In re Grocery Outlet Holding Corp. Securities Litigation — Entry #41: REPLY in Support (re 39 MOTION to Dismiss 38 Amended Complaint ) filed by Charles C
Case: In re Grocery Outlet Holding Corp. Securities Litigation cand · 4:25-cv-00957
filed January 30, 2025
What this document is
Docket entry #41 · filed January 30, 2026
REPLY in Support (re 39 MOTION to Dismiss 38 Amended Complaint ) filed by Charles C. Bracher, Grocery Outlet Holding Corp. Securities Litigation, Robert Joseph Sheedy. (Varnen, Craig) (Filed on 1/30/2026) Modified on 2/3/2026 (kmg, COURT STAFF). (Entered: 01/30/2026)
Who is involved
- Casey Cavanaugh
- Charles C. Bracher
- Genriccio Liberato
- Grocery Outlet Holding Corp. Securities Litigation
- Robert Joseph Sheedy
Why we have it
We follow this case because it names a company we track, although that company is not a party:
- Applied Digital: its former name “FLIGHT SAFETY TECHNOLOGIES INC” appears in a filing in this case.
…Co-Lead Counsel. $1.2 million. • Flight Safety Technologies, Inc., (D. Conn.). Rosen Lead Counsel. $1…
A free copy from the RECAP archive of federal court filings (mirrored at the Internet Archive), retrieved October 21, 2026. Federal court filings are public records.
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Case 4:25-cv-00957-JST Document 41 Filed 01/30/26 Page 1 of 20
1 GIBSON, DUNN & CRUTCHER LLP
CRAIG VARNEN, SBN 172603
2 [email protected]
333 South Grand Avenue
3 Los Angeles, California 90071-3197
Telephone: 213.229.7000
4 Facsimile: 213.229.7520
5
JEFF LOMBARD, SBN 285371
6 [email protected]
310 University Avenue
7 Palo Alto, California 94301-1744
Telephone: 650.849.5300
8 Facsimile: 650.849.5333
9 Attorneys for Defendants
Grocery Outlet Holding Corp., Robert Joseph
10 Sheedy, and Charles C. Bracher
11
IN THE UNITED STATES DISTRICT COURT
12
FOR THE NORTHERN DISTRICT OF CALIFORNIA
13
OAKLAND DIVISION
14
15
IN RE GROCERY OUTLET HOLDING CASE NO. 4:25-cv-957-JST
16 CORP. SECURITIES LITIGATION
17 CLASS ACTION
18 Hon. Jon S. Tigar
Courtroom 6
19
20 DEFENDANTS’ REPLY IN SUPPORT OF
MOTION TO DISMISS AMENDED
21 COMPLAINT
22 Date: March 19, 2026
Time: 2:00 p.m.
23
24 Action Filed: January 30, 2025
25
26
27
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DEFENDANTS’ REPLY IN SUPPORT OF MOTION TO DISMISS AMENDED COMPLAINT
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1 TABLE OF CONTENTS
2 Page
3 I. INTRODUCTION ......................................................................................................................1
4 II. ARGUMENT ..............................................................................................................................2
5
A. Plaintiff Fails to Plead Falsity ......................................................................................... 2
6
1. Defendants’ August 2023 statements were not false or misleading. ..................2
7
a. Plaintiff fails to plead a false or misleading statement. .......................... 2
8
b. The challenged statements are not actionable. ........................................ 5
9
2. Defendants’ internal control statements were not false or misleading. ..............7
10
3. Defendants’ November 2023 and February 2024 statements were not false or
11 misleading. ..........................................................................................................7
12 a. Plaintiff fails to plead a false or misleading statement. .......................... 7
13 b. The challenged statements are not actionable. ........................................ 9
14 B. Plaintiff Fails to Plead Scienter ..................................................................................... 10
15 1. Plaintiff’s confidential witnesses do not establish scienter. ..............................10
16
2. The circumstantial allegations of purported knowledge do not support an
17 inference of scienter. .........................................................................................12
18 3. The most plausible inference is that Defendants acted in good faith. ...............13
19 C. Plaintiff Fails to Plead Loss Causation ......................................................................... 14
20 III. CONCLUSION .........................................................................................................................15
21
22
23
24
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1 TABLE OF AUTHORITIES
2 Page(s)
Cases
3
In re Accuray, Inc. Sec. Litig.,
4 757 F. Supp. 2d 936 (N.D. Cal. 2010) ............................................................................................11
5 In re Alphabet, Inc. Sec. Litig.,
1 F.4th 687 (9th Cir. 2021) ...............................................................................................................4
6
Azar v. Yelp, Inc.,
7 2018 WL 6182756 (N.D. Cal. Nov. 27, 2018)................................................................................12
8 Berson v. Applied Signal Tech., Inc.,
527 F.3d 982 (9th Cir. 2008).............................................................................................................4
9
Bhangal v. Hawaiian Elec. Indus., Inc.,
10 2024 WL 4505465 (N.D. Cal. Oct. 15, 2024) .................................................................................14
11 Brendon v. Allegiant Travel Co.,
412 F. Supp. 3d 1244 (D. Nev. 2019) .............................................................................................13
12
City of Sunrise Firefighters’ Pension Fund v. Oracle Corp.,
13 2019 WL 6877195 (N.D. Cal. Dec. 17, 2019) ................................................................................11
14 In re Cloudera, Inc.,
121 F.4th 1180 (9th Cir. 2024) .................................................................................................3, 8, 9
15
In re Cutera Sec. Litig.,
16 610 F.3d 1103 (9th Cir. 2010).......................................................................................................6, 8
17 Davoli v. Costco Wholesale Corp.,
854 F. App’x 116 (9th Cir. 2021) .....................................................................................................7
18
Emps. Ret. Sys. of P.R. Elec. Power Auth. v. Conduent Inc.,
19 2020 WL 3026536 (D.N.J. June 5, 2020) .........................................................................................5
20 In re Facebook, Inc. Sec. Litig.,
84 F.4th 844 (9th Cir. 2023) .............................................................................................................4
21
In re FibroGen, Inc. Sec. Litig.,
22 2022 WL 2793032 (N.D. Cal. July 15, 2022) .................................................................................12
23 Glazer Capital Mgmt., L.P. v. Forescout Technologies, Inc.,
63 F.4th 747 (9th Cir. 2023) .........................................................................................................4, 6
24
Hall v. Rent-A-Ctr., Inc.,
25 2017 WL 6379334 (E.D. Tex. Dec. 14, 2017) ..................................................................................5
26 HRSA-ILA Funds v. Adidas AG,
745 F. Supp. 3d 1127 (D. Or. 2024), aff’d, 2025 WL 3471703 (9th Cir. Dec. 3,
27 2025) .................................................................................................................................................4
28
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1 Janus Cap. Grp., Inc. v. First Derivative Traders,
564 U.S. 135 (2011) ........................................................................................................................12
2
Lloyd v. CVB Fin. Corp.,
3 811 F.3d 1200 (9th Cir. 2016).........................................................................................................14
4 Lomingkit v. Apollo Educ. Grp. Inc.,
275 F. Supp. 3d 1139 (D. Ariz. 2017)...............................................................................................3
5
Loos v. Immersion Corp.,
6 762 F.3d 880 (9th Cir. 2014)...........................................................................................................15
7 Macquarie Infrastructure Corp. v. Moab Partners, L.P.,
601 U.S. 257 (2024) ..........................................................................................................................4
8
Mallen v. Alphatec Holdings, Inc.,
9 861 F. Supp. 2d 1111 (S.D. Cal. 2012) ...........................................................................................13
10 In re Maxwell Techs., Inc. Sec. Litig.,
18 F. Supp. 3d 1023 (S.D. Cal. 2014) .............................................................................................12
11
Metzler Inv. GMBH v. Corinthian Colleges, Inc.,
12 540 F.3d 1049 (9th Cir. 2008)...................................................................................................14, 15
13 Nguyen v. Endologix, Inc.,
962 F.3d 405 (9th Cir. 2020).....................................................................................................11, 14
14
In re NVIDIA Corp. Sec. Litig.,
15 768 F.3d 1046 (9th Cir. 2014)...................................................................................................12, 13
16 Omnicare, Inc. v. Laborers Dist. Council Constr. Indus. Pension Fund,
575 U.S. 175 (2015) ......................................................................................................................6, 9
17
In re Oracle Corp. Sec. Litig.,
18 627 F.3d 376 (9th Cir. 2010).............................................................................................................8
19 Oregon Pub. Emps. Ret. Fund v. Apollo Grp. Inc.,
774 F.3d 598 (9th Cir. 2014)...........................................................................................................12
20
Prodanova v. H.C. Wainwright & Co., LLC,
21 993 F.3d 1097 (9th Cir. 2021).....................................................................................................2, 14
22 In re Quality Sys., Inc. Sec. Litig.,
865 F.3d 1130 (9th Cir. 2017)...........................................................................................................7
23
In re Rigel Pharm., Inc. Sec. Litig.,
24 697 F.3d 869 (9th Cir. 2012).............................................................................................................4
25 Shnayder v. Allbirds, Inc.,
2025 WL 1745596 (N.D. Cal. June 23, 2025) ................................................................................12
26
In re SunPower Corp. Sec. Litig.,
27 769 F. Supp. 3d 1042 (N.D. Cal. 2025) ........................................................................................4, 6
28
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1 In re Syntex Corp. Sec. Litig.,
95 F.3d 922 (9th Cir. 1996)...............................................................................................................6
2
Tellabs, Inc. v. Makor Issues & Rts., Ltd.,
3 551 U.S. 308 (2007) ..................................................................................................................10, 13
4 In re Towne Servs., Inc. Sec. Litig.,
184 F. Supp. 2d 1308 (N.D. Ga. 2001) .............................................................................................5
5
In re VeriFone Sec. Litig.,
6 11 F.3d 865 (9th Cir. 1993)...........................................................................................................1, 5
7 Wochos v. Tesla, Inc.,
985 F.3d 1180 (9th Cir. 2021).......................................................................................................6, 9
8
Zucco Partners LLC v. Digimarc Corp.,
9 552 F.3d 981 (9th Cir. 2009)...........................................................................................................13
10 Regulations
11 17 C.F.R. § 229.308(a) ............................................................................................................................7
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
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1 I. INTRODUCTION
2 This case is a textbook attempt to repackage—entirely after the fact—a disclosed and evolving
3 business challenge as fraud.1 Plaintiff’s Opposition (“Opp”; ECF No. 40) confirms as much. Unable
4 to plead facts showing that any challenged statement was false or misleading when made—as required
5 by the PSLRA—Plaintiff relies instead on hindsight, speculation, and snippets of Defendants’
6 statements taken out of context in an attempt to transform a difficult but transparently disclosed IT
7 systems transition (the “Systems Transition”) into a securities fraud claim. The PSLRA forbids that
8 tactic.
9 From the outset, Defendants told investors exactly what they knew, when they knew it. They
10 warned that the Systems Transition was complex, carried risk, and could disrupt operations and thereby
11 impact the Company’s financial results. As challenges emerged, Defendants updated the market about
12 what they were seeing, how they were responding, and how their expectations were evolving. That is
13 the model of corporate transparency the securities laws were designed to encourage. The fact that the
14 Systems Transition ultimately proved more challenging than Grocery Outlet expected is not fraud; it is
15 evidence that Grocery Outlet operates in the real world where challenging business initiatives
16 sometimes lead to disappointing outcomes. The Complaint should be dismissed because it lacks any
17 particularized allegations establishing contemporaneous falsity or a strong inference of scienter.
18 The falsity allegations collapse under scrutiny. Plaintiff does not identify a single fact known
19 at the time of any challenged statement that contradicted anything Defendants said. Instead, he
20 advances classic “fraud by hindsight” theories, claiming Defendants “must have known” the magnitude
21 of disruptions that later materialized, mischaracterizing comments acknowledging risk as purported
22 admissions of certainty, and relying on later disclosures to infer earlier knowledge. The Ninth Circuit
23 rejects precisely this type of pleading. See, e.g., In re VeriFone Sec. Litig., 11 F.3d 865, 871 (9th Cir.
24 1993).
25 Scienter presents another insurmountable obstacle. Plaintiff does not allege any motive for
26 fraud and concedes there is none. Plaintiff, instead, offers a grab bag of weak circumstantial theories
27 1
Capitalized terms used but not defined herein shall have the meaning ascribed to them in Defendants’
28 Motion (“Mot.,” ECF No. 39). Unless stated otherwise, all emphasis is added and all internal citations
and quotations are omitted.
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1 that courts have long deemed insufficient: confidential witnesses that cannot speak to Defendants’
2 state of mind regarding the alleged misstatements, vague invocations of “core operations,” routine
3 executive departures, and hindsight criticism of disclosures regarding evolving challenges. As the
4 Ninth Circuit has made clear, the absence of any plausible motive is a “substantial hurdle” to pleading
5 scienter and requires “compelling and particularized facts showing fraudulent intent or deliberate
6 recklessness.” Prodanova v. H.C. Wainwright & Co., LLC, 993 F.3d 1097, 1103, 1108 (9th Cir. 2021).
7 Plaintiff pleads no such facts here.
8 In short, this case presents the exact fact pattern the PSLRA was enacted to prevent: a hindsight-
9 driven attempt to convert business challenges—openly disclosed and based on Defendants’ then-best
10 assessment of the facts on the ground—into securities “fraud.” As discussed further below, the
11 Amended Complaint should be dismissed in its entirety and with prejudice.
12 II. ARGUMENT
13 A. Plaintiff Fails to Plead Falsity
14 Plaintiff’s Opposition does not cure the fundamental pleading failure identified in Defendants’
15 Motion. It still does not allege with particularity that any challenged statement was false or misleading
16 when made.2 See Mot. at 5–10. Instead, Plaintiff relies on hindsight, speculation about internal
17 processes, and distorted quotations to recast a difficult but disclosed Systems Transition as securities
18 fraud. He falls well short of his stringent pleading burden.
19 Plaintiff challenges three sets of statements: (1) Defendants’ early August 2023 statements
20 about the forthcoming launch of the Systems Transition; (2) Defendants’ Q3 2023 internal controls
21 statements and certifications; and (3) Defendants’ November 2023 and February 2024 statements
22 regarding progress and expectations for the Systems Transition.
23 1. Defendants’ August 2023 statements were not false or misleading.
24 a. Plaintiff fails to plead a false or misleading statement.
25 Plaintiff’s August 2023 falsity theory fails because it ignores a basic timing problem. As
26 Defendants explained, the challenged statements were made on August 8 and 9, 2023—before the
27 2
Notably, Plaintiff does not respond to Defendants’ showing that the allegations attributed to the three
28 former employees (“FEs”) do not contradict any challenged statement. Compare Mot. at 7, with Opp.
at 7–16.
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1 Systems Transition launched weeks later. Mot. at 7. Plaintiff ignores this timing, see Opp. at 9–11,
2 asserting that those statements (App’x Statement Nos. 1–4) were misleading because the warned-of
3 “risks” had “already materialized.” Opp. at 12. That assertion defies logic. A risk cannot have “already
4 materialized” before the underlying event even occurs.
5 This timing defect is fatal. Plaintiff pleads no facts showing that, as of August 8 and 9, 2023,
6 Defendants knew the Systems Transition would cause the magnitude or duration of disruption later
7 experienced, or that any specific operational failure had already occurred or was certain to occur.
8 Securities fraud requires a contradiction between what was said and what was known then—not
9 speculation based on how events later unfolded. See In re Cloudera, Inc., 121 F.4th 1180, 1187, 1189
10 (9th Cir. 2024). For instance, in Lomingkit, the court dismissed Section 10(b) claims challenging
11 statements about a university’s online classroom system upgrade where the defendants “announced
12 technical difficulties and the negative effects of these difficulties” as they arose and the plaintiffs failed
13 to allege that later problems were known when the challenged statements were made. Lomingkit v.
14 Apollo Educ. Grp. Inc., 275 F. Supp. 3d 1139, 1161–62 (D. Ariz. 2017); see also id. at 1156. Plaintiff’s
15 allegations regarding Defendants’ August 2023 statements suffer from the same defect.
16 Unable to plead contemporaneous falsity, Plaintiff pivots to Defendants’ August 2023 risk
17 disclosures,3 claiming they were misleading because Defendants allegedly “skipped” end-to-end user
18 acceptance testing (“UAT”) and did not disclose that fact. Opp at 11. That theory fails for two
19 independent reasons. First, the Amended Complaint does not adequately plead that UAT was
20 “skipped” at all. Plaintiff identifies no report, meeting, or communication showing what testing
21 allegedly did not occur, who made that decision, or when. To the contrary, Plaintiff concedes that the
22 Company tested the system using “dummy data.” Opp. at 18; ¶ 55. Second, and more fundamentally,
23 even if Plaintiff had plausibly alleged some deficiency in testing, that allegation is irrelevant because
24
3
25 Defendants’ August 2023 risk disclosures, which incorporated the risk factors from the 2022 Form
10-K, warned that the Systems Transition was complex and could cause operational disruption.
26 Specifically, Defendants disclosed that “[i]t is possible that we could experience implementation,
operational and functionality issues, delays, higher than expected costs and other issues during the
27 course of implementing and utilizing these improvements,” along with “a risk of business disruption,
28 liability and reputational damage associated with these actions, including from not accurately capturing
and maintaining data.” App’x Statement Nos. 1, 2.
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1 Defendants had no duty to disclose details about internal testing and project management. Neither the
2 risk factor nor any other challenged August 2023 statement says anything about UAT or any other
3 testing that was or was not done. See Mot. at 7; App’x Statements Nos. 1–4. Defendants warned that
4 the Systems Transition was complex and could cause disruption; they did not represent or imply that
5 testing was complete, exhaustive, or risk-free. Absent such a statement, there is no actionable omission.
6 Macquarie Infrastructure Corp. v. Moab Partners, L.P., 601 U.S. 257, 263 (2024); In re Rigel Pharm.,
7 Inc. Sec. Litig., 697 F.3d 869, 880 n.8 (9th Cir. 2012). Ultimately, Plaintiff’s UAT theory is simply
8 another way of arguing that Defendants should have predicted, in early August 2023 (i.e., pre-launch),
9 that disclosed risks would materialize post-launch in a manner that was more severe than anyone could
10 have predicted. But the securities laws do not impose liability for failure to foresee, months in advance,
11 how a disclosed risk would ultimately unfold.4 See HRSA-ILA Funds v. Adidas AG, 745 F. Supp. 3d
12 1127, 1142–44 (D. Or. 2024), aff’d, 2025 WL 3471703 (9th Cir. Dec. 3, 2025) (risk disclosures not
13 misleading where plaintiffs failed to allege defendants knew, at the time of disclosure, that Kanye West
14 would engage in future antisemitic behavior; later fallout did not retroactively render earlier risk
15 warnings misleading).
16 Plaintiff’s reliance on Sheedy’s November 2023 remarks to plead falsity of the August 2023
17 statements also fails because it rests on a false premise—that Defendants led investors to believe from
18 the outset that the Systems Transition had no specter of risk. That theory is specious. As discussed
19 above, Defendants expressly warned in August 2023 that the Systems Transition was complex, carried
20 4
Plaintiff’s cases are inapposite. Each involved allegations that defendants framed risks as
21 hypothetical despite possessing undisclosed, concrete facts showing that the warned-of harm had
already occurred—a critical feature absent here. See In re Facebook, Inc. Sec. Litig., 84 F.4th 844, 859
22 (9th Cir. 2023) (risk disclosures misleading where defendants allegedly learned of a “dataset
Cambridge Analytica had compiled” and “that the firm had violated Facebook’s user data policies”);
23 In re Alphabet, Inc. Sec. Litig., 1 F.4th 687, 704 (9th Cir. 2021) (risk disclosures misleading where
defendants allegedly knew of “software glitch for a three-year period, which exposed the private
24
information of hundreds of thousands of Google+ users”); Berson v. Applied Signal Tech., Inc., 527
25 F.3d 982, 985–87 (9th Cir. 2008) (explanations of future revenue expectations misleading where
defendants allegedly knew government “stop-work” orders regarding important contracts were already
26 issued); Glazer Capital Mgmt., L.P. v. Forescout Technologies, Inc., 63 F.4th 747, 778–79 (9th Cir.
2023) (risk disclosures misleading where defendants allegedly knew merger had already failed); In re
27 SunPower Corp. Sec. Litig., 769 F. Supp. 3d 1042, 1055 (N.D. Cal. 2025) (risk warnings inadequate
28 “given defendants’ allegedly specific knowledge about SunPower’s existing inability to meet its
financial obligations”).
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1 operational risk, and could disrupt operations and affect results. See supra at 3 n.3. Against that
2 backdrop, Plaintiff cherry-picks fragments of Sheedy’s later statement acknowledging that
3 management “did expect” some disruption and claims this shows Defendants “always knew” the extent
4 of the problems that ultimately occurred. Opp. at 2, 5, 11, 17, 20. But Plaintiff omits the critical
5 qualifier that defeats the argument: “We did expect as a result, some disruption, certainly not to this
6 degree or this magnitude.” ¶ 93 (emphasis added). Read in context, Sheedy’s statement confirms the
7 severity of the disruption exceeded management’s expectations—not that Defendants concealed known
8 risks in August 2023.
9 At bottom, Plaintiff’s falsity theory reduces to post-hoc disagreement with Defendants’
10 judgment and execution of a complex Systems Transition. But the securities laws do not impose
11 liability for imperfect execution or outcomes that prove worse than expected absent contemporaneous
12 contradictory facts, which are not pled here. See In re VeriFone, 11 F.3d at 871.5
13 b. The challenged statements are not actionable.
14 In any event, most of the August 2023 statements are also inactionable as a matter of law.
15 Forward-Looking Statements. Plaintiff effectively concedes that three of the August 2023
16 statements—App’x Statements Nos. 1, 3, 4—were forward-looking. Opp. at 12. That concession is
17 dispositive. Forward-looking statements are subject to absolute immunity under federal securities laws
18 absent particularized allegations that Defendants made them with actual knowledge of falsity or
19 without meaningful cautionary language. Mot. at 8–9. Plaintiff satisfies neither requirement.
20 Plaintiff argues that Sheedy’s August 2023 statements—including that (1) the store portal “will
21 provide operators with better analytics and easier access to information,” App’x Statement No. 3, and
22
23 5
Plaintiff’s out-of-Circuit “ERP implementation” cases do not change the analysis. Opp. at 7–8. Each
involved allegations that defendants affirmatively misrepresented the current status or functionality of
24
IT systems while concealing known, concrete failures that had already occurred. See Emps. Ret. Sys.
25 of P.R. Elec. Power Auth. v. Conduent Inc., 2020 WL 3026536, at *2 (D.N.J. June 5, 2020) (allegations
of overstated progress despite known modernization failures); Hall v. Rent-A-Ctr., Inc., 2017 WL
26 6379334, at *2 (E.D. Tex. Dec. 14, 2017) (failure to disclose “long history of stability and functionality
problems”); In re Towne Servs., Inc. Sec. Litig., 184 F. Supp. 2d 1308, 1314 (N.D. Ga. 2001)
27 (misstatements about system reliability despite known disruption where “system shut down completely
28 for some period of time”). Plaintiff alleges no comparable misstatements or concealed system failures
here.
5
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1 “will allow them to operate even more efficiently,” App’x Statement No. 4—fall outside the safe harbor
2 because Sheedy supposedly knew the Systems Transition was “premature” and that disruption had
3 already “materialized.” Opp. at 12. That argument fails. Awareness that a complex ERP rollout entails
4 operational risk does not establish actual knowledge that forward-looking expectations will prove false.
5 Nor are public companies required to concede that disclosed risks will unfold in their worst-case form.
6 See Wochos v. Tesla, Inc., 985 F.3d 1180, 1193–94 (9th Cir. 2021).
7 Plaintiff’s fallback contention—that cautionary language was not “meaningful”—is similarly
8 misguided. Opp. at 12, 16. Plaintiff pleads no facts showing that, by early August 2023 (several weeks
9 before launch), specific disruptions had already occurred in a manner that rendered Defendants’ risk
10 warnings misleading. See supra at 3–4. To the contrary, Defendants consistently warned that the
11 Systems Transition was complex, that disruption could persist, and that results could be adversely
12 affected. See Mot. at 3–4. Plaintiff relies on cases holding that cautionary language was inadequate
13 where defendants framed risks as merely hypothetical despite knowing the warned-of harm had already
14 occurred. But those cases presuppose well-pleaded facts showing that the risk had already materialized
15 in a concrete way known to the speaker.6 Plaintiff pleads no such facts here. See supra at 3.
16 Opinion. The August 2023 statements discussing potential disruptions, anticipated benefits,
17 and expected improvements were also nonactionable opinions. Mot. at 9–10; App’x Statement Nos.
18 1, 3, 4. To plead falsity of an opinion statement, Plaintiff must allege particularized facts showing
19 Defendants did not genuinely believe what they said or possessed information fundamentally
20 inconsistent with those views at the time. Omnicare, Inc. v. Laborers Dist. Council Constr. Indus.
21 Pension Fund, 575 U.S. 175, 184 (2015). Plaintiff alleges neither. Opp. at 11–12.
22 Optimism. Defendants’ early August 2023 statements touting the Systems Transition’s
23 anticipated improvements are paradigmatic corporate optimism. App’x Statements Nos. 3, 4; see In re
24 Cutera Sec. Litig., 610 F.3d 1103, 1111 (9th Cir. 2010); In re Syntex Corp. Sec. Litig., 95 F.3d 922,
25 933 (9th Cir. 1996). Indeed, Plaintiff concedes these remarks were merely “Sheedy boast[ing].” Opp.
26 at 9. And Plaintiff identifies no concrete, verifiable representation in these statements that could
27
6
28 Plaintiff again relies on Forescout and SunPower, Opp. at 12, which fail here for the same reasons
described above. See supra at 4 n.4.
6
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1 transform them into actionable misstatements. Plaintiff’s reliance on Quality Systems is misplaced:
2 optimism is actionable only where the speaker knows the relevant aspect of the business “to be
3 performing poorly,” In re Quality Sys., Inc. Sec. Litig., 865 F.3d 1130, 1143 (9th Cir. 2017)—a
4 limitation Plaintiff omits from his Opposition. Opp. at 12. Plaintiff does not and cannot plead such
5 facts, because the Systems Transition had not yet launched when these statements were made. See
6 supra at 3.
7 2. Defendants’ internal control statements were not false or misleading.
8 Plaintiff’s attack on Defendants’ internal control statements, App’x Statement Nos. 5, 6, fails
9 because it rests entirely on speculation. Plaintiff does not allege that Defendants knew, at the time of
10 their certifications on November 8, 2023, that the Systems Transition had resulted in an identified
11 material weakness in internal controls over financial reporting. Instead, Plaintiff asks the Court to infer
12 earlier knowledge solely from the fact that a material weakness was later disclosed in February 2024,
13 claiming “it is reasonable to infer that the material weakness was known by November 2023 because
14 it was caused by the rampant disruptions from the Systems Transition.” Opp. at 13. But Plaintiff
15 identifies no contemporaneous facts—no FE allegations, no internal reports, no communications with
16 Grocery Outlet’s auditors—suggesting that Defendants had concluded, or even believed, that the
17 operational challenges then experienced required recognition of a “material weakness”—which is a
18 term of art reflecting the outcome of a formal evaluation process, including management assessment
19 and auditor review. See 17 C.F.R. § 229.308(a); PCAOB Auditing Standard 2201 ¶¶ 1, A7. That the
20 Systems Transition caused challenges does not mean Defendants were required to conclude, much less
21 knew, that a material weakness existed on November 8, 2023. Plaintiff cannot plead falsity by
22 reasoning backward from a later lack of internal controls determination absent allegations—not present
23 here—of contemporaneous knowledge. See Davoli v. Costco Wholesale Corp., 854 F. App’x 116, 118
24 (9th Cir. 2021). That pleading gap is fatal.
25 3. Defendants’ November 2023 and February 2024 statements were not false
or misleading.
26
a. Plaintiff fails to plead a false or misleading statement.
27
Plaintiff’s challenge to the November 2023 and February 2024 statements, App’x Statement
28
7
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1 Nos. 7–11, rests on a fundamental mischaracterization. Plaintiff repeatedly recasts Defendants’
2 statements as firm “assurances.” Opp. at 14–16. They were not. The challenged statements reflected
3 management’s expectations and judgments as the Systems Transition unfolded—often expressly
4 qualified by uncertainty and ongoing implementation challenges. Defendants spoke in terms of what
5 they “expect[ed],” ¶¶ 91, 116, the predicted “impact looking forward,” ¶ 93, and how they
6 “anticipate[d] the transitional impacts” to evolve, ¶ 95, while continuing to warn that disruption could
7 persist and forecasting uncertainty. Mot. at 3–4. These statements were not guarantees, and they do
8 not become false simply because later events proved worse than anticipated. See In re Cutera, 610
9 F.3d at 1112–13.
10 Plaintiff’s reliance on later disclosures—particularly May 2024 remarks by non-defendant
11 interim CFO Lindsay Gray regarding forecasting visibility—illustrates the same hindsight defect.
12 Plaintiff argues backward from Gray’s later comments to claim Defendants must have known months
13 earlier that forecasting visibility was materially impaired. Opp. at 15. But Plaintiff pleads no facts
14 showing that, at the time of the November 2023 or February 2024 statements, Defendants lacked a
15 reasonable basis for their assessments or believed they were unable to forecast at all. Gray’s later
16 statements reflected an evolving understanding as implementation challenges persisted, not the
17 revelation of concealed facts that existed earlier. Using subsequent developments to infer prior falsity
18 is classic fraud by hindsight. See Cloudera, 121 F.4th at 1189.
19 Plaintiff’s commission calculation theory fails for the same reason. Plaintiff asserts that
20 because certain commission expenses were finalized after quarter-end, Defendants could not
21 reasonably discuss trends or expectations beforehand. Opp. at 15. But final reconciliation occurring
22 later does not mean earlier statements or directional assessments were false, nor does Plaintiff plead
23 facts showing that Defendants believed their statements lacked a reasonable basis when made.
24 Assertions that Defendants “could not possibly know” certain figures, Opp. at 15, are speculation,
25 which does not state a claim under the PSLRA. See In re Oracle Corp. Sec. Litig., 627 F.3d 376, 389
26 (9th Cir. 2010) (rejecting speculation about what defendants must have known as “appealing in the
27 abstract” but “unsupported by the record”).
28 Plaintiff’s theory, taken to its logical end, would convert evolving management judgments
8
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1 during a complex Systems Transition into actionable misstatements whenever later adjustments prove
2 necessary. The Ninth Circuit has squarely rejected that approach. See Wochos, 985 F.3d at 1193–94
3 (rejecting attempt to transform later difficulties into proof earlier statements were knowingly false
4 where plaintiffs “failed to plead that Defendants knew their year’s end goal was impossible to
5 achieve”). The fact that forecasting became more difficult or projections required revision does not
6 substitute for a lack of contemporaneous allegations showing that Defendants’ earlier assessments were
7 false or unattainable when made.
8 b. The challenged statements are not actionable.
9 The November 2023 and February 2024 statements are also inactionable.
10 Forward-Looking Statements. Plaintiff concedes the November 2023 and February 2024
11 statements were “facially forward-looking.” Opp. at 16. That concession largely resolves the issue.
12 Plaintiff does not plead particularized allegations of actual knowledge of falsity or the absence of
13 meaningful cautionary language. Mot. at 8–9. Plaintiff’s attempt to defeat the safe harbor by arguing
14 risks had already “materialized” is unpersuasive and fails for the reasons discussed above. See supra
15 at 4 n.4.7
16 Opinion. The November 2023 and February 2024 statements are also inactionable opinions.
17 Plaintiff claims the challenged statements—App’x Statements Nos. 7–11—were misleading because
18 Defendants allegedly knew the Systems Transition entailed risk or lacked a reasonable basis to expect
19 resolution within particular quarters. Opp. at 16. But Plaintiff does not allege particularized facts
20 showing that Defendants did not actually believe what they said or possessed contemporaneous
21 information fundamentally inconsistent with those views. Omnicare, 575 U.S. at 186–87. General
22 awareness that a complex Systems Transition involved operational risk—which was obvious to any
23 reasonable investor—does not render Defendants’ opinions misleading, and Plaintiff’s reliance on later
24 course corrections to infer earlier disbelief is precisely the hindsight pleading the Ninth Circuit rejects.
25
26 7
Plaintiff’s argument about commission expense risk warnings is a red herring. Opp. at 16. None of
the challenged forward-looking statements purport to “assess future commission expenses,” let alone
27 provide precise calculations for those expenses. See App’x Statements Nos. 1, 3, 4, 7–11. Plaintiff
28 cannot manufacture falsity by demanding cautionary disclosures about a subject Defendants did not
speak on.
9
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1 See Cloudera, 121 F.4th at 1189 (“[L]ater, sobering revelations do not by themselves make the earlier,
2 cheerier statement a falsehood.”).
3 B. Plaintiff Fails to Plead Scienter
4 Plaintiff’s Opposition underscores his failure to plead a strong inference of scienter. The
5 Amended Complaint contains no particularized allegations that Defendants acted with intent to deceive
6 or deliberate recklessness, and critically alleges no motive (e.g., insider trading, unusual compensation,
7 or any concrete personal benefit) at all. Instead, Plaintiff relies on generalized allegations, speculation
8 about access to information, and hindsight criticism of later developments. Taken individually or
9 collectively, those allegations fall well short of the “cogent and compelling” inference required.
10 Tellabs, Inc. v. Makor Issues & Rts., Ltd., 551 U.S. 308, 324 (2007).
11 1. Plaintiff’s confidential witnesses do not establish scienter.
12 Plaintiff leans heavily on allegations attributed to three FEs, but those allegations do not support
13 a strong inference of scienter.
14 Plaintiff effectively concedes that the allegations attributed to FE2 and FE3 are inadequate,
15 arguing only that he “adequately alleges details about FE2 and FE3’s experience, positions, and the
16 basis for their relevant knowledge.” Opp. at 22. But Plaintiff, tellingly, does not respond to
17 Defendants’ arguments explaining why these witnesses lack the role, access, and foundation necessary
18 to speak to Defendants’ state of mind. Mot. at 11–12. FE2 (a regional grocery buyer) and FE3 (an
19 assistant planner) were far removed from the Systems Transition or executive deliberations related
20 thereto. Mot. at 11. Plaintiff does not identify any facts showing otherwise, does not explain how
21 either witness would have personal knowledge of Defendants’ mental state, and does not identify any
22 information allegedly conveyed to Defendants contradicting their public statements. FE2 and FE3 are
23 unreliable and irrelevant. Zucco Partners LLC v. Digimarc Corp., 552 F.3d 981, 996 (9th Cir. 2009).
24 The allegations attributed to FE1 are no better. Plaintiff emphasizes that FE1 was a Director of
25 Financial Planning and Analysis responsible for forecasting and the “full P&L.” Opp. at 21. But that
26 role underscores the defect: FE1 was a finance employee, not an IT or systems implementation lead,
27 and there is nothing pled about his finance role that suggests he has any personal knowledge regarding
28 ERP testing decisions, pre-launch readiness, or the operational risks associated with particular testing
10
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1 methodologies. For that reason, FE1’s “assess[ment] that by July 2023, the Company was still not
2 ready to implement the SAP systems” lacks the foundation required by Zucco and does nothing for
3 scienter. Opp. at 18.
4 Most critically, none of the FEs interacted with Sheedy or Bracher about the challenged
5 statements, Mot. at 11, or identify a single piece of specific information that was allegedly conveyed
6 to any Defendant and explain how it contradicted a challenged public statement when made. See Opp.
7 at 21–22. And while Plaintiff asserts that “FE1 personally reviewed the tracking documents,” Opp. at
8 22, he never alleges what those documents said, when they were reviewed, or how they undermine any
9 public statement. Plaintiff’s pleading by implication is insufficient. See, e.g., Nguyen v. Endologix,
10 Inc., 962 F.3d 405, 416–17 (9th Cir. 2020) (rejecting FE’s allegations that were “high on alarming
11 adjectives” but “short on the facts”).
12 Even if credited, the FE allegations amount to nothing more than disagreement with
13 management’s business judgment. No FE alleges that any Defendant believed the Company was
14 underprepared for launch, received warnings that the Systems Transition should not proceed, or was
15 told that the absence of any particular testing could expose the Company to the specific disruptions that
16 later occurred. At most, Plaintiff alleges that FE1 believed implementation challenges existed pre-
17 launch but there is no allegation that he ever voiced his concerns to any Defendant or otherwise alerted
18 anyone else in management. ¶¶ 43–48, 50–55. Courts routinely reject attempts to plead scienter based
19 on former employees’ hindsight opinions or second-guessing of executive decisions. See, e.g., In re
20 Accuray, Inc. Sec. Litig., 757 F. Supp. 2d 936, 949 (N.D. Cal. 2010) (“[I]t is difficult to surmise how
21 the opinions and observations of the CWs could support a reasonable inference about what the[]
22 Defendants knew or did not know”). Absent allegations that Defendants received concrete warnings
23 or specific information tying alleged readiness gaps to the risks that ultimately materialized, Plaintiff’s
24 FE allegations do not support a strong inference of scienter. See City of Sunrise Firefighters’ Pension
25 Fund v. Oracle Corp., 2019 WL 6877195, at *19 (N.D. Cal. Dec. 17, 2019) (no scienter inference from
26 FE allegations because “[m]ore specific facts must be pled” about what executives “knew at the time”).
27
28
11
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1 2. The circumstantial allegations of purported knowledge do not support an
inference of scienter.
2
Because the Complaint pleads no facts showing that any Defendant had actual knowledge that
3
the challenged statements were false when made, Plaintiff falls back on several circumstantial theories:
4
(1) mischaracterizing Sheedy’s November 2023 comments; (2) invoking “core operations”; (3)
5
pointing to routine executive departures; and (4) repackaging failed falsity theories. Each fails.
6
Sheedy’s November 2023 Comment. Plaintiff again argues that Defendants “always knew” the
7
Systems Transition would cause disruptions, relying on Sheedy’s November 2023 remarks. That
8
theory fails to establish a strong inference of scienter for the same reason it fails on falsity.8 See supra
9
at 4–5.
10
Core Operations. Plaintiff’s “core operations” theory also fails because Plaintiff still never
11
identifies what specific adverse facts should be imputed to Defendants. Although Plaintiff
12
acknowledges the doctrine requires “allegations of specific information . . . conveyed to management,”
13
he offers none—only vague references to Bracher’s supposed “access to the information.”9 Opp. at 19.
14
That is precisely the sort of conclusory pleading the Ninth Circuit rejects. See In re NVIDIA Corp. Sec.
15
Litig., 768 F.3d 1046, 1064 (9th Cir. 2014) (rejecting core operations theory where “Plaintiffs never
16
plausibly allege that specific information was conveyed” to management). Allegations that executives
17
attended meetings or were “hands on” during a complex business initiative do not establish scienter as
18
a matter of law. See Shnayder v. Allbirds, Inc., 2025 WL 1745596, at *22 (N.D. Cal. June 23, 2025).
19
Executive Departures. Plaintiff’s reliance on Sheedy’s and Bracher’s departures is equally
20
8
21 It is also irrelevant to Bracher because scienter must be specifically pleaded “with respect to each of
the individual defendants.” Oregon Pub. Emps. Ret. Fund v. Apollo Grp. Inc., 774 F.3d 598, 607 (9th
22 Cir. 2014). Buried in a footnote, Plaintiff concedes the statement “is not attributed to Bracher,” which
effectively ends the inquiry, but nonetheless attempts to impute scienter to him based on Sheedy’s
23 remarks. Opp. at 18 n.8. That mismatch theory is foreclosed by Supreme Court precedent because
Plaintiff pleads no facts showing that Bracher exercised ultimate authority over the statement, approved
24
it, or otherwise controlled its content. See Janus Cap. Grp., Inc. v. First Derivative Traders, 564 U.S.
25 135, 142 (2011). Nor may Plaintiff bootstrap scienter by imputing one executive’s alleged state of
mind to another. In re Maxwell Techs., Inc. Sec. Litig., 18 F. Supp. 3d 1023, 1032–33 (S.D. Cal. 2014).
26 9
For that reason, Plaintiff’s cases—involving allegations of specific contradictory information—are
inapposite. See Azar v. Yelp, Inc., 2018 WL 6182756, at *20 (N.D. Cal. Nov. 27, 2018) (internal
27 metrics contradicting public statements about advertising performance); In re FibroGen, Inc. Sec.
28 Litig., 2022 WL 2793032, at *30 (N.D. Cal. July 15, 2022) (internal clinical data contradicting public
statements about trial results).
12
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1 unavailing. Plaintiff argues that Bracher’s departure and Sheedy’s later exit “lend support” to scienter
2 because they occurred amid operational challenges and were viewed by analysts as “surprising.”
3 Opp. at 21. But timing alone does not support a strong inference of scienter. Zucco, 552 F.3d at 1002.
4 And here, the timing undermines Plaintiff’s fraud theory. As Defendants explained, Bracher’s
5 resignation was announced on December 8, 2023, effective nearly three months later, and was disclosed
6 as a “personal decision,” and accompanied by a consulting agreement to “support the transition.”10
7 Mot. at 14–15. Plaintiff does not dispute these facts, instead speculating about “PR spin.” Opp. at 21.
8 But that is not alleged in the Amended Complaint so cannot be considered. And by Plaintiff’s own
9 allegations, Sheedy departed five months after the alleged problems were fully disclosed to investors
10 and pursuant to a mutually agreed decision with the Board. ¶¶ 12, 136–39. Conclusory assertions that
11 he was “held responsible” for being “woefully unprepared” do not establish scienter. See Zucco, 552
12 F.3d at 1002; Mallen v. Alphatec Holdings, Inc., 861 F. Supp. 2d 1111, 1138–39 (S.D. Cal. 2012).11
13 Repackaged Falsity Theories. Plaintiff’s final scienter gambit—relabeling his failed falsity
14 theories about forecasting visibility and internal controls as evidence of scienter, Opp. at 20–21—adds
15 nothing. See supra at 12. Plaintiff pleads no facts showing that Defendants actually knew, at the time
16 of the challenged statements, that they lacked adequate visibility to forecast results or that a reportable
17 material weakness existed. Allegations that forecasting later became more difficult, that estimates were
18 revised, or that a material weakness was later identified do not establish deliberate recklessness, much
19 less contemporaneous knowledge. See In re NVIDIA, 768 F.3d at 1058–59.
20 3. The most plausible inference is that Defendants acted in good faith.
21 Scienter, here, is foreclosed by the lack of plausibility. Under Tellabs, Plaintiff must plead facts
22 giving rise to a strong inference of fraudulent intent that is “cogent and at least as compelling as any
23 opposing inference one could draw from the facts alleged.” Tellabs, 551 U.S. at 324. Plaintiff’s
24 10
Perplexingly, Plaintiff argues that the Company’s explanation for Bracher’s departure—contained in
25 the Company’s December 11, 2023 Form 8-K, ECF No. 39-8 at 1—is “evidence that should not be
considered at this stage.” Opp. at 21. But Plaintiff does not challenge Defendants’ Request for Judicial
26 Notice, ECF No. 39-12, let alone that exhibit, which is incorporated by reference. Id. at 3–4.
11
Plaintiff’s reliance on Brendon v. Allegiant Travel Co., 412 F. Supp. 3d 1244 (D. Nev. 2019), is
27 misplaced. There, the court relied on allegations that an executive resigned immediately after public
28 revelations of previously concealed safety violations and that the departure was tied to those
disclosures. Id. at 1263. Plaintiff pleads no comparable facts here.
13
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1 allegations fall well short of that demanding standard.
2 At its core, Plaintiff’s theory defies common sense. Why would Sheedy and Bracher—both
3 well-respected, long-tenured executives—risk their careers to commit fraud? Plaintiff has no answer
4 to that foundational question. The Amended Complaint pleads no possible motive, and Plaintiff
5 concedes there is none. Opp. at 23. That omission is decisive. As the Ninth Circuit has explained,
6 where a complaint alleges no motive, a plaintiff faces “a substantial hurdle in establishing scienter,”
7 and “[o]nly where a complaint otherwise asserts compelling and particularized facts showing
8 fraudulent intent or deliberate recklessness will we overlook the failure to allege a plausible motive.”
9 Prodanova, 993 F.3d at 1103, 1108. Plaintiff comes nowhere close to clearing that “substantial
10 hurdle.” See also Nguyen, 962 F.3d at 415 (scienter allegations without motive did “not resonate in
11 common experience”). Bhangal v. Hawaiian Elec. Indus., Inc., 2024 WL 4505465 (N.D. Cal. Oct. 15,
12 2024) is illustrative. There, “the lack of alleged motive . . . tip[ped] the scale in favor of Defendants
13 on scienter” where the plaintiffs, like here, relied on generalized assertions of executive access to
14 information rather than “particularized facts” showing contemporaneous knowledge of falsity.
15 Id. at *15–16.
16 The innocent inference is not only more cogent and compelling, it is obvious. Defendants
17 undertook a complex Systems Transition, warned investors about the risks, disclosed challenges as
18 they emerged, and revised expectations as their understanding evolved. That pattern of conduct is
19 fundamentally at odds with an intent to commit fraud; instead, it is fully consistent with good-faith
20 efforts to manage and disclose a difficult operational initiative that ultimately proved more challenging
21 than the Company originally expected. Plaintiff’s contrary theory—that Defendants knowingly misled
22 investors while simultaneously disclosing disruptions and course-correcting in real time, with no skin
23 in the game—is implausible.
24 C. Plaintiff Fails to Plead Loss Causation
25 Finally, Plaintiff’s claim independently fails because he has not pleaded loss causation. To do
26 so, Plaintiff must allege that a later disclosure revealed a previously concealed “truth” that relates back
27 to an earlier misstatement—i.e., information Defendants knew, but allegedly failed to disclose, when
28 they spoke—and that this revelation, rather than mere materialization of a disclosed risk, caused the
14
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1 stock price decline. See, e.g., Lloyd v. CVB Fin. Corp., 811 F.3d 1200, 1210–11 (9th Cir. 2016);
2 Metzler Inv. GMBH v. Corinthian Colleges, Inc., 540 F.3d 1049, 1063–64 (9th Cir. 2008). Plaintiff
3 does not satisfy that requirement.
4 Plaintiff identifies no disclosure that revealed a fact Defendants allegedly knew but previously
5 concealed. Instead, Plaintiff points to later announcements that the Systems Transition proved more
6 disruptive and longer lasting than initially expected. That is not loss causation. Later-developing
7 difficulties do not “relate back” to earlier statements unless they reveal those statements were false
8 when made. Loos v. Immersion Corp., 762 F.3d 880, 887 (9th Cir. 2014). As explained above and in
9 the Motion, Defendants disclosed what they knew at each point in time and updated investors as their
10 understanding evolved. See supra at § II.A.3; Mot. at 2–4. Plaintiff alleges no corrective disclosure,
11 only subsequent bad news that was not, and could not have been, known earlier. Opp. at 24–25. That
12 theory fails to plead loss causation as a matter of law. See Metzler, 540 F.3d at 1063–64.12
13 III. CONCLUSION
14 The Court should dismiss the Amended Complaint in its entirety and with prejudice.
15
DATED: January 30, 2026 Respectfully submitted,
16
GIBSON, DUNN & CRUTCHER LLP
17
18 By: /s/ Craig Varnen
Craig Varnen
19
Attorneys for Defendants Grocery Outlet Holding
20 Corp., Robert Joseph Sheedy, and Charles C.
Bracher
21
22
23
24
25
26
27 12
Plaintiff concedes his Section 20(a) claim is entirely derivative of his primary Exchange Act claim.
28 Opp. at 25. Accordingly, because there is no Section 10(b) violation, the Section 20(a) claim must also
be dismissed.
15
DEFENDANTS’ REPLY IN SUPPORT OF MOTION TO DISMISS AMENDED COMPLAINT
CASE NO. 4:25-CV-957-JST