Garson v. DMC Global Inc. — Entry #67: ORDER granting 57 Motion to Dismiss by District Judge Gordon P Gallagher on 03/20/2026.(dclem) (Entered: 03/20/2026)

Case No. 1:24-cv-03387-GPG-CYC                  Document 67          filed 03/20/26      USDC Colorado
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                           IN THE UNITED STATES DISTRICT COURT
                               FOR THE DISTRICT OF COLORADO
                                 District Judge Gordon P. Gallagher

Civil Action No. 24-cv-03387-GPG-CYC
       Consolidated with Civil Action No. 25-cv-00277-GPG-CYC

SAMUEL GARSON, Individually and On Behalf of All Others Similarly Situated,

        Plaintiff,

v.

DMC GLOBAL INC.,
MICHAEL KUTA,
ERIC V. WALTER, and
BRETT SEGER,

        Defendants.


                                                 ORDER


        Before the Court is Defendants’ Motion to Dismiss Lead Plaintiff’s Consolidated Amended

Complaint (D. 57). The Court GRANTS the motion for the following reasons.

                                          I. BACKGROUND

        Plaintiff brings a private security class action.1 Defendant DMC Global Inc. (DMC) is a

publicly traded company incorporated in Colorado. Defendants Michael Kuta, Eric V. Walter, and

Brett Seger are executives or former executives of DMC.


1
 The Court draws the operative facts from the Consolidated Amended Class Action Complaint for Violation of the
Federal Securities Laws and Jury Demand (Complaint) (D. 47).

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           On December 23, 2021, DMC acquired a 60% controlling stake in Arcadia Products, LLC

(Arcadia)2 for $282.5 million in cash and DMC stock. Arcadia “supplies architectural building

products, including exterior and interior framing systems, curtain walls, windows, doors, and

interior partitions to the commercial construction market; it also supplies customized windows and

doors to the high-end residential construction” (D. 47 at 10). Arcadia’s recent performance was

very strong prior to the acquisition. It did not fare so well after the acquisition, primarily due to

market changes such as increased interest rates that slowed the construction market.

           Although Plaintiff Samuel Garson does not allege misconduct in relation to the acquisition,

some aspects of the acquisition are relevant to the claims. “At the time of the Arcadia Acquisition,

DMC’s total market capitalization was approximately $688.5 million, based on a closing share

price of $36.74 on December 16, 2021” (D. 47 at 13). “To fund a portion of the purchase price for

the acquisition, DMC entered into a new five-year syndicated credit facility, which included a

$150 million term loan and a $50 million revolving line of credit . . . used to partially fund the

acquisition” (id. at 13–14). The seller “had its own option, enabling [it] to sell its remaining 40%

interest to DMC through a corresponding three-year put option” (id. at 14). With this put option,

the seller “could obligate DMC to buy the remaining 40% of Arcadia that it did not own on or after

the third anniversary of the Arcadia transaction (i.e., December 23, 2024)” with “20% in cash and

80% in shares” (id. at 15).

           Because DMC paid a premium for Arcadia, there was some special accounting treatment.

“Whenever a public company acquires another entity for more than the target’s book value, a new

asset called ‘goodwill’ is created” (D. 47 at 16). Goodwill corresponds to the “portion of the


2
    The Court also uses the term Arcadia to refer to the acquired Arcadia operating within DMC.
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purchase price above the net fair value of all of the assets purchased (i.e., the target company’s

book value)” (id.). “Because DMC paid $282.5 million for Arcadia, and recorded $141.2 million

in corresponding goodwill, that means the book value of Arcadia at the time that DMC bought it

was $141.3 million (because goodwill is just the difference between the purchase price and the

book value, so rearranging those figures, purchase price minus goodwill equals book value)” (id.).

DMC’s Form 10-K filed after the acquisition explained:

                  Goodwill represents the amount by which the purchase price
                  exceeds the fair value of identifiable tangible and intangible assets
                  and liabilities acquired in a business combination. Goodwill
                  acquired in a business combination and determined to have an
                  indefinite useful life is not amortized, but instead is tested for
                  impairment at least annually during the fourth quarter or whenever
                  events or changes in circumstances indicate that the carrying value
                  might not be fully recoverable. For goodwill, impairment is assessed
                  at the reporting unit level. A reporting unit is defined as an operating
                  segment or a component of an operating segment to the extent
                  discrete financial information is available that is reviewed by
                  segment management.

                  As of and for the year ended December, 31, 2021, all goodwill
                  recorded within the Consolidated Balance Sheet relates to the
                  Arcadia acquisition. Given the proximity of the acquisition date to
                  the balance sheet date, a quantitative impairment assessment was not
                  deemed necessary of performance. No goodwill was outstanding as
                  of and for the year ended December 31, 2020.

(id. at 16–17).

        Plaintiff’s theory of liability is that Defendants “repeatedly overstated DMC’s income3 and

assets by failing to impair goodwill attributed to DMC’s acquisition of [Arcadia], despite mounting

evidence and glaring red flags that such impairment was not only necessary, but obvious and


3
 Although the Complaint references income here, there are no allegations that Defendants misrepresented DMC or
Arcadia’s gross income.
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inevitable” (D. 47 at 5). Plaintiff alleges four misleading statements made during the period

between the acquisition and DMC taking a goodwill impairment based on Arcadia’s poor

performance:

       1. January 29, 2024 Press Release stating in relevant part:

                 DMC Global [] today announced its board of directors (“the Board”)
                 has initiated a review of strategic alternatives for its DynaEnergetics
                 and NobelClad businesses.

                 The strategic review process formalizes DMC’s ongoing efforts
                 over the past several months to consider opportunities for unlocking
                 shareholder value. The Board has retained a financial advisor and
                 may retain other advisors to assist the Board in evaluating DMC’s
                 current strategy, operations, and capital structure. The Board will
                 consider various strategic, business, and financial alternatives for
                 DMC’s DynaEnergetics and NobelClad businesses. These could
                 include, among other things, a sale, a merger or other business
                 combination of a portion of DMC’s business-unit assets, and/or a
                 strategic investment.

                 David Aldous, DMC’s chairman, said, “One year ago, we began
                 evaluating and developing new operating strategies for our business
                 units. Since Michael Kuta’s appointment as CEO less than six
                 months ago, we have been executing those strategies, and now are
                 focused on opportunities to maximize the value of our portfolio with
                 the help of our financial advisor.”

                 Aldous continued, “Arcadia Products is a core division of DMC, and
                 we are taking a very focused approach toward maximizing its
                 differentiated business model and capitalizing on growth
                 opportunities within its large addressable markets. Both
                 DynaEnergetics and NobelClad are valuable, industry-leading
                 businesses with strong margin profiles. However, the Board and
                 management team are aligned with the view expressed by many
                 DMC shareholders that the Company should seek to simplify its
                 portfolio to drive improved shareholder value. During the review
                 process, the Board and management team will continue to execute
                 DMC’s strategy and will remain very focused on running our
                 businesses.”

(D. 47 at 67).
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     2. February 23, 2024 Form 10-K stating in relevant part:

            To test goodwill for impairment, we first perform a qualitative
            assessment to determine whether it is more likely than not that the
            fair value of a reporting unit is less than its carrying value. For the
            qualitative assessment, we consider macroeconomic and market
            conditions, cost factors, financial performance and other relevant
            entity-specific events. If we conclude that it is more likely than not
            that the fair value of a reporting unit is less than its carrying value
            during the qualitative assessment, then we quantitatively estimate
            the fair value of the reporting unit and compare the estimated fair
            value to its carrying value. Based on the results of the quantitative
            assessment, if the carrying value exceeds the fair value of the
            reporting unit, an impairment loss is recognized for the difference.

            The assumptions used in a quantitative assessment require
            significant judgment, which include assumptions about future
            economic conditions and company-specific conditions and plans. In
            the Company’s quantitative assessment, we estimate the fair value
            of a reporting unit by using the income approach, specifically a
            discounted cash flow analysis. A number of assumptions and
            estimates are required in performing the discounted cash flow
            analysis, including forecasts of revenues, gross profits, capital
            expenditures, discount rates, working capital changes, and terminal
            growth rates. Actual results may differ from those assumed in the
            forecasts.

            As of December 31, 2023, the carrying value of goodwill was
            $141,725[,000] and relates entirely to the Arcadia Products
            operating segment and reporting unit. As of the date of the 2023
            annual impairment test, we performed a quantitative assessment and
            concluded that the fair value of the Arcadia Products reporting unit
            exceeded its carrying value by approximately 10%. Discount rates
            are one of the more significant assumptions used in the income
            approach. If the Company increased the discount rate used by
            approximately 100 basis points, the fair value of Arcadia Products
            would still exceed its carrying value. A sustained decline in general
            economic conditions, activity levels in end markets or equity
            valuations could impact the judgments and assumptions used to
            estimate the fair value of Arcadia Products, and the Company could
            be required to record an impairment charge in the future. If the
            Company was required to recognize an impairment charge in the
            future, the Consolidated Balance Sheets and Consolidated
            Statements of Operations and Comprehensive Income (Loss) could
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               be materially impacted; however, the non-cash charge would not
               impact the Company’s consolidated cash flows, current liquidity,
               and capital resources.

(D. 47 at 68–69).

       3. May 2, 2024 Form 8-K reporting goodwill of $141,725,000 as of March 31, 2024

       4. August 1, 2024 Form 8-K reporting goodwill of $141,725,000 as of June 30, 2024.

       On October 21, 2024, DMC issued a press release indicating a change in business strategy

and that it would take a goodwill impairment, stating in relevant part:

               DMC Global [] today provided an update on its business conditions
               and revised its third quarter financial guidance. The Company also
               commented on its strategic review process and announced
               governance changes. DMC said third quarter sales are expected to
               be approximately $152 million versus prior guidance of $158
               million to $168 million. The results reflect weaker-than-expected
               sales at both Arcadia Products (“Arcadia”), DMC’s architectural
               building products business, and DynaEnergetics, DMC’s energy
               products business.

               Adjusted EBITDA* is now expected to be approximately $5 million
               versus prior guidance of $15 million to $18 million. Third quarter
               results will include inventory and bad debt charges at
               DynaEnergetics totaling approximately $5 million, as well as lower
               fixed overhead absorption on reduced sales at both Arcadia and
               DynaEnergetics.

               The Company said its third quarter financial results will include an
               approximate $142 million non-cash goodwill impairment charge
               associated with DMC’s December 2021 acquisition of a controlling
               interest in Arcadia. The charge reflects Arcadia’s recent financial
               performance and near-term outlook. These factors, combined with
               the significant decline in DMC’s market capitalization, led the
               Company to conclude that the goodwill impairment charge was
               appropriate at this time.

               DMC president and CEO Michael Kuta, who is also leading Arcadia
               on an interim basis, said, “Arcadia’s third quarter performance was
               affected by weak commercial and high-end residential construction

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               activity, lower fixed overhead absorption, and supply-chain
               disruptions that impacted product availability.”

(D. 47 at 33–34). DMC’s stock price went down.

       DMC seeks dismissal of all claims (D. 57).

                                   II. LEGAL STANDARDS

       Under Rule 12(b)(6), a court may dismiss a complaint for “failure to state a claim upon

which relief can be granted.” Fed. R. Civ. P. 12(b)(6). To survive a motion to dismiss, a complaint

must contain sufficient factual matter, accepted as true and interpreted in the light most favorable

to the non-moving party, to state a claim to relief that is plausible on its face. Ashcroft v. Iqbal,

556 U.S. 662, 678 (2009); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). Additionally,

the complaint must sufficiently allege facts supporting all the elements necessary to establish an

entitlement to relief under the legal theory proposed; however, a complaint may be dismissed

because it asserts a legal theory not cognizable as a matter of law. Forest Guardians v. Forsgren,

478 F.3d 1149, 1160 (10th Cir. 2007); Golan v. Ashcroft, 310 F. Supp. 2d 1215, 1217 (D. Colo.

2004). A claim is not plausible on its face “if [the allegations] are so general that they encompass

a wide swath of conduct, much of it innocent,” and the plaintiff has failed to “nudge[ the] claims

across the line from conceivable to plausible.” Robbins v. Oklahoma, 519 F.3d 1242, 1247 (10th

Cir. 2008) (quoting Twombly, 550 U.S. at 570).          In assessing a claim’s plausibility, legal

conclusions contained in the complaint are not entitled to the assumption of truth. See Kansas

Penn Gaming, LLC v. Collins, 656 F.3d 1210, 1214 (10th Cir. 2011). The standard, however,

remains a liberal pleading standard, and “a well-pleaded complaint may proceed even if it strikes

a savvy judge that actual proof of those facts is improbable, and that a recovery is very remote and


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unlikely.” Dias v. City & Cty. of Denver, 567 F.3d 1169, 1178 (10th Cir. 2009) (internal quotations

and citation omitted).

       Though courts view allegations favorably to plaintiffs at the motion to dismiss stage,

federal law creates a heavy burden on claimants alleging securities fraud. See In re Level 3

Commc’ns, Inc. Sec. Litig., 667 F.3d 1331, 1333 (10th Cir. 2012) (“A plaintiff suing under Section

10(b) [of the Exchange Act] bears a heavy burden at the pleading stage.”). The Private Securities

Litigation Reform Act of 1995 (PSLRA) imposes “specific and more stringent pleading

requirements on complaints alleging securities fraud under Section 10(b).” In re Crocs, Inc. Sec.

Litig., 774 F. Supp. 2d 1122, 1139 (D. Colo. 2011). With respect to claims under the Exchange

Act based on a material misleading statement or omission, the PSLRA requires that “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.” 15 U.S.C. § 78u–4(b)(1). To determine whether a misleading statement or omission is

alleged, courts evaluate whether the facts alleged, “taken as a whole,” . . . support a reasonable

belief that the defendant’s statements identified by the plaintiff were false or misleading.” Adams

v. Kinder-Morgan, Inc., 340 F.3d 1083, 1099 (10th Cir. 2003), as amended on denial of reh’g

(Aug. 29, 2003). In applying this standard, the Tenth Circuit has directed courts to evaluate:

               (1) the level of detail provided by the facts stated in a complaint; (2)
               the number of facts provided; (3) the coherence and plausibility of
               the facts when considered together; (4) whether the source of the
               plaintiff’s knowledge about a stated fact is disclosed; (5) the
               reliability of the sources from which the facts were obtained; and (6)
               any other indicia of how strongly the facts support the conclusion


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               that a reasonable person would believe that the defendant's
               statements were misleading.

Id. (citation omitted). After considering these enumerated factors and “measuring the nature of

the facts alleged against these indicia, [if] a reasonable person would believe that the defendant’s

statements were false or misleading, the plaintiff has sufficiently pled with particularity facts

supporting his belief in the misleading nature of the defendant's statements.” Id.

       A plaintiff must also “state with particularity facts giving rise to a “strong” inference that

the defendants acted with scienter. Meitav Dash Provident Funds & Pension Ltd. v. Spirit

AeroSystems Holdings, Inc., 79 F.4th 1209, 1216 (10th Cir. 2023). “An inference of scienter is

considered ‘strong’ only if proof of the allegations would lead a reasonable factfinder to determine

that an inference of fraudulent intent or recklessness is at least as compelling as an innocent

inference.” Id. “Conduct is considered reckless only if the defendants (1) acted in ‘an extreme

departure from the standards of ordinary care’ and (2) presented ‘a danger of misleading buyers or

sellers’ that was [ ] known to the defendants or [ ] so obvious that the defendants must have been

aware of the danger.” Anderson v. Spirit Aerosystems Holdings, Inc., 827 F.3d 1229, 1237 (10th

Cir. 2016) (quoting In re Level 3, 667 F.3d at 1343 n.12).

                                        III. ANALYSIS

       Rule 10b–5(b) makes it unlawful “[t]o make any untrue statement of a material fact or to

omit to state a material fact necessary in order to make the statements made, in the light of the

circumstances under which they were made, not misleading.” 17 C.F.R. § 240.10b–5(b). To plead

a claim for violations of Section 10(b), a plaintiff must establish “(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
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omission; (5) economic loss; and (6) loss causation.” Ave. Capital Mgmt. II, L.P. v. Schaden, 131

F.Supp.3d 1118 (D. Colo. 2015) (citing Amgen Inc. v. Conn. Ret. Plans & Trust Funds, 568 U.S.

455, 460-61 (2013)).

       Defendants argue that Plaintiff has failed to sufficiently allege a scienter and material

misrepresentation or omission under the PSLRA (D. 57 at 20). The Court agrees, although it

addresses material falsehood first.

       A. Plaintiff Has Not Shown that the Statements Were Materially Misleading.

       For a statement to be actionable, it must be false when made. Grossman v. Novell, Inc.,

120 F.3d 1112, 1124 (10th Cir. 1997). Thus, we examine a statement and its potential implications

at that point and without the benefit of hindsight.

       Plaintiff asserts that the January 29, 2024 “Press Release gave the misleading impression

that Arcadia was performing well, because with the proposed sale of DynaEnergetics and

NobelClad” (D. 58 at 26). But it does not point to anywhere in the press release saying that Arcadia

is doing well. Instead, the Press Release suggests that Arcadia has a “differentiated business

model” and has “growth opportunities within its large addressable markets.” See Grossman, 120

F.3d at 1118 (“Vague, optimistic statements are not actionable because reasonable investors do

not rely on them in making investment decisions.”). Nothing suggests that Arcadia lacked a

differentiated business model or that it did not operate in a large market. Without any actual

falsehood, Plaintiff must rely on creation of a false impression, asserting that the Press Release

implies Arcadia’s present success because “no reasonable investor would expect that a

management team would focus their business model on the worst performing business” (D. 47 at

67). Why not? Companies sell of lines of business all the time, even when they are performing

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well, particularly when they believe they can either realize a high current value for that operation

(as the Press Release indicates—“unlocking shareholder value”) or for myriad other reasons such

as to avoid distraction and allow focus on a particular line of business (as the Press Release also

indicates—“simplify its portfolio”). There is no false suggestion in the Press Release. See In re

Cutera Sec. Litig., 610 F.3d 1103, 1110 (9th Cir. 2010) (holding that “we believe our employee

relations are good” was a nonactionable, “mildly optimistic, subjective assessment”).

        Plaintiff asserts that the Q1 and Q2 financial statements were false because they did not

reflect impaired goodwill. In Plaintiff’s view, the failure to impair goodwill resulted in a false

overstatement of the dollar value of goodwill and net earnings per share in its financial statements

(D. 58 at 24). Accepting as true the allegations in the Complaint, it is unclear to the Court how

DMC’s statements about its goodwill could be false without a requirement that it test the goodwill

before that point or an evaluation having been performed. According to the Complaint, the amount

of goodwill is fixed by the transaction (D. 47 at 16). Thereafter, “[b]ecause goodwill is an

intangible asset, its value is reported at the acquisition price unless or until circumstances arise in

which the intangible asset must be written off, or ‘impaired’” (id. at 17) (emphasis added). The

only allegation plausibly establishing when DMC was required to test its goodwill is its own

statement indicating that it would test the goodwill at least annually and, when it did so, it would

use “the income approach, specifically a discounted cash flow analysis” (D. 47 at 18; see also at

31).4 This required annual test would happen in December, such that no such required test would


4
  Plaintiff’s other allegations on this issue are entirely conclusory (e.g., D. 47 at 31–32) and at best suggest a
discretionary determination could be made. Plaintiff does not offer any argument explaining why the alleged red flags
required, as opposed to suggested, goodwill testing, and the Court declines to make the argument for Plaintiff (D. 58
at 24). Notably, this statement what DMC would test annually appears to be entirely consistent with GAAP and IFRS

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happen in a period relevant to these alleged misstatements (id. at 18). Thus, the only inference

that could be reasonably drawn from DMC’s statement is that the goodwill valuation was

considered using the income method at the last required check and it would happen again at least

at the end of the year. There is no apparent inconsistency between this and restating that amount

in Q1 and Q2 financial statements without further comment when no intermediate evaluation

occurred. Dearborn Heights, 856 F.3d at 617–18 (“Plaintiff’s bare allegations of events and

circumstances during the Class Period that could have suggested the likelihood of goodwill

impairment under GAAP cannot establish that Defendants must have known there was a likelihood

of goodwill impairment.”).

         Plaintiff’s final argument for a materially false statement is hard to parse. After an

extended discussion of the income method for testing goodwill, Plaintiff asserts that, “[i]f investors

had been told that a mid-year change in methods was possible (but they were not), investors could

have determined, based on the observable input that occurred in Q2, that an impairment was

required as of Q2” (D. 58 at 26). But the Complaint states that DMC used both the income

approach and the market approach, with both approaches agreeing that a goodwill impairment

should be taken. True, the disclosure describes using the market approach first and validating it

with the income approach, but this is meaningless as a practical matter if the same result obtained

under both. Further, it is not as though there are a multitude of approaches such that the use of


standards, which only require goodwill be tested annually. City of Dearborn Heights Act 345 Police & Fire Ret. Sys.
v. Align Tech., Inc., 856 F.3d 605, 611 (9th Cir. 2017). Although Plaintiff cites various cases finding that the red flags
were sufficient, each of those determinations were heavily fact dependent or contain only cursory analysis. See id. at
618. None appear to rest entirely on a delay in impairing goodwill, as Plaintiff’s case does. It does not appear
sufficient for a plaintiff to merely assert something that could potentially be a red flag requiring analysis of goodwill,
such a missing a target, without evaluation of that specific indicator at least in comparison to something previously
found to be sufficient.
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another would be surprising; the Complaint alleges only the two used exist and both can be used

in parallel (D. 47 at 30). The disclosures that Plaintiff points to simply discuss the annual test and

do not disclaim the market approach. DMC’s silence on the possibility that it might use the market

approach in combination with the income approach would not be materially misleading to a

reasonable investor.

       Additionally, Plaintiff’s argument that investors could have determined from public

information that a goodwill impairment was likely or should occur points to a fundamental

problem with Plaintiff’s entire case—none of the information about the goodwill impairment

appears to be material in this case. There is no allegation here that Defendants misstated any

information on which goodwill testing is based. And much, if not all, of that information is public.

Plaintiff alleges that “drivers of fair value for a reporting unit that is valued using the income

approach may be cash flow projections, terminal growth rate or the weighted-average cost of

capital (WACC)” (D. 47 at 30–31). DMC disclosed these or they could be reasonably determined

by investors from other disclosures (see e.g., D. 57-9; D. 57-12 at 27). Plaintiff alleges that

“drivers of fair value for a reporting unit that is valued using the market approach may be

applicable industry multiples such as multiples of revenue or earnings before interest, taxes,

depreciation and amortization (EBITDA)” (D. 47 at 30–31). DMC disclosed these and other

“observable inputs of fair value” (id. at 31). Thus, if it was important to them, investors could

have used information available to determine if its divisions’ value and if the valuation provided

was proper. And it is unclear whether the decision to take, or not, the goodwill valuation had any

practical effect on DMC’s operations or prospects. DMC stated that, “[i]f the Company was

required to recognize an impairment charge in the future, the Consolidated Balance Sheets and

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Consolidated Statements of Operations and Comprehensive Income (Loss) could be materially

impacted; however, the non-cash charge would not impact the Company’s consolidated cash

flows, current liquidity, and capital resources” (D. 47 at 68–69). This is not alleged to be false and

is entirely consistent with the allegations in the Complaint—the impairment is merely a paper loss.

So, investors had information from which, if they wished, they could make their own determination

about whether goodwill is, should be, or soon would be impaired and the ultimate result of that

impairment is simply a change in accounting treatment that does not affect DMC’s existing assets

or cash flow. There is nothing in the Complaint or Plaintiff’s argument explaining why when in a

given year the goodwill impairment was taken would affect a reasonable investor’s decision. Cf.

United States v. Woods, 571 U.S. 31, 33 (2013) (discussing advantages of paper losses in relation

to tax treatment). Thus, even assuming Plaintiff had shown a misleading statement or omission,

his claims would fail because he has not shown materiality.

       Accordingly, the Court will dismiss Plaintiff’s claims. The Court will briefly address

scienter because it provides another basis for dismissal.

       B. Plaintiff’s Allegations Do Not Support a Strong Inference of Scienter.

       “Scienter consists of a mental state embracing intent to deceive, manipulate, or defraud, or

recklessness.” Anderson, 827 F.3d at 1236–37 (10th Cir. 2016), as amended (July 6, 2016)

(internal quotation marks omitted).

       Plaintiff argues that a strong inference of scienter is possible because of the “red flags”

present, the alleged shifting explanations for the goodwill impairment, and the size of the


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impairment, the obligation to cover the put option to purchase the remainder of Arcadia,5 and the

importance of Arcadia suggest scienter. Examination of each of these factors in relation to

alternative inferences do not suggest scienter. See Anderson, 827 F.3d at 1237 (“Thus, the

complaint suffices only if a reasonable person would deem the inference of scienter cogent and at

least as compelling as any opposing inference one could draw from the facts alleged.”).

         Although not put in quite these terms by Defendants, who include executives making the

business decisions, the most obvious alternative inference here is poor business judgment and a

stubborn desire to make the Arcadia acquisition succeed in the face of bad decisions and bad luck.

Basically, the poor outcome is better explained by incompetence (or bad luck) rather than malice

(or recklessness sufficient to sustain a claim). See Anderson, 827 F.3d at 1238 (“The plaintiffs

allege that the Spirit executives intentionally misrepresented or recklessly ignored economic

realities. That is possible, but it is more probable that the Spirit executives were overly optimistic

and failed to give adequate weight to financial red flags, for the plaintiffs supply little reason to

suspect malevolence rather than benign optimism.”).

         In acquiring Arcadia, DMC paid more than the market thought that Arcadia was worth and

much more than Arcadia’s assets were worth. This is reflected in the premium paid at purchase

and the generation of the goodwill paper asset reflecting the “difference between the purchase

price and the book value” (D. 47 at 16). The goodwill may correspond in some sense to “the


5
  As Defendants argue, DMC secured the line of credit necessary to cover any cash portion of its purchase obligation
well before taking the goodwill impairment and before any purchase obligation would have become due. The Court
has not discussed all of Plaintiff’s arguments because some are plainly irrelevant, such as a competitor taking an
impairment related to a different geographic market. In re Level 3, 667 F.3d at 1344 (“We too have assessed plaintiff's
complaint holistically, though we limit our discussion here to the allegations most relevant to the issue of scienter.”).


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Case No. 1:24-cv-03387-GPG-CYC              Document 67       filed 03/20/26     USDC Colorado
                                            pg 16 of 18


acquired company’s brand name, customer base, customer relations, employee relations, and/or

proprietary technology,” giving the acquired company an ability to earn beyond its valuation (id.).

But if there is not actually such surplus earning potential, then the goodwill essentially stands on

nothing and will have to be written down.

       The strongest inference from the factual circumstances here is a gradual turn from

optimism in the face of bad luck to the realization that the situation was not going to turn around.

As Plaintiff acknowledges in the Complaint, the key driver of Arcadia’s performance was external

and essentially unpredictable to Defendants. “Given Arcadia’s business model, with direct

exposure to the construction market, Arcadia was highly susceptible to rising interest rates. And

because DMC bought Arcadia in late 2021, the timing of that purchase could not have been worse

because interest rates began to surge” (D. 47 at 19). As interest rates rose, Arcadia repeatedly

missed its revenue targets. This poor performance and its knock-on effects, such as a decline in

market capitalization, constituted the entirety of the purported “red flags” (D. 47 at 50–51). Yet

Defendants remained confident and announced a plan in January 2024 to sell off DMC’s other two

business units to focus on Arcadia’s potential. Was this a bad decision? It turned out to be in

retrospect, but Plaintiff points to nothing indicating that Defendants could not have reasonably

believed at the time that Arcadia’s fundamentals were strong notwithstanding what could

reasonably be viewed as bad luck in the timing of the rise in interest rates that could turn around

at any time. Smallen v. The W. Union Co., 950 F.3d 1297, 1312 (10th Cir. 2020) (finding no strong

inference of scienter where the “allegations Plaintiff advances demonstrate the Individual

Defendants were too optimistic about Western Union’s compliance systems and failed to give


                                                16


Case No. 1:24-cv-03387-GPG-CYC              Document 67         filed 03/20/26     USDC Colorado
                                            pg 17 of 18


adequate weight to certain red flags, such as pending government investigations, at the time they

made their alleged misstatements”).

        The poor performance continued apace through the first two quarters of 2024. There is no

suggestion in the Complaint of a sudden crisis or other event indicating that a turnaround at

Arcadia, for example, due to a drop in interest rates, was not possible through the period that

Plaintiff asserts DMC should have impaired the goodwill. But then, of course, at some point the

gradual deterioration came to a point that full recovery became remote enough that a wholesale

strategic shift was called for, and Defendants made that shift—announcing that they were no longer

attempting to sell the divisions other than Arcadia and were taking the goodwill impairment for

Arcadia. Compare In re Level 3, 667 F.3d at 1345 (“Given the difficulty we have, even with the

benefit of hindsight, in determining whether a conflict actually existed between the reports and

defendants’ statements, the strongest inference we can draw is that defendants were negligent in

failing to put together the pieces.”).

        Plaintiff argues that the various rationales provided where “shifting,” but none of them are

contradictory, implausible, or mutually exclusive. At best they refer to various effects of the main

problem—namely, loss of revenue resulting in decline in market capitalization, etc.—along with

other potentially contributory issues, for example, difficulty integrating a family business and fully

understanding an acquired company’s operations. That many factors may have contributed to

Arcadia’s poor performance after acquisition is hardly surprising, much less implausible or

contradictory. The size of the impairment and Arcadia’s importance perhaps could motivate

deception, but they are equally likely to motivate a stubborn determination to turn things around

that does not rely on any deception. Notably, there is no indication that Defendants continued long

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                                            pg 18 of 18


past when, with better luck, a recovery would have been possible. Instead, they took their

proverbial medicine. These facts do not suggest a strong inference of scienter. Thus, even if the

Court found material misrepresentations, it would still dismiss for failure to allege facts supporting

a strong inference of scienter.

                                       IV. CONCLUSION

       Accordingly, Defendants’ Motion to Dismiss Lead Plaintiff’s Consolidated Amended

Complaint (D. 57) is GRANTED and Plaintiff’s Consolidated Amended Complaint (D. 47) is

DISMISSED. It is FURTHER ORDERED that the Clerk of Court shall close this case.


       DATED March 20, 2026.

                                                      BY THE COURT:


                                               Gordon P. Gallagher
                                               United States District Judge


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