               United States Court of Appeals
                          For the Eighth Circuit
                      ___________________________

                              No. 18-1831
                      ___________________________

                In re: Target Corporation Securities Litigation

                           ------------------------------

                     Carpenters’ Pension Fund of Illinois

                      lllllllllllllllllllllPlaintiff - Appellant

Police Retirement System of St. Louis, Individually and on Behalf of All Others
 Similarly Situated; Salvatore Rizzo, Individually and on Behalf of All Others
                               Similarly Situated

                            lllllllllllllllllllllPlaintiffs

                                          v.

Target Corporation; Gregg W. Steinhafel; John J. Mulligan; Anthony S. Fisher

                    lllllllllllllllllllllDefendants - Appellees
                                     ____________

                   Appeal from United States District Court
                  for the District of Minnesota - Minneapolis
                                  ____________

                        Submitted: November 12, 2019
                            Filed: April 10, 2020
                               ____________
Before SHEPHERD, GRASZ, and KOBES, Circuit Judges.
                           ____________

KOBES, Circuit Judge.

       Plaintiffs are investors who purchased Target Corporation stock between
March 20, 2013 and August 4, 2014. They sued Target and several of its executives,
claiming that Target misled investors about problems in its Canadian stores. The
district court1 found that the investors failed to satisfy the heightened pleading
standards applied to securities actions and dismissed. It also denied the investors’
motion for reconsideration and for leave to amend. The investors appeal both
decisions and we affirm.

                                           I.

      The first issue before us is whether the investors have pleaded fraud with
enough particularity to survive a motion to dismiss. We accept the facts pleaded in
the complaint as true and track the allegations in the complaint here. Pub. Pension
Fund Grp. v. KV Pharm. Co., 679 F.3d 972, 975 (8th Cir. 2012).

      Target is one of the largest retailers in the United States, but until 2013 it had
no international presence. In 2011, it announced plans to change that and created
Target Canada. From March to November 2013, Target opened 124 Canadian stores
and developed new supply chain and information technology infrastructure to support
them. The decision to develop these new systems proved disastrous.




      1
       The Honorable Joan N. Ericksen, United States District Judge for the District
of Minnesota.

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        Target Canada immediately ran into trouble: the new inventory forecasting
software provided inaccurate demand forecasts and employees did not understand
how to use it. The new inventory management system required employees to
manually enter up to 50 pieces of information—including manufacturer name, model
number, weight, dimensions, UPC identifying code, etc.—for each one of Target’s
more than 75,000 products. To complete all of this data entry in time for the opening
of its first Canadian stores, Target held a “data week” in 2012 and temporarily
reassigned employees to input information into the inventory management system.
The effort mostly failed. According to a Canadian Business report, the information
initially loaded into the inventory management system was accurate just 30 percent
of the time.

      Target’s other systems compounded these problems. The warehouse
management system did not communicate well with the inventory management
system. The checkout system frequently malfunctioned and did not accurately convey
to the other systems what items needed to be replenished. For example, if a blue
dress was selling well in one of Target Canada’s stores, the warehouse might
mistakenly “resupply” it with a red dress that was hardly selling. This led to some
shelves sitting empty and others overflowing with inventory.

      Target’s issues became more noticeable when the Canadian stores opened for
business. In addition to the empty shelves, Target Canada’s distribution centers were
quickly overwhelmed with excess inventory. By fall 2013, the distribution centers
were full to bursting and extra items had to be stored on trailers until the company
eventually leased additional space. In January 2015, less than two years after
Target’s initial foray into the Canadian market, Target Canada filed for bankruptcy
and Target announced plans to shutter its Canadian stores.

      The investors brought this action alleging that from March 20, 2013 to August
4, 2014, Target executives misled investors by understating the seriousness of the

                                         -3-
problems with Target Canada, overstating their ability to correct them, and making
unrealistic projections about the profitability of the Canadian stores. Target moved
to dismiss for failure to state a claim and the district court granted the motion because
the investors had not satisfied the heightened pleading standards of the Private
Securities Litigation Reform Act of 1995. The investors moved for reconsideration
and sought leave to amend, but the district court denied both motions.

                                            II.

       Section 10(b) of the Securities and Exchange Act of 1934 makes it unlawful
for any person “[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 [Securities and Exchange] Commission may
prescribe.” 15 U.S.C. § 78j(b). SEC Rule 10b-5 prohibits “mak[ing] any untrue
statement of a material fact or . . . omit[ting] to state a material fact necessary in order
to make the statements made . . . not misleading.” 17 C.F.R. § 240.10b-5(b).

       Investors have a private cause of action for violations of § 10(b) or Rule 10b-5.
Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27, 37 (2011). A corporation is
liable to investors who can prove: “(1) a material misrepresentation or omission by
the defendant; (2) scienter; (3) a connection between the misrepresentation or
omission and the purchase or sale of a security; (4) reliance upon the
misrepresentation or omission; (5) economic loss; and (6) loss causation.” Id. at
37–38 (quoting Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S.
148, 157 (2008)).

       The district court found the investors failed to state such a claim. We review
this decision de novo and apply the PSLRA’s heightened pleading standards. In re
2007 Novastar Fin. Inc., Sec. Litig., 579 F.3d 878, 882 (8th Cir. 2009). To satisfy the
PSLRA, the complaint must “specify each statement alleged to have been misleading

                                            -4-
[and] the reason or reasons why the statement is misleading, and, if an
allegation . . . is made on information and belief, the complaint shall state with
particularity all facts on which that belief is formed.” 15 U.S.C. § 78u-4(b)(1). It
must also “state with particularity facts giving rise to a strong inference that the
defendant acted with the required state of mind.” Id. at § 78u-4(b)(2)(A). Broadly
speaking, successful complaints will be drafted with particularity and allege the “who,
what, when, where, and how” of the fraud. KV Pharma, 679 F.3d at 980 (citation
omitted).

        The investors allege that Target executives made dozens of materially
misleading statements during the class period. These statements include descriptions
of Target’s supply chain and IT infrastructure in annual 10-K filings with the SEC,
as well as early descriptions of Target Canada’s efforts to prepare for and open its
first stores. They also allege fraud based on later statements describing the response
to problems with Target Canada’s supply chain and IT infrastructure as they became
more apparent. Finally, the investors allege that several earnings updates painted an
overly optimistic picture of Target Canada’s profitability. We conclude that none of
these allegations satisfy the PSLRA’s mental state requirement and, for one
allegation, its falsity requirement.

       To plead the necessary mental state, plaintiffs must set forth facts that show
“reckless or intentional wrongdoing.” That mental state can be established with: (1)
“facts demonstrating a mental state embracing an intent to deceive, manipulate, or
defraud,” (2) “conduct which rises to the level of severe recklessness,” or (3)
“allegations of motive and opportunity.” Cornelia I. Crowell GST Trust v. Possis
Med., Inc., 519 F.3d 778, 782 (8th Cir. 2008). The investors do not need to find a
“smoking gun,” but they do need to allege facts supporting an inference of fraud that
is “cogent and at least as compelling as any opposing inference of nonfraudulent
intent.” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 314, 324 (2007).
The district court provided an exhaustive review of the allegedly fraudulent

                                         -5-
statements presented in the investors’ complaint, but a few examples suffice to show
how the complaint failed to allege facts supporting an inference of fraudulent intent.

       At a retail conference on March 28, 2013, Target’s CFO told investors, “Going
into the last year . . . [Target Canada] needed to build out of the supply chain [and]
build the technology. . . . We achieved all . . . of those objectives. . . . We’re right
where we want to be right now.” Compl. ¶ 179. The investors allege this statement
was misleading “because it failed to disclose the systemic problems experienced in
Target Canada’s supply chain IT systems, which was known to Defendants or
recklessly disregarded by them.” Compl. ¶ 180. There is, however, no particularized
explanation of how or when Target’s executives learned this statement was false. We
disregard “blanket” or “catch-all” assertions of scienter.2 See Fla. State Bd. of Admin.
v. Green Tree Fin. Corp., 270 F.3d 645, 660 (8th Cir. 2001).

       The same failure plagues allegations that Target executives defrauded investors
when they made statements like “Things like replenishment systems, they take a
while to tune, and so we’re tuning.” Compl. ¶ 196. The investors argue that these
statements suggest Target Canada’s problems could have been fixed with “tuning”
when executives actually knew more drastic action was needed. The complaint—like
Target Canada’s brief existence—demonstrates that “tuning” was inadequate in
hindsight, but the investors do not show Target executives knew that when they made
the challenged statements. The PSLRA does not allow “pleading fraud by hindsight.”
In re Stratasys, 864 F.3d at 883 (citation omitted). Nothing in the complaint makes
a “compelling” case for fraud and we believe the more compelling inference, which


      2
        In addition to insufficiently alleging the required mental state,“[w]e’re right
where we want to be right now,” and similar statements like “we feel really good
about where we are today,” Compl. ¶ 196, are inactionable puffery. In re Stratasys
Ltd. S’holder Sec. Litig., 864 F.3d 879, 882 (8th Cir. 2017) (puffery includes
“optimistic statements” that cannot be “supported by objective data or otherwise
subject to verification by proof”) (citation omitted).

                                          -6-
is fatal to the investors’ case, is that Target executives did not understand the
magnitude of the problems they faced. The complaint suggests as much when it notes
that “Target’s efforts to finally implement changes to address systemic problems with
its supply chain IT systems came in too little too late.” Compl. ¶ 157.

       The investors argue that they have pleaded the required mental state by
showing Target executives were motivated to artificially inflate Target’s stock price
because they sold large amounts of company stock during the class period. Although
we have held insider stock sales can be probative of motive, they are not inherently
suspicious and “become so only when the level of trading is ‘dramatically out of line
with prior trading practices at times calculated to maximize the personal benefit from
undisclosed inside information.’” In re Navarre Corp. Sec. Litig., 299 F.3d 735, 747
(8th Cir. 2002) (quoting In re Vantive Corp. Sec. Litig., 283 F.3d 1079, 1092 (9th Cir.
2002)). Here, the investors allege that the individual defendants sold 10-20% of their
shares during the class period. We have found sales of up to 32% of an individual’s
stock not inherently suspicious. In re Navarre, 299 F.3d at 747. Furthermore, the
timing in this case does not demonstrate that the sales were made when executives
would “maximize the personal benefit from undisclosed information.” Id. The bulk
of the sales were made early in the class period and provide no motive for defrauding
investors in the following months.

      The strongest, but still insufficient, allegation is that it was materially
misleading for an executive to say in May 2014, “[T]he early cycle [Canadian] stores
continue to be the best. . . . So, the earliest stores, the longer they’ve been open, they
performed the better, but the good thing is all cycles are on an upward path.” Compl.
¶ 257. In August 2014, Target revealed that same-store sales had fallen more than
11% in Canada over the previous year. Because the only stores that could be
included in that metric were the “earliest stores” referenced in the May 2014
statement, the investors argue that the May 2014 statement must have been false when
made and Target executives must have known as much. But financial deterioration

                                           -7-
alone is not enough to show fraud. “Plaintiffs may not proffer different financial
statements and rest. Investors must point to some facts suggesting that the difference
is attributable to fraud.” Parnes v. Gateway 2000, Inc., 122 F.3d 539, 551 (8th Cir.
1997) (citation omitted). The complaint “must necessarily show that the defendants’
statements were misleading.” In re Cerner Corp. Sec. Litig., 425 F.3d 1079, 1083
(8th Cir. 2005).

       The investors offer nothing more than the apparent incongruity of stores being
on an “upward path” and sales that decreased year-over-year. The August disclosure
does not show that the May 2014 statement was necessarily false, let alone that Target
executives knew it was false. The year-to-year decrease in sales could just as well
have looked worse in 2013 and improved by May 2014, in which case it would be
true that “the longer [the stores have] been open, they performed the better.” A
§ 10(b) claim rises and falls on an investor’s ability to plead facts showing a
company’s statements were false or misleading when made. KV Pharma., 679 F.3d
at 983–84; see also In re Cerner, 425 F.3d at 1083–84. The investors have failed to
do so here and the district court correctly granted Target’s motion to dismiss.3

                                         III.

      Following dismissal, the investors proposed a second amended complaint that
included information from several new confidential witnesses and added details about
Target executives’ knowledge of and responses to Target Canada’s problems. For
example, the amended complaint alleged that “Target’s CEO and CFO ‘absolutely’
had to have known about [the inventory system] problems because they affected
every one of Target Canada’s financials, and the culture at Target was one of internal


      3
        For all statements other than the May 2014 statement, we focus only on the
scienter element of the investors’ claim. Therefore, we express no opinion as to
whether the investors sufficiently alleged falsity with respect to those statements.

                                         -8-
‘transparency.’” D. Ct. Dkt. 105-2 (PSAC), ¶ 89. It also alleged Target Canada’s
President gave “very specific” and “problem to problem” updates about the issues
Target Canada faced during the class period. PSAC ¶ 114. During biweekly
executive committee meetings, several Target and Target Canada executives would
“deeply delve into the [inventory] problems and potential solutions.” PSAC ¶ 119.
And “even though people from different organizations attempted to correct the
[inventory] problems they were never fully rectified.” PSAC ¶ 121. “[I]t was the
type of situation where even if one issue was fixed another would spring up
somewhere else.” PSAC ¶ 121.

       The district court denied the motion for leave to amend. It did not decide
whether the proposed amended complaint satisfied the pleading standards for
securities actions. Instead, it found that even if the new allegations showed that some
of the statements were false when made and Target executives knew it, those
statements were immaterial and did not alter the total mix of information available to
investors.

      We review the denial of a motion for leave to amend for an abuse of discretion.
KV Pharm., 679 F.3d at 987. “A court abuses its discretion when it denies a motion
to amend a complaint unless there exists undue delay, bad faith, repeated failure to
cure deficiencies by amendments previously allowed, undue prejudice to the non-
moving party, or futility of the amendment.” Popoalii v. Corr. Med. Servs., 512 F.3d
488, 497 (8th Cir. 2008). As always, we may affirm the district court on any ground
supported by the record. Reuter v. Jax Ltd., Inc., 711 F.3d 918, 922–23 (8th Cir.
2013).

       Although the amended complaint added color and detail to the investors’
allegations, it still failed to allege that Target executives knew that they were making
false statements. Allegations that executives “‘absolutely’ had to have known” the
depth of Target’s problems are conclusory and perfectly consistent with the narrative

                                          -9-
that Target had serious problems that none of its executives understood. That every
time one issue was fixed, others sprang up hydra-like to replace it further supports the
non-fraudulent explanation for Target’s statements to investors. Because the
proposed amended complaint also failed to satisfy the PSLRA, amendment was futile
and we find no abuse of discretion in denying leave to amend.

                                           IV.

        Finally, the investors appeal the dismissal of their § 20(a) claims. Section 20(a)
of the Exchange Act allows “controlling person” claims to be brought in conjunction
with suits under § 10(b). 15 U.S.C. § 78t(a). Such claims are “derivative and
require[] an underlying violation” of the Exchange Act. In re Hutchinson Tech., Inc.
Sec. Litig., 536 F.3d 952, 961 (8th Cir. 2008). Because the investors’ § 10(b) claim
fails, dismissal of the § 20(a) claim was also appropriate. Id. at 962. We affirm.
                          ______________________________




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