United States District Court, D. New Jersey
IVAN I. AGUILAR, individually and on behalf of all others similarly situated, Plaintiff,
VITAMIN SHOPPE, INC., RICHARD L. MARKEE, COLIN F. WATTS, and BRENDA M. GALGANO, Defendants.
MCNULTY United States District Judge
the court in this putative federal securities class action
are the competing motions of:
(1) a group of individual plaintiffs consisting of Richard
Schubert, Daniel E. Onishuk, Jr., and Mohammed Kayyal
(collectively, the "SOK plaintiffs") (ECF No. 4);
(2) plaintiff Corpus Christi Firefighters' Retirement
System ("CCFRS") (ECF No. 5).
seeks appointment as lead plaintiff and appointment of its
counsel as lead counsel.
BACKGROUND AND ALLEGATIONS
underlying federal securities class action is brought on
behalf of purchasers of Vitamin Shoppe, Inc. ("Vitamin
Shoppe") common stock between March 1, 2017 and August
8, 2017, inclusive (the "Class Period"). The
plaintiffs allege violations of Sections 10(b) and 20(a) of
the Securities Exchange Act of 1934, 15 U.S.C. §§
78j(b), 78t(a), as amended by the Private Securities
Litigation Reform Act of 1995 (the "PSLRA"), 15
U.S.C. § 78u-4, et seq., and of the Securities
and Exchange Commission (the "SEC") Rule 10b-5
promulgated thereunder, 17 C.F.R. § 240.10b-5.
Vitamin Shoppe is a specialty retailer and direct marketer of
nutritional products. (CC ¶¶ 2, 22). Its common
stock was taken public in an initial public offering
("IPO") in 2009. (CC ¶ 2). Defendant Richard
L. Markee ("Markee") served as a Director of
Vitamin Shoppe from the start of the Class Period until June
7, 2017. (CC ¶ 13). He previously served as the CEO and
Chairman of the Board. (CC ¶ 13). Defendant Colin F.
Watts ("Watts") served as the CEO and a Director of
Vitamin Shoppe throughout the class period. (CC ¶ 14).
Defendant Brenda M. Galgano ("Galgano") served as
Executive Vice President and the Chief Financial Officer
("CFO") of Vitamin Shoppe during the Class Period.
(CC ¶ 15).
plaintiff Ivan I. Aguilar, on behalf of the putative class,
alleges that from March 1, 2017 to August 8, 2017 Vitamin
Shoppe issued materially false statements and failed to
disclose adverse facts known about Vitamin Shoppe. (CC
¶¶ 1, 11-17). More specifically, plaintiffs allege
that defendants represented that Vitamin Shoppe's
financial statements were prepared in conformity with
Generally Accepted Accounting Principles ("GAAP").
(CC ¶¶ 23-25). Plaintiff alleges that these
representations were materially false because, in violation
of GAAP, defendants allegedly delayed the recognition of a
goodwill impairment charge of more than $168 million for
Vitamin Shoppe's retail segment, thereby inflating the
company's income and assets during the class period. (CC
March 1, 2017 Press Release
Class Period starts on March 1, 2017. (CC ¶¶ 29).
On that date, before the opening of trading, Vitamin Shoppe
issued a press release announcing its Financial results for
the fourth quarter of 2016, the period that ended December
31, 2016. (CC ¶ 29). The press release reported $304.9
million total net sales, up 3.9% from the same period of the
prior year, and a "fully diluted loss per share [of]
$0.49, compared to fully diluted earnings per share of $0.22
in fourth quarter 2015." (CC ¶ 29). The release
stated that the company had more than $210.6 million in
goodwill. (CC ¶ 29). It also provided a fiscal year 2017
guidance of "[t]otal comparable sales growth of flat to
low single digit negative, " with "[f]ully diluted
earnings per share in the range of $1.95-2.20." (CC
¶ 29). The release quoted defendant Watts, who stated
that Vitamin Shoppe's "reinvention strategy, "
"growth initiatives, " "accelerated progress
in our cost reduction and margin enhancement initiatives,
" and "long-term prospects for sustainable,
profitable growth" supported this guidance. (CC ¶
March 1, 2017 Conference Call
Shoppe held a conference call for analysts and investors on
the same day as the March 1, 2017 press release. (CC ¶
30). Defendants spoke positively about the ongoing
"reinvention strategy" and the company's
businesses and prospects. (CC ¶ 30). Defendant Watts
promised a "more in-depth update on the progress we made
on our company reinvention strategy, giving some early
indications of what we expect to see on key initiatives for
2017." (CC ¶ 30). He also stated that cost savings
and improved margin opportunities "will begin to be
reflected in our profit performance later in 2017" and
that, because of the reinvention strategy, "our company
is well positioned to grow profitably and to increase
shareholder value by the back-half of 2017." (CC ¶
30). Defendant Galgano stated, in pertinent part, that
Vitamin Shoppe expected an approximately $17 million
year-over-year increase in cost reduction, longer-term growth
opportunities, and continued progress on company initiatives.
(CC ¶ 31).
March 1, 2017 Form 10-K
March 1, 2017, Vitamin Shoppe filed its Form 10-K with the
SEC, which was signed by Markee, Watts, and Galgano, and
certified pursuant to the Sarbanes Oxley Act of 2002 by Watts
and Galgano. (CC ¶ 32). The 2016 10-K stated that the
company's audited financial statements had been prepared
in accordance with GAAP and that the company possessed more
than $210.6 million in goodwill. (CC ¶ 32). The form
stated that Vitamin Shoppe operated three business segments
(i.e., retail, direct, and manufacturing) and that the
company had allocated $165.3 million and $45.3 million of its
recorded goodwill to the retail and direct segments,
respectively. (CC ¶ 32). The form recorded its process
for evaluating goodwill. (CC ¶ 32).
alleges that the actions of March 1, 2017 caused Vitamin
Shoppe's stock to rise more than 8% from its close of
$21.30 on February 28, 2017 in intraday trading, reaching a
Class Period high of $23.25 per share on March 1, 2017. (CC
¶ 33). Several Vitamin Shoppe senior executives and
directors sold approximately $2.4 million of their personally
held stock at this peak time. (CC ¶ 34). Defendant
Markee sold 100, 000 shares on March 3, 2017 alone, for $2,
224, 000 in gross proceeds. (CC ¶ 34).
10, 2017 Press Release
10, 2017, Vitamin Shoppe announced its first quarter
financial results for 2017. (CC ¶ 35). Vitamin Shoppe
reported "GAAP fully diluted earnings per share of
$0.35" for the first quarter. (CC ¶ 35). The
company also reduced its fiscal year 2017 guidance by more
than 45% to "GAAP fully diluted earnings per share in
the range of $1.03-$1.28." (CC ¶ 35). The release
stated that the company had more than $210.6 million in
goodwill as of April 2017. (CC ¶ 35). Defendant Watts
was quoted in the release, stating that "[w]hile the
start of the year ha[d] been challenging, I am encouraged by
the progress we have made on our major reinvention and cost
reduction initiatives that we began developing and piloting
over the last several months, " and that
"[c]ustomer response to our pilots has given us
confidence that these new initiatives should have a positive
impact on our business trends starting in the back half of
this year." (CC ¶ 35).
10, 2017 Conference Call
Shoppe held a conference call on May 10, 2017. (CC ¶
36). Defendant Watts acknowledged that Vitamin Shoppe was
"disappointed" by its first quarter results and
that the second quarter was "shaping up to be another
difficult quarter." (CC ¶ 36). Nonetheless, he
reassured investors that the company had fully "adjusted
[its] guidance to reflect this." (CC ¶ 36).
Defendant Galgano also assured investors that Vitamin Shoppe
was returning to profitability. (CC ¶ 36). She also
provided specific second quarter 2017 guidance, stating in
pertinent part, "We currently estimate that the second
quarter GAAP EPS will be in the range of a loss of $0.07 to
earnings of $0.03 a share." (CC ¶ 37).
price of Vitamin Shoppe shares declined by about one-third on
May 10, 2017. (CC ¶ 38). The share price decreased by
more than $6 to close at $12.70 per share. (CC ¶ 38),
Plaintiffs allege that this reduction occurred in response to
the unexpected 45% reduction in fiscal year 2017 earnings
guidance. (CC ¶ 38).
10, 2017 Form 10-Q
10, 2017, Vitamin Shoppe filed with the SEC its Form 10-Q,
which was signed and certified pursuant to the Sarbanes Oxley
Act of 2002 by defendants Watts and Galgano. This form stated
that the company still had more than $210.6 million in
goodwill on the books as of April 1, 2017, but now stated
that all "210.6 million of its recorded goodwill"
was being "allocated" to the retail segment. (CC
¶ 39). This added more than $45 million in goodwill to
the retail segment. (CC ¶ 39). The Form 10-Q stated that
the "interim financial statements reflect all
adjustments, which [were], in the opinion of management,
necessary for a fair presentation in conformity with
GAAP" and that they "should be read in conjunction
with the audited financial statements and notes thereto
included in the Form 10-K for the fiscal year ended December
31, 2016, as filed with the Securities and Exchange
Commission on March 1, 2017." (CC ¶39).
August 9, 2017 Announcement
August 9, 2017, Vitamin Shoppe announced that it was taking a
$168.1 million impairment charge on the goodwill associated
with its retail segment. (CC ¶ 41). Vitamin Shoppe would
thus report a "GAAP loss per share of $6.73" in the
second quarter of 2017. (CC ¶ 41). Vitamin Shoppe also
dropped its fiscal year 2017 guidance altogether, citing
"the potential increase in variability of the
Company's results due to the number of initiatives being
launched in the back half of the year." (CC ¶ 41).
Shoppe's common stock price again decreased. (CC ¶
42). It fell $3.50 per share to close at $6.10 per share. (CC
¶ 42). Plaintiffs claim that Vitamin Shoppe's common
stock was traded on an open, well-developed, and efficient
market at all times during the Class Period. (CC ¶ 42).
Causes of Action
allege that defendants made several materially false and
misleading statements during the Class Period. (CC ¶
40). Specifically, plaintiffs allege that the company's
retail segment was continuing to dramatically decline and the
"reinvention strategy" was not successful; the
ongoing changes from the "reinvention strategy" had
significantly impaired the more than $168 million in goodwill
being carried on Vitamin Shoppe's retail segment; Vitamin
Shoppe improperly delayed in recognizing the impairment to
the retail segment's goodwill; Vitamin Shoppe's
financial statements were not prepared in conformity with
GAAP; the value of the retail segment's goodwill did not
increase by more than $45 million during the first quarter of
2017; and that defendants thus lacked a reasonable basis for
their positive statements about the success of Vitamin
Shoppe's reinvention plan and financial prospects. (CC
¶ 40). Defendants also allegedly did not have a
reasonable basis to claim that Vitamin Shoppe would return to
profitability during fiscal year 2017. (CC¶4O).
allege that defendants acted with scienter. (CC ¶ 47).
Furthermore, plaintiffs claim that defendants are not
entitled to the protection of the statutory safe harbor for
"forward-looking statements." (CC ¶ 50). They
claim that defendants' actions perpetrated a fraud on the
market and that the plaintiffs should be joined in a class.
(CC ¶¶ 48, 51-56).
alleges violation of Section 10(b) of the Exchange Act and
Rule 10b-5 promulgated thereunder. (CC ¶¶ 57-61).
Count II alleges violation of Section 20(a) of the Exchange
Act. (CC ¶¶ 62-63). Plaintiffs seek compensatory
damages, including interest; reasonable costs and expenses
incurred in the action, including counsel fees and expert
fees; and any other appropriate relief.
before the court are the competing motions of the SOK
plaintiffs and CCFRS. (ECF Nos. 4, 5). Each seeks appointment
as lead plaintiff and approval of its selection of counsel as
lead counsel. (ECF Nos. 4, 5).
PSLRA governs the appointment of the lead plaintiff in
"each private action arising under the [Exchange Act]
that is brought as a plaintiff class action pursuant to the
Federal Rules of Civil Procedure." 15 U.S.C. §
78u-4(a)(1). The PSLRA directs courts to adopt a rebuttable
presumption that "the most adequate plaintiff is the
person or group of persons that has (1) either filed the
complaint or made a motion in response to the notice to the
class; (2) has the largest financial interest in the relief
sought by the class; and (3) otherwise satisfies the
requirements of Federal Rule of Civil Procedure 23."
Lewis v. Lipocine Inc., No. 16-cv-4009-BRM-LHG, 2016
WL 7042075, at *4 (D.N.J. Dec. 2, 2016) (citing Fields v.
Biomatrix, Inc., 198 F.R.D. 451, 456 (D.N.J. 2000) and
15 U.S.C. § 78u-4(a)(3)(B)(iii)(I)).
stage, in the context of the PSLRA, Rule 23 requires that the
party or parties seeking to represent a class (1) have claims
or defenses that are typical of the claims or defenses of the
class, (the "typicality requirement") and (2) be
able to fairly and adequately protect the interests of the
class, (the "adequacy requirement"). See
Fed.R.Civ.P. 23(a); In re Cendant Corp. Litig., 264
F.3d 201, 263 (3d Cir. 2001); Lewis, 2016 ...