Plymouth Cnty. Ret. Ass'n v. Primo Water Corp.

Decision Date14 August 2013
Docket NumberNo. 1:11–cv–1068.,1:11–cv–1068.
Citation966 F.Supp.2d 525
CourtU.S. District Court — Middle District of North Carolina
PartiesPLYMOUTH COUNTY RETIREMENT ASSOCIATION, et al., Plaintiffs, v. PRIMO WATER CORPORATION, et al., Defendants.

OPINION TEXT STARTS HERE

Leslie Bruce McDaniel, McDaniel & Anderson, LLP, Raleigh, NC, David J. George, Robert J. Robbins, Coughlin Stoia Geller Rudman & Robbins, LLP, Boca Raton, FL, Evan J. Kaufman, Robbins Geller Rudman & Dowd LLP, Melville, NY, for Plaintiffs.

Kiran H. Mehta, Molly Leigh McIntosh, K&L Gates LLP, Charlotte, NC, Douglas W. Greene, Lane Powell PC, Seattle, WA, for Defendants.

MEMORANDUM OPINION AND ORDER

THOMAS D. SCHROEDER, District Judge.

This is a federal securities class action on behalf of a class consisting of all persons,1 other than Defendants, who acquired the common stock of a start-up company, Primo Water Corporation (“Primo” or “the company”), between November 4, 2010, and November 10, 2011 (the “Class Period”), including the company's initial public offering on November 4, 2010 (the “IPO”) and its common stock offering on June 17, 2011 (“Secondary Offering”) (collectively, the “Offerings”). In their 131–page amended complaint (Doc. 52), Plaintiffs seek recovery for stock losses under Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 (1933 Act) and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (1934 Act), as amended by the Private Securities Litigation Reform Act of 1995 (“PSLRA”) and Rule 10–b5 promulgated thereunder, 17 C.F.R. § 240.10b–5. The Defendants in this case can be divided into two categories: (1) the “Primo Defendants,” composed of Primo and its executives 2; and (2) the “Underwriter Defendants,” who served as underwriters for Primo's Offerings.3 Together, the Primo Defendants and Underwriter Defendants will be referred to simply as Defendants.”

This action was filed on December 2, 2011 (Doc. 1), and an amended complaint was filed June 22, 2012 (Doc. 52). The matter is currently before the court on motions to dismiss by the Primo Defendants (Doc. 58) and the Underwriter Defendants (Doc. 56). Also before the court is Plaintiffs' motion to strike certain pages of the Primo Defendants' appendix of documents filed in support of their motion to dismiss. (Doc. 64.) The court heard arguments on Defendants' motions on May 16, 2013. For the reasons set forth below, the motion to strike will be granted in part and denied in part, Defendants' motions to dismiss will be granted, and the case will be dismissed.

I. FACTUAL BACKGROUND4A. Primo, Its Products, and Business Model

Primo is a Delaware corporation headquartered in Winston–Salem, North Carolina, that provides three and five gallon containers of purified bottled water, self-serve filtered drinking water, and water dispensers. (Doc. 52 at ¶ 8.) Primo's water dispensers are designed to dispense Primo and other dispenser-compatible bottled water. ( Id. at ¶ 40.) The company is founded on a “razor-razorblade” business model, whereby the initial sale of Primo water dispensers (the razor) then creates a base of users who frequently purchase bottles of Primo water or refill their bottles at refill stations (the razorblades). ( Id. at ¶ 43.) Under Primo's business strategy, the company would sell its water dispensers and bottled water at major retail locations, such as Lowe's Home Improvement (“Lowe's”) and Wal–Mart, among others. ( Id. at ¶ 44.) 5 If a customer at one of these retailers buys a Primo water dispenser and Primo bottled water, the empty water bottle can either be recycled and exchanged at Primo's bottle exchange displays or refilled at Primo's refill vending machines. ( Id.) If a customer exchanges a water bottle at Primo's bottle exchange display, the display provides the customer with a discount coupon toward the purchase of a full bottle of Primo water. ( Id.) Alternatively, a customer has the option of refilling his water bottle at Primo's refill vending station, as the bottle can be sanitized and reused up to 40 times. ( Id.) This business model ostensibly creates a recurring and constant demand for the company's products. ( Id. at ¶ 43.)

B. The Offerings

Primo made its IPO on November 4, 2010, by offering 8.33 million shares to the public at $12.00 per share, with an overallotment option for the Underwriter Defendants of 1,250,000 shares, raising approximately $114.96 million. ( Id. at ¶¶ 45–47.) In connection with the IPO, Primo filed a Registration Statement, which incorporated the IPO prospectus. ( Id. at ¶ 45.) 6 In the IPO Registration Statement, Primo made statements about, among other things, the number of locations selling its products, the company's marketing efforts, and the demand for Primo products. ( See generally Appendix to Doc. 59 (“App.”) at 1–228.) Many of these statements are now challenged by Plaintiffs as material misrepresentations or omissions and will be discussed in more detail in the analysis to follow.

On June 17, 2011, Primo made its Secondary Offering of common stock. ( Doc. 52 at ¶ 102.) 7 This Secondary Offering raised $42.2 million for the company. ( Id. at ¶ 103.) In the Secondary Offering Registration Statement, which incorporated the Secondary Offering prospectus, Primo again made statements about, among other things, the number of locations at which Primo's products were offered, marketing and promotion efforts, and retailer demand for Primo products. ( Id. at ¶¶ 104–07.) Additionally, the Secondary Offering Registration Statement announced that due to technology acquired as a result of Primo's acquisition of the Omnifrio Single–Serve Beverage Business (“Omnifrio”), Primo would launch a single-serve carbonated beverage appliance, known as the “Flavor Station,” in the “fourth quarter of 2011.” ( Id. at ¶¶ 114–15, 118.) 8 As with the statements made in the IPO Registration Statement, Plaintiffs challenge statements made in connection with the Secondary Offering as materially false and misleading.C. Guidance Statements, Press Releases, and Conference Calls

Primo also released guidance documents throughout the Class Period that contained statements Plaintiffs challenge as false and/or misleading. These statements were made in guidance documents and press releases and during conference calls with Primo executives.

For example, on March 24, 2011, Primo issued a press release (March 2011 press release”) reporting its financial results for the fourth quarter and year ended December 31, 2010. ( Id. at ¶ 191.) The company stated that it had approximately 12,600 combined Exchange and Refill locations. ( Id. at ¶ 193.) It also stated that it expected to end the first quarter of 2011 with between 14,500 and 14,900 combined Exchange and Refill D. Prim (“Prim”), Primo's founder and Chief Executive Officer, also stated that Primo had plans to integrate Omnifrio carbonation technology into Primo's water dispenser appliances.9 ( Id. at ¶ 197.) Prim also stated that Omnifrio had already developed 30 flavors with three different carbonation levels. ( Id.) In Primo's 2010 Form 10–K, which was filed approximately a week after the March 2011 press release, Primo confirmed that it had 12,600 combined retail locations and that the company was expecting to introduce Omnifrio technology. ( Id. at ¶¶ 199–200, 203.) In the Form 10–K, Primo also made statements about its marketing and promotion efforts, including that it was engaging in “regular cross marketing promotions” and was focused on “developing and maintaining a brand identity.” ( Id. at ¶ 201.)

On May 10, 2011, Primo issued a press release (May 2011 press release”) that announced its financial results for the first quarter of 2011. ( Id. at ¶ 208.) In this press release, Primo stated that it “expects total sales in the second quarter of 2011 to double” and “continues to expect sales to increase 260% to 275% compared to 2010.” ( Id. at ¶ 209.)

Despite Primo's predictions about its 2011 growth, lower than expected sales later forced the company to revise its expectations downward. On August 10, 2011 (August 2011 press release”), approximately two months after the Secondary Offering, Primo announced that it had failed to meet earlier earnings projections due to lower than anticipated sales. ( Id. at ¶ 226.) Primo disclosed that Lowe's and Wal–Mart, two major Primo retailers, did not launch scheduled national promotions for Primo products during the second quarter. ( Id. at ¶ 226–28.) Primo reported that “both retailers are committed to the program and have started rolling out the national promotion of water and dispensers in the third quarter. The Company expects these major mass retail partners to continue to roll out the national promotion during the remainder of the third quarter and in the fourth quarter of 2011.” 10 ( Id. at ¶ 228.) Primo also stated that the company “continue[s] to be in [a] great position for strong long-term revenue and earnings growth” ( id. at ¶ 230) and announced that its Flavor Station water carbonation appliance would be ready for sale during the 2011 holiday season ( id. at ¶ 231).

In a conference call later that same day, Primo executives identified the source of low sales as a delay in the addition of water dispenser selling locations and a delay in the national promotions scheduled by major retailers. ( Id. at ¶ 234–35.) Further, Primo executives made additional statements about the upcoming launch of the Flavor Station appliance and increased the estimate for Flavor Station sales for 2011. ( Id. at ¶ 236–37.) Despite this announcement, analysts concluded that Primo's disappointing second quarter and lower 2011 guidance hurt the company's credibility. ( Id. at ¶ 245.) Primo's common stock price collapsed from $13.92 per share on August 9, 2011, to $5.40 per share at closing on August 10, 2011. ( Id. at ¶ 248.)

On November 8, 2011, Primo issued another press release (November 2011 press release”) announcing results for the third quarter of 2011. ( Id. at ¶ 250.) Again, Primo...

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