United States District Court, S.D. Florida
THOMAS W. LUCZAK, Plaintiff,
NATIONAL BEVERAGE CORPORATION, NICK A. CAPORELLA, and GEORGE R. BRACKEN, Defendants.
ORDER ON MOTION TO DISMISS
MICHAEL MOORE UNITED STATES CHIEF DISTRICT JUDGE
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.
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. 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. ¶
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:
The “All Natural” Claim
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.
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.
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.
alleges that National Beverage's failure to disclose the
total share of sales or profits attributable to LaCroix
violated Generally Accepted Accounting Principles
(“GAAP”),  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.
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).” 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.
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.'”
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.
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.
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.
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.
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.
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.
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.
STANDARDS OF REVIEW
Fed. R. ...