United States District Court, D. Kansas
YELLOWDOG PARTNERS, LP and CARPENTERS PENSION FUND OF ILLINOIS, individually and on behalf of all others similarly situated, Plaintiffs,
CURO GROUP HOLDINGS CORP., et al., Defendants.
MEMORANDUM AND ORDER
W. LUNGSTRUM UNITED STATES DISTRICT JUDGE
Plaintiffs initiated this putative
class action under the federal Securities Exchange Act of
1934 (“the Exchange Act”) against defendant CURO
Group Holdings Corp. (“Curo”) and various
executives and owners of Curo. This matter presently comes
before the Court on defendants' motion to dismiss the
consolidated complaint (Doc. # 47). For the reasons set forth
below, the Court denies the motion to
following facts are based on the allegations in the
complaint, which the Court accepts as true under the
applicable standard. During the relevant time period, Curo
provided lending products to nonprime, underbanked consumers
in need of cash in the United States, Canada, and the United
Kingdom. Essentially, Curo operated as a payday lender, and
its most profitable single line of business was its Canadian
“single-pay” loans. In 2016 and 2017, various new
laws and regulations in Canada imposed restrictions on such
loans, which served to decrease Curo's yield on the
single-pay loans in Canada. As a result, Curo developed a
strategy to transition Curo's Canadian business from
single-pay loans to installment and “open-end”
loan products. Pursuant to that strategy, Curo began to
convert single-pay customers to installment and open-end
loans in Alberta, and it then opened test stores in one
market in Ontario, before effecting the transition in the
broader Ontario market.
loans were expected to be less profitable for Curo initially
because revenue on such loans takes longer to build and
because Curo was required to account for increased loan
losses “upfront” (at the time of origination).
Defendants assured investors that the transition away from
Curo's most profitable line of business would not be
immediate; that single-pay loans would remain viable; and
that the negative impact would be minimal, would be confined
to the second quarter of 2018, and had been factored into
Curo's publicly-reported 2018 financial guidance. Curo
reaffirmed that guidance in late April 2018 and at the end of
July 2018. In fact, defendants had already decided to
accelerate the transition in Ontario, and the transition was
significantly ramped up beginning in May 2018. The majority
of the losses from the transition had already occurred by
July 2018. In October 2018, Curo announced dismal third
quarter financial results, and it significantly reduced its
2018 guidance for income and earnings.
bring this action on behalf of a putative class of those who
acquired shares of Curo between April 27, 2018, and October
24, 2018. Plaintiffs assert claims against Curo and three
officer defendants for violations of Section 10(b) of the
Exchange Act, 15 U.S.C. § 78j(b), and SEC Rule 10b-5.
Plaintiffs also assert claims against the non-Curo defendants
as control persons pursuant to Section 20(a) of the Exchange
Act, 15 U.S.C. § 78t(a). The gist of plaintiffs'
complaint is that defendants failed to disclose to the public
that the transition to open-end loans in Canada would be
accelerated and that Curo's short-term performance would
therefore be negatively impacted; and that defendants
therefore made false and misleading statements concerning the
transition and Curo's expected 2018 financial
performance. Defendants have moved to dismiss the claims.
Court will dismiss a cause of action for failure to state a
claim under Fed.R.Civ.P. 12(b)(6) only when the factual
allegations fail to “state a claim to relief that is
plausible on its face, ” see Bell Atlantic Corp. v.
Twombly, 550 U.S. 544, 570 (2007), or when an issue of
law is dispositive, see Neitzke v. Williams, 490
U.S. 319, 326 (1989). The complaint need not contain detailed
factual allegations, but a plaintiff's obligation to
provide the grounds of entitlement to relief requires more
than labels and conclusions; a formulaic recitation of the
elements of a cause of action will not do. See Bell
Atlantic, 550 U.S. at 555. The Court must accept the
facts alleged in the complaint as true, even if doubtful in
fact, see id., and view all reasonable inferences
from those facts in favor of the plaintiff, see Tal v.
Hogan, 453 F.3d 1244, 1252 (10th Cir. 2006).
Private Securities Litigation Reform Act (PSLRA) also imposes
heightened pleading standards for securities fraud actions.
In such an action, “the complaint shall specify each
statement alleged to have been misleading, the reason or
reasons why the statement is misleading, and, if an
allegation regarding the statement or omission is made on
information and belief, the complaint shall state with
particularity all facts on which that belief is
formed.” See 15 U.S.C. § 78u-4(b)(1). In
addition, if the action requires proof of a specific state of
mind, “the complaint shall, with respect to each act or
omission alleged to [be a violation], state with
particularity facts giving rise to a strong inference that
the defendant acted with the required state of mind.”
See Id. § 78u-4(b)(2)(A).
10(b) forbids the use, in connection with the sale of
securities, of any “manipulative or deceptive device or
contrivance” in contravention of the SEC's rules.
See 15 U.S.C. § 78j(b). SEC Rule 10b-5
implements Section 10(b) by making it unlawful in connection
with the purchase or sale of any security “[t]o employ
any device, scheme, or artifice to defraud;”
“[t]o make any untrue statement of a material fact or
to omit to state a material fact necessary in order to make
the statement made . . . not misleading;” or
“[t]o engage in any act, practice, or course of
business which operates or would operate as a fraud or deceit
upon any person.” See 17 C.F.R. §
240.10b-5. An omitted fact is material “if there is a
substantial likelihood that a reasonable [investor] would
consider it important in deciding” how to act. See
Basic, Inc. v. Levinson, 485 U.S. 224, 231 (1988)
(internal quotation and citation omitted). “To fulfill
the materiality requirement there must be 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.” See Id. at 231-32 (internal
quotations and citation omitted). “In the context of a
Rule 12(b)(6) motion, the court is reminded that materiality
is a mixed question of law and fact and ordinarily should be
reserved for the trier of fact.” See In re Sprint
Corp. Sec. Litig., 232 F.Supp.2d 1193, 1215 (D. Kan.
2002) (citing cases).
seek dismissal of plaintiffs' claims on the basis that
the statements by defendants that plaintiffs have challenged
in the complaint are not actionable as a matter of law, for
various reasons. Specifically, defendants assert that
particular statements are not actionable or are not material
because they are opinions and thus not statements of fact;
they are forward-looking statements protected by the
statutory safe harbor or the “bespeaks caution”
doctrine; they are merely statements of corporate optimism or
puffery; or they are accurate descriptions of historical
Court rejects these arguments for dismissal at this stage.
Considering the totality of the allegations in the complaint,
these claims, as alleged by plaintiffs, are not merely based
on predictions or projections of financial performance that
proved inaccurate. Rather, at their heart, these claims are
based on allegations that defendants failed to disclose
specific facts, particularly concerning the strategy and
timing of the transition in Canada, which transition was
bound to have a substantial undisclosed impact on financial
performance. Under plaintiffs' theory of the case, those
omissions made the challenged statements materially false or
misleading, and thus actionable.
instance, defendants attack certain statements as protected
forward-looking statements. Under the Exchange Act's
“safe harbor”, a defendant is not liable with
respect to a forward-looking statement if the statement is
identified as such and is “accompanied by meaningful
cautionary statements identifying important factors that
could cause actual results to differ materially from those in
the forward-looking statement.” See 15 U.S.C.
§ 78u-5(c). Under the “bespeaks caution”
doctrine, forward-looking representations are
“considered immaterial when the defendant has provided
the investing public with sufficiently specific risk
disclosures or other cautionary statements concerning the
subject matter of the statements at issue to nullify any
potentially misleading effect.” See Grossman v.
Novell, Inc., 120 F.3d 1112, 1120 (10th Cir. 1997).
Defendants cite various cautionary statements they made
concerning the potential impact of government regulations and
Curo's expected financial performance. The Court cannot
conclude as a matter of law, however, that defendants'
cautionary statements were sufficient to nullify any
misleading effects of the challenged statements. This
doctrine would not protect statements of then-present factual
conditions, see Id. at 1123, and plaintiffs'
have challenged statements concerning the timing and strategy
decisions for the transition. Nor does the doctrine protect
statements that imply background factual assumptions that a
reasonable investor would regard the speaker as believing to
be true. See Id. Plaintiffs have alleged that in
making any forward-looking statements, defendants failed to
disclose that those projections were contradicted by known
facts concerning the transition and its inevitable impact.
Ultimately it is for the trier of fact in this case to decide
whether defendants' cautionary statements were sufficient
in this case.
defendants argue that some of the challenged statements
represent mere opinions. First, statements of opinion or
belief may be actionable if the speaker did not in fact hold
that belief. See Omnicare, Inc. v. Laborers Dist. Council
Constr. Indus. Pension Fund, 135 S.Ct. 1318,
1326 (2015). In addition, an omission of a material fact may
make a statement of opinion misleading and thus actionable.
See Id. at 1327-32. As the Supreme Court recognized
[A] reasonable investor may, depending on the circumstances,
understand an opinion statement to convey facts about how the
speaker has formed the opinion - or, otherwise put, about the
speaker's basis for holding that view. And if the real
facts are otherwise, but not provided, the opinion statement
will mislead its audience.
See Id. at 1328. Thus, an investor may state a claim
based on a statement of opinion by identifying
“particular (and material) facts going to the basis for
the issuer's opinion - facts about the inquiry the issuer
did or did not conduct or the knowledge it did or did not
have - whose omission makes the opinion statement at issue
misleading to a reasonable person reading the statement
fairly and in context.” See Id. at 1332.
“[A] statement as to beliefs or opinions . . . may be
actionable if the opinion is known by the speaker at the time
it is expressed to be untrue or to have no reasonable basis
in fact.” See Grossman, 120 F.3d at 1119 n.6
(citing Virginia Bankshares, Inc. v. Sandberg, 501
U.S. 1083, 1093-94 (1991)). Plaintiffs have alleged that
omissions made defendants' statements, including any
statements of opinion, materially misleading. Plaintiffs have
not merely made such an allegation conclusorily; rather,
plaintiffs have identified particular facts concerning the
timing and strategy of the transition to open-end loans in
Ontario, and the financial impact of that decision, that made
the challenged statements misleading, and which suggest that
the statements were made without a reasonable basis.
Accordingly, the Court cannot conclude that any particular