The opinion of the court was delivered by: JEROME B. SIMANDLE
SIMANDLE, District Judge:
This federal securities law class action is before the court on defendants' motion to dismiss the Consolidated Amended Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). The issue presented is whether plaintiffs' allegations that the defendants made optimistic public projections for success of the corporation's expected performance in sales of frozen carbonated beverages in knowing or reckless disregard of material adverse facts, continuing before and after plaintiff-shareholders purchased corporate stock in reliance upon the projections, states a claim for securities fraud under Rule 10b-5 of the Securities and Exchange Commission, 17 C.F.R. § 240.10b-5, and Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Section 20(a) of the Securities Exchange Act, 15 U.S.C. § 78t(a). For the reasons discussed below, the court will grant defendants' motion.
This is a securities class action suit brought on behalf of all persons who purchased the common stock of J & J Snack Foods Corp. ("J & J" or the "Company") during the period from January 10, 1992 up to and including June 18, 1992 (the "Class Period").
Defendant J & J is in the business of manufacturing and marketing nutritional snack foods to the food service, school and retail supermarket industries.
Its principal products include soft pretzels, frozen treats and desserts, churros, baked goods and frozen carbonated beverages ("FCBs"). Plaintiffs allege that defendants J & J, Gerald B. Shreiber, chief executive officer of J & J, and Arnold J. Goldstein, former chief financial officer of J & J, failed to disclose material adverse information, and made or participated in the making of fraudulent misstatements, in violation of Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5, and Section 20(a) of the Securities Exchange Act of 1934, 15 U.S.C. § 78t(a). Plaintiffs also have asserted claims for common law fraud, deceit and negligent misrepresentation.
The Consolidated Amended Complaint (or, the "Complaint") identifies several allegedly false and misleading public reports and statements made by or on behalf of J & J, and approved of or acquiesced in by defendants Shreiber and Goldstein. The Complaint alleges inter alia as follows:
1. On January 10, 1992, Shreiber stated:
Our short-term financial results, particularly our first and second quarters (October through March) will be impacted by the costs related to the expansion of our FCB business. We anticipate strong third and fourth quarter sales, our seasonal selling period for our beverage business. We continue to be pleased with the performance of our snack food business, including both our food service and supermarket sales, which grew over 18 percent in the first quarter. Despite the economic recessionary problems affecting the country, we are optimistic for 1992 and beyond.
Consolidated Amended Complaint at P 27.
2. On January 24, 1992, J & J announced its results for the first quarter ended December 28, 1991, and defendant Goldstein commented:
Although our frozen carbonated beverage division experienced lower-than-expected sales and earnings related to the recession, our food service and retail supermarket divisions produced good results for the quarter. Food service sales were up 13 percent and sales to supermarkets were up 39 percent. Our core businesses are fundamentally strong and we are optimistic about the balance of fiscal 1992 and beyond.
Consolidated Amended Complaint at P 28. J & J's Form 10-Q for the period ending December 28, 1991, which it filed with the Securities and Exchange Commission ("SEC") on February 25, 1992 and which Shreiber and Goldstein signed, reiterated the results as stated above. Consolidated Amended Complaint at P 29.
3. During a conversation on or about March 17, 1992 with Richard Davis, Jr. ("Davis"), a stock analyst for Wessels, Arnold & Henderson, Goldstein told Davis, "among other things, that there was nothing unusual to report." Consolidated Amended Complaint at P 30.
4. On April 10, 1992, Advest, Inc., a brokerage firm, "based upon information from the Company," issued a buy recommendation for the Company and indicated that J & J's FCB division had a soft winter, but was expected to report strong summer 1992 results. Consolidated Amended Complaint at P 31.
6. On April 24, 1992, J & J announced its results for the second quarter and first half ended March 28, 1992, in which sales increased 14 percent to $ 28,515,000 from $ 24,979,000 in last year's (i.e., the previous year's) second quarter. Net earnings for the second quarter climbed 98 percent to $ 972,000 compared to $ 491,000 last year. Shreiber allegedly stated:
Our snack food sales and earnings were up sharply in the second quarter and overshadowed the seasonal losses of our beverage operations . . . . The second quarter included strong sales and earnings results for products sold to supermarkets. We are optimistic about prospects for the second half of our fiscal year when sales of our frozen carbonated beverages are generally higher.
Consolidated Amended Complaint at P 33. The Company's Form 10-Q for the quarter ended March 28, 1992, filed on or about May 4, 1992 and signed by Shreiber and Goldstein, reiterated these results. Consolidated Amended Complaint at P 36.
7. On or about April 28, 1992, the brokerage firm of Piper Jaffray, Inc. ("Piper Jaffray") maintained its buy recommendation and, "on information from the Company," reported that Circle K, a major new FCB customer which J & J had recently obtained, would bring J & J's incremental FCB dispensers up over 15% by year end, making incremental growth highly likely for FCB over the next two years. Consolidated Amended Complaint at P 35.
8. On or about June 10, 1992, J & J representatives spoke to analysts at a Piper Jaffray conference concerning J & J's outlook and gave a positive report on J & J, neglecting to mention any alleged problems in the Company's FCB division. Consolidated Amended Complaint at P 37.
9. On or about June 10, 1992, Shreiber spoke with Davis and allegedly told him that:
the growth in the FCB business will be 20% in the second half, and 13-14% for the year. Specifically, with regard to the third quarter, defendant Shreiber told Davis that J & J had everything in place to achieve 17-18% growth for its FCB business.
Consolidated Amended Complaint at P 38.
10. After the close of trading on Wednesday, June 17, 1992, Shreiber "suddenly" announced that:
Although we expect to close out the quarter with overall healthy sales increases, disappointing results with our Frozen Carbonated Beverage business and other increased operating expenses are expected to impact earnings for the quarter. . . .
Start-up and expansion expenses in connection with the Company's Frozen Carbonated Beverage business, coupled with the interruption of sales due to a remodeling program by a major FCB customer, is expected to continue through the fourth quarter. For our fiscal year we do not expect to match last year's earnings per share of 67 cents, based on this year's weighted average number of shares of 10,859,000.
Consolidated Amended Complaint at P 40.
The start-up and expansion expenses alluded to in P 40 of the Complaint refer to J & J's acquisition and expansion plan which it announced in its January 10, 1992 communique, see defendants' Exhibit A, as well as J & J's contract with Circle K, see Consolidated Amended Complaint at P 41. K-Mart was the FCB customer undergoing the remodeling program. Consolidated Amended Complaint at P 41. By the time trading commenced on Thursday, June 18, 1992, J & J's common stock lost 28% of its value, falling from Wednesday, June 17, 1992's closing price of $ 12.50 per share to $ 9.00 per share.
In asserting their claims, plaintiffs "rely, in part, upon the presumption of reliance established by the omission of material facts" of which they complain. Consolidated Amended Complaint at P 23. They also rely in part upon the presumption of reliance established by the fraud-on-the-market doctrine. See id. at P 22. More specifically, plaintiffs allege that:
(a) defendants made public misrepresentations or failed to disclose material facts during the Class Period;
(b) the omissions and misrepresentations were material;
(c) the securities of the Company traded in an efficient market;
(d) the omissions and misrepresentations alleged would tend to induce a reasonable investor to misjudge the value of the Company's securities; and
(e) plaintiffs and the members of the Class purchased their J & J securities between the time the defendants failed to disclose or misrepresented material facts and the time the true facts were disclosed, without knowledge of the omitted or misrepresented facts.
Defendants assert that plaintiffs' allegations are insufficient as a matter of law. They move to dismiss the complaint pursuant to Fed.R.Civ.P. 12(b)(6).