Srikalahasti Vagvala v. Tupperware Brands Corporation, et al.

[DO NOT PUBLISH]
In the
United States Court of Appeals
For the Eleventh Circuit
____________________
No. 22-10658
____________________
IN RE: TUPPERWARE BRANDS CORPORATION SECURITIES
LITIGATION
SRIKALAHASTI M. VAGVALA,
Individually and on behalf of all other persons
similarly situated,
Plaintiff-Appellant,
versus
TUPPERWARE BRANDS CORPORATION,
PATRICIA A. STITZEL,
CASSANDRA HARRIS,
MICHAEL POTESHMAN,
E.V. “RICK” GOINGS,
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2 Opinion of the Court 22-10658
LUCIANO GARCIA RANGEL,
Defendants-Appellees,
____________________
Appeal from the United States District Court
for the Middle District of Florida
D.C. Docket No. 6:20-cv-00357-GAP-GJK
____________________
Before BRANCH and GRANT, Circuit Judges, and HINKLE ,* District
Judge.
G RANT, Circuit Judge:
Tupperware is accused of materially misrepresenting its
financial performance in violation of § 10(b) of the Securities
Exchange Act and Rule 10b-5. In a typical securities lawsuit
targeting a corporation, the plaintiffs will seek to hold the company
liable by alleging that the maker of a false or misleading statement
herself acted with the required state of mind. But here no one
argues that those who made Tupperware’s allegedly false or
misleading statements intended to defraud investors or recklessly
disregarded the risk that the statements may be false. Instead, the
complaint alleges that a fraudulent sales scheme occurred at one of
Tupperware’s foreign subsidiaries and asks that we hold the
* The Honorable Robert L. Hinkle, United States District Judge for the
Northern District of Florida, sitting by designation.
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22-10658 Opinion of the Court 3
company liable based on the lower-level corporate officials who
knew of or orchestrated the fraud.
To do so, the lower-level corporate officials must have been
“responsible for” the alleged misstatements. Mizzaro v. Home
Depot, Inc., 544 F.3d 1230, 1254 (11th Cir. 2008). This occurs when
the official orders or approves the false statement or furnishes false
information or language for inclusion in the statement. Id. The
lower-level corporate officials that the shareholders point to may
have known about the fraud—or even orchestrated the fraud
themselves—but the complaint failed to directly connect them to
the alleged misstatements. Accordingly, we affirm the dismissal of
the misrepresentation claims against Tupperware for failure to
adequately plead scienter.
The shareholders also claim to have brought a scheme
liability claim against Tupperware and Luciano Garcia Rangel,
Tupperware’s Group President for Latin America during the class
period. We affirm the dismissal of that claim as a shotgun pleading.
We also therefore affirm the dismissal of the control person liability
claim, which is derivative of an allegation of a primary violation.
I.
Tupperware is headquartered in Orlando, Florida and its
securities are publicly traded on the New York Stock Exchange.
Everyone (or at least everyone of a certain age) remembers
“Tupperware parties.” These parties were hosted in the homes of
Tupperware’s independent sellers, who would invite friends over
for games, food, chats, and, of course, to sell Tupperware’s food
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4 Opinion of the Court 22-10658
storage containers—a new product that was not yet a household
staple. See Erin Blakemore, Tupperware Parties: Suburban Women’s
Plastic Path to Empowerment, History Channel (Mar. 1, 2019),
https://www.history.com/news/tupperware-parties-brownie-
wise [https://perma.cc/3C9U-B5Y2]. But the company is not
limited to food storage—it operates as a direct-to-consumer
marketer of various products across a range of sectors including
skin and hair products, cosmetics, toiletries, jewelry, and
nutritional products.
Most relevant here, Tupperware acquired Fuller Cosmetics
in 2005. Fuller’s sales were primarily in Mexico, and its model was
patterned on the same direct-to-consumer approach that made
Tupperware successful. Specifically, Fuller used a network of
independent salespersons—it called them the “Fullerettes”—to sell
its cosmetic and fragrance products.
Fuller’s numbers, however, did not mirror Tupperware’s
early successes. After years of declining sales, Tupperware
announced that it was partially impairing Fuller’s goodwill value.
It also warned of a “high risk of future impairment to the remaining
goodwill balance” if Fuller’s operating performance continued to
fall below expectations.
The shareholders allege that Tupperware named Luciano
Garcia Rangel as its Group President for Latin America and
Evaristo Hernandez as Fuller’s Managing Director to avoid this
fate. Accepting the complaint’s allegations as true, Garcia Rangel
and Hernandez—with the knowledge and support of Keith
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22-10658 Opinion of the Court 5
Haggerty, Tupperware’s Vice President of Operations for the
Americas—orchestrated a scheme to boost Fuller’s recorded
revenue. The scheme allegedly took advantage of Fuller’s sales
model, with Fuller shipping extra (often high-value) products to
the Fullerettes—products that exceeded the amount that they had
ordered. Because the Fullerettes paid Fuller directly for the
products (which they could then resell), Fuller increased its
accounts receivable in the amount the Fullerettes would have
owed the company had they in fact ordered the products. Fuller’s
management knew that these products would, in many cases, be
returned—but Fuller recognized the revenue as soon as the
products shipped. The complaint alleges that to avoid excess
inventory from building up when the products were eventually
returned, Fuller’s management overrode the system that
automatically replenished Fuller’s stock when enough products
shipped.
According to the complaint, these fake sales accounted for
up to 60% of Fuller’s recorded revenues during the class period.
These inflated figures allowed Tupperware to avoid further
impairment to Fuller’s goodwill value, which led to
overstatements in Tupperware’s operating income, net income,
and earnings per share.
The complaint alleges a series of public misrepresentations
in Tupperware’s quarterly and annual reports, press releases,
earnings calls, and other filings with the Securities and Exchange
Commission. For the year ending December 29, 2018, for example,
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6 Opinion of the Court 22-10658
the complaint alleges that Tupperware’s trademarks and
tradenames were overstated by 97%, its goodwill by 29%, its
operating income by 16%, and its net income and diluted earnings
per share by 38%. In its quarterly report for the first quarter of
2018, Tupperware reported a “meaningful increase” in Fuller’s
sales, which it attributed to “enhanced merchandising and product
propositions” and “more efficient promotional spending.” The
complaint alleges that these explanations about Fuller’s increase in
sales were materially false.
Eventually, the scheme fell apart. When it did, Tupperware
was forced to impair Fuller’s goodwill value and its stock price fell
35%. A few months later, an impairment of Fuller’s tradename led
to another decline in stock price, this time 45%. And in August
2021, Tupperware disclosed that the SEC was investigating.1 It also
corrected various misstatements in its previous reporting that it
admitted “result[ed] from the override of certain controls by
management at the Company’s Tupperware Mexico operations
and from the misconduct of Fuller Mexico employees.”
Following the declines in Tupperware’s stock price, several
class action lawsuits were filed; they were eventually consolidated,
1 Tupperware agreed to a settlement order with the Commission for violations
of §§ 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act, related to
recordkeeping and internal controls. SEC Charges Tupperware Brands
Corporation for Internal Controls and Books and Records Failures, U.S. Sec. & Exch.
Comm’n (Sept. 30, 2022), https://www.sec.gov/enforce/34-95943-s
[https://perma.cc/64YY-8XZ7]. Neither the Commission’s order nor its
findings are included in the Complaint, which was filed before the settlement.
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22-10658 Opinion of the Court 7
with Srikalahasti Vagvala named as the lead class plaintiff. The
operative complaint brings securities fraud claims against
Tupperware and Garcia Rangel (the former Group President for
Latin America) under § 10(b) of the Securities Exchange Act, 15
U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5. The claims
against Tupperware are based on allegedly false or misleading
statements made by Tupperware’s Chief Executive Officer or Chief
Financial Officer. E.V. “Rick” Goings and Patricia A. Stitzel both
served as Chief Executive Officer at different times during the class
period. Michael Poteshman and Cassandra Harris also served, at
different times during the class period, as Tupperware’s Chief
Financial Officer.
Specifically, Count I alleges misrepresentation claims under
Rule 10b-5(b) against Tupperware and scheme liability claims
under Rule 10b-5(a) and (c) against Tupperware and Garcia Rangel.
Derivative of those claims against Tupperware, the complaint also
brings a control person liability claim against Stitzel and Goings
(former CEOs), Poteshman and Harris (former CFOs), and Garcia
Rangel under § 20(a) of the Securities Exchange Act, 15 U.S.C.
§ 78t(a). The class is defined as all persons or entities purchasing or
acquiring Tupperware’s publicly traded stock from January 31,
2018 through February 24, 2020.
After granting multiple opportunities to amend, the district
court dismissed the shareholders’ third amended complaint with
prejudice. The misrepresentation claims against Tupperware
failed to adequately allege corporate scienter. The scheme liability
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8 Opinion of the Court 22-10658
claims failed to allege a scheme aimed at deceiving or defrauding
investors. And without a primarily violation, the control person
liability claim necessarily failed.
The shareholders now appeal the district court’s order
dismissing the complaint, and we affirm.
II.
We review a district court’s order dismissing a securities
class action complaint de novo. Mizzaro, 544 F.3d at 1236.
III.
Section 10(b) of the Securities Exchange Act makes it
unlawful for any person to use or employ “any manipulative or
deceptive device or contrivance” in violation of rules promulgated
by the Securities and Exchange Commission. 15 U.S.C. § 78j(b). In
turn, the SEC’s Rule 10b-5 makes it unlawful to “make any untrue
statement of a material fact or to omit to state a material fact
necessary in order to make the statements made, in the light of the
circumstances under which they were made, not misleading.” 17
C.F.R. § 240.10b-5(b). To successfully plead a claim under these
provisions, the plaintiffs must allege, among other things, that a
material misrepresentation or omission was made with scienter—
a wrongful state of mind. Mizzaro, 544 F.3d at 1236 (citing Dura
Pharms., Inc. v. Broudo, 544 U.S. 336, 341 (2005)). In this Circuit, the
required state of mind is an “intent to defraud or severe
recklessness on the part of the defendant.” FindWhat Inv. Grp. v.
FindWhat.com, 658 F.3d 1282, 1299 (11th Cir. 2011) (quotation
omitted).
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22-10658 Opinion of the Court 9
Securities fraud claims are subject to the heightened
pleading standards of the Private Securities Litigation Reform Act
of 1995. The complaint must “state with particularity facts giving
rise to a strong inference that the defendant acted with the required
state of mind.” 15 U.S.C. § 78u-4(b)(2)(A). A “strong inference” is
one that is “cogent and at least as compelling as any opposing
inference one could draw from the facts alleged.” Tellabs, Inc. v.
Makor Issues & Rights, Ltd., 551 U.S. 308, 324 (2007). To assess
whether the complaint satisfies this high standard, we ask: “When
the allegations are accepted as true and taken collectively, would a
reasonable person deem the inference of scienter at least as strong
as any opposing inference?” Mizzaro, 544 F.3d at 1239 (quotation
omitted).
Because corporations do not have states of mind of their
own, “the scienter of their agents must be imputed to them.” Id.
at 1254. In a securities fraud suit based on alleged
misrepresentations, we start by looking “to the state of mind of the
individual corporate official or officials who make or issue the
statement.” Id. (quotation omitted). But here the shareholders do
not allege that those who made the statements acted with
scienter—when Tupperware’s CEOs and CFOs made the allegedly
false statements concerning Fuller’s sales they were not aware of
the fraud nor reckless in failing to discover it.
We also look to the state of mind of any corporate officials
who “order or approve” a statement “or its making or issuance, or
who furnish information or language for inclusion therein, or the
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10 Opinion of the Court 22-10658
like.” Id. (quotation omitted). Put another way, we look to the
corporate officials that are “responsible for” the false or misleading
statement. Id.
The shareholders urge us to adopt a broader (and novel)
standard. In their view, if a corporate official’s fraudulent act is a
proximate cause of a materially false or misleading statement, then
that corporate official’s scienter should be imputed to the
corporation. They contend that this is consistent with the plain
meaning of Mizzaro’s “responsible for” standard because a
corporate official is “responsible for” a misstatement when her
fraudulent conduct proximately causes the falsity of the statement.
Id.
The shareholders misread Mizzaro. To start, “the language
of an opinion is not always to be parsed as though we were dealing
with language of a statute.” Reiter v. Sonotone Corp., 442 U.S. 330,
341 (1979). But in any event, Mizzaro does not say, as the
shareholders here suggest, that the corporate official must only be
responsible for the statement’s falsity. See Mizzaro, 544 F.3d at
1254–55. The complaint in Mizzaro failed to allege that any
corporate official was aware of the alleged fraud and was
“responsible for issuing the allegedly false public statements.” Id.
(emphasis added). The outcome would have been different under
a proximate cause standard because the focus was on the issuing of
the false or misleading statement, not the underlying fraudulent
conduct. Without a more direct connection to the statement itself,
Mizzaro shows that it is insufficient that a lower-level corporate
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22-10658 Opinion of the Court 11
official’s misconduct proximately caused a statement to be false or
misleading.
The shareholders also urge us to embrace part of the Sixth
Circuit’s standard—“[a]ny high managerial agent or member of the
board of directors who ratified, recklessly disregarded, or tolerated
the misrepresentation after its utterance or issuance.” In re
Omnicare, Inc. Sec. Litig., 769 F.3d 455, 476 (6th Cir. 2014). It is true
that Mizzaro leaves the door open to actions that are “like” ordering
or approving a statement before it is made or issued or “like”
furnishing information or language for inclusion in a statement.
Mizzaro, 544 F.3d at 1254. But looking to the state of mind of
officials after the statement issued is not “like” either. See id.
Expanding our standard in this way would thus also be inconsistent
with Mizzaro.
In sum, to hold a corporation liable for securities fraud, we
first look “to the state of mind of the individual corporate official
or officials who make or issue the statement.” Id. (quotation
omitted). Failing that, we look to the state of mind of the corporate
officials who “order or approve it or its making or issuance, or who
furnish information or language for inclusion therein, or the like.”
Id.
IV.
Applying that standard here, we conclude that the complaint
against Tupperware fails to state a § 10b-5 misrepresentation claim
because it does not adequately plead scienter.
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12 Opinion of the Court 22-10658
The shareholders allege that three corporate officials acted
with scienter imputable to Tupperware: Fuller’s Managing
Director, Evaristo Hernandez; the Group President of Latin
America, Luciano Garcia Rangel; and the Vice President of
Operations for the Americas, Keith Haggerty. In broad strokes, the
complaint alleges that each of these officials were involved in,
orchestrated, or knew of the scheme to artificially inflate Fuller’s
revenue. For purposes of this appeal, we assume—without
deciding—that each of these officials acted with scienter. But we
conclude that the complaint does not create the requisite
connection between these corporate officials and the public
statements—it does not allege that they ordered or approved the
statements or their making or issuance, or that they furnished
information or language for inclusion therein, or any other activity
directly connected to the statements. See Mizarro, 544 F.3d at 1254.
Before examining the involvement level of each of these
three officials in turn, we note the pleading standards applicable in
this context. First, while there is no per se rule against the use of
anonymous sources, the weight to be afforded to allegations based
on statements proffered by confidential sources depends on their
particularity. Id. at 1240. The complaint must “fully describe[] the
foundation or basis of the confidential witness’s knowledge,
including the position(s) held, the proximity to the offending
conduct, and the relevant time frame.” Id. Accordingly, we can
only credit the statements from confidential witnesses to the extent
that the basis for each statement is explained.
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22-10658 Opinion of the Court 13
Second, the Private Securities Litigation Reform Act requires
that Tupperware’s scienter be alleged “with respect to each act or
omission alleged to violate” the chapter. 15 U.S.C. § 78u-
4(b)(2)(A); Phillips v. Scientific-Atlanta, Inc., 374 F.3d 1015, 1018
(11th Cir. 2004). Therefore, there must be allegations creating a
strong inference of the required nexus with the corporate official
with respect to each specific alleged misrepresentation.
Third, the Private Securities Litigation Reform Act also
requires a plaintiff to “state with particularity” the facts giving rise
to a strong inference of scienter. 15 U.S.C. § 78u-4(b)(2). This
means that “omissions and ambiguities count against inferring
scienter” and that speculation and conclusory allegations will not
be sufficient. Tellabs, 551 U.S. at 326; Garfield v. NDC Health Corp.,
466 F.3d 1255, 1265 (11th Cir. 2006); see also Brophy v. Jiangbo
Pharms., Inc., 781 F.3d 1296, 1304 (11th Cir. 2015).
A.
We start with the allegations relating to Evaristo
Hernandez, Fuller’s Managing Director. In the complaint, the
anonymous “Former Employee 1” states that “it would be unusual
for any communications from Fuller to [Tupperware’s Orlando
headquarters] to occur without Hernandez’s knowledge and
approval.” Former Employee 1 was one of Fuller’s Divisional Sales
Directors. He was in charge of seven geographic sales districts in
Mexico and reported to the Regional Sales Director. He was at the
company from October 2018 through May 2019. Former
Employee 6, a Vice President for Human Resources, adds that
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14 Opinion of the Court 22-10658
“Hernandez approved the sales figures before they could be
furnished to corporate headquarters in Orlando.”
The complaint also points to Tupperware’s amended
Annual Report for fiscal year 2020 as corroboration. The
shareholders argue that this disclosure establishes that Hernandez
“furnished” information for Tupperware to incorporate into its
financial statements. In that disclosure, Tupperware revealed to its
investors the existence of an SEC investigation regarding its
operations in Mexico. Tupperware also stated that its financial
reporting for 2019, 2020, and 2021 contained misstatements
“resulting from the override of certain controls by management at
the Company’s Tupperware Mexico operations and from the
misconduct of Fuller Mexico employees.” Tupperware shared that
it had “terminated the individuals involved in the override” in 2020,
and the shareholders argue that this must mean Hernandez, who
was removed from his position in November 2019 and terminated
in January 2020.
These allegations are insufficient to lead to a strong
inference that Hernandez was directly involved in Tupperware’s
public statements. At the outset, we note that the complaint lacks
direct evidence. For example, there are no emails or certifications
from Hernandez that show his involvement with Tupperware’s
public financial reporting. Nor can we consider the statements
provided by the anonymous former employees as direct evidence.
To start, they suffer from a lack of particularity; the complaint does
not explain the foundation for either former employee’s statement.
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22-10658 Opinion of the Court 15
It also lacks particularized facts showing why a divisional sales
director (Former Employee 1) or a Vice President for Human
Resources (Former Employee 6) would be familiar with Fuller’s
financial reporting. In other words, the complaint does not
establish a “proximity to the offending conduct” for either
confidential witness. Mizarro, 544 F.3d at 1240. A divisional sales
director is a relatively low-level employee without exposure to the
company’s financial reporting. The complaint alleges only that this
employee was “in charge of” multiple geographic sales districts,
with multiple levels of supervisors above him. Meanwhile, the
complaint does not explain the basis for Former Employee 6’s
conclusion that Hernandez approved the sales figures for inclusion
in the company’s SEC filings or other public statements.
To be sure, evidence of the “smoking-gun” genre is not
necessary to create a strong inference of scienter. Id. at 1249
(quoting Tellabs, 551 U.S. at 324). As circumstantial evidence, one
could argue that Hernandez’s title as Managing Director of Fuller
leads to the inference that he approved its financial results and
furnished information for inclusion in Tupperware’s public
statements. But without more information about Tupperware’s
process for preparing its public financial statements, that
conclusion would be speculative—which is not enough in the
context of fraud.
Tupperware’s disclosure adds little to the inference that
Hernandez was responsible for Tupperware’s statements. Again,
the issue here is not whether Hernandez knew of or orchestrated
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16 Opinion of the Court 22-10658
the fraud at Fuller—what matters is whether he was directly
connected to Tupperware’s financial reporting. So even if we
assume that Tupperware’s disclosure does refer to Hernandez,
engaging in fraudulent conduct is not the same as being responsible
for public statements with material misrepresentations or
omissions about that fraudulent conduct. As the district court put
it, Tupperware’s disclosure establishes only that “some employees
engaged in misconduct, those employees were terminated, and
due to that misconduct, the false data ended up in the public
disclosures.” The disclosure may confirm the source of the false
data but it does not explain how the false data was transmitted from
Fuller to Tupperware’s consolidated financial reporting. It does
not connect Hernandez’s alleged fraudulent misconduct with
Tupperware’s public reporting. And with no further allegations
connecting Hernandez to Tupperware’s financial reporting, the
complaint fails to create a strong inference that would allow for
Hernandez’s scienter to be imputed to the corporation.
What’s more, even if the complaint had generally pleaded
Hernandez’s approval of Fuller’s financials, it failed to do so “with
respect to each act or omission alleged to violate” the chapter. 15
U.S.C. § 78u-4(b)(2)(A). For example, the shareholders allege that
Tupperware’s April 2018 earnings call suggestion that Fuller’s sales
improved due to “rebranding, [and] updating the merchandising
and the product proposition to add energy to every campaign and
boost the sales force morale” was misleading because the improved
sales were in fact due to the fake sales scheme. But there are no
allegations that connect Hernandez’s approval of sales figures or
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22-10658 Opinion of the Court 17
communications generally to the alleged misrepresentations made
in that call. Nor do any allegations connect Hernandez to the
preparation of the CEO’s statements to investors stating the
reasons for Fuller’s increased sales. Did Hernandez explain to the
CEO, or someone else, why sales at Fuller had improved? We do
not know—and there are no facts alleged in the complaint from
which we can infer that he did.
The shareholders resist this conclusion by relying heavily on
Public Employees’ Retirement System of Mississippi v. Mohawk
Industries, Inc., 564 F. Supp. 3d 1272 (N.D. Ga. 2021). But that
decision does not help the shareholders; in fact, it illustrates the
sorts of allegations missing from their complaint. In Mohawk, the
plaintiffs alleged, based on statements from executive employees
directly involved, that the flooring division president—whose
scienter was imputed to the corporation—“furnished, approved
and personally certified each quarter the purported accuracy of the
information contained within the financial reports.” Id. at 1303
(quotation omitted). And this information “was provided to
investors during quarterly conference calls and incorporated in
Mohawk’s consolidated financial statements and SEC filings.” Id.
(quotation omitted and alteration adopted). This is the type of
allegation that is missing from the shareholders’ complaint against
Tupperware—particularized facts from sources with first-hand
knowledge showing that Hernandez directly furnished
information for, approved of, or certified public financial reporting.
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18 Opinion of the Court 22-10658
In sum, the complaint needed to allege that Hernandez had
a direct role in each alleged public misstatement by, as relevant
here, approving the statement or furnishing information to be
included. Because the facts alleged in the complaint fail to create a
strong inference that he did, we cannot impute Hernandez’s
scienter to Tupperware.
B.
The shareholders next point to Garcia Rangel, who was
Tupperware’s Group President of Latin America during the class
period. To support Garcia Rangel’s scienter, the complaint relies
on an anonymous former financial analyst in Tupperware’s USA &
Canada division (not the Latin America division), who retired in
May 2018, four months into the class period. This employee,
identified as Former Employee 7, says that in the USA & Canada
division the Group President would review and approve the
quarterly financial results before furnishing them to Tupperware.
And indeed, when Garcia Rangel was the Group President of the
USA & Canada division from 2010 to 2012, Former Employee 7
says that Garcia Rangel approved its financial reporting. The
complaint extrapolates from these facts to conclude that when
Garcia Rangel was the Group President of the Latin America
division, he would have reviewed and approved Fuller’s financial
statements before they were incorporated into Tupperware’s
consolidated financial reporting.
We can credit the facts alleged by Former Employee 7 as
they relate to the USA & Canada division, but we cannot do the
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22-10658 Opinion of the Court 19
same for the Latin America division. Former Employee 7 worked
in a different division, largely during a different time frame, and
does not claim to have any personal knowledge or connection to
the preparation of Fuller’s financial results. He lacks any proximity
to the offending conduct. Even his interactions with Garcia
Rangel—which are not described—would have occurred years
before the alleged misstatements. The complaint has not provided
a detailed enough explanation of the basis for Former Employee 7’s
knowledge with respect to the Latin America division and Garcia
Rangel’s conduct there.
This lack of particularized facts connecting the practices and
procedures of the USA & Canada division with the Latin America
division is fatal to a finding of a strong inference of scienter. All we
can do is speculate, based on Former Employee 7’s statements, that
the procedures across the two divisions were the same and that
Garcia Rangel would have approved—and did in fact approve—
Fuller’s financials. This is particularly so when the complaint itself
even concedes that in some respects the divisions operate
differently.
And as with Hernandez, even if Former Employee 7’s
statements were sufficient to conclude that Garcia Rangel’s
responsibilities generally included reviewing and approving
financial statements, there are no allegations tying Garcia Rangel
to each of the specific misrepresentations alleged in the complaint.
In a last-ditch effort, the shareholders argue that Garcia
Rangel “commanded” Fuller employees to continue the fraudulent
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20 Opinion of the Court 22-10658
sales scheme at an alleged town hall. But commanding the
continuation of a fraud is not the same as commanding a false or
misleading public statement. Again, because we have assumed
Garcia Rangel’s scienter, we are focused on his connection to the
alleged misstatements, not his connection to the underlying
scheme. We conclude that Garcia Rangel’s scienter cannot be
imputed to Tupperware.
C.
Finally, the shareholders point to Keith Haggerty, the Vice
President of Operations for the Americas, who reported directly to
Tupperware’s Executive Vice President of Product Innovation and
Supply Chain. But the only allegation regarding Haggerty is a
statement from Former Employee 6—the Fuller Vice President for
Human Resources—that Haggerty “visited Fuller quarterly to
review its operations and financial results.” The complaint neither
explains the basis for the former employee’s conclusion nor
describes with any particularity what Haggerty did to review
Fuller’s operations and financial results or what he did with the
information he gathered. Accordingly, we cannot impute
Haggerty’s scienter to Tupperware.
The shareholders do not point to anyone else whose scienter
could potentially be imputed to the corporation. Accordingly, the
complaint does not allege facts leading to a strong inference of
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22-10658 Opinion of the Court 21
scienter with respect to Tupperware, and we affirm the district
court’s order dismissing the misrepresentation claims.2
V.
The shareholders also argue that the complaint asserts so-
called “scheme liability” claims against Garcia Rangel and
Tupperware under Rule 10b-5(a) and (c). Whereas subsection (b)
of Rule 10b-5 prohibits the making of untrue statements or
omissions, subsections (a) and (c) prohibit deceptive conduct. 17
C.F.R. § 240.10b-5. Subsection (a) makes it unlawful to “employ
any device, scheme, or artifice to defraud.” Id. § 240.10b-5(a).
Subsection (c) makes it unlawful to “engage in any act, practice, or
course of business which operates or would operate as a fraud or
deceit upon any person.” Id. § 240.10b-5(c). Both subsections
maintain the requirement of being “in connection with the
purchase or sale of any security.” Id. § 240.10b-5.
The district court dismissed the third amended complaint’s
scheme liability claim because it failed to allege that Garcia Rangel,
Hernandez, or Tupperware engaged in a “scheme aimed at
deceiving or defrauding investors.” In our view, the problem with
the complaint’s scheme liability claim is more fundamental—it was
improperly pleaded.
A complaint that “commits the sin of not separating into a
different count each cause of action or claim for relief” is a shotgun
2 The shareholders conceded at oral argument that Garcia Rangel is not
alleged to have made a material misrepresentation or omission.
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22 Opinion of the Court 22-10658
pleading. Weiland v. Palm Beach Cnty. Sheriff’s Off., 792 F.3d 1313,
1323 (11th Cir. 2015). The class shareholders’ third amended
complaint brings two different claims—one misrepresentation
claim and one scheme liability claim—in the same count. That
makes it “virtually impossible to know which allegations of fact are
intended to support which claim(s) for relief.” Anderson v. Dist. Bd.
of Trs. of Cent. Fla. Cmty. Coll., 77 F.3d 364, 366 (11th Cir. 1996). The
reader is required to discern for herself which allegations and facts
in the complaint apply to the class shareholders’ misrepresentation
claim and which apply to the scheme liability claim. See Cesnik v.
Edgewood Baptist Church, 88 F.3d 902, 905 (11th Cir. 1996).
Moreover, that count brings claims against both Garcia Rangel and
Tupperware without a clear indication of which claim applies to
which defendant.
We therefore affirm the dismissal of the class shareholders’
scheme liability claim on the ground that it is an impermissible
shotgun pleading. The class shareholders have had multiple
opportunities to amend their complaint. Due to its shotgun
nature, when the defendants moved to dismiss the first amended
complaint, they did not raise arguments concerning scheme
liability. The district court excused this because it was an
“unexpected issue[]” raised “for the first time by the opposing
party’s response.” But that also put the class shareholders on notice
of the pleading deficiency, which they have never corrected. Cf.
Jackson v. Bank of Am., N.A., 898 F.3d 1348, 1358 (11th Cir. 2018).
Because the class shareholders have had their “one chance to
replead before dismissing a complaint with prejudice on shotgun-
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22-10658 Opinion of the Court 23
pleading grounds,” we affirm the dismissal with prejudice. Auto.
Alignment & Body Serv., Inc. v. State Farm Mut. Auto. Ins. Co., 953 F.3d
707, 732 (11th Cir. 2020).
VI.
We also affirm the dismissal of the § 20(a) claim against
Goings, Stitzel, Poteshman, Harris, and Garcia Rangel for control
person liability. A § 20(a) claim imposes liability “not only on the
person who actually commits a securities law violation, but also on
an entity or individual that controls the violator.” Laperriere v. Vesta
Ins. Grp., Inc., 526 F.3d 715, 721 (11th Cir. 2008). But a “primary
violation of the securities law is an essential element of a § 20(a)
derivative claim.” Thompson v. RelationServe Media, Inc., 610 F.3d
628, 635 (11th Cir. 2010). Because the complaint does not
successfully allege a primary violation of the securities laws, we
affirm the district court’s order.
* * *
Our sister circuit has warned that if “the scienter of any
agent can be imputed to the corporation, then it is possible that a
company could be liable for a statement made regarding a product
so long as a low-level employee, perhaps in another country, knew
something to the contrary.” In re Omnicare, 769 F.3d at 475–76. Yet
that is exactly what the class shareholders ask of us here. Because
lower-level employees, in another country, knew of a fraudulent
sales scheme, they ask that we impute their scienter to
Tupperware. Doing so would be inconsistent with our precedent,
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24 Opinion of the Court 22-10658
so the district court’s order dismissing the class shareholder’s third
amended complaint is AFFIRMED.
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22-10658 H INKLE , J., Concurring 1
H INKLE , District Judge, Concurring:
I concur in the result and all the majority opinion except the
shotgun-pleading discussion. That discussion relates only to the so-
called scheme-liability claim. I agree with the district court that, as
a matter of substance, the third amended complaint fails to state a
scheme-liability claim on which relief can be granted. This would
be true even if the same facts were set out in a separate count and
in a form that could not be characterized as a shotgun pleading. I
would affirm the dismissal of the scheme-liability claim on this
basis.
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