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In re Target Corp. Securities Litigation

United States District Court, D. Minnesota

March 19, 2018




         Investors like Carpenters' Pension Fund of Illinois sued Target Corporation and its former officers (collectively, “Target”) over Target's public Statements. E.g., Proposed Am. Compl. 2d (simply, “Compl.”) ¶¶ 141, 224 (accusing May 30, 2013 Statement), Dkt. No. 105-1. In making those Statements, Target allegedly defrauded the securities markets. Compl. ¶¶ 294-296. Considering the proposed allegations, the Court denies reconsideration of this lawsuit's dismissal. See Mot., Dkt. No. 105. Carpenters' Pension has not plausibly pled that the accused Statements meet the materiality standard for securities fraud.

         The Court summarizes this lawsuit's context. There are nearly 1, 800 Target stores in the United States. Between March and December 2013, Target opened over a hundred more, this time throughout Canada's ten provinces. For those Canadian stores, which were incorporated under Target's Canadian business, Target's inventory-management technology allegedly caused overbuys and shortages in on-sale consumer goods. In January 2015, Target's Canadian business filed for bankruptcy. Along the way, Target allegedly defrauded the securities markets by making public Statements that omitted facts about its inventory-management technology.

         For securities fraud, a material statement involves “a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the ‘total mix' of information made available.” Detroit Gen. Ret. Sys. v. Medtronic, Inc., 621 F.3d 800, 805-07 (8th Cir. 2010) (affirming dismissal of securities-fraud lawsuit). To decide plausible materiality, a court “may consider . . . materials embraced by the pleadings and . . . the public record.” Id. at 805.

         Soft to begin with, the accused Statements cannot be material to the alleged securities fraud. Soft language couches the Statements. See Id. at 806 (dismissing securities-fraud lawsuit when accused statement “couches the information . . . as preliminary, and . . . ‘suggests.' . . .”). Even if Target misleadingly omitted the technological root of its Canadian business's problems, those problems were disclosed (figure, below). “It is difficult to see how . . . disclosing a possible problem . . . [is] materially misleading.” Id. Target disclosed its Canadian business's inventory, brand and financial problems. The media confirmed those problems and, within months, disclosed their technological root. Earlier disclosure of that technological root could not have been viewed by the reasonable investor as having significantly altered the total mix of available information. The Court analyzes the accused Statements in detail below.

Allegedly omitted:



Technological root

Public manifestations

Bottom-line problems

• Manual ordering

• Empty shelves

• Brand decay

• Data glitches

• Staggered opening

• Quarterly losses

         March 20, 2013 Statements

         Target's Annual Report for fiscal year 2012 could not have been material to the alleged securities fraud. See Compl. ¶ 196. No stores had opened in Canada during that year. See Compl. ¶ 110. And Target disclosed its problems. It disclosed that, for that year, its Canadian business lost $315 million. Target Corp., 2012 Annual Rpt. 22 (Form 10-K) (March 20, 2013), Dkt. No. 72-2. Target's Canadian loss was about 10% of its U.S. net earnings. See Id. Target further warned that “Our 2013 entry into the Canadian retail market is our first retail store expansion outside of the United States.” Id. at 9. Even if incipient technological issues caused Target to stagger its Canadian stores' openings, Compl. ¶ 196, that staggering publically manifested. See Mark Wiltamuth, et al., Target Corp.: Canada on Track; Mgmt Presentation on Rollout and Store Visit Notes, Morgan Stanley Res. N. Am. 3 (March 27, 2013) (“Concern over system startup issues (either technology, . . . inventory) drove the staggered opening. . . .”), Dkt. No. 73 (Ex. 6). Target disclosed its then-incipient Canadian problems.

         March 28, 2013 Statements

         Shortly after Target's 2012 loss and other Canadian problems came out, one of Target's then-officers described his optimism about the Canadian business. Compl. ¶ 200 (“We're right where we want to be right now. . . . expect[ing] . . . next year to be profitable for the full year.”). He tempered, “for Canada, . . . . we certainly have our hands full right now.” Interview by Perry Caicco with John Mulligan, CFO, Target Corp, in Toronto, Ont. 11 (March 28, 2013), Dkt. No. 73 (Ex. 3). And he confirmed that Target lost “hundreds of millions of dollars of capital” to “depreciation” in distribution infrastructure. Id. at 3.

         Third-party analysts tempered their optimism, too. Mark Wiltamuth, et al. 3 (noting “uncertainty for Target shareholders” and that “[that officer] gave scant details over sales performance”), Dkt. No. 73 (Ex. 6); Jason DeRise & Mark Carden, Target Corp.: All eyes on Canada, UBS Investment Res. (Apr. 15, 2013) (“We think the expansion is risky as [Target] has little time to test its Canadian format.”), Dkt. No. 73 (Ex. 7). They described the Canadian stores as “sparse with inventory.” David Strasser, et al., Seeing TGT Canada Stores First Hand, Janney Capital Markets 2 (March 27, 2013), Dkt. No. 73 (Ex. 4); see Christopher Horvers, et al., Hardlines Retail: Target, J.P. Morgan: N. Am. Equity Res. fig.2, 5 (Apr. 15, 2013), Dkt. No. 73 (Ex. 5). The securities markets had likewise “double penalized [Target] for its Canada startup” by discounting Target's stock price. See Wiltamuth, et al. 2.

         Soft to begin with, the March 28, 2013 Statements cannot be material to the alleged securities fraud. The Statements contradict Target's allegedly misleading optimism. Target noted that it had its hands full. It mentioned the Canadian business's prospective risk, quarterly loss and distribution problems. Third-party analysts echoed the Canadian business's risk and viewed Target's optimism as content-free-as did the securities markets. Those analysts even disclosed that, inside the Canadian stores, customers saw empty shelves. Target's Canadian problems were thus disclosed.

         May 22, 2013 Statements

         Target disclosed a quarterly loss of $205 million on its Canadian stores. Target Corp., Quarterly Rpt. 19 (Form 10-Q) (May 22, 2013), Dkt. No. 73 (Ex. 9). Responding to this loss, a then-officer praised Target's technology for “accommodat[ing] the increasing volume of traffic.” Compl. ¶ 205. He “fe[lt] very confident” that the Canadian business had put supply chains “in place” and was “refining” them. Compl. ¶ 207. Another then-officer predicted that “by the fourth quarter we expect our Canadian operations will be slightly accretive.” Compl. ¶ 209. But a day earlier, a survey published that, in Canada, Target's brand had decayed. Faye Landes & Tal Lev, Ta ...

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