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Luczak v. National Beverage Corp.

United States District Court, S.D. Florida

August 29, 2019

THOMAS W. LUCZAK, Plaintiff,
v.
NATIONAL BEVERAGE CORPORATION, NICK A. CAPORELLA, and GEORGE R. BRACKEN, Defendants.

          ORDER ON MOTION TO DISMISS

          K. MICHAEL MOORE UNITED STATES CHIEF DISTRICT JUDGE

         THIS CAUSE came before the Court upon Defendants National Beverage Corporation (“National Beverage”), Nick A. Caporella (“Caporella”), and George R. Bracken's (“Bracken, ” and collectively, “Defendants”) Motion to Dismiss (“Mot.”) (ECF No. 26) Plaintiff Thomas W. Luczak's (“Plaintiff”) Amended Class Action Complaint (“Am. Compl.”) (ECF No. 25). Plaintiff responded (“Resp.”) (ECF No. 32) and Defendants replied (“Reply”) (ECF No. 33). The motion is now ripe for review.

         I. BACKGROUND

         National Beverage is a publicly owned, family-controlled, and Fort Lauderdale-based company founded by Caporella that “develops, produces, markets, and sells a portfolio of flavored beverage products, ” including sparkling waters LaCroix and Shasta.[1] Am. Compl. ¶¶ 2-3, 25, 194. Caporella, the CEO and Chairman of National Beverage, controls 73.5% of the company's common stock. Id. ¶¶ 3, 25. Bracken is National Beverage's Executive Vice President of Finance. Id. ¶ 26. Caporella and Bracken are both authorized to (1) control the contents of National Beverage's SEC filings, press releases, and other market communications; (2) prevent any communication from being issued; and (3) correct any misstatement. Id. ¶ 28.

         Plaintiff, individually and on behalf of all others similarly situated, brings the instant securities class action against Defendants pursuant to §§ 10(b) and 20(a) of the Securities Exchange Act of 1934. Id. ¶ 1. Plaintiff alleges that during the designated class period of July 17, 2014 through October 30, 2018 (the “Class Period”), he acquired National Beverage stock at artificially inflated prices due to repeated material misrepresentations and omissions in National Beverage's publicly issued statements, and that these misrepresentations and omissions caused Plaintiff and other class members “significant losses and damages.” Id. ¶¶ 1, 18, 23. Specifically, Plaintiff identifies the following four categories of statements or omissions that eventually led to a “precipitous decline” in the value of National Beverage's securities:

         A. The “All Natural” Claim

         Defendants marketed, labeled, and publicly represented to investors that LaCroix is “all natural, ” “100% natural, ” or “100% naturally essenced.” Id. ¶¶ 6, 30, 98. Defendants touted the “all natural” claim to get a competitive edge over competing sparkling water products. Id. ¶ 6. According to Plaintiff, thousands of customers choose LaCroix over competitor brands because of the assurance of an “all natural” product. Id. ¶ 30. On October 1, 2018, a consumer class action was filed in Illinois state court against National Beverage, alleging that LaCroix was not “all natural, ” as National Beverage had publicly asserted. Id. ¶ 159. That same day, National Beverage issued a press release stating: “[a]ll essences contained in LaCroix are certified by our suppliers to be 100% natural.” Id. ¶ 160. Four days later, National Beverage issued another press release asserting that LaCroix is “comprised of natural ingredients, ” and that “there are neither sugars nor artificial ingredients contained in, nor added to, our LaCroix products. All of our ingredients are certified as natural.” Id. ¶ 162. On October 30, 2018, Dow Jones published a news report entitled, “LaCroix Loses Fizz After Lawsuit-Market Talk, ” which disclosed results from a survey stating that 28% of LaCroix drinkers consume the product because it is “natural, ” and that since the filing of the Illinois action, LaCroix sales dropped 3%. Id. ¶ 169. Following the Dow Jones report, LaCroix tumbled an additional 4.9%, falling from a close of $100.60 on October 29, 2018 to a close of $95.89 on October 30, 2018. Id. ¶ 170.

         Plaintiff alleges that LaCroix is not, in fact, “all natural” as Defendants claim and that any public representation by Defendants to the contrary is materially misleading. Id. ¶¶ 167-168. Plaintiff further alleges that Defendants' failure to disclose that LaCroix is purportedly not “all natural” caused the resulting drop in stock price following the publication of the Dow Jones article. Id. ¶¶ 169-170.

         B. Revenue Concentration

         LaCroix is National Beverage's “largest product line by far.” Id. ¶ 101. LaCroix also generated the most growth in National Beverage's share price. Id. ¶ 31. On May 4, 2017, Laurent Grandet (“Grandet”), a market analyst for international investment bank Credit Suisse, stated that while LaCroix sales grew by 60%, the remainder of National Beverage's product portfolio grew by only 2%, and that by the first quarter of 2018, LaCroix would account for 48% of National Beverage's total sales. Id. ¶¶ 31-32. On October 23, 2017, another analyst estimated that LaCroix could comprise as much as 66% of National Beverage sales, adding that “for valuation and investment purposes, it would help to know how big LaCroix is” as a share of National Beverage's entire portfolio. Id. ¶ 115. On December 8, 2017, Grandet assigned an “underperform” rating to National Beverage's stock, stating that National Beverage's business was driven “almost entirely” by LaCroix's success, the growth trajectory of which was slowing. Id. ¶ 122.

         Plaintiff alleges that National Beverage's failure to disclose the total share of sales or profits attributable to LaCroix violated Generally Accepted Accounting Principles (“GAAP”), [2] which purportedly require a company to disclose any “vulnerability from its outsized concentration of revenue” in a particular product. Id. ¶ 34. Plaintiff further alleges that Defendants' failure to comply with GAAP “caused a downturn in stock price” because analysts found National Beverage's financials “opaque” and were thus unable to accurately forecast or evaluate National Beverage's true value or calculate any risk stemming from the concentration of National Beverage's profits in LaCroix. Id. ¶¶ 46, 122.

         C. VPO/VPC

         On May 4, 2017, in response to National Beverage receiving a “sell” rating from market analyst Anthony Vendetti, Defendants issued a press release in which Caporella stated that National Beverage “employs methods that no other company does in this area-VPO (velocity per outlet) and VPC (velocity per capita).”[3] Id. ¶¶ 80-81. Caporella added that National Beverage:

“[U]tilize[s] two proprietary techniques to magnify these measures and this creates growth never before thought possible. Unique to [National Beverage] is creating velocity per capita though proven velocity predictors. Retailers are amazed by these methods and find before and after changes so dynamic that they demand we afford them the use of these methods as frequently as possible.”

Id. The following day, National Beverage issued another press release, in which Caporella stated that “[o]ur impressive VPO calculator . . . reflected on the cover of our fiscal year 2015 Proxy is flashing solid green numbers as we bring FY2017 to a close.” Id. ¶ 89. On June 2, 2017, National Beverage again issued a press release stating that LaCroix “is setting the pace for retailer shelf reallocation while fueling a new standard for VPO (velocity per outlet) and VPC (velocity per capita). The month of May is the engine for what appears to [be the] start [of] a great summer and another great year for our . . . investors[.]” Id. ¶ 91.

         On January 26, 2018, the United States Securities and Exchange Commission (“SEC”) wrote a letter to National Beverage regarding National Beverage and Caporella's references to VPO and VPC in the above-mentioned press releases. Id. ¶ 126. Specifically, the SEC requested information on how National Beverage used the VPO and VPC metrics in managing its business. Id. On February 23, 2018, National Beverage responded that its references to VPO and VPC “characterize[d] the entrepreneurial spirit of [National Beverage] and [Caporella], ” and that while these metrics “are used to establish goals for certain customers, ” they “are not utilized to manage the overall executional side of our business.” Id. ¶ 127. National Beverage added that it did “not believe that [its] comments relative to VPO/VPC dynamics require explanation as [VPO and VPC] are . . . not key performance indicators that would give readers a view of the [c]ompany through the ‘eyes of the management.'” Id.

         On March 23, 2018, the SEC wrote another letter (the “March 23 Letter”) to National Beverage, requesting that National Beverage “reconcile[]” (1) its contention that VPO and VPC are “not key performance indicators” used by National Beverage management with (2) its public representations that the VPO and VPC help create “growth never before thought possible” and that National Beverage's “impressive VPO calculator . . . is flashing solid green numbers as we bring FY2017 to a close.” Id. ¶ 134.

         On April 24, 2018, National Beverage responded to the SEC, explaining what each metric measures and how it is calculated. Id. ¶ 136. National Beverage also stated that “[a]lthough VPO and VPC are components in marketing and evaluating [sales] performance . . . the data underlying these metrics is proprietary” and thus cannot be provided to the SEC. Id. On May 14, 2018, the SEC told National Beverage that it had completed its inquiry into the matter. Id. ¶ 137.

         On June 26, 2018, the Wall Street Journal (“WSJ”) published an article (the “June 26 Article”) titled: “The SEC Has Had Its Own Questions About LaCroix, ” which effectively summarized the above-mentioned exchanges between National Beverage and the SEC. Id. ¶ 138. The day after the WSJ published its story, National Beverage's share price fell by 8.87%, to close at $100.19. Id. ¶ 139.

         Plaintiff contends that following the article's publication, the market “fully realized that” National Beverage's claims about VPO and VPC “creat[ing] growth never before though possible” and “flashing solid green numbers” were false because neither the VPO and VPC measures were important or material to investors. Id. ¶ 139.

         D. Sexual Harassment

         On July 3, 2018, the WSJ published an article (the “July 3 Article”) titled: “Billionaire Behind LaCroix Accused of Improper Touching by Two Pilots.” Id. ¶ 152. The article reported that Terence Huenfeld and Vincent Citrullo, two corporate jet pilots formerly employed by National Beverage, filed lawsuits against Caporella and National Beverage for “unwanted touching” by Caporella on numerous occasions from 2014 to 2016. Id. Over the next several days, National Beverage's share price fell by 2.64% to close at $107.04 on July 6, 2018. Id. ¶ 153.

         From 2014 through 2016, National Beverage's 10-K filings-signed and certified by Caporella and Bracken pursuant to the Sarbanes-Oxley Act of 2002-advised investors that its Code of Ethics was available on the National Beverage website. Id. ¶¶ 69-76. National Beverage's Code of Ethics “absolutely” prohibited “[a]ny type of harassment, whether of a racial, sexual, ethnic, or other nature.” Id. ¶ 69. Plaintiff alleges that National Beverage's purported lack of any disciplinary action against Caporella violated the Code of Ethics' “absolute[]” prohibition on sexual harassment and thus made the 10-K filings at issue materially false or misleading. Id. ¶ 77.

         Defendants now move to dismiss the Amended Complaint pursuant to Fed. Rs. Civ. P. 12(b)(6) and 9(b), arguing that Plaintiff fails to establish standing and adequately allege falsity, scienter, and loss causation for each of the above-mentioned statements. See generally Mot.

         II. STANDARDS OF REVIEW

         A. Fed. R. ...


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