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In re Polaris Industries, Inc.

United States District Court, D. Minnesota

October 13, 2017

In re Polaris Industries, Inc. Securities Litigation,

          ORDER

          PAUL A. MAGNUSON UNITED STATES DISTRICT COURT JUDGE

         This matter is before the Court on Defendant Polaris Industries, Inc.'s Motion to Dismiss. For the following reasons, the Motion is granted.

         BACKGROUND

         Plaintiffs in this putative class action are several individual investors and one institutional investor, Lead Plaintiff City of Atlanta Police Officers' Pension Fund. (Am. Compl. (Docket No. 64) ¶¶ 11-12.) Plaintiffs seek to represent a class of investors who invested in the common stock of Defendant Polaris Industries, Inc. between February 20, 2015, and September 11, 2016. (Id. ¶ 1.) Plaintiffs claim that Polaris made false and misleading public statements about defects in its off-road vehicles (“ORV”). Polaris recalled hundreds of thousands of ORVs during the class period after well-publicized incidents in which Polaris ORVs caught fire, resulting in more than one fatality. According to Plaintiffs, when Polaris finally revealed the truth about the extent and effect of the defects, Polaris was forced to adjust its stock guidance-which tells investors how much the stock might earn in a given time period-to cut the company's earnings prediction by nearly 50 percent. (Id. ¶ 7.) Plaintiffs allege that they either bought Polaris stock at an inflated price or retained it through declines in market prices because of Defendants' allegedly false and misleading statements. (Id. ¶ 214.)

         Polaris first issued a recall for some of its ORVs in July 2015, when it recalled 4, 300 Youth RZR model-year 2015 vehicles. (Id. ¶ 48.) But according to Plaintiffs, consumers had complained of fire problems with Polaris's ORVs going back to 2012. (Id. ¶¶ 43-44.) Indeed, several individuals posted videos on YouTube showing their Polaris RZR models on fire. (Id.) The Amended Complaint lists nine instances of YouTube videos of RZR fires, and two instances of another model, the Ranger, catching fire, before the July 2015 Youth RZR recall. (Id.)

         In October 2015, Polaris issued another recall for two models of the 2015 RZR, comprising 53, 000 vehicles. (Id. ¶ 48.) In December 2015, Polaris recalled more than 2, 000 RZR XP Turbo vehicles. (Id.) In April and June 2016, Polaris recalled more than 200, 000 additional RZR and Ranger vehicles. (Id.) On July 25, 2016, Polaris issued a stop ride/stop sale advisory for 2016 models of the RZR XP Turbo, and recalled all of those vehicles on September 1, 2016, ten days before the end of the class period here. (Id.)

         On September 12, 2016, Polaris announced that it was cutting its 2016 earnings predictions because of the “thermal-related issues” in the RZR model and the damage those issues were causing to sales of all Polaris ORVs. (Id. ¶ 89.) Polaris estimated that earnings per share for 2016 would be $3.30 to $3.80, when it had previously predicted earnings at $5.80 to $6.50 per share, and announced that sales were expected to be down more than previously anticipated. (Id.) Polaris ultimately had to recall another 56, 000 ORVs in September 2016 and March 2017. (Id. ¶ 48.) The September 12, 2016, announcement caused Polaris stock to decline 5%, although more serious stock-price declines happened after the July 2015 recall.

         Plaintiffs do not list the price of Polaris shares in the Amended Complaint, but rather chart the dollar amount of declines and percentage declines for the various company announcements. (Id. ¶ 216.) An Internet search reveals that at the beginning of the class period, February 20, 2015, Polaris stock had a per-share price of $155.57. This was near the all-time high price for Polaris's shares. By the end of July 2015, the price was down to $137.06, and at the end of January 2016 Polaris's shares were trading at $73.84. Although the price rose to around $100 per share during parts of 2016, the price fell to $70.50 on September 16, 2016. By late November 2016, however, the share price had rebounded to around $90 and is currently trading at around $104 per share. See N.Y. Stock Exch., Polaris Industries Inc. (PII), https://www.nyse.com/quote/XNYS:PII (last visited October 13, 2017).

         The Amended Complaint alleges that Defendants violated §§ 10(b) and 20, and Rule 10b-5, of the Securities and Exchange Act of 1934. 15 U.S.C. §§ 78j(b), 78t(a); 17 C.F.R. § 240.10b-5. Section 10(b) makes it unlawful “[t]o use or employ, in connection with the purchase or sale of any security . . .[, ] any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe . . . .” 15 U.S.C. § 78j(b). Rule 10b-5 quantifies the conduct proscribed by section 10(b), making it illegal

(a) To employ any device, scheme, or artifice to defraud,
(b) To make any untrue statement of material fact or to omit to state a material fact necessary in order to make the statement made, in the light of the circumstances under which they were made, not misleading, or
(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person,
in connection with the purchase or sale of any security.

17 C.F.R. § 240.10b-5. Section 20 imposes liability on a person who controls an entity that engages in the practices proscribed by section 10(b) and rule 10b-5. Plaintiffs have named several individual Defendants in addition to corporate Defendant Polaris. Defendant Scott W. Wine is the company's Chairman and Chief Executive Officer. (Am. Compl. ¶ 14.) Defendant Michael T. Speetzen is Polaris's Chief Financial Officer. (Id. ¶ 15.) Defendant Kenneth J. Pucel was Polaris's Executive Vice President of Operations, Engineering, and Lean. (Id. ¶ 16.) Defendant Matthew J. Homan is Polaris's President of Off-Road Vehicles. (Id. ¶ 17.) Defendant Bennett J. Morgan was Polaris's President and Chief Operating Officer from 2005 until May 2016. (Id. ΒΆ 18.) Defendant David C. Longren was Polaris's Senior ...


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