Macomb County Employees v. Stratasys Ltd. , 864 F.3d 879 ( 2017 )

United States Court of Appeals
For the Eighth Circuit
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No. 16-3264
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In re: Stratasys Ltd. Shareholder Securities Litigation
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Albert Smelko, Jr., Individually and on Behalf of All Others Similarly Situated
lllllllllllllllllllll Plaintiff
Macomb County Employees Retirement System; Mineworkers’ Pension Scheme
lllllllllllllllllllll Plaintiffs - Appellants
v.
Stratasys Ltd.; David Reis; Erez Simha; Bre Pettis; Jennifer Lawton
lllllllllllllllllllll Defendants - Appellees
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Appeal from United States District Court
for the District of Minnesota - Minneapolis
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Submitted: March 9, 2017
Filed: July 25, 2017
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Before LOKEN, MURPHY, and BENTON, Circuit Judges.
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BENTON, Circuit Judge.
Stratasys manufactures 3D printers, primarily for commercial use. Some of its
shareholders brought a securities fraud action, claiming several promotional
statements were knowingly false. The district court1 determined that these statements
were mere puffery and that the shareholders failed to sufficiently plead that Stratasys
knew its statements were false when made. In re Stratasys Ltd., 2016 WL 3636992
(D. Minn. June 30, 2016) Having jurisdiction under 28 U.S.C. § 1291, this court
affirms.
I.
In August 2013, Stratasys acquired MakerBot Industries, LLC—a manufacturer
of scaled-down desktop 3D printers—as an indirect, wholly owned subsidiary.
According to Stratasys, this acquisition would allow it to expand into the emerging
desktop 3D printer market.
In January 2014, MakerBot introduced a new line of desktop 3D printers.
called “5G printers.” Each 5G printer had a “Smart Extruder” replaceable print head,
which was designed to be swappable. Stratasys claimed these printers were
“unmatched” in quality, reliability, ease of use, speed, and performance. They also
made positive statements about MakerBot’s past and future finances.
Buyers of the 5G printers experienced significant issues with clogging due to
the Smart Extruders. Sales for the 5G printers declined; many were returned.
Stratasys stock dropped, prompting this securities fraud action.
The shareholders claim both the quality and financial statements were
misleading, and that Stratasys knew the 5G printers were essentially inoperable but
1
The Honorable Patrick J. Schiltz, United States District Judge for the District
of Minnesota.
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still rushed them to market while publicly proclaiming their quality and reliability.
The district court found that most of statements about the printers’ quality were “mere
puffery,” that any verifiable statements about speed were not adequately pled to be
false, and that the shareholders failed to plead a strong inference of scienter. The
shareholders appeal.
II.
This court reviews de novo the dismissal of a complaint for failure to state a
claim. Florida State Bd. of Admin. v. Green Tree Fin. Corp., 270 F.3d 645, 661 (8th
Cir. 2001). The Private Securities Litigation Reform Act (“PSLRA”) imposes
heightened pleading standards in securities-fraud cases. Id. at 656. This court must
“disregard ‘catch-all’ or ‘blanket’ assertions that do not live up to the particularity
requirements of the statute.” Id. at 660.
A.
A securities fraud “plaintiff must show that the defendant made a statement that
was misleading as to a material fact.” Matrixx Initiatives, Inc. v. Siracusano, 563
U.S. 27, 38 (2011) (internal quotation marks and emphases omitted). A fact is
material “when there is a substantial likelihood that the disclosure of the omitted fact
would have been viewed by the reasonable investor as having significantly altered the
total mix of information made available.” Id. (internal quotation marks omitted). An
adequate complaint must “specify each statement alleged to have been misleading
[and] the reason or reasons why the statement is misleading.” 15 U.S.C. §
78u-4(b)(1).
A statement is not material and is mere puffery, if it is “so vague and such
obvious hyperbole that no reasonable investor would rely upon [it].” Parnes v.
Gateway 2000, Inc., 122 F.3d 539, 547 (8th Cir. 1997). No reasonable investor
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would rely on “soft, puffing statements”—which encompass “optimistic rhetoric” and
“promotional phrase[s] used to champion the company but [ ] devoid of any
substantive information.” Id. (internal quotation marks omitted). See also In re
Medtronic Inc., Sec. Litig., 618 F. Supp. 2d 1016, 1021, 1030 (D. Minn. 2009)
(company said product was “durable and reliable” and “designed to ‘resist fracture’”),
aff’d sub nom Detroit Gen. Ret. Sys. v. Medtronic, Inc., 621 F.3d 800, 808 (8th Cir.
2010) (statements were “so vague that an investor could not reasonably rely on them
for any information related to the soundness of the investment”). Optimistic
statements are not actionable if they cannot be “supported by objective data or [ ]
otherwise subject to verification by proof.” See In re NVE Corp. Sec. Litig., 551 F.
Supp. 2d 871, 894-95 (D. Minn. 2007) (internal quotation marks omitted) (statements
that technology was “something that comes around ‘once in [a] lifetime’” and that
company was “‘leading the race’ to develop” the technology were mere puffery)
(alteration in original), aff’d, 527 F.3d 749 (8th Cir. 2008).
The statements the shareholders here claim are materially misleading are “so
vague and such obvious hyperbole that no reasonable investor would rely upon
them.” Parnes, 122 F.3d at 547. Stratasys’s statements that the 5G printers offer
“unmatched speed, reliability, quality and connectivity” are vague and nonverifiable.
As the district court noted, even to the extent the claim of “unmatched speed” could
be actionable, the shareholders “do not allege any facts demonstrating that the 5G
printers are not faster than MakerBot’s other printers or other desktop 3D printers on
the market.” Cf. Omnicare, Inc. v. Laborers Dist. Council Const. Indus. Pension
Fund, 135 S. Ct. 1318, 1326 (2015) (a “determinate, verifiable statement” is not
puffery).
The shareholders argue that the context of Stratasys’s claims—a highly
anticipated product launch following Stratasys’s acquisition of MakerBot—makes
them material. The out-of-circuit authority cited by the shareholders is
distinguishable. See In re Harman Int’l Indus., Inc. Sec. Litig., 791 F.3d 90, 109
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(D.C. Cir. 2015) (statement that sales “were very strong during fiscal 2007” were
plausibly understood—in the context of an annual report—to be “a description of
historical fact rather than unbridled corporate optimism”); Makor Issues & Rights,
Ltd. v. Tellabs, Inc., 437 F.3d 588, 597 (7th Cir. 2006) (statement that company was
“still seeing that product continue to maintain its growth rate,” made in “direct
response to an analyst’s inquiry about a possible decline in” sales, was not puffery)
(emphasis omitted), vacated on other grounds, 551 U.S. 308 (2007). Here, though
the shareholders allege that some misleading statements were made in the context of
Stratasys’s SEC filings, the specific statements they identify are still vague and
indeterminate rather than plausibly understood as “a description of historical fact.”
See In re Harman, 791 F.3d at 109. Nor do the shareholders allege the statements
were made in direct response to an inquiry based on inconsistent information. See
Makor, 437 F.3d at 597.
The shareholders also cite Virginia Bankshares, Inc. v. Sandberg, 501 U.S.
1083 (1991). There, the bank’s board said the reason for a merger was “to achieve
a ‘high’ value, which [directors] elsewhere described as a ‘fair’ price.” Id. at 1088.
The Supreme Court, noting that “conclusory terms in a commercial context are
reasonably understood to rest on a factual basis,” held that this statement was not
insulated from liability because it was a “statement[ ] of reasons or belief” or because
it “did not express a reason in dollars and cents.” Id. at 1092-93. That holding does
not preclude statements, like the ones here, from being “so vague and such obvious
hyperbole that no reasonable investor would rely upon them.” Parnes, 122 F.3d at
547.
B.
“[A] securities fraud case cannot survive unless its allegations collectively add
up to a strong inference of the required state of mind.” Green Tree, 270 F.3d at 660.
The material misstatement must be false when made, not just in hindsight. See In re
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K-tel Int’l, Inc. Sec. Litig., 300 F.3d 881, 891 (8th Cir. 2002) (“Under the Reform
Act the complaint must allege facts or further particularities that, if true, demonstrate
that the defendants had access to, or knowledge of, information contradicting their
public statements when they were made.” (internal quotation marks omitted)). The
PSLRA requires particularity in pleading contemporaneous knowledge of falsity; it
does not allow “pleading fraud by hindsight.” Elam v. Neidorff, 544 F.3d 921, 927
(8th Cir. 2008) (internal quotation marks omitted).
Here, the shareholders’ claims fail because their allegations do not adequately
tie Stratasys’s knowledge of the product quality issues or their financial repercussions
to the timing of the statements. The shareholders’ allegations about Stratasys’s
knowledge of the 5G printers’ issues, from confidential witness accounts, do not
provide particular details about when Stratasys knew of these issues. The
shareholders argue the district court erred in considering their confidential witness
accounts when evaluating scienter because those accounts were meant to demonstrate
only that the statements were materially false. However, adequately pled scienter
must demonstrate that a defendant knew a statement was false at the moment it was
made. Without tying the timing of the knowledge to the allegedly misleading
statements, the shareholders do not plead facts sufficient to support a strong inference
of scienter. See In re K-tel, 300 F.3d at 891.
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The judgment is affirmed.
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