EMPLOYEES' RETIREMENT SYSTEM OF THE STATE OF HAWAII, Plaintiff - Appellant
WHOLE FOODS MARKET, INCORPORATED; JOHN P. MACKEY; GLENDA JANE FLANAGAN; WALTER E. ROBB; A. C. GALLO; DAVID LANNON; KENNETH J. MEYER, Defendants - Appellees
from the United States District Court for the Western
District of Texas
KING, ELROD, and HAYNES, Circuit Judges.
Foods Market, Inc.-an international grocery-store chain
specializing in organic products-recently ran into trouble
with several state and local consumer-protection agencies for
weights-and-measures violations. On multiple occasions, Whole
Foods admitted to mislabeling prepackaged foods such that it
charged consumers for more food than the packages actually
contained, in violation of national standards and local laws.
Foods subsequently faced lawsuits from or on behalf of
consumers who overpaid. This is not such a case. Rather, the
plaintiffs in this putative class-action lawsuit allege that
in perpetuating this weights-and-measures fraud against
customers, Whole Foods and several of its executives also
defrauded Whole Foods shareholders in violation of federal
securities law. The district court disagreed and dismissed
the plaintiffs' complaint for failure to state a claim.
For the reasons explained below, we AFFIRM.
the following facts from the plaintiffs' second-amended
complaint, documents attached to the complaint, and matters
on which we may take judicial notice. See Funk v. Stryker
Corp., 631 F.3d 777, 783 (5th Cir. 2011).
plaintiffs' allegations stem from a weights-and-measures
scandal that began to brew as early as 2013 and boiled over
in the summer of 2015. Principally, regulators in California
and New York caught Whole Foods including the weight of
packaging-"tare weight," in the industry parlance-
in the price of many of its prepackaged products. As a
result, Whole Foods effectively charged consumers more than
the advertised price per pound for the affected products.
This practice violates national weights-and-measures
standards and various state and local laws that incorporate
plaintiffs allege that the defendants knew about Whole
Foods' weights-and-measures problems as early as February
2013, when it entered a tolling agreement with authorities in
California who were investigating the issue. On June 11,
2014, this investigation culminated in a lawsuit the State of
California and three California cities brought against Whole
Foods in state court. Whole Foods settled that lawsuit within
a week. As part of the settlement, Whole Foods agreed to
refrain from further violations at its California stores and
to implement procedures to ensure pricing accuracy. It also
agreed to pay about $800, 000 in fines, fees, and
restitution. The state court issued an injunction that
incorporated the terms of the settlement and retained
jurisdiction over the case to oversee Whole Foods'
compliance. Shortly thereafter, Whole Foods wrote an
open letter to its customers in which it acknowledged
unintentionally violating weights-and-measures standards and
promised to improve its practices.
California settlement hardly marked the end of Whole
Foods' woes. Regulators in Albany, New York fined Whole
Foods for weights-and-measures violations in August 2014 and
again in January 2015. Then, on June 24, 2015, the New York
City Department of Consumer Affairs ("DCA")
released a scathing report on Whole Foods'
weights-and-measures practices. In a press release, the DCA
said it uncovered violations at each of Whole Foods'
stores in New York City. In fact, it reported that 89 percent
of the products it tested failed to meet federal
weights-and-measures standards, causing Whole Foods to
overcharge customers between $0.80 and $14.84 per affected
product. DCA inspectors characterized their findings as
"the worst case of mislabeling they [had] seen in their
Whole Foods officials initially denied the DCA's
allegations, they soon pivoted to strike a conciliatory tone.
On June 29, 2015, Whole Foods' co-CEOs John Mackey and
Walter Robb-both defendants in this lawsuit- posted a video
to Whole Foods' website admitting that the company had
"made some mistakes" with regards to pricing in its
New York City stores. Whole Foods simultaneously posted a
statement on its website detailing policy changes it intended
to implement to guard against future violations.
report and Whole Foods' subsequent apology received
national media attention in the weeks that followed. The New
York Times published an article highlighting the DCA's
allegations the day they were released. USA Today and Forbes
later published articles discussing Whole Foods'
acceptance of responsibility. At least one market analyst
weighed in with a report that discussed Whole Foods'
"surprising apology for inaccurate pricing."
plaintiffs allege that consumers took notice. Whole
Foods' third-quarter financial data, which it released on
July 29, showed that Whole Foods missed its sales targets for
the quarter and demonstrated a marked slowdown in sales
growth in the two weeks between the DCA's report and the
end of the quarter. On a conference call with investors that
evening, Robb and Whole Foods CFO Glenda Jane
Flanagan-another defendant in this lawsuit- attributed the
decline to the DCA findings and the negative press that it
attracted. Market analysts concurred in this assessment.
Whole Foods' common-stock price fell about ten percent
the next day on high-volume trading.
putative class plaintiffs purchased Whole Foods common stock
between July 31, 2013, and July 29, 2015. The plaintiffs say
that during this period, Whole Foods made various fraudulent
statements that artificially inflated the price of its stock.
Then, the plaintiffs allege, when the extent of Whole
Foods' weights-and-measures issues came to light, Whole
Foods stock declined to reflect its true value, harming those
investors that purchased the stock at artificially inflated
plaintiffs allege three general categories of statements that
Whole Foods made, which (they say) the weights-and-measures
scandal eventually revealed to be false. First, they
challenge the defendants' frequent assertions that Whole
Foods provides competitive pricing to its customers or is
working to improve its pricing:
• On July 31, 2013, defendant Kenneth Meyer-a Whole
Foods executive vice president-told investors on a conference
call, "We don't have to be ashamed compared to any
other competitor for the exact same items we have great
• On November 6, 2013, Mackey told investors on a
conference call, "We have narrowed the price gap versus
our competitors on known value items to its narrowest margin
yet . . . ."
• On February 12, 2014, Robb told investors on a
conference call, "Our internal pricing surveys showed
improvements from Q4 to Q1, in a competitive price
positioning across virtually all competitors in all areas . .
• On February 21, 2014, Whole Foods stated in a Form
10-Q it filed with the SEC that it was "improving [its]
relative price positioning [and] expanding its value
offerings across the store."
• On May 6, 2014, Robb told investors on a conference
call that Whole Foods was "continuing to make . . .
investments strategically in price." On that same call,
defendant A.C. Gallo, Whole Foods' president and COO,
said Whole Foods was "really focused on being really
competitive with [its] prices."
• On July 30, 2014, Robb told investors on a conference
call, "[W]e believe our value efforts continue to be a
key element in driving sales growth over the long-term,"
and "[o]ur focus going forward is primarily in
perishables, where we see opportunities to narrow price gaps
on select known value items."
• On November 5, 2014, Mackey told investors on a
conference call, "We remain committed to the highest
quality standards and to expanding our value offering."
On that same call, defendant David Lannon-a Whole Foods
executive vice president-said Whole Foods' internal
testing showed it was "matching toe-to-toe with all of
• On February 11, 2015, Robb told investors on a
conference call, "We continue to see unit lift from the
lower produce pricing we are testing in several markets . . .
. [W]e believe more competitive produce pricing will ...