1

IN THE UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF FLORIDA

PANAMA CITY DIVISION

ROBERT MEYER, Individually

and On Behalf of All Others 

Similarly Situated,

Plaintiff,

vs. CASE NO. 5:11-cv-27/RS-EMT

THE ST. JOE COMPANY, 

et al., 

Defendants.

_________________________________________/

ORDER

Before me are Defendants’ Motion to Dismiss (Doc. 107) and Memorandum in 

Support (Doc. 108), Plaintiff’s Response in Opposition (Doc. 114), and Defendants’ 

Reply (Doc. 115). I previously granted Plaintiff leave to amend the complaint after 

finding the initial complaint inadequate. (See Doc. 95). That Order is incorporated as 

further background and reasoning for the conclusions reached here. 

 

Background

This is a purported class action securities fraud case against the St. Joe Company 

(“St. Joe”), its former chief executive officer and president William Greene (“Mr. 

Greene”), its former chief financial officer and executive vice president William 

McCalmont (“Mr. McCalmont”), its former chairman of the board and chief executive 

officer Peter Rummel (“Mr. Rummell”), and its present chief financial officer and senior 

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vice president (and former chief accounting officer) Janna Connolly (“Ms. Connolly”). 

Plaintiff alleges Defendants intentionally deceived investors about the value of certain 

properties located throughout the Florida panhandle in violation of sections 10(b) and 

20(a) of the Securities Exchange Act of 1934 (“Exchange Act”), 15 U.S.C. §§ 78j(b), 

78t(a), and Rule 10b-5, 17 C.F.R. § 240.10b-5. Plaintiff seeks to hold St. Joe, Mr. 

McCalmont, Mr. Rummell, and Ms. Connolly liable under section 10(b) of the Exchange 

Act and Rule 10b-5 (Count I), and to impose joint and several liability against them under 

section 20(a) of the Exchange Act as persons controlling another liable under the Act 

(Count II). Defendants move to dismiss the First Amended Consolidated Class Action 

Complaint (Doc. 101) for failure to state a claim. 

St. Joe began as a timber and paper company in the 1930s and is now one of the 

largest real estate development companies in Florida. With approximately 577,000 acres 

of land, the publically traded company operates its business in four segments: (1) 

residential real estate; (2) commercial real estate; (3) rural land sales; and (4) forestry 

(Am. Compl., p. 11). Just prior to and during the class period-- February 19, 2008,

through July 1, 2011--the Florida real estate market “crashed.” Id. at 13. St. Joe 

experienced revenue losses, and sales of its homes and homesites “plummeted.” Id. at 

16. The sales prices for its developments decreased significantly. Id. at 17. In response, 

St. Joe “effectively ceased its development activity” and reduced its workforce by twothirds. Id. at 16-17. 

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Plaintiff alleges that despite these signs, Defendants failed to take appropriate 

impairment charges1reflecting the known true value of the development projects, thereby 

“. . . materially oversta[ting] its asset values and its earnings during the Class Period.” Id. 

at 2. Plaintiff alleges that Defendants’ actions did not comply with SEC regulations and 

Generally Accepted Accounting Principles (“GAAP”). Id. at 35. 

On October 13, 2010, these general allegations came to light not in a courtroom 

but at an investor conference presentation by David Einhorn (“Einhorn”), an investor 

with a short position in St. Joe stock. Id. at 106. Einhorn’s research led him to conclude 

that “St. Joe had impermissibly failed to take the necessary and required impairment 

charges to its residential real estate projects in development.” Id. at 119. He believed that 

“it was not possible for the value of the properties to meet or exceed their carrying 

value.” Id. at 108. St. Joe’s stock price declined approximately twenty per cent in the 

two days following this disclosure. Id. at 119-20.

On January 10, 2011, St. Joe announced that the SEC had notified the company 

that it was conducting an informal inquiry into its impairment practices. On July 1, 

2011, St. Joe announced that the SEC issued an order of private investigation related to 

its previous inquiry into its impairment policies and practices. Id. This announcement 

purportedly caused a seven percent drop in St. Joe’s stock price. Id. at 120. 

 

1 This issue over impairment charges serves as the basis of Plaintiff’s assertion that St. Joe’s financial statements 

were materially false and misleading (See Am. Compl., p. 16). “Impairment charges are special, non-recurring 

charges on an asset with an overstated carrying value. Thus, taking an impairment charge decreases the previously 

reported value of an asset and reduces earnings.” Id. at 3. 

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Lead Plaintiff City of Southfield Fire & Police Retirement System seeks to 

represent a class of all persons who purchased St. Joe publically traded stock during the 

class period. 

Discussion

Plaintiff sues Defendants for securities fraud under sections 10(b)2and 20(a)3of 

the Exchange Act and Rule 10b-5

4

promulgated thereunder. Plaintiff must establish the 

following elements: (1) a material misrepresentation or omission by the Defendant; (2) 

scienter; (3) a connection between the misrepresentation or omission and the purchase or 

sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; 

and (6) loss causation. Instituto de Prevision Militar v. Merrill Lynch, 546 F.3d 1340, 

1352 (11th Cir. 2008) (citing Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc., 

552 U.S. 148, 157 (2008)). 

Defendants move to dismiss the Consolidated Class Action Complaint for failure 

to state a claim under Fed. R. Civ. P. 12(b)(6). Defendants contend that the Consolidated

Class Action Complaint (Doc. 102) fails to adequately plead loss causation, actionable 

misrepresentation, and scienter. (Doc. 108, p. 6). 

 

2

Section 10(b) of the Exchange Act forbids the use or employ, in connection with the purchase or sale of securities, 

of any manipulative or deceptive device or contrivance in contravention of the rule and regulations the Securities 

and Exchange Commission may prescribe as necessary or appropriate in the public interest or for investors’ 

protection. 15 U.S.C. §78j(b).

3

Section 20(a) of the Exchange Act imposes joint and several liability on any person who controls another person 

liable under the Exchange Act. 15 U.S.C. § 78t(a).

4 Rule 10b-5(b) forbids a person from making any untrue statement of material fact or omitting to state a material 

fact necessary to make the statements made, in light of the circumstances under which they were made, not 

misleading. 17 C.F.R. § 240. 10b-5(b). 

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Standard of Review

To survive a motion to dismiss, a complaint must contain sufficient facts, which 

accepted as true, state a claim to relief that is plausible on its face. Ashcroft v. Iqbal, 129 

S. Ct. 1937, 1949 (2009); Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 569, 127 S. Ct. 

1955, 1974 (2007). Granting a motion to dismiss is appropriate if it is clear that no relief 

could be granted under any set of facts that could be proven consistent with the 

allegations of the complaint. Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S. Ct. 

2229, 2232 (1984). In making this determination, the court must accept all factual 

allegations in the complaint as true and in the light most favorable to Plaintiff. 

Christopher v. Harbury, 536 U.S. 403, 406, 122 S. Ct. 2179, 2182 (2003).

Allegations of fraud such as Plaintiff’s security fraud claim are subject to the 

heightened pleading standards set forth in Federal Rule of Civil Procedure 9(b). 

Instituto de Prevision Militar, 546 F.3d at 1352. Plaintiff must “state with particularity 

the circumstances constituting the fraud.” Fed. R. Civ. P. 9(b). In addition, the Private 

Securities Litigation Reform Act of 1995 (“PSLRA”), 15 U.S.C. § 78u-4(b), further 

raises the pleading standard for securities fraud claims. Plaintiff must specify each 

statement alleged to have been misleading and the reasons why the statement is 

misleading. 15 U.S.C. § 78u-4(b)(1)(B). With respect to each statement or omission, 

Plaintiff must state with particularity facts giving rise to a strong inference that 

Defendants acted with the required scienter. Id. § 78u-4(b)(2). 

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Loss Causation

A. Einhorn’s Presentation 

Plaintiff has the burden of proving that the act or omission of the Defendants 

“caused the loss for which [P]lainitff seeks to recover damages.” Id. § 78u-4(b)(4). Loss 

causation is not subject to heightened pleading standards but must be supported by a 

“short and plain statement of the claim showing that the pleader is entitled to relief.” See 

Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 346 (2005) (citing Fed. R. Civ. P. 8(a)(2)) 

(assuming without deciding that loss causation subject to normal pleading standards). 

Loss causation may not be established by simply alleging that corporate stock was 

purchased at an artificially inflated price. Dura Pharms., Inc. 544 U.S. at 342. Rather, to 

sufficiently plead loss causation, Plaintiff must “allege that the subject of the fraudulent 

statement or omission was the cause of the actual loss suffered, i.e., that the misstatement 

or omission concealed something from the market that, when disclosed, negatively 

affected the value of the security.” Durham v. Whitney Info. Network, Inc., 2009 U.S. 

Dist. LEXIS 113757, *26-27 (M.D. Fla. 2009) (citing Edward J. Goodman Life Income 

Trust v. Jabil Circuit, Inc., 595 F. Supp. 2d 1253, 1278-79 (M.D. Fla. 2009) (quoting 

Lentell v. Merrill Lynch & Co., 396 F.3d 161, 173 (2d Cir. 2005)). Otherwise, a plaintiff 

could not distinguish between a decrease in stock value associated with the revelation of 

the truth from a lower value which may “reflect not the earlier misrepresentation, but 

changed economic circumstances, changed investor expectations, new industry-specific 

or firm-specific facts, conditions, or other events, which taken separately or together 

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account for some or all of that lower price.” Dura Pharms., 544 U.S. at 342-343 

(punctuation altered). 

Plaintiffs’ initial complaint lacked sufficient allegations to support loss causation. 

(See Doc. 95). To bolster their argument, Plaintiffs have added several additional 

allegations: 1) they claim the audio recording of Einhorn’s presentation demonstrates that 

impairments should have been taken; 2) they claim a new confidential witness who 

prepared the presentation, CW5, supports the contention that the presentation involved 

impairments that were historical in nature; and 3) they claim that the SEC actions serve 

as separate loss causing events. (Am. Compl., p. 10-14). 

Plaintiffs’ additional allegations do not cure the problem. Einhorn’s presentation 

still cannot be classified as a corrective disclosure, and the SEC actions fare no better. 

A “corrective disclosure” is the event where the alleged misstatements or 

omissions become public. See e.g., In re DVI, Inc. Secs. Litig., 2011 U.S. App. LEXIS 

6302, n.17 (3d Cir. 2011). Information that is already publically available cannot be a 

corrective disclosure. Teachers' Ret. Sys. v. Hunter, 477 F.3d 162, 187 (4th Cir. 2007) 

(“The problem with plaintiffs’ theory . . . is that these facts had already been disclosed in 

public filings, so their [subsequent] revelation . . . could not have caused [the company’s] 

stock price to decline.”). Likewise, a “negative . . . characterization of previously 

disclosed facts does not constitute a corrective disclosure of anything but the [author’s] 

opinions.” In re Omnicom Group, Inc. Sec. Litig., 597 F.3d 501, 512 (2d Cir. 2010). See 

also In re Retek Inc. Sec. Litig., 621 F. Supp. 2d 690, 705 (D. Minn. 2009) (“Generally, a 

re-characterization of previously disclosed news cannot be a corrective disclosure for loss 

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causation purposes.); In re Merrill Lynch & Co. Research Reports Sec. Litig., 568 F. 

Supp. 2d 349, 363 (S.D.N.Y. 2008) (“The mere negative characterization of existing facts 

that were never hidden from investors does not permit [plaintiff] to plead loss causation.); 

In re Teco Energy Sec. Litig., 2006 U.S. Dist. LEXIS 18101, *19-20 (M.D. Fla. 2006)

(“The opinions, predictions, and generalized statements offered by Plaintiffs as 

‘revelations’ of the ‘truth’ regarding [company’s] financial status, without more, are not 

sufficient to establish loss causation.”). However, loss causation may be established 

where an analyst’s opinions “identify, reveal, or correct [a] prior misstatement, omission, 

or improper accounting practice.” In re Teco Energy Sec. Litig., 2006 U.S. Dist. LEXIS 

at *19-20. 

Einhorn’s presentation “Field of Schemes: If You Build It, They Won’t Come” 

(Doc. 74, Exhibit E), begins with a clear disclaimer. It states that the information 

contained in the presentation “has been obtained from publically available sources.” Id. 

at 2. In spite of this unambiguous language, Plaintiffs’ claim any assertion that the 

“presentation consists of entirely public information is wrong.” (Doc.114, p.6). Rather, 

they contend that Einhorn’s “battery of professional staff and real estate valuation 

experts” looked at “twenty disparate sources not readily accessible to the investing 

public.” Id. While some of the sources may not be easy to find, Plaintiffs’ attempt to recharacterize them as non-public is unpersuasive. 

The presentation itself identifies the sources to include, among other things, St. 

Joe’s SEC filings, press releases, and earnings call transcripts, Freedom of Information 

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Act requests, meeting minutes of the airport board, and county property appraiser’s sales 

lists. (E.g., Doc. 74, Exhibit E at 15, 23, 25, 26, 29). 

In addition, Plaintiffs specifically point to aerial photographs of St. Joe’s 

properties, reports to local authorities, and information gleaned from conversations with 

the Airport Authority as sources of non-public information. Defendants correctly note 

that aerial photographs are no longer novelties and detailed satellite imagery is widely 

available with the click of a computer mouse. Further, Plaintiffs do not relate what 

relevance aerial photography had on the Einhorn presentation. This case is about the 

value of land. Surely the aerial photographs didn’t depict that St. Joe’s holdings had 

fallen into the sea or some other ghastly conclusion which could only be observed from 

above. 

As to the reports, Florida’s “sunshine laws” require all levels of government to 

make their records available to the public. See FLA. STAT. § 119.01. Likewise, airport 

board members aren’t cloistered, and it is unbelievable that they would reveal non-public 

information to Mr. Einhorn’s team while keeping it hidden from others.

All of the information relied upon in the presentation was public, and the fraud on 

the market theory is applicable. The theory “posits that all publically available 

information about a security is reflected in the market price of the security.” Thompson

v. RelationServe Media, Inc., 610 F.3d 628, 690 (11th Cir. 2010) (Tjoflat, J., concurring 

in part and dissenting in part). Loss causation cannot be established based on these 

disparate pieces of information because “the market had already known and digested all 

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the information supposedly disclosed therein.” Thompson, 610 F.3d at 690 (citation and 

quotation omitted).

Plaintiff counters that Einhorn’s presentation constituted new information 

generated by “his original and expert analysis of over twenty disparate sources of 

information.” (Doc. 114, p.6). In order to be new information, Einhorn’s presentation 

must go beyond a mere re-characterization of previously disclosed facts and must 

“identify, reveal or correct any prior misstatement, omission, or improper accounting 

practice by Defendants.” In re Teco Energy Sec. Litig., 2006 U.S. Dist. LEXIS at *19-20

(emphasis added). See also Doc. 95, p.8-12 (containing a more thorough examination of 

this issue).

Turning to the content of Einhorn’s presentation, Plaintiff contends the 

presentation and related news coverage showed the public “that St. Joe had impermissibly

failed to take the necessary and required impairment charges to its residential real estate 

projects in development.” (Doc. 101, p. 119) (emphasis added). If true, this contention 

would indicate some prior improper practice--the word “had” meaning in the past, and 

the word “impermissibly” meaning improper. However, Plaintiff overstates what

Einhorn’s presentation actually stands for. To start, the words “impermissible,” 

“necessary” and “required” appear nowhere in the presentation. They are 

characterizations of the presentation added by Plaintiff. 

The 139-slide presentation makes mention of “impairments” in several contexts. 

First, Einhorn notes that “despite making huge investments ahead of the bust, [St. Joe] 

has taken only modest write-downs.” (Doc. 74, Exhibit E, p. 40). As a result, the 

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presentation states that a number of the residential developments “should be impaired.” 

Id. at 63, 98, 115. At this point, the language of the presentation indicates future action 

that St. Joe needed to take and does not indicate an impermissible practice. 

The presentation poses, but does not answer the question “why haven’t these 

[residential developments] been written down?” Id. at 122. Plaintiff would like to assert 

that the answer was impermissible practices by St. Joe. However, the presentation 

certainly does not, by its own terms, reach that conclusion. 

Finally, in the conclusion section of the presentation, Einhorn states that “[St. Joe] 

needs to take substantial impairment.” Id. at 124. Again, this language indicates a future 

action. Einhorn then equivocates and in summary the presentation contemplates both a 

situation “if no impairment is needed” and another one “if [St. Joe] needs to take an 

impairment.” Id. at 133. These also are potential future actions. 

Plaintiff claims that the audio recording of the presentation makes clear that

Einhorn spoke in terms of current impairment problems. (Doc. 114, p. 11-12). However, 

the portions quoted in the Amended Complaint do not reveal that the presentation 

corrected a current or prior accounting practice. The words “should be impaired,” and 

“might want to update their calculations” do not imply that an action should have been 

taken. (Am. Compl., ¶199). Rather, they suggest current or future action and do not 

imply impropriety. 

The confidential witness, CW5, does not add much to the presentation’s meaning. 

Id. at ¶198, n.64. The presentation speaks for itself and CW5’s statements concerning the 

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purpose of the presentation were not heard by the audience or disseminated to the public. 

CW5’s characterization, thus, cannot be considered. 

 Plaintiff correctly points out that media further disseminated the conclusions of 

Mr. Einhorn’s presentation which increased downward pressure on St. Joe stock (See

Doc. 79, p.11). However, in multiple articles about the presentation, reporters interpreted 

Mr. Einhorn’s predictions as being that St. Joe would need to take some future action of 

impairment. See, e.g., Nikolaj Gammeltoft and John Gittelsohn, Einhorn Says St. Joe 

Needs ‘Substantial’ Writedowns, October 13, 2010, http://www.businessweek.com/news

/2010-10-13/einhorn-says-st-joe-needs-substantial-writedowns.html. 

B. SEC Actions

The Amended Complaint extends the class period to cover two actions by the 

SEC: the January 10, 2011, SEC inquiry and the July 1, 2011, SEC formal investigation 

announcement. The parties have identified a split of authority concerning whether a 

regulatory investigation qualifies as a corrective disclosure. Compare Durham v. 

Whitney Info. Network, Inc., 2009 U.S. Dist. LEXIS 113757, *26-27 (M.D. Fla. 2009)

with In re Take-Two Interactive Sec. Litig., 551 F. Supp. 2d 247 (S.D.N.Y. 2008). 

I find the rationale of In re Maxim Integrated Prods., 639 F. Supp. 2d 1038, 1047 

(N.D. Cal. 2009) most persuasive. That district court found, based on 9th Circuit 

precedent, that SEC investigation announcements are “indicators of risk because they 

reveal the potential existence of future corrective information.” Id. Much like Einhorn’s 

presentation, the SEC investigation did not reveal impropriety. Therefore, 

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announcements of SEC investigations are not corrective disclosures for which Plaintiff 

can plead loss causation.

When viewed as a whole and in the light most favorable to Plaintiff, Einhorn’s 

presentation offers opinion about the need for future impairments. It is entirely based on 

previously disclosed facts and offers nothing new concerning prior improper practices. 

Likewise, the SEC announcements indicated nothing more than a risk of accounting 

problems. The decline in St. Joe’s stock value in the days following the presentation and 

the announcement can be just as easily attributed to predictions about future impairments, 

as they could be to what Plaintiff contends are improper past impairments. Taken 

together, these facts establish that Einhorn’s presentation and the SEC announcements are 

not corrective disclosures. They fail to meet the threshold requirement of a short and 

plain statement showing that Plaintiff is entitled to relief. 

Actionable Misrepresentation

To sustain a claim under Section 10(b), Plaintiff must allege that Defendants 

“made a false statement or omission of material fact.” Bruschi v. Brown, 876 F.2d 1526, 

1528 (11th Cir.1989). To fulfill the materiality requirement, “there must be a substantial 

likelihood that the disclosure of the omitted fact would have been viewed by the 

reasonable investor as having significantly altered the ‘total mix’ of information made 

available.” Oxford Asset Mgmt. v. Jaharis, 297 F.3d 1182, 1189 (11th Cir. 2002) (citing 

Basic Incorporated v. Levinson, 485 U.S. 224, 23132 (1988)). The heightened pleading 

standards of PSLRA apply to the materiality requirement. PSLRA requires the complaint 

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to “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). 

Here, the heart of Plaintiff’s contention is that “Defendants repeatedly touted the 

Company’s net income and value of the Company’s real estate assets, while at the same 

time failing to timely and adequately record impairment charges.” (Doc. 114, p. 14). 

Plaintiff contends that by reporting minimal impairments, Defendants misrepresented that 

St. Joe’s financial statements conformed to GAAP. Id.

 GAAP are a series of general principles followed by accountants. More 

specifically, GAAP are the official standards adopted by the American Institute of 

Certified Public Accountants (“AICPA”), a private professional association, through 

three successor groups it established: the Committee on Accounting Procedure, the 

Accounting Principles Board, and the Financial Accounting Standards Board. Ganino v. 

Citizens Utils. Co., 228 F.3d 154, 160, n.4 (2d Cir. 2000).

“GAAP is not [a] lucid or encyclopedic set of pre-existing rules.” Shalala v. 

Guernsey Mem'l Hosp., 514 U.S. 87, 101 (1995). “Far from a single-source accounting 

rulebook, GAAP ‘encompasses the conventions, rules, and procedures that define 

accepted accounting practice at a particular point in time.’” Id. (citing Kay & Searfoss, 

ch. 5, at 7 (1994 Update)). “The determination that a particular accounting principle is 

generally accepted may be difficult because no single source exists for all principles. 

There are 19 different GAAP sources, any number of which might present conflicting 

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treatments of a particular accounting question.” Id. (punctuation altered). When conflict 

arises between the sources, the accountant must consult “an elaborate hierarchy of GAAP 

sources to determine which treatment to follow.” Id.5 

Violations of the GAAP may constitute false or misleading statements of material 

fact. In re Sci. Atlanta, 239 F. Supp. 2d 1351, 1363 (N.D. Ga. 2002); Amalgamated Bank 

v. Coca-Cola Co., 2006 U.S. Dist. LEXIS 73909, *37 (N.D. Ga. 2006). GAAP violations 

must be pled with particularity. “Plaintiffs must point to particular transactions and 

explain why those transactions violated GAAP standards. In re Coca-Cola Enters. Inc. 

Secs. Litig., 510 F. Supp. 2d 1187, 1200 (N.D. Ga. 2007) (citing Lovelace v. Software 

Spectrum Inc., 78 F.3d 1015, 1021 (5th Cir. 1996)). When it comes to impairment 

violations of GAAP, “the Complaint must go further than merely alleging with the 

benefit of hindsight that an impairment should have been taken to reflect a decline in fair 

market value. Rather, the Complaint must provide detail as to why an impairment was 

required under then-existing accounting rules.” In re Mirant Corp. Secs. Litig., 2009 

U.S. Dist. LEXIS 789, *80 (N.D. Ga. 2009) (citations omitted). Thus, in order to plead 

an adequately particularized claim, the Complaint must, for example, detail how the 

results of an impairment test were reported fraudulently in the company's financial 

 

5 Midway through the class period, on July 1, 2009, the Financial Accounting Standards Board launched the FASB 

Accounting Standards Codification as the single source of authoritative nongovernmental U.S. generally accepted 

accounting principles. The Codification became effective for interim and annual periods ending after September 15, 

2009. As a result of the Codification all existing standards documents are superseded as described in

SFAS No. 168, .“The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted 

Accounting Principles..” Instead of issuing new FASB standards, the FASB now issues FASB Accounting 

Standards Updates (.“ASU.”). The Codification did not change existing GAAP, it only introduced a newly organized 

structure. (Doc. 52, ¶148). 

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disclosures, or how impairment testing should have been conducted and how that testing 

would have necessarily required a recognition of an impairment. Id.

Plaintiff asserts that there is a three step process which governs recording an 

impairment loss for assets, such as St. Joe’s, that are held and used. (Am. Compl., ¶104). 

The first step instructs accountants to test for recoverability whenever events or changes 

in circumstances indicate that its carrying value may not be recoverable. Id. at ¶105

(citing ASU 360-10-35-21). Examples of changes in events include decreases in market 

price and adverse changes in the manner in which the asset will be used. Id. The next 

two steps “are to perform a recoverability test to determine if there is any impairment.” 

Id. at ¶106. Plaintiff describes the process as follows: 

An impairment loss shall be recognized only if the carrying of 

a long-lived asset (asset group) is not recoverable and exceeds 

its fair value. [Step two;] The carrying amount of

a long-lived asset (asset group) is not recoverable if it exceeds 

the sum of the undiscounted cash flows expected to result 

from the use and eventual disposition of the asset (asset 

group). That assessment shall be based on the carrying 

amount of the asset (asset group) at the date it is tested for 

recoverability, whether in use....or under development

.....[Step three;] An impairment loss shall be measured as the 

amount by which the carrying amount of a long-lived asset 

(asset group) exceeds its fair value. 

Id. (citing ASC 360-10-35-17). 

GAAP requires the recoverability test to be reasonable. GAAP also requires the 

test to incorporate the “entity’s own assumptions about the use of the asset (asset group)” 

and to consider “all available evidence.” Id. at ¶107 (citing ASC 360-10-35). 

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St. Joe disclosed its impairment methodology in its numerous filings. Plaintiff 

does not contend that St. Joe did not follow its disclosed impairment methodology. 

Rather, Plaintiff asserts that St. Joe failed to consider “plummeting sales prices and 

volumes (and halted development)” in their analysis. (Doc. 114, p.15). 

Further, Plaintiff asserts that eight factors should have been considered by 

Defendants, which would have demonstrated the need for further impairments. (Am. 

Compl., ¶115). Plaintiff claims that these factors amounted to “overwhelming evidence” 

that supported impairment and Defendants failure to do so was fraudulent. See 

Carpenters Health & Welfare Fund v. Coca-Cola Co., 2002 U.S. Dist. LEXIS 28072, 

*57-58 (N.D. Ga. 2002) (where the need to write-down is “so apparent” that the failure to 

do so amounts to fraud.). These factors are (1) the impact of market supply and demand; 

(2) the rate of sales and inventory on the market; (3) selling prices including sales 

incentives; (4) current sales; (5) anticipated land development and future development 

costs to be incurred including interest and overhead costs; (6) price erosion; (7) the time 

to complete the project and sell its units; and (8) risks specific to each land parcel or 

community. (Am. Compl., ¶115).

Plaintiff’s allegations are insufficient to show that Defendants made material 

misrepresentations that St. Joe’s financial statements were GAAP compliant. First, while 

Plaintiff claims that Defendants failed to consider the eight purported essential factors, 

Plaintiff does not offer any concrete evidence in support. For example, Plaintiff lists 

“selling prices” and “current sales” as two of the essential factors. St. Joe’s 2008 Annual 

Report, however, specifically details the number of units sold and the revenues from 

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those units. See The St. Joe Company, Annual Report (Form 10-K), at 35 (February 24, 

2009). 

St. Joe’s reports also undermine Plaintiff’s assertion that Defendants 

misrepresented anything at all. Defendants properly listed the relevant information—

sales data, revenues, and profits. Plaintiff incorrectly claims that St. Joe “failed to 

disclose that [at] RiverTown . . . less than 5% of planned buildings had lots [which] had 

been developed, only 12 of those had homes, and only 30 had been sold.” (Doc. 114, 

p.15). St. Joe did disclose this fact. For example, St. Joe’s 10-K specifically listed 30 

RiverTown residential units closed since inception out of 4,500 projected units. See The 

St. Joe Company, Annual Report (Form 10-K), at Table 1 (February 24, 2009). 

The principal problem with Plaintiff’s argument is that Defendants clearly

disclosed how impairment charges were calculated. See, e.g., The St. Joe Company, 

Annual Report (Form 10-K), at 26 (February 24, 2009) (detailing the step-by-step method 

used for taking impairment). Any investor could look at the data to make up their own 

mind whether St. Joe had adequately taken write-downs or would need further 

impairments in the future. Plaintiff would have a case for misrepresentation if, for 

example, St. Joe had not accurately disclosed the number of homes which were sold. 

That is not what happened here. 

Plaintiff’s claims concerning the impairment of Victoria Park, SummerCamp, and 

WindMark amount to nothing more than retrospective second guessing. Defendants 

accurately reported their sales figures. Plaintiff’s allegations that St. Joe knew it “was 

unable to sell its homes and homesites for amounts that supported the excessive carrying 

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values” is mere conjecture. (Doc. 114, p.17). Plaintiff has not shown actionable 

misrepresentation because Plaintiff does not allege that adverse facts were hidden or 

misrepresented, but rather that Defendants’ opinions based on those facts were wrong. 

The 2008 Annual Report states, “If market conditions were to continue to 

deteriorate, and the market values for our homesites, remaining homes held in inventory 

and other project land were to fall below the book value of these assets, we could be 

required to take additional write-downs of the book value of those assets.” The St. Joe 

Company, Annual Report (Form 10-K), at 12 (February 24, 2009). The 2008 and 2009

reports note that a “continued downturn in the demand for real estate, combined with the 

increase in the supply of real estate available for sale and declining prices, will continue 

to adversely impact our business.” The St. Joe Company, Annual Report (Form 10-K), at 

8 (February 23, 2010); Id. at 30. 

Rather than hiding these market conditions, St. Joe made note of them in their 

SEC filings. The heart of Plaintiff’s assertion, then, is not that these facts were hidden, 

but that St. Joe looked at the facts and fraudulently ignored their impairment 

ramifications. Plaintiff offers only cursory alternative calculations of the “proper”

impairment charges for only one of the Defendants’ numerous developments, 

RiverTown. (Am. Compl., ¶ 55-56). For RiverTown, Plaintiff posits that based on 

August 2010 sales data, impairment charges in 2008 and 2009 could be as high as $12 

million. Id. This alternative calculation is the type of rear-view analysis which does not 

demonstrate misrepresentation. Sales data for 2010 were not available to the Defendants 

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in 2008 and 2009, and do not speak to what they believed impairment charges should 

have been at that time. 

Plaintiff’s makes impairment assertions about other developments which are more 

flimsy. For example, Plaintiff asserts that because WaterSound and RiverTown are 

“very similar” developments, WaterSound’s impairment analysis would also “likely 

demonstrate” an improper impairment. (Am. Compl., ¶ 62). This type of reasoning by 

analogy is pure speculation. 

The absence of a detailed alternative impairment analysis suggests that the correct 

impairments were not “so apparent.” Reasonable professionals could differ about the 

effect of these market forces on St. Joe’s impairment analysis, especially without the aid 

of hindsight. In the midst of the financial meltdown, Defendants cannot be held to a 

prescient standard to know how the market would behave to affect the future value of 

their holdings. Rather, they were required to conduct a reasonable recoverability test, not

a perfect one. Defendants made a reasoned business judgment that the market in Florida 

would improve before they could sell assets. While this judgment may have proven 

wrong, it does not mean that there was actionable misrepresentation. Plaintiff has not 

brought forth any evidence beyond mere speculation that Defendants’ actions amounted 

to false statements of fact. 

Scienter

Plaintiff must “state with particularity facts giving rise to a strong inference that 

the defendant acted with the required state of mind.” 15 U.S.C. § 78u-4(b)(2). The 

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required state of mind is “an intent to deceive, manipulate, or defraud, or severe 

recklessness.” Thompson, 610 F.3d at 634 (punctuation altered). Severe recklessness is 

limited to those “highly unreasonable omissions or misrepresentations that involve not 

merely simple or even inexcusable negligence, but an extreme departure from the 

standards of ordinary care.” Id. 

The inference that the defendant acted with scienter “need not be irrefutable” or 

even the “most plausible of competing inferences.” Tellabs, Inc. v. Makor Issues & 

Rights, Ltd., 551 U.S. 308, 324 (2007) (citation omitted). Rather, “the inference of 

scienter must be more than merely ‘reasonable’ or ‘permissible’--it must be cogent and 

compelling, thus strong in light of other explanations.” Id. A complaint will survive 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. Id.

“The mere publication of inaccurate accounting figures, or a failure to follow 

GAAP, without more, does not establish scienter.” Ziemba v. Cascade Int'l, Inc., 256 

F.3d 1194, 1209 (11th Cir. 2001) (citing In re Software Toolworks Inc., 50 F.3d 615, 627 

(9th Cir. 1994)). Inaccurate figures may be caused by “accountants . . . reasonably 

reach[ing] different conclusions” in conducting impairment analysis. Cutsforth v. 

Renschler, 235 F. Supp. 2d 1216, 1260 (M.D. Fla. 2002) (in the FAS 121 context). 

Likewise, inaccuracies “can easily arise from negligence, oversight or simple 

mismanagement, none of which rise to the standard necessary to support a securities 

fraud action.” Abrams v. Baker Hughes, Inc., 292 F.3d 424, 433 (5th Cir. 2002)

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The crux of Plaintiff’s scienter allegations is that Defendants “knew or should 

have known of the average sales prices of its properties and that based on these prices, 

the carrying values for the remaining developed properties were materially overstated.” 

(Am. Compl., ¶ 131). While Defendants may have been “heavily involved” in valuing 

St. Joe’s holdings, their knowledge of average sales prices does not speak to the veracity 

of their professional opinions about future prices. 

Plaintiff’s arguments concerning Defendants’ motives are unpersuasive. Higher 

compensation packages, debt covenants and approaching stock offerings are common 

factors affecting many companies. These generalized factors go only so far in 

establishing a guilty mind. Many corporate officers face similar pressures and an 

inference drawn from them is limited by the breadth of their coverage. E.g., Druskin v. 

Answerthink, Inc., 299 F. Supp. 2d 1307, 1338 (S.D. Fla. 2004) (“Defendants' alleged 

desire to meet quarterly projections, find a buyer for the Company, and increase the value 

of their stock options do not raise a strong inference of scienter.”). 

Plaintiff’s allegations of GAAP violations and subsequent actions taken by 

Defendants are also tenuous. (Am. Compl., ¶140). First, Defendants make credible 

arguments that FAS 157 did not apply to St. Joe’s real estate holdings in 2007 and 2008. 

(Doc. 108, p.22). See FASB Staff Position 157.2, available at http://72.3.243.42/pdf/fsp_ 

fas157-2.pdf. This argument thwarts Plaintiff’s contention that St. Joe’s actions were 

purposefully misguided. At a minimum, there is some reasonable basis for their actions. 

Further, even presuming that Plaintiff’s allegations are true, a violation of GAAP itself 

says nothing about the cause of the violation. 

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Changing the way certain disclosures were made in 2010 does not necessarily 

indicate that prior disclosures violated GAAP. Defendants have offered a reasonable 

explanation and so called “remedial actions” may indicate that 2010 used a better practice 

but not that prior years were improper. 

Finally, Plaintiff’s reliance on CW3 and CW4 fails because neither informant was 

an accountant or trained in GAAP compliant analysis. Further, Defendants points out 

inconsistencies in their statements which call into question their credibility. Namely, 

CW3 stated that St. Joe conducted “very detailed” impairment analysis while CW4 stated 

that it did not perform any impairment analysis and just “kept [the value] at what they 

paid for it.” (Compare Am. Compl. ¶144 and ¶125). Plaintiff’s allegation that 

Defendants Greene and McCalmont “expressed” to CW4 that St. Joe would not recoup 

the book value for Victoria Park is inadequate to establish an admission of guilt. 

“Expressed” is the type of ethereal word which does not reveal any detail or context of 

how the supposed message was conveyed. The lack of any detail makes the allegation

irrelevant.

The reliance on the informants fails for these reasons and for the reasons discussed 

in my previous Order. (Doc. 95). 

 

Conclusion

Plaintiff’s claims of misrepresentation are insufficient to meet the standard of 

pleading fraud with particularity because they fail to allege that Defendants acted with 

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the requisite scienter and made statements that they knew were materially false at the

time. Additionally, Plaintiff has failed to establish loss causation. 

IT IS ORDERED: 

1. The Motion to Dismiss (Doc. 107) is GRANTED. 

2. The Case is DISMISSED with prejudice. 

ORDERED on January 12, 2012.

/S/ Richard Smoak

RICHARD SMOAK

UNITED STATES DISTRICT JUDGE

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