Depot backdating

22-Oct-2016 11:09

Enstar Group, Inc., 84 F.3d 393, 396-97 (11th Cir.1996). 9(b)'s heightened pleading requirements, which require a complaint “to state with particularity the circumstances constituting fraud.” As we have previously observed, Rule 9(b) is satisfied if the complaint sets forth “(1) precisely what statements were made in what documents or oral representations or what omissions were made, and (2) the time and place of each such statement and the person responsible for making (or, in the case of omissions, not making) same, and (3) the content of such statements and the manner in which they misled the plaintiff, and (4) what the defendants obtained as a consequence of the fraud.”Tello v. Ed.2d 179 (2007), Congress passed the Private Securities Litigation Reform Act (“PSLRA”), Pub. In this Circuit it is by now well-established that § 10(b) and Rule 10b-5 require a showing of either an “intent to deceive, manipulate, or defraud,” or “severe recklessness.” Id. We have described “severe recklessness” this way: Severe recklessness is limited to those highly unreasonable omissions or misrepresentations that involve not merely simple or even inexcusable negligence, but an extreme departure from the standards of ordinary care, and that present a danger of misleading buyers or sellers which is either known to the defendant or is so obvious that the defendant must have been aware of it. In that case, the Court held that a “strong inference” of scienter means an inference that is “cogent and at least as compelling as any opposing inference one could draw from the facts alleged.” Tellabs, 127 S. The inference that the defendant acted with scienter need not be irrefutable, i.e., of the “smoking-gun” genre, or even the “most plausible of competing inferences.” ․ Yet the inference of scienter must be more than merely “reasonable” or “permissible”-it must be cogent and compelling, thus strong in light of other explanations. We are, however, careful not to carry the search-warrant analogy too far. Fong, 256 F.3d 1219, 1227 (11th Cir.2001) (quotation marks omitted); accord Brown v. First, the PSLRA slightly altered Rule 9(b)'s particularity requirement by mandating that a securities fraud class action complaintspecify each statement alleged to have been misleading, the reason or reasons why the statement is misleading, and, if an allegation regarding the statement or omission is made on information and belief, the complaint shall state with particularity all facts on which that belief is formed.15 U. Although the PSLRA substantially raised the pleading standard for scienter, it did not change any substantive intent requirements. Avado Brands, Inc., 187 F.3d 1271, 1284 (11th Cir.1999). Any discussion of what constitutes a “strong inference” of scienter must begin with the Supreme Court's recent decision in Tellabs. Because the strong-inference inquiry asks “whether all of the facts alleged, taken collectively, give rise to a strong inference of scienter, not whether any individual allegation, scrutinized in isolation, meets that standard,” “courts must consider the complaint in its entirety,” and “omissions and ambiguities count against inferring scienter.” Id. Moreover, the inquiry is “inherently comparative” because courts “must take into account plausible opposing inferences.” Id. Tellabs explained how to balance opposing inferences this way: To determine whether the plaintiff has alleged facts that give rise to the requisite “strong inference” of scienter, a court must consider plausible nonculpable explanations for the defendant's conduct, as well as inferences favoring the plaintiff. “In sum, the reviewing court must ask: When the allegations are accepted as true and taken collectively, would a reasonable person deem the inference of scienter at least as strong as any opposing inference? Kinder-Morgan, Inc., 340 F.3d 1083, 1101-02 (10th Cir.2003). The district court said “no,” dismissed the complaint for failure to state a claim, and denied as futile a motion for leave to amend. and several of its officers and directors in the United States District Court for the Northern District of Georgia. The district court granted the defendants' motion to dismiss in a lengthy order and denied leave to amend, concluding that, under controlling law, the amended complaint had failed to adequately plead scienter, and that granting leave would be futile because the additional facts presented in the motion for leave would not change that result. We review de novo an order granting a motion to dismiss for failure to meet the heightened pleading standards embodied in the PSLRA. NDC Health Corp., 466 F.3d 1255, 1261 (11th Cir.2006). An understanding of the nature of the legal claims asserted by Bucks County and the special pleading rules that apply to them is essential to deciding this case. Rule 10b-5, in turn, forbidsany person, directly or indirectly, ․(a) To employ any device, scheme, or artifice to defraud,(b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.17 C. But in 1995, “[a]s a check against abusive litigation by private parties,” Tellabs, Inc. Confidentiality, however, should not eviscerate the weight given if the complaint otherwise fully describes the foundation or basis of the confidential witness's knowledge, including the position(s) held, the proximity to the offending conduct, and the relevant time frame. We turn to the factual allegations in the amended complaint, which we accept as true for the purposes of this appeal. By contract, these vendors grant Home Depot a credit, commonly known as a “return-to-vender” or “RTV” chargeback for defective merchandise. According to the amended complaint, “[t]he accounting treatment for a legitimate RTV is straightforward”: “When an RTV chargeback is processed, the Company makes an adjustment to ‘cost of goods sold’ in an amount that offsets or negates the original cost.” Id. Thus, “[l]egitimate RTV chargebacks have no impact on a company's financial results.” Id.“[I]llegitimate RTV chargeback[s],” on the other hand, may “artificially inflate[ ] a company's earnings and profit margins.” Id. First, illegitimate RTVs can be used to reduce “shrink,” which is retail-industry lingo for inventory that is lost or damaged due to shoplifting, employee theft, store use, or damage by store employees. Nelson, Schiffrin, Barroway, Topaz & Kessler, LLP, Radnor, PA, Robert Ware Killorin, Krissi T. and six of its officers and directors has met this demanding standard. This case began on May 12, 2006, when John Mizzaro, an individual investor in Home Depot stock, filed a securities fraud class action complaint against Home Depot, Inc. While the motion to dismiss was pending, Bucks County moved for leave to amend if the district court concluded that the amended complaint failed to state a claim. America's Favorite Chicken Co., 198 F.3d 815, 822 (11th Cir.1999). Ordinarily, a complaint is adequate if it meets Fed. Instead, as Rule 9(b) itself states, “[m]alice, intent, knowledge, and other conditions of a person's mind may be alleged generally.” Thus, under Rule 9(b), it is sufficient to plead the who, what, when, where, and how of the allegedly false statements and then allege generally that those statements were made with the requisite intent. We conclude that the weight to be afforded to allegations based on statements proffered by a confidential source depends on the particularity of the allegations made in each case, and confidentiality is one factor that courts may consider. Accordingly, we begin our review with the amended complaint's description of the fraud. As any would-be home improver knows, Home Depot sells “a wide assortment of building materials, home improvement and lawn and garden products, and offer[s] a variety of installation services,” through over 2000 stores nationwide. Home Depot obtains its merchandise from third-party vendors. Some of Home Depot's vendor contracts allow the company to “process an RTV chargeback for defective merchandise and then dispose of the merchandise (rather than return it to the vendor)[.]” Id. (Colloquially, this practice is called “destroy-in-field.” Id.) In general, vendor contracts with such provisions contain “an ‘allowance’ or ‘ceiling’ under which Home Depot could process the RTV and dispose of predetermined amounts of the supposedly defective merchandise without the vendor's inspection of the goods.” Id.¶ 63.• CW3 worked as a receiving associate and then as an RTV clerk at one Home Depot store in Colorado from May 2002 through June 2004.CW3 stated that “phony RTV chargebacks occurred throughout his/her employment,” id.¶ 67.• CW5 worked at seven different Home Depot stores in California from 1986 to 2002 as, among other things, a department manager and a store manager. To meet this low figure, “stores recaptured shrink by processing fraudulent RTV chargebacks.” Id.

Moreover, other than the vague statement that the “Company published” the Plan “in or around 2001,” id.

According to CW1, “ ‘Vendor Income (Rebates)’ was initially referred to as vender income, but it was then changed and a word was added to not draw any attention to it, the change was called Vender Income (Rebates).” Id. CW1 explained that Home Depot did not “do a lot of rebates ․ so it's easy to see what they were doing.” Id.

“[T]he implication,” the amended complaint suggests, is “that the Company accounted for the illicit RTVs as ‘Vender Income (Rebates)’ so that the actual artificially inflated earnings and operating margins would correspond with budgeted amounts.” Id.

The question presented in this appeal is whether lead plaintiff Bucks County Retirement Board's (“Bucks County's”) Amended Class Action Complaint (“ACAC” or “amended complaint”) against Home Depot, Inc. Under these provisions, a securities fraud claim based on failure to reveal information to investors, as Bucks County has alleged here, has six elements: (1) a material misrepresentation or omission; (2) made with scienter; (3) a connection with the purchase or sale of a security; (4) reliance on the misstatement or omission; (5) economic loss; and (6) a causal connection between the material misrepresentation or omission and the loss, commonly called “loss causation.” Dura Pharms., Inc. Therefore, the pivotal issue in this case remains whether Bucks County adequately pleaded a violation of § 10(b) and Rule 10b-5. Notably, Rule 9(b) does not require a plaintiff to allege specific facts related to the defendant's state of mind when the allegedly fraudulent statements were made. These are just two reasons why courts may be skeptical of confidential sources cited in securities fraud complaints; there are likely others. As our discussion of the applicable law makes clear, a court examining a motion to dismiss under the PSLRA must carefully examine the complaint to determine whether the allegations, taken as a whole, create a cogent and compelling inference that the named defendants acted with the requisite scienter.

To survive a motion to dismiss under the Private Securities Litigation Reform Act of 1995, the factual allegations contained in a private securities fraud class action complaint must raise a “strong inference,” one that is “cogent and compelling,” that the named defendants acted with the requisite scienter. See, e.g., Garfield, 466 F.3d at 1261; Theoharous, 256 F.3d at 1227. 8(a)(2)'s requirement of “a short and plain statement of the claim showing that the pleader is entitled to relief.” But securities fraud claims, like other types of fraud claims, have always been subject to Fed. Cascade Int'l, Inc., 256 F.3d 1194, 1202 (11th Cir.2001)). For another, lying to the police or to law enforcement in general will likely lead to much harsher consequences than lying to a plaintiff's attorney, so statements by confidential police informants may be more reliable than conversations between plaintiffs' attorneys and whistleblowers.

Moreover, other than the vague statement that the “Company published” the Plan “in or around 2001,” id.According to CW1, “ ‘Vendor Income (Rebates)’ was initially referred to as vender income, but it was then changed and a word was added to not draw any attention to it, the change was called Vender Income (Rebates).” Id. CW1 explained that Home Depot did not “do a lot of rebates ․ so it's easy to see what they were doing.” Id.“[T]he implication,” the amended complaint suggests, is “that the Company accounted for the illicit RTVs as ‘Vender Income (Rebates)’ so that the actual artificially inflated earnings and operating margins would correspond with budgeted amounts.” Id. The question presented in this appeal is whether lead plaintiff Bucks County Retirement Board's (“Bucks County's”) Amended Class Action Complaint (“ACAC” or “amended complaint”) against Home Depot, Inc. Under these provisions, a securities fraud claim based on failure to reveal information to investors, as Bucks County has alleged here, has six elements: (1) a material misrepresentation or omission; (2) made with scienter; (3) a connection with the purchase or sale of a security; (4) reliance on the misstatement or omission; (5) economic loss; and (6) a causal connection between the material misrepresentation or omission and the loss, commonly called “loss causation.” Dura Pharms., Inc. Therefore, the pivotal issue in this case remains whether Bucks County adequately pleaded a violation of § 10(b) and Rule 10b-5. Notably, Rule 9(b) does not require a plaintiff to allege specific facts related to the defendant's state of mind when the allegedly fraudulent statements were made. These are just two reasons why courts may be skeptical of confidential sources cited in securities fraud complaints; there are likely others. As our discussion of the applicable law makes clear, a court examining a motion to dismiss under the PSLRA must carefully examine the complaint to determine whether the allegations, taken as a whole, create a cogent and compelling inference that the named defendants acted with the requisite scienter. To survive a motion to dismiss under the Private Securities Litigation Reform Act of 1995, the factual allegations contained in a private securities fraud class action complaint must raise a “strong inference,” one that is “cogent and compelling,” that the named defendants acted with the requisite scienter. See, e.g., Garfield, 466 F.3d at 1261; Theoharous, 256 F.3d at 1227. 8(a)(2)'s requirement of “a short and plain statement of the claim showing that the pleader is entitled to relief.” But securities fraud claims, like other types of fraud claims, have always been subject to Fed. Cascade Int'l, Inc., 256 F.3d 1194, 1202 (11th Cir.2001)). For another, lying to the police or to law enforcement in general will likely lead to much harsher consequences than lying to a plaintiff's attorney, so statements by confidential police informants may be more reliable than conversations between plaintiffs' attorneys and whistleblowers.The amended complaint's allegations regarding their statements include the following:• CW2 worked as an RTV clerk “directly responsible for processing RTV chargebacks” at three Home Depot stores in New York State from August 1999 to May 2001. ¶ 61, and he estimated that 30%-40% of the chargebacks were fraudulent.