Chamberlain v. Reddy Ice Holdings Inc.

• Decision Date: 06 December 2010
• Docket Number: Case No. 08–cv–13451.
• Citation: 757 F.Supp.2d 683
• Parties: John CHAMBERLAIN, Individually and on Behalf of All Others Similarly Situated, Plaintiffs,v.REDDY ICE HOLDINGS, INC., William P. Brick, Jimmy C. Weaver, Steven J. Janusek and Raymond D. Booth, Defendants.
• Court: U.S. District Court — Eastern District of Michigan

757 F.Supp.2d 683

John CHAMBERLAIN, Individually and on Behalf of All Others Similarly Situated, Plaintiffs,

v.REDDY ICE HOLDINGS, INC., William P. Brick, Jimmy C. Weaver, Steven J. Janusek and Raymond D. Booth, Defendants.

Case No. 08–cv–13451.

United States District Court, E.D. Michigan, Southern Division.

Dec. 6, 2010.

Debra J. Wyman, Coughlin Stoia Geller Rudman & Robbins LLP, San Diego, CA, Thomas C. Michaud, Vanoverbeke, Michaud, Detroit, MI, Mark J. Zausmer, Mischa Boardman, Zausmer, Kaufman, Farmington Hills, MI, for Plaintiffs.Bryan S. Neal, pro se.Arthur Thomas O'Reilly, David A. Ettinger, Raymond W. Henney, Honigman, Miller, Schwartz and Cohn LLP, Detroit, MI, James R. Nelson, DLA Piper US, LLP, Timothy A. Duffy, Burleson Pate & Gibson, Dallas, TX, Samuel B. Isaacson, DLA Piper LLP, Chicago, IL, Brian J. Masternak, Dean F. Pacific, Warner, Norcross, Grand Rapids, MI, for Defendants.

OPINION AND ORDER (1) DENYING DEFENDANTS REDDY ICE HOLDINGS, INC., WILLIAM P. BRICK AND STEVEN J. JANUSEK'S MOTIONS TO DISMISS (DKT. NO. 78); (2) DENYING DEFENDANT JIMMY C. WEAVER'S MOTION TO DISMISS (DKT. NO. 41); (3) GRANTING DEFENDANT RAYMOND D. BOOTH'S MOTION TO DISMISS (DKT. NO. 39); AND (4) GRANTING DEFENDANTS' MOTION TO SUPPLEMENT (DKT. NO. 82)

PAUL D. BORMAN, District Judge.

This matter is before the Court on Defendants Reddy Ice Holdings, Inc. (“Reddy Ice”), William P. Brick (“Brick”) and Steven J. Janusek's (“Janusek”) Motion to Dismiss (Dkt. No. 43 redacted at Dkt. No. 78), Defendant Jimmy C. Weaver's (“Weaver”) Motion to Dismiss (Dkt. No. 41) and Defendant Raymond D. Booth's (“Booth”) Motion to Dismiss (Dkt. No. 39). Plaintiffs have filed responses. (Dkt. Nos. 48, 47 and 46.) Defendants have filed replies. (Dkt. Nos. 58, 59 and 57.) The Court held a hearing on October 22, 2010. For the reasons that follow, the Court DENIES Defendants Reddy Ice, Brick, Janusek and Weaver's motions to dismiss and GRANTS Defendant Booth's motion to dismiss. The Court further GRANTS Defendants Reddy Ice, Brick and Janusek's Motion for Leave to Supplement Pending Motion to Dismiss, (Dkt. No. 82), based upon the parties' briefs and without necessity for oral argument. See E.D. Mich. L.R. 7.1(f).

I. BACKGROUNDA. The Packaged Ice Litigation

On June 5, 2008, the United States Judicial Panel on Multidistrict Litigation (“MDL”) assigned to this Court a number of related civil antitrust actions against the three dominant players in the Packaged Ice Industry, Reddy Ice Holdings and its wholly owned subsidiary Reddy Ice Corporation (“Reddy Ice”), Arctic Glacier Income Fund and its wholly owned subsidiary Arctic Glacier, Inc. (“Arctic Glacier”) and the Home City Ice Company (“Home City”). Those cases are now consolidated in In re Packaged Ice Antitrust Litig., No. 08–MD–01952 (E.D.Mich.2008). On July 1, 2010, this Court denied the Defendants' motion to dismiss the Direct Purchaser's Consolidated Amended Class Action Complaint in the antitrust litigation. ( In re Packaged Ice Antitrust Litig., Dkt. No. 260.)

The instant securities fraud class action, Chamberlain v. Reddy Ice Holdings, Inc., Case No. 08–13451, originally filed on August 8, 2008 and reassigned pursuant to E.D. Mich. L.R. 83.11 to this Court on August 14 2008, is a tag-a-long case to the multidistrict antitrust litigation. On July 17, 2009, this Court consolidated Chamberlain with two related securities cases, Coffey v. Reddy Ice Holdings, Inc., et al., Case No. 08–13670 and Neal v. Reddy Ice Holdings, Inc., et al., Case No. 08–14036. (Dkt. No. 26.) On July 27, 2009, the Court appointed Lawrence Diamond and the Southeastern Pennsylvania Transportation Authority (“SEPTA”) interim lead Plaintiffs in this action and appointed Schiffrin Barroway Topaz & Kessler, LLP (now Barroway Topaz Kessler Meltzer & Check LLP) interim lead counsel and Zausmer, Kaufman, August, Caldwell & Taylor, P.C. as interim liaison counsel for the class. (Dkt. No. 28.)

On November 2, 2009, Plaintiffs filed a Consolidated Class Action Complaint (“CCAC”) alleging violations of § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) and of Rule 10b–5 promulgated thereunder, 17 C.F.R. § 240 (Count I) and of § 20(a) of the Securities Exchange Act of 1934, 15 U.S.C. § 78t(a) (Count II). The CCAC alleges that Defendants knowingly and recklessly omitted material information regarding allegedly unlawful market allocation agreements in the Packaged Ice Industry among Reddy Ice, Arctic Glacier and Home City. The CCAC alleges that these omissions and failures to disclose material information resulted in significant financial losses to Plaintiffs, purchasers of Reddy Ice securities between August 10, 2005 and September 15, 2008, after the truth behind these omissions became known to the market and Reddy Ice stock suffered a precipitous decline in market value.

Defendants Reddy Ice, William P. Brick (“Brick”), Steven J. Janusek (“Janusek”), Jimmy C. Weaver (“Weaver”) and Raymond D. Booth (“Booth”), now move to dismiss the CCAC pursuant to Federal Rules of Civil Procedure 12(b)(6) and 9(b) and the Private Securities Litigation Reform Act of 1995, 15 U.S.C. § 78u–4 et seq. (“PSLRA”). Reddy Ice, Brick and Janusek filed their motion to dismiss (Dkt. No. 78) and Defendants Weaver and Booth filed separate motions to dismiss (Dkt. Nos. 41 and 39 respectively), joining in the motion of Reddy Ice, Brick and Janusek and arguing separately as to the Plaintiffs' failure to plead scienter specifically as to them. Plaintiffs filed separate responses to each motion. (Dkt. Nos. 48, 47, 46) and Defendants filed replies (Dkt. Nos. 58, 59 and 57.) The Court will address all three motions jointly in the instant opinion and order.¹

B. The Allegations of the CCAC1. Summary of the allegations.

Plaintiffs are purchasers of Reddy Ice's publicly-traded securities between August 10, 2005 and September 15, 2008. The CCAC alleges that Reddy Ice is the “nation's largest packaged ice manufacturer” with “locations in 31 states and the District of Columbia” selling packaged ice in 7–50 pound bags to “supermarkets, convenience stores and retail outlets.” (CCAC ¶¶ 1, 2, 34.) According to the CCAC, in August 2005, Reddy Ice conducted an initial public offering (“IPO”) of its stock, issuing 11.7 million shares at $18.50 per share, raising over $190 million and paying to its controlling shareholders, which included Weaver, Janusek and Booth, $56.5 million in proceeds. In a follow-on secondary offering nine months later (“the Secondary Offering”), Reddy Ice sold an additional 4.59 million shares of common stock to investors at $21.55 per share, generating an additional $98.9 million that was “paid to the controlling shareholders, including Defendants in this action.” (CCAC ¶ 3, 37, 38.)

The CCAC alleges that following the IPO and Secondary Offering, Reddy Ice grew and touted an “aggressive business plan,” loyal customer base “generated through quality, service and price,” a “large geographic footprint” that gave Reddy Ice “a competitive advantage in its primary markets.” Reddy Ice simultaneously expressed its “strict adherence” to a company code of ethics which expressly prohibited violating the antitrust laws and “was signed by the Company's executive officers.” (CCAC ¶ 4.) Reddy Ice reported revenues in 2005, 2006 and 2007 of $317 million, $346 million and $339 million, respectively. (CCAC ¶ 40.) The CCAC alleges that while making these representations regarding it business operations and competitive position in the packaged ice market, Reddy Ice and the other Defendants knowingly and recklessly omitted and failed to disclose the fact that it was a party to unlawful and deceptive agreements with its major competitors, Arctic Glacier and Home City, to allocate customers and markets in violation of the U.S. antitrust laws. The CCAC alleges that because of these illegal agreements, Reddy Ice was able to raise, fix and maintain the price of packaged ice. (CCAC ¶ 42.) The CCAC alleges that these unlawful agreements gave Reddy Ice, and the other packaged ice participants in the market allocation agreement, control over price competition in the nationwide market for packaged ice, resulting in an artificial increase in Reddy Ice's business and revenues, driving the Company's stock price “as high as $31.18 per share during the class period.” (CCAC ¶¶ 5–7, 42.)

The CCAC alleges that on March 5, 2008, just a few months after news that Reddy Ice had abandoned a potential merger with a hedge fund drove Reddy Ice stock down to $22.34 per share, the FBI executed a search warrant and raided Reddy Ice's Dallas, Texas headquarters. The following day, on March 6, 2008, Reddy Ice issued a press release announcing that “federal officials executed a search warrant at the Company's office in Dallas on March 5, 2008” and that the “Company [was] cooperating with the authorities.” On March 7, 2008, Reddy Ice issued a follow-up press release disclosing that “[t]he execution of the search warrant was directed by the Antitrust Division of the United States Department of Justice (the “DOJ”) in connection with an investigation of the packaged ice industry.” (CCAC ¶¶ 6–10, 61, 126–128.) Following this news, on March 7, 2008, according the CCAC, Reddy Ice's stock price declined, on unusually heavy trading volume, “from approximately $23.57 per share to $15.38, for a one-day market capitalization loss of $180 million.” (CCAC ¶ 11.) The CCAC alleges that Reddy Ice disclosed in its Annual Report for fiscal 2007 that Reddy Ice had received grand jury subpoenas seeking information in connection with the DOJ's packaged ice industry investigation. (CCAC ¶ 61.) According to the CCAC, Reddy Ice denied knowledge of any unlawful behavior, stating in March, 2008 that “Senior Management is not aware that the Company has engaged in anticompetitive behavior, or other activities, which would violate that antitrust laws.” (CCAC ¶ 129.)

The CCAC alleges that Reddy Ice...