Mun. Employees' Ret. Sys. of Mich. v. Pier 1 Imports, Inc.

935 F.3d 424 (2019) United States Court of Appeals for the Fifth Circuit 2019-08-19

private securities fraud class action; dismissal of amended complaint under Rule 12(b)(6) and PSLRA affirmed (result: claimant-lost)

Facts

6 Intent to deceive, manipulate, or defraud not pleaded
We agree with the district court that the investors have failed to plead a "strong inference" of scienter.
6 Intent to deceive, manipulate, or defraud not pleaded
Plaintiffs properly plead scienter when they allege that a company knowingly or recklessly made statements to the market while aware of facts that, if not disclosed, would render those statements misleading.
6 Intent to deceive, manipulate, or defraud not pleaded
Here, even the lowest possible performance-based bonuses that Smith and Turner could receive-which were only 11.5 percent and 8 percent of their respective base salaries-proved to be well out of reach: Pier 1's Fiscal Year 2015 earnings before interest, tax, depreciation, and amortization were $60 million lower than the lowest target number in their employment contracts.
6 Intent to deceive, manipulate, or defraud not pleaded
Third, the investors allege that a confidential witness reported that "[d]uring at least one inventory review meeting in mid-2014, Smith acknowledged that inventory problems were pervasive."
6 Intent to deceive, manipulate, or defraud not pleaded
Fourth , the investors allege that Pier 1's former Director of Distribution and Transportation reported that Smith asked him about almost 1,000 trailers full of inventory parked outside Pier 1's Baltimore distribution center.
6 Intent to deceive, manipulate, or defraud not pleaded
And the investors have not explained why Pier 1 executives kept ordering more inventory when they supposedly knew deep down that they would not be able to sell it.
6 Intent to deceive, manipulate, or defraud not pleaded
In summary, we conclude that the investors' allegations that Smith and Turner knew that Pier 1 had significant markdown risk fail to create a strong inference of scienter.
6 Intent to deceive, manipulate, or defraud not pleaded
As in that case, rather than concealing its inventory problem, Pier 1 "repeatedly alerted investors" that the problem "would affect the company's output" throughout the Class Period.