ¶¶ 115, 182, 18688, 203, 212, 231, 235-36).

38

With regard to Primo’s statement that “[w]e have more than
30 flavors today” (id. at ¶ 221), Plaintiffs allege that this
statement is false because approximately five months later Primo
announced
appliances

that

it

during

had

“limited

the

fourth

reformulating its flavors.”

sales

quarter

of

Flavor

due

(Id. at ¶ 251.)

to

Station

delays

in

Plaintiffs assert

that this contradicts Primo’s previous statement that Omnifrio
had already developed 30 flavors.
Although

Plaintiffs

identify

these

statements

as

inconsistent, Plaintiffs have not plausibly alleged that Primo
did not in fact acquire 30 flavors from Omnifrio.

Implicit in

Primo’s statement that it was reformulating Omnifrio flavors is
the

fact

that

Omnifrio

would

first

have

had

to

develop

flavors so that they could in fact be “reformulated.”

the

Thus,

Plaintiffs have not met the pleading standards of the PSLRA.
Further, the statements that Primo expected the launch of
the Flavor Station during the fourth quarter/holiday season of
2011

are

not

materially

false

or

misleading.

Specifically,

under the “bespeaks caution” doctrine, the statements at issue
are

not

material.

misrepresentation

or

In

determining

omission

is

whether

material,

the

an

alleged

court

must

consider the statement in the full context in which it was made.
Gasner v. Bd. of Supervisors of the Cnty. of Dinwiddie, Va., 103
F.3d 351, 358 (4th Cir. 1996).

Moreover, cautionary language in
39

a

document

may

negate

the

materiality

misrepresentation or omission.

of

an

alleged

In re Donald J. Trump Casino

Sec. Litig., 7 F.3d 357, 371 (3d Cir. 1993), cert. denied sub
nom.

Gollomp

Coventry

v.

Trump,

Healthcare,

510

Inc.

U.S.

Sec.

1178

(1994);

Litig.,

No.

accord

In

re

08:09–CV–2337–AW,

2011 WL 1230998, at *12 (D. Md. Mar. 30, 2011).

The use of

cautionary language is usually not dispositive but instead is
relevant to the materiality inquiry.

Rubinstein v. Collins, 20

F.3d 160, 168 (5th Cir. 1994).

However, dismissals based on the

bespeaks

appropriate

caution

doctrine

are

when

the

complaint

“attempts to turn economic forecasts or corporate goals into
actionable

misrepresentations.”

In

re

Sourcefire,

Inc.

Sec.

Litig., No. JFM 07–1210, 2008 WL 1827484, at *5 (D. Md. Apr. 23,
2008).

This is the case because the bespeaks caution doctrine

mirrors the securities laws’ goal of regulating forward-looking
statements less so than declaratory statements of fact.

See,

e.g., Malone v. Microdyne Corp., 26 F.3d 471, 479 (4th Cir.
1994)

(“Misstatements

present

facts

statements

are

or

far

omissions

regarding

more

regarding

likely

projections

of

to

be

actual

past

actionable

future

or

than

performance.”

(emphasis removed)).
In the Secondary Offering, press releases, and conference
calls at issue, Primo did make forward-looking statements about
its

goal

to

launch

the

Flavor
40

Station

appliance,

but

it

accompanied those statements with cautionary language.

(See,

e.g., App. at 245 (Secondary Offering) (stating that “We may not
be able to introduce or sell products to be developed by the
Omnifrio Single-Serve Beverage Business within the anticipated
timeframe or at all”; “We have not yet introduced these products
and we may never be successful in selling them”; “[A] market for
these products may never develop”; “[W]e may not realize the
full benefits of the acquisition transactions”), 428 (Form 10-K)
(“We

may

Omnifrio
business

experience
Single-Serve
and

may

not

difficulties
Beverage
be

able

in

integrating

Business
to

fully

with
realize

.

.

our
all

.

the

current
of

the

anticipated synergies from [this] acquisition[]”), 528 (Form 10Q) (“Our introduction of these products into the market may also
be adversely affected by certain factors that are out of our
control”), 626 (August 2011 press release) (stating that “actual
results could differ materially from those stated here,” noting
Primo’s potential inability to “develop, introduce and produce
new

product

offerings

(including

the

Flavor

Station

line

of

appliances) within the anticipated time frame or at all,” and
referencing the risk disclosures in the Form 10-K), 660 (Q2 2011
Earnings Call) (referencing the prior risk disclosures in the
August 2011 press release and Primo’s SEC filings).)
This cautionary language was tailored to the specific risks
Primo

faced

in

launching

the
41

Flavor

Station.

See

In

re

Constellation Energy Group, Inc. Sec. Litig., 738 F. Supp. 2d
614, 625 (D. Md. 2010).

Further, the cautionary language is

particularly relevant here because Primo’s statements were only
future projections, not statements of past or present fact.
Shaw

v.

Equip.

superseded

1996),

Digital

by

Corp.,

statute

82
on

F.3d
other

1194,

1206

grounds,

as

(1st

See
Cir.

noted

in

Greebel v. FTP Software, Inc., 194 F.3d 185 (1st Cir. 1999)
(“[The bespeaks caution doctrine] embodies the principle that
when

statements

estimates,

of

‘soft’

opinions,

or

information
projections

such
are

as

forecasts,

accompanied

by

cautionary disclosures that adequately warn of the possibility
that

actual

results

or

events

may

turn

out

differently,

the

‘soft’ statements may not be materially misleading under the
securities laws.”).

As such, statements made by Primo about the

launch of the Flavor Station cannot serve as the basis for a
Section 10(b) claim. 16
b.

In

addition

challenged

by

The “Safe Harbor” Provision of the PSLRA
Immunizes Some of the Challenged Statements
from Liability
to

the

Plaintiffs

fact
is

that
a

none

of

misstatement

the
or

statements
omission

of

material fact, the safe harbor provision of the PSLRA applies to

16

Alternatively, as discussed below, these statements are also immune
from liability under the PSLRA safe harbor.

42

certain of the statements.

Specifically, statements made in the

Secondary Offering, in challenged guidance documents, or during
conference calls with investors 17 are immune from liability if
they

are

forward-looking

statements

meaningful cautionary language.

that

are

accompanied

by

Under the PSLRA safe harbor,

forward-looking statements are protected from liability if “they
contain ‘meaningful cautionary statements identifying important
factors that could cause actual results to differ materially
from those in the forward-looking statement[s].’”

Johnson v.

Pozen, Inc., No. 1:07CV599, 2009 WL 426235, at *14 (M.D.N.C.
Feb.

19,

2009)

(quoting

meaningful

statement

reasonable

investor

15

need
of

U.S.C.

only

be

§

78u-5(c)(1)(A)(i)).

enough

significant

to

risks

properly
similar

actually realized so as to put him or her on notice.
Corp., 2006 WL 1367428, at *5.
looking

statement

is

not

A

warn
to

a

that

In re Lab.

Further, “[e]ven if a forward-

accompanied

by

cautionary

language,

liability only attaches if the speaker had actual knowledge that
it

was

false

when

made.”

Pozen,

2009

WL

426235,

at

*14

(emphasis removed).

Thus, Primo’s statements are protected by

the

(1)

safe

harbor

if

the

statements

were

accompanied

by

meaningful cautionary language, or (2) Plaintiffs have failed to
17

Statements made in connection with the IPO are not afforded the
protection of a safe harbor, even if they were forward-looking
statements accompanied by sufficient cautionary language.
See 15
U.S.C. § 77z-2(b)(2)(D).

43

plead that the speaker had actual knowledge of the statements’
falsity at the time the statements were made.
Forward-looking statements under the PSLRA are defined to
include

“‘statement[s]

income

(including

loss)

per

income

share,

structure,

or

statement[s]

containing

the

of

revenues,

earnings

(including

earnings

dividends,

capital

financial
plans

projection

expenditures,

capital

other

of

loss),

a

and

items,’

as

objectives

of

well

as

‘[]

management

for

future operations, including plans or objectives relating to the
products

or

services

of

the

issuer.’”

Id.

In

this

case,

statements made by Primo in the challenged guidance statements
and Secondary Offering qualify as forward-looking because they
involve

earnings

operations.

projections

or

statements

regarding

future

For example, Primo’s May 2011 press release, which

contained an earnings prediction for the second quarter and full
year 2011, stated that Primo “expects total sales . . . to
double”

and

“continues

275%.”

(App. at 615.)

to

expect

sales

to

increase

260%

to

The amended complaint establishes that

Primo later missed these projections because two of its major
retailers,

Lowe’s

and

Wal-Mart,

had

national rollout of Primo’s dispensers.

decided

to

postpone

a

(Doc. 52 at ¶ 110.)

Plaintiffs allege that Primo’s statement in the May 2011
guidance
statement

statement
was

was

false

specifically

and

misleading;

identified
44

as

a

however,

this

forward-looking

statement and accompanied by meaningful cautionary language.

In

the May 2011 press release, Primo specifically stated:
Certain statements contained herein (including our
second quarter and full year 2011 guidance) are not
based on historical fact and are ‘forward-looking
statements’ within the meaning of the applicable
securities laws and regulations . . . Owing to the
uncertainties inherent in forward-looking statements,
actual results could differ materially from those
stated here.
Factors that could cause actual results
to differ materially . . . include . . . the loss of
major retail customers of the Company or the reduction
in volume of purchases by major retail customers . . .
[or] lower than anticipated consumer and retailer
acceptance[.]
(App.

at

616.)

Further,

the

May

2011

press

release

also

referenced additional risks that were identified in Primo’s 2010
Form 10-K, which was filed March 30, 2011.

(Id. at 616, 411-

502).
Such SEC filings incorporated by reference are sufficient
to invoke the safe harbor.
Supp.

2d

included

650,
a

Industry.”

661

(D.

section

on

Md.

In re CIENA Corp. Sec. Litig., 99 F.
2000).

“Risks

(App. at 428.)

In

Relating

the

Form

to

Our

10-K,

Primo

Business

and

There, Primo identified risks it

faced due to its reliance on a small number of large retailers
(specifically Lowe’s and Wal-Mart) that were “nonexclusive and
may

be

terminated

significant

at

retailer

will.”

(Id.

materially

(noting

reduces,

that

“[i]f

terminates

or

any
is

unwilling to expand its relationship with us, . . . our sales
would suffer”).)

Primo noted that large retailers “continually
45

evaluate and often modify their in-store retail strategies” and
“[o]ur business could suffer significant setbacks in net sales
and

operating

income

if

one

or

more

of

our

major

retail

customers modified its current retail strategy resulting in a
termination or reduction of its business relationship with us.”
(Id.)

The court finds that this cautionary language “conveys

substantive information about factors that realistically could
cause results to differ materially from those projected in the
forward-looking statement” and thus is sufficient as a matter of
law to activate the PSLRA’s safe harbor.

See In re Humphrey

Hospitality Trust, Inc. Sec. Litig., 219 F. Supp. 2d 675, 683-84
(D. Md. 2002) (internal quotations removed).
In the August 2011 press release, Primo also made forwardlooking

statements

appliance.

about

the

launch

of

the

Flavor

Station

(See App. at 624 (noting that the “Company expects

to launch a version of the Primo Flavor Station”; the Flavor
Station

“will

holiday

season”;

Products

will

be

offered
“[t]he

provide

as

a

tabletop

introduction

the

Company

of

with

model
the

for

the

Flavor

numerous

high

2011

Station
margin

‘razorblades’”; “[t]he Company expects that these appliances and
consumable products will positively impact its long-term growth
prospects”).)
language

This

press

release

also

identifying

those

statements

as

contained

cautionary

forward-looking

and

noting numerous risks associated with the launch of the Flavor
46

Station.

(Id. at 626.)

For example, Primo noted that it might

have

“inability

develop,

the

product

offerings

to

(including

introduce,

the

and

Flavor

produce

Station

new

line

appliances) within the anticipated timeframe or at all.”

of

(Id.)

Further, the press release also referenced the Form 10-K, which
identified additional risks relating to the launch of the Flavor
Station.
“[w]e

(Id. at 626, 428.)

may

In the Form 10-K, Primo noted that

experience
Single-Serve

Omnifrio
business

difficulties
Beverage

and

may

not

be

able

in

integrating

Business
to

the

with

fully

our

realize

anticipated synergies from these acquisitions.”

.

.

.

current

all

of

the

(Id. at 428.)

Similarly, forward-looking statements regarding the launch
of the Flavor Station were also made in a Q2 2011 earnings call.
During that telephone call, Primo executives stated that they
“expect

to

have

over

20

flavors

available

for

this

holiday

season” and “will market this product directly to consumers and
plan

to

have

it

available

in

specialty

catalog on a limited basis this year.”

stores

and

specialty

(Id. at 663.)

These

statements were accompanied by cautionary language, as at the
start

of

remarks

the

call

contain

investors

were

forward-looking

warned

that

statements”

“the

and

prepared

“should

be

considered within the meaning of the applicable securities law
and

regulations.”

referenced

the

(Id.

warnings

at
it

660.)
issued
47

Additionally,
in

the

August

Primo

also

2011

press

release,

as

well

as

in

all

(including the Form 10-K).

documents

filed

with

the

SEC

(Id.); see Harris v. IVAX Corp., 998

F. Supp. 1449, 1454 n.4 (S.D. Fla. 1998), aff'd, 182 F.3d 799
(11th

Cir.

meaningful

1999)

(“Congress

cautionary

was

language

explicit

could

in

incorporate

stating
by

that

reference

information contained in documents filed with the SEC.”)
This cautionary language accompanying the statements about
the

release

of

the

activate

the

PSLRA’s

provides

substantive

Flavor
safe

Station
harbor.

information

appliances
The

about

suffices

cautionary
the

risks

to

language
faced

by

investors and identifies “meaningful and important factors that
could affect future performance.”

Id. at 1454.

Plaintiffs object to the applicability of the safe harbor
provision

on

the

ground

that

Primo’s

cautionary

language

is

generic boilerplate that is insufficient to implicate the safe
harbor.

It is true that “boilerplate warnings will not suffice

as meaningful cautionary statements.”
369, at 43 (1995).

H.R. Conf. Rep. No. 104–

However, the cautionary language used by

Primo is beyond mere boilerplate.
Indeed, in In re Lab. Corp., 2006 WL 1367428, this court
found that even less specific language was sufficient to dismiss
an action pursuant to the PSLRA safe harbor.

There, plaintiffs

claimed that the defendants failed to warn about the danger of
losing several large contracts and the need to cut costs that
48

led

to

service

deficiencies.

The

defendants

in

fact

warned

about increased competition, the failure to obtain and retain
new

customers,

and

the

need

to

hire

and

retain

qualified

personnel as possible reasons to suspect their forecasts.

The

court specifically noted the defendants’ cautionary statement,
which it referred to as “standard”:
Each of the above forward-looking statements is
subject to change based on various important factors,
including without limitation, competitive actions in
the marketplace and adverse actions of governmental
and other third-party payors. Further information on
potential
factors
that
could
affect
LabCorp's
financial results is included in the Company's Form
10-K . . .
Id.

at

*5.

The

court

noted

that

this

language

provided

potential investors adequate notice of the risks faced by the
company and therefore satisfied the safe harbor.

Id. (“In order

to be meaningful, Defendants' cautionary language . . . should
be

enough

to

properly

warn

an

investor

of

significant

risks

similar to that actually realized so as to put the investor on
notice.”).
In

this

case,

an

investor

who

reviewed

the

cautionary

language would have had adequate notice of the risks faced by
Primo and its business model.
releases,

Form

10-K,

and

The disclosures in the two press

conference

call

identify

Primo’s

reliance on Lowe’s and Wal-Mart, note that Primo had no control
over the actions of these big-box retailers, and clarify that

49

Primo might be unable meet the Flavor Station roll out goals.
Thus, even more so than in In re Lab. Corp., the cautionary
language used by Primo provides substantive information about
factors that could cause results to differ from those projected
in the forward-looking statements.

See Asher v. Baxter Int'l

Inc., 377 F.3d 727, 734 (7th Cir. 2004) (noting that cautionary
language

is

meaningful

where

it

identifies

“the

principal

contingencies that could cause actual results to depart from the
projection”).
the

As such, Primo’s forward-looking statements in

challenged

guidance

documents

and

conference

calls

are

accompanied by meaningful cautionary language and are therefore
protected by the PSLRA's safe harbor. 18
3.

Section 20(a) Claim

In addition to the Section 10(b) claim under the 1934 Act,
Plaintiffs also allege violations of Section 20(a).

Section

20(a) establishes liability against “control persons,” and the
elements

of

a

Section

20(a)

claim

are:

(1)

the

defendant

controlled another person or entity; (2) the controlled person
or

entity

committed

a

primary

18

violation

of

the

relevant

Because the court has found that Primo’s forward-looking statements
are accompanied by sufficient cautionary language, it need not
consider whether Plaintiffs also failed to plead facts giving rise to
a strong inference that Primo made the statements with actual
knowledge that they were false. See 15 U.S.C. § 78u-5(c)(1); see also
Miller v. Champion Enters., Inc., 346 F.3d 660, 672 (6th Cir. 2003);
Theoharous v. Fong, 256 F.3d 1219, 1225 n.6 (11th Cir. 2001),
abrogated on other grounds by Merck & Co., Inc. v. Reynolds, 559 U.S.
633 (2010).

50

securities

laws;

and

(3)

participant in the fraud.

the

defendant

was

a

culpable

See In re Mills Corp. Sec. Litig.,

257 F.R.D. 101, 105 (E.D. Va. 2009); In re Solv-Ex Corp. Sec.
Litig., 210 F. Supp. 2d 276, 284 (S.D.N.Y. 2000).
On a motion to dismiss, a Section 20(a) claim will stand or
fall based on the court’s decision regarding the Section 10(b)
claim.

See

liability
10(b)).

In

under

re

Royal,

Section

351

20(a)

F.
with

Supp.

at

liability

407

(connecting

under

Section

This is because Section 20(a) requires a finding that

there was a “primary violation of the securities laws.”

In re

Level 3 Commc’ns, Inc. Sec. Litig., 667 F.3d 1331, 1347 (10th
Cir. 2012).

Thus, if a court dismisses a complaint’s Section

10(b) claim, then the Section 20(a) claim should be dismissed as
well.

Svezzese v. Duratek, Inc., 67 F. App’x 169, 174 (4th Cir.

2003) (per curiam) (affirming dismissal of Section 20(a) claim
when plaintiffs failed to state a claim for a primary securities
fraud violation). 19
In this case, Plaintiffs’ Section 20(a) claim is entirely
derivative of their Section 10(b) claim, which the court has

19

Unpublished opinions of the Fourth Circuit are not precedential but
are cited for their persuasive authority.
See Collins v. Pond Creek
Mining Co., 468 F.3d 213, 219 (4th Cir. 2006) (recognizing that “we
ordinarily do not accord precedential value to our unpublished
decisions” and that such decisions “are entitled only to the weight
they generate by the persuasiveness of their reasoning” (citation
omitted)).

51

found should be dismissed.

Therefore, the Section 20(a) claim

will also be dismissed.
B.

The 1933 Act Claims

Having resolved Plaintiffs’ claims under the 1934 Act, the
court

turns

Plaintiffs

to

Plaintiffs’

bring

three

claims

claims:

under

violations

the
of

1933

Sections

Act.
11,

12(a)(2), and 15 (collectively, “1933 Act claims”).
1.

Pleading Standards

The initial issue to be resolved is what pleading standard
should apply to the 1933 Act claims.

Plaintiffs argue that

Sections 11 and 12(a) are subject only to the notice pleading
standards of Federal Rule of Civil Procedure 8.

They contend

that because Sections 11 and 12(a)(2) are based in negligence
and do not include a scienter requirement, Newcome v. Esrey, 862
F.2d 1099, 1106 (4th Cir. 1988), Federal Rule of Civil Procedure
9(b)

should

not

apply.

Additionally,

while

Plaintiffs

acknowledge that allegations under the 1933 Act must be pleaded
with particularity pursuant to Rule 9(b) when the claims sound
in fraud, Hershey v. MNC Fin., Inc., 774 F. Supp. 367, 375-76
(D. Md. 1991) (holding that Rule 9(b) applies to Section 11 and
12

claims

when

these

claims

are

essentially

“averments

of

fraud”), they contend that courts have applied Rule 9(b) only
when plaintiffs make no effort to support their claims under the
1933 Act with non-fraud or negligence allegations.
52

Cf. In re

Ultrafem Inc. Sec. Litig., 91 F. Supp. 2d 678, 690–91 (S.D.N.Y.
2000) (applying Rule 9(b) where “plaintiffs make little, if any,
effort to differentiate their asserted negligence claims from
the fraud claims which permeate the Complaint”).

Plaintiffs

note that their amended complaint separately alleges the Section
11 and 12(a)(2) claims and point to paragraphs 48 (“the IPO was
negligently prepared”), 62 (statements were “material inaccurate
statements of fact”), and 88 (same) as a demonstration that the
1933 Act claims were drafted in terms of negligence and material
inaccuracies,

not

fraud.

They

also

note

that

the

amended

complaint’s 1933 Act claims never allege that Defendants acted
with fraudulent intent or recklessly concealed information.
In contrast, Defendants argue that the 1933 Act claims are
subject to Rule 9(b)’s heightened pleading standard.

Defendants

rely on Cozzarelli, 549 F.3d 618, a Fourth Circuit case which
held that the 1933 Act claims at issue had to be pleaded with
particularity

because

they

had

the

substance

of

fraud.

According to the court, Rule 9(b) addresses whether fraud is
alleged in the complaint, not whether it is an element of the
specific claim at issue.

Id. at 629.

Thus, the court found,

where a plaintiff treated the allegedly false statements in the
offering documents as part of a “single, coordinated scheme to
defraud

investors,”

the

“allegation

[]

has

the

substance

of

fraud . . . [and the plaintiff] cannot escape the requirements
53

of Rule 9(b) by adding a superficial label of negligence or
strict

liability.”

plaintiff’s

Id.

allegations

It

is

under

particularly

the

1933

Act

so

where

regarding

a
the

prospectuses duplicate his allegations of fraud under the 1934
Act.

Id. (noting that plaintiffs cannot “claim[] that the false

statements in the prospectuses support plaintiffs' [1934 Act]
counts . . . with a straight face without also admitting that
the complaint alleges the prospectuses to be fraudulent”).

An

express disclaimer to attempt to separate 1933 Act and 1934 Act
claims

will

disclaimer

not

save

cannot

the

alter

claims,
the

substance

allegations, which sound in fraud.”
Since

Cozzarelli,

other

because

a

“conclusory

of

plaintiffs’

Id.

courts

have

applied

the

same

approach and found that 1933 Act claims sound in fraud when the
complaint

alleges

a

“single,

coordinated

scheme

to

defraud

investors” and utilizes the same allegations as the basis of
both

the

1933

Act

and

1934

Act

claims.

See,

e.g.,

In

re

Municipal Mortg. & Equity, LLC, Sec. & Derivative Litig., 876 F.
Supp. 2d 616, 652 (D. Md. 2012) (“Here as in Cozzarelli, the
alleged

misleading

statements

that

formed

the

basis

for

Plaintiffs' § 10(b) claims are ‘exactly the same’ as Plaintiffs’
§§ 11 and 12(a)(2) claims.”); see also Wagner v. First Horizon
Pharm. Corp., 464 F.3d 1273, 1278 (11th Cir. 2006) (“We conclude
that a § 11 or § 12(a)(2) claim must be pled with particularity
54

when the facts underlying the misrepresentation at stake in the
claim are said to be part of a fraud claim, as alleged elsewhere
in the complaint. It is not enough to claim that alternative
pleading saves the non-fraud claims from making an allegation of
fraud[.]”); Shaw, 82 F.3d at 1223 (“[I]f a plaintiff were to
attempt to establish violations of Sections 11 and 12[a](2) as
well

as

the

allegations

anti-fraud
in

a

provisions

single

complaint

of

the

[1934]

a

unified

of

Act

though

course

of

fraudulent conduct . . . the particularity requirements of Rule
9(b) would probably apply to the Sections 11, 12[a](2), and Rule
10b-5 claims alike.”).
Here, as in Cozzarelli and In re Municipal Mortg., it is
inescapable that the substance of Plaintiffs’ allegations sound
in fraud.

(See Doc. 52 at ¶¶ 48-131.)

Plaintiffs incorporate

wholesale the allegations used in pleading the 1933 Act claims
in support of their allegations under the 1934 Act.
464

F.3d

at

1278.

Even

though

they

reference

See Wagner,
the

word

“negligence” in pleading these claims (Doc. 52 at ¶ 48), the
mere

label

is

not

enough

to

transform

the

substance

of

the

claims and thus avoid the pleading requirements of Rule 9(b).
See Cozzarelli, 549 F.3d at 629; Cal. Pub. Employees' Ret. Sys.
v. Chubb Corp., 394 F.3d 126, 160 & n. 24 (3d Cir. 2004).

55

As

such, the proper pleading standard used to assess Plaintiffs’
1933 Act claims is that of Rule 9(b). 20
2.

Section 11 and 12(a)(2) Claims

The elements of a securities fraud claim under Sections 11
and

12

of

the

1933

Act

are:

(1)

an

omission

or

misrepresentation, (2) of a material fact required to be stated
or necessary to make other statements made not misleading.

Krim

v. BancTexas Group, Inc., 989 F.2d 1435, 1445 (5th Cir. 1993).
“To state a claim under [S]ection 11, plaintiffs must allege
that they purchased securities pursuant to a materially false or
misleading registration statement.”

In re Adams Golf, Inc. Sec.

Litig., 381 F.3d 267, 273 (3d Cir. 2004).

“To state a claim

under

allege

[S]ection

12(a)(2),

purchased

securities

misleading

prospectus

plaintiffs

pursuant
or

oral

to

must
a

materially

communication.”

Id.

that
false

they
or

(internal

quotations removed).
In
12(a)(2)

this

case,

claims

Defendants

should

be

argue

dismissed

20

that

the

Section

on

the

basis

11

and

of:

(1)

This analysis is a bit academic as Plaintiffs’ claims would fail
under the 1933 Act even if the pleading standard were that of Federal
Rule of Civil Procedure 8(a).
As discussed below, Plaintiffs have
failed to make any showing of materiality or falsity with respect to
the challenged statements, and therefore the result would be the same
regardless of the pleading standard used. As such, although the court
finds that Rule 9(b) is the appropriate standard in this case, a
contrary result would not change the outcome for Plaintiffs.

56

negative causation; 21 (2) a failure to plead that the challenged
statements

were

material

misrepresentations

or

omissions;

and

(3) the PSLRA safe harbor provision (for the statements made in
the Secondary Offering). 22

Because the court finds that the

21

Negative causation is an affirmative defense that precludes recovery
for price declines that are not the result of an alleged
misrepresentation. There is authority that establishes that a motion
to dismiss can be granted based on negative causation.
Blackmoss
Invs. Inc. v. ACA Capital Holdings, Inc., No. 07CV10528, 2010 WL
148617, at *11 (S.D.N.Y. Jan. 14, 2010).
For example, in Blackmoss
the complaint alleged that the decline in the Defendant’s stock was
caused by allegedly false and misleading statements in the prospectus;
however, the face of the complaint revealed that the Defendant’s stock
traded above its IPO price even as the company disclosed increased
exposure to subprime mortgages, and thus the court dismissed the
complaint on the basis of negative causation. Id.
22

The Primo Defendants also argue that Plaintiffs have failed to state
a claim against them under Section 12(a)(2) because the Primo
Defendants did not sell the stock to Plaintiffs or solicit the sales.
A claim under Section 12(a)(2) may be brought against only those
individuals or entities who sold stock to the plaintiff and those who
solicited the plaintiff to purchase stock.
Pinter v. Dahl, 486 U.S.
622, 644 (1988). Neither involvement in preparation of a registration
statement or prospectus nor participation in unspecified activities
relating to the sale of securities, standing alone, demonstrates the
kind of relationship between defendant and plaintiff that could
establish statutory seller status. See Shaw, 82 F.3d at 1194.
In this case, only one allegation in the amended complaint may
speak to this.
In paragraph 142, Plaintiffs allege that Defendants
participated in “‘Road Shows’ to promote the offerings.”
See In re
Nat’l Century Fin. Enters., Inc. Inv. Litig., 541 F. Supp. 2d 986,
1013 (S.D. Ohio 2007) (finding that plaintiffs had stated a claim
under Section 12(a)(2) when the defendant assisted with and circulated
a prospectus to plaintiffs and noting that “drafting, circulating, or
presenting written sales material may, in the right circumstances, be
enough to impose liability”). In this case, attendance at a road show
to solicit sales of the securities at issue may be enough to state a
claim under Section 12(a)(2). See In re Prof’l Fin. Mgmt., Ltd., 692
F. Supp. 1057, 1064 (D. Minn. 1988) (finding that plaintiff stated a
claim under Section 12(a)(2) when plaintiff asserted that defendant
assisted with financial appraisals and helped draft a prospectus that
was distributed to prospective buyers).
However, this argument is
academic, as the court is dismissing the Section 12(a)(2) claim for
other reasons.

57

challenged statements are not materially false or misleading and
the PSLRA safe harbor applies, it does not reach the negative
causation argument. 23
a.

Plaintiffs Fail to Show that any Statement
was a Material Misrepresentation or Omission

Because the court has already addressed the materiality and
falsity of the Plaintiffs’ allegations under the 1934 Act, the
discussion here will be brief.

Like the 1934 Act, the 1933 Act

requires that the challenged statements be misrepresentations of
material fact.

Greenhouse, 392 F.3d at 656; see also In re

Adams Golf, 381 F.3d at 273 (requiring for a Section 11 claim a
“materially

false

or

misleading

registration

statement”

and

requiring for a Section 12(a)(2) claim a “materially false or
misleading

‘prospectus

or

oral

communication’”).

If

the

misrepresentations are not of material fact, no liability will
attach and the statements will be insufficient as a matter of

23

Defendants argue that the amended complaint establishes that the
stock price declines complained of by Plaintiffs were not caused by
any of the challenged statements that are part of Plaintiffs’ 1933 Act
claims.
Plaintiffs point to the August 2011 press release and the
November 2011 press release as the cause for the decline in Primo’s
stock price.
However, neither of these press releases corrected, or
even dealt with, any of the statements challenged in the Offerings.
Thus, Defendants’ negative causation argument appears to have some
force.
See In re Alamosa Holdings, Inc., 382 F. Supp. 2d 832, 866
(N.D. Tex. 2005) (granting motion to dismiss on the basis of negative
causation when the amended complaint alleged that stock plummeted in
response to a press release that did not concern the allegedly untrue
Registration Statement).

58

law to form the basis of a 1933 Act claim.

Greenhouse, 392 F.3d

at 656.
In this case, the statements challenged by Plaintiffs in
the IPO and Secondary Offering are either not material or not
false/misleading for the same reasons stated in determining that
those statements could not form the basis of a 1934 Act claim.
Accordingly, incorporating the reasoning used above, the court
will dismiss the Section 11 and 12(a)(2) claims.

See supra Part

III.A.2.i.
b.

The “Safe Harbor” Provision Immunizes Some
Challenged Statements from Liability

Although the safe harbor provision of the PSLRA does not
apply

to

statements

2(b)(2)(D),

the

made

in

statements

an
made

IPO,
in

see
the

15

U.S.C.

Secondary

§

77z-

Offering

Registration Statement are subject to the PSLRA’s safe harbor
provisions.

See In re Harmonic Sec. Litig., 163 F. Supp. 2d

1079, 1087 (N.D. Cal. 2001) (noting that the safe harbor applies
to claims under the 1933 Act).

As noted above, the PSLRA safe

harbor protects forward-looking statements from liability (1) if
the

statements

were

accompanied

by

meaningful

cautionary

language, or (2) the plaintiffs have failed to plead that the
speaker had actual knowledge of the statement’s falsity at the
time the statement was made.

Pozen, 2009 WL 426235, at *14.

59

As

noted,

include

under

the

“‘statement[s]

income

(including

loss)

per

structure,

or

statement[s]

loss),

the

a

projection

statements

of

revenues,

earnings

(including

earnings

dividends,

capital

financial
plans

future operations[.]”

forward-looking

expenditures,

capital

other

of

containing

income

share,

PSLRA,

and

Id.

items,’

as

objectives

well

of

as

management

‘[]
for

Statements made in the Secondary

Offering about the company’s market growth opportunities and the
launch

of

looking

the

Flavor

statements

management

for

because

future

additional growth.
looking

Station

appliance

they

are

operations

constitute

simply

and

plans

the

forwardof

expectation

the
of

See id. at *14, *21 (noting that forward-

statements

are

“future

plans,

expectations,

and

financial projections” and finding that a statement about an
anticipated
Additionally,
III.A.2.ii,

launch
as
the

date

of

discussed

a

product

was

more

fully

above,

forward-looking

statements

forward-looking).
see

in

supra

the

Part

Secondary

Offering are accompanied by sufficient cautionary language to
activate the PSLRA’s safe harbor.

(See App. at 244-45 (“Our

arrangements with . . . retailers . . . are nonexclusive and may
be terminated at will”; “We depend on a small number of large
retailers for most of our consumer sales”; “[W]e cannot provide
any assurance of any future sales”; “We may not be able to
introduce

or

sell

products

to
60

be

developed

by

the

Omnifrio

Single-Serve Beverage Business within the anticipated timeframe
or at all”)); see also In re Lab. Corp., 2006 WL 1367428, at *5
(finding

that

even

less

specific

cautionary

language

was

sufficient to bring forward-looking statements within the PSLRA
safe harbor).

Accordingly, statements made in the Secondary

Offering about Primo’s growth opportunities and the launch of
the Flavor Station appliance are immunized from liability under
the 1933 Act due to the PSLRA safe harbor.
3.

Section 15 Claim

Like the Section 20(a) claim under the 1934 Act, Section 15
establishes “control person” liability.

Further, like its 1934

Act counterpart, Section 15 is also dependent on an underlying
violation of the relevant securities laws, meaning that if there
is no violation of Section 11 or 12(a)(2), there is no violation
of Section 15.

See Lowinger v. Johnston, No. 3:05-CV-316, 2007

WL 2344882, at *8 (W.D.N.C. Aug. 16, 2007) (adopting Report and
Recommendation of United States Magistrate Judge) (“In light of
the Plaintiff's failure to allege a primary violation of either
Section 11(a) or 12(a)(2), discussed above, his Section 15 claim
fails as well.”); accord Kapps v. Torch Offshore, Inc., 379 F.3d
207, 221 (5th Cir. 2004).
Plaintiffs have alleged in the amended complaint that the
Primo Defendants were acting as control persons.

(See Doc. 52

at ¶ 150 (“Each of the Primo Individual Defendants acted as a
61

controlling person of Primo within the meaning of Section 15 of
the Securities Act[.]”)); In re Sourcefire, 2008 WL 1827484, at
*7 (noting that a plaintiff is not required to allege culpable
participation beyond the facts of control).

However, because

the Section 11 and 12(a)(2) claims are being dismissed, there is
no primary violation of the securities laws.

Accordingly, the

Section 15 claim will be dismissed as well.
4.

Item
303(a)
Liability

and

Item

503(c)

Predicate

for

Plaintiffs finally allege and argue that the Registration
Statements for the IPO and Secondary Offering violate the 1933
Act because they omitted disclosures required under 17 C.F.R.
§ 229.303(a)(3)(ii) (“Item 303(a)”) and 17 C.F.R. § 229.503(c)
(“Item 503(c)”).

See Panther Partners Inc. v. Ikanos Commc'ns,

Inc., 681 F.3d 114, 120 (2d Cir. 2012) (stating that a potential
basis

for

liability

under

Sections

11

and

12(a)(2)

is

an

“omission in contravention of an affirmative legal disclosure
obligation”).

For the reasons noted below, however, Plaintiffs’

arguments fail.
a.
Pursuant

to

Item 303(a)
Item

303(a),

a

registration

statement

must

describe “any known trends or uncertainties that have had or
that

the

favorable

registrant
or

reasonably

unfavorable

impact

62

expects
on

net

will
sales

have
or

a

material

revenues

or

income

from

continuing

§ 229.303(a)(3)(ii). 24
registrant:

If

Item

there

company's

business

materially

operations.”

has
or

decreases

303(a)

been

an

“essentially
important

environment

that

predictive

value

the

17

C.F.R.

says

change

to

in

a

your

significantly
of

your

results, explain this change in the prospectus.”

or

reported

Kapps, 379

F.3d at 218 (quoting Oxford Asset Mgmt., Ltd. v. Jaharis, 297
F.3d 1182, 1191-92 (11th Cir. 2002)).

A plaintiff must plead

that the defendant had actual knowledge of the alleged trend in
order for liability to attach.

See J & R Mktg., SEP v. Gen.

Motors Corp., 549 F.3d 384, 391-92 (6th Cir. 2008) (dismissing
complaint

where

knowable,

rather

allegations
than

known,

demonstrated
to

defendants

information
because

was

“duty

of

disclosure arising from Item 303 does require knowledge”).
Thus,
trend,

Item

demand,

303(a)

imposes

commitment,

event

a

disclosure
or

duty

uncertainty

is

“‘where
both

a

(1)

presently known to management and (2) reasonably likely to have
material

effects

on

the

results of operations.’”

registrant's

financial

condition

or

Litwin v. Blackstone Group, L.P., 634

F.3d 706, 716 (2d Cir. 2011) (quoting Management's Discussion
and Analysis of Financial Condition and Results of Operations,
24

The regulation states further: “If the registrant knows of events
that will cause a material change in the relationship between costs
and revenues (such as known future increases in costs of labor or
materials or price increases or inventory adjustments), the change in
the relationship shall be disclosed.” 17 C.F.R. § 229.303(a)(3)(ii).

63

Securities

Act

Release

No.

6835,

Exchange

Act

Release

No.

26,831, Investment Company Act Release No. 16,961, 43 SEC Docket
1330 (May 18, 1989)).

To state a claim based on a failure to

comply with Item 303, a plaintiff must “allege facts showing
defendants knew of an adverse trend, the material impact of that
trend,

and

that

the

future

material

impacts

are

reasonably

likely to occur from the present-day perspective.”

Mallen v.

Alphatec Holdings, Inc., No. 10–cv–1673–BEN, 2013 WL 1294640, at
*12 (S.D. Cal. Mar. 28, 2013) (internal citations and quotations
omitted).
Plaintiffs claim that the disclosure requirements of Item
303(a) were not satisfied because the IPO Registration Statement
and Secondary Offering did not disclose the following trends or
uncertainties which Plaintiffs allege were reasonably expected
to have an impact on Primo’s continuing operations: (1) Primo
was overstating by 1,500 the number of store locations offering
Primo

products;

products;

(3)

performing

(2)

Primo

40%

of

poorly;

(4)

failed

to

locations
Primo

was

market

selling
not

and

Primo

planning

promote

its

water

were

to

increase

promotional or marketing activities; (5) Primo’s water bottle
exchange machines were poorly manufactured and, without retailer
supervision,

resulted

in

theft

and

shrinkage

of

25%

because

customers were illicitly obtaining coupons; (6) Primo’s primary
retailers could not order Primo products until retail customers
64

had cleared out other inventory; (7) Primo depended on Wal-Mart
and Lowe’s entering massive product promotions; (8) because of
engineering problems, Primo would be unable to launch the Flavor
Station by the fourth quarter of 2011; and (9) Primo had ended
up with millions of dollars of inventory after its acquisition
of the Culligan Refill Business.

(Doc. 52 at ¶¶ 100, 129.)

These issues, for the purpose of the court’s analysis, will be
identified below by the number assigned to them in this list
(e.g., “Issue 1”).
Despite Plaintiffs’ attempts to rely on Item 303(a), their
efforts

fail

to

state

a

claim.

First,

Plaintiffs

fail

to

adequately allege that the issues identified constitute “trends”
or “uncertainties” under Item 303(a).

The amended complaint

does not allege that the identified facts “were uncertain or
changed over time, but rather that they were always present.”
City of Roseville Emp. Ret. Sys. v. EnergySolutions, Inc., 814
F. Supp. 2d 395, 426 (S.D.N.Y. 2011).

For example, Plaintiffs

claim as to Issue 1 that Primo was materially overstating the
number

of retail

locations

at

which

offered at the time of the IPO.

its

products

were

(Doc. 52 at ¶ 49.)

being

Plaintiffs

go on to claim that Primo continued to publicize this material
overstatement throughout the entire Class Period.
¶¶ 128, 176.)
have

(See id. at

Accordingly, this alleged overstatement could not

constituted

“an

important
65

change”

in

Primo’s

business.

Kapps, 379 F.3d at 218.

The same can be said of Issues 2

through 4 - none of them constitutes a significant or material
change in Primo’s business that would have made investment in
Primo more risky or speculative, as Primo’s alleged failure to
market and its underperforming stores are alleged to have been
constant throughout the Class Period.

Issue 5, which concerns

shrinkage, also suffers from this problem – Primo’s shrinkage
figures are alleged in the complaint to have been inherent in
Primo’s business since before the Class Period. (See Doc. 52 at
¶ 96 (discussing a meeting in mid-2010, before the IPO, that
discussed the shrinkage figures)); see also City of Roseville,
814 F. Supp. 2d at 426 (“The plaintiffs do not allege that the
Zion Trust Fund was trending toward inadequacy, but rather that
it was already inadequate and remained so.

Similarly, they do

not allege that the negative incentives of the LOP contracts or
the infirmities in the market . . . were uncertain or changed
over

time,

Further,

as

but
to

rather
Issue

9,

that

they

the

fact

were
that

always
Primo

present.”).

allegedly

had

millions of dollars in inventory in the Culligan warehouse would
not constitute a trend or uncertainty that would have a material
effect on Primo’s financial condition as the record shows that
Primo had planned, and in fact was, simultaneously expanding to
additional stores and locations.

See In re Gander Mountain Co.

Sec. Litig., No. 05-183DWFAJB, 2006 WL 140670, at *15 (D. Minn.
66

Jan. 17, 2006) (finding that the plaintiff had failed to plead
facts showing that the defendant violated Item 303(a) by failing
to

disclose

alleged

its

that

increasing

the

inventories

defendant

was

because

simultaneously

the

complaint

expanding

its

product offerings; thus, this alleged trend would not have a
material effect on the defendant’s financial condition).
Further,
Plaintiffs
pursuant
described
state

even

could

to
in

that

Item
the
Primo

if
be

some

the

considered

303(a),

the

Offerings.
had

of

no

issues

“trends

record
The

IPO

control

or

reveals
and

over

identified

by

uncertainties”
that

they

Secondary
retailers

were

Offering
or

their

inventory (relevant to Issues 6 & 7), that its major retailers
could choose to discontinue Primo products at any time and sell
a competitor’s products instead (relevant to Issues 6 & 7), and
that Primo might never be able to launch the Flavor Station
(relevant to Issue 8).

(See App. at 20-22, 245-46); see also In

re Convergent Tech. Sec. Litig., 948 F.2d 507, 516 (9th Cir.
1991) (noting that a company need not detail all current or
prospective

corporate

events

and

finding

disclosures

sufficiently detailed pursuant to Item 303(a) when they listed
the risks facing the company, including, among other things,
reliance

on

certain

manufacturing

processes

and

retail

channels); City of Roseville, 814 F. Supp. 2d at 426 (finding
that

the

plaintiffs

failed

to
67

allege

a

failure

to

make

disclosures

required

Statements

by

disclosed

Item

that

303

the

“when

proposed

the

Registration

change

might

be

rejected”).
As such, Plaintiffs’ allegations as to Item 303(a) fail to
serve as a basis for liability in this case.
b.

Item 503(c)

Item 503(c) states that a registration statement, “[w]here
appropriate,”
significant
risky.”

should
factors

include
that

“a

make

discussion

the

offering

of

the

speculative

17 C.F.R. § 229.503(c) (emphasis added).

directs: “be concise and organized logically.

the

risk

offered.”

affects

Id.

The

the

issuer

Securities

or

and

the

or

Item 503(c)

Do not present

risks that could apply to any issuer or any offering.
how

most

Explain

securities

Exchange

being

Commission,

in

issuing guidance on this provision, has stated that a discussion
of risk factors should be “specific to the particular company
and its operations, and should explain how the risk affects the
company

and

its

operations,

and

should

explain

how

the

affects the company and/or the securities being offered.”

risk
In re

WorldCom, Inc. Sec. Litig., 346 F. Supp. 2d 628, 691 (S.D.N.Y.
2004) (quoting Statement of the Commission Regarding Disclosure
of

Year

Investment

2000

Issues

Advisers,

and

Consequences

Investment

by

Public

Companies,

and

Companies,
Municipal

Securities Issuers, SEC Release No. 7558, 1998 WL 425894, at *14
68

(July 29, 1998)).

In this case, Plaintiffs contend that Item

503(c) is not satisfied because Defendants did not adequately
disclose

in

the

Offerings

Primo’s

overstatement

of

store

locations, insufficient marketing practices, decreasing or nonexistent growth opportunities, poor sales performance in 40% of
its

selling

locations,

and

negative

impact

of

poorly

manufactured water exchange machines (these correlate to Issues
1, 2, 3, and 5 in the list used in the analysis under Item
303(a) above).

(Doc. 52 at ¶ 101.)

A careful review of Primo’s risk disclosures reveals that
they were specific and tailored and fairly addressed the risks
that the amended complaint alleges resulted in the August 10 and
November
risks,

8,

but

2011

stock

drops.

specifically

Primo

described

company and its operations.

how

covered
they

not

would

only

such

affect

the

(See, e.g., App. at 428 (“[I]f one

or more [of Primo’s major retailers] were to materially reduce
or terminate its business with us, our sales would suffer . . .
retailers can discontinue our dispenser products or water bottle
exchange services at any time[.]”).)
allege

in

fact

resulted

in

a

The risks that Plaintiffs

decline

in

the

stock

price

(according to the amended complaint and as noted in the August
2011 and November 2011 press releases) were: (1) “lower water
dispenser

and

corresponding

water

sales”

(Doc.

52

at

¶

226)

(warned about in the IPO and Secondary Offering - App. at 20-22
69

(e.g., “There is no guarantee that there will be significant
market acceptance of our water bottle exchange service or that
we will be successful in selling our water dispensers on a scale
necessary
“If

we

to

achieve

are

customers

unable

and

sustained

to

profitability”),

convince

individual

current

consumers

of

and
the

245-46

potential
advantages

(e.g.,
retails
of

our

products and services, our ability to sell our bottled water
products and water dispensers will be limited”)); (2) inventory
constraints and other issues relating to retailers (Doc. 52 at
¶ 228) (warned about in the IPO and Secondary Offering - App. at
20

(e.g.,

“None

contractually

of

bound

to

our

significant

offer

our

water

retail

accounts

dispensers

or

are

bottle

exchange service . . . retailers can discontinue our products or
services

at

any

time

and

offer

a

competitor’s

products

or

services . . . certain of our retailers have multiple vendor
policies

and

may

seek

to

offer

a

competitor’s

products

or

services”), 244 (same)); and (3) the delay in the launch of the
Flavor Station (Doc. 52 at ¶ 251) (which was not acquired until
after

the

IPO

and

which

was

warned

about

in

the

Secondary

Offering - App. at 245 (e.g., “We may not be able to introduce
or sell products to be developed by the Omnifrio Single-Serve
Beverage

Business

within

the

all.”)).

70

anticipated

timeframe

or

at

Further,

the

additional

factors

alleged

by

Plaintiffs

cannot be said to be the “most significant factors” that made
the

offerings

speculative

or

risky.

As

noted

previously,

although Plaintiffs claim that Primo should have disclosed it
was overstating the number of locations selling its product by
1,500,

the

amended

complaint

establishes

that

Primo

was

not

over-reporting the number of locations at which its products
were offered, and it would unreasonably stretch Item 503(c) to
require

Defendants

to

disclose

allegedly

under-performing

stores.

See Marx v. Computer Scis. Corp., 507 F.2d 485, 491

(9th Cir. 1974) (noting that not every corporate event needs to
be disclosed under the securities laws).
Primo

disclosed

revenue

figures

and

Moreover, as noted,
retailer

information,

allowing investors to calculate sales averages.

And, issues

such as marketing and shrinkage cannot be said to be among the
most significant risk factors making the Offerings speculative
or risky.

See In re UBS AG Sec. Litig., No. 07 Civ. 11225(RJS),

2012 WL 4471265, at *30 (S.D.N.Y. Sept. 28, 2012) (determining
that uncharged illegal conduct involving a minor business unit
could not “be described as among the ‘most significant factors’
making the 2008 Rights Offering speculative or risky” under Item
503(c)).

This conclusion is bolstered by the court’s previous

analysis,

because

the

sufficiency

of

Item

503(c)

disclosures

generally tracks the materiality standard under Section 10(b),
71

which in this case is not satisfied with respect to Plaintiffs’
allegations.

See City of Roseville, 814 F. Supp. 2d at 426.

In sum, because Plaintiffs’ allegations of inadequate risk
disclosures

fail,

Item

liability in this case.

503(c)

cannot

serve

as

the

basis

for

See In re UBS AG Sec. Litig., 2012 WL

4471265, at *30 (determining that Plaintiffs’ claim under Item
503(c) was subject to dismissal because the disclosures were
adequate and the conduct at issue was not a significant factor
making the offering speculative or risky).
IV.

CONCLUSION
For the reasons stated, the court finds that Plaintiffs

have failed to state a claim upon which relief can be granted
against the Primo Defendants or the Underwriter Defendants under
Sections 11, 12(a)(2), and 15 of the 1933 Act and Sections 10(b)
and 20(a) of the 1934 Act, because the challenged statements are
not material misrepresentations or omissions of material fact.
Further, many of these same statements are forward-looking and
protected by the PSLRA’s safe harbor.

Thus, dismissal of the

amended complaint is appropriate.
IT IS THEREFORE ORDERED that Plaintiffs’ motion to strike
portions of the Primo Defendants’ exhibits (Doc. 64) is GRANTED
as to Appendix (Doc. 60) pages 687-90 and 772-73 and DENIED as
moot as to pages 774-92.

72

IT IS FURTHER ORDERED that the motions to dismiss of the
Primo Defendants (Doc. 58) and the Underwriter Defendants (Doc.
56)

are

GRANTED,

and

Plaintiffs’

claims

against

them

are

Opinion

and

DISMISSED WITH PREJUDICE.
A

Judgment

consistent

with

this

Memorandum

Order will issue separately.

/s/
Thomas D. Schroeder
United States District Judge
August 14, 2013

73